Exhibit 10.1

 

MASTER ASSET PURCHASE AGREEMENT

 

This MASTER ASSET PURCHASE AGREEMENT (“Agreement”) made this 7th day of
September, 2004 between PhotoMedex, Inc., a Delaware corporation (“PHMD”), on
the one hand, and Stern Laser Srl, an Italian corporation (“STERN”), on the
other hand.

 

WITNESSETH:

 

WHEREAS, STERN has developed certain technology, the Licensed Product (as
hereinafter defined) for which they are in the process of converting into a
device which may be used to treat, among other things, various dermatological
diseases and conditions;

 

WHEREAS, STERN has not yet delivered a working, testable prototype of the
Licensed Product;

 

WHEREAS, STERN desires to grant a license to PHMD, and PHMD desires to obtain
such a license, with respect to certain technology developed by STERN and
pertaining to the Licensed Product (the “Product”), as more fully described
hereinbelow;

 

WHEREAS, STERN desires to sell, assign and transfer to PHMD certain assets of
STERN pertaining to such technology and the Licensed Product, and PHMD desires
to purchase and acquire from STERN, such assets as hereinafter described, in
each case upon the terms and conditions hereinafter set forth;

 

WHEREAS, PHMD has agreed to pay certain sums to STERN for the STERN Assets as
set forth in this Agreement, some of such amounts are to be used by STERN to
complete the prototypes of the Licensed Product for delivery to PHMD; and

 

WHEREAS, STERN undertakes to complete the development of the Licensed Product in
such form and in such manner as to be able to deliver to PHMD the Licensed
Product for commercial use as quickly as possible.

 

NOW, THEREFORE, in consideration of the premises and covenants herein contained
and intending to be legally bound hereby, the parties hereto agree as follows:

 

1. Certain Definitions. The definitions set forth in the Recitals are hereby
incorporated into this Agreement and, in addition, the following terms have the
following meanings (covenants contained in this Section shall be considered
agreed to by the parties to the same extent as if incorporated into the
covenants of this Agreement):

 

“Acquired Assets” shall have the meaning set forth in Section 2.1.

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“Amendment to Supply Agreement” means the date on which PHMD enters into an
amendment of a supply agreement enjoyed by STERN, as more specifically described
in confidential Schedule 1.1(b).

 

“Assumed Contracts” shall have the meaning set forth in Section 2.1(b).

 

“Assumed Obligations” shall have the meaning set forth in Section 3.2.1.

 

“cCSAus Approval” means the date on which Canadian Standard Association issues
its approval of the Licensed Product with US deviations.

 

“CE Mark Approval” means a mark issued by a Notified Body and indicating that
the Licensed Product satisfies all directives of the European Union applicable
to medical applications in PHMD’s Field of Use.

 

“Closing” has the meaning set forth in Section 4.1.

 

“Closing Date” has the meaning set forth in Section 4.1.

 

“Closing Payment” has the meaning set forth in Section 3.1.1(a).

 

“Commission” has the meaning set forth in Section 5.21(i).

 

“Contemplated Transaction” means each transaction contemplated by this Agreement
or any Related Document.

 

“Completion” means the date on which all of the following are completed: (1) all
technology relating to the Licensed Product (including vendor agreements,
manufacturing processing instructions and related files, and quality system
documentation) is complete and transferred in readable electronic format to
PHMD; and (2) STERN has delivered to PHMD 2 pre-production Prototypes of the
Licensed Product together with related documentation.

 

“Contracts” means any agreement, contract, consensual obligation, promise or
undertaking (whether written or oral and whether express or implied), whether or
not legally binding.

 

“Effective Time” means 12:01 a.m. (Eastern Time) on the day after the Closing
Date.

 

“Environment” means soil, land surface or subsurface strata, surface waters
(including navigable waters and ocean waters), groundwaters, drinking water
supply, stream sediments, ambient air (including indoor air), plant and animal
life and any other environmental medium or natural resource.

 

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“Environmental Law” means any Legal Requirement that requires or relates to:

 

(a) advising appropriate authorities, employees or the public of intended or
actual Releases of pollutants or hazardous substances or materials, violations
of discharge limits or other prohibitions and the commencement of activities,
such as resource extraction or construction, that could have significant impact
on the Environment;

 

(b) preventing or reducing to acceptable levels the Release of pollutants or
hazardous substances or materials into the Environment;

 

(c) reducing the quantities, preventing the Release or minimizing the hazardous
characteristics of wastes that are generated;

 

(d) assuring that products are designed, formulated, packaged and used so that
they do not present unreasonable risks to human health or the Environment when
used or disposed of;

 

(e) protecting resources, species or ecological amenities;

 

(f) reducing to acceptable levels the risks inherent in the transportation of
hazardous substances, pollutants, oil or other potentially harmful substances;

 

(g) cleaning up pollutants that have been Released, preventing the Threat of
Release or paying the costs of such clean up or prevention; or

 

(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment or permitting self-appointed
representatives of the public interest to recover for injuries done to public
assets.

 

“Escrow Agreement” shall have the meaning set forth in Section 3.1.2.

 

“Equipment” shall have the meaning set forth in Section 2.1(a).

 

“Excluded Assets” shall have the meaning set forth in Section 2.2.

 

“FDA” means the United States Food and Drug Administration.

 

“FDA Clearance” means the later of (A) the date on which STERN obtains CE Mark
Approval, (B) the date on which cCSAus Approval occurs; or (C) date on which
PHMD has obtained 510(k) clearance from the FDA for the Licensed Product. PHMD
shall advise STERN in writing of 510(k) clearance promptly following the date on
which PHMD receives written notice from the FDA of such 510(k) clearance.

 

“GAAP” means U.S. generally accepted accounting principles, consistently
applied.

 

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“Governing Documents” means with respect to any particular entity, (a) if a
corporation, the articles or certificate of incorporation and the bylaws; (b) if
a general partnership, the partnership agreement and any statement of
partnership; (c) if a limited partnership, the limited partnership agreement and
the certificate of limited partnership; (d) if a limited liability company, the
articles of organization and operating agreement; (e) if another type of Person,
any other charter or similar document adopted or filed in connection with the
creation, formation or organization of the Person; (f) all equityholders’
agreements, voting agreements, voting trust agreements, joint venture
agreements, registration rights agreements or other agreements or documents
relating to the organization, management or operation of any Person or relating
to the rights, duties and obligations of the equityholders of any Person; and
(g) any amendment or supplement to any of the foregoing.

 

“Governmental Body” means any:

 

(a) nation, state, county, city, town, borough, village, district or other
jurisdiction;

 

(b) federal, state, local, municipal, foreign or other government;

 

(c) governmental or quasi-governmental authority of any nature (including any
agency, branch, department, board, commission, court, tribunal or other entity
exercising governmental or quasi-governmental powers);

 

(d) multinational organization or body;

 

(e) body exercising, or entitled or purporting to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or
power; or

 

(f) official of any of the foregoing.

 

“International Product Launch” means the sale by PHMD of not less than the
number units, set forth in confidential Schedule 1.1(b), of Licensed Products
bearing the CE Mark to purchasers located outside of the United States and for
use outside of the United States.

 

“Legal Requirement” means any federal, state, local, municipal, foreign,
international, multinational or other constitution, law, ordinance, principle of
common law, code, regulation, statute or treaty.

 

“Licensed Product” means the product using technology, know-how, trade secrets
and other intellectual property developed or obtained by STERN, as more
specifically described on confidential Schedule 1.1(a) hereto, including all
modifications, changes, adaptations, and improvements thereto.

 

“Lien” means any lien, pledge, mortgage, security interest, claim, lease,
charge, option, right of first refusal, special assessment, unsatisfied
pre-emptive right, easement, servitude, transfer restriction under any
shareholder or similar agreement, encumbrance or any other restriction or
limitation whatsoever.

 

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“Liability” means with respect to any Person, any liability or obligation of
such Person of any kind, character or description, whether known or unknown,
absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated
or unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise, and
whether or not the same is required to be accrued on the financial statements of
such Person.

 

“Milestones” means each of the events identified in Section 3.1.1.

 

“Permits” means any license, authorization, permit, certificate, order or
approval of, and any required registration.

 

“Person” means an individual, partnership, corporation, business trust, limited
liability company, limited liability partnership, joint stock company, trust,
unincorporated association, joint venture or other entity or a Governmental
Body.

 

“PHMD’s Field of Use” means all applications and uses of the Licensed Products
and Product, as now or hereinafter comprised, including without limitation,
medical and veterinary applications, other than STERN’s Field of Use.

 

“Power Supply Agreements” means the date on which PHMD enters into agreements
with STERN’s vendors of components of a power supply, as more specifically
described in confidential Schedule 1.1(b).

 

“Purchase Price” shall have the meaning set forth in Section 3.

 

“Prototype” means a pre-production prototype of the Licensed Product which
incorporates the design changes described in Section 9.3 and any other design
changes required by STERN’s Notified Body.

 

“Registration Period” shall have the meaning set forth in Section 3.1.2(c).

 

“Related Document(s)” means each agreement, instrument, schedule and other
document (other than this Agreement) which is executed and delivered at Closing
or which is otherwise executed and delivered in connection with this Agreement.

 

“Release” means any release, spill, emission, leaking, pumping, pouring,
dumping, emptying, injection, deposit, disposal, discharge, dispersal, leaching
or migration on or into the Environment or into or out of any property.

 

“SEC Documents” has the meaning set forth in Section 6.3.

 

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“Securities Act” has the meaning set forth in Section 5.21(i).

 

“Shares” has the meaning set forth in Section 3.1.2.

 

“STERN’s Field of Use” means applications and uses of the Licensed Products and
Product Technology in food processing, fluid processing and water sterilization.

 

“STERN’s Notified Body” shall be the entity disclosed in confidential Schedule
1.1(b).

 

“Threat of Release” means a reasonable likelihood of a Release that may require
action in order to prevent or mitigate damage to the Environment that may result
from such Release.

 

“United States” means the United States of America, its territories and
possessions, any State of the United States and the District of Columbia.

 

“U.S. Product Launch” means the sale by PHMD of not less than the number of
units, set forth on confidential Schedule 1.1(b), of Licensed Products, cleared
by the FDA, to purchasers located within the United States for use in the United
States.

 

2. Purchase and Sale.

 

2.1 Transfer of Purchased Assets. On the terms, and subject to the conditions
set forth in this Agreement, on the Closing Date, STERN shall sell, convey,
assign and transfer to PHMD and PHMD shall acquire from STERN, effective as of
the Effective Time, for the Purchase Price, free and clear of all Liens, the
following specified tangible and intangible assets (collectively, the “Acquired
Assets”):

 

(a) all owned or leased fixtures, equipment, machinery, parts, tools, dies,
jigs, patterns, testing fixtures, molds, and all other tangible personal
property (other than the Inventory) used or necessary for use, or utilized, in
connection with the manufacture of the Licensed Product, including, those items
of tangible personal property listed on confidential Schedule 2.1(a)
(collectively, the “Equipment”);

 

(b) all Contracts of STERN relating to the sourcing of component parts for the
Licensed Product or to technical or supply arrangements relating to the Licensed
Product with STERN’s customers, including those Contracts listed on confidential
Schedule 2.1(b) (the “Assumed Contracts”);

 

(c) all other tangible and intangible assets of STERN necessary or appropriate
for the manufacture and sale of Licensed Product, including two (2)
pre-manufacturing Prototypes of the Licensed Product.

