Document:

Unassociated Document

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of March 31, 2011, between InspireMD, Inc., a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser (the “Offering”), and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1           Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

“Acquired Shares” shall have the meaning ascribed to such term in Section 4.15.

“Additional Listing Shares” shall have the meaning ascribed to such term in Section 4.10.

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

“Board of Directors” means the board of directors of the Company.

 

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

 

“Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities, in each case, have been satisfied or waived, but in no event later than the third Trading Day following the date hereof.

“Commission” means the United States Securities and Exchange Commission.

 

  

  

  

 

“Common Stock” means the common stock of the Company, $0.0001 par value, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“Company Counsel” means Haynes and Boone, LLP, with offices located at 30 Rockefeller Plaza, New York, New York 10112.

 

“Contingency Issuance” shall have the meaning ascribed to such term in Section 4.15.

“Contingency Shares” shall have the meaning ascribed to such term in Section 4.15.

“Dilution Adjustment” shall have the meaning ascribed to such term in Section 4.14.

“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

 

 “Escrow Agent” means Grushko & Mittman, P.C., with offices at 515 Rockaway Avenue, Valley Stream, New York 11581.

 

“Escrow Agreement” means the escrow agreement entered into prior to the date hereof, by and among the Company, the Escrow Agent and Palladium Capital Advisors, LLC pursuant to which the Purchasers shall deposit Subscription Amounts with the Escrow Agent to be applied to the transactions contemplated hereunder.

 

“Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(r).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Exchange Agreement” shall mean the Share Exchange Agreement, dated as of December 29, 2010, by and among the Company, InspireMD Ltd., a company incorporated under the laws of the state of Israel (“InspireMD Ltd.”), and the shareholders of InspireMD Ltd. that are signatory thereto, as amended to date and attached hereto as Exhibit F.

 

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers, consultants or directors of the Company pursuant to the Stock Option Plan in an amount not to exceed 9,468,100 in the aggregate (subject to appropriate adjustments for any stock dividend, stock split, stock combination, reclassification or similar transaction after the Closing Date), (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder, (c) securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement and listed on Schedule 3.1(g), provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities and (d) securities issued (other than for cash) in connection with a synergistic merger, acquisition, or consolidation of all or substantially all of the assets, securities or business division of another entity.

 

  

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“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

 

“FDA Approvals” shall have the meaning ascribed to such term in Section 3.1(oo).

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

“GM” means Grushko & Mittman, P.C., with offices located at 515 Rockaway Avenue, Valley Stream, New York 11581.

 

“Harvard Trials” shall have the meaning ascribed to such term in Section 3.1(oo).

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa).

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

“Irrevocable Transfer Agent Instructions” means the instruction letter to the Transfer Agent, a form of which is annexed hereto as Exhibit C.

“Israeli Counsel” means Karfi Leibovich Lawyers.

“Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

 

“Liens” means a lien, charge pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“Listing Default” shall have the meaning ascribed to such term in Section 4.10.

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

“Offering” shall have the meaning ascribed to such term in the Preamble.

“Palladium” shall have the meaning ascribed to such term in Section 3.1(g).

“Per Share Purchase Price” equals $1.50, subject to appropriate adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

  

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“Protection Period” shall have the meaning ascribed to such term in Section 4.14.

 

“Public Information Failure” shall have the meaning ascribed to such term in Section 4.2(b).

 

“Public Information Failure Payments” shall have the meaning ascribed to such term in Section 4.2(b).

 

 “Purchaser Party” shall have the meaning ascribed to such term in Section 4.8.

 

 “Removal Date” means the date that all of the Shares and Warrant Shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions.

 

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(q).

“Securities” means the Shares, the Warrants and the Warrant Shares.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Share Exchange” shall have the meaning ascribed to such term in Section 2.2(a)(v).

 

“Shares” means the shares of Common Stock issued or issuable to each Purchaser pursuant to this Agreement.

 

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). 

“Stock Option Plan” means the Stock Option Plan, the form of which is annexed hereto as Exhibit D.

 

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Shares and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

 

  

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“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable and with regard to future events, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

“Super 8-K” means the draft Form 8-K substantially and materially in the form annexed hereto as Exhibit E.

 

“Surrendered Notes” shall have the meaning ascribed to such term in Section 2.1.

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question:  the NYSE Amex Equities, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).

 

“Transaction Documents” means this Agreement, the Warrants, the Escrow Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

“Transfer Agent” means Columbia Stock Transfer Company, the current transfer agent of the Company, with a mailing address of 601 E. Seltice Way, Suite 202, Post Falls, ID 83854, and a facsimile number of (208) 777-8998, and any successor transfer agent of the Company.

 

“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.12(b).

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers holding a majority in interest of the Shares then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

“Warrants” means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a 5-year term of exercise, in the form of Exhibit A  attached hereto.

 

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

 

  

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ARTICLE II.

PURCHASE AND SALE

 

2.1           Closing.  On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase Shares and Warrants for up to an aggregate of $20,000,000 but not less than $9,000,000. Prior to the Closing, each Purchaser shall deliver to the Escrow Agent such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser by either (a) a wire transfer of immediately available funds or delivery of a certified check, to be held in a non-interest-bearing escrow account, or (b) surrender of an original instrument (or instruments), duly endorsed for transfer, evidencing indebtedness of the Company or any Subsidiary to such Purchaser equal to such Purchaser’s Subscription Amount (each, a “Surrendered Note”), or a combination thereof equal to such Purchaser’s Subscription Amount, and the Company shall, not later than forty-five (45) calendar days following the Closing Date, deliver to each Purchaser its respective Shares and a Warrant, as determined pursuant to Section 2.2(a). The Company and each Purchaser shall also deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of GM or such other location as the parties shall mutually agree.

2.2          Deliveries.

 

(a)           On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i)           (x) this Agreement duly executed by the Company and (y) the Escrow Agreement duly executed by the Company;

 

(ii)          a legal opinion of Company Counsel and Israeli Counsel, substantially in the forms of Exhibit B-1 and Exhibit B-2, respectively, attached hereto;

 

(iii)         a copy of the irrevocable instructions to the Transfer Agent instructing the Transfer Agent to deliver, on an expedited basis, a certificate evidencing a number of Shares equal to such Purchaser’s Subscription Amount divided by the Per Share Purchase Price, registered in the name of such Purchaser;

 

(iv)         a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to fifty percent (50%) of such Purchaser’s Shares, with an exercise price equal to $1.80, subject to adjustment therein;

(v)             a certificate signed by the Company’s CEO and CFO, to and for the benefit of the Purchasers that a closing occurred under the Exchange Agreement on the unamended terms of the Exchange Agreement without waiver by any party thereto of any conditions or term thereof (the “Share Exchange”); and

(vi)             a copy of the Irrevocable Instructions to Transfer Agent countersigned by the Transfer Agent.

(b)          On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company or the Escrow Agent, as applicable, the following:

 

  

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(i)          this Agreement duly executed by such Purchaser; and

 

(ii)         to Escrow Agent, such Purchaser’s Subscription Amount by wire transfer or certified check to the account specified in the Escrow Agreement.

  

2.3           Closing Conditions.

 

(a)           The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

 

(i)          the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

(ii)         all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed in all material respects;

 

(iii)      the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement;

(iv)           a closing shall have occurred on the terms and conditions described in the Exchange Agreement without any amendment thereto or waiver thereof; and

(v)    the Company shall have received executed signature pages to this agreement from Purchasers showing an agreement to purchase at least an aggregate of $9,000,000 of Shares and Warrants hereunder and the Escrow Agent shall have received at least an aggregate of $9,000,000 in corresponding Subscription Amounts from such Purchasers in either cash, Surrendered Notes or a combination thereof.

 

(b)             The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

 

(i)           the accuracy in all material respects (determined without regard to any materiality, Material Adverse Effect or other similar qualifiers therein) when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

(ii)          all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

 

(iii)         the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

 

(iv)         there shall have been no Material Adverse Effect with respect to the Company since the date hereof;

(v) a closing shall have occurred on the terms and conditions described in the Exchange Agreement without any amendment thereto or waiver thereof;

 

  

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(vi)       from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market, and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing; and

(vii)        the Company shall have received executed signature pages to this agreement from Purchasers showing an agreement to purchase at least an aggregate of $9,000,000 of Shares and Warrants hereunder and the Escrow Agent shall have received at least an aggregate of $9,000,000 in corresponding Subscription Amounts from such Purchasers in either cash, Surrendered Notes or a combination thereof.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1          Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or warranty made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser as of the Closing Date (subject to the qualification that all representations and warranties in this Article III that relate to, may relate to, or may pertain to information possessed by the Company prior to consummation of the Share Exchange are qualified solely to the extent of the Company’s knowledge, with such knowledge being based solely on a review of Saguaro Resources, Inc.’s SEC Reports; provided, that the foregoing shall in no way qualify or limit the Company’s representations and warranties that relate to, may relate to, or pertain to information possessed by InspireMD Ltd., a Subsidiary of the Company):

 

(a)           Subsidiaries.  All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, a majority of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

(b)           Organization and Qualification.  The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in:  (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

  

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(c)           Authorization; Enforcement.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery of each of this Agreement and the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except:  (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

(d)           No Conflicts.  The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal, state and foreign securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e)           Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other foreign or domestic federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.4 of this Agreement and (ii) the filing of a Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the “Required Approvals”).

 

  

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(f)           Issuance of the Securities.  The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens other than restrictions on transfer provided for in the Transaction Documents and Liens resulting from the activities of any Purchaser. The Company has reserved from its duly authorized capital stock the maximum stated number of shares of Common Stock issuable pursuant to this Agreement and the Warrants.

(g)           Capitalization.  The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof.  The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the Exchange Agreement. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents (including, but not limited, under Sections 4.9 and 4.14 hereof). Except as a result of the purchase and sale of the Securities and as set forth on Schedule 3.1(g), there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents.  The only stock option or similar plan applicable to the Company is the Stock Option Plan. Except as set forth on Schedule 3.1(g), the Subsidiaries do not have any stock option or similar plans. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities.  There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.  The Company represents that based on the capitalization of the Company immediately prior to Closing, the minimum aggregate Subscription Amount of $9,000,000 will acquire an amount of Common Stock equal to not less than 10% of the outstanding shares of Common Stock of the Company on a fully diluted basis but exclusive of Common Stock issuable pursuant to the Stock Option Plan, any warrants issuable to Palladium Capital Advisors, LLC (“Palladium”) in connection with the Offering, as disclosed in Schedule 3.1(s), and warrants to issue up to 2,500,000 shares of Common Stock that will be issued immediately following the Closing  (i.e. $85,000,000 pre-money valuation).

 

  

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(h)          Super 8-K; Financial Statements. The Super 8-K, upon its filing, will comply in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the Super 8-K comply with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

(i)           Material Changes; Undisclosed Events, Liabilities or Developments.  Since the date of the latest audited financial statements included within the Super 8-K, except as specifically disclosed in Schedule 3.1(i): (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement and as set forth on Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development has occurred or exists, or is reasonably expected to occur or exist, with respect to the Company or its Subsidiaries or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one (1) Trading Day prior to the date that this representation is made or is described in the Super 8-K.

 

(j)           Litigation.  Except as set forth on Schedule 3.1(j), there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”), nor is there any reasonable basis for any of the foregoing.  Neither the Company nor any Subsidiary, nor, to the Company’s knowledge, any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company, nor is there any reasonable basis for any of the foregoing. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

 

  

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(k)           Labor Relations.  No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company.  None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good.  To the knowledge of the Company, no executive officer of the Company or any Subsidiary is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.  The Company and its Subsidiaries are in (i) compliance with all foreign laws and regulations relating to worker classification, employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect and (ii) material compliance with all U.S. federal, state and local and foreign laws and regulations relating to worker classification, employment and employment practices, terms and conditions of employment and wages and hours.

 

(l)           Compliance.  Except as set forth on Schedule 3.1(l), neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any material judgment, decree, or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any material statute, rule, ordinance or regulation of any governmental authority, including without limitation all material foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in the case of clause (i) as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(m)          Regulatory Permits.  The Company and the Subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as actually conducted and as described in the Super 8-K (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

 

(n)           Title to Assets.  The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and the payment of which is neither delinquent nor subject to penalties.  Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

 

  

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(o)           Intellectual Property.  The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as necessary or required for use in connection with their respective businesses (collectively, the “Intellectual Property Rights”).  None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement.  Neither the Company nor any Subsidiary has received a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person.  To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.  The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their material intellectual properties. All past and present founders, members of management, employees and consultants of the Company and each of its Subsidiaries that are engaged in research and development activities or that could be reasonably expected to make or conceive developments and inventions, have executed and delivered to the Company or applicable Subsidiary a binding written agreement assigning to the Company or the applicable Subsidiary all developments and inventions of such employee or consultant.  No government funding, facilities or resources of a university, college, other educational institution or research center or funding from third parties was used in the development of the Company Intellectual Property and no governmental entity, university, college, other educational institution or research center has any claim or right in or to the Company Intellectual Property.

 

(p)           Insurance.  The Company and the Subsidiaries are insured against such losses and risks and in such amounts, and by such insurers, as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance of not less than $5,000,000 and product liability insurance of not less than $5,000,000 or as otherwise mandated by any contractual obligations of the Company or any of its Subsidiaries.  Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

 

(q)           Transactions With Affiliates and Employees.  Except as set forth in the Company’s filings with the Commission under the Securities Act and the Exchange Act, which shall be deemed to include the Super 8-K (collectively, the “SEC Reports”) and Schedule 3.1(q), none of the officers or directors of the Company or any Subsidiary and none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

 

(r)         Money Laundering.  The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened, nor is there any reasonable basis for any of the foregoing.

 

  

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(s)           Certain Fees.  No brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents, other than Palladium, as set forth on Schedule 3.1(s), which fees shall be paid on the Closing Date.  On the Closing Date, the Company will pay the fees set forth on Schedule 3.1(s).  The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents other than as a result of an agreement or other arrangement entered into by a Purchaser with a third party broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to such Purchaser’s activities in connection with the transactions contemplated by the Transaction Documents.

 

(t)           Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

(u)           Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.  The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.

 

(v)           Registration Rights.   No Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.

 

(w)          Listing and Maintenance Requirements.  The Company has not, in the twenty-four (24) months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market.

(x)           Application of Takeover Protections.  The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

 

  

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(y)           Disclosure.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Disclosure Schedules and the Super 8-K, the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information.   The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company.  All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

(z)           No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

 

(aa)         Solvency.  Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid.  The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).  The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 3.1(aa) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $100,000 (other than trade accounts payable incurred in the ordinary course of business) (and the Company represents that the aggregate amount of all liabilities for borrowed money or amounts owed equal to or less than $100,000 does not exceed $1,000,000), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $100,000 due under leases required to be capitalized in accordance with GAAP.  Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

  

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(bb)        Tax Status.  Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in payments, fines or penalties in excess of $100,000 in the aggregate, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and sales and all foreign income, sales and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.

 

(cc)         No General Solicitation.  Neither the Company nor, to the knowledge of the Company, any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

 

(dd)        Foreign Corrupt Practices.  Neither the Company nor any Subsidiary, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds or for the benefit of the Company or any of its Subsidiaries, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated any provision of the Foreign Corrupt Practices Act of 1977, as amended.

 

(ee)         Accountants.  The Company’s accounting firm is set forth on Schedule 3.1(ee) of the Disclosure Schedules. To the knowledge and belief of the Company after reasonable investigation, such accounting firm is a registered public accounting firm as required by the Exchange Act.

 

(ff)             No Disagreements with Accountants and Lawyers.  Except as set forth on Schedule 3.1(ff), there are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

(gg)        Acknowledgment Regarding Purchasers’ Purchase of Securities.  The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

  

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(hh)        Acknowledgment Regarding Purchaser’s Trading Activity.  Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f) and 4.14 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction.  The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities in accordance with all applicable laws at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Warrant Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

  

(ii)           Regulation M Compliance.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.

(jj)           Stock Option Plans.  Except as set forth on Schedule 3.1(jj), as of the Closing Date, no stock options have been granted, nor any commitments made to grant stock options, under the Stock Option Plan, and neither the Company nor any Subsidiary has ever had an option plan other than the Stock Option Plan.

 

(kk)         Office of Foreign Assets Control.  Neither the Company nor any Subsidiary  nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).

(ll)             Translations.  All translations provided to the Purchasers in connection with the transactions contemplated by any of the Transaction Documents are complete and accurate English language translations of the original.

 

  

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(mm)             Health Regulatory Matters.  The Company and its Subsidiaries have complied in all material respects with all statutes and regulations related to the research, manufacture and sale of medical device products to the extent applicable to the Company’s and its Subsidiaries’ activities. Items manufactured or under investigation by the Company and its Subsidiaries comply with all applicable manufacturing practices regulations and other requirements established by government regulators in the jurisdictions in which the Company or its Subsidiaries manufacture their products. To the Company’s knowledge, it is not and its Subsidiaries are not the subject of any investigation by any competent authority with respect to the development, testing, manufacturing and distribution of their products, nor has any investigation, prosecution, or other enforcement action been threatened by any regulatory agency. Neither the Company nor any of its Subsidiaries has received from any regulatory agency any letter or other document asserting that the Company or any Subsidiary has violated any statute or regulation enforced by that agency with respect to the development, testing, manufacturing and distribution of their products. To the Company’s knowledge, research conducted by or for the Company and its Subsidiaries has complied in all material respects with all applicable legal requirements. To the Company’s knowledge, research involving human subjects conducted by or for the Company and its Subsidiaries has been conducted in compliance in all respects with all applicable statutes and regulations governing the protection of human subjects and not involved any investigator who has been disqualified as a clinical investigator by any regulatory agency or has been found by any agency with jurisdiction to have engaged in scientific misconduct.

 

(nn)             Business Activities.  To the Company’s knowledge, the Company has not engaged in any business activities prior to the Share Exchange other than as set forth in the SEC Reports.

(oo)             Estimated Costs.  Based upon the Company’s current projections, and subject to change, the Company believes that it will be required to spend $3.4 million during the first two years following the Closing on (i) the completion of the “MGuard Stent System Clinical Trial in Patients with Acute Myocardial Infarction” to be performed by Harvard Clinical Research Institute, Inc. (the “Harvard Trials”) and (ii) obtaining the approval of the United States Food and Drug Administration for the sale of the Company’s products in the United States (the “FDA Approvals).

3.2          Representations and Warranties of the Purchasers.  Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):

 

(a)           Organization; Authority.  Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser.  Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

 

  

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(b)           Own Account.  Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell the Securities in compliance with applicable federal and state securities laws).  Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

 

(c)           Purchaser Status.  At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it exercises any Warrants, it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.  Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

(d)           Experience of Such Purchaser.  Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment.  Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

(e)           General Solicitation.  Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

 

(f)           Certain Transactions and Confidentiality.  Other than consummating the transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof.  Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.  Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all proprietary and non-public disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect Short Sales or similar transactions in the future.

 

  

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(g)           Disclosure of Information.  Such Purchaser has had the opportunity to receive all additional information related to the Company requested by it and to ask questions of, and receive answers from, the Company regarding the Company and the terms and conditions of this offering of the Securities.  Such Purchaser has also had access to copies of the SEC Reports.

 

The Company acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1          Transfer Restrictions.

 

(a)           The Securities may only be disposed of in compliance with state and federal securities laws.  In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.  As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights and obligations of a Purchaser under this Agreement.

 

(b)          The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

 

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

  

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The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties.  Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith.  Further, no notice shall be required of such pledge.  At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities.

(c)           Certificates evidencing the Shares and Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof), (i) following any sale of such Shares or Warrant Shares pursuant to Rule 144, or (ii) if such Shares or Warrant Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Shares and Warrant Shares and without volume or manner-of-sale restrictions, or (iii) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission).  The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the Removal Date if required by the Transfer Agent to effect the removal of the legend hereunder.  If all or any portion of the Shares are included in or a Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Shares and Warrant Shares (and the Purchaser provides the Company or the Company’s counsel with any reasonable certifications requested by the Company with respect to future sales of such Shares or Warrant Shares) or the Shares or Warrant Shares may be sold under Rule 144 without the requirement for the Company to be in compliance with the current public information and any other limitations or requirements set forth in Rule 144 or if a legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Shares will be reissued without the legend and Warrant Shares shall be issued free of all legends. The Company agrees that following the Removal Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than seven Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Shares or Warrant Shares, as the case may be, issued with a restrictive legend, together with any reasonable certifications requested by the Company, the Company’s counsel or the Transfer Agent (such seventh Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Securities subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser if the Transfer Agent is then a participant in such system and either (i) there is an effective registration statement permitting the resale of such Securities by the Purchaser (and the Purchaser provides the Company or the Company’s counsel with any requested certifications with respect to future sales of such Securities) or (ii) the shares are eligible for resale by the Holder without may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) of the Securities Act.

