**Whereas** according to a unanimous decision at a continued meeting of the holders of ConvertibleBonds which was held on June 17, 2008, the Trustee was empowered to reach an agreement withthe Company on behalf of the holders of Convertible Bonds regarding detailed and full termsand conditions of an arrangement between the holders of Convertible Bonds and the Companyaccording to the outline of the Company’s proposal, which was described in an immediate reportwhich was released by the Company on June 15, 2008, and according to the issues that wereraised in the discussion at the said meeting, and to sign the arrangement on their behalf, asspecified in this Agreement below.**Therefore, the Company and the Trustee have decided to act as follows**:**1.** **The Arrangement**   The parties hereby agree upon performance of an arrangement plan between the Company andall of the holders of Convertible Bonds (the “**Arrangement**”) whereby, subject to the termsand conditions of this document and/or any decision or ruling regarding the Arrangement ofa court in Israel or of any other court, as specified in Section 3 of this Agreement, theterms and conditions of the Indenture, including the terms of conversion of the ConvertibleBonds in the Indenture, will be amended and/or cancelled and/or replaced and/or modifiedsuch that in consideration for each NIS 1 par value of Convertible Bonds, each holder ofConvertible Bonds will be entitled to receive 9 Common Shares of the Company (the “**Shares**”and the “**Conversion to Shares**”, respectively) and the sum of NIS 0.25 in cash (the “**Paymentin Cash**”, performance of the Payment in Cash and the Conversion to Shares shall hereinafterbe referred to jointly as “**Performance of the Arrangement**”), such that after the conversionas aforesaid, the holdings of all of the holders of Convertible Bonds in the Company’s shares will be approximately 71% of the Company’s issued and outstanding paid-up sharecapital (approximately 64% of the Company’s share capital on a fully diluted basis).   The Arrangement will apply to all of the holders of Convertible Bonds, without exception,and will be performed in such manner and under such conditions as are specified below:
 
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 1.1 The Entitled and the Effective Date    Performance of the Arrangement will be *vis-à-vis*holders of the Convertible Bonds(with respect to the Convertible Bonds held thereby) whose names, on the EffectiveDate, which will be four (4) Trading Days after the date on which all of theconditions specified in Section 7 of this Agreement below shall be fulfilled (the“**Effective Date**” and the “**Date of Fulfillment of the Conditions Precedent**”,respectively), shall be registered in the Company’s Convertible Bond register asholders, with the exception of The Nominee Company of Bank Hapoalim Ltd. (the“**Registration Company**”) (in respect of the quantity of Convertible Bonds which isregistered for their benefit in the Company’s Convertible Bond register on theEffective Date) (the “**Registered Holders**”), or *vis-à-vis*holders of ConvertibleBonds whose right to Convertible Bonds shall be registered, on the Effective Date,with a TASE member (in respect of the quantity of Convertible Bonds registered withthe TASE member in their name on the Effective Date), provided that the ConvertibleBonds registered with the TASE member are registered, at the same time, in the nameof the Registration Company in the Company’s Convertible Bond register (the“**Non-Registered Holders**”, the Registered Holders and the Non-Registered Holdersshall hereinafter be jointly referred to as the “**Entitled Bondholders**”).  1.2 Conversion to Shares     The Conversion to Shares for the Entitled Bondholders shall be performed on thesecond Trading Day after the Effective Date, against delivery of the ConvertibleBond certificates, which shall be converted on such date, at the Company’sregistered office or at any other place of which the Company shall give notice onthe Date of Fulfillment of the Conditions Precedent (the “**Conversion to SharesDate**”). 1.2.1 Without derogating from or modifying the terms andconditions of the Arrangement specified in the beginning of Section 1 of thisAgreement, the technique for performance of the Conversion to Shares shall beas follows: On the Conversion to Shares Date, actual conversion shall beperformed for 50% of the balance of the par value of the Convertible Bonds incirculation that shall be held by each one of the Entitled Bondholders on theEffective Date (the “**Par Value Balance for Conversion**”), such that every NIS 1par value of Convertible Bonds out of the Par Value Balance for Conversionwill be converted into 18 Common Shares of the Company.  1.2.2 The Conversion to Shares for the Registered Holders will beperformed on the Conversion to Shares Date through an allotmentof shares in the name of the Registered Holders. The Company shall issueshare certificates for each Registered Holder in respect of all of the shares allotted to him in the framework of the Conversion to Shares.
 