 

Notwithstanding the foregoing, the transfer of the Acquired Assets pursuant to
this Agreement shall not include the assumption of any Liability related to the
Acquired Assets unless PHMD expressly assumes that Liability pursuant to Section
3.2.

 

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2.2 Excluded Assets. Notwithstanding anything to the contrary contained in
Section 2.1 or elsewhere in this Agreement, the following assets of STERN
(collectively, the “Excluded Assets”) are not part of the sale and purchase
contemplated hereunder, are excluded from the Acquired Assets and shall remain
the property of STERN after the Closing: an inventory of component parts of the
Licensed Product sufficient to manufacture not more than ten (10) units of
Licensed Product. Any assets of STERN not specifically defined as “Acquired
Assets” in Section 2.1 shall not be acquired by PHMD. If STERN opts to build
such components into product similar to Licensed Product for sale or use only in
STERN’s Field of Use, STERN shall build the units of product itself or through
subcontractors who have agreed to keep the technology related to the Licensed
Product confidential and shall not affix a trademark of PHMD on such units. On
the other hand, if and only if STERN desires to sell or use any such units in
PHMD’s Field of Use, STERN must contract for PHMD to build such units for the
fee set forth in confidential Schedule 2.2.

 

3. Purchase Price. As consideration for the purchase and sale of the Acquired
Assets and entering into the License, PHMD shall make the following payments and
shall assume the following obligations and liabilities of STERN (such payments
and the assumption of such obligations and liabilities are referred to
collectively as the “Purchase Price”):

 

3.1 Consideration.

 

3.1.1 Subject to other provisions of this Agreement bearing upon payment of
consideration, PHMD shall pay to STERN the aggregate sum of $1,400,000, at the
times, and subject to the satisfaction of each applicable Milestone, as set
forth below:

 

(a) The sum of $200,000.00 at Closing (the “Closing Payment”).

 

(b) The sum of $200,000.00 within 10 days following PHMD’s receipt of written
notice from STERN of Completion.

 

(c) The sum of $150,000.00 within 10 days following the execution and delivery
to PHMD of the Amendment to Supply Agreement.

 

(d) The sum of $50,000.00 within 10 days following the execution and delivery to
PHMD of the Power Supply Agreements.

 

(e) The sum of $100,000.00 within 10 days following PHMD’s receipt of written
notice from STERN that STERN has obtained CE Mark Approval (and otherwise
fulfilling the covenants of Section 9.4), but no earlier than 10 days following
Completion.

 

(f) The sum of $100,000.00 within 10 days following PHMD’s receipt of written
notice from STERN that STERN has obtained cCSAus Approval (and otherwise
fulfilling the covenants of Section 9.4), but no earlier than 10 days following
Completion.

 

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(g) The sum of $100,000.00 within 10 days following STERN’s receipt of written
notice from PHMD that FDA Clearance has been obtained and at the latest on
January 15, 2005.

 

(h) The sum of $200,000.00 within 10 days following STERN’s receipt of written
notice from PHMD of the occurrence of International Product Launch and at the
latest on the date set forth on confidential Schedule 3.1.1. PHMD shall promptly
inform STERN of the attainment of this Milestone.

 

(i) The sum of $200,000.00 within 10 days following STERN’s receipt of written
notice from PHMD of the occurrence of U.S. Product Launch and at the latest on
the date set forth on confidential Schedule 3.1.1. PHMD shall promptly inform
STERN of the attainment of this Milestone.

 

(j) The sum of $100,000 to be paid within 10 days following PHMD’s receipt of
written notice from STERN of the issuance of patent claims in both the US and
Europe covering the Licensed Product and Product, where consistent with Section
9.6 hereof such claims must have issued on or before the date set forth on
confidential Schedule 3.1.1.

 

3.1.2 Form of Payment; Escrow.

 

(a) Payment of the consideration described in Section 3.1.1 may be either in
U.S. funds or in PHMD common stock (“Shares”), at PHMD’s sole and absolute
discretion. If PHMD elects to pay with its common stock, it shall notify STERN
and the Escrow Agent on or before PHMD’s notification of concurrence in the
attainment of a Milestone, except as provided in the next sentence. In the case
of the deemed concurrence of the attainment of a Milestone, PHMD shall notify
STERN of PHMD’s election prior to the applicable payment of the consideration
attributable to the attainment of that Milestone. Upon payment of the Closing
Payment and payment of that portion of the Purchase Price attributable to the
Milestones under Sections 3.1.1(b), 3.1.1(c), 3.1.1(d), 3.1.1(e), and 3.1.1(f)
(whether in cash or Shares) in accordance with Section 3.1.2(e) and Section
3.1.2(f), respectively, PHMD and STERN will immediately send a joint notice to
the Escrow Agent. Unless the parties mutually agree otherwise, each share of
common stock shall be valued at the mean of the Nasdaq closing prices for PHMD
common stock on the 10 trading days prior to the Closing Date or prior to PHMD’s
concurrence or deemed concurrence of the attainment of the applicable Milestone.
Such election to pay with common stock shall not adversely affect and compromise
STERN’S right of payment of the entire consideration described in Section 3.1.1.
Common stock held for payment shall be held by a third-party escrow agent (the
“Escrow Agent”) and administered according to the terms set forth in the Escrow
Agreement (the “Escrow Agreement”) attached as Exhibit A. If PHMD desires to
issue Shares as permitted herein, STERN shall, in each instance, reaffirm in
writing to PHMD each of its representations and warranties contained in Section
5.21. PHMD shall be responsible for the reasonable, pre-agreed costs of the
Escrow Agent.

 

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(b) At any time that the Shares remain held by the Escrow Agent or have not been
released for cancellation on the books and records of PHMD, such Shares (the
“Escrowed Shares”) shall be deemed not to be issued and outstanding shares of
the Common Stock on the books and records of PHMD (the “Outstanding Shares”),
and with respect to any of the Escrowed Shares, no person shall have any rights
as a stockholder, including without limitation, the right to vote or direct the
vote of such Escrowed Shares, or to any stock or other dividends, distributions
or rights shall be granted, issued, declared or paid on any Outstanding Shares,
or any securities or fractions thereof shall be issued pursuant to any stock
split involving any of the shares of the Outstanding Shares, or any distribution
of other securities shall be made with respect to the Outstanding Shares
pursuant to the recapitalization or reclassification of the Outstanding Shares
or the reorganization of any issuer of such other securities, at any time that
such Escrowed Shares remain held by the Escrow Agent. At Closing, PHMD may
deliver to the Escrow Agent Shares, containing legends required under this
Agreement, Related Agreements and applicable Legal Requirements, which it may
elect to use for payments due upon attainment of Milestones, if at all, and PHMD
may add additional Shares to such Escrowed Shares at any time with further
Shares delivered to the Escrow Agent. Shares added to the Escrowed Shares shall
be deemed to be Escrowed Shares.

 

(c) If PHMD elects to pay with its common stock at Closing, PHMD shall deliver
such Shares, containing legends required under this Agreement, Related
Agreements and applicable Legal Requirements, directly to STERN. PHMD shall
undertake to commence registration of Shares delivered at Closing promptly after
Closing. PHMD shall likewise commence registration of any other Shares,
containing legends required under this Agreement, Related Agreements and
applicable Legal Requirements, that it may have tendered to the Escrow Agent at
Closing, as described in Section 3.1.2(b). PHMD shall have 30 days in which to
register such Shares, except that PHMD shall have 90 days in the event that the
Commission undertakes to review the registration statement filed by PHMD (such
30 or 90 day period, as applicable, referred to as the “Registration Period”).
If such Shares are registered with the Commission, then PHMD shall promptly
notify STERN and the Escrow Agent. In the event that such Shares due or
otherwise tendered at Closing shall not have been registered within the
Registration Period, then STERN shall give PHMD formal notice of the such
failure and demand cure of the same, whereupon PHMD shall make such payment in
cash within 10 days after the end of the Registration Period and STERN and the
Escrow Agent shall return the tendered Shares to PHMD for cancellation. As to
any Milestone other than those listed in Section 3.1.2(f), PHMD shall have the
longer of the Registration Period or 30 days after the submission of the
applicable Milestone to register the applicable Shares, or, if applicable, to
effect a post-effective amendment or supplemental amendment or prospectus to an
applicable registration, and in the event that PHMD does not deliver registered
Shares within such time-frames, then STERN shall give PHMD formal notice of such
failure and demand cure of the same, whereupon PHMD shall make such payment in
cash within 10 days after the end of such time-frames. In the event that STERN’s
right to sell Shares is contingent upon delivery of an appropriate prospectus to
its buyer, PHMD shall issue a blanket opinion to its transfer agent that it may
issue, free of legend, Shares which STERN shall have sold to its buyer, provided
STERN or STERN’s broker represents that the appropriate prospectus has been so
delivered and provided that the registration statement and its ancillary filings
remain current and effective.

 

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(d) Upon attainment of a Milestone set forth in Section 3.1(b) through 3.1(j),
STERN shall notify PHMD and the Escrow Agent of the same. PHMD shall have 10
days in which to notify the Escrow Agent whether it concurs that the Milestone
has been attained, except in the case of the Milestone set forth in Section
3.1.1(b), as to which PHMD shall have 15 days. If PHMD does not concur, it shall
notify STERN and the Escrow Agent of the same and shall provide reasonably
detailed information stating the grounds for which it does not concur. If PHMD
gives no answer to the Escrow Agent or to STERN, it shall be deemed that PHMD
has concurred. Where such concurrence shall be deemed to have occurred, then the
applicable Milestone shall be deemed to have been attained. STERN shall be
deemed to have acquired the right to a Milestone payment upon the earlier of
PHMD’s actual or deemed concurrence or a binding determination that PHMD’s
non-concurrence shall be reversed in favor of a determination that STERN is
entitled to the Milestone payment.

 

(e) If PHMD elects to make any such payment with its Shares and such Shares
shall not have been timely registered in accordance with Section 3.1.2(c), then
unless PHMD shall have timely made such payment in cash, PHMD shall be deemed
not to have made such payment and such failure shall constitute a default of
this Agreement. In such a case, acting in accordance with Sections 12.5, STERN
shall have the right to terminate this Agreement and Related Agreements that
have been delivered to PHMD and to nullify such Related Agreements which have
not been delivered to PHMD but which are being held by the Escrow Agent.
Furthermore, where the defaulted payment is the Closing Payment or Milestone
Payments, demanded at Closing as described in Section 3.1.2(f) and accepted or
deemed accepted by PHMD within the time-frame set for each discrete Milestone,
then in such a case, STERN may seek to rescind, as of the Closing Date, this
Agreement and Related Agreements that have been delivered to PHMD and to nullify
Related Agreements which have not been delivered to PHMD but which are being
held by the Escrow Agent.