 

  

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(d)           In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Shares or Warrant Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day seven (7) Trading Days after such damages have begun to accrue) for each Trading Day after the second Trading Day following the Legend Removal Date until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

4.2           Furnishing of Information; Public Information.

 

(a)           The Company agrees to cause the Common Stock to be registered under Section 12(b) or 12(g) of the Exchange Act on or before the 270th calendar day following the date of this Agreement.  Until the earliest of the time that (i) no Purchaser owns Securities, (ii) the Warrants have expired, or (iii) five (5) years after the Closing Date, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act.

 

(b)           At any time during the period commencing from the 12-month anniversary of the date hereof and ending 24 months after the Closing Date, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c) (a “Public Information Failure”) then, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30th) day (prorated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required  for the Purchasers to transfer the Shares and Warrant Shares pursuant to Rule 144.  The payments to which a Purchaser shall be entitled pursuant to this Section 4.2(b) are referred to herein as “Public Information Failure Payments”.  Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred, and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured.  In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of one and one-half percent (1.5%) per month (prorated for partial months) until paid in full.  Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

  

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(c)          The provision of Sections 4.2(a) and (b) shall not apply after (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of fifty percent (50%) or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than fifty percent (50%) of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination).

4.3          Integration.  The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.

 

4.4           Securities Laws Disclosure; Publicity.  The Company shall file the Super 8-K, including the Transaction Documents as exhibits thereto, with the Commission not later than the fourth Trading Day after the Closing Date.  From and after the filing of the Super 8-K, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents.  The Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except:  (a) as required by federal securities law in connection with the filing of final Transaction Documents (including signature pages thereto) with the Commission, and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).

4.5           Non-Public Information.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have entered into a written agreement with the Company regarding the confidentiality and use of such information.  The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

 

4.6           Use of Proceeds.  The Company currently intends to use the net proceeds from the sale of the Securities hereunder for the purposes set forth on Schedule 4.6 attached hereto, subject to general market conditions; provided, however, that the Company agrees to segregate the amounts set forth on Schedule 4.6 attached hereto for the purpose of (i) completing the Harvard Trials and (ii) the FDA Approvals; provided, further, that except as set forth on Schedule 4.6, the Company shall not use such proceeds: (a) for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) for the redemption of any Common Stock or Common Stock Equivalents, (c) for the settlement of any outstanding litigation, (d) in violation of the law, including FCPA or OFAC or (e) for the development of new products not substantially related to the Company’s current products in production or development as of the date hereof.

 

  

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4.7           Indemnification of Purchasers.   Subject to the provisions of this Section 4.7, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence, willful misconduct or malfeasance).  If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party.  Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such Purchaser Party’s counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel.  The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.  The indemnification required by this Section 4.7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred.  The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.

4.8          Reservation of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Shares pursuant to this Agreement and Warrant Shares pursuant to any exercise of the Warrants.

 

  

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4.9        Listing of Common Stock. The Company hereby agrees to use best efforts to maintain the listing or quotation of the Common Stock on the Trading Market on which it is currently listed, and concurrently with the Closing, the Company shall apply to list or quote all of the Shares and Warrant Shares on such Trading Market and promptly secure the listing of all of the Shares and Warrant Shares on such Trading Market. The Company further agrees, if the Company applies to have the Common Stock traded on any other Trading Market, it will then include in such application all of the Shares and Warrant Shares, and will take such other action as is necessary to cause all of the Shares and Warrant Shares to be listed or quoted on such other Trading Market as promptly as possible.  The Company will then take all action necessary to continue the listing or quotation and trading of its Common Stock on a Trading Market until at least three years after the Closing Date and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market at least until three years after the Closing Date. The Company undertakes to obtain a listing of the Common Stock on a Trading Market other than the OTC Bulletin Board within 270 days after the Closing Date. Upon the attainment of such listing, the OTC Bulletin Board shall not thereafter be a Trading Market. In the event the Company fails to obtain such listing within 270 days after the Closing Date (a “Listing Default”), the Company shall promptly, but not later than the 280th day after the Closing Date, issue and deliver to each Purchaser additional shares of Common Stock (“Additional Listing Shares”) in an amount equal to ten percent (10%) of the Shares acquired by each such Purchaser on the Closing Date. The Additional Listing Shares will be deemed issued pursuant to this Agreement and the holder of the Additional Listing Shares is granted all of the rights and benefits of the Holder of the Shares.

 

4.10        Subsequent Equity Sales and Issuances.

 

(a)          From the date hereof until the first anniversary of the Closing Date, the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents for cash consideration (or a combination of units thereof) involving a Variable Rate Transaction.  “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price.  Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

(b)             Until twelve (12) months after the Closing Date, the Company shall not increase the number of shares available for issue under the Stock Option Plan, amend the Stock Option Plan, reprice any outstanding stock options (except for appropriate adjustments for any stock dividend, stock split, stock combination, reclassification or similar transaction after the Closing Date), nor issue any options or shares under the Stock Option Plan in an aggregate amount in excess of an amount of shares equal to fifteen percent (15%) of the amount of Common Stock outstanding immediately following the Closing nor grant any options with an exercise price lower than the fair market value of the Common Stock on the date of grant, except with respect to options that the Company or any of its Subsidiaries are contractually obligated to issue on the date hereof at a lower price, which are described on Schedule 4.10.

 

  

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4.11         Equal Treatment of Purchasers.  No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

 

4.12         Form D; Blue Sky Filings.  The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

 

4.13        Acknowledgment of Dilution.  The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions.  The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Shares and Warrant Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

4.14           Purchase Price Reset. Until 36 months following the Closing Date (the “Protection Period”), in the event that the Company issues or sells any shares of Common Stock or any Common Stock Equivalent pursuant to which shares of Common Stock may be acquired at a price less than the Per Share Purchase Price (adjusted as described in Section 5.22), then the Company shall promptly issue additional shares of Common Stock to each Purchaser, for no additional consideration, in an amount sufficient that the Per Share Purchase Price paid hereunder, when divided by the total number of Shares issued to each such Purchaser will result in an effective Per Share Purchase Price paid by each such Purchaser hereunder equal to the Per Share Purchase Price multiplied by a fraction, (A) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue plus (2) the number of shares of Common Stock which the aggregate consideration received or to be received by the Company for the total number of additional shares of Common Stock so issued would purchase at the Per Share Purchase Price; and (B) the denominator of which shall be (x) the number of shares of Common Stock outstanding immediately prior to such issue plus (y) the number of such additional shares of Common Stock so issued (such adjustment, a “Dilution Adjustment”). Such Dilution Adjustment shall be made successively whenever such an issuance is made. Notwithstanding the foregoing, this Section 4.14 shall not apply in respect of an Exempt Issuance. Moreover, in the event that the Company consummates a financing during the Protection Period pursuant to which the Company sells shares of Common Stock in one transaction or series of related transactions at a price per share greater than the Per Share Purchase Price (adjusted as described in Section 5.22) to one or more Persons (other than an Affiliate of the Company or any Subsidiary) that results in aggregate gross proceeds to the Company of at least $5,000,000 and does not provide the investors in such financing with any price protection similar to that provided in this Section 4.14, this Section 4.14 shall become void and of no further effect and the Purchasers shall not be entitled to any future Dilution Adjustments hereunder.

 

  

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4.15           Dilution Protection.  The Company agrees that in the event the Company issues any shares of Common Stock with regard to certain matters previously disclosed to the Purchasers (each, a “Contingency Issuance”), the Company shall immediately thereafter issue to each Purchaser such number of new shares of Common Stock (the “Contingency Shares”), for no additional consideration, as would cause the sum of (a) shares of Common Stock acquired hereunder by such Purchaser (the “Acquired Shares”) and (b) the Contingency Shares to represent the same percentage of the Company’s outstanding Common Stock as the Acquired Shares represented immediately prior to such Contingency Issuance (assuming such Purchaser has not disposed of any Acquired Shares since the Closing). For instance, if a Purchaser originally acquired 100,000 shares of Common Stock hereunder, and the Company later did a Contingency Issuance of 50,000 shares of Common Stock at a time when (i) such Purchaser held only 75,000 shares of the 100,000 shares of Common Stock originally purchased hereunder and (ii) the Company had 1,000,000 shares of Common Stock issued and outstanding immediately prior to the Contingency Issuance, the Company would issue such Purchaser an additional 4,055 shares of Common Stock pursuant to this Section 4.15.

4.16           Registration Limitation.  Until the 12 month anniversary of the filing of the Super 8-K, the Company will not file a registration statement with the Commission nor any state securities administrator to cause the registration of any Common Stock held by any officer, director, or Affiliate of the Company, nor any holder of five percent (5%) or more of the Common Stock as of the Closing Date, nor in relation to any Common Stock owned by the foregoing or which they have a right to receive pursuant to the Exchange Agreement or otherwise, except in connection with a primary underwritten offering of the Company’s Common Stock, approved by the underwriters of such primary offering.

4.17           FDA and Harvard. The Company agrees to use all commercially reasonable efforts to complete the Harvard Trials and the FDA Approvals.

 

ARTICLE V.

MISCELLANEOUS

 

5.1         Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice given at any time to the Company, if the Closing has not been consummated on or before April 1, 2011; provided, however, that such termination will not affect the right of any party to sue for any breach by any other party (or parties).  In the event of any termination by a Purchaser under this Section 5.1, the Company shall promptly (and in any event within two (2) Business Days of such termination) send a Subscription Termination Notice (as defined in the Escrow Agreement) to the Escrow Agent with respect to all of such Purchaser’s subscription amount.

 

5.2         Fees and Expenses.  Except as expressly set forth in the Transaction Documents and on Schedule 3.1(s) to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.  The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers. Upon the execution of this Agreement, the Company agrees to pay all reasonable fees and disbursements of Bingham McCutchen LLP, counsel to Osiris Investment Partners, LLC, up to a maximum of $30,000, incurred in connection with the negotiation, preparation, execution and delivery of the Transaction Documents; provided, however, that if Osiris Investment Partners, LLC fails to invest in the Offering other than as a result of the Company’s failure to satisfy the conditions to Closing set forth in Section 2.3(b) hereof and a Closing hereunder does not otherwise occur with any Purchaser, the Company shall not be obligated to pay any fees and disbursements of Bingham McCutchen LLP, counsel to Osiris Investment Partners, LLC. Bingham McCutchen LLP does not represent any of the other Purchasers and represents only Osiris Investment Partners, LLC.

 

  

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5.3         Entire Agreement.  The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

5.4         Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as set forth on the signature pages attached hereto.

 

5.5           Amendments; Waivers.  No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least [fifty-one percent (51%)]. in interest of the Shares then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought; provided that none of the conditions in Section 2.3(b) may be waived, modified, supplemented or amended as against any one Purchaser without the prior written consent of such Purchaser; and provided, further than all waivers, modifications, supplements or amendments effected by less than all Purchasers impact all Purchasers in the same fashion.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

5.6           Headings.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

5.7           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger).  Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.” 

 

5.8           No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.6.

 

  

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5.9           Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.  If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then in addition to the obligations of the Company under Section 4.6, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

5.10         Survival.  The representations and warranties contained herein shall survive the Closing and the delivery of the Securities for the applicable statute of limitations.

 

5.11         Execution.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

5.12         Severability.  If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

5.13         Rescission and Withdrawal Right.  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the case of a rescission of an exercise of a Warrant, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded exercise notice concurrently with the return to such Purchaser of the aggregate exercise price paid to the Company for such shares and the restoration of such Purchaser’s right to acquire such shares pursuant to such Purchaser’s Warrant (including, issuance of a replacement warrant certificate evidencing such restored right).

 

  

-29-

  

 

5.14         Replacement of Securities.  If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction.  The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity and bonds) associated with the issuance of such replacement Securities.

 

5.15         Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

5.16         Payment Set Aside.  To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

5.17         Independent Nature of Purchasers’ Obligations and Rights.  The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document.  Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereof or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.  Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents.  For reasons of administrative convenience only, each Purchaser and its respective counsel have chosen to communicate with the Company through GM.  GM does not represent any of the Purchasers and only represents Palladium Capital Advisors LLC.  The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers.

5.18         Liquidated Damages.  The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

 

  

-30-

  

 

5.19         Saturdays, Sundays, Holidays, etc.     If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

5.20         Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

 

5.21         WAIVER OF JURY TRIAL.  IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

5.22              Equitable Adjustment.  Warrant exercise price, amount of Additional Listing Shares and Warrant Shares, trading volume amounts, price/volume amounts and similar figures in the Transaction Documents shall be equitably adjusted to offset the effect of stock splits, similar events and as otherwise described in this Agreement and Warrants.  The purchase price of Shares, the exercise price of the Warrants and references to amounts of Common Stock in the Transaction Documents and Super 8-K give effect to a 2.75 for 1 forward split of the Common Stock effectuated immediately prior to the closing under the Exchange Agreement.

 

(Signature Pages Follow)

 

  

-31-

  

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

	
INSPIREMD, INC.

	  	
Address for Notice:

	  	  	  
	
By: 

	/s/ Ofir Paz	  	
InspireMD, Inc.

	
Name:

	Ofir Paz	  	
3 Menorat Hamor Street

	
Title: 

	Chief Executive Officer	  	
Tel Aviv, Israel

	  	  	
Attn: Chief Executive Officer

	
With a copy to (which shall not constitute notice):

	  	
 Fax: +972-3-6917691

	  	  	  
	
Haynes and Boone, LLP

	  	  
	
30 Rockefeller Plaza

	  	  
	
New York, New York 10112

	  	  
	
Attn: Rick A. Werner, Esq.

	  	  
	
Tel: (212) 659-7300

	  	  
	
Fax: (212) 884-8234

	  	  

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

  

-32-

  

 

[PURCHASER SIGNATURE PAGES TO INSPIREMD, INC.

SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Purchaser: _________________________________________________________________

Signature of Authorized Signatory of Purchaser: __________________________________________

Name of Authorized Signatory: _______________________________________________________

Title of Authorized Signatory: ________________________________________________________

Email Address of Purchaser: _________________________________________________________

Facsimile Number of Purchaser: _____________________________________________________

Address for Notice of Purchaser: _____________________________________________________

________________________________________________________________________________

Address for Delivery of Common Stock and Warrants for Purchaser (if not same as address for notice):

_____________________________________________________________________________

_____________________________________________________________________________

Cash Purchase Price: US$ _______________________________

Surrendered Note Purchase Price: US$ _______________________________

EIN Number, if applicable, will be provided under separate cover: ________________________

 

  

-33-

  

 

COMPANY DISCLOSURE SCHEDULE

 

in connection with the

 

SECURITIES  PURCHASE AGREEMENT

 

dated as of

 

March 31, 2011

 

by and among

 

INSPIREMD, INC.

 

and

 

THE PURCHASERS LISTED ON THE SIGNATURE PAGES ATTACHED THERETO

 

  

  

  

 

No disclosure of any item in these Schedules shall be construed as an admission that such item is material. These Schedules are intended to limit and not expand the scope of the representations, warranties and covenants contained in the Agreement. Information contained in these Schedules is not necessarily limited to the information required to be reflected in this Schedule and such additional information is included for informational purposes only. Disclosure of any item in any section of these Schedules shall be deemed disclosure with respect to all applicable sections provided it is reasonably apparent on its face that the disclosure is responsive to the representation to which such other section relates.

 

  

  

  

 

SCHEDULE 3.1(a)

 

SUBSIDIARIES

 

InspireMD Ltd.

 

InspireMD GmbH

 

  

  

  

 

SCHEDULE 3.1(g)

 

CAPITALIZATION

 

Capitalization

 

The authorized capital stock of the Company consists of (i) 5,000,000 shares of preferred stock, of which no shares are issued and outstanding; (ii) 125,000,000 shares of Common Stock, of which (A) 50,666,000 shares are issued and outstanding; (B) 15% the amount of Common Stock outstanding immediately following the Closing are reserved for issuance pursuant to the Stock Option Plan, including 6,795,584 shares issuable pursuant to outstanding awards under the Stock Option Plan; (C) 811,186 shares reserved for issuance pursuant to stock options issued outside of the Stock Option Plan and (D) 3,514,500 shares reserved for issuance pursuant to outstanding warrants.

 

Recently Issued Stock Options

 

Since September 30, 2010, InspireMD Ltd. issued the following stock options:

 

	
  

	
·

	
365,220 options at an exercise price of $1.23 per share to an employee.

 

	
  

	
·

	
43,891 options at an exercise price of $1.23 per share to several intermediaries.

 

	
  

	
·

	
2,435 options at an exercise price of $0.45 per share to an intermediary.

 

	
  

	
·

	
9,674 options at an exercise price of 0.001 NIS per share to a law firm in exchange of legal services (instead of cash payment).

 

Commitments to Grant Options

 

We have agreed to make the following option grants in the future:

 

(a) To five customers, subject to the achievement of certain sales targets in 2011.

 

	
Name

	  	
No. of Options

	  	
Exercise Price

	  	
Vesting Schedule

	
Angiocor

	  	
81,160-162,320

	  	
1.23

	  	
Fully vested on grant

	
Kardia

	  	
40,580-81,160

	  	
1.23

	  	
Fully vested on grant

	
Levbeth Medical

	  	
29,218-77,914

	  	
1.23

	  	
Fully vested on grant

	
Nabiqasim Industries

	  	
81,160-162,320

	  	
1.23

	  	
Fully vested on grant

	
Medista G. Stavrakakis

	  	
40,580-81,160

	  	
1.23

	  	
Fully vested on grant

	  	
Total

	  	
272,698-564,874

	  	  	  	  

 

  

  

  

 

(b) To several persons, which options have not yet received board approval

 

	
Name

	  	
No. of Options

	  	
Exercise Price

	  	
Vesting Schedule

	
Ron Ofek

	  	
18,261

	  	
1.23

	  	
Fully vested on grant

	
Gilad Goldenberg

	  	
24,348

	  	
1.23

	  	
Fully vested on grant

	
Elias Sanksteliskis

	  	
18,261

	  	
1.23

	  	
Fully vested on grant

	
Eyal Weinstein

	  	
81,160

	  	
1.23

	  	
Fully vested on 7/28/11

	
Moti Mor

	  	
81,160

	  	
1.23

	  	
Fully vested on 7/28/11

	
Michey Olsher

	  	
40,580

	  	
1.23

	  	
Over three years

	
Bruno Vandelanotte

	  	
81,160

	  	
1.23

	  	
Over three years

	  	
Total

	  	
344,930

	  	  	  	  

(c) To several persons, which options were approved by the board but not signed by the beneficiary:

 

	
Name

	  	
No. of Options

	  	
Exercise Price

	  	
Vesting Schedule

	
Hand Prod

	  	
48,696

	  	
1.23

	  	
Fully vested on grant

	
Adam Witkovski

	  	
8,116

	  	
1.23

	  	
Fully vested on grant

	
Robert Gil

	  	
8,116

	  	
1.23

	  	
Fully vested on grant

	
Raul Rosental

	  	
16,232

	  	
1.23

	  	
1⁄2 on grant, 1⁄2 over 8 quarters

	
Dr. Mirkin

	  	
24,348

	  	
1.23

	  	
Over three years

	
Karfi Leibovich Lawyers

	  	
19,356

	  	
0.003

	  	
Fully vested on grant

	  	
Total

	  	
124,864

	  	  	  	  

 

Others Commitments

 

On July 22, 2010, InspireMD Ltd. issued convertible debentures in the aggregate principal amount of $1,580,000 that accrue interest at a rate of 8% per annum (the “Debentures”). The principal and interest under the Debentures accrue interest at an annual rate of 8% and are convertible into shares of Common Stock at a conversion price of $1.50. As of February 28, 2011, there was $1,658,000 of principal and interest outstanding under the Debentures which was convertible into 1,105,333 shares of Common Stock.

