exv10w26xiy



 





Exhibit 10.26(i)




TRUST DEED




Drawn up and signed in Tel-Aviv on November 21, 2006




	 	 	 
	Between

	 	TopSpin Medical, Inc.
	 

	 	Of 2, Yodfat, Global Park, Lod
	 

	 	Tel. 08-9200033
	 

	 	Fax 08-9281233
	 

	 	(Hereinafter: the Company),
	 
	 	 
	 

	 	As the one party,
	 
	 	 
	A n d
	 	 
	 

	 	Hermetic Trust (1975) Ltd.
	 

	 	of 113, Hayarkon St., Tel-Aviv
	 

	 	Tel. 03-5274867
	 

	 	Fax 03-5271736
	 

	 	(hereinafter: the Trustee)
	 
	 	 
	 

	 	As the other party
	 
	 	 
	WHEREAS

	 	The board of the Company decided on November 21, 2006
to raise capital in return, among other things, for
the issue of securities (Series A), according to the
provisions of this trust deed (the private
placement);
	 
	 	 
	WHEREAS

	 	In the course of the said issue the Company shall
issue (A) a series of bonds (Series A) as indicated
in clause 2 of this Trust Deed and (B) a series of up
to 25,000,000 registered warrants (Series 2),
unlisted, for the purchase of 25,000,000 ordinary
shares of US$0.001 par value each in the Company, so
that any holder of a bond (Series A) who buys from
the Company two bonds (Series A) shall be entitled to
obtain free of charge from the Company one (1)
warrant (Series 2) for every two bonds (Series A)
held, each warrant Series 2) entitling the holder to
purchase one (1) ordinary share of US$0.001 par value
each in the Company, on the terms indicated in the
warrant (Series 2) (“Warrants (Series 2)”, the
wording of which is enclosed with this trust deed. It
is stipulated for the sake of clarity that the right
to obtain












 




2


	 	 	 
	 

	 	warrants (Series 2) as noted above applies strictly to bonds (Series A) to be
allocated in the private placement rather than bonds (Series A) to be allocated
in future, if at all;
	 
	 	 
	WHEREAS

	 	The Trustee is a company limited by shares and
registered in Israel, incorporated in Israel pursuant
to the Companies Ordinance with the main object of
dealing in trusteeships;
	 
	 	 
	WHEREAS

	 	The Trustee has declared that there is no impediment
under the Securities Law, 1968 or pursuant to any
other law, to its entering into commitment with the
Company under this Trust Deed and that the Trustee
meets the requirements and qualifications stated in
the Securities Law, 1968 for serving as trustee for
the issue of the securities (Series A) concerned in
this Deed.
	 
	 	 
	WHEREAS

	 	The Company has approached the Trustee with a request
to serve as trustee for the issue of the securities
(Series A) and the Trustee has accepted this request,
everything pursuant to and in accordance with the
provisions of this trust deed.
	 
	 	 
	WHEREAS

	 	The Company declares that there is no legal or
contractual impediment to performing the private
placement of bonds (Series A) and/or to its engaging
the Trustee under this Trust Deed, except obtaining
the approval by the Tel-Aviv Stock Exchange Ltd.,
which has not been received yet as of the date of
signing this Trust Deed.






 










 




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ON THESE GROUNDS THE PARTIES HAVE AGREED, DECLARED AND PROVIDED AS FOLLOWS:




1. Preamble, Interpretation, Definitions





	 	1.1	 	The Preamble to this Trust Deed and the appendices hereto constitute an integral
part hereof.
	 
	 	1.2	 	The subdivision of this Trust Deed into articles and the placement of headings on
them are intended strictly for convenience and orientation, and they shall not be used
for any interpretation.
	 
	 	1.3	 	Everything contained in this Deed in the plural shall also comprise the singular
and vice versa, and any terms contained herein in the masculine gender shall also
comprise the feminine and vice versa; any reference to a person shall also include a
corporation, everything unless the context contains an express or implied provision to
the contrary, unless the content or context of the matter requires otherwise.
	 
	 	1.4	 	The following definitions shall apply in this Trust Deed and the bonds (Series
A), unless the content or context of the matter requires a different interpretation:





	 	 	 
	“This
deed” or “The trust deed”:

	 	This Trust Deed, including the appendices
enclosed herewith and constituting an integral part hereof ;
	 
	 	 
	“The Prospectus”

	 	The prospectus of the Company, to be published, if at
all, for the listing of the bonds (Series A) for
trading;
	 
	 	 
	“The bonds”, or “the bonds (Series A)”

	 	Bonds (Series A) of the Company, registered, whose
provisions are indicated in this Deed, to be issued from time to time at the sole discretion
of the Company;












 



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	“The Trustee” -

	 	Hermetic Trusteeship (1975) Ltd. and/or any person serving
from time to time as the trustee of the holders of bonds
(Series A) under this Deed;
	 
	 	 
	“Register” -

	 	The Register of Bond (Series A) Holders as defined in art.
24 of this Deed;
	 
	 	 
	“Bond (Series A) Holders” -

	 	The persons whose names are registered at the
respective time in the Register of Bond Holders (Series A), and in the case of
any number of joint holders, the first joint holder listed in the Register;
	 
	 	 
	“Bond (Series A) Certificate -

	 	A bond (Series A) certificate worded as indicated
in the First Supplement to this Deed;
	 
	 	 
	“The
Law” or “The Securities Law”-

	 	The Israeli Securities Law, 1968, and the
corresponding Regulations as valid from time to time;
	 
	 	 
	“Principal” -

	 	The nominal value of the bonds (Series A) in
circulation;
	 
	 	 
	“Business Day” -

	 	A day on which most banks in Israel are open for
transactions;
	 
	 	 
	“The Stock Exchange” -

	 	The Tel-Aviv Stock Exchange Ltd.
	 
	 	 
	“Commerce Day” -

	 	A day on which transactions are taking place
at the stock exchange
	 
	 	 
	“Consumer Price Index” -

	 	The price index known as the Consumer Price Index,
including vegetables and fruits, as published by the Central Bureau of
Statistics and Economic Research in Israel, including the said index even if
published by another official entity or organization, and also including any
other official index superseding it, regardless of whether or not based on the
same data as the current index. If superseded by another index published by
such












 



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	 	entity or organization and the said entity or organization has not determined
the ratio between the new and the old index, the said ratio shall be determined
by the Central Bureau of Statistics, and in the absence of such ratio, the
determination shall be made in consultation with economists to be elected by it
as the ratio between the two indices;
	 
	 	 
	“The Known Index”

	 	The most recently published consumer price index;
	 
	 	 
	“The Basic Index” -

	 	The Consumer Price Index due to October 2006,
published on November 15, 2006;
	 
	 	 
	“The Payment Index” -

	 	The index known as of the time of performance of a
particular payment on account of the principal or
interest; however, it the payment index is less
than the basic index, the payment index shall be
the basic index;
	 
	 	 
	“Private Placement” -

	 	As defined in the preamble to this Agreement;
	 
	 	 
	“Private Placement Day” -

	 	November 23, 2006 ;
	 
	 	 
	“Registration Company” -

	 	the Registration Company of Bank Hapoalim Ltd. or any other
registration company;






2. Issue of the Bonds (Series A) and Scope of the Trust Deed





	 	2.1	 	NIS 50,000,000 par value of bonds (Series A), registered, with maturity in a
single payment on November 30, 2009, bearing interest at the rate of 6% annually, to be
calculated and paid once a year on November 30 of each of the years 2007 through 2009
inclusively, their principal and interest linked to the consumer price index published
due to October 2006. The bonds (Series A) are offered at a purchase price equal to 95%
of their nominal value.










 



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	 	2.2	 	The bonds (Series A) are convertible into registered ordinary shares of US$ 0.001
each in the Company, starting on the day of their listing at the stock exchange, if
listed, on every trading day till November 14, 2009 inclusively, except for the period
between November 15 and November 30 (inclusively), 2009 of each of the years 2007
through 2008 (inclusively), so that every NIS 0.84 par value of bonds (Series A) shall
be convertible into one ordinary share of US$ 0.001 par value in the Company, subject
to adjustments as provided in art. 10.3 of the provisions listed overleaf on the sheet
enclosed with the deed).
	 
	 	2.3	 	The Company may at its sole discretion and without granting any priority rights
on this matter to the bond holders, at any time starting from the end of 30 trading days
from the time of the private placement of the bonds and subject to completion of the
registration of the bonds (Series A) for trading on the stock exchange as provided
hereinbelow, and till November 30, 2009 inclusively, subject to compliance with one of
the conditions indicated in art. 6.3 of this Deed, compel the bond holders to make a
mandatory conversion of the outstanding bonds into ordinary shares of the Company on the
condition that a notice of such mandatory conversion shall be published at least 30 days
and not longer than 45 days prior to the performance of the mandatory conversion
according to art. 6.3 hereof. A mandatory conversion shall take place at a conversion
ratio to be determined according to the weighted average of the price of the Company
 shares at the stock exchange during the 30 trading days preceding the issue of the
notice on the performance of the mandatory conversion less 10% as indicated in art. 6.3
of this Deed, and in no case above the above conversion ratio of NIS 0.84. For details
see art. 6.3 of this Deed.
	 
	 	2.4	 	It is stipulated that pending the listing of the bonds (Series A) for trading on
the stock exchange, there shall be no way of converting the bonds










 



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	 	 	 	(Series A) into shares of the Company, nor shall there be any possibility of making a
mandatory conversion by the Company.
	 
	 	2.5	 	Alongside the signing of this Trust Deed, the Company shall make a private
placement of a series of bonds (Series A) in the amount of NIS 50,000,000 par value of
bonds.
	 
	 	 	 	The Company may perform further private placements (and in the present case, subject to
all restrictions stated herein, including art. 2.9 of this Deed, both prior to and
after the publication, if any, of this prospectus.
	 
	 	2.6	 	The bonds shall not be listed for trading on the stock exchange. Immediately
after the time of the private placement, the Company shall act for registering the bonds
in the name of a registration company of one of the banks in Israel and registering them
as an “unregistered paper’ at the stock exchange’s clearing house, which shall provide
clearing services for the bonds subject to receipt of the appropriate permits from the
Securities Authority and/or the stock exchange and/or the stock exchange’s clearing
house and/or from any other authority. The company may introduce changes of the trust
deed and/or the bonds as required by the Securities Authority and/or the stock exchange
and/or the stock exchange clearing house and/or any other authority for making the
registration at the stock exchange clearing house, without having to seek prior
permission from the trustee and/or the bond holders. It is stipulated that pending the
registration of the bonds (Series A) as unregistered paper there shall be no transfers
of bonds (Series A) except with approval by the Company and only after the transferee
shall have provided the Company with the details as required for listing the bonds
(Series A) as provided in art. 2.7 hereinbelow and also in IRS W-8BEN, everything
subject to article 2.9 hereinbelow.
	 
	 	2.7	 	The Company shall proceed to the best of its ability and shall take all necessary
measures and pass all resolutions according to law for










 



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	 	 	 	publishing the prospectus prior to the listing of the bonds (Series A) for trading on
the stock exchange, within a period of six months from the date of the private
placement, everything subject to law. It is stipulated, however, that nothing in any
non-publication of the shall in any way be construed as breach of the provisions of
this Deed, nor shall it entitle the bond holders to call in the bond. Moreover, as a
condition precedent to its obligation to act for publication of the prospectus for
listing the bonds (Series A) for trading on the Stock Exchange, every bond (Series A)
holders shall provide the Company with information as shall be reasonably be required
for listing the bonds (Series A) about itself and the bonds (Series A) it holds,
everything as required under law and by the US SEC.
	 
	 	2.8	 	In the event of the bonds (Series A) not being listed for trading within six
months from the date of the private placement, the bonds shall not be converted into
 shares of the Company and shall be subjected to anticipated payment, whereupon the
following provisions shall apply:






	 	2.8.1	 	Within one business day from the end of the six-month period
from the date of the private placement, the Company shall notify the bond
(Series A) holders and the Trustee about the date of anticipated repayment,
which shall take place on the first business day after 17 days from the date of
the said notice.
	 
	 	2.8.2	 	On the day of anticipated payment the Company shall pay the bond
(Series A) holders the outstanding balance of the principal, the corresponding
amount being linked to the index as stipulated in the Deed, plus interest as
provided herein below. In consideration to the balance of principal the Company
shall pay NIS 100 for every NIS 100 par value of bonds (Series A). In addition,
the Company shall pay to the bond (Series A) holders interest at the rate of 5%
for the period from the date of the










 



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	 	 	 	private placement to the date of the anticipated payment. The Company shall
notify the Stock Exchange of the exact interest rate and the final date of
payment.






	 	2.9	 	The private placement is taking place in Israel only, not in the USA or to a US
person as defined in Regulation S issued pursuant to the United States Securities Act of
1933 (“Securities Act”). Any person purchasing securities offered under the private
placement shall declare that he is no US person, is not buying the securities offered
under the private placement for a US person and/or for a person located in the United
States; that he was not in the United States while filing an application for purchase of
the securities offered under the private placement, and that he is not purchasing the
securities offered under the private placement with an intent to make a “distribution”
in the United States (as defined in the US security laws).
	 
	 	 	 	No person is entitled to act for the sale of the securities proposed under the private
placement in the United States.
	 
	 	 	 	The bonds (Series A) proposed under this prospectus are not listed under the Securities
Act of the USA, and the purchasers of bonds (Series A) under this prospectus may not
offer and/or sell them in the USA and/or to “US persons” unless listed pursuant to the
Securities Act or unless there is an exemption from the listing requirements pursuant
to the Securities Act. The Company does not undertake to list the bonds (Series A) for
trading in accordance with the Securities Act.
	 
	 	2.10	 	According to the Securities Law, 1968, and article 5 of the Securities
Regulations (Details in the Matter of Articles 15a through 15c of the Law), 2000, there
exist restrictions on the resale of the bonds (Series A) and the shares arising from
conversion of the bonds (Series A) till the time of listing on the stock exchange.










 



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	 	2.11	 	The provisions of this Trust Deed shall apply to the bonds (Series A) issued
pursuant to this Deed and held from time to time by buyers of the bonds (Series A) or by
the public, if listed for sale, unless stipulated otherwise.





3. Conditions of the Issue: Own Purchase





	 	3.1	 	The Company shall issue the bonds (series A) according to the provisions of this
Deed and the bond (Series A) and shall secure them as stipulated in this Deed.
	 
	 	3.2	 	The Company reserves the right to acquire at any time – on the stock exchange if
the bonds (Series A) are listed for trading or outside it – bonds (Series A) at such
price as it deems fit, without prejudice to the mandatory payment of the bonds (Series
A) held by persons other than the Company. In the event of such purchase by the Company,
the company shall issue an immediate report to this effect and shall notify the trustee.
	 
	 	 	 	The bonds (Series A) to be purchased by the Company shall be cancelled and erased from
trading on the stock exchange inasmuch as listed there, and the Company shall not be
entitled to reissue them.
	 
	 	 	 	A subsidiary of the Company may from time to time buy and/or sell bonds (Series A) on
the stock exchange if listed, and off the stock exchange, also by way of issue by the
Company. The bonds (Series A) so held by a subsidiary shall constitute assets of the
subsidiary, and if listed, they shall not be taken off trading at the stock exchange,
and they shall be transferable just like the other bonds (Series A).
	 
	 	3.3	 	The Company reserves the right to convert the bonds (Series A) by way of
mandatory conversion subject to the conditions indicated in art. 6.3 of










 



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	 	 	 	this deed and subject to listing of the bonds (Series A) for trading on the stock
exchange.





4. Obligations of the Company





	 	 	The Company undertakes hereby to pay all amounts of principal and interest payable under
the provisions of the bonds (Series A) and to comply with all the other provisions and
obligations imposed on it pursuant to the conditions of the bonds (Series A) and this Deed.





5. Securing the Bonds (Series A)





	 	5.1	 	Not later than the day of the private placement, the Trustee shall open a bank
account with one of Israel’s five largest banks, at its discretion, and shall transfer
to the said account all the amounts from the special account of the issue coordinator as
deposited in the said account after summing up the results of the private placement, as
well as an additional amount of NIS 4 million to be transferred by the Company not later
the day of the private placement (“the deposit”, and the “trustee’s account”). As long
as the bonds (Series A) remain in circulation, the Trustee shall have signatory rights
in the trustee’s account so that any withdrawal of money from the trustee’s account or
money transfer to a third party and the performance of investments in the trustee’s
account under the provisions of this deed shall necessitate the trustee’s signature. The
Trustee shall sign such withdrawal, transfer or performance of investment only after
getting the instructions to do so from the Company.
	 
	 	5.2	 	The deposit shall be invested by the Company by way of shekel deposits or shekel
bonds issued by the State of Israel, or in dollar linked deposits.










 



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	 	5.3	 	As surety for full and exact compliance with all provisions of the bonds (Series
A) and the conditions of the trust deed, and also for securing the full payment of all
amounts of principal, interest and indexation guaranteed in the bonds (Series A) and the
trust deed, the Company shall encumber in favor of the Trustee, by way of a fixed
charge (on its rights in the trustee’s account) and floating charge (on the amounts
deposited in the trustee’s account from time to time) of first degree, without
restriction as to amount, its rights in the trustee’s account and all monies deposited
therein, including the fruits arising therefrom. The said encumbrance shall be applied
and registered upon the remittance of the deposit in the trustee’s account.
	 
	 	5.4	 	The trustee shall proceed as follows with the deposit: the trustee shall remit
the deposit to the Company upon the occurrence of any of the cases listed below: (1) On
receipt of a notice from the Company on the performance of a full mandatory conversion
of the bonds pursuant to art. 6.3 hereof, if such notice is received at all, the Trustee
shall transfer the deposit to the Company, including the income therefrom, less tax and
expenses for the management of the account, inasmuch as accrued by that time, and shall
lift the encumbrance on the trustee’s account unless the Company’s charge on the
trustee’s account for the bonds (Series A) shall have expired, following compliance with
the conditions stated in subart. (2) and (3) hereinbelow; (2) on receipt of a notice
from the Company on the performance of full or partial anticipated payment pursuant to
art. 6 of this Deed, if such notice is received, the trustee shall enable the Company to
use the deposit with its fruits inasmuch as accrued by that time, for performing the
anticipated payment as aforesaid. If the said anticipated redemption is complete, the
trustee shall remit to the Company the balance of money remaining in the trust account
less tax and expenses for management of the account and shall lift encumbrance on the
trustee’s account unless the charge imposed by the Company on the trustee’s










 



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	 	 	 	account for the bonds (Series A) shall have expired by that time on compliance with the
provisions of subarticles (1) and (3) of this article; (3) On receipt by the trustee
of a notice signed by the CEO of the Company on compliance by the Company with the
first of the two milestones defined hereinbelow, the trustee shall remit 50% of the
deposit to the Company including the fruits thereon, less tax and expenses for
management of the account, if accrued and if existent by that time. Subsequently, on
receipt by the trustee of a notice signed by the CEO of the Company on compliance by
the Company with the second milestone described below, the trustee shall remit the
second half of the deposit, including fruits and less tax and expenses for management
of the account, if accrued, to the Company, unless the Company’s encumbrance on the
trustee’s account for the bonds (Series A) shall have been lifted by that time on
compliance with the conditions listed in (1) and (2) above.
	 
	 	 	 	The above milestones are defined as follows.






	 	a.	 	Receipt of a EU permit for marketing the imaging catheter of the
group, according to the CE Marking standard on behalf of an European Notified Body
from one of the EU member countries;
	 
	 	b.	 	Receipt of a permit for marketing the group’s imaging catheter in the
USA, by the FDA (Food & Drug Administration).
	 
	 	 	 	It is stipulated that the trustee may only transfer the deposit according to the
foregoing subarticles (1) and (3) after the listing, if at all, of the bonds
(Series A) for trading on the stock exchange.






	 	5.5	 	In any event of (non-mandatory) conversion of bonds (Series A) into shares of the
Company the trustee shall, on obtaining the permits for making the conversion, remit to
the Company an amount from the deposit that equals the nominal value of the bonds
(Series A) as converted into shares as aforesaid.










 



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	 	5.6	 	It is stipulated that the Company may pay the interest on the bonds (Series A)
plus indexation differentials at any time for which the payment of interest is set
according to art. 3 of the conditions indicated overleaf on the enclosed sheet, from the
money accrued in the trustee’s account. The Company shall notify the trustee by means of
a letter signed by the Company and confirmed by the accountant of the Company about the
due amount seven days prior to any date set for the payment of interest, and the trustee
shall remit these amounts to the Company not later than seven days from receipt of the
said letter from the Company.
	 
	 	5.7	 	It is stipulated that with the exception of the charge on the trustee’s account
as provided above, the Company shall be entitled to encumber its assets as a whole or in
part by way of any charge and manner, without having to seek any approval from the
trustee.
	 