 

(f) STERN hereby notifies PHMD that STERN believes that the Milestones under
Sections 3.1.1(b), 3.1.1(c), 3.1.1(d), 3.1.1(e) and 3.1.1(f) have been attained,
and STERN shall on the Closing Date convey to PHMD the requisite proof that such
Milestones have been attained. PHMD shall within the prescribed time-frame for
each Milestone either concur in or object to a Milestone. As to those Milestones
in which PHMD has concurred or which PHMD is deemed to have concurred as to
attainment, PHMD shall pay for Milestones in the same manner and time-frame
within which PHMD shall make the Closing Payment. If PHMD fails to pay for any
such Milestone presented at Closing and accepted by PHMD for payment, then as
with a default in the Closing Payment and in accordance with Sections 3.1.2(c),
3.1.2(e) and 12.5, STERN may seek to rescind as of the Closing Date this
Agreement and Related Agreements that have been delivered to PHMD and to nullify
Related Agreements which have not been delivered to PHMD but which are being
held by the Escrow Agent.

 

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(g) PHMD may elect to pay a Milestone before the Milestone shall have been
attained, in which case such Milestone shall be deemed paid upon attainment of
that Milestone.

 

3.2 Assumption of Certain Obligations.

 

3.2.1 At the Closing, STERN shall assign to PHMD and PHMD shall assume and agree
to timely perform, pay and discharge, on and after the Effective Time, the
following, and only the following, obligations of STERN (all such assumed
obligations being collectively referred to as the “Assumed Obligations”): all
obligations devolving on PHMD which accrue and arise pursuant to the Assumed
Contracts on or after the Effective Time.

 

3.2.2 Except for those liabilities and obligations of STERN expressly enumerated
in Section 3.2.1 which PHMD agrees to assume pursuant to the provisions of this
Agreement, PHMD shall not assume or otherwise be responsible or liable for any
other liabilities or obligations of STERN. STERN shall remain liable for all of
its liabilities and obligations which have not been expressly assumed by PHMD
pursuant to this Section.

 

3.3 Allocation of Purchase Price. Five (5) days prior to Closing, the parties
will agree to an allocation of the Purchase Price among the Acquired Assets and
the rights assigned to PHMD under the License Agreement, which will be attached
to this Agreement prior to Closing as Schedule 3.3. The parties hereto will
adhere to such allocation for all purposes, including without limitation federal
and state income tax purposes. STERN and PHMD agree to cooperate in preparing
and filing IRS Form 8594 reflecting that allocation.

 

4. Closing.

 

4.1 Closing Date. The purchase and sale provided for in this Agreement (the
“Closing”) will take place at a location agreed in writing by the parties,
commencing at 10:00 a.m. (local time) on the date that is five (5) Business Days
following the satisfaction or waiver of the conditions set forth in Sections 8.1
and 8.2, unless PHMD and STERN otherwise agree, and subject to Sections 3 and
12. The date on which the Closing occurs shall be deemed to be the “Closing
Date.”

 

4.2 Deliveries of the Parties at Closing.

 

4.2.1 STERN’S Deliveries. At the Closing, STERN will, in addition to those
deliveries identified under Section 8.1 deliver:

 

(a) all of the Equipment and other tangible acquired assets to PHMD;

 

(b) this Master Asset Purchase Agreement executed by STERN to PHMD, with a copy
to the Escrow Agent;

 

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(c) an Assignment and Assumption Agreement, executed by STERN, in substantially
the form attached hereto as Exhibit B assigning to PHMD all of STERN’S
respective right, title and interest in and to each of the Assumed Contracts
(the “Assignment and Assumption Agreement”) to the Escrow Agent;

 

(d) a Bill of Sale in substantially the form attached hereto as Exhibit C,
executed by STERN, conveying in the aggregate all other property included in the
Acquired Assets, to the Escrow Agent;

 

(e) such other deeds, bills of sale, assignments, certificates of title,
documents and other instruments of transfer and conveyance, executed by STERN,
as may reasonably be requested by PHMD, each in form and substance satisfactory
to PHMD and its legal counsel to the Escrow Agent;

 

(f) a License Agreement, and the Security Agreement described therein, executed
by STERN, in the form attached hereto as Exhibit D (the “License Agreement”) to
the Escrow Agent;

 

(g) an amendment to those certain Distribution Agreements, dated December 11,
2000, between STERN, and STERN’s South African affiliate, and PHMD in the form
attached hereto as Exhibit E (the “Amendment to Distribution Agreement”),
executed by STERN, to the Escrow Agent;

 

(h) the Escrow Agreement, executed by STERN, to Escrow Agent and PHMD;

 

(i) a Registration Rights Agreement, executed by STERN, executed by STERN, in
the form attached hereto as Exhibit F (the “Registration Rights Agreement”) to
PHMD;

 

(j) to PHMD, a certificate executed by STERN as to the accuracy of its
representations and warranties as of the date of this Agreement and as of the
Closing, and as to their compliance with and performance of their covenants and
obligations to be performed or complied with at or before the Closing; and

 

(k) to PHMD, a certificate of the Secretary of STERN certifying, as complete and
accurate as of the Closing, attached copies of the Governing Documents of STERN,
certifying and attaching all requisite resolutions or actions of STERN’S board
of directors approving the execution and delivery of this Agreement and the
consummation of the Contemplated Transactions and certifying to the incumbency
and signatures of the officers of STERN executing this Agreement and any other
document relating to the Contemplated Transactions.

 

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(l) notice to PHMD of such Milestones which STERN asserts have been attained,
and the proof and other documentation necessary to corroborate such assertions
and which STERN proffers in accordance with Section 3.1.2(f).

 

Until PHMD shall have paid the Closing Payment and payments for Milestones
identified in Section 3.1.2(f), PHMD shall have the permission of STERN to use
the Product Technology described in the License Agreement to the extent that
such use is necessary for PHMD to fulfill its covenants found elsewhere in this
Agreement, but in no case shall such permission be to PHMD to sell any Licensed
Product, as defined in the License Agreement; such permission may be revoked on
thirty (30) days’ prior written notice by STERN. When and as PHMD shall have
paid the Closing Payment and payments for Milestones identified in Section
3.1.2(f), the Escrow Agent shall immediately deliver to PHMD the agreements
described in Sections 4.2.1(c), (d), (e), (f) and (g), whereupon such agreements
shall be deemed to have first entered into force and effect.

 

4.2.2. PHMD’s Deliveries. At the Closing, PHMD will, in addition to those
deliveries required under Section 8.2, deliver:

 

(a) the Closing Payment to STERN;

 

(b) this Master Asset Purchase Agreement, executed by PHMD, to STERN with a copy
to the Escrow Agent;

 

(c) the Assignment and Assumption Agreement, executed by PHMD, to the Escrow
Agent;

 

(d) the License Agreement, and the Security Agreement described therein,
executed by PHMD, to the Escrow Agent;

 

(e) the Amendment to Distribution Agreement, executed by PHMD, to the Escrow
Agent;

 

(f) the Escrow Agreement, executed by PHMD, to STERN and Escrow Agent;

 

(g) the Registration Rights Agreement, executed by PHMD, to STERN;

 

(h) the stand-by letter of credit described in Section 7.2.2 to STERN;

 

(i) to STERN, a certificate executed by PHMD as to the accuracy of its
representations and warranties as of the date of this Agreement and as of the
Closing; and

 

(j) to STERN, a certificate of the Secretary of PHMD certifying, as

 

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complete and accurate as of the Closing, attached copies of the Governing
Documents of PHMD, certifying and attaching all requisite resolutions or actions
of PHMD’s board of directors approving the execution and delivery of this
Agreement and the consummation of the Contemplated Transactions and certifying
to the incumbency and signatures of the officers of PHMD executing this
Agreement and any other document relating to the Contemplated Transactions.

 

5. Representations and Warranties of STERN. STERN hereby represents, warrants
and covenants to PHMD on and as of the date hereof, unless stated to the
contrary below, and on and as of the Effective Time as follows:

 

5.1 Organization and Good Standing. STERN is a corporation duly organized,
validly existing and in good standing under the Legal Requirements of Italy.
STERN is duly qualified as a corporation, and has all requisite corporate power
and authority to carry on its business and to own, lease and operate its
properties, in each of the jurisdictions where such business is conducted and
such properties are owned, leased and operated.

 

5.2 Binding Effect. This Agreement and each document or instrument executed and
to be executed by STERN in connection herewith are and will be the legal, valid
and binding obligations of STERN, enforceable against it in accordance with its
respective terms, except as limited by bankruptcy, insolvency or other Legal
Requirements affecting generally the enforcement of creditors’ rights and
doctrines of equity relating to the availability of specific performance as a
remedy.

 

5.3 Authorization. The execution, delivery and performance by STERN of this
Agreement and each instrument executed and to be executed by STERN in connection
herewith, and consummation of the transactions provided for herein and therein,
are and will be within the corporate powers of STERN; will have been duly
authorized by all necessary corporate action on the part of STERN by the Closing
Date; and do not and will not contravene any Legal Requirement, regulation,
judgment, decree, order or award relating to STERN or conflict with or result in
any breach of any of the terms, conditions or provisions of, or constitute a
default under, or result in the creation of any lien, charge, security interest
or encumbrance upon any of the assets or properties of STERN, or infringe upon
or impair the proprietary rights of any third party, pursuant to any provisions
of any Governing Document, indenture, mortgage, lease, security agreement,
partnership agreement, supply agreement, research agreement, development
agreement, nondisclosure agreement or other agreement to which STERN is a party
or by which STERN is bound.

 

5.4 Title. STERN owns the Acquired Assets, Licensed Product and the Product free
and clear of all Liens, royalties or supply obligations or any other
encumbrances or third party claims of any nature whatsoever; STERN has all
necessary right, power and authority to enter into this Agreement and each
document or instrument executed and to be executed by STERN in connection
herewith, and there is no restriction of any kind on the right of STERN to use
and exploit the Licensed Product and the Product. Upon consummation of the
transactions provided for herein (and delivery of the Prototypes pursuant to
Section 9.1), PHMD shall have good and marketable title to the Acquired Assets
and two (2) Prototypes.

 

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5.5 Balance Sheet.

 

5.5.1 STERN has no debts, liabilities (other than accrued salaries) related to
the Acquired Assets, Product, Licensed Product and Prototypes, obligations or
commitments of any kind or nature of a type that would be included in a balance
sheet prepared in accordance with GAAP except those incurred since December 31,
2003 in the normal, regular and customary course of business and reflected on
the books and records of STERN.

 

5.5.2 Since December 31, 2003, there has not been any change in the financial
condition, assets, properties, liabilities, business, results of operations or
prospects of STERN other than changes in the normal, regular and customary
course of business, none of which, individually or in the aggregate, has been
materially adverse, or any labor trouble, property dispute, lease or contract
dispute, or other claim or event, or any condition of any character whatsoever
materially and adversely affecting, or which would materially and adversely
affect, the financial position, business or prospects of STERN regarding the
Acquired Assets, Product License, Licensed Product and Prototypes. Without
limiting the generality of the foregoing, since December 31, 2003, STERN has
not: (A) incurred any obligation or liability, absolute or contingent, except
current liabilities and obligations under contracts entered into in the normal,
regular and customary course of business and consistent with the requirements of
its business that are reflected on the books and records of STERN; or (B)
mortgaged, pledged or subjected to lien, charge, security interest or other
encumbrance any of its assets; (C) suffered the loss or destruction of any
assets or properties, whether or not covered by insurance; or (D) entered into
transactions other than in the normal, regular and customary course of business.