 

On January 4, 2011, InspireMD Ltd. entered into a loan agreement with a customer, pursuant to which InspireMD Ltd. received $100,000. This loan is convertible into 81,160 shares of Common Stock at the customer’s option.

 

The Company is obligated to issue up to 152,175 shares of Common Stock and options to purchase up to 19,357 shares of Common Stock, with an exercise price of $0.003 per share, to Karfi Leibovich Lawyers, in consideration of such firm’s representation of InspireMD Ltd. in connection with the lawsuits regarding Eftan Consulting and Investments Ltd. and Eric Ben-Mayor in the event of a favorable outcome to the Company.  See Schedule 3.1(j).

 

Affiliate Stock Holdings

 

See Super 8-K.

 

Stock Option Plan Description

 

See Super 8-K.

 

  

  

  

 

SCHEDULE 3.1(i)

 

MATERIAL CHANGES; UNDISCLOSED EVENTS, LIABILITIES OR DEVELOPMENTS

 

On July 22, 2010, InspireMD Ltd. issued the Debentures.

 

InspireMD Ltd. has submitted two applications for relief to the Israel Security Authority (the “ISA”):

 

	
  

	
·

	
According to Section 15 to the Israeli Security Law 1968 (the “ISL”), an offer or sale of securities to more than 35 parties during any 12 month period requires a filing of a prospectus to the ISA and delivery thereof to any purchasers. Since InspireMD Ltd. has more than 35 securities holders, the issuance of the Company’s securities to them as part of the Share Exchange transaction requires the filing of prospectus to ISA, as aforesaid. The Company has filed an application with the ISA for exemption from the requirement to file a prospectus with the ISA as aforesaid. On March 24, 2011, the ISA provided the Company with an oral approval to such application.

 

	
  

	
·

	
As noted above, Section 15 to the ISL requires the filing of a prospectus with the ISA and the delivery thereof to purchasers in connection with an offer or sale of securities to more than 35 parties during any 12 month period. InspireMD Ltd. has allegedly issued its securities to more than 35 investors during certain 12-month periods, ending in October 2008. InspireMD Ltd. has filed an application for “No action” with the ISA in connection with the foregoing. To date, the ISA has not provided any response to such application. The purchasers in such securities sales have no right to rescission of their purchasers, or other such refund.

 

InspireMD Ltd. has made the following equity issuances to directors and officers since its last audited financial statement as of December 31, 2009:

 

	
  

	
·

	
3 directors were issued 405,800 options at an exercise price of $1.23 per share. Those stock options are disclosed within the figures set forth in Schedule 3.1(g).

 

	
  

	
·

	
InspireMD Ltd. committed to issue to one additional director and the former chairman of the internal audit committee 162,320 stock options at an exercise price of $1.23 per share. Those stock options already appear as a commitment in Schedule 3.1(g).

 

InspireMD Ltd. issued 1,460,880 stock options to 3 officers at an exercise price of $0.0004 - $1.23 per share. These stock options are included in the disclosure set forth in Schedule 3.1(g).

 

  

  

  

 

SCHEDULE 3.1(j)

 

LITIGATION

 

	
1. 

	
See Schedule 3.1(i).

 

	
2

	
De-Kalo Ben Yehuda and Associates Ltd.

 

Court of Agency:  Magistrate Court in Tel Aviv

 

Date Instituted:  March 24, 2009

 

Principal Parties: InspireMD Ltd. and De-Kalo Ben Yehuda and Associates Ltd.

 

Description:  A broker has made a claim alleging entitlement to a finder’s fee in connection with InspireMD Ltd. receiving a loan from Mizrahi Bank

 

Relief Sought:  578,996 NIS.

 

	
3. 

	
Eric Ben Mayor

 

Court of Agency:  Regional Labor Court in Tel Aviv

 

Date Instituted:  Nov 2, 2010

 

Principal Parties:  Eric Ben Mayor vs. InspireMD Ltd.,  InspireMD GmbH, Ofir Paz(personally) and Dr. Asher Holzer (personally)

 

Description:  A former senior employee is claiming improper termination of employment and that InspireMD Ltd. owes him money for due salary and pension fund payments, vacation pay, sick days, severance pay, additional prior notice payment, commission for revenues and other types of funds received by InspireMD Ltd.

 

Relief Sought:  1,476,027 NIS plus compensation for holding back wages and options to purchase 2,029,000 shares of Common Stock at an exercise price of $0.001.

 

	
4. 

	
Eftan Consulting and Investments Ltd.

 

Court of Agency:  District Court in Tel Aviv

 

Date Instituted:  November 3, 2010

 

Principal Parties:  Eftan Consulting and Investments Ltd. and InspireMD Ltd.

 

Description:  A former legal counsel of InspireMD Ltd. has alleged that according to an agreement between his wholly owned company and InspireMD Ltd. dated April 1, 2005, he is entitled to the amount of options as set forth below.

 

Relief Sought: Options to purchase 496,050 shares of Common Stock at an exercise price of 0.001 NIS. 371,981 of those stock options are currently set forth in Schedule 3.1(g).

 

  

  

  

 

	
5. 

	
Eytan Keit

 

Court of Agency:  Regional Labor Court in Tel Aviv

 

Date Instituted:  Nov. 8, 2010

 

Principal Parties:  Eytan Keit vs. InspireMD Ltd.

 

Description:  A former legal advisor is claiming breach of employment promise made to him in July 2005

 

Relief Sought:  204,507 NIS.

 

	
6. 

	
Ezra Berger and Mandarin Ltd.

 

Court of Agency:  Magistrate Court in Tel Aviv

 

Date Instituted: July 20, 2010

 

Principal Parties: Ezra Berger and Mandarin Ltd. vs. InspireMD Ltd.

 

Description:  Ezra Berger and Mandarin Ltd. allegedly financed a shipment of InspireMD Ltd’s stents to a distributor in Thailand. The distributor returned 41 stents of the stents to InspireMD Ltd. and the plaintiffs are now seeking reimbursement for these stents despite there being a no return policy in the distribution agreement.

 

Relief Sought:  81,900 NIS.

 

	
7. 

	
MicroBank LLC & James D. Burchetta

 

Court of Agency:  N/A

 

Date Instituted :  June 25, 2010 - threat of legal action

 

Principal Parties:  MicroBank LLC vs. InspireMD Ltd.

 

Description:  MicroBank LLC and James D. Burchetta claims that InspireMD Ltd. owes them a finder’s fee in connection with the sale of the Debentures and the Offering due to their claim to having introduced InspireMD Ltd. to Palladium Capital Advisors.

 

Relief Sought:  $1,000,000 and 9% in equity.

 

  

  

  

 

	
8. 

	
Pires & Tarsis

 

Court of Agency:  Magistrate Court in Tel Aviv

 

Date Instituted:  February 10 ,2011

 

Principal Parties:  Pires & Tarsis vs. InspireMD Ltd.

 

Description:  Pires & Tarsis claims that InspireMD Ltd.’s breached a Finder’s Fee Agreement between the parties by improperly terminating it. InspireMD Ltd. claims that Pires & Tarsis misled InspireMD Ltd. into believing that Pires & Tarsis initially introduced InspireMD Ltd.’s Brazilian distributor of InspireMD Ltd. As InspireMD Ltd. believe this was not the case, it claims that Pires & Tarsis is not entitled to any future payments related to any sale of InspireMD Ltd’s stents to such distributor. InspireMD Ltd. is also seeking the return of $28,800 payment that was paid to Pires & Tarsis by InspireMD Ltd. for the first shipment of InspireMD Ltd.'s stents to such distributor.

 

Relief Sought:  1,200,000 NIS.

 

  

  

  

 

SCHEDULE 3.1(k)

 

LABOR RELATIONS

 

See Schedule 3.1(j).

 

  

  

  

 

SCHEDULE 3.1(l)

 

COMPLIANCE

 

See Schedule 3.1(i).

 

  

  

  

 

SCHEDULE 3.1(n)

 

TITLE TO ASSETS

 

In connection with its loan agreement with Bank Mizrahi Tefahot Ltd., the Company has granted Bank Mizrahi a lien on a $250,000 cash deposit.

 

  

  

  

 

SCHEDULE 3.1(p)

 

INSURANCE

 

Neither the Company nor its Subsidiaries have insurance for operational losses and for insurance against inventory theft in Israel.

 

  

  

  

 

SCHEDULE 3.1(s)

 

CERTAIN FEES

 

As consideration for serving as the Company’s placement agent in the Offering, the Company has agreed to pay Palladium Capital Advisors, LLC’s a fee equal to 7% of the aggregate purchase price of the Shares and Warrants sold to Purchasers and to issue Palladium Capital Advisors a five-year warrant to purchase 6% of the number of shares of Common Stock on which the cash fee is payable, at an initial exercise price of $1.80 per share, with terms identical to the warrants issued to investors in the Offering.

 

  

  

  

 

SCHEDULE 3.1(aa)

 

SOLVENCY

 

As of February 28, 2011, InspireMD Ltd. had the following liabilities for borrowed money or amounts in excess of $100,000:

 

	
  

	
·

	
Loan from Bank Mizrahi Tefahot Ltd. in the amount of $375,000

 

	
  

	
·

	
Advanced payments from customers in the amount of $350,000

 

	
  

	
·

	
Employee retirement payment obligations in the amount of $150,000

 

	
  

	
·

	
Debentures in the amount of $1,655,000

 

	
  

	
·

	
Employees rights, institutions, provisions, taxes and others in the amount of $700,000

 

	
  

	
·

	
Expenses payable in the amount of $415,000

 

  

  

  

 

SCHEDULE 3.1(ee)

 

ACCOUNTANTS

 

The Company’s accounting firm is Kesselman & Kesselman, Certified Public Accountants, a member of  PricewaterhouseCoopers International Limited.

 

  

  

  

 

SCHEDULE 3.1(ff)

 

NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS

 

InspireMD Ltd. is currently disputing 188,000 NIS, including VAT, in legal fees to Goldfarb, Levy, Eran, Meiri, Tzafrir & Co., previous legal advisors of InspireMD Ltd.  The dispute regarding such fees has been pending since June 2010.

 

  

  

  

 

SCHEDULE 3.1(jj)

 

STOCK OPTION PLANS

 

See Schedule 3.1(g).

 

  

  

  

 

SCHEDULE 4.6

 

USE OF PROCEEDS

 

The Company plans to use the net proceeds from the Offering for pursuing its current research and development programs, clinical trials, regulatory approvals, sales and marketing of its products, manufacturing capabilities, working capital and other general corporate purposes.

 

Specifically, the Company shall set aside, reserve and use a portion of the net proceeds from the Offering solely for purposes of funding and completing the Harvard Trials and obtain the FDA Approvals.  The amount of the net proceeds set aside, reserved and specifically allocated to this use is based on the net proceeds raised and is determined as set forth in the following table:

 

	
Total Amount Raised in 

Offering

	
Net Proceeds Used for 

Harvard Trials and FDA Approvals

	
$9,000,000 or less

	
$3,400,000

	
$9,000,000 – $10,000,000

	
$4,000,000

	
$10,000,000 – $11,000,000

	
$4,600,000

	
$11,000,000 – $12,000,000

	
$5,200,000

	
$12,000,000 – $13,000,000

	
$5,800,000

	
$13,000,000 – $14,000,000

	
$6,400,000

	
$14,000,000 – $15,000,000

	
$6,800,000

	
$15,000,000

	
$7,500,000

 

  

  

  

 

SCHEDULE 4.10

 

SUBSEQUENT EQUITY SALES AND ISSUANCES

 

See Schedule 3.1(g).Unassociated Document

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of July 20, 2010 between InspireMD Ltd., a corporation formed under the laws of the State of Israel (the “Company”), and each of the entities and persons identified on the signature pages hereto (including their successors and assigns, each a “Purchaser” and collectively “Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1    Definitions.  In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

“Advisor” means Harborview Advisors, LLC, a New Jersey limited liability company and exclusive consultant to the Company.

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.  With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.

“Audit Default” shall have the meaning set forth in Section 4.14.

“Audited Financial Statements” shall have the meaning set forth in Section 4.14.

“Board of Directors” means the board of directors of the Company.

 

 “Business Day” means any day except any Friday, Saturday, Sunday, or any day which is a holiday in the State of Israel or sabbatical day under Israeli law, federal legal holiday in the United States or any day on which banking institutions in the State of New York or State of Israel are authorized or required by law or other governmental action to close.

 

  

1

  

 

 “Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

 

 “Closing Date” means the Business Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Purchase Price and (ii) the Company’s obligations to deliver the Securities have been satisfied or waived, including without limitation the Company’s written acceptance of the subscriptions as set forth in Section 2.1.

 

“Commission” means the Securities and Exchange Commission.

 

“Company Counsel” means Haynes and Boone, LLP, maintaining an address at 1221 Avenue of the Americas, 26th Floor, New York, NY 10020-1007, Attention: Rick Werner, Esq., telephone: (212) 659-4974, facsimile: (212) 884-8234.

 

“Debentures” means the 8% Senior Convertible Debentures to be issued by the Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.

“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

“Escrow Agent” means Grushko & Mittman, P.C., maintaining an address at 515 Rockaway Avenue, Valley Stream, NY 11581, Attention: Edward M. Grushko, Esq., telephone: (212) 697-9500, facsimile: (212) 697-3575.

“Escrow Agreement” entered into among the Company, Purchasers and the Escrow Agent in the form of Exhibit B attached hereto.

“Event of Default” shall have the meaning ascribed thereto in the Debenture.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Exclusivity Period” shall have the meaning ascribed to such term in Section 4.2.

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

“G&M” means Grushko & Mittman, P.C., maintaining an address at 515 Rockaway Avenue, Valley Stream, NY 11581, Attention: Edward M. Grushko, Esq., telephone: (212) 697-9500, facsimile: (212) 697-3575, counsel to the Purchaser.

 

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(q).

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(n).

 

“Liens” means a lien, charge, security interest or encumbrance, right of first refusal, preemptive right or other restriction.

 

  

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“Majority in Interest” shall have the meaning assigned to such term in Section 5.5.

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

 

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

“Merger” means the exchange of shares and options among the Company's current shareholders and option holders and Pubco pursuant to the Merger Agreement and the timely submission of all applicable filings with state and regulatory authorities required for the closing of such transaction.

 

“Merger Agreement” means the Agreement among the Company's current shareholders and option holders and Pubco to effectuate the Merger.  The Merger Agreement will contain customary representations and warranties for a transaction of this type in which an Israeli company is a party, including the representations warranties and covenants to be made by Pubco on the closing date of the Merger and substantially on the terms set forth in a term sheet attached hereto as Exhibit C.

“Ordinary Shares” means the ordinary shares of the Company, par value NIS 0.01 per share and any other class of securities into which such securities may hereafter be reclassified or changed into.

 

 

“Ordinary Share Equivalents” means any securities of the Company that would entitle the holder thereof to acquire at any time Ordinary Shares pursuant to their terms of issuance, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Ordinary Shares.

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“PIPE Financing” means that certain private placement offering pursuant to Section 4(2) of the Securities Act, and Rule 506 promulgated thereunder, of Units of Pubco’s securities corresponding to net cash proceeds to Pubco (after repayment of any Debentures that are not converted into shares of Pubco Common Stock as part of the PIPE Financing and all deductions and commissions and payments to service providers and any party involved in the Merger, PIPE Financing and transactions contemplated under the Transaction Documents) of at least Seven Million Five Hundred Thousand Dollars ($7,500,000) and up to Ten Million Dollars ($10,000,000) to close concurrently with the Merger. Such Units shall be comprised of shares of Pubco Common Stock at a pre-money valuation of Pubco of not less than Seventy Million Dollars ($70,000,000) and warrants to purchase up to 5,000,000 shares of Pubco Common Stock as described on the Term Sheet.  The PIPE Financing shall not include the Purchase Price defined below.

 

  

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“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Purchase Price” shall mean the aggregate of One Million Five Hundred Eighty Thousand Dollars ($1,580,000) payable by the Purchasers for an aggregate of a like amount of Debenture principal and Warrants issued at the rate of one Warrant to purchase one Warrant Share for each Twelve Dollars ($12.00) of Purchase Price.

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.7.

 

“Pubco” means to be identified publicly traded company listed on the OTC Bulletin Board and currently reporting under the Exchange Act.

“Pubco Common Stock” means the class of Common Stock of Pubco, and any other class of securities into which such securities may hereafter be reclassified or changed.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“Securities” means the Debentures, Warrants and Warrant Shares.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

“Tax Ruling” shall have the meaning ascribed to such term in Section 4.11.

“Term Sheet” means the Term Sheet annexed hereto as Exhibit C describing the terms of the transactions with Pubco.

“Transaction Documents” means this Agreement, the Debentures, the Warrants, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Underlying Securities” means the Ordinary Shares issued and issuable upon conversion of the Debentures and securities issuable in connection with the Merger, as the case may be.

 

 “Units” means the Pubco Common Stock and Pubco Common Stock purchase warrants sold to investors in the PIPE Financing.

 

  

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“Warrants” means collectively the Ordinary Share purchase warrants, in the form of Exhibit D to be delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof in the ratio of One Warrant each to purchase one Warrant Share for each Twelve Dollars and sixty four cents ($12.64) of Purchase Price.

 

“Warrant Shares” means all of the Ordinary Shares issuable upon exercise of the Warrants at all times.

 

ARTICLE II.

PURCHASE AND SALE

 

2.1    Closing.  On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers agree to purchase in the aggregate, for the Purchase Price of One Million Five Hundred Eighty Thousand Dollars ($1,580,000) in principal amount of the Debentures.  The Purchasers shall deliver to the Escrow Agent, via wire transfer or a certified check, immediately available funds equal to the Purchase Price and the Company shall deliver to the Escrow Agent the Purchasers’ Debentures, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing.  Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, and receipt and acceptance of the Purchase Price the Closing shall occur at the offices of G&M or such other location as the parties shall mutually agree.

 

2.2    Deliveries.

 

(a)  On the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i)           this Agreement duly executed by the Company;

 

(ii)           an opinion of Company Counsel, and/or other counsel acceptable to the Purchaser, in substantially the form of Exhibit E;

(iii)           a Debenture with a principal amount equal to such Purchaser’s Purchase Price, registered in the name of such Purchaser;

(iv)           a Warrant registered in the name of such Purchaser to purchase Ordinary Shares in the amount set forth on the signature pages hereto; and

(v)           the Escrow Agreement duly executed by the Company.

(vi)           A certificate from an officer of the Company certifying that the approval by the Company's Board of Directors of the execution and delivery of this Agreement and any and all of the Company's obligations hereunder and the approval by the Company's Shareholders Meeting of the execution and delivery of this Agreement and any and all of the Company's obligations hereunder

 

  

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(b)  On the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:

 

(i)   this Agreement duly executed by such Purchaser;

 

(ii)  such Purchaser’s Purchase Price by wire transfer to the account as specified in the Escrow Agreement; and

 

(iii)  the Escrow Agreement duly executed by such Purchaser.

 

2.3    Closing Conditions.

 

(a)  The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

 

(i)  the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein;

 

(ii)  all obligations, covenants and agreements of the Purchasers required to be performed at or prior to the Closing Date shall have been performed;

(iii) Company’s written acceptance of subscriptions referenced in Section 2.1, which acceptance shall be at the sole discretion of the Company;

 

(iv)  the delivery by the Purchasers of the items set forth in Section 2.2(b) of this Agreement, including the transfer to the Company of the entire Purchase Price;

(v)           the approval by the Company's Board of Directors of the execution and delivery of this Agreement and any and all of the Company's obligations hereunder; and

(vi)           the approval by the Company's Shareholders Meeting of the execution and delivery of this Agreement and any and all of the Company's obligations hereunder.

 

(b)  The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

 

(i)  the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein;

 

(ii)  all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed; and

 

(iii)  the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement. 