	 	5.8	 	The Company may, at any time and without having to seek the consent of the
trustee or of the holders of bonds (Series A) or any other series of bonds (including
bonds (Series A)), regardless of whether imparting the right of conversion into shares
of the Company or not, and on the same conditions of redemption, indexation, interest,
degree of repayment in case of winding up, and other conditions as the Company may see
fit, or on preferential conditions with regard to those of the bonds (Series A), or on
equal or inferior conditions.
	 
	 	5.9	 	The bonds (Series A) shall have the same surety level in pari passu terms between
one another with regard to the liabilities of the Company according to the bonds (Series
A) and without any priority or preference rights between one another.










 



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	 	5.10	 	It is stipulated for the sake of clarity that the trustee shall be under no
obligation to examine the economic value of the sureties provided and/or to be provided,
if at all, for securing the payments to the holders of bonds (Series A). In committing
itself to this trust deed and agreeing to serve as trustee of the holders of bonds
(Series A), the trustee shall be deemed to have rendered no express or implied opinion
about the economic value of the sureties provided and/or to be provided by the Company.
Nor is the trustee rendering any opinion about the ability of the Company to meet its
obligations toward the holders of bonds (Series A).





6. Anticipated Redemption and Mandatory Conversion





	 	6.1	 	After the listing of the Bonds (Series A) for Trading:
	 
	 	 	 	In case of the stock exchange having resolved to remove the outstanding bonds (Series
A) from trading as a result of the value of public holdings therein having fallen to
less than the minimum amount established in the stock exchange regulations with
regard to removal from trading, the Company shall proceed as follows.






	 	6.1.1	 	Within forty-five (45) days from the resolution by the stock
exchange concerning the removal of the bonds (Series A) from trading, the Company
shall announce a redemption date on which the holder of the bonds (Series A) shall
be entitled to redeem them.
	 
	 	6.1.2	 	Notice on the anticipated redemption date shall be inserted in two
(2) widespread daily newspapers published in Israel in Hebrew and shall be sent by
registered mail to all registered holders of the bonds (Series A) and the trustee;










 



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	 	6.1.3	 	The anticipated redemption date shall fall not prior to thirty (30)
days and not later than forty five (45) from the date of insertion of the notice,
but not during the period between the date of record for payment of interest and
the date of actual payment thereof.
	 
	 	6.1.4	 	At the time of anticipated payment the Company shall redeem the
bonds (Series A) whose holders have requested that they be redeemed, according to
the balance of their nominal value, plus indexation differentials and interest
accrued on the principal by the date of actual anticipated redemption, the
interest being calculated pro rata to the period commencing after the last day for
which interest is paid and till the date of the said anticipated redemption (the
calculation of interest for a fraction of a year being based on 365 days per
year).
	 
	 	6.1.5	 	Nothing in the establishment of an anticipated redemption as
aforesaid shall impair the rights to conversion and/or redemption as provided in
the bonds (Series A) on the part of any of the bond (Series A) holders that shall
not have redeemed them by the date of anticipated redemption as indicated above;
however, the bonds (Series A) shall be stricken off the trading on the stock
exchange.
	 
	 	6.1.6	 	No anticipated redemption of the bonds (Series A) as aforesaid shall
entitle any of the bond (Series A) holders who have redeemed them to interest for
the period after the redemption date.






	 	6.2	 	In the event of the bonds (Series A) not being listed for trading within six
months from the date of the private placement, the bonds shall not be converted into
 shares of the Company and shall be subject to anticipated payment, whereupon the
following provisions shall apply:






	 	6.2.1	 	Within one business day from the end of the period of six months
from the date of the private placement, the Company shall notify










 



17


	 	 	 	the bond (Series A) holders and the trustee of the date of the anticipated
redemption, which shall take place on the first business day following 17 days
from the date of the said notice.
	 
	 	6.2.2	 	On the day of anticipated redemption the Company shall pay the bond
(Series A) holders the outstanding balance of the principal, linked to the index
as stipulated in the deed, plus interest as stipulated below. In consideration of
the balance of principal, the Company shall pay NIS 100 for every NIS 100 par
value of bonds (Series A). In addition, the Company shall pay to the bond (Series
A) holders interest at the rate of 5% for the period from the date of the private
placement till the time of anticipated redemption. The Company shall notify the
Stock Exchange of the exact interest rate and the final date of payment.






	 	6.3	 	Mandatory Conversion
	 
	 	 	 	The Company may, at any time from the end of 30 trading days from the date of the
private placement of the bonds (Series A) and subject to completion of the listing of
the bonds (Series A) for trading at the stock exchange as stated above, till November
30, 2009 (inclusively) and subject to the provisions of this article hereinbelow, at
its sole discretion and without granting any right of option on this matter to the
holders of bonds (Series A) perform a mandatory conversion of the bonds subject to
the occurrence of one of the cases described below (“the event of record”):






	 	a.	 	The weighted average of the price of the shares of the Company at
the stock exchange in the course of the last 30 days of trading prior to issue
of the notice on performance of the mandatory conversion (“the average share
price”) was above the sum of NIS 1. In such case the Company may perform a
mandatory conversion of the










 



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	 	 	 	bonds (Series A) at the constant conversion rate of NIS 0.84 a share.
	 
	 	b.	 	The cumulative sum of consolidated revenues from sales of
products recorded by the Company in its books equals or exceeds NIS 15 million,
based on the quarterly or annual financial statements of the Company (“sales
goal”). The Company may perform a mandatory conversion as provided in this
article, starting from the later of the following two: (1) the date of
achievement of the sales goal; (2) May 31, 2008 – the later of the two, to be
designated “start of the conversion period” and over a period of four months
from the start of the conversion period. In this case the conversion rate shall
be determined according to the weighted average, so that the conversion rate
shall be the average share price less 10% but not more than the amount of about
NIS 0.84. In the event of the Company having achieved the sales goal as
aforesaid, the Company shall make a notice to this effect in an immediate report
to the stock exchange and the Securities Authority.
	 
	 	 	 	The term “weighted average” for the purposes hereof is obtained by dividing the
product of the closing price of the Company shares on the stock exchange by the
Company shares trading volume in NIS for each of the last 30 trading days by
the total trading volume of Company shares in NIS on the stock exchange during
the last 30 days of trading.
	 
	 	 	 	Here is an example of the calculation of the weighted average (the following
description is intended merely as example, and no conclusions should be derived
from it with regard to the expected or assumed Company share price as of the
conversion date):










 



19


	 	 	 	It is assumed for convenience that there were 5 different share prices on the
stock exchange over the 30 trading days (each of them prevailing for 6 days):
NIS 1 (trading volume NIS 1,000,000); NIS 1.1 (trading volume NIS 2,000,000);
NIS 1.2 (trading volume NIS 1,500,000); NIS 1.3 (trading volume NIS 2,500,000);
and NIS 1,4 (trading volume NIS 1,000,000). Thus, the calculation is to be made
as follows: NIS 1 times NIS 1,000,000 times 6; plus NIS 1.1 times NIS 2,000,000
times 6; plus NIS 1.2 times NIS 1,500,000 times 6; plus NIS 1.3 times NIS
2,500,000 times 6; plus NIS 1.4 times NIS 1,000,000 times 6. In all, NIS
57,900,000.
	 
	 	 	 	The total trading volume over the 30 trading days was 6 times NIS 1,000,000
plus 6 times NIS 2,000,000 plus 6 times NIS 1,500,000 plus 6 times NIS
2,500,000 plus NIS 6 times NIS 1,000,000, or a total of NIS 48,000,000.
	 
	 	 	 	Thus, the weighted average equals NIS 57,900,000 divided by NIS 48,000,000, or
NIS 1.206.
	 
	 	 	 	If the conversion rate exceeds the share price on the stock exchange on the
trading day that preceded the date of notification of the performance of the
mandatory conversion, the Company shall not be entitled to realize the
mandatory conversion on that date.
	 
	 	 	 	In the case of full mandatory conversion as noted above, the Company shall
notify the stock exchange and the Securities Authority by way of immediate
reporting at least 30 days and not later than 45 days prior to the date of
performance of the mandatory conversion and shall report to the trustee to this
effect. The following data shall be entered in the notice: (a) date of










 



20


	 	 	 	occurrence of the event of record; (b) date of performance of the mandatory
conversion; (c) the mandatory conversion rate; (d) the background of the event
of record. The notice of occurrence of the event of record shall be signed by
the CEO of the Company.
	 
	 	 	 	On the date established for performing the mandatory conversion the Company
shall allocate shares of the Company to the bond holders.
	 
	 	 	 	On completion of the mandatory conversion, the trustee shall cause all the
amounts deposited with the trustee under art. 5 of this Deed to be remitted to
the Company, including the income therefrom as accrued and as existent by that
time, and shall lift the charge on the trustee’s account for the bonds, as pro
vided in art. 5 of this Deed.
	 
	 	 	 	It is stipulated that no bond holder shall be entitled to collect any
interest payments for bonds converted into entitledness to collect interest
before the date of record.





7. Immediate Payment





	 	7.1	 	The provisions of art. 7.2 hereinbelow shall apply upon the occurrence of
one or more of the following events:






	 	7.1.1	 	Failure by the Company to repay any amount due by it in connection
with the bonds (Series A) within 60 days from due date;
	 
	 	7.1.2	 	Appointment of a temporary liquidator by a court or passing of a
valued resolution for winding up the Company (except winding up for the purpose of
merger with another company and/or restructuring of the Company); and failure to
cancel the said appointment within 60 business days from the date of issue;










 



21


	 	7.1.3	 	Upon the occurrence of any one of the cases listed below and in the
opinion of the trustee and bond holders (Series A), passed by way of special
resolution, the matter jeopardizes the rights of the bond (Series A) holders.






	 	7.1.3.1	 	Imposition of a lien on material assets of the Company and failure to
have the lien lifted within 60 days.
	 
	 	7.1.3.2	 	Performance of execution proceedings against material assets of the
Company and failure to lift them within 60 days.
	 
	 	7.1.3.3	 	Appointment of a receiver for the Company and/or for its material
assets, and failure to cancel the appointment within 60 days;
	 
	 	7.1.3.4	 	The Company has stopped its payments and/or has given notice of its
intent to this effect, and/or existence of substantial risk that the
Company will stop its payments and/or will discontinue its business and/or
substantial risk that the Company will abandon the conduct of its
business.
	 
	 	7.1.3.5	 	Liquidation or erasure of the Company, for any reason.
	 
	 	7.1.3.6	 	Occurrence of any other event that in the opinion of the Company
constitutes and/or may constitute a substantial impairment of the rights
of the bond (Series A) holders.






	 	7.2	 	Meeting of the bond (Series A) Holders shall be Convened as Follows:






	 	7.2.1	 	The trustee shall convene a meeting of the holders of bonds (Series
A), to be held on expiry of 30 days from the convening (or such shorter period as
stipulated in art. 7.2.4 hereinbelow), its agenda stating a resolution on the
immediate payment of all the










 



22


	 	 	 	outstanding balance of the bonds (Series A) upon the occurrence of any one of
the events indicated in the subarticles of art. 7.1 hereinabove.
	 
	 	7.2.2	 	In the event of any of the events indicated in the subarticles of
art. 7.1 not being cancelled or lifted and a resolution of the meeting of the bond
holders having been passed as a special resolution (as defined in the Second
Supplement to this Deed), the trustee shall within a reasonable time span call in
immediately the entire outstanding balance of the bonds (Series A).
	 
	 	7.2.3	 	A copy of the convening of the meeting as aforesaid shall be sent by
the trustee to the Company on publication of the notice, constituting an advance
written warning to the Company about his intent to act as aforesaid.
	 
	 	7.2.4	 	The trustee may at its own discretion shorten the aforementioned
count of 30 days (as stated in the foregoing sub-article 7.2.1) if of the opinion
that any delay in the call for the Company debt endangers the rights of the bond
(Series A) holders.





8. Claims and Procedures in the Hands of the Trustee





	 	8.1	 	Without derogating from the other instruction of this Deed of Trust, the Trustee
will be entitled to, and at his discretion, without any need of further notification to
the Company, to take measures towards the Company for all those procedures, including
legal as it thinks right and subject to instructions of all laws, for the enforcement of
the Company’s obligations according to the Deed of Trust and in order to realize the (A
Series) Bond Holders’ rights according to the Deed of Trust.
	 
	 	8.2	 	Subject to the instructions in section 21 below (“The Trustee’s Authorization”)
the Trustee is obliged to act according to that mentioned










 



23


	 	 	 	in the above section 8.1 if required to do so by a special decision reached by the
General Assembly of (A Series) Bond Holders by a majority of 75% of participants in a
ballot. If the Trustee sees that under the circumstances the matter is not just and/or
reasonable to do so, he will turn to the appropriate courts with a motion for
instruction discussed matter.
	 
	 	8.3	 	The Trustee is entitled to before taking measures as mentioned above, to convene
a Bonds Holders Assembly to in order for the Holders by means of a special decision
which procedures to take to realize their rights according to the Deed of Trust, the
Trustee will be entitled to reconvene the Holders Assembly in order to receive
instructions in all matters regarding the management of the said proceedings.
	 
	 	8.4	 	Subject to the instructions of this Deed, the Trustee is entitled to but not
obligated, to convene at any time, a General Assembly of (A Series) Bond Holders in
order to discuss and/or receive instructions in all mattes regarding the Deed of Trust.
	 
	 	8.5	 	The Trustee is entitled to, using his sole discretion, to delay execution of any
action by him according to the Deed of Trust, in order to turn to the General Assembly
of (A Series) Bond Holders and/or the courts until it receives instructions from the (A
Series) Bond Holders and/or instructions from the courts as to how he should act.
	 
	 	8.6	 	In order to remove any doubts herein that there is in none of the instructions
specified above any thing to prejudice the derogate from the Trustee’s rights entrusted
to him herein to turn to using his sole discretion to legal instances, even before the
(A Series) Bond are offered for immediate settlement, in order to serve any order
connected to the Trusteeship matters.





9 Distribution of Receipts










 



24





	 	 	All receipts received by the Trustee as a result of procedures taken, if taken against the
Company, will be held by him in trust and will serve him for the purposes and in the order of
priority listed below:
	 
	 	 	Firstly to the clearing of the expenses, the payments, the levies and commitments that were
made by the Trustee, imposed on him, or were incidentally caused as a result of activities
executed by the Trusteeship or in any other manner in another connection with the conditions
of this deed, Including his fee; secondly – in order to pay the (A Series) Bond Holders the
delay in interest owed them according to the conditions of the (A Series) Bonds pari passu
and in a manner relative to the amount owed to each one of them with no showing of priority
concerning which of them; thirdly – in order to pay the (A Series) Bond Holders the amount
owed from the Fund owed to them according to the (A Series) Bond held by them pari passu and
this whether it is time to clear the Fund amounts or not an in a manner relative to the
amounts owed to the, without and preference to the precedence of time in the expense of the
(A Series) Bond or in any other manner, and the surplus, if there is any, will be paid by the
Trustee to the Company or its alternatives.
	 
	 	 	The payment of amounts by the Trustee to the (A Series) Bond Holders is subject to the other
Company’s creditor’s rights if there are any.
	 
	10	 	The Authority to Delay Payment of Funds






	 	10.1	 	Despite what is written in the above section 9, if the amounts received from
measures taken in the said procedures above which are offered for distribution at some
time, as mentioned in the same section, will be less than ten percent of the balance of
the Fund of the un-cleared (A Series) Bonds and the interest the Trustee will not be
obligated to distribute them and he will be entitled to invest the amount, in full or in
part, in an permissible investment according to this Deed and to change










 



25


	 	 	 	investments from time to time for other permissible investments as he sees fit.
	 
	 	10.2	 	When the investments mentioned above, reach levels of profits together with the
additional funds that are received by the Trustee for the purpose of payments to the (A
Series) Bond Holders, if received, to a sufficient amount in order to pay at least ten
percent of the balance of the Fund of the un-cleared (A Series) Bonds and the interest
the Trustee will pay the (A Series) Bond Holders as mentioned in the above section 9.






	11	 	Notification of Distribution and Deposit with the Trustee






	 	11.1	 	The Trustee will inform the (A Series) Bond Holders about the Day and the
location on which any payment whatsoever will be executed out of all the mentioned
payments in sections 9 and 10 above, and this by Early Notification of 14 days that will
be delivered in the manner determined in section 22 below.
	 
	 	 	 	After the date determined in the notification the (A Series) Bond Holders are entitled
to interest for them at a rate determined by the (A Series) Bond, but only for the
remainder of the balance of the fund (in there is any) following the deduction of the
amount paid or expended for them for payment as mentioned.
	 
	 	11.2	 	Any amount payable to an (A Series) Bond Holder that has not actually been paid
for any reason beyond the Company’s control, in as much as the Company was prepared to
pay, will cease to bear any interest and linkage differentials from the date determined
for payment and that the (A Series) Bond Holder will be entitled to only amounts that he
was entitled to on the date determined for payment of the said payment on account of the
Fund, the interest, and the linkage differentials.
	 
	 	11.3	 	The Company will deposit with the Trustee, within 15 days form the determined
date for payment, the amount payable that was not paid for any reason beyond the
Company’s control, and the said deposit will be










 



26


	 	 	 	considered as clearance of the payment, and in case of total clearance of the amounts
due for the (A Series) Bond, also as Redemption of the (A Series) Bond.
	 
	 	11.4	 	The Trustee will invest the said amounts in a framework of Trust Accounts under
his name and to the order of him and the for the owners of the Bonds, in investments
permitted to him according to the Deed of Trust and according to all laws of the State
of Israel, And all as the Trustee sees appropriate and subject to the instructions of
law. If the Trustee does so, he will not owe the creditors for those said amounts unless
the amount received from the realization of investments, are after deducting incurred
expenses. The Trustee will hold all the above mentioned amounts and will invest them in
the aforesaid manner for a year following the Final Date of Redemption of the (A Series)
Bonds. After this date the Trustee will refund the amounts accrued, including interest
derived from the investment, to the Company who will hold these amounts in trust for the
(A Series) Bond Holders.
	 
	 	11.5	 	The Trustee will transfer to all the (A Series) Bond Holders from the said
amounts and/or funds owed to the (A Series) Bond Holders from those same funds deposited
as said, and this when presented the proof as required by the Trustee to his full
satisfaction.






	12	 	Receipts from the (A Series) Bond Holders






	 	12.1	 	A receipt from an (A Series) Bond Holder for Fund amounts and interest paid to
him by the Trustee an (A Series) Bond will release the Trustee absolute release in
anything connected with the payment of amounts mentioned in the receipt.
	 
	 	12.2	 	A receipt by the Trustee concerning the deposit of fund amounts and interest with
him for the (A Series) Bond Holder as mentioned in the above section 11.3 will be
considered as a receipt from the (A Series) Bond Holder for the said purpose in section
12.1










 



27








	13	 	Receipts from the (A Series) Bond Holders
	 
	 	 	The Company hereby undertakes towards the Trustee, for all times that the (A Series) Bond is
not settled, as follows:






	 	13.1	 	To persist in managing the Company’s business in an orderly, proper and efficient
manner.
	 
	 	13.2	 	To hold and preserve the assets in a good and proper condition and to regularly
and precisely pay all compulsory payments, applicable for its assets.
	 
	 	13.3	 	To allow and instruct its accountants to provide the Trustee and/or people so
ordered, any document or information concerning the Company’s business and/or assets
that may be reasonably necessary, according to the discretion of the Trustee, in order
to protect the (A Series) Bond Holders.
	 
	 	13.4	 	To regularly keep books of accounts according to accepted accounting principals.
To preserve the books and documents serving as proofs (including forfeit feeds,
mortgages, accounts and receipts) and also to allow the Trustee and/or a person
appointed in writing by the Trustee for this purpose, to study at any reasonable time,
all books and/or documents and/or approvals as mentioned.
	 
	 	 	 	The Trustee undertakes herein to preserve all information provided in confidence, with
the exception of the need to transfer information to the Assembly of (A Series) Bond
Holders for the purpose of reaching a decision concerning their rights according to the
(A Series) Bond or for the purpose of providing a report on Company’s condition.
	 
	 	13.5	 	To allow the Trustee and/or any person appointed by him in writing for this
purpose, to enter its offices and to any place in which its assets are located, at any
reasonable time, to examine the assets, at the Trustee’s discretion, in order to
protect the (A Series) Bond Holders. With his signature on this Deed of Trust, the
Trustee undertakes to preserve the










 



28


	 	 	 	confidentiality of information which he is privy to and not to make any use of it
unless specified in this section as below.
	 
	 	13.6	 	To inform the Trustee immediately as it is made known, concerning any case in
which there is a foreclosure on its assets, In their entirety or in part, receiver, and
to take any immediate measures, at its expense for all reasonable measures required in
order to remove the foreclosure or to cancel the receiver.
	 