 

5.6 Licensed Product Warranty. The Licensed Product is designed so as to
maintain the optical, power and cooling functions under ordinary and reasonably
anticipated conditions of transport and use, including without limitation
mechanical shock and vibration encountered in shipment and use under customary
temperature and environmental conditions as stated in the operator’s manual, and
therefore shall have no material warranty costs by reason of such design,
whether resulting from a need to repair the Licensed Product at the time of
installation or at any time thereafter, for a period as set forth in
confidential Schedule 5.6. The Licensed Product, as manufactured in accordance
with the specifications provided by STERN, shall be marketable for their
intended use, free of defect.

 

5.7 All Assets Required to Manufacture the Licensed Product. The rights under
the Product License, the Acquired Assets and the Prototypes shall constitute all
of the assets, properties, contract rights and other rights that are required to
manufacture the Licensed Product in the manner in which STERN contemplates to
manufacture the Licensed Product and as PHMD anticipates so manufacturing the
Licensed Product, provided that PHMD improves its premises in a manner
reasonably sufficient to accommodate and utilize the Acquired Assets.

 

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5.8 Manufacturing Costs and Viability.

 

(a) Confidential Schedule 5.8(a) sets forth a true and correct list of STERN’s
costs of material costs to manufacture a single Licensed Product.

 

(b) The Licensed Product can be manufactured by PHMD at a cost of not more than
the cost set forth on confidential Schedule 5.8(a).

 

(c) For a cost of not more than the cost set forth on confidential Schedule
5.8(c), PHMD shall be able to acquire those items of tangible and intangible
personal property listed on confidential Schedule 5.8(c) which assets, when
taken together with the Acquired Assets, to complete all leasehold improvements
necessary to replicate (in the United States) STERN’s manufacturing and assembly
operations in Appiano.

 

(d) PHMD will be able to replicate, in the Montgomeryville, Pennsylvania area,
STERN’s manufacturing and assembly operations in the Appiano, Italy area.

 

5.9 Adverse Events. To the best of STERN’s knowledge, there are no market
conditions which will have or can reasonably be expected to have a material
adverse impact on the marketability of the Licensed Product. There are no
material design or quality concerns with respect to the Licensed Product, except
as PHMD has disclosed to STERN and which are set forth in confidential Schedule
5.9.

 

5.10 Regulatory Approval.

 

5.10.1 The Licensed Product, without substantial or material modification, will
be able to meet such specifications as will be necessary for PHMD to obtain
510(k) clearance from the U.S. Food and Drug Administration, from agencies or
agents of the European Union, from Canadian Standard Association (“cCSAus”) with
US deviations, and, with immaterial modifications, from Health Canada. Without
limiting the generality of the foregoing, the Licensed Product will comply with
IEC 60601-1:1993 and 60601-1-2:2001 for electromagnetic compatibility, and IEC
60601-1:1988 + A1:1991 + A2:1995 + A3:1996 for general requirements for safety,
along with US and Canadian deviations. As to IEC 60601-1-4:1996 + A1:1999 for
programmable electrical medical systems, PHMD shall be entitled as a third-party
beneficiary to rely on the opinion which STERN’s Notified Body rendered to
STERN, namely that this standard does not apply to the Licensed Product, and
furthermore STERN represents to PHMD that STERN has caused the software of the
Licensed Product to be successfully validated and verified in accordance with
FDA requirements.

 

5.10.2 STERN’s quality system reflects the requirements of ISO 13485, applicable
to medical devices.

 

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5.11 Contracts.

 

5.11.1 Confidential Schedule 2.1(b) is a true and correct list of all contracts,
agreements and other instruments to which STERN is a party or is bound which
relate to the Acquired Assets, the Licensed Product and the Product
(collectively, the “Material Contracts”). Attached hereto as confidential
Schedule 5.11.1 are true, correct and complete copies of all Material Contracts
for the Licensed Product, including, without limitation, STERN’s contract with
the vendor described in the Amendment of Supply Agreement and its vendors of the
proprietary power supply. STERN is not in default under any Material Contract
and STERN has not received any notice or claim to the contrary. STERN knows of
no default under any such Material Contract by any other party thereto.

 

5.11.2 PHMD shall be able to assume the Material Contracts with respect to the
Acquired Assets, the Licensed Products and the Product. PHMD shall be at liberty
to source equivalent goods and services supplied under such Material Contracts
from other third-parties, except with respect to those Material Contracts which
STERN has noted in confidential Schedule 2.1(b) where use of third-party sources
would violate contractual or property rights of STERN vendors under such
Material Contracts as are set forth in confidential Schedule 2.1(b).

 

5.12 Claims and Litigation. With respect to the Acquired Assets, the Licensed
Product and the Product there are no material claims, suits, legal,
administrative, arbitration or other proceedings pending or threatened against
or affecting STERN, and, to the best of STERN’s knowledge, there is no existing
basis for any thereof. There are no outstanding judgments, decrees, orders or
awards or specific administrative regulations relating to STERN, the Acquired
Assets, the Licensed Product or the Product.

 

5.13 No Misleading Statements. Neither this Agreement, nor any other information
furnished to PHMD by or on behalf of STERN in connection with the transactions
contemplated hereby, nor any of the exhibits, schedules, instruments or
certificates executed and delivered by or on behalf of STERN and referred to in
this Agreement and the exhibits hereto or executed and delivered concurrently
herewith, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading.

 

5.14 Other Business Names. Except as disclosed on Schedule 5.14 hereto, STERN
has not used any business name or address during the three years immediately
prior to the Closing Date other than “Stern Laser Srl”.

 

5.15 Relationships with Vendors. STERN is in good standing under its agreements
and other relationships with the key vendors previously described or identified
to PHMD by STERN, and no financial or other disputes or disagreements are
pending or, to the best knowledge of STERN, threatened by or against such
persons or entities.

 

5.16 Consents and Approvals. Except as set forth on Schedule 5.16 hereto, no
consent of any Person and no approval or authorization of, or declaration or
filing with, any governmental or regulatory authority is required for the valid
authorization, execution and delivery by STERN of this Agreement or any
instrument or other agreement contemplated hereby or for consummation of the
transactions contemplated hereby.

 

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5.17 Compliance with Legal Requirement; Governmental and Industrial Approvals.
STERN has complied in all material respects with all Legal Requirements, orders,
judgments and decrees now and heretofore applicable to its business, assets,
properties or operations. STERN has not received any notice of any asserted or
pending violation of any such Legal Requirements, orders, judgments or decrees.
STERN has all Permits of all national, federal, state or local governmental or
regulatory bodies necessary for it to operate its properties, assets and
facilities as presently operated and to conduct its business as presently
conducted (“Necessary Permits”) and, to the knowledge of STERN, all other
permits, licenses, orders, ratings and approvals required by applicable Legal
Requirement or regulation. All Necessary Permits and other permits are in full
force and effect, and to the best knowledge of STERN (i) no suspension or
cancellation of any Necessary Permit is threatened, (ii) there is no reason to
believe that on expiration any Necessary Permit will not be renewed and (iii)
none of the Necessary Permits will be adversely affected by the consummation of
the transactions contemplated in this Agreement.

 

5.18 Environmental Matters. STERN has obtained all permits, licenses and other
authorizations which are required under Environmental Laws. As used in this
Agreement, Environmental Laws consist of any and all federal, state and local
Legal Requirements and regulations relating to health and safety and pollution
or protection of the environment, including Legal Requirements and requirements
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial toxic or hazardous substances
or wastes into the environment, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes. STERN is in material compliance with all terms
and conditions of the required permits, licenses and authorization, and is also
in material compliance with all other provisions of any applicable Environmental
Laws. There is no civil, criminal or administrative action, suit, demand, claim,
hearing, notice or demand letter, notice of violation, investigations, or
proceeding pending or, to the best knowledge of STERN threatened against STERN
relating to any Environmental Law.

 

5.19 No Infringement. The Acquired Assets, the Licensed Product and the
Prototypes do not infringe upon any patents, trade secrets or other proprietary
rights or property of any third party or in PHMD’s Field of Use. There are no
patents owned or licensed by others and no trade secrets or other proprietary
rights or property of others which would be infringed or misused by PHMD or
sublicensees making, having, using and/or selling the Licensed Product in PHMD’s
Field of Use. The Product represents all of the patents, trade secrets and other
proprietary rights or property that are: (i) owned or controlled by STERN or
under which STERN is empowered to grant licenses of sublicenses relating to the
manufacture, use or sale of the Licensed Product in PHMD’s Field of Use, and
(ii) are necessary or useful to the manufacture, use or sale of the Licensed
Product in PHMD’s Field of Use, each as contemplated by the rights granted to
PHMD under this Agreement and the License Agreement, and all as described on
confidential Schedule 5.19. Except as described on confidential Schedule 5.19,
STERN has not disclosed to any Person, in any manner or form, any of the
Product.

 

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5.20 Intangibles. STERN has no patents, trademarks, service marks or trade
names, or any applications and registrations for the foregoing or any licenses,
sub-licenses and other agreements relating to the foregoing and pertaining in
any manner to the Licensed Product, except for such matters listed on
confidential Schedule 5.20 with such applications, registrations, licenses, etc.
attached hereto. Without limiting Section 5.19, to STERN’s best knowledge, no
action taken by STERN infringes upon or otherwise violates the patent,
trademark, service mark, trade name or other proprietary rights of any third
party, and STERN has not received any claim or notice to the contrary.

 

5.21 Securities Warranties. With respect to the Shares, which may be issued and
delivered by PHMD to STERN pursuant to Section 3.1.2 hereof, STERN represents
and warrants to PHMD that:

 

(a) STERN has had an opportunity to ask questions and receive answers concerning
the terms and conditions of the offering of the Shares and to obtain any
additional information regarding PHMD or any of the other documents provided to
STERN regarding PHMD.

 

(b) STERN has executed this Agreement outside the United States and STERN is
acquiring the Shares in an Offshore Transaction (as defined in Rule 902(h) of
Regulation S). The Shares were not offered to STERN in the United States, and at
the time of execution of this Agreement and at the time of any offer to STERN to
acquire Shares hereunder, STERN was outside of the United States. STERN is not a
U.S. Person (as defined in Rule 902(k) of Regulation S).

 

(c) STERN is not acquiring the Shares pursuant to an arrangement with, or for
the account of benefit of, a U.S. Person, nor is STERN’s purchase of the Shares
part of a plan or scheme to evade the registration provisions of the Securities
Act.

 

(d) STERN is acquiring the Shares for its own account for investment and not
with a view to or for resale in connection with any distribution of the Shares.
STERN has not offered or sold any portion of the Shares and has no present
intention of dividing the Shares with others or of selling, distributing or
otherwise disposing of any portion of the Shares either currently or after the
passage of a fixed or determinable period of time or upon the occurrence or
non-occurrence of any predetermined event or circumstance. STERN is not acting
as and agrees not to act as a “distributor” (as defined in Rule 902(d) of
Regulation S) with respect to the PHMD Shares. STERN shall not engage in any
hedging transaction with respect to the PHMD Shares unless such actions are in
compliance with the Securities Act.

 

(e) STERN is not acquiring Shares as a result of or subsequent to any general
solicitation or general advertising, article, notice or other communication
published in any newspaper, magazine, or similar media or broadcast over
television or radio, or presented at any seminar or meeting.