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 1.2.3 The Conversion to Shares for Non-Registered Holders will beperformed on the Conversion to Shares Date through the TASE Clearinghouse andTASE members with which the Convertible Bonds will be deposited on theEffective Date. The Company shall issue a share certificate for all of the shares that shall be allotted to all of the Non-Registered Holders which shallderive from the conversion as aforesaid in the name of the RegistrationCompany. 1.3 Method of Payment in Cash    The Payment in Cash will be made one (1) Trading Day after the Conversion to SharesDate, against delivery of the Convertible Bond certificates in respect of which thePayment in Cash shall be made, at the Company’s registered office or at any otherplace of which the Company shall give notice on the Date of Fulfillment of theConditions Precedent (the “**Date of Payment in Cash**” or the “**Date of Closing of theArrangement**”). 1.3.1 Without derogating from or modifying the terms andconditions of the Arrangement specified in the beginning of Section 1 of thisAgreement, the technique for performance of the Payment in Cash shall be asfollows: On the Date of Payment in Cash, the Payment in Cash will be made inrespect of the balance of the par value of the Convertible Bonds incirculation that shall be held by each one of the Entitled Bondholders afterthe Conversion to Shares (i.e. 50% of the balance of the par value of theConvertible Bonds that shall be held by the holders of Convertible Bonds onthe Effective Date) (the “**Par Value Balance for the Payment in Cash**”), suchthat in respect of each NIS 1 par value out of the Par Value Balance for thePayment in Cash, the sum of NIS 0.5 will be paid in cash.  1.3.2 The Payment in Cash to the Registered Holders will be madeon the Date of Payment in Cash, by checks which shall be sent by registeredmail with delivery confirmation on the said date or by the giving of aninstruction on the said date to perform a wire transfer to the credit of thebank account of the Registered Holders. A holder of Convertible Bonds whoshall wish to inform the
 
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   Company of the details of the bank account for crediting thereof with theforegoing payment or to modify the said account details or to give hisinstructions with respect to the method of payment as aforesaid, will beable to do so by notice in a letter sent by registered mail to the Companyby the Trading Day following the Effective Date (inclusive) (in thissection — the “**Notice**”). In the event that the Registered Holder shallnot have delivered a Notice as aforesaid to the Company by the foregoingdate, the payment will be made to the said Registered Holder by checkwhich will be sent by registered mail to his last address recorded in theCompany’s Convertible Bond Register, in accordance with the provisionsspecified in the Bond’s terms and conditions overleaf. 1.3.3 The Payment in Cash to the Non-Registered Holders will bemade on the Date of Payment in Cash via remittance of the Payment in Cash tothe Registration Company, which will remit the same to the TASE Clearinghousefor the remittance thereof to the TASE members with which the ConvertibleBonds shall be deposited on the Effective Date.  1.3.4 In the event that the Payment in Cash shall not actually bemade to any of the Entitled Bondholders for a reason beyond the Company’scontrol, the Payment in Cash that shall not have actually been made asaforesaid (including with respect to the Non-Registered Holders) will besubject to the provisions of Section 3.02(f) of the Indenture. 1.4 It is clarified that the holders of Convertible Bonds are not entitled toreceive any additional interest payment (apart from those that have already been paidto them previously) in respect of the Convertible Bonds, and that the Payment in Cashdoes not include any interest payment.  1.5 Listing for trading    The Company shall act to receive the approval of TASE for the listing for tradingof the Shares which is subject, *inter alia*, to the registration of the Shares withthe U.S. Securities and Exchange Commission (“**SEC**”), or the provision of a legalopinion to the TASE in such language as shall be agreed with it, whereby there isno impediment to the issuance of the Shares or the listing for trading thereof onthe TASE, without the need to register the same with the SEC.
 