	 	13.7	 	To invite the Trustee to the Special General Assemblies of the Company’s Share
Holders without granting the Trustee the right to vote in these assemblies.
	 
	 	13.8	 	To immediately inform the Trustee in writing about the occurrence of one of the
events specified in the above section 7.1.
	 
	 	13.9	 	The Trustee undertakes herein to preserve all information provided to him as
mentioned in confidence, with the exception for the purpose of transferring information
to the Assembly of (A Series) Bond Holders to reach a decision concerning their rights
according to the (A Series) Bonds or for the purpose of reporting on the Company’s
condition.






	14	 	Additional Obligations
	 
	 	 	After the (A Series) Bonds have been offered for immediate settlement, as defined in the
above section 7, the Company will execute from time to time at any time that the Trustee
deems necessary, all reasonable activities in order to permit the use of authority placed
with the Trustee and the Company will act especially as follows:






	 	14.1	 	To declare declarations and/or sign documents and/or execute and/or cause to be
executed and necessary and/or required activities in accordance with the law in order to
provide validity for the use of the authorities, the forces and the licenses of the
Trustee and/or his representative.










 



29


	 	14.2	 	Will give all the notifications, the orders and the instruction that the Trustee
sees as being useful and will require them.
	 
	 	14.3	 	For the purposes of this section – written notification signed by the Trustee
verifying that the activities required by him, within the framework of his authorities,
are reasonable activities, and constitutes prima facie evidence to this effect.






	15	 	Representatives
	 
	 	 	The Company hereby irrevocably appoints the Trustee as its representative, to implement and
execute in its name and in its place all activities that it was obligated to perform
according to the conditions included in this Deed, and generally to act in its name regarding
activities that the Company is obligated to perform according to this deed and if they were
not performed or perform part of his authorities granted it, and to appoint any other person
as the Trustee sees fit to perform his duties according to this Deed and that, subject to
such that the Company did not perform the actions that it was obligated to perform according
to the conditions of this Deed within a reasonable period of time according to the
determination of the Trustee from the date the Trustee demanded and in as much as he acted in
a reasonable manner.
	 
	 	 	The appointment according to this section does not obligate the Trustee to take any action
and the Company frees the Trustee in advance in case he takes no action from the power of
attorney granted him mentioned above any action whatsoever and/or not taken in time and/or in
a correct manner. In addition it the Company waives in advance any claim towards the Trustee
and/or his emissary for any damages caused and/or likely to be caused, whether directly
and/or indirectly, for the activities and/or failures of the Trustee as mentioned in this
section.
	 
	16	 	Other Agreements










 



30


	 	 	Subject to the instruction of the law and the limitations imposed on the Trustee by law, the
fulfillment of the Trustee’s job, according to this Deed, or even his position as Trustee, in
order to prevent him from contractually connection with the Company with different contracts
or from performing business with it during the normal proceedings of his business.
	 
	17	 	Trustee’s Reporting 
	 
	 	 	The Trustee will perform every 12 months from the date of this Deed until the settlement of
the Bonds, an annual report about matter concerning the Trusteeship (hereinafter “The Annual
Report”).
	 
	 	 	The Annual Report will include details of the following topics:






	 	17.1	 	Current details of the proceedings of the Trusteeship for the past year.
	 
	 	17.2	 	A report of unusual event connected with the Trusteeship that occurred over the
past year.






	 	 	The (A Series) Bond Holders will be entitled to study the annuals report in the Trustee’s
offices during accepted work hours and will be entitled to receive a copy of the report upon
request.
	 
	 	 	The Trustee will deliver to the (A Series) Bond Holders notification of the date of the
report submittal, as mentioned in section 22 below or in the immediate report which will be
published by the Company at the Trustee’s request. If a fundamental breach of the Deed of
Trust is made known to the Trustee by the Company, he will inform the (A Series) Bond Holders
about the breach and about the measures taken to prevent tit or to ensure the Company meets
its obligations, whichever is relevant.
	 
	18	 	Fees and Covering the Trustee’s Expenses
	 
	 	 	The Company will pay the Trustee a fee for his services, according to this Deed, as specified
below:






	 	18.1	 	For the first year of the Trusteeship namely, within
14 days from the date of
the private offer, 25,000 NIS










 



31


	 	18.2	 	For every year from the years commencing from the second year (namely commencing
from the end of 12 month from the date pf the issue of the private offer) in which there
are still (A Series) Bonds that have not been settled, an amount of 17,000 NIS linked to
the known index on the date of the private offer (hereinafter “The Annual Fee”). The
Trustee will be paid the Annual Fee at the beginning of every year of trusteeship. The
annual fee will be paid top the Trustee for the period up till the end of the period of
trusteeship according to the conditions of the Deed even if a receiver is appointed to
the Company and/or a managing receiver and/or if the Trusteeship according to the Deed
is managed under the supervision of the courts.
	 
	 	18.3	 	If in case the tenure of the Trustee has expired, as mentioned in section 26
below, the Trustee will not be eligible for payment of fees commencing from the day of
the end of his tenure. If a case in which the Trustee’s tenure ends during the year of
trusteeship, the fee paid for those months in which the trustee did not serve as trustee
will be returned to the Company. That mentioned in this sub-section 18.3 will not be
applicable for the first year of trusteeship.
	 
	 	18.4	 	In addition the trustee will be entitled to a recovery of reasonable expenses
made within the framework of fulfilling his role and/or from the authorities granted him
according to this Deed, only that for expenses for expert opinions, as specified in
section 19 below, the Trustee will provide notification in advance of his intention to
receive an expert opinion.
	 
	 	18.5	 	The Trustee will be entitled to an additional payment for reasonable expenses
incurred on actions driving from a breach of the Deed of Trust by the Company or for the
action of offering the (A Series) Bonds for immediate settlement and for special action
that need to be taken, if needed, in order to fulfill his role according to this Deed,
and all this without harming the generality of that mentioned in section 18 herein. If










 



32


	 	 	 	in any case that the Trustee has to take part in frontal discussions (as opposed to
telephonic discussions for which he is not entitled any remuneration) before the Stock
Exchange Commission in connection with the registration of the (A Series) Bonds for
trade in accordance with the prospectus, the trustee will be entitled to payment for
the work hours dedicated for this purpose.
	 
	 	18.6	 	It is hereby agreed between all the parties that the Trustee will be entitled to
a fee of $120 US for every hour needed for the above mentioned.
	 
	 	18.7	 	In addition the Trustee will be entitled to an additional fee of 500 NIS for each
Annual Share Holders Assembly or (A Series) Bond Holders Assembly in which the Trustee
takes part.
	 
	 	18.8	 	If any modifications made to the instructions of the law for which the trustee
must take action and/or examine and/or prepare additional reports the company hereby
undertakes to bear all the reasonable expenses uncured by the Trustee for therein.
	 
	 	18.9	 	If VAT is payable, it will be added to the payments received by the Trustee
according to all instructions of this section and will be paid by the company.






	19	 	Special Authorities
	 
	 	 	The trustee will be entitled to deposit all the deed and documents the bear witness to,
represent, and/or determine his right regarding all assets at that time in his hands, in a
safe and/or in another place of his choosing, with any banker, and/or with any attorney. If
the Trustee does so, he will not be responsible for any losses caused in connection with this
deposit, unless the Trustee acted with negligence or malice.
	 
	 	 	The Trustee is entitled to within the framework of execution of the trusteeship matters
according to the Deed of Trust; act according to his own opinion and/or according to the
advice given by any attorney, accountant, assessor, appraiser, surveyor, mediator or any
other expert, whether the opinion and/or










 



33


	 	 	advice were prepared at the Trustee’s and/or the Company’s request the Trustee will not be
responsible for any losses or damages caused as a result of any action and/or failure on his
part based on the advice or opinion as mentioned, unless the trustee acted with negligence or
malice.
	 
	 	 	Any Advice or opinion of this type can be given, sent or received in writing, by telegram,
facsimile, and/or by any other electronic means for the transfer of information, and the
Trustee will not be responsible for action taken based on the advice and/or opinion or
information that was transferred by one of the abovementioned means despite there being
errors therein and/or it not being authentic, unless the trustee acted with negligence or
malice.
	 
	 	 	The trustee will use the trusteeship forcibly, with authorities and licenses granted to him
in accordance with this Deed, according to his absolute discretion and will not be
responsible for any damages caused due to an error of his aforementioned discretion, unless
the trustee acted with negligence or malice.
	 
	20	 	The Trustees Authority to Employ Emissaries
	 
	 	 	The trustee will be entitled to appoint an emissary or emissaries to act between an attorney
and others, to act or participate in the execution of special actions that must be done in
connection with the trusteeship and without harming the generality of the aforementioned
taking of legal proceedings. The Trustee will be able to clear at the Company’s expense his
reasonable commission for each emissary of this kind, and the Company will refund the Trustee
immediately upon first demand all the aforementioned expenses, and all under condition that
the Trustee gave the Company advanced notification of eh matter of the appointment of the
Said emissary.
	 
	21	 	The Trustees Indemnification
	 
	 	 	The trustee will be entitled to receive indemnity for expenses from the (A Series) Bond
Holders or from the Company for all reasonable expenses










 



34


	 	 	incurred in connection with actions taken from the his duty according to the conditions of
the Deed of Trust or according to demand by the (A Series) Bond Holders solely if:






	 	21.1	 	He is not entitled to demand the indemnity in advance for a matter that could not
be delayed.
	 
	 	21.2	 	That the Trustee will be entitled to indemnity for responsibility for damages
that the Trustee is obligated to according to a final verdict or compromise awarded to a
third party who is not as Bond Holder, subject to the following condition:






	 	21.2.1	 	The expenses for the responsibility for damages are reasonable, and they are
agreed upon in advance and in writing by the Company.
	 
	 	21.2.2	 	The Trustee acted in good faith and his action was done within the framework of
fulfilling his role.






	 	 	Without prejudicing the rights for indemnity provided to the Trustee according to law and/or
as a company commitment according to this Deed, the Trustee, his representative, manager,
agent or any other person appointed by the trustee, will according to this Deed, be entitled
to receive indemnity from funds received by the Trustee for proceedings taken and/or by any
other means according to this Deed, concerning the commitments undertaken, regarding the
expenses expended for the execution of the trusteeship or in connection with these action,
that in their opinion were necessary fro the execution of the aforementioned and/or in
connection with the use of the authorities and licenses granted as validated by the Deed and
in connection with any type of legal proceedings, attorney’s or other expert opinions,
negotiations, disputes, expenses, claims, and demands concerning for any matter and/or thing
made and/or not made in any way regarding the matter under discussion, and the Trustee can
delay the funds in his possession and pay using them required amounts for payment of the said
indemnity.










 



35


	22	 	Notifications
	 
	 	 	Any notification to the (A Series) Bond Holders on behalf of the Company and/or the Trustee
will be made by publication of a notice published in two (2) common Israeli newspapers in
Hebrew or by sending a notice by sending registered mail according to the last (A Series)
Bond Holders address registered in the (A Series) Bond Holders Registry, and any notice
publish or sent as mentioned, will be considered as being delivered to the (A Series) Bond
Holder on the day of publication as mentioned, or three (3) days after them being dispatched
by mail, whichever is relevant.
	 
	 	 	Copies of the notifications and the invitations sent by the Company to the (A Series) Bond
Holders will be sent also to the Trustee.
	 
	 	 	Copies of the notifications and the invitations sent by the Trustee to the (A Series) Bond
Holders will be sent also to the Company.
	 
	23.	 	Waiver, compromises and/or amendments to trust deed 
	 
	 	 	subject to the provisions of the Securities Law, and the regulations promulgated under it,
the trustee of the bonds (Series A) shall be authorized from time to time and at any time,
and in any other circumstance, if he is persuaded that there is no alternative due to
fundamental damage done to the rights of the bond holders, to issue a waiver regarding any
infringement of or non-compliance by the company with any of the conditions of the bonds or
the trust deed.
	 
	 	 	Subject to the provisions of the securities law and the regulations promulgated under it, and
with prior authorization given by the General Meeting of bond holders, by a majority of 75%
of those participating in the vote through attendance of either the bond-holder himself or
his proxy – at least fifty per cent (50%) of the nominal value of the non-cleared balance of
the principal of the Bonds, or by a deferred meeting attended by the bond-holders themselves
or their proxies – at least ten per cent (10%) of the aforesaid balance — the trustee will be
authorized, either before or after the principal of the Bonds is










 



36


	 	 	due for repayment, to come to a compromise with the company in respect of any right or claim
of the bond holders or any of them, and to agree to any settlement of their rights, including
a waiver of any of his own rights or claims and/or of the bond holders or of any of them
towards the company.
	 
	 	 	Subject to the provisions of the Securities Law and the regulations promulgated under it, the
company and the trustee are authorized, either before or after the principal of the Bonds is
due for repayment, to alter the trust deed and/or the terms of the bonds in case of one of
the following eventualities:






	 	23.1	 	The trustee is persuaded that such a change would not significantly harm the
rights of the bond holders.
	 
	 	23.2	 	The proposed amendment was approved by a special resolution passed by a General
Meeting of bond holders which was attended by either the holders themselves or the
proxies of at least fifty per cent (50%) of the nominal value of the non-cleared balance
of the principal of the bonds, or by a deferred meeting attended by either the holders
themselves or the proxies of at least ten per cent (10%) of the aforesaid balance.
	 
	 	 	 	The company will present an immediate report on any alteration to the trust deed and/or
the conditions of the bonds in accordance with this clause as above.
	 
	 	 	 	Notwithstanding the particulars of this clause, in accordance with the directions of
the Stock exchange, the conditions of the bonds relating to the deadlines for
conversion — rates of conversion in case of distribution of preference shares and in
case of an offer through rights – are not subject to change. However the company is
authorized to alter the period of conversion or the rate of conversion of the
convertible securities which it has issued, provided this is done in the framework of
an arrangement or compromise that has been approved by a court of law in accordance
with clause 350 of the Companies Law. Similarly the system of linkage in case of
distribution of dividends is not changeable.










 



37


	 	 	 	In case use is made of the trustee’s right as under this Clause 23, the trustee will be
entitled to demand that the bond holders present to him, or the company, their bond
certificates so that notification can be entered in them of any compromise, waiver,
alteration or amendment as aforesaid and, upon demand of the trustee, the company will
record any such notification.
	 
	 	24.	 	Register of Bond holders (Series A)






	 	24.1	 	The company will hold and manage on its registered office the Register of Bond
holders of all series in which will be recorded the names of the bond holders, their
addresses and the number and nominal value of the bonds registered in their names. Every
transfer of ownership of bonds will also be recorded in the Register. The trustee and
every bond-holder will be entitled, at any reasonable time, to peruse the aforesaid
Register. The company is entitled to close the register from time to time for a period
or periods not exceeding altogether thirty (30) days per annum.
	 
	 	24.2	 	The company will not be obliged to record in the Register any notice concerning
explicit, implicit or estimated trusteeship, pledge or lien whatsoever or any right to
equity, any claim or writing-off or any other right whatsoever pertaining to the bonds.
The company will recognize a person’s ownership only if the bonds are registered in his
name, provided the legal heirs, the executors of the estate or the executor of probate
of the registered owner or any person who would have become entitled to the bonds as a
result of bankruptcy of the registered owner (and in case that is a corporation – as a
result of its liquidation) will be entitled to be registered as the owner thereof only
after providing evidence that is deemed by the company to be adequate proof of his/its
right to be registered as their owner.






	25.	 	Release










 



38


	 	 	Once it has been proved to the satisfaction of the trustee that all the bonds (Series A) have
been paid up, redeemed or in case the company deposits in trust with the trustee sums of
money that suffice for the redemption, and once it has been proved to the satisfaction of the
trustee that all the undertakings and costs entered into or caused by the trustee in
connection with this deed and in accordance with its provisions have been fully paid, the
trustee will be obliged, upon the first demand of the company, to put to active use the
moneys deposited for the bonds (Series A), the redemption of which is not required under the
terms stipulated in this deed.
	 
	26.	 	Appointment of a new trustee and expiry of the term of office of a trustee






	 	26.1	 	The provisions of the Securities Law shall apply to the term of office of a
trustee, to expiry of that term and to the appointment of a new trustee.
	 
	 	26.2	 	The trustee will be entitled to resign from his post at any time he wishes, after
giving three (3) months’ advance written notice in which he states the reasons for the
resignation. The trustee’s resignation shall not be valid unless it has been approved
by a court of law, and from the day specified for it by the aforesaid court.
	 
	 	 	 	The Securities Authority is authorized to apply to the court with a request to
terminate the trustee’s term of office in accordance with Clause 35/14 of the
Securities Law.
	 
	 	 	 	The trustee will desist from his office in case it emerges that he is precluded from
remaining in it due to any amendment to the provisions of the Securities Law or any
law that applies to qualification to act as trustee, including in case of any such
preclusion that arises in connection with the registration of bonds for trading on
the Stock Exchange. For this purpose a demand by the Securities Authority to
terminate the trustee’s term of office shall also be deemed to be a “preclusion”. In
such a case, a new trustee shall be appointed who will be nominated by the company in
accordance with a decision by a










 



39


	 	 	 	Meeting of bond holders, in a resolution passed by the requisite majority as
specified in Clause 26.3 below.
	 
	 	 	 	The company will submit an immediate report on any such eventuality in connection
with the trustee’s term of office.
	 
	 	26.3	 	Holders of ten per cent (10%) of the nominal value of the non-cleared balance of
the principal of the bond are authorized to convene a general meeting of bond holders
and that meeting will be authorized to pass a resolution — by a vote of the holders or
the proxies of holders, of at least fifty per cent (50%) of the aforesaid balance – to
relieve the trustee of his position.
	 
	 	26.4	 	Once the trustee’s term of office has expired, the court will be authorized to
appoint another trustee – for whatever period and under whatever conditions it deems
fitting. The trustee whose term of office has expired will continue in his position
until the appointment of another trustee.
	 
	 	26.5	 	Every new trustee will have the same competence and powers and the same other
mandates as the trustees whose term of office has expired and he will be able to act, in
every respect and matter, as though he had been appointed trustee in the first place.






	27.	 	Meeting of Bond Holders (Series A)
	 
	 	 	Meetings of bond holders (Series A) will be held in accordance with the second Addendum to
this deed.
	 
	28.	 	Company report to the trustee
	 
	 	 	The company will present the following to the trustee, so long as all the bonds (Series A)
have not been paid up (including the linkage differentials on them):






	 	28.1	 	The company’s audited financial statements for the financial year that ended on
the 31st of December of the year that has ended and periodical statements as
soon as they are issued.










 



40


	 	28.2	 	Every interim financial statement and every quarterly report immediately after
their publication, in addition to the auditor’s survey report pertaining to them.
	 
	 	28.3	 	Every instant report immediately upon its issue.
	 
	 	28.4	 	Confirmations from the company’s accountants, from a director of the company’s
and a manager in the company not later than the 30th April of every year,
relating to the 12 months that ended on the 31st December of the previous
year, and not later than the 30th September of every year – confirmations
pertaining to the six months that ended on 30th June of that year, stating
that to the best of their knowledge there has been no infringement on the part of the
company of any of the conditions and restrictions contained in this trust deed
(including the conditions of the bonds and any charges imposed on the company’s property
in the relevant period) unless and insofar the matter is stated explicitly in the
confirmations, and the extract on any charges against the company at the Registrar of
Companies on the aforesaid dates and periods.






	29.	 	Jurisdiction
	 
	 	 	The bonds (Series A) are subject to the provisions of Israeli law. In any matter that is not
mentioned in this deed and in any case of contradiction between the provisions of the law and
this deed, the parties will act in accordance with the provisions of the law.
Israeli law alone shall apply to any offer of the bonds (Series A) that are offered and to
the acquisition thereof, and to all that arises from and/or pertains to the private
placement, in the offer of the bonds (Series A) according to it and to the acquisition
thereof and no other laws whatsoever shall apply, and the exclusive and sole jurisdiction on
all matters and concerns arising from and/or connected therewith lies solely with the
competent courts in Israel, and with them alone.










 



41


	30.	 	Addresses
	 
	 	 	The addresses of the parties shall be as they appear in the Preamble to this
Deed or any other address adequate written notice of which has been given by one party to the
other.
	 
	31.	 	Authorization for MAGNA
	 
	 	 	In accordance with the provisions of the Securities Regulations (signature and electronic
reporting) – 2003, the trustee hereby confirms to the officer authorized to do so by the
company to report on this deed of trust to the Securities Authority by electronic mail.





In witness whereof the parties affix their signatures hereto




	 	 	 
	 
	 	 
	                                                            

	 	                                                            
	TopSpin Medical, Inc.

	 	Hermetic Trusteeship (1975) Ltd.