 

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(f) STERN or its representative, if any, has been provided with, or given
reasonable access to, full and fair disclosure of all material information
concerning PHMD;

 

(g) STERN has a preexisting personal or business relationship with PHMD or
certain of its officers, directors or controlling persons, or by reason of its
business or financial experience, STERN could reasonably be assumed to have the
capacity to represent its own interests in connection with this Agreement;

 

(h) STERN understands and hereby acknowledges that the Shares will be issued
pursuant only to those restrictions imposed by and exemptions available pursuant
to applicable federal and state Legal Requirements and that the certificates to
be issued in respect of the Shares may bear a legend in the form set forth in
Section 9.9.6; in part, PHMD’s reliance upon such exemptions is based on the
representations and warranties made by STERN in this Section 5.21;

 

(i) STERN agrees that the certificates to be issued in respect of the Shares
shall bear a legend in the form set forth in Section 9.9.6 reflecting the status
of the Shares as restricted securities under the Securities Act of 1933, as
amended (the “Securities Act”) and acknowledges that the transfer agent or
registrar for PHMD may be instructed to restrict the transfer of the PHMD Shares
not made in accordance with the Securities Act or in accordance with such legend
and any other restrictions provided in this Agreement;

 

(j) STERN hereby agrees that it will not sell, transfer, hypothecate, pledge,
assign or otherwise dispose of any of the Shares, except pursuant to the terms
of this Agreement and to a registration statement filed under the provisions of
the Securities Act, a favorable no-action or interpretive letter received from
the United States Securities and Exchange Commission (the “Commission”) or an
opinion of counsel satisfactory to PHMD that such sale, transfer, hypothecation,
pledge, assignment or other disposition will not violate the registration
requirements of the Securities Act, and does not in any way violate the terms of
this Agreement;

 

(k) STERN hereby acknowledges that: (i) the Shares referred to herein are being
acquired after adequate investigation of the business plan and prospects of
PHMD; (ii) that STERN is not relying upon the accuracy of any predictions as to
the future prospects or developments of PHMD or its business and is well
informed as to the business of PHMD and has reviewed its operations and
financial statements; (iii) STERN or its professional advisors have discussed
the financial condition and business operations of PHMD with the officers,
directors and principal stockholders of PHMD and has been afforded the
opportunity to ask questions with respect thereto; and (iv) there can be no
assurance that PHMD will achieve its business objectives or, in particular, that
it will ever have cash available for distribution to its stockholders; and

 

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(l) STERN either alone or with STERN’s representative has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Shares. STERN acknowledges that the Shares are
speculative and involve a high degree of risk, including the potential loss of
STERN’s investment herein and STERN has taken cognizance of and understands the
risk factors related to the purchase of the securities.

 

5.22 No Brokerage. STERN has not made any agreement or taken any other action
which might cause PHMD to become entitled to a commission or brokerage fee as a
result of the transactions contemplated hereby.

 

5.23 No Other Representations. The representations and warranties of PHMD set
forth herein constitute the sole and exclusive representations and warranties of
PHMD to STERN in connection with the transactions contemplated hereby, and STERN
acknowledges and agrees that PHMD is not making any representation or warranty
whatsoever express or implied, beyond those expressly given in this Agreement.

 

6. Representations and Warranties of PHMD. PHMD hereby represents, warrants and
covenants to STERN on and as of the date hereof, unless stated to the contrary
below, and on and as of the Effective Time as follows:

 

6.1 Binding Effect. This Agreement and each instrument executed and to be
executed by PHMD in connection herewith are and will be the legal, valid and
binding obligations of PHMD, enforceable in accordance with their respective
terms, except as limited by bankruptcy, insolvency or other Legal Requirements
affecting generally the enforcement of creditors’ rights and doctrines of equity
relating to the availability of specific performance as a remedy.

 

6.2 Authorization. The execution, delivery and performance by PHMD of this
Agreement and each instrument executed and to be executed by PHMD in connection
herewith, and consummation of the transactions provided for herein and therein,
are and will be within the powers of PHMD, have been duly authorized by all
necessary action, require no governmental approval, and do not and will not
contravene any Legal Requirement, regulation, judgment, decree, order or award
relating to PHMD or conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, lease,
security agreement, partnership agreement or other agreement to which PHMD is a
party or by which PHMD is bound.

 

6.3 Commission Documents. PHMD has furnished, or offered to furnish, to STERN a
true and complete copy of PHMD’s Annual Report on Form 10-K for the year ended
December 31, 2003, PHMD’s Quarterly Report on Form 10-Q for the three months
ended March 31, 2004, and any other statement, report, registration statement
(other than registration statements on Form S-8) or definitive proxy statement
filed by PHMD with the Commission during the period commencing December 31,
2003, and ending on the date hereof. PHMD will, promptly upon the filing
thereof, also furnish to STERN all statements, reports (including,

 

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without limitation, quarterly reports on Form 10-Q and current reports on Form
8-K), registration statements and definitive proxy statements filed by PHMD with
the Commission during the period commencing on the date hereof and ending on the
Closing Date (all such materials required to be furnished to STERN pursuant to
this sentence or pursuant to the next preceding sentence of this Section 6.3
being called, collectively, the “SEC Documents”).

 

6.4 No Brokerage. PHMD has not made any agreement or taken any other action
which might cause STERN to become entitled to a commission or brokerage fee as a
result of the transactions contemplated hereby.

 

7. Pre-Closing Covenants and Agreements.

 

7.1 Covenants of STERN. Except as otherwise first approved in writing by PHMD or
as otherwise set forth in this Agreement, STERN covenants and agrees with PHMD
that interval, if any, between the date hereof and the Closing Date or the
termination of this Agreement in accordance with its terms:

 

7.1.1 Conduct of Business. The business of STERN shall be conducted in the same
manner as conducted on the date of this Agreement.

 

7.1.2 Conduct in Ordinary Course. With reference to the Acquired Assets, STERN
shall not enter into any transaction other than in the normal, regular and
customary course of business pursuant to agreements in which the obligations of
any party thereto, other than obligations relating to confidentiality, require
performance by such party for a period of not more than 60 days from the date of
such agreement.

 

7.1.3 Accuracy of Representations and Warranties. STERN shall take all action
required to be taken by it to cause its representations and warranties made
herein to be true and correct on and as of the Closing Date with the same force
and effect as if such representations and warranties had been made on and as of
the Closing Date.

 

7.1.4 PHMD’s Access. PHMD shall have reasonable access to STERN’s place of
business in Appiano and all information relating to the Licensed Product and the
Acquired Assets, during normal business hours and upon pre-arrangement with
STERN, in order that PHMD shall have full opportunity to make such further
investigation as it shall desire to make of STERN’s business and affairs as
related to the Product License. In the event of the termination of this
Agreement for any reason, PHMD shall use its best efforts to maintain the
confidentiality of and not to disclose any such information received by it from
STERN in connection with this Agreement. In the event of the termination of this
Agreement for any reason, PHMD shall neither use nor permit any third party to
use to its competitive advantage any information that PHMD may obtain from STERN
hereunder.

 

7.1.5 Maintain Insurance. STERN shall continue in full force and effect all
policies of insurance maintained by it.

 

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7.1.6 Maintain Relations. STERN shall use its best efforts to keep available to
PHMD the employees of STERN with knowledge of the Acquired Assets, Licensed
Product and the Prototypes and to preserve the current relationships of STERN
with vendors, suppliers, customers, landlords and other persons having business
relationships with it.

 

7.1.7 Maintenance of Property. STERN shall maintain its properties in their
customary condition and repair.

 

7.1.8 Inconsistent Activities. Unless and until this Agreement has been
terminated pursuant to Section 12 hereof, STERN shall not, nor shall STERN
permit any of its officers, directors, representatives, agents or affiliates to,
solicit, encourage, initiate or participate in any negotiations or discussions
with respect to any offer or proposal to acquire any significant component of
STERN’s rights relating to the Acquired Assets, Licensed Product or Prototypes,
with any party other than PHMD or its designees.

 

7.1.9 Necessary Action; No Amendments. STERN shall take all necessary action and
shall use its best efforts to cause the satisfaction of all conditions precedent
to the closing, obtain all material consents and approvals required for
consummation of the transactions contemplated by this Agreement. STERN shall
neither modify, amend nor terminate, nor allow any modification, amendment or
termination of, a Material Contract prior to the Closing Date without the prior
written consent of PHMD.

 

7.1.10 Best Efforts. STERN shall use its best efforts to cause all of the
conditions set forth in Section 8.1 hereof to be satisfied on the Closing Date.

 

7.1.11 Recovery of Drawings. STERN agrees to use its best efforts to cause any
product similar to the Licensed Product and previously disclosed or furnished to
any third party in any form or manner to be returned to STERN as promptly as
practicable.

 

7.1.12 No Trading in PHMD Stock. STERN shall not trade in PHMD common stock
after the execution of this Agreement and prior to the Closing.

 

7.1.13 Access and Information. From the date hereof until the Closing Date, upon
reasonable notice to STERN from PHMD, STERN shall permit PHMD and its employees,
agents, counsel, accountants, engineers, consultants and other representatives
at their sole cost, risk and expense reasonable access during hours mutually
acceptable to STERN and PHMD to all of the properties, books, contracts and
records of STERN related to the Acquired Assets and the Licensed Products, and
during such period, STERN shall furnish PHMD with all such statements (financial
and otherwise), records and documents, or copies thereof at PHMD’s expense, and
all such other reasonable information concerning the Acquired Assets and the
Licensed Products as PHMD shall, from time to time, reasonably request. PHMD
agrees to hold harmless and indemnify STERN from and against any loss,
liability, damage or expense caused by the intentional or negligent acts or
omissions of PHMD or its employees, agents, counsel, accountants, engineers,
consultants or other representatives while on STERN’s property.

 

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7.1.14 Schedules. STERN shall notify PHMD of any event, condition, circumstance
or change occurring following execution of this Agreement which requires
amendment, deletion or addition to any Schedule so that each Schedule shall be
true and correct as of the Effective Date. STERN shall promptly revise any
Schedule for which revision is necessary pursuant to this provision and provide
the revised Schedule to PHMD. If STERN makes a revision to any Schedule pursuant
to this Section 7.1.14, the representations and warranties shall not be modified
as a result thereof and at the time of such revision and as a result thereof,
PHMD shall determine whether PHMD shall waive the condition to the obligations
of PHMD to consummate the Contemplated Transactions.

 

7.1.15 Release and Termination of Liens. On or before the Closing Date, STERN
shall cause (x) the release and termination of all Liens of any Person on any of
the Acquired Assets, except for the Assumed Obligations, and (y) the execution
and delivery to PHMD of all UCC-3 financing statements or the equivalent under
the Legal Requirement of the jurisdiction, state or country in which the
Purchased Assets are located, and such other documentation, in form and
substance satisfactory to PHMD.

 

7.2 Covenants of PHMD.

 

7.2.1 PHMD covenants and agrees with STERN that PHMD shall use its best efforts
to cause all of the conditions set forth in Section 8.2 hereof to be satisfied
on the Closing Date.