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 1.6 Cancellation of the Convertible Bonds    Concurrently with the closing of the Arrangement as aforesaid, the ConvertibleBonds will be removed from circulation, delisted from TASE and be absolutely nulland void.**2.** **The Expense-Cutback Plan**   The Company represents that on June 15, 2008, the Company’s board of directors adopted aplan under which its expenses will be cutback, such that during the third quarter of 2008and during the fourth quarter of 2008, the Company’s expenses for its current operationswill amount to approximately NIS 1,600 thousand on average per month and approximately NIS1,350 thousand on average per month, respectively (the said amounts are net, i.e. less theChief Scientist’s participation in the research and development expenses), all as specifiedin the immediate report which the Company released on June 15, 2008 (the “**Expense-CutbackPlan**”).   In addition to the Expense-Cutback Plan, and subject to the closing of the Arrangement,further to the notice dated July 8, 2008 which was received by Topspin Medical (Israel)Ltd., a wholly owned subsidiary of the Company (“**Topspin Israel**”), from Mr. Yaron Tal, whoserves as CEO, president and director of the Company, Mr. Yaron Tal’s gross monthly salary,which is paid by Topspin Israel, will be reduced by the rate of 15% during the months ofJuly to September 2008 and he will not be paid a bonus for 2008, which was also supposed tobe paid by Topspin Israel, and further to a notice dated July 8, 2008 which Topspin Israelreceived from Mr. Eyal Kolka, who serves as Vice President at Topspin Israel, Mr. EyalKolka’s gross monthly salary, which is paid by Topspin Israel, will be reduced by the rateof his entire salary, as being prior to the reduction, over the said period, subject to theMinimum Wage Law, 5747-1987. The remaining terms of the above persons’ employment,including social provisions at such rates of their salary (excluding the above bonus) aswere prior to the reduction, will in no way be modified. **3.** **Approval and Implementation of the Agreement** 3.1 The Company hereby undertakes to act as soon as possible after execution ofthis Agreement in order to receive the approval of the court having subject matterjurisdiction in Israel for the Arrangement, pursuant to the provisions of Section 350of the Companies Law. In this context, the Company undertakes, after receipt of thecourt’s approval therefor in the framework of such proceeding, and in accordance withthe dates set forth
 
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   therefor according to the Company’s incorporation documents and pursuant to anylaw, to convene, as soon as possible, general meetings of the Company’sshareholders and meetings of the holders of Convertible Bonds and to conduct andperform, as soon as possible, subject to the provisions of the Company’sincorporation documents, the Prospectus, the Indenture and any law, any additionalproceeding and action that are reasonably required, as well as publication of aprospectus in Israel, if and insofar as publication thereof shall be required, forthe purpose of approval and implementation of the Arrangement. 3.2 The aforesaid notwithstanding, if and insofar as the court in Israel shallsummarily dismiss the Company’s foregoing motion due to the absence of jurisdiction ofcourts in Israel to hear the matter, the Company undertakes to apply to a competentcourt in Delaware, as soon as possible, seeking a declaratory judgment, stating thatthe provision in the Indenture which provides that modification of the conversionperiod or the conversion rate of the Convertible Bonds is subject to the performanceof an arrangement or settlement, which shall have been sanctioned by a court pursuantto Section 350 of the Companies Law, is cancelled. Subject to receipt of such ajudgment of the court in Delaware, the Company undertakes to convene a general meetingof the holders of Convertible Bonds, insofar as shall be required pursuant to theprovisions of the Indenture, and to perform, as soon as possible, any additionalproceeding or action that are reasonably required for the purpose of approval andimplementation of the Arrangement.  3.3 The aforesaid notwithstanding, in the event that the court in Delaware shalldismiss the Company’s motion as aforesaid, the parties agree to reasonably cooperatein order to approve and perform the Arrangement in any other manner, pursuant to anylaw, within a reasonable period of time, including by applying to another competentcourt for its approval.  3.4 The Company hereby represents that it has received the approval of all of theorgans and functionaries at the Company that are required pursuant to any law for itsengagement in this Agreement. It should be clarified that on the date of execution ofthis Agreement, the general meeting of the Company’s shareholders has not yet approvedthe increase in the Company’s authorized shares capital, as stated in Section 7.4 ofthis Agreement.  3.5 The parties represent that there is no impediment, pursuant to any law, totheir engagement in this Agreement, including all of the terms and conditions hereof.
 