 

  

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ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1    Representations and Warranties of the Company.  Except as set forth in the disclosure schedules attached hereto (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or warranty made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, provided the disclosures in any section or subsection of the Disclosure Schedules shall qualify only the corresponding section or subsection in this Article III, the Company hereby makes the following representations and warranties to the Purchaser on the Closing Date:

 

(a)  Subsidiaries.  All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a).  The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

 

(b)  Organization and Qualification.  The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  Each of the Company and the Subsidiaries is duly qualified to conduct business as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document, (iv) a material adverse effect on the Company’s ability to consummate the Merger or the PIPE Financing in any material respect during the Exclusivity Period, or (v) the occurrence of an Event of Default (as defined in the Debenture) (any of (i), (ii), (iii), (iv) or (v), a “Material Adverse Effect”) and, to the knowledge of the Company, no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

(c)  Authorization; Enforcement.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection therewith.  Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

  

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(d)  No Conflicts.  Except as set forth on Schedule 3.1(d), the execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the other transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary except as created by the Transaction Documents, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e)  Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws.

 

(f)  Issuance of the Securities.  The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.  The Securities, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens other than restrictions on transfer provided for in the Transaction Documents.  

 

  

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(g)  Capitalization.  The capitalization of the Company is as set forth on Schedule 3.1(g).  No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents.  Except as set forth in Schedule 3.1(g), as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any Ordinary Shares or Ordinary Share Equivalents, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional Ordinary Shares or Ordinary Share Equivalents. The issuance and sale of the Securities will not obligate the Company to issue Ordinary Shares or Ordinary Share Equivalents or other securities to any Person (other than the Debentures and Warrants to the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities.  No further approval or authorization of any stockholder, the Board of Directors or other Person is required for the issuance and sale of the Securities.  

 

(h)  Financial Statements.  Schedule 3.1(h) attached hereto contains: (a) the unaudited balance sheet of the Company (the “Company Balance Sheet”) at December 31, 2009 (the “Company Balance Sheet Date”), (b) related statements of operations and cash flows for the period from January 1, 2009 through December 31, 2009 (the “Company Interim Financial Statements” and together with the Company Balance Sheet, the “Company Financial Statements”; and (c) trial balance for May 31, 2010).  The Company Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) applied on a consistent basis throughout the periods covered thereby fairly present the financial condition, results of operations and cash flows of the Company and the Subsidiaries as of the respective dates thereof and for the periods referred to therein and are consistent with the books and records of the Company and the Subsidiaries, except as may be otherwise specified in such financial statements or the notes thereto.

  

(i)  Material Changes.  Since the Company Balance Sheet Date, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice, (B) liabilities not reflected in the Company’s financial statements pursuant to GAAP that are less than $100,000 in the aggregate and (C) except as set forth in Schedule 3.1(i), (iii) the Company has not altered its method of accounting and (iv) except as set forth on Schedule 3.1(i), the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any Ordinary Shares or Ordinary Shares Equivalents.

 

(j)  Litigation.  Other than as set forth on Schedule 3.1(j), there is no action, suit, inquiry, notice of violation, or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) or Proceeding which could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. 

 

  

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(k)  Labor Relations.  No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect.  No executive officer, to the knowledge of the Company, is in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.

  

(l)  Compliance.  Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(m)  Regulatory Permits.  Except as set forth in Schedule 3.1(m), the Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

 

(n)  Patents and Trademarks.  The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or material for use in connection with their respective businesses within the territories in which the Company distributes its products and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”).  Neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.  The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(o)  Certain Fees.  Except as set forth in Schedule 3.1(o), no brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents.  The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

 

  

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(p)  Private Placement.  Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act or any other applicable law rule or regulation is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby.

  

(q)  Solvency.  Based on the consolidated financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the anticipated cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid.  Schedule 3.1(q) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments.  For the purposes of this Agreement, “Indebtedness” means (a) any liabilities for borrowed money or amounts owed in excess of $100,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others in excess of $100,000, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $100,000 due under leases required to be capitalized in accordance with GAAP.  Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

(r)  Tax Status.  Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary applicable tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

 

(s) Seniority.  Except as set forth on Schedule 3.1(s), and subject to the Israeli laws of liquidation, insolvency, receivership and bankruptcy, as of the Closing Date, no Indebtedness or other claim against the Company is senior to, the Debentures in right of payment, whether with respect to interest, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby).

 

  

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(t)  No General Solicitation.  Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising.  The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

3.2    Representations and Warranties of the Purchaser.  The Purchaser represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

 

(a)  Organization; Authority.  The Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery of the Transaction Documents and performance by the Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate or similar action on the part of the Purchaser.  Each Transaction Document to which it is a party has been duly executed by the Purchaser, and when delivered by the Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(b)  Own Account.  The Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting the Purchaser’s right to sell the Securities pursuant to a registration statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law.  The Purchaser is acquiring the Securities hereunder in the ordinary course of its business.  The undersigned acknowledges that (i) the Securities will be issued pursuant to applicable exemptions from registration under the Securities Act and any applicable state securities laws, and (ii) the Securities have not been registered under the Securities Act, in reliance on the exemption from registration provided by Section 4(2) thereof.  In connection therewith, the undersigned hereby covenants and agrees that it will not offer, sell, or otherwise transfer the Securities unless and until such Securities are registered pursuant to the Securities Act and the laws of all jurisdictions which in the reasonable opinion of the Company may be applicable or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the relevant securities laws

 

  

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(c)  Purchaser Status.  At the time the Purchaser was offered the Securities, it was, and at the date hereof it is, and on each date on which it converts any Debentures it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.  The Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

 

(d)  Experience of the Purchaser.  The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment.  The Purchaser has had the opportunity to ask questions and obtain information necessary to make an investment decision.  To the extent the undersigned has taken advantage of such opportunity, they have received satisfactory answers concerning the purchase of the Securities.  The Purchaser understands that the offer and sale of the Securities is being made only by means of this Agreement.  The Purchaser understands that the Company has not authorized the use of, and the Purchaser confirms that the Purchaser is not relying upon any other information, written or oral, other than material contained in this Agreement and the Transaction Documents.  The Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment and its financial condition is such that it has no need for liquidity with respect to its investment in the Securities to satisfy any existing or contemplated undertaking or indebtedness.  The Purchaser has discussed with its professional, legal, tax and financial advisers the suitability of an investment in the Company by the undersigned for its particular tax and financial situation.  All information that the undersigned has provided to the Company concerning itself and its financial position is correct and complete as of the date set forth below, and if there should be any material change in such information, the undersigned will immediately provide such information to the Company.

 

(e)  General Solicitation.  The Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

(f)   Reliance.  The Purchasers acknowledge that the Company will be relying on the foregoing representations and warranties in making a determination as to the availability of federal and state securities laws exemptions.  The Company acknowledges and agrees that each Purchaser does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer Restrictions.

 

(a)  The Securities may only be disposed of in compliance with state and federal securities laws.  In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of the Purchaser, in connection with the Merger, or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.  As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement.

 

  

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(b)  The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  EXCEPT AS OTHERWISE PROVIDED IN THE COMPANY'S ARTICLES OF ASSOCIATION, AS SHALL BE AMENDED FROM TIME TO TIME, REGARDING RESTRICTIONS ON TRANSFERABILITY OF THE COMPANY'S SHARES AND OTHER SECURITIES THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Except as otherwise provided in the Company's articles of association, as shall be amended from time to time, regarding restrictions on transferability of the Company's shares and other securities, the Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, the Purchaser may transfer pledged or secured Securities to the pledgees or secured parties.  Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith.  Further, subject to the aforesaid, no notice shall be required of such pledge.  At the Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities.

 

  

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4.2           Merger and PIPE Financing.  The Company has not, and hereby covenants that from and after the Closing Date, and until the later of (i) 90 days following receipt of a favorable Tax Ruling and (ii) 45 days following the delivery to the Purchasers of the Audited Financial Statements (the “Exclusivity Period”), the Company will not incur any indebtedness or Liens except with respect to bank loans or bank credit lines or in the ordinary course of business consistent with past practices. 

4.3           Integration.  From and after the Closing Date, and until expiration of the Exclusivity Period, the Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities to the Purchasers in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers, nor enter into any purchase, sale, merger or business combination transaction pursuant to which the business of another Person is combined with that of the Company, in whatever form, or enter into any other agreement or series of related agreements (including, without limitation, joint venture, sale of assets, license agreement, distribution agreement, etc.) or enter into any other transaction that would preclude the consummation of the PIPE Financing and the closing of the Merger, without the prior written consent of the Advisor and the holders of a majority in principal amount outstanding of the Debentures.

 

4.4 Conversion.  The Debentures set forth the totality of the procedures required of the Purchasers in order to convert the Debentures into Ordinary Shares or other securities in connection with the Merger, as the case may be.  Subject to US securities laws, no additional legal opinion or other information or instructions shall be required of the Purchasers to convert their Debentures.  The Company shall honor conversions of the Debentures and shall deliver Underlying Securities in accordance with the terms, conditions and time periods set forth in the Transaction Documents and Merger Agreement.

 

4.5 Publicity.  The Company and the Advisor shall consult with each other in issuing any press releases with respect to the transactions contemplated hereby, and neither the Company nor any Advisor shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, with respect to any press release of Advisor or Purchaser, or without the prior consent of the Advisor, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication.  

4.6 Use of Proceeds.  The Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes.

 

  

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4.7 Indemnification of Purchasers.  Subject to the provisions of this Section 4.7, the Company will indemnify and hold each Purchaser and their directors, officers, stockholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls the Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, stockholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser Party in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of the Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings the Purchaser Party may have with any such stockholder or any violations by the Purchaser Party of state or federal securities laws or any conduct by the Purchaser Party which constitutes fraud, negligence, willful misconduct or malfeasance).  If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party.  Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel.  The Company will not be liable to any Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any (x) of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents; or (y) agreement, understanding or arrangement with any third party.

4.8           Equal Treatment of Purchasers.  No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents.  Further, the Company shall not make any payment of principal or interest on the Debentures in amounts which are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time.  For clarification purposes, this provision constitutes a separate right granted to the Purchaser by the Company and negotiated separately by the Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

 

  

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4.9 Form D; Blue Sky Filings.  The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Purchaser upon filing.  The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

4.10           Preservation of Corporate Existence.  The Company shall preserve and maintain its corporate existence, rights, privileges and franchises in the jurisdiction of its incorporation, and qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is necessary in view of its business or operations and where the failure to qualify or remain qualified might reasonably have a Material Adverse Effect.

4.11           Tax Ruling.  The Company agrees to use commercially reasonable efforts to expeditiously obtain a ruling on behalf of its shareholders and option holders (the “Tax Ruling”) from the Israeli Tax Authority that the issuance of Pubco securities in exchange for Company securities held by Company shareholders and option holders upon the closing of the Merger shall constitute a deferred tax event for the Company and/or its shareholders and option holders and shall not obligate them to pay any amounts prior to receiving actual funds resulting from sale of Pubco's securities as a result of such exchange.

4.12           Bankruptcy.  Purchasers agree that they shall not initiate an involuntary bankruptcy proceeding or insolvency proceeding against the Company by virtue of the Company’s failure to satisfy its non-payment of Debenture principal or interest or a money judgment obtained in connection with the non-payment of Debenture principal or interest.

4.13           Merger Approval.  The Company will use its commercially reasonable efforts to obtain the consent of its shareholders to the Merger. Provided that Ofir Paz and Asher Holzer vote their Ordinary Shares in favor of the Merger, it shall not be a default by Company or an Event of Default as defined in the Debenture if fewer than 80% of Company’s shareholders do not approve the Merger, in which case, the Company may elect not to close the Merger and in such case the Purchasers or anyone acting on their behalf shall not have any demand, claim or right against the Company, its shareholders, officers, directors, employees, advisors and representatives as a result of the failure to obtain such approval.

4.14           Audits.  The Company undertakes to obtain audits of its financial statements sufficient to be filed with the Commission on a Form 10 (the “Audited Financial Statements”) no later than the later of: (i) six (6) months following the Closing; or (ii) two (2) months after the receipt of a favorable Tax Ruling. Failure to timely obtain such audits shall be an “Audit Default.”

4.15           Access to Records.  From and after the occurrence of an Event of Default and until the time the Company becomes subject to the reporting provisions of the Exchange Act, the Company shall furnish to each Purchaser that holds Securities, or any of its duly authorized representatives, attorneys or accountants reasonable access to any and all records at the premises of the Company where such records are kept, such access being afforded without charge, but only upon reasonable request stating the purpose of such request and during normal business hours.  Each such Purchaser making such request agrees to request to execute a confidentiality agreement or similar document reasonably requested by the Company.

 

  

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4.16           Articles of Association.  The Company undertakes that it will not amend its Articles of Association if such amendment would materially impair the rights of the Purchasers as holders of the Warrants.

ARTICLE V.

MISCELLANEOUS

 

5.1   Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before 5:30 p.m. (New York City time) on July 30, 2010; provided, however, that such termination will not affect the right of any party to sue for any breach by the other party (or parties).

 

5.2   Reserved.  At the Closing, the Company has agreed to pay in cash to Palladium Capital Advisors LLC (“Palladium”) a sum equal to four percent (4%) of the Purchase Price in connection with the Closing (“Palladium Fee”).  The Company has further agreed, upon consummation of the PIPE Financing, (a) to pay in cash to Palladium an additional sum equal to four percent (4%) of the Purchase Price of any Debentures that convert into Pubco Common Stock in connection with the PIPE Financing and (b) to issue to Palladium three year warrants to purchase from Pubco an amount of Pubco Common Stock equal to eight percent (8%) of the number of shares of Pubco Common Stock that any Debentures convert into in connection with the PIPE Financing (“Palladium Warrants”). The Palladium Warrants shall have an exercise price of $1.50 per Pubco's share of Common Stock and shall otherwise be identical to the warrants issued in the PIPE Financing.  In addition, at the Closing, the Company has agreed to reimburse the Purchasers the non-accountable sum of $15,000 for its legal fees and expenses, such amount to be paid directly to G&M out of escrow (“Purchaser Legal Fees”).  Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.  The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

5.3           Entire Agreement.  The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

  

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5.4           Notices.  Any and all notices or other communications or deliveries to be provided by the Holder hereunder, shall be in writing and delivered personally, by facsimile, pdf or other electronic delivery, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth below, or such other email address, facsimile number or address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section 5.4.  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to the Holder at the address set forth below.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile or electronic delivery at the facsimile number or email address specified in this Section 5.4 prior to 5:30 p.m. (New York City time), (ii) the Business Day immediately following the date of transmission, if such notice or communication is delivered via facsimile or electronic delivery at the facsimile number or email address specified in this Section 5.4 between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

If to the Company, to:

InspireMD Ltd.

3 Menorat Hamaor St.

Tel Aviv 67448, Israel

Attention: Asher Holzer

Phone: +972 3 6917691

Fax: +972 3 6917692

With a copy (which shall not constitute notice) to:

Haynes and Boone, LLP

1221 Avenue of the Americas, 26th Floor

New York, NY 10020-1007

Attention: Rick Werner, Esq.

Phone: (212) 659-4974

Fax: (212) 884-8234

If to the Purchasers, to:

The addresses set forth on the signature pages

With a copy (which shall not constitute notice) to:

Edward M. Grushko, Esq.

Grushko & Mittman, P.C.

515 Rockaway Avenue

Valley Stream, New York 11581

(212) 697-9500 - Phone

(212) 697-3575 - Fax

edgrushko@aol.com

 

  

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5.5           Amendments; Waivers.  No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding a majority in interest of the Debentures or securities into which the Debentures are converted, and if none of the foregoing are outstanding, then the holders of at least a simple majority of the Warrants and Warrant Shares still held by Purchasers (a “Majority in Interest”) or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

5.6           Headings.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

5.7           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  As long as the Debentures have not been converted or repaid, the Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of a Majority in Interest of the Purchasers, except in connection with the Merger.  Except as otherwise provided in the Company's articles of association, as shall be amended from time to time, regarding restrictions on transferability of the Company's shares and other securities, any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

  

5.8           No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.7.

 

5.9           Applicable law.  All disputes arising under this Agreement or in connection with the transactions hereunder shall be resolved between the parties in good faith, however, if these efforts fail the dispute shall be resolved in accordance with the laws of the State of Israel excluding that body of law pertaining to conflict of law and  any dispute, controversy or claim arising out of or in connection with the Transaction Documents, or the breach, termination or invalidity thereof, shall be submitted  to the personal and exclusive jurisdiction of the competent courts in the Tel Aviv Jaffa District, Israel, and all parties hereto irrevocably waive any objection as to venue or “inconvenient forum.”

 

5.10           Survival.  The representations and warranties shall survive the Closing and the delivery of the Securities for the applicable statue of limitations.

 

  

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5.11           Execution.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

5.12           Severability.  If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

5.13           Rescission and Withdrawal Right.  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

 

5.14           Replacement of Securities.  If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction.  The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

 

5.15           Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agrees to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

5.16           Payment Set Aside.  To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

  

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5.17           Usury.  To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document.  Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate.  It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law.  If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

 

5.18           Independent Nature of Purchasers’ Obligations and Rights.  The obligations of the Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document.  Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.  Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents.  The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.

 

  

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5.19           Fridays, Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

5.20           Construction.  The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto.

 

5.21           WAIVER OF JURY TRIAL.  IN ANY ACTION, SUIT OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

5.22           Currency.  All references to amounts herein shall be in United States Dollars.

 

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SIGNATURE PAGES FOLLOWS]

 

  

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

	
INSPIREMD LTD.

	 	 	 
	
By: 

	/s/ Ofir Paz 	 
	 	
Ofir Paz

CEO

	 

 

 

	
ACKNOWLEDGED BY:

HARBORVIEW ADVISORS LLC

	 	 	 
	
By: 

	 	 
	 	
Name:

Title:

	 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

  

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[PURCHASER SIGNATURE PAGES TO INSPIREMD LTD. SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser: ____________________________________________________________

 

 

Signature of Authorized Signatory of Purchaser: ______________________________________

Name of Authorized Signatory: ___________________________________________________

Title of Authorized Signatory: ____________________________________________________

 

 

Email Address of Purchaser: _____________________________________________________

 

 

Facsimile Number of Purchaser: __________________________________________________

 

 

Address for Notice of Purchaser: __________________________________________________

_____________________________________________________________________________

Address for Delivery of Securities for Purchaser (if not same as address for notice):

_____________________________________________________________________________

_____________________________________________________________________________

Purchase Price: US$ _______________________________

Warrants: ___________________________________

EIN Number, if applicable, will be provided under separate cover: ________________________

 

  

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DISCLOSURE SCHEDULE

 

This Disclosure Schedule is provided pursuant to that certain Securities Purchase Agreement by and among InspireMD Ltd., an Israeli company (the "Company") and each of the Purchasers identified on the signature pages thereto (the “Agreement”). Any information disclosed herein under the heading of a particular section or subsection of the Agreement shall constitute an exception and/or disclosure for purposes of each other section of the Disclosure Schedule, where the disclosure and the relevance of such disclosure would be reasonably apparent from the disclosure in the first section. To the extent that any representation or warranty contained in the Agreement is limited or qualified by the materiality of the matters to which the representation or warranty is given, the inclusion of any matter in this Disclosure Schedule does not constitute a determination by the Company that such matters are material, nor in such cases where a representation or warranty is limited or qualified by the materiality of the matters to which the representation or warranty is given shall the disclosure of any matter in this Disclosure Schedule imply that any other undisclosed matter having a greater value or other significance is material. The inclusion in this Disclosure Schedule of any matter or document shall not imply any representation, warranty or undertaking not expressly given in the Agreement nor shall such disclosure be taken as extending the scope of any of the warranties or representations beyond the extension (if any) attributable to the nature of the reference to the Disclosure Schedule in the relevant section of the Agreement. Nothing in this Disclosure Schedule constitutes an admission towards third parties of liability, or an obligation of the Company to any third party, or an admission towards third parties against the Company or the interest of the Company. Terms used herein, unless otherwise defined herein, shall have the meaning ascribed to them in the Agreement.

 

  

  

  

 

Schedule 3.1(a)

 

	
  

	
·

	
InspireMD GMBH a limited liability private company formed under the laws of Germany.