 

7.2.2 As of the Closing Date, PHMD shall have caused a bank of international
standing, including without limitation Bank of America or AmSouth Bank (which
are deemed acceptable), to issue a stand-by letter of credit to be accepted by a
bank of STERN’s choice, maturing no sooner than 90 days from the Closing Date,
to secure the purchase by STERN of, and payment for, components and services,
described in confidential Schedule 7.2.2, necessary to complete the development
of the Licensed Product. Payment for such components and services will not
exceed an amount described in confidential Schedule 7.2.2 and will not be due
until the components and services have been delivered to (which the parties
estimate to be within the timeframe described in confidential Schedule 7.2.2),
and inspected and accepted by, STERN. PHMD will be permitted to cancel payment
to STERN under the letter of credit of such bank and substitute therefor PHMD
common stock, provided PHMD shall have already paid STERN, on the Closing Date,
at least an amount equal to the letter of credit in cash or common stock. At
such time as such common stock shall be registered in accordance with this
agreement, STERN shall immediately return the letter of credit shall to PHMD.
Any such payment under the letter of credit (and/or common stock substituted
therefor) shall be credited toward and reduce the payment required under Section
3.1.1(a) through (j). In the event that this Agreement is terminated prior to
Closing pursuant to Section 12.1 or 12.2, then STERN shall surrender the letter
of credit to PHMD for cancellation. In the event that this Agreement is
terminated under circumstances described in Sections 3.1.2(e) or 3.1.2(f), then
STERN shall not be obliged to surrender the letter of credit to PHMD but may
apply such letter of credit to the components being purchased in reliance on
such letter of credit, and shall forward such components to PHMD after they have
been delivered to STERN.

 

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7.2.3 Consistent with Section 3.1 hereof and subject to Section 3.1.2(e), if
PHMD elects to pay with Shares of its common stock, PHMD shall undertake that
Shares offered for payment on attainment of each applicable Milestone set forth
above will be registered within 30 days after attainment of each Milestone. In
case of non-registration of such Shares offered for payment at the applicable
Milestone within 30 days after attainment of such Milestone, PHMD shall pay the
due sum in U.S funds within 10 days after receipt of written notice by STERN. In
such latter case, STERN shall return the non-registered Shares to PHMD for
cancellation.

 

8. Conditions to Closing.

 

8.1 Conditions Precedent to Obligations of PHMD. The obligations of PHMD to
proceed with the transactions contemplated hereby are subject to the
satisfaction of the following conditions unless waived in writing by PHMD:

 

8.1.1 Opinion of Counsel to STERN. PHMD shall have received from counsel to
STERN an opinion, dated the Closing Date, in form and substance satisfactory to
PHMD.

 

8.1.2 Compliance and Representations Correct. All of the terms and conditions
contained in this Agreement to be complied with and performed by STERN at or
before the Closing Date shall have been complied with and performed in all
material respects, and the representations and warranties made by STERN in this
Agreement shall continue to be correct in all material respects, at and as of
the Closing Date, with the same force and effect as though such representations
and warranties had been made at and as of the Closing Date, except for changes
contemplated by this Agreement. STERN shall have delivered to PHMD a
certificate, dated the Closing Date, signed by STERN, evidencing compliance with
the provisions of this Section 8.1.2.

 

8.1.3 Litigation. There shall not have been instituted or threatened any action
or proceeding before any court or governmental agency or other regulatory or
administrative agency or commission, by any governmental or other regulatory or
administrative agency or commission or any private person challenging any of the
transactions contemplated hereby or otherwise directly or indirectly relating to
the transactions contemplated hereby.

 

8.1.4 Governmental Action. There shall not have been any action taken by any
court, government or governmental agency, domestic or foreign, rendering any
party to this Agreement unable to consummate the transactions contemplated
hereby, otherwise making such transactions illegal or limiting in any material
manner the right of PHMD to exercise directly or indirectly control over the
Product or over the Acquired Assets.

 

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8.1.5 Satisfactory Proceedings. All proceedings to be taken in connection with
the consummation of the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to PHMD and its counsel, and PHMD and its counsel shall have received
copies of such documents as PHMD and its counsel may have reasonably requested
in connection with said transactions from the date hereof to the Closing Date.

 

8.1.6 Additional Documents. STERN shall have caused the documents and
instruments required by Section 4.2.1 to be timely delivered.

 

8.1.7 Consents. All consents and approvals shown on Schedule 5.16 hereto shall
have been obtained.

 

8.1.8 Due Diligence. PHMD shall be satisfied, in its sole and absolute
discretion and without penalty or additional payment to STERN, with the results
of such further due diligence it may undertake, in supplement to, but not in
duplication of, the content and results of the due diligence which it conducted
in January 2004 in Appiano, of the Licensed Product, the Product and the
Acquired Assets and the licenses and rights granted hereunder and the Schedules
and Exhibits to this Agreement.

 

8.2 Conditions Precedent to Obligations of STERN. The obligations of STERN to
proceed with the transactions contemplated hereby are subject to the
satisfaction of the following conditions unless waived in writing by STERN:

 

8.2.1 Opinion of Counsel to PHMD. STERN shall have received from Jenkens &
Gilchrist, LLP, counsel to PHMD, an opinion, dated the Closing Date, in form and
substance satisfactory to STERN.

 

8.2.2 Compliance and Representations Correct. All of the terms and conditions
contained in this Agreement to be complied with and performed by PHMD at or
before the Closing Date shall have been complied with and performed in all
material respects, and the representations and warranties made by PHMD in this
Agreement shall continue to be correct in all material respects, at and as of
the Closing Date, with the same force and effect as though such representations
and warranties had been made at and as of the Closing Date, except for changes
contemplated by this Agreement. PHMD shall have delivered to STERN a
certificate, dated the Closing Date, signed by the president of PHMD evidencing
compliance with the provisions of this Section 8.2.2.

 

8.2.3 Litigation. There shall not have been instituted or threatened any action
or proceeding before any court or governmental agency or other regulatory or
administrative agency or commission, by any governmental or other regulatory or
administrative agency or commission or any private person challenging any of the
transactions contemplated hereby or otherwise directly or indirectly relating to
the transactions contemplated hereby.

 

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8.2.4 Payment for the Attained Milestones, Additional Documents and Deliveries.
PHMD shall have caused the deliveries, payments, documents and instruments
required by Section 4.2.2, Section 7.2.2, Section 3.1.2(e) or Section 3.1.2(f).

 

8.2.5 Governmental Action. There shall not have been any action taken by any
court, government or governmental agency, domestic or foreign, rendering any
party to this Agreement unable to consummate the transactions contemplated
hereby or otherwise making such transactions illegal.

 

8.2.6 Delivery of Shares to Escrow. PHMD shall have delivered to the Escrow
Agent under the Escrow Agreement, the number of Shares set forth therein.

 

8.2.7 Satisfactory Proceedings. All proceedings to be taken in connection with
the consummation of the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to STERN and its counsel, and STERN and its counsel shall have
received copies of such documents as STERN and its counsel may have reasonably
requested in connection with said transactions from the date hereof to the
Closing Date.

 

8.3 Conditions Precedent to Obligations of PHMD with Respect to each Milestone.
The obligations of PHMD to pay a portion of the Purchase Price with respect to
the satisfaction of a Milestone, is, in each instance, subject to the
satisfaction of the following conditions unless waived in writing by PHMD:

 

8.3.1 Compliance and Representations Correct. All of the terms and conditions
contained in this Agreement to be complied with and performed by STERN at or
before the date of payment of the portion of the Purchase Price relating to the
applicable Milestone shall have been complied with and performed in all material
respects, and the representations and warranties made by STERN in this Agreement
shall continue to be correct in all material respects, at and as of such date,
with the same force and effect as though such representations and warranties had
been made at and as of such date, except for changes contemplated by this
Agreement. On the date of the payment of the portion of the Purchase Price
applicable to a particular Milestone, STERN shall have delivered to PHMD a
certificate, dated as of such date, evidencing compliance with the provisions of
this Section 8.3.1.

 

8.3.2 Litigation. There shall not have been instituted or threatened any action
or proceeding before any court or governmental agency or other regulatory or
administrative agency or commission, by any governmental or other regulatory or
administrative agency or commission or any private person challenging any of the
transactions contemplated hereby or otherwise directly or indirectly relating to
the transactions contemplated hereby.

 

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9. Closing and Post-Closing Covenants and Agreements.

 

9.1 Procurement of Molds; Prototypes.

 

9.1.1 Promptly following the Closing Date, but not later than November 15, 2004,
STERN shall procure molds for the Licensed Product (after taking into account
the design changes described in Section 9.3) and upon receipt of correctly and
accurately manufactured molds, immediately convey the same, at no additional
cost, by appropriate instrument to PHMD.

 

9.1.2 As of the Closing, STERN shall have manufactured at its sole expense and
delivered to PHMD two Prototypes of the Licensed Product, and concurrently
conveyed the same, at no additional cost, by appropriate instrument to PHMD.

 

9.2 Transitional Matters.

 

9.2.1 Until STERN completes the removal of the tangible personal property
included in the Acquired Assets from STERN’s premises, STERN shall at its sole
cost and expense maintain such premises and adequately secure the same. STERN
shall, at its sole cost, use its reasonable best efforts to cause all of the
Acquired Assets to be removed and shipped to PHMD (F.O.B. STERN) promptly
following the Closing. PHMD shall pay all shipping, delivery, tariffs and other
costs. STERN shall bear the cost of any damage to its premises or injury to any
Person or thing occurring by reason of the removal of such property or the
shipment to PHMD.

 

9.2.2 After the Closing Date and until PHMD has established direct relations
with STERN’s vendors, STERN will continue to liaise with such vendors on PHMD’s
behalf in order to maintain the goodwill of such vendors and to maintain the
flow of goods and services in the ordinary course of business. Accordingly,
STERN shall stand ready to make a stocking order for PHMD of components
sufficient for the number of units of Licensed Product set forth on confidential
Schedule 9.2.2 to be built by PHMD, and shall procure the same pursuant to
PHMD’s written directive, and if such directive is given no later than November
30, 2004, PHMD may pay for the same by means of its registered common stock
before STERN places the orders therefor.

 

9.2.3 After Completion, PHMD shall have seventy-five (75) days in which to
assimilate the technology and become ready to produce Licensed Product by FDA
Clearance. During this period, STERN shall lend technical assistance and advice
to PHMD. STERN’s costs of travel outside the EU for such assistance shall be
reimbursed to STERN by PHMD.

 

9.3 Implementation of Design Changes. STERN shall adopt and implement those
design changes to the Licensed Product as set forth in confidential Schedule 5.9
hereto, together with the manufacturing documentation as defined in the
definition of “Completion” and as described in Section 9.4, the CE Mark Approval
requirements as defined herein and the cCSAus Approval requirements as defined
herein and as described in Section 9.4.

 

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9.4 CE Mark and cCSAus Applications. STERN, at its sole cost and expense, shall
have applied for CE Mark and cCSAus Approval on the Licensed Product on or
before May 31, 2004. It is understood that PHMD may elect to use STERN’s
Notified Body for purposes of maintaining the CE Mark or may elect to use a
different third-party. The reports of STERN’s Notified Body (STERN’s third party
consultant for CE Mark) and of cCSAus shall reflect specific cognizance of the
applicable design changes to the Licensed Product desired by PHMD and described
in Schedule 5.9. STERN shall transfer to PHMD copies in electronic format of its
files and records underlying such approvals within five (5) days of receiving
such respective approvals.

 

9.5 FDA Clearance. PHMD shall be entitled to submit application with the FDA for
a general 510(k) clearance for the Licensed Product in its own name. It shall do
so no later than seventy-five (75) days after Completion. STERN shall cooperate
with PHMD and provide all necessary documentation and information on the
Licensed Product to such end.