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 3.6 The parties hereby agree that the courts in the Tel Aviv district will haveterritorial jurisdiction to hear any matter related to this Agreement which, accordingto the provisions of the Agreement, is supposed to be heard in Israel.**4.** **The Trust Deposit**   Within three (3) days after the execution of this Agreement, the Company shall deposit inescrow with the Trustee the sum of NIS 12.5 million in a bank account in the Trustee’s nameat one of the five largest banks in Israel, in which the Trustee shall have sole signatoryrights (the “**Trust Deposit**”). The Trust Deposit will be invested by the Trustee in NISdeposits only, subject to the provisions of any law. The Trust Deposit will be held by theTrustee in escrow in favor of the holders of Convertible Bonds. The Trustee will act withrespect to the Trust Deposit as follows: [a] In any event of written notice being given by either of the parties to theother party of non-closing of the Arrangement (“**Notice of Non-Closing of theArrangement**”), for any reason, the Trustee will remit the entire sum of the TrustDeposit (principal and yield accrued therein) to the Company at its first writtenrequest, and the Trustee’s trust with respect to the Trust Deposit will expire.  [b] If Notice of Non-Closing of the Arrangement shall not have been given byeither of the parties, then on the Effective Date, the Trustee will remit the entiresum of the Trust Deposit (principal and yield accrued therein) to the Joint Account,as defined below, and the Trustee’s trust with respect to the Trust Deposit willexpire. Simultaneously, the Trustee and the Company will sign instructions in theJoint Account for the remittance of moneys from the Joint Account as specified inSection 4[c] below.    For the purpose of this Section 4, the “**Joint Account**” is a bank account in theCompany’s name which will be opened thereby by the Effective Date at one of thefive largest banks in Israel, at its choice and according to its sole discretion,in which the Company and the Trustee shall have joint signatory rights such that itis not possible to perform any transaction in the account without the approval ofthe Company and the Trustee together.
 
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 [c] On the Effective Date, and subject to fulfillment of all of the conditionsprecedent specified in Section 7 of this Agreement, the Company shall remit, from theJoint Account, to the Registration Company, all of theamounts necessary for performance of the Payment in Cash to the Non-RegisteredHolders in accordance with the provisions of Section 1.3 of this Agreement. Inaddition, the Company shall remit to the Registered Holders, from the JointAccount, the entire Payment in Cash to which they are entitled, net (afterdeduction therefrom of the sum of the tax that the Company is required to withhold,insofar as necessary), as specified in Section 1.3 of this Agreement.    No later than three (3) days after the date of closing of the Arrangement, theCompany and the Trustee shall sign an instruction for remittance of the balance, ifany shall remain, in the Joint Account, to another account in the Company’s name,as shall be determined by the Company, and the Joint Account will be closed.  [d] Insofar as the Company shall be subject to a tax withholding duty, the taxwithholding deduction will be at the maximum rate set forth in the regulationspromulgated by virtue of the Income Tax Ordinance [New Version], 5721-1961, or atanother rate according to written confirmation of the Tax Authority, including withrespect to any holder of Convertible Bonds, insofar as shall be provided to theCompany or the TASE member which maintains accounts of Non-Registered Holders withwhich Convertible Bonds were deposited on the Effective Date, until the Date of thePayment in Cash.**5.** **The Representative**   The Company hereby undertakes that commencing from July 2008, and until the date of closingof the Arrangement, it shall report, within 15 days after the end of each calendar month,to whomever shall be appointed by the holders of Convertible Bonds and/or the Trustee asthe holders of Convertible Bonds’ representative for checking the Company’s compliance withthe Expense-Cutback Plan (the “**Representative**”), on its actual expenses in the month thathas ended (according to a balance sheet) compared with its planned expenses for that monthaccording to the Expense-Cutback Plan. In addition, on the 15th of every calendar month,and on the last day of every calendar month (and if the same are not business days inIsrael, on the following business day), the Company will report to the Representative itscash and cash-equivalent balances, as of the date of the report. Subject to the provisionsbelow, the Representative will maintain the information that shall be delivered to him bythe Company strictly confidential and will not transfer the same to any entity whatsoever.A condition to the transfer of the information to the Representative as aforesaid is thathe shall sign, on the date of his appointment by the holders of Convertible Bonds and/orthe Trustee, a letter of confidentiality towards the Company in such language as was agreedupon between the Company and the Trustee.
 