I, the undersigned, Adv. Liron Rosiner, confirm that this deed of trust has been signed on behalf
of TopSpin Medical, Inc. by Messrs. Erez Golan and Eyal Kulka and their signature is binding upon
TopSpin Medical, Inc.




                                        

Liron Rosiner, Adv.










 



42


TopSpin Medical Inc.

First Addendum




Bonds (Series A)



NIS 50,000,000 nominal value bonds (Series A). registered in a person’s name, which will
be due for repayment in a single payment on 30th November 2009, carrying annual
interest at the rate of 6%, to will be calculated and paid once a year on the 30th
of November of each of the years 2007 to 2009 (inclusive) and will be linked principal and
interest to the publicly announced Consumer Price Index due to October 2006. The bonds (Series
A) are offered at a purchase price equivalent to 95% of their nominal value.



The bonds (Series A) are convertible in ordinary shares of the company registered in a
person’s name of a nominal value of US $0.001 each as from the day of their registration for
trading, if they are registered, on any business day until 14th November 2009
(inclusive) in each of the years 2007 to 2008 (inclusive) in such a way as to make every bond
in Series A of a nominal value of NIS 0.84 convertible into one ordinary share of the company
of US $0.001 par value (subject to adjustments as specified in Clause 10.3 of the Deed).



The company shall be authorized, at its own sole discretion, and without granting optional
right in this matter to any bond holders, — at any time from the end of 30 business days from
the date of the private placement of the bonds, and subject to completion of registration of
the Bonds (Series A) for trading on the stock exchange, until the 30th November
2009 (inclusive) , and subject to the existence of one of the conditions specified in Clause
6.3 of the Deed – to oblige the bond holders to implement total compulsory conversion of the
bonds in circulation into ordinary shares of the company, provided notice of the aforesaid
compulsory conversion has been published at least 30, and not later than 45 days before
implementation of the compulsory conversion as specified in Clause 2.6 of the Deed. Such a
conversion shall be done in respect of a conversion that











 



43



is stipulated according to the weighted average of the rate of the company’s share on the
stock exchange in the thirty business days preceding the notice of implementation of the
compulsory conversion, minus 10 per cent, as specified in Clause 2.6 of the Deed, and in any
case not above the aforesaid conversion ratio of NIS 0.84. For details see Clause 9.2 of the
Deed.



It is hereby clarified that, so long as the Bonds (Series A) are not registered for trading on
the stock exchange, it will not be possible to implement conversion of the Bonds (Series A)
into company shares, and that means also that the company will be precluded from implementing
compulsory conversion.



Bonds (Series A) registered in a person’s name

No. 1 – 500,000,000

Nominal Value: NIS 50,000,000

Annual interest at the rate of 6% per annum which will be calculated and paid once a year on
the 30th November of every year from 2007 to 2009 (inclusive).
The Bonds (Series A) are linked (principal and interest) to the Consumer Price Index:





	1.	 	This certificate is proof that TopSpin Medical, Inc. (hereinafter: The Company) will pay
the Registration Company of Bank Hapoalim Ltd. or any person who becomes registered owner
of this bond (hereinafter: the holder of a Bond (Series A) ), in a single payment on
30th November 2009, the full principal of the nominal value of the (Series A)
bonds that are in circulation, subject to the conditions specified in the terms overleaf.
	 
	2.	 	The payments on account of the interest on the bonds will be paid to the bond holders whose
names are registered in the company’s Register of Bond Holders as holders at the end of the
day of the 18th November of every year which precedes the due date of that payment
on the bonds (Series A) (the determining










 



44


	 	 	date”). Notwithstanding the aforesaid, the last payment on the interest and payment on the
principal will be made against presentation of the bond certificates to the company at its
registered office or at any other venue which has been announced by the company, not later
than five (5) business days before the determining date for making the last payment.
	 
	3.	 	Furthermore that certificate will serve as evidence to show that the company will, from the
day of registration of the bonds (Series A) for trading, to the holder of a (Series A) bond
or to any person who is the registered owner of such a (Series A) bond, on the occasion of the
presentation of such a (Series A) bond for conversion – the (Series A) bond into ordinary
            shares of the company of a nominal value of US $0.001, on any business day up to the
14th November 2009 (inclusive) other than during the 15-day period from
15th November to 30th November (inclusive) of any of the years 2007 to
2008 (inclusive) in such a manner that from the day of their registration for trading up to
14th November 2009, every (series A) bond of a nominal value of
NIS 0.84 will be convertible into one ordinary share of the company of a nominal
value of US$ 0.001 (subject to adjustments as specified in Clause 10.3 of the
conditions specified overleaf).
	 
	4.	 	Bonds (Series A) are issued in accordance with the deed of trust (hereinafter: “the trust
deed”) dated 21st November 2006 that has been signed between the company and
Hermetic Trusteeship (1975) Ltd. (hereinafter: “the trustee”).
	 
	5.	 	All the bonds (Series A) will be pari passu with each other in respect of the company’s
obligations pertaining to the bonds (Series A) and there will be no prerogatives or preference
for any one over another.
	 
	6.	 	This bond (Series A) is issued subject to the conditions specified overleaf and the terms
specified in the deed of trust.










 



45


	 	 	Transfer of this security directly or indirectly, within the United States or to or for the
account or benefit of U.S. persons is prohibited except in accordance with the provisions of
regulations promulgated under the Securities Act of 1933 (the “Securities Act”) (Rule 901
through Rule 905, and preliminary Notes) pursuant to registration under the Securities Act,
or pursuant to an available exemption from registration. Hedging transactions involving these
securities may not be conducted unless in compliance with the Securities Act.





Signed with the Stamp of the Company which was affixed on 21.11.06




                                        

TopSpin Medical, Inc.










 



46


The conditions written overleaf




1. General





	 	1.1	 	In this (Series A) bond, the following terms will have the following meanings
unless a different meaning is intended in their given context:
	 
	 	 	 	“The company” and/or “the issuing party” TopSpin Medical Inc.





	 	 	 	 	 
	 

	 	“Deed of Trust”
	 	The trust deed signed between the company and the trustee on
21st November 2006 including the appendices attached thereto which
constitute an integral part thereof;
	 
	 	 	 	 
	 

	 	“The prospectus”
	 	The company’s prospectus which will be published, if it is
published, upon registration of the (Series A) bonds for trading;
	 
	 	 	 	 
	 

	 	“The bonds”
	 	The company’s bonds (Series A),
or the bonds registered in a person’s name, the terms of
which are (Series A) specified in this deed and which
will be issued from time to time at the sole discretion
of the company.
	 
	 	 	 	 
	 

	 	“The trustee”
	 	Hermetic Trust (1975) Ltd. and/or any person who from time to
time officiates as trustee of the holders of Bonds (Series A) in accordance with
this trust deed;
	 
	 	 	 	 
	 

	 	“Register”
	 	The register of (Series A) bond holders as defined in Clause 24 of the trust
deed;
	 
	 	 	 	 
	 

	 	“The holders of bonds”
	 	The persons whose names are (Series A) and/or “owners
of registered at the time in the bonds (Series A)” Register of (Series A) bond
holders and, in case of several joint holders, the joint holder whose name appears
first in the register.
	 
	 	 	 	 
	 

	 	“Bond (Series A) Certificate”
	 	A (Series A) bond whose text












 



47


	 	 	 	 	 
	 

	 	 	 	appears in the first addendum to this trust deed;
	 
	 	 	 	 
	 

	 	“The law”
	 	The Israeli Securities Law 1968 and the regulations promulgated
under it from time to time;
	 
	 	 	 	 
	 

	 	“Principal”
	 	The nominal value of the (Series A) bonds that are in circulation;
	 
	 	 	 	 
	 

	 	“Business day”
	 	A day on which most of the banks in Israel are open for business;
	 
	 	 	 	 
	 

	 	“The stock exchange”
	 	The Tel Aviv Stock Exchange Ltd.
	 
	 	 	 	 
	 

	 	“A trading day”
	 	A day on which trading is carried out on the Stock Exchange.
	 
	 	 	 	 
	 

	 	“The Consumer Price Index”
	 	The price index known as the
	 
	 	 	 	 
	 

	 	(“Index”)
	 	“Consumer Price Index” (including fruit and vegetables) that is issued by the
Israel Central Bureau of Statistics and Economic Research, and which relates to
this Index even if another official institution has issued a different index,
including any other official index that comes in lieu thereof, whether or not it is
based on the same data as that on which the existing Index is based. If it is
replaced by another index that is published by such a body of institution and that
body or institution has not determined the ratio between its Index and the Index
which it replaces, that ratio shall be determined by the National Bureau of
Statistics, and in case the latter Bureau does not determine the ratio, it shall be
determined by the Trustee who will, in consultation with economic advisers chosen
by him, determine the ratio between the other index and the replaced Index;
	 
	 	 	 	 
	 

	 	“The replaced Index”
	 	The most recently published Consumer Price
Index;












 



48


	 	 	 	 	 
	 

	 	“The basic Index”
	 	The Consumer Price Index due to October 2006 that
was published on 15th November 2006;
	 
	 	 	 	 
	 

	 	“The payment Index”
	 	The known index on the day of any payment on
account of principal or interest. However in case the known Index is lower than
the basic Index, the Payment Index shall be the Basic Index.
	 
	 	 	 	 
	 

	 	“The private placement”
	 	as defined in the Preamble to this agreement.
	 
	 	 	 	 
	 

	 	“The date of the private placement”
	 	23 November 2006.
	 
	 	 	 	 
	 

	 	“Registration Company” -
	 	the Registration Company of Bank Hapoalim Ltd. or
any other registration company;







	 	1.2	 	This bond is one of a series of bonds (Series A) registered in a person’s name of a
total nominal value of up to NIS 50,000,000. Bonds from this series will be put on a pari
passu security footing either on their own or in connection with undertakings of the
company according to Bonds (Series A) and without prerogative or preference for one over
any others.
	 
	 	1.3	 	The company will make every effort to see to it that the bonds are registered for
trading on the Stock Exchange within a period of six months from the date of the private
placement, subject to the provisions of the law. It is a prior condition for the
company’s obligation to act for registration of the (Series A) Bonds for trading on the
Stock Exchange that every holder of a Bond (Series A) convey to the company any
information that it is reasonably required of him to convey  — so that the Bonds (Series
A) can be registered for trading – concerning himself and concerning the (Series A) bonds
that he holds, as he is lawfully required to do, including by the United States
Securities Authority.






	2.	 	Date of repayment of the principal of the Bonds (Series A)
	 
	 	 	Subject to the other conditions of the bonds, the principal of the (Series A) Bonds will be
repaid in a single payment on 30th November 2009. The principal of the (Series A) bonds is
linked to the Consumer Price Index as specified in Clause 4 below.










 



49


	3.	 	The interest
	 
	 	 	The non-cleared balance of the principal of the bonds shall carry an annual interest of 6%
(“the interest rate”). The interest on the (Series B bonds) is linked to the Consumer Price
Index as specified in clause 4 below.
	 
	 	 	The interest on the bonds shall be calculated and paid on 30 November of each of the years
2007 to 2009 (inclusive) (“the period of the interest”).
	 
	 	 	The first payment of interest on (Series A) bonds will be made on 30 November 2007 for the
period beginning on the day of the private placement and ending on 30 November 2007,
calculated according to 365 days of the year; accordingly the first rate of interest will be
6.1151 per cent.
	 
	 	 	The last payment of interest on the (Series A) bonds will be made on 30 November 2009
together with payment of the principal of the (Series A) bonds and against presentation to
the company of the Bonds (Series A) certificate (“the date of the final repayment”).




The lawful income tax will be deducted from every payment of interest.
	 
	4.	 	The linkage terms of the principal and the interest
	 
	 	 	The principal and interest on the principal of the bonds will be linked in the following
manner to the Consumer Price Index on the basis of the Basic index:
	 
	 	 	If it emerges, on the date any payment whatsoever is due to be made on account of the
principal and/or the interest, that the payment index for that date was higher than the
basic Index, the company will make that payment on principal and/or interest increased by
the same ratio as the change in the payment index over the basic index, but in case it is
found that the payment index is identical with or lower than the basic index, the payment
index will be the basic index.
	 
	5	 	Fund payment and Interest on bonds






	 	5.1	 	Interest will be paid to for Bond Holders on times specified in section 3 above
according to stated conditions therein, to Bond Holders whose










 



50


	 	 	 	names appear in the Registry of Bond Holders as Holders at the end of the
8th day of November every year prior to the date of payment for any payment,
with the exception of the final payment of interest and of the fund to be executed in
return for the delivery of certificates for Bonds to the Company, to it’s registered
offices or to any other place that the Company informs, and this no later than five (5)
working days before the fixed date for payment of the final payment.
	 
	 	5.2	 	If the mentioned date for any payment of the fund or interest on a day that is not a
banking day, the date will be postponed to the next banking day immediately following with no
addition of any interest. A banking day is a day that banks in Israel are open for executing
transactions.
	 
	 	5.3	 	The payment of the fund and interest will be subject to the linkage conditions as mentioned
in section 4 above.
	 
	 	5.4	 	All payments according to Bonds to a creditor will made by check or bank transfer to
accredited to the bank accounts of those people whose names appear in the Bond Holders
Registry and it is mentioned in details provided in writing to the Company in advance,
according to that mentioned in section 5.5 below. If the Company is not able, for any reason
whatsoever, that is not within its control; to pay any amount to those having rights to such,
the instructions in section 6 below will be applied.
	 
	 	5.5	 	A Bond Holder interested in informing the Company of his Bank Account details to be
accredited with payments according to the Bonds mentioned above, or to change the details of
the above mentioned account or instructions pertaining to the manner of payment, may do so by
sending the company a registered letter. The Company will abide by the instructions only if
the letter arrives at the registered address at least ten (10) day prior to the fixed date
for payment of any payment according to the Bond.






	 	 	 	In notification is received late by the Company, the Company will act regarding it only
for payments whose fixed dates for payments are after the date of payment is adjacent
to the date of receipt of the notification.










 



51








	5.6	 	If the creditor did not provide in advance in writing details regarding his account, to
which payments should be transferred according to the bond, all payments of this nature will
be paid by check that will be sent by registered mail to the last registered address in the
Bond Holders Registry. The dispatch of the check to the creditor will be considered as for
all intent and purpose as payment of the stated amount on the date of dispatch by mail as
mentioned and that it is cashed when legally presented for cashing.
	 
	5.7	 	All payment on account of the fund and/or interest, paid in arrears, that exceed three (3)
working days from the fixed date of payment according to the mentioned Bond Certificate, and
this being for reasons within the Company’s control, wear bear arrears interest as defined
below beginning form the fixed date for payment until the actual date of payment. For this
purpose the rate of Arrears Interest will be the rate stated in the bond as mentioned in the
above section 3 with an additional 2%, all based annually. The Company will notify in a
report to the Stock Exchange the exact rate of interest, including Arrears Interest two
business days prior payment.






	6	 	Abstention of Payment for Reasons Not Within the Company’s Control
	 
	 	 	Any amounts owed to the (A Series) Bond Holder, who have not actually
been paid for any reason not within the Company’s control, even though
the Company was prepared to effect such payment, will cease to bear
and linkage differentials from the date fixed for payment and for
which the (A Series) Bond Holder is entitled to receive those same
amounts that he was entitled to on the date set for payment on account
of the fund, interest and linkage differentials.
	 
	 	 	The Company will deposit with a Trustee, within 15 days from the
fixed date for such payment, the unpaid amount for reasons not in the
Company’s control, and this deposit will as mentioned be considered as
payment of such amounts,










 



52


	 	 	and ion case of payment of all due amounts for the (A Series) Bond, even as redemption of the
(A Series) Bond.
	 
	 	 	The Trustee will invest the said amount, within the framework of a trust account in his name
and in his order an the order of all those same Bond Holders, in investments as permitted by
the Certificate of Trusteeship and according to all laws of the State of Israel, and all as
the Trustee find fit and subject to the instructions of the law. If the Trustee has so done,
he will not owe the creditors for those amounts unless if the amounts received for the
realization of the investments and after deducting expenses incurred for them. The trustee
will hold the aforementioned amounts and will invest them in the manner as mentioned above for
one year after the date of final redemption of the Bond. After this date, the trustee will
return the accrued amounts, including profits earned from the investments, to the Company that
will hold these amounts in trust for the Bond Holders.
	 
	7	 	Bond Holder’s Registry
	 
	 	 	The Company will hold and manage in its offices a registry of Bond
Holders for all series, and in which the names of the Bond Holders,
their addresses, their numbers and Nominal Value of the Bonds
registered under their names. Also all transfer of ownership of Bonds
will be recorded. The Trustee and all Bond Holders will be entitled
to, at any reasonable time, to inspect the said register. The Company
is entitled to close the register from time to time for a period or
periods that will not be in excess of collectively more than thirty
(30) days per year.
	 
	 	 	The Company does not have to register in the register any
notification concerning any specific trusteeship, whether tacit or
expected, or by forfeit or lien of any kind whatsoever or any
beneficial ownership, claim or offset or any other right, regarding
the Bonds. The Company will recognize only the ownership for the
person under whose name the Bonds were registered and whose legal
inheritors, his administrators of estate and executors of the










 



53


	 	 	registered owner’s Will and any person entitled to the Bonds as a result of bankruptcy of the
all registered owners (and for a Corporation — in case of liquidation) will be entitled to
register as their owner, after providing proof that in the Company’s opinion suffice as proof
of the right to be registered as their owner.
	 
	8	 	(A Series) Bond Splitting and Transfer






	 	[a] 	 	 All Bond Certificates can be split into a number of (A Series) certificates whose
total nominal value of all bonds comprising them will be equal to the nominal value of
the (A Series) Bond that were included in the certificate for which a request has been
submitted. The splitting of the said certificate will be executed according to the
request to split signed by the registered owners of the same (A Series) Bonds for whom
the split is requested, In return for delivery of the certificate to the Company’s
registered offices, for whose split is requested. The split will be executed within
thirty (30) days from the end of the month in which the certificate was delivered
together with the Request to Split at to the Company’s registered offices. The newly
issued (A Series) Bonds certificates will each have are of nominal value to amounts in
Whole New Shekels. All the issues involved with the split, including levies, if such
exist, will be borne by the Requester of the Split.
	 
	 	[b] 	 	 Bonds can be transferred only for nominal amounts that are mentioned in Whole New
Shekels. All transfer of bonds not executed through the Stock Exchange and subject that
mentioned in section 2.6 of this Deed of Trust, and will be made with a Transfer Deed
drafted in an accepted fashion for the transfer of shares, properly signed by the
registered owner or his legal representatives, and also by the receiver of the transfer
or their his legal representative in conjunction with the bonds to by transferred
therein, and all other proof required by the company for proof of entitlement for the
transferor to transfer them. Subject to the










 



54


	 	 	 	abovementioned, the regulations of the company regarding the manner of transfer of
 shares will be applicable, with changes necessary according to the circumstances.,
regarding the manner in which the bonds are transferred and the reason for the
transfer. If there is a compulsory payment to be paid for the Transfer Deed of the
Bonds, the Company will be provided with proof of payment by the requester for
transfer, to the Company’s satisfaction.
	 
	 	 	 	It should be quite clear, that all expenses involved with the transfer, including
levies, if any exists will be born solely by the requestor of the transfer.






	 	(1)	 	In case of the transfer of only a part of the nominal amount of
mentioned fund of the Bonds in this Certificate, the certificate will be split
initially according as specified in the above section [a] into a number of
resulting bonds as necessary. In a manner that the total nominal amounts of the
fund will be equal to the nominal amount of the fund for the certificate of the
said bond.
	 
	 	(2)	 	After all conditions have been met, the transfer will be registered
in the Registry of Bond Holders.
	 
	 	(3)	 	All expenses and commissions involved in the transfer will be born by
the transfer requester.






	9	 	Early Redemption and Forced Conversion






	 	9.1	 	After registration of the (A Series) Bonds for trade at the Stock Exchange:
	 
	 	 	 	If the Stock Exchange decides to delete the (A Series) Bonds from trade in circulation
that the value of the public offer is less than the minimal amount determined in the
Stock Exchange Guidelines concerning the deletion from trade, the Company will react in
the following manner:






	 	9.1.1	 	Within 45 days from the date of the Stock Market’s decision
concerning deletion of the (A Series) Bonds from trade, the










 



55


	 	 	 	Company will give notification of the date of Early Redemption in which the (A
Series) Bond Holders are entitled to redeem them.
	 
	 	9.1.2	 	The date of Early redemption will be published in two common Israeli
daily newspapers published in Hebrew, and will delivered in writing by mail to the
registered (A Series) Bond Holders and to the Trustee.
	 
	 	9.1.3	 	The date of Early Redemption will not be earlier than thirty (30)
days after publication and no later than 45 days from the said date, however not
in the period between the fixed date for payment of interest and the actual date
of payment.
	 