 

9.6 Patent Applications. STERN shall have filed patent applications for the
Licensed Product no later than July 15, 2004, such applications to be submitted
at least to the European Patent Office and the US Patent and Trademark Office,
and shall diligently pursue issuance of valid and enforceable claims under the
applications, to the end that such claims shall have issued no later than the
date set forth in confidential Schedule 3.1.1. STERN shall notify PHMD of all
correspondence between STERN and the patent authorities, and shall afford PHMD
the opportunity to review and comment on such correspondence, to the end that
working together, STERN and PHMD increase the likelihood of the issuance of
valid and enforceable claims. Such applications, as soon as they are made, shall
be attached to this Agreement at confidential Schedule 5.20.

 

9.7 Negotiation with Vendor. Within the first three (3) years of the term of the
License Agreement, PHMD and STERN shall enter negotiations with the vendor
described in the Amendment to Supply Agreement with a view to securing from that
vendor a commitment to supply PHMD for a further five (5) years, in addition to
the five (5) year initial term of the Supply Agreement with the vendor.

 

9.8 No Trading in PHMD Stock. STERN shall not trade in PHMD common stock within
fifteen (15) days before those Milestones set forth in Section 3.1.1(a) through
(g).

 

9.9 Matters Related to the Shares. Subject to the terms and conditions of the
Registration Rights Agreement:

 

9.9.1 STERN consents to PHMD making a notation on its records and giving
instructions to any transfer agent of the Shares in order to implement the
restrictions on transfer established in this Section 9.9. The Shares have no
preemptive rights and only such anti-dilution protections and rights as are
provided by Delaware law.

 

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9.9.2 STERN understands that at the time of Closing the Shares have not been
registered under the Securities Act, and have been issued in reliance upon an
exemption therefrom for non-public or limited offerings. STERN agrees that it
will not make any resale, transfer or other disposition of the Shares except in
accordance with the provisions of Regulation S (Rule 901 through 905 and
Preliminary Notes), pursuant to registration under the Securities Act, or
pursuant to an available exemption from registration (accompanied by an opinion
of counsel acceptable to PHMD that such resale, transfer or other disposition is
exempt from the registration provisions of all applicable federal and state
laws). STERN agrees not to engage in any hedging transactions with regard to the
Shares unless the same are in compliance with the Securities Act. STERN
understands and agrees that PHMD makes no representation as to the compliance
with applicable local laws of any territory or jurisdiction outside the United
States in connection with the Shares.

 

9.9.3 STERN understands and agrees that the Shares being purchased hereunder may
be transferred by any holder thereof only pursuant to: (i) a public offering
thereof registered under the Securities Act, (ii) Rule 144 of the Commission (or
any similar rule in force at the time of such transfer) if such rule is
available, (iii) the provisions of Regulation S; or (iv) any other legally
available means of transfer, including without limitation transfers permitted by
a registration under Form S-3.

 

9.9.4 STERN understands that stop transfer instructions have been or will be
placed on any certificates or other documents evidencing the Shares so as to
restrict the resale, pledge, hypothecation or other transfer thereof in
accordance with the provisions hereof. The parties agree that PHMD shall refuse
to register any transfer of the Shares not made in accordance with an effective
registration statement, the provisions of Regulation S (Rule 901 through 905,
and Preliminary Notes), pursuant to registration under the Securities Act, or
pursuant to an available exemption from registration under the Securities Act
(accompanied by an opinion of counsel acceptable to PHMD that such resale,
transfer or other disposition is exempt from the registration provisions of all
applicable federal and state laws). PHMD shall not treat as the owner of the
Shares, or otherwise accord voting or dividend rights to, any transferee to whom
Shares have been transferred in contravention of this Agreement.

 

9.9.5 In connection with the transfer of any Shares other than in a public
offering registered under the Act, any holder thereof which is bound by the
conditions contained in this Section 9.9 shall deliver written notice to PHMD
describing in reasonable detail the transfer or proposed transfer, and, if
requested by PHMD, an opinion of counsel that is knowledgeable in securities
Legal Requirement matters and reasonably acceptable to PHMD, to the effect that
such transfer may be effected without registration under the Act and under
applicable state securities Legal Requirements. In addition, if any such holder
delivers to PHMD an opinion of counsel that no subsequent transfer of such
Shares will require registration under the Act or under applicable state
securities Legal Requirements, PHMD shall promptly upon such contemplated
transfer deliver new certificates for such Shares that do not bear the
restrictive legend set forth in Section 9.9.6 hereof, and subsequent transferees
shall not be bound by the conditions contained in this Section 9.9. If PHMD is
not required to deliver new certificates for

 

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such Shares not bearing such legend, the holder thereof shall not transfer such
Shares until the prospective transferee has confirmed to PHMD in writing his or
its agreement to be bound by the conditions contained in this Section 9.9.

 

9.9.6 Each certificate for the Shares, and any shares of capital stock received
in respect thereof, whether by reason of a stock split or share reclassification
thereof, a stock dividend thereon or otherwise, shall be stamped or otherwise
imprinted with a legend in substantially the following form:

 

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS
OF ANY STATE. THESE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION UNLESS: (1) PHOTOMEDEX, INC. (THE “COMPANY”) RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY AND ITS COUNSEL STATING THAT SUCH
SALE OR TRANSFER MAY BE EFFECTED PURSUANT TO AN EXEMPTION UNDER SUCH ACT FROM
THE REGISTRATION REQUIREMENTS OF THE ACT AND PURSUANT TO APPLICABLE STATE
SECURITIES LAWS; (II) SAID SHARES HAVE BEEN REGISTERED PURSUANT TO THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR (III) IN ACCORDANCE WITH THE
PROVISIONS OF REGULATION S UNDER THE ACT. HEDGING TRANSACTIONS INVOLVING THE
SHARES MAY NOT BE CONDUCTED UNLESS THEY ARE IN COMPLIANCE WITH THE ACT.

 

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF AN ESCROW AGREEMENT BETWEEN PHOTOMEDEX, INC. AND THE HOLDER, DATED
SEPTEMBER 7, 2004

 

THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFER
CONTAINED IN A REGISTRATION RIGHTS AGREEMENT DATED AS OF SEPTEMBER 7, 2004, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY”

 

9.10 Additional Covenants.

 

9.10.1 PHMD and STERN agree to use their best efforts to obtain all such
approvals other than for the US and the European Union as PHMD may reasonably
request as promptly as practicable after the execution hereof. PHMD hereby
agrees to pay any necessary filing or registration fees to obtain any such
approval which it seeks to obtain

 

9.10.2 The Licensed Product shall, upon Completion, be able to meet such
specifications as will be necessary for PHMD to obtain 510(k) clearance from the
U.S. Food and Drug Administration, from agencies or agents of the European
Union, from Canadian Standards Association (“cCSAus”) and, with immaterial
modifications, from Health Canada.

 

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Without limiting the generality of the foregoing, the Licensed Product will
comply with IEC 60601-1:1993 and 60601-1-2:2001 for electromagnetic
compatibility, and IEC 60601-1:1988 + A1:1991 + A2:1995 + A3:1996 for general
requirements for safety, along with US and Canadian deviations. STERN agrees
that it shall be liable for the cost of any modifications to the Licensed
Product as may be determined to be necessary in order to obtain any such
approval. As to IEC 60601-1-4:1996 + A1:1999 for programmable electrical medical
systems, PHMD shall be entitled as a third-party beneficiary to rely on the
opinion which STERN’s Notified Body rendered to STERN, namely that this standard
does not apply to the Licensed Product, and furthermore STERN represents to PHMD
that STERN has caused the software of the Licensed Product to be successfully
validated and verified in accordance with FDA requirements.

 

9.10.3 PHMD shall promptly cooperate with STERN and STERN’s bankers and brokers
in matters relating to the Shares. For example, PHMD shall promptly issue to its
transfer agent opinions related to lifting the legend on the Shares.

 

9.10.4 In the first year after Closing, PHMD shall split equally with STERN such
additional broker’s fees as STERN may incur in respect of the Shares in the
event that STERN uses a US broker to hold or deal in the Shares, but PHMD shall
not be obliged to bear as its shares more than $5,000 of such additional fees.

 

10. Survival and Indemnification.

 

10.1 Survival of Representations, Warranties and Covenants. The parties hereto
agree that the representations, warranties and covenants contained herein shall
survive the Closing hereof (through the expiration of the respective statutes of
limitation) irrespective of any investigation made by or on behalf of any of the
parties hereto.

 

10.2 Indemnification by PHMD. PHMD agrees to indemnify and hold STERN harmless
from and against: (i) any and all loss, liability, damage or deficiency
resulting from any misrepresentation, breach of warranty representation or
nonfulfillment of any covenant or agreement on the part of PHMD under the terms
of this Agreement or any document or instrument executed by PHMD in connection
herewith; (ii) any and all claims for product liability relating to Licensed
Product, except to the extent such claims relate to any Licensed Product
directly manufactured or produced by STERN or at the direction of STERN and
relate to the Product; and (iii) any and all actions, suits, proceedings,
claims, demands, assessments, judgments, costs and expenses, including, without
limitation, reasonable attorneys’ fees, incident to the foregoing subparagraphs
(i) and (ii), and only such subparagraphs (and on appeal therefrom), regardless
of whether or not STERN prevails in such matter. If PHMD believes that it is not
obliged to indemnify STERN under the provisions of this Section 10.2, and it
submits such dispute for arbitral resolution, then during the pendency of such
arbitration PHMD shall not be required to perform hereunder vis-à-vis STERN, nor
may STERN act on rights vis-à-vis PHMD which it deems to have been granted to it
hereunder.

 

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10.3 Indemnification by STERN. STERN agrees to indemnify and hold PHMD harmless
from and against: (i) any and all loss, liability, damage or deficiency
resulting from any misrepresentation, breach of warranty representation or
nonfulfillment of any covenant or agreement on the part of STERN under the terms
of this Agreement or any document or instrument executed by STERN in connection
herewith; (ii) any and all claims for product liability relating to Licensed
Product, to the extent such claims relate to any Licensed Product directly
manufactured or produced by STERN, or manufactured at the direction of STERN, or
are due to deficiencies in the technical direction given by STERN in respect of
the Licensed Products; (iii) any and all loss, liability, damage or deficiency
resulting from any misrepresentation, breach of representation or warranty or
nonfulfillment of any covenant or agreement on the part of STERN under the terms
of this Agreement or any document or instrument executed by STERN in connection
herewith; and (iv) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without limitation,
reasonable attorneys’ fees, incident to the foregoing subparagraphs (i), (ii)
and (iii), and only such subparagraphs (and on appeal therefrom), regardless of
whether or not PHMD prevails in such matter. Notwithstanding the foregoing of
this Section 10.3, STERN does not in any way indemnify and hold PHMD harmless
from and against liabilities, obligations, damages, claims and third party
rights caused by incorrect and careless use of Licensed Products or use of such
products for any purpose other than the ordinary purpose for which Licensed
Products are used. If STGERN believes that it is not obliged to indemnify PHMD
under the provisions of this Section 10.3, and it submits such dispute for
arbitral resolution, then during the pendency of such arbitration STERN shall
not be required to perform hereunder vis-à-vis PHMD, nor may PHMD act on rights
vis-à-vis STERN which it deems to have been granted to it hereunder.