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The aforesaid notwithstanding, the Representative will be entitled to deliver to theTrustee, and to it alone, information regarding the Company’s compliance or failure tocomply with the Expense-Cutback Plan.The Trustee hereby undertakes, subject to any law that applies thereto, to maintain theinformation that shall be delivered thereto by the Representative confidential, except forthe purpose of transferring information to a meeting of holders of Convertible Bonds forthe purpose of the adoption of a resolution pertaining to their rights or for the purposeof provision of a report on the Company’s condition. Such information that shall betransferred by the Trustee to a meeting of the holders of Convertible Bonds willsimultaneously be transferred by the Trustee also to the Company.**6.** **Legal Proceedings** 6.1 So long as Notice of Non-Closing of the Arrangement shall not have beengiven, the holders of Convertible Bonds and/or the Trustee hereby undertake not toperform any action for early redemption of the Convertible Bonds and/or not toinitiate any proceedings against the Company and/or its shareholders and/or itsofficers and/or any person on its behalf, who are connected, either directly orindirectly, with the Indenture and/or the Convertible Bonds.  6.2 Upon the closing of the Arrangement, the holders of Convertible Bonds, theTrustee and the Company hereby waive, each *vis-à-vis*the other, any claim and/orlawsuit and/or demand, whether known or unknown, which is directly or indirectlyrelated to or derives from the Indenture and/or the Convertible Bonds, including anysuch claim and/or lawsuit and/or demand (and without derogating from the generality ofthe aforesaid, also with respect to the management and/or engagement of any one ofthem in the Arrangement), insofar as they are directly or indirectly related to orderive from the Indenture and/or the Convertible Bonds (in this subsection — a“**Claim**”), and they each hereby absolutely and irrevocably waive any such Claim and/orlawsuit and/or demand the one against the other.    In addition, upon the closing of the Arrangement, the holders of Convertible Bondshereby absolutely and irrevocably waive any Claim against the Company’ssubsidiaries and/or the Company’s shareholders and/or the Company’s office holdersand/or the office holders of its subsidiaries, with the exception of any one of theabove who shall not have waived, in a written document which shall have beenprovided to the Trustee by the Date of Fulfillment of the Conditions Precedent, anyClaim against the holders of Convertible Bonds.
 
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In addition, upon the closing of the Arrangement, the Trustee hereby absolutely andirrevocably waives any Claim against the Company’s subsidiaries and/or theCompany’s shareholders and/or the Company’s office holders and/or the officeholders of its subsidiaries, with the exception of any one of the above who shallnot have waived, in a written document which shall have been provided to theTrustee by the Date of Fulfillment of the Conditions Precedent, any Claim againstthe Trustee.It is clarified that for the purposes of this section, a waiver by the Company’sshareholders of any Claim against the holders of Convertible Bonds and/or againstthe Trustee is a resolution that shall have been duly adopted at a meeting of theCompany’s shareholders regarding the waiver of any such Claim against the holdersof Convertible Bonds and/or against the Trustee. It is further clarified that theabove provisions do not derogate from the Trustee’s rights according to Section7.03 of and Exhibit B to the Indenture.7. The closing of the Arrangement is subject to the following conditions precedent: 7.1 Approval of the Arrangement through one of the alternatives set forth inSection 3 of this Agreement, in accordance with the hierarchy set forth therein;  7.2 Approval of the Israeli Securities Authority for performance of theArrangement or for exemption from a prospectus;  7.3 Approval of TASE for the listing for trading of the Shares on TASE;  7.4 Approval of the Company’s shareholders for increasing the Company’sauthorized shares capital, including amendment of the Company’s Certificate ofIncorporation, insofar as necessary pursuant to the law that applies to the Company,and approval of the Company’s shareholders for the Arrangement, insofar as shall berequired by the court in Israel or a court in Delaware or another competent court, asthe case may be, as specified in Section 3 of this Agreement or pursuant to any law;  7.5 Execution of a supplement / amendment to the Indenture by the Company, theTrustee and the US Trustee in connection with the Arrangement, in the languageattached hereto as **Annex A**.
 