	 	9.1.4	 	On the date of Early Redemption the Company will redeem the (A
Series) Bonds that their Holders requested to redeem, according to the balance of
their nominal value, in conjunction with the funds accrued interest and linkage
differentials until the actual date of payment of Early Redemption, in which the
interest will be calculated proportionally for the period beginning the day after
the final day for which the interest was paid until the date of the said Early
redemption (payment of interest for part of the year will be calculated based on a
year of 365 days).
	 
	 	9.1.5	 	In determining the date for the above mentioned Early Redemption
there will be nothing to prejudice the conversion privileges and/or redemption as
determined in the (A Series) Bonds for the (A Series) Bond Holders that are not
redeemed on the date of Early Redemption as mentioned above, but the Bonds will be
deleted from trade at the Stock Exchange.
	 
	 	9.1.6	 	Early redemption of the above mentioned (A Series) Bonds will not
provide the any person holding the redeemed (A Series) Bonds as mentioned the
right to payment of interest for the period following the date of redemption.










 



56








	 	9.2	 	If the (A Series) Bonds are not registered for trade on the within 6 months
from the private placement date, the bonds will not be converted into Com[any Shares,
and they will stand for Early Redemption and the following instructions will be
applicable:






	 	9.2.1	 	Within one working day after the six month period form the private
placement date, the Company will inform the (A Series) Bond Holders and the
Trustee about the Date for Early Redemption that it will be on the first working
day 17 days after the date of the said notification.
	 
	 	9.2.2	 	On the date of Early Redemption, the Company will pay the (A Series)
Bond Holders the balance of the fund tat has not yet be repaid, and is index
linked according to the instructions of the deed, and with interest as described
below. For return of the balance of the fund, the company will pay 100 NIS for
every the nominal value of 100 NIS for the (A Series) Bonds. In addition the
company will pay the (A Series) Bond Holders interest at a rate of 5% for the
period from the date of private placement until the date of Early Redemption. The
Company shall notify the Stock Exchange of the exact interest rate and the final
date of payment.






	9.3	 	Forced Conversion
	 
	 	 	The company will be entitled, at any time from the end of 30 working days from the date
of the private placement of the (A Series) Bonds and being subject to the registration
of the (A Series) Bonds for trade on the Stock Exchange, and until the 30 November 2009
(inclusive), and subject to the that mentioned in this section, according to its
exclusive discretion, without the (A Series) Bond Holders being provided the right of
choice concerning the matter, to execute a forced conversion of the Bonds., subject to
the existence of one of the cases (“The Determining Event”) described below:










 



57








	 	[a] 	 	 The weighted average of the rate of company shares on the Stock
Exchange for the last 30 days prior to the day of notification about execution of
Forced Conversion (“The Average Share Price”) was in excess of an amount of 1 NIS.
In this case the Company will be entitled to execute the (A Series) Bond’s Forced
Conversion at a ratio of 0.84 NIS per Share.
	 
	 	[b] 	 	 The accrued amount of consolidated revenues from sales of products
recorded by the Company in its books equal to or in excess of 15 million NIS
(based on its quarterly or yearly financial reports) (“Sales Goals”). The Company
will be entitled to execute the forced conversion according to this section, as of
the later of the two dates: (1) the date of submitting the Sales Goals; (2)
31ST of May 2008 (the latter of the two dates will be known as “The
Beginning of the Conversion Period”) and for a period of 4 months from the
beginning of the conversion period. The rate of conversion in this case, will be
determined in accordance with the weighted average, such that the conversion will
be the average share price with a deduction of 10%, but no more than the amount of
about 0.84 NIS. In the case that the Company meets it’s stated Sales Goals, the
Company will provide notification of such in an immediate report to the Stocks an
Equities Commission.






	 	 	 	“Weighted Average” for the purposes of this section, the implication is the
distribution the closing price product of the Company’s share on the stock market in
the Company’s share trading volume on the Stock Exchange in NIS for each of the
previous 30 days of trade, with the total trading volume of the Company Share on the
Stock Exchange in NIS for the previous 30 days of trade.
	 
	 	 	 	Following is an example of a weighted average calculation (the following description is
only as an example and it not to be considered










 



58


	 	 	 	representative of the expected company share rate for the date of conversion):
	 
	 	 	 	For convenience sake, 5 different stock market share rates will be taken into account
for the previous 30 days of trade (each for a 6 day duration): 1 NIS (in a trading
volume of 1,000,000 NIS), 1.1 NIS (in a trading volume of 2,000,000 NIS), 1.2 NIS (in a
trading volume of 1,500,000 NIS), 1.3 NIS (in a trading volume of 2,500,000 NIS), and
1.4 NIS (in a trading volume of 1,000,000 NIS). The calculation will therefore be as
follows: 1 NIS multiplied by 1,000,000 NIS multiplied by 6 and 1.1 NIS multiplied by
2,000,000 NIS multiplied by 6 and 1.2 NIS multiplied by 1,500,000 NIS multiplied by 6
and 1.3 NIS multiplied by 2,500,000 NIS multiplied by 6 and 1.4 NIS multiplied by
1,000,000 NIS multiplied by 6. Total: 57,900,000 NIS.
	 
	 	 	 	The total trading volume for the 30 days of trade was 6 multiplied by 1,000,000 NIS and
6 multiplied by 2,000,000 NIS and 6 multiplied by 1,500,000 NIS and 6 multiplied by
2,500,000 NIS and 6 multiplied by 1,000,000 NIS. Total: 48,000,000 NIS.
	 
	 	 	 	Accordingly, the weighted average is 57,900,000 NIS divided by 48,000,000 NIS, Equals
1.206 NIS.
	 
	 	 	 	In case that the conversion rate is higher than that of the price of the share on the
Stock Market on the day preceding the notification of the Forced Conversion, the
Company will not be entitled to realize the conversion on that said date.
	 
	 	 	 	In the case of the said Full Forced Conversion, the Company will provide immediate
notification of such to the Stocks and Equities Commission, at least 30 days prior to
the date of execution of the Forced Conversion and will report of such also to the
Trustee. In the Notification will be included: (a) The date of execution of the said
event; (b) the date of execution of the Forced Conversion; (c) the rate of Forced
Conversions; (d) the details of the why the determined event is taking place. The










 




59


	 	 	 	Notification for the occurrence of the determined event as mentioned will be signed by
the Company’s MD.
	 
	 	 	 	On the date fixed for the Forced Conversion the Company will allocate Shares for the
Company’s Share Bond Holders.
	 
	 	 	 	With the completion of the said Forced Conversion, the trustee transfer to the Company
the full amounts deposited with the Trustee according to section 5 of this deed, with
all accrued profits if at all, until the same date, and will remove the lien from the
Bond’s trust account, as mentioned in section 5 of this deed.
	 
	 	 	 	It is made clear that the Bond Holder will not be entitled to payment of interest for
the converted bonds preceding the determined date of eligibility to receive interest.






	10	 	The Right of Conversion of (A Series) Bonds to Shares
	 
	 	 	After registration of the (A Series) Bonds for trade on the Stock Market:






	 	10.1	 	The Conditions of Conversion
	 
	 	 	 	Commencing on the date of registration of Bonds for daily trade on the Stock Market up
till the 14TH of November 2009 (inclusive) with the exception of the period from the
15TH of November till the 30TH of November (inclusive) for each of the years from 2007
until 2008 (inclusive) (“The Period of Conversion”, and each day of trade as mentioned
will be known as follows: “The Date of Conversion”, and the last day of the Period of
Conversion will be known as: “The End of the Period of Conversion”), the balance of the
(A series) Bonds for the circulation at the time of conversion to Registered Regular
Shares for a value of $0.001 nominal value each, and are fully repayable by the Company
(“The Conversion Shares”), in a manner beginning from the date of registration for
trade until the 14TH of November 2009 each 0.84 NIS nominal value Bond will be
convertible to a regular share of a










 



60


	 	 	 	nominal value of $0.001 each, subject to adjustments as specified in section 10.3
below.
	 
	 	 	 	Any Bond Holder wishing to convert the balance of the nominal value of the (A series)
Bond’s Fund in his holding for Conversion Shares (“The Converter”) will submit directly
to the Company’s registered offices or by a member of the Stock Exchange on the date of
conversion a written request for such on a form, to be determined by the Company, along
with (A series) Bond Certificates to which the request refers (“The Notification of
Conversion”).
	 
	 	 	 	In one Notification of Conversion the conversion of the balance of the nominal value of
the fund can be requested for a number of (A series) Bonds registered under the name of
the same holder and in this case all the (A series) Bond Certificates must be attached
to which the Conversion Notification refers. In case of conversion of (A series) Bonds
for shares according to this section for only a part of the nominal amount of them, the
(A series) Bonds must first be split to a number of bonds required and in such a manner
that the whole of the nominal amounts of the fund will be equal to the nominal value of
these Bonds.
	 
	 	 	 	The forms of notification can be obtained from the registered offices of the Company
and also from any other place where the Company delivers the notification.
The Converter will sign any legally required document, as deemed necessary, in order to
allocate the Conversion Shares. With the submittal of the request to convert the (A
series) Bonds each requester will be considered as if he has declared that he is not a
U.S. Person, and that he is not located in the USA at the time of conversion and that
he is not converting (A series) Bonds for a U.S. Person as mentioned and/or for a
person in the USA.
	 
	 	 	 	The day that the Stock Exchange Clearing House receives notification from a member of
the Stock Exchange concerning the Conversion of










 



61


	 	 	 	Bonds that meets all the conditions specified in the prospectus, it will be considered
as the day of Conversion (“The Date of Conversion”).
	 
	 	 	 	If the Converter did not meet all the conditions for full conversion of the (A series)
Bonds, the Notification of Conversion will be considered null and void, and the (A
series) Bond Certificates will be returned to the requester.
	 
	 	 	 	A Notification of Conversion submitted to the Company cannot be annulled or modified.
The requester will not be entitled for any part of the Conversion shares allocation,
however if any surplus shares that come into existence at the time of conversion, if
any come into existence, will be sold by the Trustee appointed by the Company for this
purpose, in the Stock Market, within 30 days following the accruement of surplus whole
 shares of a reasonable amount for their sale in the Stock Market, taking into
consideration the entailed costs, and the net return from their sale will be divided
between the benefactors accordingly within 14 days from the date of sale. No checks
with a value les than 50 NIS will be sent and such amounts can be received at the
Company’s offices.
	 
	 	 	 	Conversion Shares will be bestow their owners with the full rights of participation for
the full dividend and other distributions that the date determining the eligibility to
receive them is the Date of Conversion or following it, and will be of equal rights in
all respects to the regular shares of $0.001 nominal value in existence and the
company’s capital at that time.
	 
	 	 	 	The converted (A series) Bonds will be removed from the circulation on the date of
their conversion and will be completely null and void retroactively from the date of
conversion, from the date of allocation of conversion shares in their place, and will
not bestow any right whatsoever following the final date for payment of interest that
the determining date for which occurs prior to the date of conversion (and










 



62


	 	 	 	which should have been paid together with the (A series) Bond Fund, and if the
requester did not realize his right to convert the (A series) Bonds to shares as
aforementioned).
	 
	 	 	 	All or part of the (A series) unconverted Bonds will no longer bestow the Holder with
any right whatsoever to convert to conversion shares, and the right of conversion for
them will be null and void after that date.
	 
	 	10.2	 	The Time table for Conversion
	 
	 	 	 	The Stock Market Clearing House’s by laws concerning timetables for execution of an
instruction for conversion of Bonds determine the following:






	 	[a]	 	 A clients notification concerning conversion delivered by 12 o’clock
pm to the Member of the Stock Exchange’s Company’s offices, delivered by the
Company to the Clearing House no later than 12 o’clock pm on the following trading
day.
	 
	 	[b]	 	 The Clearing House receives the notification from the Member of the
Stock Exchange concerning the conversion by 12 o’clock pm, the Clearing House will
debit the Stock Exchange and in turn credit the Company of the records, And this
no later than 12 o’clock pm on the following day of trading.
	 
	 	[c] 	 	 The Company received record of credit notification as mentioned in
the above subsection [b] by 12 o’clock pm, it will transfer the Conversion Request
to the Issuing Company’s offices no later than 12 o’clock pm on the following day
of trading.
	 
	 	[d] 	 	 All notifications mentioned in the above subsections [a] to [c]
received later than 12 o’clock pm of a trade day, will be considered as being
received earlier than 12 o’clock pm of the following day of trading.
	 
	 	[e] 	 	 Despite that appearing above, on the final day prior to the final
redemption or prior to a partial ex. redemption, whichever is the case, the
members of the Stock Exchange’s Clearing House must










 



63


	 	 	 	transfer for clearing the Final Conversion requests by 12 o’clock pm. The
conversion will be executed on that very same day. A member of the Clearing
House not submitting the request by the stated time will be considered as not
having realized his rights.
	 
	 	[f] 	 	 If the final date for conversion of (A Series) Bonds or the final
date of conversion prior to the partial redemption is not a day of trade, the said
date will be postponed until the next day of trade.
	 
	 	[g] 	 	 Within one working day from the date of conversion, the Company will
allocate for any requestor the conversion shares to which he is entitled by means
of Share Certificates, and in light of the approval of registration for trade for
the conversion shares on the Stock Market, the Company will proceed to immediately
register the Conversion Shares on the Stock Market.






	 	10.3	 	The Instructions for the Protection of (A Series) Bond Holders During the
Period of Conversion






	 	10.3.1	 	The distribution of Bonus Shares
	 
	 	 	 	If the Company distributes Bonus Shares, the rights of the (A Series) Bond
Holders will be preserved in the manner specified below:






	 	[a]	 	 If the Company distributes Bonus Shares from the
private placement date until the end of the conversion period, the (A
Series) Bond Holder’s rights will be preserved such that immediately
following the determining date the number of shares that the (A Series)
Bond Holder is entitled to will be increased with their conversion, and
this is by supplementing the number of shares that the (A Series) Bond
Holder was entitled to as bonus shares if he had converted his (A
Series) Bonds on the determined date.
	 
	 	[b] 	 	 The allocated bonus shares as mentioned, will
entitle the owners to participate in the full dividend in cash and in
any










 



64


	 	 	 	other distribution that the determining date for receipt is the
conversion date of following it, And will be equal to the rights on
all respects to the regular shares with a nominal value of $0.001 US
in which the company’s capital was issued on the date of conversion.
	 
	 	[c] 	 	 The (A Series) Bond Holder will not be entitled
to an allocation of part the above mentioned bonus shares, however if
any surplus shares that come into existence at the time of conversion,
will be sold by the Trustee appointed by the Company for this purpose,
in the Stock Market, within 30 days following the date of the above
mentioned allocation and the net return from their sale (less deductible
sales expenses and compulsory payments and levies) will be divided
between the within 14 days from the date of sale. No checks with a value
les than 50 NIS will be sent and such amounts can be received at the
Company’s offices.
	 
	 	[d] 	 	 The method of adjustment in non modifiable.
	 
	 	[e] 	 	 The number of conversion shares to which the (A
Series) Bond Holders will be entitled to will be adjusted only in case
the distribution of the said bonus shares, and not in the case of other
issues whatsoever (including issue to interested parties), with the
exception of the issuing of rights as specified in section 10.3.2 below.






	 	10.3.2	 	The Issue of Rights
	 
	 	 	 	From the date of the private placement until the date of the end of the
conversion period, if the owners of regular company shares are offered, by
way of an issue of rights, equity of any kind whatsoever, that the date
determining the eligibility to receive them is prior to the date of
conversion, the number of










 



65


	 	 	 	shares resulting from the conversion will be adjusted bonus element of the
rights as expressed in relation to the rate of the share on the stock market
on the determining day to the prime rate (“ex. rights”) . The system for
adjustment is non modifiable.
	 
	 	10.3.3	 	Adjustment for the distribution of a dividend
	 
	 	 	 	If the Company distributes a cash dividend, whose date determining the
eligibility to receive it is later than the date for the private placement
and prior to the clearing the payment of the bond fund, the rate of
conversion will be adjusted to the (A Series) Bonds in circulation by the
relative product between the prime ex. Dividend and the closing rate
determined by the Stock Market on the date determining the eligibility to
receive the dividend. The company will give notice of the adjusted rate of
conversion as mentioned no later than the date the Company’s ex. shares are
traded to be paid as a dividend. The conversion rate of the (A Series) Bonds
will be adjusted for distribution of the cash dividend – but not for any
other distribution.
	 
	 	10.3.4	 	Additional instructions for the protection of Bond Holders during the period
of conversion.
	 
	 	 	 	From the date of the private offer and as long as the (A Series) Bonds from
this issue have not been converted, but in any case by no later than the end
of the conversion period, the following instruction will be applicable:






	 	[1] 	 	 The Company will keep a sufficient number of
Shares of a nominal value of $0.001 US of its registered capital, to
ensure the likely allocation of shares that are likely to be resulting
from the conversion of (A Series) Bonds in circulation from time to
time, and if necessary the










 



66


	 	 	 	Company will call for the increase of the registered capital
accordingly.
	 
	 	[2] 	 	 If the company merges the $0.001 US nominal value
 shares in its issued capital for shares of a higher nominal value or
have them divided into subdivisions to shares of a nominal value less,
diminished or increased, as the case may be, The number of conversion
 shares allocated resulting from the conversion of the (A Series) Bonds
following the said action. In this case the instructions in this section
must be adhered to, subject to necessary modifications.
	 
	 	[3] 	 	 The Company will place at the (A Series) Bond
Holders disposal at its registered offices during normal work hours, a
copy of the periodic and intermediate financial reports. Any (A Series)
Bond Holder, who submits a written request, will be sent a copy of the
above mentioned reports by the Company.
	 
	 	[4] 	 	 Within ten days of any adjustment to the
conversion rate or the number of conversion shares, the company will
publish a notification of such in two common Israeli daily newspapers
published in Hebrew, concerning the rights of the (A Series) Bond
Holders to convert the bonds into Company Shares, while mentioning the
period of conversion, the rate of conversion and the number of
conversion shares that the (A Series) Bond Holders are entitled to as a
result of the conversion at that time.
	 
	 	[5] 	 	 In additional to the aforementioned notification
and no later than three weeks and no earlier than four weeks before the
end of the period of conversion, the Company will release a notification
in published in two common Israeli daily newspapers published in Hebrew,
and will delivered in










 



67


	 	 	 	writing by mail to the registered (A Series) Bond Holders and to the
Trustee. The holders registered in the (A Series) Bond Holders
registry, one month the before the end of the conversion period,
concerning the final date for the conversion of (A Series) Bonds. The
notification as mentioned will state the rate of conversion and the
number of conversion shares, the number of bonus shares that the (A
Series) Bond Holder is entitled at the time of the conversion during
this period.
	 
	 	[6] 	 	 The Company will not divide and will not offer
the share holders of the $0.001 US nominal value shares a dividend or
bonus shares or n offer of rights for equity whatsoever, unless the date
determining the right to receive them is at least ten working day later
then the publication of the Company’s notification concerning the
division.
	 
	 	[7] 	 	 The Company will refrain from any action,
including the division of bonus shares, that is likely to cease the
reduction in conversion share price to that lower of its nominal value.






	 	10.4	 	Voluntary Liquidation 






	 	[a] 	 	 In the case a decision is made to voluntarily liquidate the Company,
the Company will provide written notification to the (A Series) Bond Holders in
currency at that time, and will also publish in two common daily Israeli
newspapers in Hebrew. All (A Series) Bond Holders will be entitled to if so
desired, to be considered as if he realized his right of conversion for this on
the eve of the decision, this only if he informs the company concerning his wish
within three months from the date of the notification.
	 
	 	[b]  	 	 In this case the (A Series) Bond Holders will be entitled to
participate in the division of surplus possessions of the Company in










 



68


	 	 	 	liquidation (following the clearing of all its debts) between share holders and
this to an amount the company’s liquidator would receive if he was a Share
Holder in the Company on the eve of the making of the decision for liquidation
as a result of the (A Series) Bonds in its possession, After deducting amount of
interest paid for those (A Series) Bond on the date of decision or at a later
date (with the exception of the interest whose date for payment is prior to the
date of the decision, even if it was paid on the date of the decision or at a
later date); and that the (A Series) Bond Holder was not entitled to any payment
according to the A Series) Bond whose date for payment is later than the date of
the decision.






	11	 	The Purchase of (A Series) Bonds by the Company or by a Subsidiary
	 
	 	 	The company preserves the right to purchase at any time whether on the Stock Market or whether
externally, (A Series) Bonds at any price it thinks right, and this is without derogating from
the Duty of Payment of the (A Series) Bonds that are held by others apart from the company. In
the case of a purchase as mentioned by the Company, the Company will immediately notify in a
report and will give notice of this to the Trustee.
	 