 

  

  

  

 

Schedule 3.1(d)

None

 

  

  

  

 

Schedule 3.1(g)

 

Capitalization Table

	  	 	
Shares

	 	 	
Cash $

	 	 	
Price per Share

	 
	
Seed

	 	 	3,059,940	 	 	$	0	 	 	 	 
	
Common 1st

	 	 	770,280	 	 	$	1,121,659	 	 	$	1.44	 
	
Common 2nd

	 	 	1,194,691	 	 	$	3,505,009	 	 	$	2.93	 
	
Common 3rd

	 	 	252,720	 	 	$	926,030	 	 	$	3.67	 
	
Common 4th

	 	 	720,853	 	 	$	6,919,205	 	 	$	10.00	 
	
Exercised Options

	 	 	68,270	 	 	$	146	 	 	 	 	 
	
Stock Options

	 	 	600,931	 	 	$	0	 	 	 	 	 
	
ESOP

	 	 	344,500	 	 	$	0	 	 	 	 	 
	
Total all rounds

	 	 	7,012,185	 	 	$	12,472,049	 	 	 	 	 

Additional shares and stock options that doesn't appear in the table above:

	
  

	
1.

	
We have already received 200,000 USD investments for which 20,000 ordinary shares will be issued at the next BOD meeting.

 

	
  

	
2.

	
We are about to receive 510,000 USD in the next week and therefore 51,000 ordinary shares will be issued at the next BOD meeting. $10 per share.

 

	
  

	
3.

	
The BOD and the general meeting of the company already approved the grant of 60,000 stock options to 3 directors that are not employed by the company, at an exercise price of 10 USD per share.

 

	
  

	
4.

	
The BOD is going to confirm additional stock option grants to several finders, that helped raising funds at the previous rounds, at the following conditions:

 

	
  

	
·

	
2,000 Stock options, exercise price of 0.01 USD per option.

 

	
  

	
·

	
300 Stock options, exercise price of 3.67 USD per option.

 

	
  

	
·

	
1,674 Stock options, exercise price of 10 USD per option.

 

	
  

	
5.

	
The BOD is going to confirm 6,000 stock option grants, at an exercise price of 10 USD per share, subject to stock option plan according to an agreement that was signed on the 20th of June, 2010 with our Polish distributer.

 

	
  

	
6.

	
A former business and legal consultant claims for 45,833 stock options due to an agreement as of 1/4/2005. Exercise price of such options is in dispute between the Company and such party.

 

	
  

	
7.

	
A former senior employee who was discharged from the Company claims, among other things, for the grant of 250,000 stock options at an exercise price of NIS0.01. The Company rejects all the employee's claims.

 

  

  

  

 

Schedule 3.1(h)

Company Financial Statements

 

INSPIRE M.D. LTD

 

FINANCIAL STATEMENTS Unaudited

 

FOR THE YEARS ENDED DECEMBER 31, 2008 and 2009

 

TABLE OF CONTENTS

 

	  	
Page

	
Balance Sheets

	  
	
Statements of Operations

	  

 

-----------------------

 

  

1

  

 

	Balance Sheets

 

 

	  	 	
December 31

	 
	  	 	
2009

	 	 	
2008

	 
	  	 	
NIS in thousands

	 
	  	 	 	 	 	 	 
	
Current assets:

	 	 	 	 	 	 
	  	 	 	 	 	 	 
	
Cash and cash equivalents

	 	 	1,448	 	 	 	5,919	 
	
Short term investments

	 	 	150	 	 	 	 	 
	
Accounts receivable:

	 	 	 	 	 	 	 	 
	
Trade

	 	 	1,262	 	 	 	773	 
	
Other

	 	 	401	 	 	 	272	 
	
Inventory*

	 	 	2,830	 	 	 	2,494	 
	  	 	 	 	 	 	 	 	 
	  	 	 	6,091	 	 	 	91458	 
	  	 	 	 	 	 	 	 	 
	
Non - Current assets:

	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 
	
Long term investments

	 	 	944	 	 	 	 	 
	
Investment in Subsidiary

	 	 	3,702	 	 	 	212	 
	
Fixed assets, net

	 	 	1,191	 	 	 	1,427	 
	  	 	 	 	 	 	 	 	 
	  	 	 	5,837	 	 	 	1,639	 
	  	 	 	 	 	 	 	 	 
	  	 	 	11,928	 	 	 	11,097	 

 

  

2

  

 

	Balance Sheets

 

	  	 	
December 31

	 
	  	 	
2009

	 	 	
2008

	 
	  	 	
NIS in thousands

	 
	
Current Liabilities

	 	 	 	 	 	 
	  	 	 	 	 	 	 
	
Short term credit from banks

	 	 	1,062	 	 	 	 
	
Convertible loan

	 	 	 	 	 	 	2,926	 
	
Accounts payable and accruals:

	 	 	 	 	 	 	 	 
	
Trade

	 	 	3,295	 	 	 	1,235	 
	
Other

	 	 	9,078	 	 	 	6,146	 
	  	 	 	 	 	 	 	 	 
	  	 	 	13,435	 	 	 	10,307	 
	  	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 
	
Non Current Liabilities

	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 
	
Loan from bank

	 	 	2,093	 	 	 	 	 
	
Liabilities for employees benefits, net

	 	 	99	 	 	 	139	 
	
Loans from shareholders

	 	 	587	 	 	 	125	 
	
Contingent liabilities

	 	 	400	 	 	 	 	 
	  	 	 	 	 	 	 	 	 
	  	 	 	3,179	 	 	 	264	 
	  	 	 	 	 	 	 	 	 
	
Shareholders’ Equity**

	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 
	
Share Capital

	 	 	60	 	 	 	58	 
	
Premium

	 	 	55,705	 	 	 	53,030	 
	
Receivables in accounts of shares

	 	 	 	 	 	 	 	 
	
Accumulated deficit

	 	 	(60,451	)	 	 	(52,562	)
	  	 	 	 	 	 	 	 	 
	  	 	 	(4,686	)	 	 	526	 
	  	 	 	 	 	 	 	 	 
	  	 	 	11,928	 	 	 	11,097	 

 

*The company's inventory is based on un-audited numbers. The company expects the numbers to change after resolving issues regarding the inventory, revenue recognition and others.

 

**The company's equity is based on un-audited numbers, and does not include information regarding stock options grants to employees and consultants.

 

  

3

  

 

	Statements of operations

 

	  	 	
For the year

	 
	  	 	
ended December 31

	 
	  	 	
2009

	 	 	
2008

	 
	  	 	
NIS in thousands

	 
	  	 	 	 	 	 	 
	
Revenue from sales***

	 	 	14,054	 	 	 	3,758	 
	  	 	 	 	 	 	 	 	 
	
Cost of revenue

	 	 	9,969	 	 	 	6,892	 
	  	 	 	 	 	 	 	 	 
	
Gross Profit (Loss)

	 	 	4,085	 	 	 	(3,134	)
	  	 	 	 	 	 	 	 	 
	
Research and Development Expenses

	 	 	4,171	 	 	 	5,382	 
	
Selling and Marketing Expenses

	 	 	4,542	 	 	 	5,963	 
	
General And Administrative Expenses

	 	 	3,752	 	 	 	3,373	 
	  	 	 	 	 	 	 	 	 
	
Loss from ordinary operations****

	 	 	8,381	 	 	 	17,852	 
	  	 	 	 	 	 	 	 	 
	
Financial Expenses, net

	 	 	452	 	 	 	740	 
	  	 	 	 	 	 	 	 	 
	
Loss before Taxes

	 	 	8,833	 	 	 	18,592	 
	
Taxes on Income

	 	 	20	 	 	 	61	 
	  	 	 	 	 	 	 	 	 
	
Loss after Taxes

	 	 	8,853	 	 	 	18,653	 
	  	 	 	 	 	 	 	 	 
	
Subsidiary Profit (Loss)

	 	 	28	 	 	 	(485	)
	  	 	 	 	 	 	 	 	 
	
Loss for the year

	 	 	8,825	 	 	 	19,138	 

 

***The company is still facing issues regarding revenue recognition, after resolving them the numbers for 'revenue from sales' will change.

 

****The company’s Loss from ordinary operations doesn’t include expenses arising from stock options grants to employees and consultants.

  

4

  

 

INSPIRE M.D. LTD

 

FINANCIAL STATEMENTS   Unaudited

 

FOR THE YEARS ENDED DECEMBER 31, 2007 and 2008 

 

TABLE OF CONTENTS

 

	  	
Page

	
Balance Sheets

	  
	
Statements of Operations

	  

 

-----------------------

 

  

1

  

 

	Balance Sheets

 

	  	 	
December 31

	 
	  	 	
2008

	 	 	
2007

	 
	  	 	
NIS in thousands

	 
	  	 	 	 	 	 	 
	
Current assets:

	 	 	 	 	 	 
	  	 	 	 	 	 	 
	
Cash and cash equivalents

	 	 	5,919	 	 	 	7,138	 
	
Short term investments

	 	 	 	 	 	 	3,123	 
	
Cash Enslaved

	 	 	 	 	 	 	300	 
	
Accounts receivable:

	 	 	 	 	 	 	 	 
	
Trade

	 	 	773	 	 	 	 	 
	
Other

	 	 	272	 	 	 	352	 
	
Inventory*

	 	 	2,494	 	 	 	2,450	 
	  	 	 	 	 	 	 	 	 
	  	 	 	9,458	 	 	 	13,363	 
	  	 	 	 	 	 	 	 	 
	
Non - Current assets:

	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 
	
Investment in Subsidiary

	 	 	212	 	 	 	141	 
	
Fixed assets, net

	 	 	1,427	 	 	 	1,547	 
	  	 	 	 	 	 	 	 	 
	  	 	 	1,639	 	 	 	1,688	 
	  	 	 	 	 	 	 	 	 
	  	 	 	11,097	 	 	 	15,051	 

 

  

2

  

 

	Balance Sheets

 

	  	 	
December 31

	 
	  	 	
2008

	 	 	
2007

	 
	  	 	
NIS in thousands

	 
	
Current Liabilities

	 	 	 	 	 	 
	  	 	 	 	 	 	 
	
Convertible loan

	 	 	2,926	 	 	 	 
	
Accounts payable and accruals:

	 	 	 	 	 	 	 
	
Trade

	 	 	1,235	 	 	 	1,577	 
	
Other

	 	 	6,146	 	 	 	1,381	 
	
Taxes payable

	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 
	  	 	 	10,307	 	 	 	2,958	 
	  	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 
	
Non Current Liabilities

	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 
	
Liabilities for employees benefits, net

	 	 	139	 	 	 	62	 
	
Loans from shareholders

	 	 	125	 	 	 	156	 
	  	 	 	 	 	 	 	 	 
	  	 	 	264	 	 	 	218	 
	  	 	 	 	 	 	 	 	 
	
Shareholders’ Equity**

	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 
	
Share Capital

	 	 	58	 	 	 	56	 
	
Premium

	 	 	53,030	 	 	 	46,171	 
	
Receivables in accounts of shares

	 	 	 	 	 	 	(928	)
	
Accumulated deficit

	 	 	(52,562	)	 	 	(33,424	)
	  	 	 	 	 	 	 	 	 
	  	 	 	526	 	 	 	11,875	 
	  	 	 	 	 	 	 	 	 
	  	 	 	11,097	 	 	 	15,051	 

\

* The company's inventory is based on un-audited numbers. The company expects the numbers to change after resolving issues regarding the inventory, revenue recognition and others.

 

**The company's equity is based on un-audited numbers, and does not include information regarding stock options grants to employees and consultants.

 

  

3

  

 

	Statements of operations

 

	  	 	
For the year

	 
	  	 	
ended December 31

	 
	  	 	
2008

	 	 	
2007

	 
	  	 	
NIS in thousands

	 
	  	 	 	 	 	 	 
	
Revenue from sales***

	 	 	3,758	 	 	 	 
	  	 	 	 	 	 	 	 
	
Cost of revenue

	 	 	6,892	 	 	 	157	 
	  	 	 	 	 	 	 	 	 
	
Gross Loss

	 	 	3,134	 	 	 	157	 
	  	 	 	 	 	 	 	 	 
	
Research and Development Expenses

	 	 	5,382	 	 	 	6,587	 
	
Selling and Marketing Expenses

	 	 	5,963	 	 	 	2,939	 
	
General and Administrative Expenses

	 	 	3,373	 	 	 	3,166	 
	  	 	 	 	 	 	 	 	 
	
Loss from ordinary operations****

	 	 	17,852	 	 	 	12,849	 
	  	 	 	 	 	 	 	 	 
	
Financial Expenses, net

	 	 	740	 	 	 	522	 
	  	 	 	 	 	 	 	 	 
	
Loss before Taxes

	 	 	18,592	 	 	 	13,371	 
	
Taxes on Income

	 	 	61	 	 	 	112	 
	  	 	 	 	 	 	 	 	 
	
Loss after Taxes

	 	 	18,653	 	 	 	13,483	 
	  	 	 	 	 	 	 	 	 
	
Subsidiary Loss

	 	 	485	 	 	 	 	 
	  	 	 	 	 	 	 	 	 
	
Loss for the year

	 	 	19,138	 	 	 	13,483	 

 

***The company is still facing issues regarding revenue recognition, after resolving them the numbers for 'revenue from sales' will change.

 

****The company’s Loss from ordinary operations doesn’t include expenses arising from stock options grants to employees and consultants.

 

  

4

  

 

Schedule 3.1(i)

	
  

	
1.

	
Sara Paz, an employee, has asserted a claim against the Company for approximately $105,000, which she claims is owed to her for services rendered over the past two years. The Company intends to propose resolving this dispute through mediation.

	
  

	
2.

	
Asher Holzer and Ofir Paz are owed an aggregate of $110,000 by the Company for deferred salary over the past 16 months.

	
  

	
3.

	
Goldfarb, Levy, Eran, Meiri, Tzafrir & Co. has sent invoices to the Company for approximately $48,000 for past work. The Company is disputing these fees.

	
  

	
4.

	
Miki Bronfeld brought a claim against the Company in Israel, asserting that the Company failed to pay him certain finder’s fees. This claim was recently settled, and the Company has agreed to pay Mr. Bronfeld $20,000.

 

  

  

  

 

Schedule 3.1(j)

Legal Proceedings:

	
  

	
1.

	
Finder fee claim at the amount of NIS 579,000 (approximately 150K USD) against the company, initiated on October 1st, 2009.

	
  

	
2.

	
Claim filed by a previous distributor of the Company for enforcement of a distribution agreement in Israel and temporary injunction order.  The Company and the plaintiff have agreed to settle the claim through the grant of 1,000 warrants at $10 per share. Formal settlement agreement has not yet been filed to court.

Threatened Legal Proceedings:

	
  

	
1.

	
A demand letter sent to the Company by a certain individual that financed our customer at Thailand. The customer returned stents for 22,000 USD and received credit note. The party that financed the customer is asking for his money back from the Company. The Company sent his a letter rejecting all his claims since we don't have any agreement or any understanding with him.

 

	
  

	
2.

	
A Former senior employee of the Company who was discharged from the Company sent to the Company demand letters asking for payment of NIS150,000 for the year 2009, redemption of rights due to employment termination and the grant of 250,000 stock options at an exercise price of NIS 0.01 (see also Section 5 to Schedule 3.1(j)). The Company sent the former employee a letter rejecting all his claims.

	
  

	
3.

	
Microbank LLC – through emails communication with Palladium Capital Advisors LLC to which the Company's managers were CCed, Microbank is claiming that it is entitled to receive finder's fee in relation to the Agreement. Microbank offered to settle its claim for a cash payment of $400,000 once the Company enters into the Agreement and 268,000 cashless exercise warrants at 1.50 per share. The Company sent a letter to Microbank rejecting the claim.

 

  

  

  

 

Schedule 3.1(m)

The Company is in the process of receiving a business license from the District Pharmacist. The Company, however, does not believe that the current absence of this business license will result in a Material Adverse Effect.

 

  

  

  

 

Schedule 3.1(o)

	
  

	
1.

	
Payment to Palladium Capital Advisors LLC as set forth in Section 5.2 to the Agreement to which this Disclosure Schedule is attached;

	
  

	
2.

	
Microbank LLC – through emails communication with Palladium Capital Advisors LLC to which the Company's managers were CCed, Microbank is claiming that it is entitled to receive finder's fee in relation to the Agreement. Microbank offered to settle its claim for a cash payment of $400,000 once the Company enters into the Agreement and 268,000 cashless exercise warrants at 1.50 per share. The Company sent a letter to Microbank rejecting the claim. Due to the Company's refusal to pay commission to Microbank LLC, Microbank LLC may claim bigger commission from the Company.

 

  

  

  

 

Schedule 3.1(q)

Leasing contracts:

	
  

	
·

	
Office rental fees till February 2012 – 228,000 USD

 

Bank debt:

	
  

	
·

	
Secured Loan from Bank Mizrahi-Tefahot: principal amount of USD 656,000 (7 quarterly payments).

 

Consultants:

	
  

	
·

	
Sales & Marketing - 105,000 USD

 

	
  

	
·

	
Management – 152,000 USD

 

  

  

  

 

Schedule 3.1(s)

 

	
·

	
Secured Loan from Bank Mizrahi-Tefahot: principal amount of USD 656,000 (7 quarterly payments).

 

 

  

  

  

 

EXHIBIT A

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, SUBJECT TO THE PROVISIONS OF THE BORROWER’S ARTICLES OF ASSOCIATION REGARDING RESTRICTIONS ON TRANSFER OF THE BORROWER'S SECURITIES, AS SHALL BE AMENDED FROM TIME TO TIME, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

	Principal Amount: [at least an aggregate $1,580,000] $________,000.00 	Issue Date: July ___, 2010

 

CONVERTIBLE DEBENTURE

FOR VALUE RECEIVED, InspireMD Ltd., a corporation continued under the laws of the State of Israel (hereinafter called “Borrower”), hereby promises to pay to the order of _________________________, maintaining an address at _________________________________________________, Fax: (___) ___–____ (“Holder”) without demand, the sum of _________ Dollars ($___.00) (“Principal Amount”), with interest accruing thereon, on the Maturity Date, if not sooner paid or converted into the Borrower’s or Pubco’s securities as provided herein.

This Debenture has been entered into pursuant to the terms of a securities purchase agreement among the Borrower, the Holder and certain other holders (the “Other Holders”) of convertible debentures (the “Other Debentures”), dated of even date herewith (the “Securities Purchase Agreement”) for an aggregate Principal Amount of [at least an aggregate of $1,580,000] $______,000.

ARTICLE I

DEFINITIONS

1.1           Definitions.  Capitalized terms used and not otherwise defined herein that are defined in the Securities Purchase Agreement shall have the meanings given to such terms in the Securities Purchase Agreement.  Whenever used in this Agreement, the following terms shall have the following respective meanings:

 

§           “Audit Default” shall have the meaning set forth in the Securities Purchase Agreement;

 

§           “Business Day” shall have the meaning set forth in the Securities Purchase Agreement;

 

§           “Closing Date” shall have the meaning set forth in the Securities Purchase Agreement;

 

  

1

  

 

§           “Company Financing” shall mean the closing of, or execution of a definitive and binding agreement (subject to customary closing conditions) with respect to, an equity or convertible debt financing, or series of related financings, that provides for the receipt by the Borrower of not less than $3,000,000 in the aggregate; which closing occurs, or definitive agreement is executed, as the case may be, between the Closing and twelve months following the Maturity Date;

 

§           “Debenture” shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented;

 

§           “Exclusivity Period” shall have the meaning set forth in the Securities Purchase Agreement;

 

§           “Material Adverse Effect” shall mean (i) any event, occurrence, fact or circumstance which has had a material adverse effect on the business, assets, condition (financial or otherwise), liabilities or results of operations of the Borrower or (ii) an Audit Default; provided, however, that the following occurrences shall not be deemed to be a Material Adverse Effect: (A) changes resulting from the announcement of the sale of the Debentures or the intention to effectuate the PIPE Financing; (B) changes resulting from the parties' compliance with the terms of the Transaction Documents; (C) the failure of the Borrower to meet its financial projections and (D) provided that the Borrower is able to continue its business in substantially the same manner as before, the occurrence of: (i) changes in general political, economic or financial market conditions; (ii) changes in industry conditions that do not disproportionately effect the Borrower or its subsidiaries; (iii) changes in GAAP; (iv) changes in law; and (v) acts of terrorism or war;

 

§           “Material Subsidiary” means a subsidiary of the Borrower whose total assets (after intercompany eliminations) exceed 30 percent of the total assets of the Borrower and all of its subsidiaries, as calculated on a consolidated basis, as of the end of the most recently completed fiscal quarter;

 

§           “Maturity Date” shall mean the date that payment or conversion, as the case may be, of this Debenture is required hereunder;

 

§           “Merger” shall have the meaning set forth in the Securities Purchase Agreement;

 

§           “Ordinary Shares” shall have the meaning set forth in the Securities Purchase Agreement;

 

§           “Original Maturity Date” shall have the meaning set forth in Section 2.1 herein;

 

§           “Other Debentures” shall have the meaning set forth in the preamble of this Debenture;

 

§           “Other Holders” shall have the meaning set forth in the preamble of this Debenture;

 

§           “Pipe Default” shall mean (i) the Borrower’s failure to act in good faith to timely effectuate the Pipe Financing or (ii) the occurrence of a Material Adverse Effect;

 

§           “Pipe Financing” shall have the meaning set forth in the Securities Purchase Agreement;

 

§           “Pubco” shall have the meaning set forth in the Securities Purchase Agreement;

 

  

2

  

 

§           “Pubco Common Stock” shall have the meaning set forth in the Securities Purchase Agreement;

 

§           “Second Maturity Date” shall have the meaning set forth in Section 2.2 herein;

 

§           “Securities Purchase Agreement” shall have the meaning set forth in the preamble of this Debenture;

 

§           “Tax Ruling” shall have the meaning set forth in the Securities Purchase Agreement;

 

§           “Transaction Documents” shall have the meaning set forth in the Securities Purchase Agreement.