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8. Neither this Agreement nor any part hereof may be modified, other than by a document signedby the parties hereto. No waiver, omission or delay of a party to this Agreement with respectto the full or partial fulfillment or non-fulfillment of any of the parties’ undertakingsaccording to this Agreement will be deemed as a waiver by that party to the other of any ofits rights. 9. In the event that the Arrangement shall be approved other than in the framework of theproceedings set forth in Section 350 of the Companies Law, as specified in Sections 3.2 and3.3 of this Agreement, the Company shall forward to the Trustee, after the Date of Fulfillmentof the Conditions Precedent, prior to the date of closing of the Arrangement, writtenconfirmation duly signed thereby, whereby all of the approvals that are required for thepurpose of performance of the Arrangement, as specified in Section 7 of this Agreement, shallhave been received. 10. The Company will indemnify the Trustee in respect of any reasonable expense and in respect ofany cost or damage that shall be caused thereto in connection with its engagement in thisAgreement, the Arrangement and/or the performance thereof, including any lawsuit of a holderof Convertible Bonds, a shareholder of the Company, a creditor of the Company or any otherperson in connection with the Convertible Bonds, subject to that the act (or omission) of theTrustee which caused the expense, cost or damage, in respect of which the indemnification isbeing given as aforesaid, was not performed negligently, in bad faith or maliciously. 11. The Trustee bears no liability *vis-à-vis*the Company in respect of any damage, expense, costor lawsuit of a holder of Convertible Bonds or any third party in connection with thisAgreement or the Arrangement, unless the aforesaid shall have been caused, and in any eventonly to the extent to which the aforesaid shall have been caused, as a result of an act (oromission) of the Trustee that shall have been performed with gross negligence, in bad faith ormaliciously. 12. The Trustee bears no responsibility *vis-à-vis*the Company, the holders of Convertible Bondsor any third party for the actions and proceedings for the approval, closing andimplementation of the Arrangement, at any stage, except for the actions under itsresponsibility as stated in Sections 3, 4 and 7.5 of this Agreement, and the Trustee bearsresponsibility for any action which it is required to perform in the framework of thisAgreement, including, without derogating from the aforesaid, the actions specified in Section5 of this Agreement, and in any event only if its actions as aforesaid shall have beenperformed with gross negligence, in bad faith or maliciously.
 
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13. The Company shall release immediate reports to the public in Israel through the Magna systemregarding the formation of the Arrangement, the main provisions of the Arrangement, theproceeding for the approval thereof and its actual performance, all as required by law. 14. The Company shall deliver to the Trustee a copy of all of the reports as stated in Section 13above and shall update the Trustee on a current basis, and at its request, regarding theprocess of actual implementation of the Arrangement. 15. Insofar as, after the closing of the Arrangement, a demand or a resolution by a majority ofthe Company’s directors shall be received, or a written request of the shareholders who shallbe recorded as holders of the Shares on the date of the request and shall hold the majority ofthe Company’s issued shares capital and shall have a voting right, for the convening of ameeting on which the agenda will be, *inter alia*, a resolution regarding the appointment ofdirectors, the Company shall convene a shareholders meeting as aforesaid. 16. Pursuant to any law, the Trustee may petition the court in Israel for instructions inconnection with this Agreement and the Arrangement, and it will bear no responsibility, if itshall have acted in good faith according to the court’s instructions or with its approval. Theprovisions of this section above do not derogate from any of the Company’s rights to initiateany proceedings pursuant to any law.**In witness whereof, the parties have hereto set their hands:**   /s/ Giora Luftig               /s/ Ram Sebty /s/ Yaron Tal               /s/ Eyal Kolka   **Ziv Haft Trust Company Ltd.** **Topspin Medical, Inc.**
 
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