	 	 	(A Series) Bonds purchased by the Company will be made null and void and deleted from the
Stock Market trade. And the Company will be entitled to reissue them.
	 
	12	 	The Allocation of Additional Bonds
	 
	 	 	The Company is entitled to issue at any time and from time to time, without the need for the
consent of Bond Holders or the Trustee, including the Company’s subsidiaries, according to all
instruction in law, additional (A Series) Bonds, for any price and by any means the Company
thinks right including at a discount rate (higher or lower) different than the rate determined
in the offered bond conditions according to this deed (and in that case, subject to all










 



69


	 	 	restrictions detailed in this deed, including section 2.9 of this deed). Subject to this, the
bond’s Deed of Trust will be applicable for all additional bonds as stated of the same series
that will be issued by the Company, and this will be applicable from the date of issue, as the
law of bonds from the same series that was initially registered fro trade. In addition, in the
case mentioned and according to that specified in section 18 below, the payment for the
additional bonds will be deposited in the trust account and the Company will treat this money
in the manner specified in section 18 below.
	 
	 	 	In the case of a future issue of additional (A Series) Bonds, at a discount rate different to
the discount rate regarding the issue of the (A Series) Bonds according to this deed, the
Company will refer the matter to the Tax Authorities in order to receive approval for the
matter of tax deduction at source from the interest on the (A Series) Bonds and determine for
the Bonds a uniform discount rate according to a weighted formula the different discount rates
(including the lack of discount, whichever is relevant), for the (A Series) Bonds issued from
within the series (“The Weighted Rate of Discount”). In the case that the said approval is
received, the Company will calculate the weighted rate of discount for all of the series’
bonds, and will immediately publish a report, prior to the broadening of the said series, the
additional weighted rate of discount, uniform for the whole series, and will deduct tax on
redemption dates of the bonds of the series according to the weighted discount rate and
according to all instructions of law. In the said case all additional instruction of law
regarding the taxation of the discount fee will apply. If no said approval is received from
the Tax Authorities, the Company will deduct tax at source from the discount fees for all the
(A Series) Bonds according to the highest discount rate created for this series. In this case
the Company will immediately publish a report, prior to the broadening of the said series, the
rate of discount determined for the whole series as mentioned. The Company will; deduct tax at
source of the date of redemption of the (A Series) Bonds,










 



70


	 	 	according to the rate of discount that will be published as said and according to the
instruction of law.
	 
	 	 	In case of an increase of the series of (A Series) Bonds, for any reason whatsoever, if the
determined discount rate within the framework of the (A Series) Bonds will be higher than
discount rate on the eve of the increased of the series, there may be possible cases that the
Company may deduct tax at source for the discount rate higher than the discount fees
determined for the (A Series) Bond Holder prior to the increase of the series (“The Surplus
Discount Fees”), and this whether approval from the Tax Authorities determining a uniform
rate of discount for the series was received or not. A tax payer holding (A Series) Bonds
prior to the increase of the series until the date of redemption of the Bonds in his holding,
will be entitled to submit a Tax Report to the Tax Authorities and receive a rebate to the
amount of tax deducted from the surplus discount fee, if he is so legally entitled.
	 
	13	 	Waiving; Compromise and Modifications to the (A Series) Bonds Conditions
	 
	 	 	Subject to the Stocks and Equities Law and Regulations thereof, the Bond’s Trustee will from
time to time and at any time, or in any other case, if he is convinced that there is a case of
fundamental harm to the rights of the Bond Holders, to waiver all breaches or non fulfillment
of any of the Bond or Deed of Trust conditions by the Company.
	 
	 	 	Subject to the Stocks and Equities Law and Regulations thereof, and with prior approval
received from the General Assembly of Bond Holders with a 75% participation with a vote that
the Bond Holders were present at, or by their representatives, by at least fifty percent (50%)
of the nominal value of the un-cleared balance of the Bond Fund, or by a postponed meeting
that the Bond Holders were themselves present at or by their representatives, at least ten
percent (10%) of the said balance, the Trustee will be entitled to, whether prior to or after
the Bond Fund is to be paid off, to reach a compromise with the company concerning every Bond
Holder’s right or claim for any of them to










 



71


	 	 	agree with the Company for any arrangement of his rights, including to waiver all his rights
or claims and/or those of any other Bond Holders against the Company.




Subject to the Stocks and Equities Law and Regulations thereof and from any other law, the
Company and the Trustee are entitled to whether prior to or after the Bond Fund is to be paid
off, to modify the Deed of Trust and/or the Bond Conditions if any of the following is are
relevant:






	 	13.1	 	If the Trustee is convinced that he is not essentially harming the rights of the
Bond Holders.
	 
	 	13.2	 	If the proposed modification is approved of by a special decision received at the
Bond Holder’s General Assembly, at which the Bond Holders were themselves present or by
their representatives by at least fifty percent (50%) of the nominal value of the
un-cleared balance of the Bond Fund, or by a postponed meeting that the Bond Holders
were themselves present at or by their representatives, at least ten percent (10%) of
the said balance.






	 	 	The Company will immediately provide a report concerning any modification to the Deed of Trust
and/or the Bond Conditions according to the above section.
	 
	 	 	Despite that mentioned in this section, in line with the Stick Exchange’s directives, the
conditions of the Bonds relating to the Dates of Conversion, the Rate of Conversion and
accordingly in the case of the distribution of Bonus Shares and in case of an offer in the way
of rights, are non modifiable, and however the Company is entitled to modify the Period of
Conversion or the Rate of Conversion of Convertible Equity issued by the Company, Solely if
the matter is done within the framework of an arrangement or a compromise, which has been
approved of by the courts, according to section 350 of the Companies Law. Also the method of
linkage in the case of the distribution of a dividend is non modifiable.










 



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	 	 	In all cases that the Trustee’s Rights are invoked according to this section, the Trustee is
entitled to demand from the Bond Holders to deliver to him or to the Company the Bond
Certificates, for the recording of a remark concerning any compromise, waiver, modification or
correction as mentioned and in accordance with the Trustee’s demand the Company will record a
remark as mentioned.
	 
	14	 	The Assembly of (A Series) Bond Holders
	 
	 	 	The general Assembly of (A Series) Bond Holders will convene and be conducted in accordance
with that mentioned in the Second Appendix of the Deed of Trust.
	 
	15	 	Receipts as Proof
	 
	 	 	Without prejudicing any of the conditions of the Bonds, receipt signed by any of the (A
Series) Bond Holders will constitute proof of full clearing of any payment made by the Company
for the particular (A Series) Bond.
	 
	16	 	Replacement of (A Series) Bond Certificates
	 
	 	 	In case a (A Series) Bond certificate becomes worn out, lost or destroyed, the company will be
entitled to issue another (A Series) Bond in its place under the same conditions, in relation
to the proof, indemnity and covering costs incurred ob the company in order to clarify the
right of ownership of the (A Series) Bonds to which the replacement certificates relate, as
the Company thinks right, on condition that in the case of wear, the worn Bond Certificate
will be returned to the Company prior to issue of a new certificate. Levies and other expenses
incurred for the issue of the new certificate will be born by the requester of the said
certificate.
	 
	17	 	 Immediate Settlement






	 	17.1	 	 Offering for immediate settlement by the Trustee










 



73


	 	 	 	The Trustee will be entitled to, subject to that mentioned below, to offer for
immediate settlement the remaining balance of un-cleared dentures and all if one or
more of the cases mentioned below occur, in this section below the instruction of
section 17.3 will apply as below.






	 	17.1.1	 	If the Company does not pay amounts owed concerning the bonds within 60 days
following the date of payment.
	 
	 	17.1.2	 	If a Provisional Liquidator is appointed by the courts or if a decision has been
reached to liquidate the Company (with the exception of liquidation for the
purpose of merging with another company and/or a change to the Company’s
structure) and the appointment as mentioned or the decision reached as said are
not cancelled within 60 workdays from the date they given.
	 
	 	17.1.3	 	If one of the following cases happen, the Trustee and/or the Bond Holders, with
reaching a special decision as mentioned above, will constitute an endangerment of
the Bond Holders rights:






	 	17.1.3.1	 	If there is an imposed attachment on essential company’s assets and
the attachment in not removed within 60 days.
	 
	 	17.1.3.2	 	If actions are taken by the Bailiffs against essential company
assets, and the action is not cancelled within 60 days.
	 
	 	17.1.3.3	 	If an official receiver is appointed to the Company and/or to its
essential assets, and the appointment is not cancelled within 60 days.
	 
	 	17.1.3.4	 	If the Company discontinues its payments and/or gives notification
of its intentions to discontinue payments and/or if there is an
essential suspicion that it will discontinue its payments and/or halt it
dealings and/or if it intends to halt its dealings and/or if there is an










 



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	 	 	 	essential suspicion that it will halt the management of its
dealing.
	 
	 	17.1.3.5	 	If the Company is liquidated or erased for any reason whatsoever.
	 
	 	17.1.3.6	 	If any other event occurs that in the Trustee opinion constitutes a
fundamental impingement and/or may cause a fundamental impingement on
the Bond Holders rights.






	 	17.2	 	Despite the above mentioned, the Trustee will not offer the (A Series) Bonds for
immediate payment, unless one of the following cases is met:






	 	17.2.1	 	If the Trustee gave written notice in advance to the Company regarding its
intention to act, and the Company did not fulfill after the said notice within 30
days from the date of receipt. In the said notice the Company will be requested to
bring about the annulment and/or the cessation of the case as one of the cases
mentioned above, that because of it the notice was given.






	 	17.3	 	The General Assembly of the (A Series) Bond Holders will be Convened for the
Following:






	 	17.3.1	 	The Trustee will be obligated to convene an (A Series) Bond Holders assembly
whose date for assembly will be 30 days following calling for the convention (or
at an earlier date according to section 7.2.4 below) and whose agenda will be to
decide about the offering the immediate settlement of all the remaining balance of
un-cleared (A Series) Bonds due to the occurrence of one of the events specified
in the subsections of the above section 7.1.
	 
	 	17.3.2	 	In the case that up till the date of convening the Assembly, none of the above
events specified in the subsections of the above section 7.1 were nullified or
removed, and the decision of the said Bond Holders Assembly reached a special
decision (as










 



75


	 	 	 	defined in the Second Appendix of this Deed), the Trustee will be obligated,
within a reasonable amount of time, to offer for immediate settlement the
remainder of the un-cleared balance of (A Series) Bonds.
	 
	 	17.3.3	 	Copies of the Assembly Convention Notification will be sent by the Trustee to
the company immediate on publication of the notification and this will serve as
written advanced notice to the Company as mentioned of its intention to act.
	 
	 	17.3.4	 	The Trustee will be entitled to according to its own discretion to shorten the
time of 30 days as specified (in the above section 7.2.1) in case that the Trustee
is of the opinion that any postponement in offering the Bonds for immediate
settlement endangers the rights of the (A Series) Bond Holders.








	18	 	Assuring the (A Series) Bonds






	 	18.1	 	By the date of Private Placement the Trustee will open an account in one of the
five largest banks in Israel, using its own discretion, to which full amounts from the
special account of the Issue Coordinator will be transferred and in which will be
deposited I this account following the summary of the results of the private placement
and also, an additional amount of some 4 million NIS which will be transferred by the
Company by the date of the Private Offer (“The Deposit”) (“The Trustee’s Account”). As
long as the (A Series) Bonds are in circulation, the Trustee will have signature rights
for the Trust Account in a manner that any withdrawal of funds from the Trust Account or
transfer of funds to a third party and the execution of investment into the Trust
Account according to the instructions of this Deed, will necessitates the Trustee’s
signature. The Trustee shall sign such withdrawal, transfer or performance of investment
only after getting the instructions to do so from the Company.










 



76


	 	18.2	 	The deposit will be invested by the Company in Deposits or Shekel Bonds that are
issued by the State of Israel or Dollar Linked Bonds.
	 
	 	18.3	 	As an assurance that all conditions of the denture will be completely and
accurately fulfilled, and the conditions of the Deed of Trust, to ensure the full
payment of all the fund’s amounts, the interest and the linkage promised in the Bond and
Deed of Trust, the Company will mortgage in favor of the Trustee a fixed mortgage (for
its rights in the Trustee’s Account) and current (for funds to be deposited in the
Trustee’s Account from time to time) in the first degree, with no limitation of amount,
its rights in the Trust Account and all the deposited funds therein and all profit
earned from them. The execution of mortgage will be executed and registered,
simultaneously with the deposit of the funds in the trust fund.
	 
	 	18.4	 	The Trustee will treat the deposit in the following way: the Trustee will
transfer the deposit to the Company only after the (A Series) Bonds have been registered
for trade on the Stock Market and subject to the occurrence of one of the cases
mentioned below: (1) with the receipt of notification from the Company concerning the
execution of Full Forced Conversion of the bonds as specified in section 6.3 of the
deed, the Trustee will transfer the deposit to the Company, with all its profits after
the deduction of tax and expenses for the management of the fund, as accrued, until the
same date, and will remove the mortgage from the Trust Account, if the company’s
mortgage on the Trustee’s Bond Account has not yet expired, in light of the occurrence
of one of the conditions in section (2) and (3) below: (2) If with receipt of
notification from the Company concerning the execution of full or partial Early
Redemption as mentioned in section 6 of the deed, if indeed one is received, the Trustee
will permit the Company the use of deposit, with all its profits, as may have accrued
until the same date, for the Early Redemption as mentioned. If in case the Early
redemption is a Full Redemption, the Trustee will transfer the balance of the funds
remaining










 



77


	 	 	 	in the Trustee Account after the deduction of tax and expenses for the management of
the fund, as accrued, until the same date and will remove the mortgage from the Trust
Account, if the company’s mortgage on the Trustee’s Bond Account has not yet expired,
in light of the occurrence of one of the conditions in section (1) and (3) of this
section: (3) If with receipt of a notification signed by the MD of the Company by the
Trustee concerning the reaching one of two milestones described below, the trustee
will transfer half (50%) of the deposit, with all its profits that may have been
accrued, and to whatever amount, until such date. In continuance, when the Company
reaches the second milestone described below, the Trustee will transfer the balance of
the funds remaining in the Trustee Account after the deduction of tax and expenses for
the management of the fund, as accrued, until the same date and will remove the
mortgage from the Trust Account, if the company’s mortgage on the Trustee’s Bond
Account has not yet expired, in light of the occurrence of one of the conditions in
section (1) and (2) above.
The said milestones are described below:






	 	[a] 	 	 Receipt of the European Union’s approval to market the Group’s
Imaging Catheter according to CE Marking Standard on behalf of the European
Notified Body from one of the Member States of the European Union.
	 
	 	[b] 	 	 Receipt of approval to market the Group’s Imaging Catheter in The USA
on behalf of the FDA (Food & Drug Administration).






	 	 	 	It should be clarified herein that the Trustee will be entitled to transfer the deposit
described in section (1) and (3) above, only following the registration if there is
such registration, of the (A Series) Bonds for trade on the Stock Market.
	 
	 	18.5	 	In any case of (non forced) conversion of bonds into Company Shares, the Trustee
will immediately transfer to the Company after receiving approval of the conversion, an
amount from the deposited funds, equal to










 



78


	 	 	 	the amount of the nominal value of the bonds that were converted into the shares as
mentioned.
	 
	 	18.6	 	It should be clarified herein, that the Company will be entitled to pay the
interest on the (A Series) Bonds along with the linkage differentials, on any date
determined for the payment of the said interest in section 3 of the conditions recorded
on the opposite side of the attached page, furthermore, from the amounts that have
accrued in the Trust Account. The Company will notify the Trustee by a letter signed by
the Company and authorized by the Company’s accountant; the mentioned amount to be paid
7 days prior to any date of payment of interest and the Trustee will transfer to the
Company these amounts no later than 7 days after receiving the said letter from the
Company.
	 
	 	18.7	 	It should be made clear that, with the exception of the mortgage on the Trust
Account, as mentioned above, the Company will be entitled to mortgage its capital, fully
or in part, for all mortgages and in any manner whatsoever, without the necessity
whatsoever for the trustee’s consent.
	 
	 	18.8	 	The Company will be entitled to issue at any time, and without being need for the
Trustee’s consent and/or the Bond Holders consent, an additional series of bonds
(including (A Series) Bonds), whether they bestow the right of conversion to Company
Shares or not bestowing the right of the said conversion, and under the same conditions
of redemption, interest, linkage, degree of settlement in case of liquidation and other
conditions that the company thinks rights, whether they be preferential over the
conditions of the Bond, equal to or inferior to them, regarding the Discount Rate in
case of an issue of additional (A Series) Bonds as mentioned, see section 12 of the
conditions recorded on the opposite side of the page attached to the deed.
	 
	 	18.9	 	The Bonds will be offered with a degree of security equal to the pari passu with
themselves regarding the Company’s commitments’










 



79


	 	 	 	according to the bonds, and with no first rights or priority of one over the other.
	 
	 	18.10	 	In order to remove any doubt, it should be made quite clear that the Trustee has
no obligation to examine, and in actuality the Trustee has not examined the economic
value of the of the securities that were offered and/or will be offered (if at all) to
ensure that the payment to the (A series) Bond Holders in its contractual commitment by
this Deed of Trust, and with the Trustee’s agreement to serve as Trustee for the A
series) Bond Holders, the Trustee does not voice an opinion, specifically or implied, as
to the economic value of the securities, that were offered and/or will be offered (if
at all) by the Company. Also the Trustee does not voice an opinion as to the capability
of the Company to meet all its commitments towards the (A series) Bond Holders.






	19	 	Taxation
	 
	 	 	For details concerning the taxation of the offered (A series) Bonds and (Series 2) Warrants
(hereinafter conjointly “The Offered Equity”) see the Third Appendix to this deed.
	 
	20	 	Notifications
	 
	 	 	All notifications on behalf of the Company and/or the Trustee for the Bonds will be notified
in the publication in two (2) common daily Israeli newspapers in Hebrew or by the dispatch of
the notification by registered mail according to the last address of the Bond Holders as
registered in the Bond Holder’s registry, and that all notifications’ published or dispatched
as mentioned will be considered as being delivered to the Bond Holders on the said day of
publication or after three (3) days following the date of dispatch by mail, all according to
the case in hand.
	 
	 	 	Copies of the notifications and invitations sent by the Company to the Bond Holders will also
be sent to the Trustee.










 



80


	 	 	Copies of the notifications and invitations sent by the Trustee to the Bond Holders will also
be sent to the Company.










 



81







TopSpin Medical Inc.

Second Addendum 

(A series) Bond Holders Assembly





	 	[a] 	 	 The Bond Trustee or the Company is entitled to convene the Bond Holders to the
Bond Holders Assembly. If the Company invites the Assembly, it must immediately send
written notification to the Trustee concerning the place, day, and time in which the
Assembly will take place and also the topics on the agenda to be brought up for
discussion.
	 
	 	[b] 	 	 The Company will also have to invite to the said Assembly by written
demand from the Trustee or by Holders with at least a ten percent (10%) of the
nominal value of the un-cleared balance of the Bond Fund.
	 
	 	[c]  	 	For every Bond Holders Assembly, the Bond Holders and the trustee will be
given advanced notification of fourteen (14) days at least, in which will be
specified the place, day and time of the Assembly, and also it will be mentioned in
general terms the topics that will be discussed at the Assembly. In case the
invitation to the Assembly is from the Trustee, the said notification will be given
to the Company.
	 
	 	[d] 	 	 In case the purpose of the Assembly is to reach a special decision
advanced notification of at least 21 days must be given and it must detail the
principals of the proposed decision.
	 
	 	[e] 	 	 The trustee will be entitled to shorten the date of provision of advanced
notification if he thinks that the postponement of the Assembly constitutes a breach
of the Bond Holders rights.
	 
	 	[f] 	 	 Any Notification on behalf of the Company or the Trustee to the Bond
Holders, can be given means of a poster published in two (2) common daily Israeli
newspapers in Hebrew, or by dispatching to each Bond Holder by registered mail
according to the last registered address in










 



82


	 	 	 	the registry, and any notification published or dispatched as previously mentioned
will be considered as being delivered on the day of publication in the newspaper or
after three (3) working days following the dispatch by mail, whichever is
relevant.
	 
	 	[g] 	 	 In addition, in case of an invitation to the Assembly on by the Company
or by the Trustee the Company will publish an immediate report according to law.
	 
	 	[h]  	 	No decision will not be overruled if legally reached in the said
Assembly, if by error no notification was given to the Bond Holders regarding the
Assembly by less than ten percent (10%) of the nominal value of the un-cleared of
the balance of the bond fund or if the said notification is not received by the
holders as mentioned and only if a report of it as published according to the law.
	 