ARTICLE II

GENERAL PROVISIONS

2.1           Original Maturity Date.  The Borrower shall pay all sums due on the Debenture on the later of (i) two months subsequent to the Borrower’s receipt of the Tax Ruling or (ii) the six month anniversary of the Closing Date (the “Original Maturity Date”).

2.2           Second Maturity Date.  Provided neither a Pipe Default nor an Event of Default have occurred then, commencing 20 Business Days before the Original Maturity Date, the Borrower shall have the right, in its sole discretion, to extend the Maturity Date until nine months after the Original Maturity Date (such extended date being the “Second Maturity Date”) by providing written notice to the Holder not later than 10 Business Days prior to the Original Maturity Date.

2.3           Interest Rate.  Interest payable on this Debenture shall accrue at the annual rate of eight percent (8%) from the Issue Date through the date the Debenture is paid or converted as provided for herein.

2.4           Pari Passu.  All payments made on this Debenture and the Other Debentures and except as otherwise set forth herein all actions taken by the Borrower with respect to this Debenture and the Other Debentures, including but not limited to Mandatory Conversion and Optional Redemption (as set forth in Article III), shall be made and taken pari passu with respect to this Debenture and the Other Debentures.

2.5           No Insolvency Proceedings.  The Holder shall not initiate any insolvency or bankruptcy proceedings against the Borrower due to the failure of the Borrower to pay this Debenture or the interest thereon.

ARTICLE III

MANDATORY CONVERSION AND OPTIONAL REDEMPTION

3.1           Pipe Financing Conversion.  Provided the closing of the Pipe Financing occurs before the Original Maturity Date, or, in the event that the Borrower elects to extend the term of this Debenture pursuant to Section 2.2 hereof, the Second Maturity Date, then, at the option of the Holder, this Debenture shall convert (in full and not in part) into shares of Pubco Common Stock at the price of $1.50 per share at the closing of the Pipe Financing.  If this Debenture is not converted at the closing of the Pipe Financing, it will be repaid in cash at the closing of the Pipe Financing.

3.2           Company Financing Conversion.  Provided a Pipe Default, an Event of Default or a Pipe Financing have not occurred, upon a Company Financing occurring after the expiration of the Exclusivity Period but prior to the one year anniversary of the Second Maturity Date, this Debenture shall automatically convert into Ordinary Shares of the Borrower at price per share calculated at a 15% discount to the pricing of the Company Financing; provided, however, the total coupon and discount granted to the Holder under this Section 3.2 shall not exceed a 20% discount to the pricing of the Company Financing.  For the purpose of clarity commencing on the expiration of the Exclusivity Period, this Debenture shall be convertible in accordance with both Sections 3.1 or 3.2 herein, which ever occurs first.

 

  

3

  

 

3.3           Second Maturity Date Conversion.  Provided neither a Pipe Default nor an Event of Default have occurred and this Debenture was not previously converted pursuant to Sections 3.1 or 3.2 herein before the Second Maturity Date then, upon the Second Maturity Date, this Debenture shall automatically convert into Ordinary Shares of the Borrower as follows:

 

(a) If a Company Financing occurs within one year after the Second Maturity Date then at the closing of the Company Financing this Debenture shall automatically convert into Ordinary Shares of the Borrower at price per share calculated at a 15% discount to the pricing of the Company Financing; provided, however, the total coupon and discount granted to the Holder under this Section 3.2 shall not exceed a 20% discount to the pricing of the Company Financing.

(b) If a Company Financing does not occur within one year after the Second Maturity Date then on the First Anniversary of the Second Maturity Date this Debenture shall automatically convert into Ordinary Shares of the Borrower at a price of $10 per share.

(c) For the purpose of clarity an Event of Default first occurring after the Second Maturity Date shall not affect the conversion provisions of this Section 3.3.

3.4           Reclassification, etc.  If the Borrower at any time shall, by reclassification or otherwise, change the Ordinary Shares into the same or a different number of securities of any class or classes that may be issued or outstanding, this Debenture, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the Ordinary Shares immediately prior to such reclassification or other change.

3.5           Stock Splits, Combinations and Dividends.  If the Ordinary Shares are subdivided or combined into a greater or smaller number of Ordinary Shares, or if a dividend is paid on the Ordinary Shares in Ordinary Shares, the Conversion Price shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionately increased in the case of combination of shares, in each such case by the ratio which the total number of Ordinary Shares outstanding immediately after such event bears to the total number of Ordinary Shares outstanding immediately prior to such event.

3.6           Redemption.  This Debenture may be prepaid by the Borrower at any time without the consent of the Holder.

ARTICLE IV

EVENT OF DEFAULT

The occurrence of any of the following events of default (“Event of Default”) shall, at the option of the Holder hereof, make all sums of principal and interest then remaining unpaid hereon and all other amounts payable hereunder immediately due and payable, upon demand, without presentment or grace period, all of which hereby are expressly waived, except as set forth below:

 

  

4

  

 

4.1           Failure to Pay Principal or Interest.  The Borrower fails to pay any installment of principal, interest or other sum due under this Debenture when due.

4.2           Breach of Covenant.  The Borrower or any Material Subsidiary breaches any material covenant or other term or condition of the Transaction Documents in any material respect and such breach, if subject to cure, continues for a period of fifteen (15) days.

4.3           Breach of Representations and Warranties.  Any material representation or warranty of the Borrower made in the Transaction Documents, or in any agreement, statement or certificate given in writing pursuant thereto or in connection therewith shall be false or misleading in any material respect as of the date made and the Closing Date.

4.4           Liquidation.  Any dissolution, liquidation or winding up of the Borrower or a Material Subsidiary.

 

4.5           Cessation of Operations.  Any cessation of operations by the Borrower or a Material Subsidiary, for 60 consecutive days, or the Borrower is unable to pay its undisputed debt as such debts become due.

 

4.6           Financing Default.  If the Borrower enters into a reverse merger, public offering or other private placement during the Exclusivity Period.

4.7           Receiver or Trustee.  The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver, trustee or liquidator for it or for a substantial part of its property or business; or such a receiver, trustee or liquidator shall otherwise be appointed which appointment has not been terminated by a court of competent jurisdiction within ninety (90) days of such appointment.

4.8           Judgments.  Any money judgment, writ or similar final process shall be entered or made in a non-appealable adjudication against the Borrower or any Material Subsidiary or any of its property or other assets for more than $500,000, unless paid, stayed, vacated, bonded or satisfied within sixty (60) days.

4.9           Bankruptcy.  Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or a Material Subsidiary and, if instituted against the Borrower or a Material Subsidiary, shall not be dismissed within ninety (90) days after such institution.

4.10           Reservation Default.  Failure by the Borrower to have reserved for issuance upon exercise of the Warrants the number of shares of Ordinary Shares required to allow exercise of all Warrants issued pursuant to the Securities Purchase Agreement in the event such failure persists for a period of more than  thirty (30) days.

4.11           Merger.  Other than as part of the Merger, the merger, consolidation or reorganization of the Borrower with or into another corporation or person or entity (other than with or into a subsidiary, at least 80% of which is owned by the Borrower), or the sale of capital stock of the Borrower by the Borrower or the holders thereof, in any case under circumstances in which the holders of a majority of the voting power of the outstanding capital stock of the Borrower immediately prior to such transaction shall own less than a majority in voting power of the outstanding capital stock of the Borrower or the surviving or resulting corporation or other entity, as the case may be, immediately following such transaction.

4.12.           Material Adverse Effect.  The occurrence of one or more events having a Material Adverse Effect.

 

  

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4.13           Other Debenture Default.  The occurrence of an Event of Default under any Other Debenture.

4.14           Adverse Tax Ruling.  A Tax Ruling from the Israeli Tax Authority that the issuance of Pubco securities in exchange for Company securities held by Company shareholders and option holders upon the closing of the Merger shall not constitute a deferred tax event for the Company and/or its shareholders and shall obligate them to pay any amounts prior to receiving actual funds resulting from sale of Pubco's securities as a result of such exchange.

4.15           Failure to Obtain Tax Ruling.  If the Borrower fails to obtain a Tax Ruling within 15 months after the Closing Date.

ARTICLE V

MISCELLANEOUS

5.1           Failure or Indulgence Not Waiver.  No failure or delay on the part of the Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.  All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

5.2           Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the first business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be: (i) if to the Borrower to: InspireMD, Ltd., 3 Menorat Hamaor St. Tel Aviv, Israel Fax:  + 972-3-6917692, Attn: Dr. Asher Holzer, with a copy to:  Haynes and Boone, LLP, 1221 Avenue of the Americas, 26th Floor, New York, NY 10020-1007, Fax: (212) 884–8234, Attention: Rick Werner, Esq., and (ii) if to the Holder, to the name, address and facsimile number set forth on the front page of this Debenture, with a copy by fax only to Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, facsimile: (212) 697–3575.

 

5.3           Assignability.  This Debenture shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns.  The Borrower may not assign its obligations under this Debenture.

 

5.4           Cost of Collection.  If default is made in the payment of this Debenture, the Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.

 

5.5           Governing Law.  This Debenture shall be governed by and construed in accordance with the laws of the State of Israel without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction.  Any action brought by either party against the other concerning the transactions contemplated by this Agreement must be brought only in the courts located in the Tel Aviv Jaffa District, the State of Israel.  Both parties and the individual signing this Agreement on behalf of the Borrower agree to submit to the exclusive jurisdiction of such courts and the Holder irrevocably waives any objection to venue as an “inconvenient forum.”  In the event that any provision of this Debenture is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Debenture.

 

  

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5.6           Maximum Payments.  Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum rate permitted by applicable law.  In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum rate permitted by applicable law, any payments in excess of such maximum rate shall be credited against amounts owed by the Borrower to the Holder and thus refunded to the Borrower.

 

5.7           Non-Business Days.  Whenever any payment or any action to be made shall be due on a Saturday, Sunday or a public holiday under the laws of the State of New York or the State of Israel, such payment may be due or action shall be required on the next succeeding business day and, for such payment, such next succeeding day shall be included in the calculation of the amount of accrued interest payable on such date.

 

5.8           Shareholder Status.  The Holder shall not have rights as a shareholder of the Borrower with respect to unconverted portions of this Debenture.

[rest of this page left intentionally blank]

 

  

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IN WITNESS WHEREOF, the Borrower has caused this Debenture to be signed in its name by an authorized officer as of the ____ day of July, 2010.

 

 

	 	 	
INSPIREMD LTD.

 

 

	 
	 	 	 	 	 
	
 

	 	
By: 

	 	 
	 	 	 	Name: 	 
	 	 	 	Title: 	 
	 	 	 	 	 
	
WITNESS:

	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

 

 

  

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EXHIBIT B

 

ESCROW AGREEMENT

 

           This Agreement is dated as of the __ day of July, 2010 among InspireMD Ltd., a corporation formed under the laws of the State of Israel (the “Company”), the purchasers listed on Schedule 1 hereto (“Purchasers”), and Grushko & Mittman, P.C. (the “Escrow Agent”):

 

W I T N E S S E T H:

 

           WHEREAS, the Company and Purchasers have entered into a Securities Purchase Agreement calling for the sale by the Company to the Purchasers of  convertible Debentures and Warrants for an aggregate purchase price of up to $1,580,000; and

 

           WHEREAS, the parties hereto require the Company to deliver the Debentures and Warrants against payment therefor, with such Debentures and the Escrowed Funds to be delivered to the Escrow Agent, along with the other documents, instruments and payments hereinafter described, to be held in escrow and released by the Escrow Agent in accordance with the terms and conditions of this Agreement; and

 

           WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to the terms and conditions of this Agreement;

 

           NOW THEREFORE, the parties agree as follows:

 

ARTICLE I

 

INTERPRETATION

 

           1.1.           Definitions.  Capitalized terms used and not otherwise defined herein that are defined in the Securities Purchase Agreement shall have the meanings given to such terms in the Securities Purchase Agreement.  Whenever used in this Agreement, the following terms shall have the following respective meanings:

 

§           “Agreement” means this Agreement and all amendments made hereto and thereto by written agreement between the parties;

 

§           “Closing Date” shall have the meaning set forth in Section 1.1 of the Securities Purchase Agreement;

 

§           “Debenture” shall have the meaning set forth in Section 1.1 of the Securities Purchase Agreement;

 

§           “Escrowed Payment” means an aggregate cash payment of up to $1,580,000;

 

§           “Iska Contract” means that certain contract between the Company and the Investing Partner to be entered into with Harborview Master Fund, L.P. and Genesis Asset Opportunity Fund, L.P. of even date in the form annexed hereto as Exhibit A.

 

  

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§           “Legal Opinion” means the original signed legal opinion referred to in Section 2.2 of the Securities Purchase Agreement;

 

§           “Palladium” shall mean Palladium Capital Advisors LLC;

 

§           “Palladium Fee” shall have the meaning set forth in Section 5.2 of the Securities Purchase Agreement;

 

§           “Principal Amount” shall mean an aggregate of up to $1,580,000;

 

§           “Purchaser Legal Fees” shall have the meaning set forth in Section 5.2 of the Securities Purchase Agreement;

 

§           “Securities Purchase Agreement” means the Securities Purchase Agreement (and the exhibits and schedules thereto) entered into or to be entered into by the Company and Purchasers in reference to the sale and purchase of the Debentures and Warrants;

 

§           “Warrants” shall have the meaning set forth in Section 1.1 of the Securities Purchase Agreement;

 

§           Collectively, the Legal Opinion, Debentures, Warrants, Iska Contract, Palladium Fee, and Securities Purchase Agreement signed and executed by all signators thereto other than the Purchasers, and Purchaser Legal Fees and are referred to as “Company Documents”; and

 

§           Collectively, the Escrowed Payment and the Purchasers executed Securities Purchase Agreement are referred to as “Purchaser Documents.”

 

           1.2.           Entire Agreement.  This Agreement along with the Company Documents and the Purchaser Documents to which the Purchaser and the Company or Subsidiary are a party constitute the entire agreement between the parties hereto pertaining to the Company Documents and Purchaser Documents and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties.  There are no warranties, representations and other agreements made by the parties in connection with the subject matter hereof, except as specifically set forth in this Agreement, the Company Documents and the Purchaser Documents.

 

           1.3.           Extended Meanings.  In this Agreement words importing the singular number include the plural and vice versa; words importing the masculine gender include the feminine and neuter genders.  The word “person” includes an individual, body corporate, partnership, trustee or trust or unincorporated association, executor, administrator or legal representative.

 

           1.4.           Waivers and Amendments.  This Agreement may be amended, modified, superseded, cancelled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by all parties, or, in the case of a waiver, by the party waiving compliance.  Except as expressly stated herein, no delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder preclude any other or future exercise of any other right, power or privilege hereunder.

 

  

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           1.5.           Headings.  The division of this Agreement into articles, sections, subsections and paragraphs and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement.

 

           1.6.           Law Governing this Agreement.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction.  Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state of New York.  Both parties and the individuals executing this Agreement and other agreements on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury.  The prevailing party (which shall be the party which receives an award most closely resembling the remedy or action sought) shall be entitled to recover from the other party its reasonable attorney’s fees and costs.  In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.

 

           1.7.           Specific Enforcement, Consent to Jurisdiction.  The Company and Purchasers acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to an injuction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.  Subject to Section 1.6 hereof, each of the Company and Purchasers hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper.  Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

 

ARTICLE II

 

DELIVERIES TO THE ESCROW AGENT

 

2.1.           Company Deliveries.  On or before the Closing Date, the Company shall execute and deliver the Company Documents to the Escrow Agent.

 

2.2.           Purchaser Deliveries.  On or before the Closing Date, Purchasers shall execute and deliver the Securities Purchase Agreements, and shall deliver the Escrowed Payment in cash, to the Escrow Agent.  The Escrowed Payment will be delivered pursuant to the following wire transfer instructions:

Citibank, N.A.

1155 6th Avenue

New York, NY 10036

ABA Number: 0210-00089

For Credit to: Grushko & Mittman, IOLA Trust Account

Account Number: 45208884

 

  

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           2.3.           Intention to Create Escrow Over Company Documents and Purchaser Documents.  The Purchasers and Company intend that the Company Documents and Purchaser Documents shall be held in escrow by the Escrow Agent pursuant to this Agreement for their benefit as set forth herein.

 

           2.4.           Escrow Agent to Deliver Company Documents and Purchaser Documents.  The Escrow Agent shall hold and release the Company Documents and Purchaser Documents only in accordance with the terms and conditions of this Agreement.

 

ARTICLE III

 

RELEASE OF COMPANY DOCUMENTS AND PURCHASER DOCUMENTS

 

           3.1.           Release of Escrow.  Subject to the provisions of Section 4.2, the Escrow Agent shall release the Company Documents and Purchaser Documents as follows:

 

(a)        On the Closing Date, the Escrow Agent will simultaneously release the Company Documents to the Purchasers and release the Purchaser Documents to the Company, except that:

 

(i)           Purchaser Legal Fees will be released directly to G&M, and

 

(ii)           the Palladium Fee will be released to Palladium.

 

(b)        Notwithstanding the above, upon receipt by the Escrow Agent of joint written instructions (“Joint Instructions”) signed by the Company and the Purchasers, it shall deliver the Company Documents and Purchaser Documents in accordance with the terms of the Joint Instructions.

 

(c)        Anything herein to the contrary notwithstanding, upon receipt by the Escrow Agent of a final and non-appealable judgment, order, decree or award of a court of competent jurisdiction (a “Court Order”), the Escrow Agent shall deliver the Company Documents and Purchaser Documents in accordance with the Court Order.  Any Court Order shall be accompanied by an opinion of counsel for the party presenting the Court Order to the Escrow Agent (which opinion shall be satisfactory to the Escrow Agent) to the effect that the court issuing the Court Order has competent jurisdiction and that the Court Order is final and non-appealable.

 

3.2.           If a Closing does not take place on or before July 30, 2010, the Escrow Agent will promptly return the applicable Company Documents to the Company and return the Purchaser Documents to the Purchaser.

3.3.           Acknowledgement of Company and Purchaser; Disputes.  The Company and the Purchasers acknowledge that the only terms and conditions upon which the Company Documents and Purchaser Documents are to be released are set forth in Sections 3 and 4 of this Agreement.  The Company and the Purchasers reaffirm their agreement to abide by the terms and conditions of this Agreement with respect to the release of the Company Documents and Purchaser Documents.  Any dispute with respect to the release of the Company Documents and Purchaser Documents shall be resolved pursuant to Section 4.2 or by agreement between the Company and Purchasers.