	 	[i] 	 	 The Assembly Chairman will be a person appointed by the Trustee. If the
Trustee did not appoint a chairman, as mentioned or if the person appointed by the
trustee is absent from the Assembly, the present Bond Holders (or their
representatives) will select from amongst themselves a chairman. The Bond Holders
Assembly will open after it has been proven that there is a legally required quorums
present to begin the discussion.
	 
	 	[j] 	 	 Subject to there being a required quorum, it is required for the legal
dismissal of the trustee, in the Bond Holders Assembly, with the exception of what
is specified in this section, two (2) bond holders present themselves will
constitute the legal quorum or by means of their representatives and the Bond
Holders or the representatives together of at least ten percent (10%) of the nominal
value of the un-cleared balance of the Bond Fund at that time.
	 
	 	[k] 	 	 If within half an hour from the time set for the beginning of the
Assembly there is not a legal quorum present, the assembly will be postponed till
the same day of the following week, at the same place at










 



83


	 	 	 	the same time (without the need for additional notification) and in case this day
is not a workday  — the following day after that (without the need for additional
notification), or for a another day, pace and time determined by the inviter of
the Assembly, under the condition that the inviter gives a seven (7) day advanced
notification of the occurrence of the postponed assembly as mentioned, in the same
manner that notification was given for the original assembly, and will stated that
if there is not a legal quorum present at the postponed assembly of tow (2) Bond
Holders themselves or by their representatives, without regards to the percentage
of the nominal value of the bonds in their holdings. A notification as mentioned
can be given for which notice for the postponed assembly is based on.
	 
	 	[l] 	 	 If there is no legal quorum for the postponed Assembly as mentioned, two
Bond Holders who are present themselves or their representatives, holding any amount
whatsoever of bonds will be a legal quorum.
	 
	 	[m] 	 	 With the consent of the Holders the majority of the nominal value of
un-cleared balance of the Fund’s Bonds present at the Assembly themselves or by
their representatives, at which a legal quorum was present, the chairman is entitled
to, and if called on by the Assembly he is obligated to postpone the assembly from
time to time and from place to place, as the assembly decides. If the Assembly is
postponed for ten (10) days or more, notification will be given for the postponed
Assembly in an identical manner for which the first Assembly was notified (including
an immediate report). With the exception of the above mentioned that the Bond
Holders will not be entitled to receive any notification for the postponed Assembly
and/or the matters to be discussed at the postponed Assembly. Only matters that
could have been discussed at the Assembly in which the postponement was decided will
be discussed at the postponed Assembly.










 



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	 	[n] 	 	 In an Assembly convened to reach any of the decisions specified below
(“The Special Decision”) a legal quorum will be considered when there are present at
the Assembly at least fifty percent (50%) of the nominal value of the un-cleared
balance of the Fund’s Bonds if if in a postponed Assembly in which are present
themselves or by their representatives at least ten percent (10%) of the mentioned
balance:






	 	[1] 	 	 A modification to the Deed of trust;
	 
	 	[2] 	 	 An arrangement of reorganization of the Company with any
other company;
	 
	 	[3] 	 	 An repair, modification or fundamental arrangement of the
Bond Holders rights, whether the rights are derived from the Bond, Deed of
Trust or from something else , or from any fundamental compromise or waiver
regarding these rights;
	 
	 	[4] 	 	 Offering for immediate settlement of the Bonds;






	 	[o] 	 	 It should be clarified herein, that a legal quorum of Bond Holders for
holding a General Assembly to reach a special decision and in the counting of votes
in favor of the special decisions as mentioned, votes will not be taken into account
of those bond Holders who hold control of the Company, in companies in the
controlling parties control and companies connected with the Company, as the terms
are defined in the Stocks and Equities Law, with the exception of the anyone of the
abovementioned who is an investor included with the investors in the First Appendix
of the Stocks and Equities Law (regarding section 15a(b)(1) of the Stocks and
Equities Law), who does not invest for himself, whose vote will be taken into
account.
	 
	 	[p] 	 	 The manner of voting for the Company’s (A Series) Bond Holders Assembly
if and as long as no detailed directives and/or arrangement in the Stock Exchange’s
Clearing House bylaws in relation to the voting of the Assembly of Companies
incorporated outside of Israel and who are issued on the Tel Aviv Stock Exchange
Ltd:










 



85


	 	 	 	The following procedure apply for will in any cases that the (A Series) Bond
Holders General Assembly is convened in relation to non registered Bond Holders:
	 
	 	 	 	The (A Series) Bond Holders for whom an (A Series) Bond is registered with a member
of the Stock Exchange on the Determining Date and the same (A Series) Bond is
included in the registered (A Series) Bonds under the name of the Registration
Company of Bank Hapoalim Ltd. (“The Registration Company”) who will request to vote
in the General Assembly will contact the Stock Exchange member with whom his (A
Series) Bond Rights are registered as mentioned and will request from the Stock
Exchange member to act, though the Stock Exchange Clearing House, to receive power
of Attorney from the Registration Company under his name or any authorized name on
his behalf.
	 
	 	 	 	An (A Series) Bond Holder for whom the (A Series) Bonds are registered with the
member of the Stock Exchange on the Determining Date can participate in and vote in
the General Assembly only after submitting his Power of Attorney as mentioned, and
he is not able to prove ownership and participate in voting by presenting
submitting proof of ownership (as according to the meaning of this term in the
Companies Law) from the Stock Exchange member regarding his holdings of (A Series)
Bonds on the Determining Date.
	 
	 	 	 	The Registration Company will contact the Stock Exchange Clearing House and request
that the Clearing House approve that all the requests for Power of Attorney that
were delivered to it as mentioned, according to the list of the requested amount
with the all Clearing House members, were indeed held, on the determining date for
the purpose of the Assembly, by the members of the Clearing House as specified in
the list. Following receipt of the Clearing House’s approval as mentioned, the
Registration Company will issue the (A










 



86


	 	 	 	Series) Bond Holders with Power of Attorney in accordance with the requests for
Power of Attorney, in which the Registration Company will grant Power of Attorney
to each and every one of the unregistered (A Series) Bond Holders to vote in the
aforementioned General Assembly under its own discretion for the Holder’s nominal
value and will specify that each one of them is eligible to notify the Company up
till the date of the Assembly his Power of Attorney in which he grants Power of
Attorney to another person to vote in his name.
	 
	 	 	 	If and when detailed directives and/or arrangements of the Stock Exchange Clearing
House’s Bylaws are issued regarding the voting in general assemblies of companies
incorporated outside of Israel and are issued in the Tel Aviv Stock Exchange Ltd,
the instructions and/or arrangements as mentioned will apply subject to the
appropriate laws of the State of Delaware.
	 
	 	[q] 	 	 The Bond Holders will be entitled to participate in and vote in any
General Assembly through his representative. In all Bond Holders Votes, the voting
will be conducted by the number of votes cast, and that any Bond Holders or his
representatives will be entitled to one vote each for every 1 NIS nominal value of
the nominal Fund of Bonds still unpaid from which he is entitled to vote. In case on
Co Holders, only the first of the registered requester will receive a vote, whether
he himself or through his emissary.
	 
	 	[r] 	 	 A Bond Holder or his emissary will be entitled to vote for part of his
votes for a particular proposal, and for part of his votes against, for part to
abstain, anyway he thinks is right.
	 
	 	[s] 	 	 The Trustee participating in the General Assembly at the Company’s
invitation will participate with no voting rights.
	 
	 	[t] 	 	 The required majority to reach a normal decision for the General Assembly
is the simple majority of the number of votes represented in the ballot and the
voters voted for or against. The required majority to










 



87


	 	 	 	reach a special decision for the said Assembly in the above section [n] is a
majority of no less than 75% of the votes cast in the above-mentioned ballot.
	 
	 	[u] 	 	 A decision to modify the Deed of Trusteeship will be reached by a special
decision subject the instructions of law.
	 
	 	[v] 	 	 The Chairman’s declaration that the decision has been reached or rejected
and the recording of the matter in the Assembly’s minutes will serve as irrefutable
evidence of the fact.
	 
	 	[w] 	 	 The Letter of Appointment appointing an emissary will be in writing and
signed by the appointer or by his representative that he has the authority as
proscribed in writing. If the appointer is a corporation, the appointment will be
made by written authorization and lawfully signed by the corporation along with a
notarized authorization to the validity of the signature. An emissary does not
himself have to be a Bond Holder.
	 
	 	[x] 	 	 A vote cast in accordance to the conditions of the document appointing
the emissary will be valid even if the prior to the demise of the appointer or if
declared incompetent or if the letter of appointment is nullified or if the Bond for
which the vote was given is transferred, unless notification of such is received at
the Company’s registered offices prior to the date of the Assembly in writing
regarding the demise, decision of incompetence, the nullification or transfer
abovementioned, whichever is relevant.
	 
	 	[y] 	 	 Any corporation as an owner of Bonds, is entitled to by written and
lawfully signed authorization grant Power of Attorney to any person it sees fit to
act as its representative in any Bond Holder’s Assembly, and the person authorized
to so act will be entitled to act on behalf of the corporation he represents.
	 
	 	[z]  	 	The Assembly’s Chairman will ensure the taking of minutes of all
discussion and decisions of all Bond Holders General Assemblies, and










 



88


	 	 	 	to record them in the minute’s book of the Bond Holders General Assemblies. All
minutes signed by the Assembly’s Chairman in which decisions were reached and
discussion were held, or by the chairman of the next Assembly, will serve as proof
for matters recorded therein, and for as long as it has been proved otherwise, any
decision reached by the Assembly will be considered as being lawfully received.
	 
	 	[aa] 	 	 A person or people appointed by the Trustee, company secretary or any
person or other people that are authorized by the company, will be entitled to be
present at Bond Holders Assemblies.
	 
	 	[bb] 	 	 The Trustee will examine the need for the convening of the Category
Assemblies in which there exist cases of different interests amongst the Bond
Holders, and according to the relevant circumstances. The Company and the Trustee
will act to convene Category Assemblies of Bond Holders according to instructions of
law, judgment, instruction of the Stock and Equities Law and regulations and
directives derived from them.
	 
	 	[cc] 	 	 The company declares that the manner of voting by Letters of Appointment
and/or Power of Attorney as mentioned above, does not contradict the instruction of
law in the USA in connection with the voting in Assemblies.










 



89







TopSpin Medical, Inc.




Third Addendum




Taxation of the proposed securities for private placement



Whereas, within the scope of the aforementioned issue, the Company will issue a series of (A
Series) bonds as set forth in clause 2 of this trust deed, and also a series of up to 25,000,000
warrants (Series 2), so that every bond holder (Series A) who will purchase from the company 2 (A
Series) bonds will be entitled to receive from the Company, free of charge, 1 (one) warrant (Series
2) for every 2 (A Series) bonds that he holds, referring to the taxation arrangement introduced
herein below, which is in respect of the (A Series) bonds and in respect of the warrants (Series
2).





	 	1.	 	Taxation in Israel
	 
	 	 	 	On the 25th of July 2005 a law was passed in the Knesset to amend the income
tax act (No. 147) of 2005 (“the Amendment”). The amendment was published in the
records on the 10th of August 2005 and became effective on the
1st of January 2006. The amendment substantially changes the directives of
the income tax act (new version) of 1961 (“the order”), as it relates to the taxation
of securities traded on the Stock Exchange. Furthermore, as of the date of signing
this writ, not all of the regulations that are expected to be published as a result of
the amendment have been made known. Additionally, as of the date of signing this writ,
there is no accepted practice regarding part of the directives of the amendment, nor
are there any rulings clarifying the new amended tax directives.
	 
	 	 	 	According to the law that is presently valid in Israel, the taxation arrangements that
apply to the securities that are proposed (including shares that will result from the
conversion of (A Series) bonds and realization of warrants (Series 2)), are described
in the following summary:






	 	(a)	 	Capital gain from sale of the proposed securities






	 	 	 	In accordance with clause 91 of the order, eal capital gain from the sale of
securities (including proceeds), by an individual who is a resident of Israel,
is taxable at a marginal rate of tax for an individual in accordance with clause
121 of the order, but at a rate that will not exceed 20%, and










 



90


	 	 	 	will demonstrate capital gain at the highest level on the taxable earnings
scale. This, except in respect of sale of securities by an individual who is “a
substantial shareholder” in a company, that is, he who holds, directly or
indirectly, by himself or together with another (as this term is defined in
clause 88 of the order) at least 10% or more of the means of control in the
company – on the date of sale of the securities or on any date whatsoever during
the 12 months that proceeded such sale, when the rate of tax in respect of real
capital gain held by him will not exceed 25%. Furthermore, regarding an
individual who claimed real interest expenses and linkage differential for the
securities will be charged realistic capital gain from sale of the securities,
at a 25% rate of tax, until the determination of directives and conditions for
deducting real interest expenses according to clause 101a (a) (9) of the order.
	 
	 	 	 	An association of individuals will owe tax on real capital gain from the sale of
securities at the rate of tax for companies, which will decrease gradually until
a rate of 25% in the tax year 2010 onward (31% in the 2006 tax year, 29% in the
2007 tax year, 27% in the 2008 tax year and 26% in the 2009 tax year). An
association of individuals to whom no directives of chapter B of the income tax
law apply (in accordance with inflation) — 1985, or clause 130a of the order,
prior to the date of publishing the amendment, will owe tax at a rate of 25% in
respect of real capital gain, as aforesaid, as of the 1st of January
2006, onwards.
	 
	 	 	 	Upon sale of shares that are traded on the Stock Exchange, which originate from
(A Series) bonds, traded on the Stock Exchange and which have been converted to
 shares, will be shown at the original price of these shares (for the purpose of
calculating capital gain), the original price of the bonds (Series A) will be
shown as betterment expenses for the payment that was paid (if it was paid) in
exchange for converting them into shares. Moreover, for the purpose of
taxation, the date of the purchase of the aforesaid shares will be the date of
purchasing the (A Series) bonds.
	 
	 	 	 	On sale of the shares, traded on the Stock Exchange, which originate with
warrants (Series 2) traded on the Stock Exchange that have been realized










 



91


	 	 	 	for shares, the original price of these shares will be shown (for the purpose of
calculating capital gain); the original price of the warrants will be shown as
betterment expenses for the payment that was paid in respect of the realization
of the warrants (Series 2) into shares. Also, for tax purposes, the date of the
purchase of the shares as aforesaid will be shown as the date of purchasing the
warrants (Series 2).
	 
	 	 	 	In rule 4 of the income tax ordinance (calculation of capital gain on the sale
of securities traded on the Stock Exchange, government loan or a unit in a trust
fund) —  2002, it is determined that in proceeds of bonds traded on the Stock
Exchange, for which discount fees are also paid, the payment of proceeds will be
shown as payment with the addition of the discount fees, should all of the
following have taken place: (1) the capital gain from the sale of bonds is not
exempt from tax; (2) on the date of proceeds there is a capital loss; and (3)
the proceeds are not in the hands of a controlling owner or in the hands of
whoever holds the bonds from the date that they were allocated or were issued,
all of which up to the amount of the capital loss. The discount fees that are
seen as payment in accordance with these directives will not be considered as
earnings in accordance with clause 2(4) of the order.
	 
	 	 	 	The trust fund is exempt as are pension funds and entities that are tax exempt
according to clause 9(2) of the order, exempt from tax in respect of capital
gains from the sale of securities as aforesaid. On earnings from trust funds,
owed from the sale of securities, a rate of taxation will apply starting with
the income of the individual, for whom the earnings do not constitute income
from “business”.
	 
	 	 	 	Regarding the offset of losses from the sale of the proposed securities, as of
the 2006 tax year more as a general offset of capital loss that was in the tax
year of the sale of the security in exchange for capital gains and property
betterment and also in exchange for profits from the sale of securities, that
are or are not traded, Israeli or foreign, and in addition, in exchange for
interest and dividend that were paid for that same security or in respect of
other securities (on the condition that the rate of tax that applies to the
interest or on the dividend as aforesaid will not exceed










 



92


	 	 	 	25%), in that same tax year. Offset of losses will be performed by way of
offsetting the capital loss against capital gains or earnings from interest or
from dividend as aforesaid.
	 
	 	 	 	On the matter of deducting tax at source from real capital gain for the sale of
the proposed securities, in accordance with the income tax ordinance (deduction
from the exchange, from the payment or from the capital gain from the sale of
security, from the sale of a trust fund unit, or future transaction) 2002, the
remunerator owes the seller in exchange for the sale of securities traded on the
Stock Exchange, tax will be deducted at a rate of 20% of the real capital gain
when the seller is an individual, and at a rate of 25% when the seller is an
association of individuals. And that, subject to confirmation of exemption from
deduction of tax at source, and subject to offset of losses that the deductor is
permitted to perform at source. Also, tax will not be deducted at source for
pension funds, trust funds and additional entities that are exempt from
deduction of tax at source, in accordance with law. It will be stated that, if
on the date of sale no deduction of tax at source from real capital gain was
made, the directives of clause 91(d) will apply to the order on the matter of
reporting, and on the payment of advances in respect of the aforesaid sale.
However, on capital gain from the sale of securities prior to it being
registered on the Stock Exchange, tax at a rate of 30% will be deducted, and
that in accordance with and subject to the income tax ordinance (deduction from
payment in respect of services or properties) — 1977.
In general, taxes that are paid in the United States in respect of sale of
securities that are proposed, will be permitted as credit in exchange for tax
that is paid in Israel in accordance with the directives of the order and the
charter (as defined in clause 2 below).
	 
	 	 	 	See clause 2.6 below regarding federal taxation in the United
States and directives of the charter in respect of sale of the proposed
securities.
	 
	 	(b)	 	The rates of taxation that will apply on earnings from dividend in
respect of company shares.










 



93


	 	 	 	In general, dividend is taxable at a rate of 20% for an individual who is a
resident of Israel, except in respect of an individual who is a substantial
shareholder in the company on the date when the dividend was received, or on any
date whatsoever during the 12 months that preceded, in which case the rate of
tax in that respect will be 25%. The rate of tax regarding dividend held by
companies that are resident in Israel will generally be a rate of 0%, except for
dividend originating from outside of Israel, or dividend originating from
earnings that were issued, or that developed outside of Israel, and then the
rate of taxation is 25%. Dividend held by a trust fund is liable in accordance
with the rate of taxation that applies to an individual.
	 
	 	 	 	A trust fund is exempt, as are pension funds and other entities that are exempt
from taxation in accordance with clause 9(2) of the order, and will be exempt
from tax in respect of the dividend as aforesaid.
	 
	 	 	 	The company will deduct tax at source on distribution of the dividend, in
accordance with the income tax regulations (maximum deduction, from dividend and
from certain profits) — 2005 (“deduction regulation”).
	 
	 	 	 	See clause 2.2 hereinafter regarding federal taxation in the United States and
directives of the charter relating to dividend in respect of the company’s
 shares.
	 
	 	(c)	 	The rate of taxation that will apply on interest of earnings from
bonds
	 
	 	 	 	In accordance with clause 125c(b) of the order, an individual will be required
to pay tax at a rate of 20% on interest or discount fees that have developed
starting from the 1st day of January 2006, and which originate from
bonds that are fully linked to the index, and will show these earnings as a
higher rate on the scale of income that is










 



94


	 	 	 	liable. The aforesaid rate of taxation will not apply if, inter alia, one of
the following conditions exists: (1) the interest is income from “business”
according to clause 2(1) of the order, or that is registered in the accounting
ledgers of the individual, or is liable for registration as said: (2) the
individual claimed deduction of interest expenses and linkage differential for
security; (3) the individual is a substantial shareholder in the company that
pays the interest. In the instances as said, the individual will be obligated
for taxation on interest or on discount fees at a marginal rate of tax of the
individual in accordance with clause 121 of the order.
	 
	 	 	 	The rate of tax that applied to the interest earnings or the discount fees of
the association of individuals resident in Israel which is not an association of
individuals that is directed in clause 9(2) of the order, apply on the
determination of his earnings, except on the matter of clause 3(h) of the order
in respect of interest that has accrued, and which originate from bonds that are
traded on the Stock Exchange, which is a rate of companies tax, that will be
gradually decreased until a rate of 25% during the 1010 tax year onwards (31%
during the 2006 tax year, 29% during the 2007 tax year, 27%during the 2008 tax
year and 26% during the 2009 tax year).
	 
	 	 	 	Trust funds are exempt as are pension funds and entities that are exempt from
taxation in accordance with clause 9(2) of the order, exempt from tax in respect
of the earnings of interest or said discount fees, subject to directives of
clause 3(h) of the order on the matter of interest that has accrued during the
period of the holding by another. On the earnings of trust fund, a rate of
taxation owed on interest or from discount fees will apply, starting with the
earnings of an individual for whom the earnings do not constitute earnings from
“business”.










 



95


	 	 	 	On the proceeds of bonds linked to the index, linkage differential will be shown
as a part of the value, and the directives of the order will apply in respect of
calculating the capital gain, as set forth above.
	 