 

  

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ARTICLE IV

 

CONCERNING THE ESCROW AGENT

 

4.1.           Duties and Responsibilities of the Escrow Agent.  The Escrow Agent’s duties and responsibilities shall be subject to the following terms and conditions:

 

(a)           The Purchasers and Company acknowledge and agree that the Escrow Agent (i) shall not be responsible for or bound by, and shall not be required to inquire into whether either the Purchasers or Company is entitled to receipt of the Company Documents and Purchaser Documents pursuant to any other agreement or otherwise; (ii) shall be obligated only for the performance of such duties as are specifically assumed by the Escrow Agent pursuant to this Agreement; (iii) may rely on and shall be protected in acting or refraining from acting upon any written notice, instruction, instrument, statement, request or document furnished to it hereunder and believed by the Escrow Agent in good faith to be genuine and to have been signed or presented by the proper person or party, without being required to determine the authenticity or correctness of any fact stated therein or the propriety or validity or the service thereof; (iv) may assume that any person believed by the Escrow Agent in good faith to be authorized to give notice or make any statement or execute any document in connection with the provisions hereof is so authorized; (v) shall not be under any duty to give the property held by Escrow Agent hereunder any greater degree of care than Escrow Agent gives its own similar property; and (vi) may consult counsel satisfactory to Escrow Agent, the opinion of such counsel to be full and complete authorization and protection in respect of any action taken, suffered or omitted by Escrow Agent hereunder in good faith and in accordance with the opinion of such counsel.

 

(b)           The Purchasers and Company acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and that the Escrow Agent shall not be liable for any action taken by Escrow Agent in good faith and believed by Escrow Agent to be authorized or within the rights or powers conferred upon Escrow Agent by this Agreement.  The Purchasers and Company, jointly and severally, agree to indemnify and hold harmless the Escrow Agent and any of Escrow Agent’s partners, employees, agents and representatives for any action taken or omitted to be taken by Escrow Agent or any of them hereunder, including the fees of outside counsel and other costs and expenses of defending itself against any claim or liability under this Agreement, except in the case of gross negligence or willful misconduct on Escrow Agent’s part committed in its capacity as Escrow Agent under this Agreement.  The Escrow Agent shall owe a duty only to the Purchasers and Company under this Agreement and to no other person.

 

(c)           The Purchasers and Company jointly and severally agree to reimburse the Escrow Agent for outside counsel fees, to the extent authorized hereunder and incurred in connection with the performance of its duties and responsibilities hereunder.

 

(d)           The Escrow Agent may at any time resign as Escrow Agent hereunder by giving five (5) days prior written notice of resignation to the Purchasers and the Company.  Prior to the effective date of the resignation as specified in such notice, the Purchasers and Company will issue to the Escrow Agent a Joint Instruction authorizing delivery of the Company Documents and Purchaser Documents to a substitute Escrow Agent selected by the Purchasers and Company.  If no successor Escrow Agent is named by the Purchasers and Company, the Escrow Agent may apply to a court of competent jurisdiction in the State of New York for appointment of a successor Escrow Agent, and to deposit the Company Documents and Purchaser Documents with the clerk of any such court.

 

(e)           Other than in connection with the Purchaser Legal Fees, the Escrow Agent does not have and will not have any interest in the Company Documents and Purchaser Documents, but is serving only as escrow agent, having only possession thereof.  The Escrow Agent shall not be liable for any loss resulting from the making or retention of any investment in accordance with this Escrow Agreement.

 

  

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(f)           This Agreement sets forth exclusively the duties of the Escrow Agent with respect to any and all matters pertinent thereto and no implied duties or obligations shall be read into this Agreement.

 

(g)           The Escrow Agent shall be permitted to act as counsel for the Purchasers in any dispute as to the disposition of the Company Documents and Purchaser Documents, in any other dispute between the Purchasers and Company, whether or not the Escrow Agent is then holding the Company Documents and Purchaser Documents and continues to act as the Escrow Agent hereunder.

 

(h)           The provisions of this Section 4.1 shall survive the resignation of the Escrow Agent or the termination of this Agreement.

 

           4.2.           Dispute Resolution: Judgments.  Resolution of disputes arising under this Agreement shall be subject to the following terms and conditions:

 

(a)           If any dispute shall arise with respect to the delivery, ownership, right of possession or disposition of the Company Documents and Purchaser Documents, or if the Escrow Agent shall in good faith be uncertain as to its duties or rights hereunder, the Escrow Agent shall be authorized, without liability to anyone, to (i) refrain from taking any action other than to continue to hold the Company Documents and Purchaser Documents pending receipt of a Joint Instruction from the Purchasers and Company, or (ii) deposit the Company Documents and Purchaser Documents with any court of competent jurisdiction in the State of New York, in which event the Escrow Agent shall give written notice thereof to the Purchasers and the Company and shall thereupon be relieved and discharged from all further obligations pursuant to this Agreement.  The Escrow Agent may, but shall be under no duty to, institute or defend any legal proceedings which relate to the Company Documents and Purchaser Documents.  The Escrow Agent shall have the right to retain counsel if it becomes involved in any disagreement, dispute or litigation on account of this Agreement or otherwise determines that it is necessary to consult counsel.

 

(b)           The Escrow Agent is hereby expressly authorized to comply with and obey any Court Order.  In case the Escrow Agent obeys or complies with a Court Order, the Escrow Agent shall not be liable to the Purchasers and Company or to any other person, firm, corporation or entity by reason of such compliance.

 

ARTICLE V

 

GENERAL MATTERS

 

           5.1.           Termination.  This escrow shall terminate upon the release of all of the Company Documents and Purchaser Documents or at any time upon the agreement in writing of the Purchasers and Company.

 

           5.2.           Notices.   All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

 

  

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(a) 

	
If to the Company, to:

InspireMD Ltd.

InspireMD Ltd.

3 Menorat Hamaor St.

Tel Aviv 67448, Israel

Attention: Asher Holzer

Phone: +972 3 6917691

Fax: +972 3 6917692

With a copy (which shall not constitute notice) to:

Haynes and Boone, LLP

1221 Avenue of the Americas, 26th Floor

New York, NY 10020-1007

Attention: Rick Werner, Esq.

Fax: (212) 884-8234

	
(b) 

	
If to the Purchasers: to the addresses set forth on Schedule 1

With a copy by facsimile only to:

 

Grushko & Mittman, P.C.

515 Rockaway Avenue

Valley Stream, New York 11581

Fax: 212-697-3575

	
(c) 

	
If to the Escrow Agent, to:

 

Grushko & Mittman, P.C.

515 Rockaway Avenue

Valley Stream, New York 11581

Fax: 212-697-3575

 

or to such other address as any of them shall give to the others by notice made pursuant to this Section 5.2.

 

           5.3.           Interest.  The Escrowed Payment shall not be held in an interest bearing account nor will interest be payable in connection therewith.  In the event the Escrowed Payment is deposited in an interest bearing account, the Purchasers shall be entitled to receive any accrued interest thereon, but only if the Escrow Agent receives from the Purchaser the Purchasers’ United States taxpayer identification number and other requested information and forms.

 

  

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5.4.           Assignment; Binding Agreement.  Neither this Agreement nor any right or obligation hereunder shall be assignable by any party without the prior written consent of the other parties hereto.  This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective legal representatives, successors and assigns.

 

5.5.           Invalidity.  In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal, or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law.

 

5.6.           Counterparts/Execution.  This Agreement may be executed in any number of counterparts and by different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.  This Agreement may be executed by facsimile transmission and delivered by facsimile transmission.

 

5.7.           Agreement.  Each of the undersigned states that he has read the foregoing Escrow Agreement and understands and agrees to it.

 

[rest of this page left intentionally blank]

 

  

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IN WITNESS WHEREOF, the udersigned have executed and delivered this Escrow Agreement, as of the date first written above.

 

	 	
“COMPANY”

	 
	 	
INSPIREMD LTD.

	 
	 	
an Israel corporation

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	 	 
	 	 	 	 
	 	 	 	 
	 	
ESCROW AGENT:

	 
	 	 	 
	 	GRUSHKO & MITTMAN, P.C. 	 
	 	 	 	 
	 	 	 	 
	 	By: 	 	 
	 	 	Name: 	 

 

 

  

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PURCHASER SIGNATURE PAGE TO

ESCROW AGREEMENT

 

The undersigned, in its capacity as a Purchaser, hereby executes and delivers the Escrow Agreement to which this signature page is attached and agrees to be bound by the Escrow Agreement on the date set forth on the first page of the Escrow Agreement. This counterpart signature page, together with all counterparts of the Escrow Agreement and signature pages of the other parties named therein, shall constitute one and the same instrument in accordance with the terms of the Escrow Agreement.

 

	 	 	
Debenture Principal Subscribed for:

	 	 	$_______________________ 
	
[Print Name of Purchaser]

	 	 
	 	 	 
	 	 	 
	
[Signature]

	 	 
	 	 	
Telephone No.:__________________________________

	 	 	 
	Name:_________________________________________ 	 	
Facsimile No:___________________________________

	 	 	 
	Title:__________________________________________ 	 	
Email Address:__________________________________

	 	 	 
	Mailing Address: 	 	Tax ID Number:__________________________________
	 	 	 
	 	 	 
	 	 	 
	(City, State and Zip) 	 	 

 

  

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SCHEDULE 1

(PURCHASERS)

 

	
PURCHASER AND ADDRESS

	
PRINCIPAL AMOUNT OF DEBENTURE

	
WARRANTS

	
Arvest Privatbank AG

Stefan Kimmel, CEO

Churerstrasse 82, PO Box 363

CH 8808, Pfaffikon, Switzerland

	
$250,000

	
19,779

	
Genesis Asset Opportunity Fund LP

61 Paine Avenue

New Rochelle, NY 10804

	
$1,250,000

	
98,892

	
Harborview Master Fund, LP

850 3rd Avenue Suite #1801

New York, NY 10022

	
$80,000

	
6,329

	
TOTALS

	
$1,580,000

	
125,000

 

  

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EXHIBIT C

 

 

 

Term Sheet for InspireMD Inc.

 

	
Issuer:

	
A public “shell” company listed on the OTCBB (the “Company”) with no liabilities or business activities as certified by its independent auditors that subject to the successful closing of the Offering will acquire at least 80% of InspireMD Ltd.'s share capital on a fully diluted basis (“Inspire”). In connection with the transactions described below, the Company shall change its name to InspireMD Inc. and obtain a new trading symbol consistent with such name.

 

	
Security:

	
Common Stock, par value $.001 per share (the “Common Stock”)

 

	
Issuance Amount: 

	
A minimum net cash of $7,500,000 but not exceeding $10,000,000 in the company's bank account at the Closing (defined below) after deductions of all fees and payments to Palladium and HarborviewF and any other third party, including counsel to Inspire and the Company with respect to the Offering, involved or in connection with the Reverse Merger of the Company (the “Offering”). The Issuance Amount shall not include the $1,500,000 Investment Amount to be lent to the Company under the Bridge Loan Term Sheet between the Company and Harborview of even date, which shall be converted into the Company's Common Stock at the Closing of the Offering.

 

	
Price Per Share:

	
$1.50 per share

 

	
Warrants:

	
The investors shall receive 100% warrant coverage for the shares of Common Stock issued at the closing of the offering (the “Closing”), with each investor receiving (a) a four-year warrant to purchase 0.5 of one share of Common Stock at an exercise price of $2.00 per share for each share of Common Stock purchased in the Offering and (b) a two-year warrant to purchase 0.5 of one share of Common Stock at an exercise price of $2.50 per share for each share of Common Stock purchased in the Offering (each, a “Warrant”).

 

If at any time following the twelve (12) month anniversary of the closing date (a) the volume weighted average price of the Common Stock for fifteen (15) consecutive trading days is at least 175% of its respective exercise price; (b) the fifteen (15) day average daily trading volume of the Common Stock has been at least 150,000 shares and (c) a registration statement providing for the resale of the Common Stock issuable upon exercise of the Warrants is effective, the Company may require the investors to exercise all or a portion of their Warrants pursuant to the terms described above within 3 business days following such 15th day. Any Warrant that shall not be exercised as aforesaid shall expire automatically at the end of the said 15th day.

 

  

  

  

 

	
Investor Protection:

	
For a period of twelve (12) month period following the Closing, in the event that the Company issues or grants any shares of Common Stock or any warrants or other convertible securities pursuant to which shares of Common Stock may be acquired at a price less than $1.50 per share (other than in connection with employment arrangements or business combinations), then the price per share for Common Stocks issued to the Investors hereunder against the Investment Amount (but not the Warrants) shall be adjusted on a customary broad based "weighted average" as shall be determined in the Definitive Agreement.

 

	
Registration Rights:

	
The Company shall use reasonable commercial efforts to file a Registration Statement on Form S-1 covering the shares of Common Stock and the Common Stock underlying the Warrants as soon as practicable but no later than 180 calendar days from the Closing. The Company shall use its best efforts to cause such Registration Statement to be declared effective within 210 calendar days from the Closing. At least 1/3 (one third) of each registration statement shall be reserved for Common Stock to be held by existing Inspire's major shareholders (5% and up). Any existing major shareholder that shall not exercise his right in any share registration shall be entitled to roll over such non-exercised right to the next registration(s) at his sole discretion. If the Company fails to file the Registration Statement within the prescribed 180 day period or fails to have such Registration Statement declared effective within the prescribed 210 day period, then the Company shall pay to the investors in cash a fee equal to 1% of the dollar amount invested by each investor, for each month (i) in excess of 180 days following the Closing and (ii) in excess of 210 days following the Closing, as the case may be, with a ceiling of no more than 3% (three percent) of the dollar amount invested by each investor. Up to 30 day delay in performing one or two of the Company's obligations in this section shall not trigger the compensation to the invesors; provided that in any delay which is longer than 30 days the compensation herein shall be calculated as of the 1st day of the delay. Notwithstanding anything to the contrary contained herein, the Company shall not be obligated to pay any liquidated damages if the Company is unable to fulfill its registration obligations as a result of rules, regulations, positions or releases issued or actions taken by the SEC pursuant to its authority with respect to “Rule 415,” and the Company registers at such time the maximum number of shares of Common Stock permissible upon consultation with the staff of the SEC, in such registration statement and subsequent registration statements

 

  

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Business 

Combination:

	
Immediately prior to the Closing and subject thereto especially the Offering, the Company shall acquire at least 80% of the issued and outstanding capital stock of InspireMD Ltd. (“Inspire”) on a fully diluted basis through a merger, share exchange or other business combination and shall succeed to the business of Inspire as its sole line of business (the “Business Combination”). In connection with the Business Combination, (a) the existing shareholders of Inspire on January 1st, 2010 shall receive 44 million shares of the Company in exchange for all of the outstanding capital stock of Inspire, resulting in Inspire becoming a subsidiary of the Company, (b) the existing option holders and holders of any other securities or debts exercisable or convertible into Inspire's ordinary shares, as set forth in Inspire's cap table a copy of which is attached hereto as Annex A, shall convert their securities in Inspire to the same type of securities bearing the same rights on a 1:0.81 ratio; and (c) the stockholders of the Company prior to the Business Combination shall be entitled to retain 5.5 million shares, of which 1.5 million shares shall be placed into escrow subject to the Stock Forfeiture Condition (as defined below) (the “Stockholder Escrow Shares”). Up to the 1st 500,000 ordinary share of the Company that have been issued by the Company at a PPS of at least $10 as of January 1st 2010 until the Closing against cash investment shall result in issuance of additional Common Stock on a 1 (Ordinary share):0.81 (Common Stock) ratio. In the event the Closing does not take place until the earlier between (i)180 days after the date hereof; (ii) or 2 months after the receiving of the Tax Ruling Inspire shall have the right to terminate the Business Combination. In such event the current shareholders of Inspire shall keep their current shareholding in Inspire, without any change.

 

This Term Sheet as well as the definitive agreement shall not limit the Company from operating its business as it has prior to the consummation of the Business Combination, including but not limited to the granting of licenses to use the Company’s IP, selling and distributing its products and technology or entering into technological collaborations with any party.

 

	
Stock Forfeiture:

	
In the event that the Company (i) records at least $10 million in revenue (on a consolidated basis), as certified by its independent auditors, during the twelve (12) month period following the Closing, and (ii) fails, after a good faith effort, to secure a listing on the Nasdaq Capital Market, Nasdaq Global Market or Nasdaq Global Select Market within twelve (12) months following the Closing, the Company shall have the right to cause the cancellation of the Stockholder Escrow Shares and consequently forfeit the Stockholder Escrow Shares.

 

	
Placement Agent Fees:

	
The Company shall pay Palladium Capital Advisors, LLC (“Palladium”) a cash fee in an amount of 8% of the actual aggregate proceeds from the sale of the Common Stock and Warrants at the Closing and shall issue Palladium a warrant to purchase that number of shares equal to 6% of the aggregate number of shares of Common Stock sold at the Closing. The warrants to be issued to Palladium shall be substantially similar in all respects to the Warrants except that the exercise price will be $1.50 per share. It is agreed upon that such 8% in cash and 6% in warrants shall be the total and final finder’s fees and Placement Agent Fees that the Company shall pay to any third party including Palladium and Harborview. In the event that a third party claims or found to be entitled to finder's fee in cash or otherwise in connection with the transactions contemplated herein and the Reverse Merger, Palladium shall pay such third the entire fees in cash, warrants or otherwise from Palladium Placement Agent Fees hereunder.

 

  

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StockIncentive Plan:

	
In connection with the Offering, the Company will adopt a stock incentive plan, pursuant to which new designated 7,476,000 shares of the Company’s Common Stock will be reserved for issuance to employees, directors, consultants, and other service providers. The Company shall not be permitted to increase the size of this plan or adopt an additional plan for twelve (12) months following the Closing. In addition, for twelve (12) months following the Closing the Company shall not issue any awards under this plan with an exercise price that is less than the lower between: (i) $1.50 per share; or (ii) average market price of the Common Stock for the 3 trading days prior to the grant of such shares.

 

If the company records from January 1st, until the Offering Closing date a revenue increase of 150% from the same period in 2009 (on a proportionate basis), then Inspire's management shall be entitled to 300,000 options to purchase Inspire's Ordinary Shares. Such Options shall be fully vested and with an exercise price of NIS 0.01. Inspire's CEO and President shall allocate such Options between Inspire's management (which shall include also the CEO and President).

 

	
Investor Relations and 

Stock Approval:

	
The Company shall use $240,000 exclusively for the payment of investor relations fees.

 

In addition, following the Closing, the Company shall authorize the issuance of 500,000 shares of Common Stock be used exclusively for the payment of investor relations fees. In the event that any such shares remain unissued following the second year anniversary of the Closing, the Company shall cancel such shares.

 

	
Lock-upAgreements:

	
Subject to the Registration Rights of the Inspire's existing major shareholders as provided above, each of the directors of the Company, together with each shareholder of Inspire holding 5% or more of the issued share capital of the Company immediately prior to the Business Combination, will be required to enter lock-up agreements prior to the Closing, pursuant to which such persons may not, subject to certain exemptions, without the prior written consent of Palladium, directly or indirectly, offer, sell, offer to sell, contract to sell, hedge, pledge, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or sell, or otherwise transfer or dispose of (or enter into any transaction or device that is designed to, or could be expected to, results in the disposition by any person at any time in the future), any securities of the Company beneficially owned or subsequently acquired until the twelve month anniversary of the Closing. The above Lock-up shall not apply to 10% of all securities held by each such major shareholder post Closing.

 

  

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Use of Proceeds:

	
Proceeds from the Offering shall be used as follows:

 

	 	•  	
General Business Proceeds

	 	 	 
	 	•  	
$240,000 to be used for IR/PR Purposes

	 	 	 
	
Post Reverse

Merger 

Capitalization:

	•  	Investors: 5,000,000 shares and Warrants to purchase 5,000,000 shares (assumes the minimum Offering)
	 	 	 
	 	•  	
Inspire shareholders: 44,000,000 shares

	 	 	 
	 	•  	Existing ESOP ~ 7,000,000 shares
	 	 	 
	 	•  	
Pre-Merger Stockholders of the Company: 5,500,000 shares (1,500,000 of which shall be held in an escrow)

	 	 	 
	 	•  	
Harborview Advisors, LLC Warrants: 2,500,000 (1/3 of which shall be held in an escrow)

	 	 	 
	 	•  	
Palladium Placement Agent Warrants: 300,000 (assumes the minimum Offering)

	 	 	 
	 	•  	
Investor Relations: 500,000 shares

	 	 	 
	 	•  	
New Company Options (ESOP): 7,476,000 Shares, of which 2,100,000 (equals to 300,000 shares of Inspire) shall be reserved to the current management of Inspire as set forth in "Stock Incentive Plan" Section above

See Exhibit A.