	 	 	 	As said above, starting from the 2006 tax year, capital loss in the tax year
from the sale of security will be deducted also in exchange for earnings from
interest (including discount fees) for that same security or in respect of other
securities (on the condition that the rate of tax that applies to the interest
or dividend as said will not exceed 25%).
	 
	 	 	 	In accordance with the deduction regulations, the payer owes the individual
interest (as it is defined in the abovementioned regulations), that is paid on
bonds that are traded on the Stock Exchange, and which are fully-linked to the
consumer price index or to foreign currency, and tax will be deducted from it at
a rate of 20% in respect of an individual who is not a substantial shareholder
in the company that is paying the interest, in accordance with the maximum
marginal rate of tax according to clause 121 of the order in respect of an
individual who is a substantial shareholder in the company that is paying the
interest, and in accordance with the rate of company tax with regard to an
association of individuals.
	 
	 	 	 	The company will, at source, deduct the tax payments which it is required to
deduct at source, from the payment of interest that will be paid by it to
holders of bonds, except in respect of entities that are exempt from deduction
of tax at source, as said, in accordance with law. On the dates of settlement
of bonds fund the company will deduct tax at source for discount fees, as set
forth above.
	 
	 	(d)	 	The calculation of discount for the (Series A) bonds
	 
	 	 	 	Since as long as the bonds are not listed in the Stock Exchange, then: (a) the
(Series A) bonds cannot be converted into shares of the










 



96


	 	 	 	Company and (b) the (Series 2) warrants cannot be exercised into shares of the
Company, the company intends to attribute no portion of the private placement to
the (Series 2) warrant and to the capital part of the (Series A) bond.
Accordingly, the discount for the (Series A) bond will be calculated by the
difference between the par value of a (Series A) bond and the consideration for
a (Series A) bond, which is 5%.
	 
	 	 	 	If the (Series A) bonds shall be listed on the Stock Exchange, an additional
discount will be added due to attributing a portion of the private placement
consideration to the (Series 2) warrant and the capital portion of the (Series
A) bond. These attributions will be made based on the relative values of the
securities, as determined by the average market price of each of the securities
at the end of each of the first three trading days after the listing for trade.
Then, the attribution of that portion of the private placement consideration
related to the (Series A) bonds for both of the equity portion and the debt
portion of the (Series A) bonds, will be done by Israeli GAAP number 22
financial instruments: disclosure and presentation. The discount that is
calculated in respect of each of the (A Series) bonds will be determined in
accordance with the difference between the par value of the (A Series) bond, and
between the portion of the private placement attributed to the debt in the (A
Series) bond.




The company will deduct tax at source from payments of the fund that are
ascribed for discount, as is required in accordance with the deduction
regulation, according to the rates of the discount that have been so calculated.
In the event that, in accordance with the requirements of the competent
authority, the company will be required to ascribe a different value to the bond
(Series A), the company will notify in this regard to the holders of the bond
(Series A).










 



97


	 	 	 	In the case of issuance of additional (A Series) bonds in the future, at a rate
of discount that is different from the rate of discount that will be determined
in respect of the issue of the bond (Series A) in accordance with this writ, the
company will appeal to the tax authority in order to receive their agreement
that the matter of deduction of tax at source from the interest in respect of
the (A Series) bonds will determine one uniform rate of discount for the bonds
of the series, according to the formula that will weigh the various rates of
discount (including absence of discount, should this be relevant) of (A Series)
bonds that were issued from within the series (“rate of weighted discount”). In
the event that such agreement as aforesaid will be received, the company will
calculate the rate of the weighted discount for all of the bonds of the series,
and will immediately publish a report, prior to expanding the series as
aforesaid, of the rate of the additional weighted discount, uniform for the
entire series, and will deduct tax on the dates of the proceeds of the bonds
from the series in accordance with the rate of the weighted discount and in
accordance with directives of law. In the event, as stated, that the rest of
the directives of law that refer to taxation of discount fees will apply. And
if the aforesaid agreement will not be received from the tax authority, the
company will deduct tax at source from the discount fees with regard to the
entire series of (A Series) bonds in accordance with the highest rate of
discount that was produced in regard to this series. In this case, the company
will immediately publish, in a report prior to expanding the series as said, the
rate of discount that has been set in regard to the entire series, as aforesaid.
The company will deduct tax at source at the time of proceeds from the (A
Series) bonds, in accordance with the rate of discount that will be reported, as
has been said, and in accordance with directives of law.










 



98


	 	 	 	In the case of increasing the series of (A Series) bonds, for any reason
whatsoever, and should the rate of discount that will be determined within the
framework of issuing (A Series) bonds be higher than the rate of discount of the
series prior to expanding the series, there might be instances in which the
company will deduct tax at source in respect of discount fees at a rate that is
higher than the discount fees that will be determined for whomever holds (A
Series) bonds prior to expanding the series (“surplus discount fees”), and this,
whether the agreement has been received from the tax authorities to determine a
uniform rate of discount for the series, or not. A tax-payer who holds the (A
Series) bonds prior to the expansion of the services, and until settlement of
the bonds that are held by him, will be entitled to submit a tax report to the
tax authorities and to receive rebate of the amount of tax that was deducted
from the surplus discount fees, just as he is entitled to rebate as said in
accordance with law.
	 
	 	 	 	See clause 2.1 hereunder regarding federal taxation in the United States, and
directives of the charter relating to interest paid in respect of the bonds.






	2.	 	Federal Taxation in the United States
	 
	 	 	This clause summarizes the various tax implications of the revenue tax and the federal
inheritance tax in the United States on property, the holding and sale of the proposed
securities (“the (A Series) bonds”), including regular shares of the company (in the case of
bond conversion), warrants for the purchase of regular shares of the company, and regular
 shares that were purchased when realizing warrants (together, “the proposed securities”).
This clause is relevant only and if it is for “an Israeli holder” (as defined hereinafter),
who holds the proposed securities as a capital asset for the purchase of tax in the United
States. This clause does not constitute a complete description of all of the possible tax
implications.










 



99


	 	 	This clause is based on the compilation of American tax laws of 1986, as it has been amended
(“the compilation”), the legislative history of the compilation, existing or proposed
regulations, the charter between the government of the United States and the government of
Israel regarding taxation on income that was signed on the 20th day of November
1975, as it has been amended in the protocols dated 30th May 1980 and of the
26th January 1993 (“the charter”), the decisions of the tax authorities and the
courts of law in the United States as they have been published, all of them as they are, and
valid as of the date of signing this writ. These laws are subject to changes which might be
made retroactively.
	 
	 	 	For the purpose of this clause, “Israeli holder” is any holder (including an Israeli
association and an individual Israeli resident for the purpose of tax in Israel) which is a
resident of Israel for the purposes of the charter, entitled to benefits by power of the
charter, is the beneficiary of the proposed securities unless he is one of the following:
(a) a citizen or a resident of the United States; (b) a prior citizen or resident of the
United States and subject to special rules in accordance with clause 877 of the compilation;
(c) a corporation that has incorporated according to the laws of the United States or one of
the states within the United States; (d) trusteeship that is subject both to supervision of
the United States Court of Law, and also that all of the fundamental decisions therein are
under American control, one or more, or that have been chosen in accordance with the Treasury
regulations of the United States, to be American; or (e) inheritance, the revenue from which
is subject to revenue tax in the United States without taking into consideration the source
of the revenue.
This clause does not discuss all of the tax implications that might be relevant for the
Israeli holders in light of the special circumstances, or whereas they are subject to special
laws, including, inter alia, banks, insurance companies, individuals who have received the
proposed securities by means of realizing options for employees or as compensation, and
Israeli corporations that hold (directly or indirectly) at least 10% of the voting power of
the company. Also,










 



100


	 	 	this section does not discuss the aspects of local or state tax and the implications of tax
that are not American.
	 
	 	 	For Israeli holders who are considering the purchase of the proposed securities, it is
recommended to consult with their tax consultants regarding the incidence of the laws of
revenue tax and federal inheritance tax in the United States, on the specific circumstances
and regarding the implications of the state tax laws and the local taxation, foreign tax laws
(not American) and the incidence of the charter.






	 	2.1	 	Interest paid in respect of bonds
	 
	 	 	 	Interest paid in respect of bonds to Israeli holders will not be subject to deduction
of federal tax at source in the U.S.A., and instead of that, “exemption of interest
from passive earnings” will apply, namely:






	 	[a] 	 	 The Israeli holder does not hold, directly or indirectly, in fact or
by the power or 10% or more of the total voting rights for each of the share
types:
	 
	 	[b] 	 	 The Israeli holder is not:






	 	[1] 	 	 A controlling foreign company connected with the
company by means of share holdings; or
	 
	 	[2] 	 	 A bank who received the bonds by means of providing
credit in accordance with a loan agreement that was signed during its
normal transactions; and so






	 	[c] 	 	 The beneficiary of the bonds provides his name and address and
confirms, subject to punishments that have been determined by law on the matter of
giving false witness, that he is not a resident of the U.S.A., in accordance with
the documentary requirements that will be set forth herein below (“documentary
requirements for the purpose of reduced tax deduction or exemption from tax
deduction”).






	 	 	 	Interest that is paid to the Israeli holder, and to whom the exemption of interest from
passive earnings does not apply, and that he has no business










 



101


	 	 	 	or trade effectively connected with the United States, will be liable for deduction of
American federal revenue tax at source at a rate of 30%. In a situation where the
Israeli holder is entitled to benefit from the benefits of the charter and meets the
documentary requirements that have been set forth herein, the rate of deduction at
source will be 17.5% (or 10% in the case of certain Israeli financial institutions).
	 
	 	 	 	Special directives will apply in a situation in which the interest will be calculated
as connected to business or trade by the Israeli holder in the United States. See the
discussion regarding “earnings connected effectively to the United States” hereunder.
	 
	 	2.2	 	The dividends paid regarding shares of the company
	 
	 	 	 	Except as detailed herein below, the dividends paid to Israeli holders of regular
 shares (for instance, regular shares issued at the time of bond conversion), on the
assumption that the company has “earnings and profits” (as they are defined in the
compilation) current or cumulative, are subject to deduction of American federal
revenue tax at source at a rate of 30% or at a reduced rate of tax of 25% according to
the charter.
In order to enjoy reduced rates of tax in the charter, the Israeli holder must meet the
documentary requirements that are detailed herein. Special directives, that are
detailed below, will apply in cases where the dividends “effectively connected” to the
business or trade that the Israeli holder has in the United States.
	 
	 	2.3	 	Interest, dividends and capital gains connected with business or trade in the
United States.
	 
	 	 	 	If interest that is paid in regard to bonds, dividends that are paid in respect of
the regular shareholdings of the company or profit from sale of proposed securities
connected to the business or trade by the Israeli holder in the United States and the
interest, the dividends and profit as said are attributed to a permanent institution
(as it is defined in the charter) of the Israeli holder in the United States, these
payments will be










 



102


	 	 	 	subject to federal revenue tax in the United States at the regular rates that
apply to United States residents, and additionally, in the case of an Israeli holder
who is a corporation, to subsidiary profits tax of 30% (or a rate of 12.5% according to
the charter) applicable to earnings after tax (amendable) which is effectively
connected to activities of the business or the trade in the United States, and are not
invested and left in the business of the Israeli holder in the United States.
	 
	 	 	 	Interest and dividend payments that are connected with the business or the trade
of the Israeli holder in the United States are exempt from deduction of tax at source,
as long as the Israeli holder has provided an American revenue tax form W-8ECI.
	 
	 	 	 	Regarding the commitment of the Company not to distribute dividends until the deposit
of its securities with The Depository Trust Company (DTC) or until finding another
arrangement approved by the Stock Exchange, see section 2.2.7.5 of the Company
prospectus published on August 25, 2005.
	 
	 	2.4	 	Documentary requirements for the purpose of reduced tax deduction or
exemption from deduction of tax.
	 
	 	 	 	Also if the Israeli holder is eligible for a reduced rate of tax or exempt from
deduction of tax, whether by power of the charter or if according to internal law in
the United States, in general tax at a rate of 30% will be deducted at source on
payments of interest or dividends, unless the Israeli holder has provided the company
or the body through which he trades shares (broker, etc.), on the matter of the
payments:






	 	[a] 	 	 A valid American W-8BEN tax form (in the case of payment of revenue
that is effectively connected to the United States, form W-8CEI) or another
acceptable substitute form according to which the Israeli holder confirms, subject
to punishments as determined by law regarding giving false testimony, (or in the
case of an Israeli holder who is a partnership, inheritor or trustee, these forms
confirm










 



103


	 	 	 	that each partner in the partnership, or the beneficiary of the inheritance or
of the trusteeship), that is not American and which confirms his entitlement to
a reduced rate of tax according to the charter (or the exemption) with regard to
these payments; or
	 
	 	[b] 	 	 In a case where these payments have been effected outside of the
United States to a foreign account (in general, an account which is held by the
Israeli holder in an office or branch of the bank or other financial institution
in any location which is outside of the United States), the Israeli holder can
provide either the W-8BEN form or other documented proof which establishes the
entitlement of the Israeli holder to a reduced rate of tax according to the
charter in accordance with the regulations of the American Treasury.
	 
	 	 	 	If the regular shares are held by a financial institution, the
Israeli holder is required to provide the abovementioned documents (or other
acceptable document in accordance with United States law) to the said
financial institution in order that he can request benefit according to the
charter, and it is up to the financial institution to provide the proper
authorizations to the company or the entity through which the shares are
traded, regarding the matter of the payments.






	 	2.5	 	Conversion of bonds
	 
	 	 	 	The Israeli holder who converts the bonds into regular shares will have no growth,
profit or loss of income, except for profit or loss that emanate from receipt of cash
in exchange for share fractions. Cash received in exchange for share fractions might
create profit which will be subject to the explicit directives herein below regarding
sale and/or transfer, by any other means, of the proposed securities. The general
correlated basis of the Israeli holder of regular shares will be equal to the
correlated basis of the Israeli holder of bonds (after deducting the relative portion
of the share fractions for which he receives cash), and the period that an Israeli










 



104


	 	 	 	holder will hold a share will include the period for which he holds the bond.
	 
	 	2.6	 	Capital profits from sale and/or transfer of the proposed securities by any
other means 
	 
	 	 	 	In general, the Israeli holder is not subject to federal revenue tax in the United
States for profits from sale and/or transfer of the proposed securities by any other
means (including a component of regular shares or a component of warrants or both),
unless:






	 	[a] 	 	 The aforesaid profit is connected to business or trade by the Israeli
holder in the United States, unless the Israeli holder is a resident of Israel for
the purpose of the charter, the profit connected to a permanent institution (as it
is defined in the charter) of the Israeli holder in the United States (in this
case the special directives, as detailed herein below, will be applicable).
	 
	 	[b] 	 	 The Israeli holder is an individual, holding the proposed securities
as a capital asset, who has been in the United States for 183 days or more during
the tax year during which the sale took place, and certain additional conditions
exist; or
	 
	 	[c] 	 	 The company is or was an American Real-Estate Holding company for the
purpose of federal revenue tax for any time whatsoever during the period of five
years ending on the date of the sale, unless certain exceptions exist.






	 	 	 	The company is not, was not in the past and does not expect that in the future it will
become an American Real-Estate Holding company for the purpose of federal revenue tax
in the United States.
	 
	 	 	 	With regard to taxation of capital gains connected effectively with the United States,
see “Interest, dividends and capital gains connected with business or trade in the
United States” aforementioned. Regarding capital gains for an individual who has been
in the United States for 183 days or more during the tax year, this individual will, in
general, be










 



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	 	 	 	obligated for American federal revenue tax of 30% on profits from an American source in
excess of losses from an American source for that same year.
	 
	 	2.7	 	Realization and expiration of warrants 
	 
	 	 	 	Realization of warrants by an Israeli holder does not constitute a tax event for the
purposes of federal taxation in the United States. Instead, the price that is paid by
the Israeli holder for realizing the warrant will be added to the basic cost, for tax
purposes, of the shareholder that resulted from the realization. Loss that results from
the expiration of warrant will constitute a capital loss as long as the loss that
occurred resulted from the share which had resulted from the realization of the option
which constituted a capital loss for the holder.
	 
	 	2.8	 	Federal inheritance tax
	 
	 	 	 	Generally, regular shares held by an Israeli individual at the time of his death and
warrants held by an Israeli individual at the time of his death will be included in the
inheritance of the holder for the purpose of federal inheritance tax in the United
States. The United States and Israel have not signed an inheritance tax charter.
	 
	 	2.9	 	Deduction of tax at source for the purpose of backup withholding and the
obligation to report






	 	2.9.1	 	Certain payments of interest, dividend and exchange for sale of
securities reports must be reported to the tax authorities in the United States.
If the recipient of said payments (who does not benefit from special exemption)
does not confirm his identification number for the purpose of tax on the required
form (for instance, tax form W-8BEN) or if there are other conditions, the payer
of the payments is required to deduct tax from these payments at source, as backup
(presently at a rate of 28%).
	 
	 	 	 	Payments of interest on bonds and dividends on regular shares that are paid to an
Israeli holder are not generally subject to deduction of










 



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	 	 	 	tax at source for the purpose of backup, and so payments of exchange for sale of
the proposed securities paid to an Israeli holder by a broker are not subject to
the obligation of reporting and deduction of tax at source for the purpose of
backup, and this on condition that the Israeli holder confirms his standing as a
foreigner for the purpose of tax (not American) (certain methods of proving the
position of foreigner are detailed in clause “documentary requirements for the
purpose of reduced tax deduction or exemption from tax deduction” above). It is
up to the company to report once a year to the tax authorities in the United
States about all interests and dividends that are paid to each holder who is not
American, and about the tax that was deducted at source for them (if deduction
was made, since as of the date of this Deed the tax rate is 0%). According to
the charter, copies of said reports might be placed at the disposal of the tax
authorities in Israel.
	 
	 	2.9.2	 	Israeli investors purchasing the securities offered in the Private
Placement, will be required, as a condition for purchase, to fill with the member
of the Stock Exchange, through which it purchased the (Series A) bonds, a W-8BEN
IRS form. The Company undertakes to send a copy of that form to the Registration
Company. In addition, the Company will send a copy of that form to the Stock
Exchange clearing house if the Stock Exchange clearing house will require.
	 
	 	2.9.3	 	For the avoidance of doubt it is clarified that an Israeli holder
not filling the W-8 BEN IRS form, will be considered a US holder for the purpose
of tax deduction in the source in the US.
	 
	 	2.9.4	 	In the case detailed in 2.9.3 above, and also in a case where an
Israeli holder (in this section “the holder”) is subject to a tax payment in a
rate different than 0%, the holder will send an order to withdraw the (Series A)
bonds and (Series 2) warrants (in case










 



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	 	 	 	he owns (Series 2) warrants), through the member of the Stock Exchange clearing
house, through which he holds the (Series A) bonds and (Series 2) warrants. In
addition, the Company will issue an amended (Series A) bond certificate
(excluding the abovementioned (Series A) bonds) and an amended (Series 2)
warrant certificate (excluding the abovementioned (Series 2) warrants) on the
name of the Registration Company. If such withdrawal order will not be received
by the Stock Exchange clearing house, the Stock Exchange clearing house will
not transfer to the holder the interest payment, unless otherwise agreed with
the Stock Exchange clearing house.






	 	2.10	 	Additional operational requirements
	 
	 	 	 	The Company will transfer to the Stock Exchange clearing house and the Registration
Company every year no later than December 15 of each of the years 2007 to 2009
(inclusive) a draft of 1042 form together with the distribution of different payments
the holders of (Series A) bonds are entitled to get from the Company, through the
Registration Company and the Stock Exchange clearing house, in accordance with the
terms of the (Series A) bond and this Deed, including interest payments, as required by
law. The Company will send the Stock Exchange clearing house and the Registration
Company a final draft of the 1042 form, as agreed by the Stock Exchange clearing house,
by January 15 of each of the years 2008 to 2010 (inclusive).






	 	 	This clause, which discusses the considerations of federal revenue tax and inheritance tax in
the United States, is intended to provide general information only. This information is not
tax consultancy.
	 
	 	 	This clause is limited to matters that have been discussed herein above. There might be
other subjects that have not been discussed in this clause and which might affect American
federal revenue tax regarding the proposed securities.










 



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	 	 	Moreover, the above-said is not intended to serve and cannot serve for all investors for
the purpose of avoiding fines under federal taxation laws in the United States, or state or
local tax laws in the United States. The above-said is written in support of recommendation,
promotion or marketing of the proposed offering of securities to the public.
	 
	 	 	It is up to the investor to consult with his tax consultant with regard to the specific
implications of federal, state or local taxation in the United States, as well as the
implications of foreign tax in respect of the purchase, the holding and the sale of the
proposed securities, including the implications of any proposed changes in the said laws.