 

Other than as set forth above and in Exhibit A no other person or entity has or will have any right or option to purchase or obtain any capital stock or other securities of the public "shell" which will acquire Inspire.

	
Governing law:

	
State of Israel

 

  

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Closing:

	
Closing will occur promptly upon negotiation of mutually acceptable definitive documentation. A Current Report on Form 8-K containing information required under Form 10 with respect to Inspire shall be filed by the Company within four business day following the Closing (the “Super 8-K”). The Closing shall take place no later than 6 months following the date hereof, provided that ALL Conditions to Closing have been met by such date. In the event not all the Conditions to Closing, other than the Tax Pre Ruling (defined below), have been met by November __, 2010 all the transactions contemplated in this Term Sheet shall terminate automatically and be with no effect without the need of any further action by either Party. In such event the current shareholders of Inspire shall keep their current shareholding in Inspire, without any change. If the Tax Pre Ruling is not received by the end of the aforesaid 6 month period Inspire shall be entitled to extend the Closing date by up to 9 additional months.

 

	
Conditionsto Closing:

	
Conditions to Closing in favor of the Company: (i) execution and delivery of the transaction documents; (ii) delivery of the purchase price; (iii) representations and warranties of the investors shall be true and correct as of the Closing; (iv) the investors shall have satisfied all covenants required to be satisfied at or prior to the Closing (v) the Company shall have received reconfirmed subscriptions for at least net cash amount of $7,500,000 as aforesaid; (vii) at least 80% of the shareholders and 80% of the option holders of the Company approved in writing the Offering and the Reverse Merger; and (vii) Current Inspire's shareholders and Inspire shall have received a favorable Israeli tax pre-ruling (the “Tax Pre Ruling”) to their full satisfaction providing that the consummation of the Business Combination shall constitute a deferred tax event for Inspire and its shareholders and shall not obligate them to pay any tax amounts prior to receiving actual funds resulting from sale of shares or assets of Inspire (the successor entity post the share exchange).

 

Conditions to Closing in favor of the investors: (i) execution and delivery of the transaction documents; (ii) representations and warranties of the investors shall be true and correct as of the Closing; (iii) the Company shall have satisfied all covenants required to be satisfied at or prior to the Closing; (iv) delivery of the securities; (v) board resolutions approving the transactions; (vi) delivery of a legal opinion from the Company’s counsel and (vii) transfer agent instructions shall have been delivered to and acknowledged by the Company’s transfer agent.

 

	
Confidentiality:

	
This term sheet is confidential, and none of its provisions or terms shall be disclosed to anyone who is not a prospective purchaser of the securities contemplated herein, an officer or director of the Company or their agent, adviser, or legal counsel, unless required by law.

 

	
Non Binding Effect:

	
Other than as set forth in the section entitled “Confidentiality”, which section constitutes binding obligations of the Parties, the transactions contained in this general Term Sheet does not constitute a binding obligation on the part of the Parties hereto.

 

	
Documentation:

	
The definitive documentation shall contain such additional and supplementary provisions, including, without limitation, certain representations, warranties, covenants, payments and remedies as are appropriate to preserve and protect economic benefits intended to be conveyed to the Company and the investors pursuant hereto.

 

  

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Accepted and agreed this _____ day of May, 2010

 

InspireMD Ltd.

 

	 	 	 
	Agreed:  	/s/ Ofir Paz	 
	Ofir Paz	 
	CEO	 

 

Palladium Capital Advisors, LLC:

 

	 	 	 
	Agreed:  	 	 
	
Joel Padowitz 

	 
	CEO	 

 

The above terms constitute an indication of interest and are for discussion purposes only.

 

  

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Exhibit A 

 

Post-Transaction Fully Diluted Capitalization Table

 

	 	 	
Common Stock

	 	 	
Percentage

	 
	
Former Inspire Shareholders

	 	 	44,000,000	 	 	 	81	%
	
Pre-Transaction Company Shareholders

	 	 	5,500,000	 	 	 	9	%
	
Current Offering Purchases of Common Stock

	 	 	5,000,000	 	 	 	9	%
	
Investor Relations Shares

	 	 	500,000	(1)	 	 	1	%
	
Total (2)

	 	 	55,000,000	(2)	 	 	100.00	%

 

_____________

 

	
(1)

	
Represents 500,000 shares of Common Stock reserved for issuance for investor relations.

 

	
(2)

	
Excludes (i) 2,500,000 shares of Common Stock issuable upon the exercise of four year warrants, exercisable at $2.00 per share, to be issued to investors in the Offering, (ii) Represents 2,500,000 shares of Common Stock issuable upon the exercise of four year warrants, exercisable at $2.50 per share, to be issued to investors in the Offering, (iii) 2,500,000 shares of Common Stock issuable upon the exercise of three year warrants, exercisable at $1.50 per share, to be issued to Harborview Advisors, LLC and (iv) 7,476,000 new shares of Common Stock reserved for issuance under the stock incentive plan to be adopted by the Company; (v) approximately 7,000,000 shares of Common Stock reserved for issuance under Inspire's current ESOP; (vi) 300,000 shares of Common Stock upon the exercise of three year warrants, exercisable at $1.50 per share, to be issued to Palladium (if the minimum amount is raised and (vii) 916,667 shares of Common Stock issuance upon the exercise of five year warrants, exercisable at $1.36 per share, to be issued to investors in the bridge round financing.

  

 

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EXHIBIT D

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, SUBJECT TO THE PROVISIONS OF THE BORROWER’S ARTICLES OF ASSOCIATION REGARDING RESTRICTIONS ON TRANSFER OF THE BORROWER'S SECURITIES, AS SHALL BE AMENDED FROM TIME TO TIME,THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

	  	
Right to Purchase __________ Ordinary Shares of InspireMD Ltd. (subject to adjustment as provided herein)

FORM OF ORDINARY SHARE PURCHASE WARRANT

 

	No. 2010-001  	 	Issue Date: July ___, 2010 

 

InspireMD Ltd., a corporation continued under the laws of the State of Israel (the “Company”), hereby certifies that, for value received, _______________________________, ____________________________________________, or its assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company at any time after the Issue Date until 5:00 p.m., Tel Aviv time, on three years after the Issue Date (the “Expiration Date”), up to ___________ fully paid and non-assessable Ordinary Shares at a per share purchase price of Ten Dollars (US$10).  The aforedescribed purchase price per share, as adjusted from time to time as herein provided, is referred to herein as the “Purchase Price.”  The number and character of such Ordinary Shares and the Purchase Price are subject to adjustment as provided herein.  Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Securities Purchase Agreement”), dated as of July ___, 2010, entered into by the Company, the Holder and the other signatories thereto.

As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

 

(A)           The term “Ordinary Shares” includes (i) the Company’s Ordinary Shares, 0.01 New Israeli Shekel par value per share, as authorized on the date of the Securities Purchase Agreement, or (ii) any other securities into which or for which any of the securities described in (i) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise.

 

(B)           The term “Other Securities” refers to any stock (other than Ordinary Shares) and other securities of the Company or any other person (corporate or otherwise) that the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Ordinary Shares, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Ordinary Shares or Other Securities pursuant to Section 4 or otherwise.

 

  

1

  

 

(C)           The term “Principal Market” shall mean the NASDAQ Global Market, NASDAQ Global Select Market, the NASDAQ Capital Market, the New York Stock Exchange, the NYSE Amex Equities, the OTC Bulletin Board or in the over-the-counter market or Pink Sheets.

 

(D)           The term “Warrant Shares” shall mean the Ordinary Shares issuable upon exercise of this Warrant.

 

1.           Exercise of Warrant.

 

1.1.           Number of Shares Issuable upon Exercise.  From and after the Issue Date through and including the Expiration Date, the Holder hereof shall be entitled to receive, upon exercise of this Warrant in whole in accordance with the terms of Section 1.2 and 1.6 or upon exercise of this Warrant in part in accordance with Section 1.3, Ordinary Shares of the Company, subject to adjustment pursuant to Section 4 below.

 

1.2.           Full Exercise.  This Warrant may be exercised in full, subject to Section 1.6 below, by the Holder hereof by delivery to the Company of an original or facsimile copy of the form of subscription attached as Exhibit A hereto (the “Subscription Form”) duly executed by such Holder and delivery within two days thereafter of payment, in cash, wire transfer or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of whole Ordinary Shares for which this Warrant is then exercisable by the Purchase Price then in effect. The original Warrant is not required to be surrendered to the Company until it has been fully exercised.

 

1.3.           Partial Exercise.  This Warrant may be exercised in part (but not for a fractional share) by delivery of a Subscription Form in the manner and at the place provided in Section 1.2, except that the amount payable by the Holder on such partial exercise shall be the amount obtained by multiplying (a) the number of whole Ordinary Shares designated by the Holder in the Subscription Form by (b) the Purchase Price then in effect.  On any such partial exercise, provided the Holder has surrendered the original Warrant, the Company, at its expense, will forthwith issue and deliver to or upon the order of the Holder hereof a new Warrant of like tenor, in the name of the Holder hereof, the whole number of Ordinary Shares for which such Warrant may still be exercised.

 

1.4.           Company Acknowledgment.  The Company will, at the time of the exercise of the Warrant, upon the request of the Holder hereof, acknowledge in writing its continuing obligation to afford to such Holder any rights to which such Holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant.  If the Holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Holder any such rights.

 

1.5.           Delivery of Stock Certificates, etc. on Exercise.  The Company agrees that, provided the full purchase price listed in the Subscription Form is received as specified in Section 1.2, the Ordinary Shares purchased upon exercise of this Warrant shall be deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which delivery of a Subscription Form shall have occurred and payment made for such shares as aforesaid.  As soon as practicable after the exercise of this Warrant in full or in part, and in any event within seven (7) calendar days thereafter (“Warrant Share Delivery Date”), the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder hereof, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and non-assessable Ordinary Shares (or Other Securities) to which such Holder shall be entitled on such exercise, together with any other stock or other securities to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise.  The Company understands that a delay in the delivery of the Warrant Shares after the Warrant Share Delivery Date could result in economic loss to the Holder.  In the event that the Company fails for any reason to effect delivery of the Warrant Shares by the Warrant Share Delivery Date, the Holder may revoke all or part of the relevant Warrant exercise by delivery of a notice to such effect to the Company, whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the exercise of the relevant portion of this Warrant.

 

  

2

  

 

1.6           Non Exercise and Expiration of Warrants.  Notwithstanding anything to the contrary set forth herein, in the event that (i) the Company has not completed a PIPE Financing prior to the Original Maturity Date (as defined in the Debentures) and (ii) the Company’s failure to complete a PIPE Financing was not the result of a PIPE Default (as defined in the Debentures), 1/3 (one third) of the Warrant Shares originally issuable hereunder shall expire immediately and no longer be issuable hereunder. Moreover, in order to enforce the foregoing clause, the Holder shall not be entitled to acquire more than 2/3 (two thirds) of the Warrant Shares originally issuable hereunder until following the Original Maturity Date.

 

2.           Exercise.  Payment upon exercise must be made at the option of the Holder either in cash, by wire transfer or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Purchase Price, for the number of Ordinary Shares specified in such form (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Ordinary Shares issuable to the holder per the terms of this Warrant) and the holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Ordinary Shares (or Other Securities) determined as provided herein.

 

3.           Adjustment for Reorganization, Consolidation, Merger, etc.

 

3.1.           Fundamental Transaction.  If, at any time while this Warrant is outstanding, (A) the Company effects any merger or  consolidation  of the Company with or into another entity or (B) the Company effects any reclassification of the Ordinary Shares or any compulsory share exchange pursuant to which the Ordinary Shares is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental  Transaction”), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant, subject to the limitations set forth herein (the “Alternate Consideration”). The aggregate Purchaser Price for this Warrant will not be affected by any such Fundamental Transaction, but the Company shall apportion such aggregate Purchase Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Ordinary Shares are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder's right to exercise such warrant into Alternate Consideration.  The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3.1 and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.  The Merger is a Fundamental Transaction.  The Company shall give the Holder not less than fifteen (15) Business Days notice prior to any Fundamental Transaction (“Fundamental Transaction Notice”).  The failure to timely give a Fundamental Transaction Notice shall extend any rights of the Holder pursuant to this Warrant until fifteen (15) Business Days after receipt of a Fundamental Transaction Notice.

 

  

3

  

 

4.           Extraordinary Events Regarding Ordinary Shares.  In the event that the Company shall (a) issue additional Ordinary Shares as a dividend or other distribution of its assets on outstanding Ordinary Shares, (b) subdivide its outstanding Ordinary Shares, or (c) combine its outstanding Ordinary Shares into a smaller number of Ordinary Shares, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Purchase Price by a fraction, the numerator of which shall be the number of Ordinary Shares outstanding immediately prior to such event and the denominator of which shall be the number of Ordinary Shares outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4.  The number of Ordinary Shares that the Holder of this Warrant shall thereafter, on the exercise hereof, be entitled to receive shall be adjusted to a number determined by multiplying the number of Ordinary Shares that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Purchase Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Purchase Price in effect on the date of such exercise.

 

5.           Certificate as to Adjustments.  In each case of any adjustment or readjustment in the Ordinary Shares (or Other Securities) issuable on the exercise of the Warrants, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional Ordinary Shares (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of Ordinary Shares (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of Ordinary Shares to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant..  The Company will forthwith mail a copy of each such certificate to the Holder of the Warrant and any Warrant Agent of the Company (appointed pursuant to Section 11 hereof).

 

6.           Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial Statements.  The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all Ordinary Shares (or Other Securities) from time to time issuable on the exercise of the Warrant.  This Warrant entitles the Holder hereof, upon written request, to receive copies of all financial and other information distributed or required to be distributed to the holders of the Company's Ordinary Shares.

 

7.           Assignment; Exchange of Warrant.  Subject to compliance with applicable securities laws and the Company’s Articles of Association, as may be amended from time, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a “Transferor”).  On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the “Transferor Endorsement Form”) and together with an opinion of counsel reasonably satisfactory to the Company that the transfer of this Warrant will be in compliance with applicable securities laws and the Company's Articles of Association, as may be amended from time to time, the Company will issue and deliver to or on the order of the Transferor thereof a new Warrant or Warrants of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a “Transferee”), calling in the aggregate on the face or faces thereof for the number of Ordinary Shares called for on the face or faces of the Warrant so surrendered by the Transferor.

 

  

4

  

 

8.           Replacement of Warrant.  On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense, twice only, will execute and deliver, in lieu thereof, a new Warrant of like tenor.

 

9.           Maximum Exercise.  The Holder shall not be entitled to exercise this Warrant on an exercise date and the Company may not call this Warrant pursuant to Section 10, in connection with that number of Ordinary Shares which would be in excess of the sum of (i) the number of Ordinary Shares beneficially owned by the Holder and its affiliates on an exercise or call date, and (ii) the number of Ordinary Shares issuable upon the exercise of this Warrant with respect to which the determination of this limitation is being made on an exercise date, which would result in beneficial ownership by the Holder and its affiliates of more than 9.99% of the outstanding Ordinary Shares on such date.  For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and Rule 13d-3 thereunder.  Subject to the foregoing, the Holder shall not be limited to aggregate exercises which would result in the issuance of more than 9.99%.  The Company shall have no obligation to determine whether the Holder may exercise this Warrant with respect to the limitations set forth in this paragraph and each delivery of a Subscription Form hereunder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares requested in such Subscription Form is permitted under this paragraph.

 

10.           Mandatory Conversion.  Notwithstanding anything to the contrary contained herein, the Company may, at any time, or from time to time, require the Holder, upon not less than fifteen (15) trading days  prior written notice, to exercise this Warrant in whole or in part in the event (i) the Company’s Ordinary Shares shall be listed for trading on a Principal Market, (ii) the closing sales price for fifteen (15) consecutive trading days was at least 165% of the Purchase Price, (iii) the average daily trading volume of the Ordinary Shares on the Principal Market, as reported by Bloomberg L.P., was not less than 150,000 shares for fifteen (15) consecutive trading days and (iv) there is an effective registration statement covering the resale of the Warrant Shares. In the event that the Holder does not exercise this Warrant prior to the date prescribed by the Company (the “Mandatory Exercise Date”), this Warrant shall expire immediately and the Mandatory Exercise Date shall be deemed to be the “Expiration Date” hereunder.

 

11.           Warrant Agent.  The Company may, by written notice to the Holder of the Warrant, appoint an agent (a “Warrant Agent”) for the purpose of issuing Ordinary Shares (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such Warrant Agent.

 

12.           Transfer on the Company's Books.  Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.

 

13.           Registration Rights.  The Holder of this Warrant will be granted the same registration rights granted to investors in the Reverse Merger Financing as defined in the Securities Purchase Agreement.

 

  

5

  

 

14.           Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:  if to the Company, to: InspireMD, Ltd., 3 Menorat Hamaor St. Tel Aviv, Israel Fax:  + 972-3-6917692, Attn: Ofir Paz, with a copy to:  Haynes and Boone, LLP, 1221 Avenue of the Americas, 26th Floor, New York, NY 10020-1007, Fax: (212) 884–8234, Attention: Rick Werner, Esq., and (ii) if to the Holder, to the address and facsimile number listed on the first paragraph of this Warrant, with a copy by fax only to: Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, facsimile: (212) 697–3575.

 

15.           Applicable law and arbitration.  All disputes arising under this Warrant or in connection with the transactions hereunder shall be resolved only between the parties in good faith, however, if these efforts fail the dispute shall be resolved in accordance with the laws of the State of Israel excluding that body of law pertaining to conflict of law.  Any action brought by either party against the other concerning the transactions contemplated by this Warrant must be brought only in the courts located in the Tel Aviv Jaffa District, the State of Israel.  Both parties and the individual signing this Agreement on behalf of the Company agree to submit to the exclusive jurisdiction of such courts and the Holder irrevocably waives any objection as to venue or “inconvenient forum.”

 

IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above.

 

	 	
INSPIREMD LTD.

 

	 
	 	 	 	 
	
 

	
By: 

	 	 
	 	 	Name: Ofir Paz	 
	 	 	Title: CEO	 
	 	 	 	 

 

  

6

  

 

Exhibit A

FORM OF SUBSCRIPTION

(to be signed only on exercise of Warrant)

 

TO:  INSPIREMD LTD.

 

The undersigned, pursuant to the provisions set forth in the attached Warrant (No. ___________), hereby irrevocably elects to purchase ________ Ordinary Shares covered by such Warrant

The undersigned herewith makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $___________.

The undersigned requests that the certificates for such shares be issued in the name of, and delivered pursuant to the DTC instructions below or to __________________________________________ whose address is ____________________________________________________________________________

____________________________________________________________________________________.

The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Ordinary Shares under the Securities Act of 1933, as amended (the “Securities Act”), or pursuant to an exemption from registration under the Securities Act.

DTC Instructions: ____________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

	
Dated:___________________

	
_______________________________________

(Signature must conform to name of holder as specified on the face of the Warrant)

 

_______________________________________

_______________________________________

(Address)

 

  

7

  

 

Exhibit B

 

FORM OF TRANSFEROR ENDORSEMENT

(To be signed only on transfer of Warrant)

 

For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading “Transferees” the right represented by the within Warrant to purchase the percentage and number of Ordinary Shares of INSPIREMD LTD. to which the within Warrant relates specified under the headings “Percentage Transferred” and “Number Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of INSPIREMD LTD. with full power of substitution in the premises.

 

	
Transferees

	
Percentage Transferred

	
Number Transferred

	  	  	  
	  	  	  
	  	  	  

	
Dated:  __________________, _______

 

 

 

Signed in the presence of:

 

________________________________

                           (Name)

 

 

ACCEPTED AND AGREED:

[TRANSFEREE]

 

 

________________________________

                           (Name)

 

	
___________________________________________________

(Signature must conform to name of holder as specified on the face of the warrant)

 

 

 

___________________________________________________

___________________________________________________

    (address)

 

___________________________________________________

___________________________________________________

    (address)

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