 

10.4 Right of Set-Off. PHMD shall have the right, subject to approval by an
arbitral panel, to recover by set-off any and all amounts for which PHMD is
entitled to indemnification under this Agreement from STERN against all payments
due or which may become due hereunder, in the order of their maturity or in any
other order that PHMD shall elect, until the cumulative amount so set off shall
equal the total amount due to PHMD, and in such manner of apportionment among
the parties as is, in the reasonable exercise of PHMD’s discretion, equitable in
the circumstances. PHMD shall not suspend payments to STERN of Royalties due
under the License Agreement while STERN, in accordance with Section 12.6 hereof,
seeks to dispose of Shares in an orderly manner.

 

10.5 Third Party Claims. The party to this Agreement entitled to indemnification
under this Section 10 (hereinafter for purposes of this Section 10 referred to
as “Indemnitee”) shall notify the party required to indemnify pursuant to this
Section 10 (hereinafter for purposes of this Section 10 referred to as
“Indemnitor”) within 15 days after the Indemnitee’s receipt of notice from any
third party of any claim, demand, suit or proceeding with respect to which
indemnification may be sought under the terms of this Agreement. Indemnitor
shall be entitled, at its expense, to contest or otherwise defend against any
such claim, demand, suit or proceeding through representatives and counsel of
its own choice, in which event Indemnitee shall, upon Indemnitor’s request,
cooperate in connection with such defense or contest by the preparation and
furnishing of evidence and by making employees

 

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available to testify, at no cost to Indemnitor except for the reimbursement of
costs and expenses incurred by Indemnitee in connection therewith. Nothing set
forth herein shall preclude Indemnitee from defending such claim, demand, suit
or proceeding on its own behalf, in which case Indemnitor shall cooperate with
Indemnitee to the same extent contemplated by the foregoing sentence. If
Indemnitor fails to protest or defend any such claim, demand, suit or proceeding
within 30 days after receipt of the notice specified in the first sentence of
this Section 10.5, Indemnitee shall have the right following such 30-day period,
at its discretion, to settle, defend or pay the same, in which event
Indemnitor’s indemnification shall extend to and include the amount of such
settlement or payment and/or the costs and legal expenses of such defense. The
failure to notify Indemnitor promptly as set forth above of any such claim,
demand, suit or proceeding shall not relieve Indemnitor’s liability to indemnify
Indemnitee under this Section 10.

 

10.6 Cooperation in Litigation. Except for litigation between PHMD and STERN,
each of the parties hereto shall fully cooperate with the other in the defense
or prosecution of any existing or future litigation or proceeding against or by
such other party relating to or arising out of the business sold hereunder prior
to or after the Closing Date. The party receiving cooperation shall pay the
expenses, including legal fees and disbursements, of the cooperating party and
its officers, directors and employees reasonably incurred in connection with
such litigation.

 

11. Further Assurances. If at any time after the Closing Date any further
assignments, conveyances or assurances in law are necessary or desirable to
vest, perfect or confirm of record in STERN the title to any of the Acquired
Assets, or to confirm the assumption by PHMD of any liability or obligation of
STERN expressly assumed by PHMD hereunder, or otherwise to carry out the
provisions hereof, the proper officers and directors of STERN or of PHMD, as the
case may be, shall execute and deliver any and all proper deeds, assignments,
instruments of assumption, powers of attorney and assurances in law, and do all
things necessary or proper to vest, perfect or confirm title to such property or
rights in PHMD or to confirm the assumption by PHMD of any such liability or
obligation of STERN, as the case may be, and otherwise to carry out the
provisions hereof.

 

12. Term and Termination. This Agreement shall remain in effect until the
complete payment to STERN of the consideration set forth under Section 3.1.1.
This Agreement may be terminated at any time by the parties as follows:

 

12.1 Mutual Agreement. By mutual written agreement of STERN and PHMD; or

 

12.2 By PHMD. By written notice of PHMD to STERN if any condition set forth in
Section 8.1 is not satisfied on or prior to the Closing Date and such condition
is not waived by PHMD on or prior to the Closing Date, and PHMD is not in
material default of its obligations under this Agreement; or

 

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12.3 By STERN. By written notice of STERN to PHMD if any condition set forth in
Section 8.2 is not satisfied on or prior to the Closing Date and such condition
is not waived by STERN on or prior to the Closing Date, and STERN is not in
material default of its obligations under this Agreement; or

 

12.4 Liabilities of the Parties. In the event of the termination of this
Agreement by any party hereto pursuant to this Section 12, the parties hereto
shall have no liability under this Agreement of any nature whatsoever (other
than pursuant to this Sections 12.4 and 12.5) to the other parties hereto
(including without limitation, any liability for damages or for the costs and
expenses incurred in connection with the negotiation of this Agreement), unless
any party is in default under its obligations under this Agreement, in which
event the party in default shall be liable to the other party for such default,
and such non-defaulting party shall be entitled to any and all remedies
available at law or in equity or under this Agreement. In the event that a
condition precedent to the obligations of a party hereto is not satisfied,
nothing herein shall be deemed to require any such party to terminate this
Agreement rather than to waive such condition precedent and proceed with the
Closing.

 

12.5 Termination and Effect Thereof. STERN may terminate this Agreement: (i)
where the termination is pursuant to Section 3.1.2(e) or Section 3.1.2(f), and
(ii) if and only if PHMD shall have defaulted on a payment obligation under
Section 3.1.1 of this Agreement. If PHMD makes such allegedly defaulted payment
under protest prior to submitting the alleged default to arbitration in
accordance with this Agreement, STERN shall thereby cease to have as a remedy
therefor the termination of this Agreement, but if PHMD does not make such
allegedly defaulted payment under protest prior to submitting the alleged
default to arbitration, then this Agreement and the Related Agreements shall be
terminated by STERN, and PHMD shall suspend its rights under those agreements,
until a decision shall have issued from the arbitration. If PHMD submits any
such an alleged default to arbitration, then PHMD shall have the burden of
proof. In case of termination or rescission of this Agreement or nullification
of Related Agreements held by the Escrow Agent under Section 3.1.2, PHMD shall
immediately return to STERN all technology relating to the Licensed Product
(including vendor agreements, manufacturing processing instructions and related
files, and quality system documentation), the pre-production Prototypes of the
Licensed Product together with related documentation, all tangible and
intangible assets, all documents and deliveries of STERN related to the Licensed
Product, all Related Documents, as well as the documents evidencing attainment
of Milestones delivered by STERN to PHMD.

 

12.6 Notice of Breach or Default and Cure. Except for monetary breaches
described in Sections 3.1.2(e) and 3.1.2(f), in the event that a party hereto
believes that another party hereto is in breach of an obligation hereunder, the
party alleging breach shall give written notice to the allegedly breaching party
of the alleged breach within sixty (60) days of the occurrence of such alleged
breach. Such written notice shall set forth in reasonable detail the basis for
alleging that a breach has occurred. The allegedly breaching party shall have
fifteen (15) days in which to cure a monetary breach or submit to arbitration in
accordance with this Agreement such monetary breach, and sixty (60) days in
which to cure a non-monetary breach or

 

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submit to arbitration in accordance with this Agreement such non-monetary
breach. Termination of this Agreement shall not be a remedy under this Section
12.6. Termination of this Agreement shall be a remedy only under Section 12.5
hereof. In the event that STERN agrees or is directed to cure a monetary breach,
STERN shall have an interval of no less than thirty (30) days in which to go
about an orderly disposal of PHMD Shares, if it so chooses, and to cure such
breach; furthermore, STERN shall have the right to additional intervals of
thirty (30) days, up to a maximum of five (5) such additional intervals,
provided STERN makes, as to each interval, a prima facie prior showing of
diligence in procuring the means by which to cure the breach, and during the
pendency of such intervals, PHMD shall not suspend payments to STERN of
Royalties due under the License Agreement.

 

13. Miscellaneous. The parties further agree as follows:

 

13.1 Sales and Transfer Taxes. All sales, use, transfer or other taxes or fees
attributable to the transfer of the Acquired Assets shall be paid by STERN.

 

13.2 Expenses. The parties hereto shall, except as otherwise specifically
provided herein, bear their respective expenses incurred in connection with the
preparation, execution and performance with this Agreement, the Related
Documents and the Contemplated Transactions, including without limitation, all
fees and expenses of the parties’ respective agents, representatives, counsel
and accountants.

 

13.3 Funds. All funds and moneys referred to herein, or payable hereunder, are
and shall be, in U.S. Dollars.

 

13.4 Parties in Interest. This Agreement shall inure solely to the benefit of
and shall be binding upon the successors and assigns of the parties hereto.

 

13.5 Prior Agreements; Modifications. This Agreement shall supersede all prior
agreements, documents or other instruments with respect to the matters covered
hereby, saving and excepting the Confidential Disclosure Agreement dated October
15, 2003 between STERN and PHMD, which shall continue in force. Where the terms
of this Agreement and the terms of the Confidential Disclosure Agreement may
conflict, the terms of this Agreement shall control. This Agreement may be
amended only by an instrument in writing, duly signed by or on behalf of the
parties hereto.

 

13.6 Captions. The captions in this Agreement are for convenience only and shall
not be considered a part of or affect the construction or interpretation of any
provision hereof.

 

13.7 Governing Law and Arbitration.

 

13.7.1 The terms of this Agreement shall be governed by, and interpreted and
construed in accordance with the provisions of, the law of the Commonwealth of
Pennsylvania, without giving effect to any choice of law provisions.

 

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13.7.2 Any dispute or controversy arising out of or in relation to this
Agreement hereof shall be determined and settled solely and exclusively by
arbitration in the City of Philadelphia, Pennsylvania, in the English language
and in accordance with the Commercial Rules of the American Arbitration
Association then in effect, by a panel of 3 arbitrators, and judgment upon the
award rendered by the arbitrator(s) may be entered in any court of competent
jurisdiction. Each of the parties hereto hereby consents to the personal
jurisdiction of such forum for the purposes of this Agreement. STERN hereby
irrevocably appoints the Secretary of State of Pennsylvania to accept service of
process on its behalf. In the event that any party institutes any action or suit
to enforce this Agreement or to secure relief from any default hereunder or
breach hereof, the non-prevailing party or parties shall reimburse the
prevailing party or parties for all costs and expenses, including reasonable
attorneys’ fees, incurred in connection therewith and in enforcing or collecting
any judgment rendered therein (including any appeal therefrom). The arbitration
and the parties’ agreement therefor shall be deemed to be self-executing, and if
either party fails to appear at a properly noticed arbitration proceeding, an
award may be entered against such party despite such failure to appear.

 

13.8 Counterparts. This Agreement may be executed in any number of counterparts,
each of which, when so executed, shall constitute an original copy hereof.

 

13.9 Notices. All notices required or permitted to be given pursuant to this
Agreement shall be in writing, and shall be delivered either personally, by
overnight delivery service or by U.S. certified or registered mail, postage
prepaid, return-receipt requested and addressed to the parties at their
respective addresses as they appear below. Notices sent by overnight delivery
service shall be deemed received on the business day following the date of
deposit with the delivery service. Mailed notices shall be deemed received upon
the earlier of the date of delivery shown on the return-receipt, or the third
business day after the date of mailing. Notwithstanding the foregoing, actual
receipt of notice by a party shall constitute notice given in accordance with
this Agreement on the date received, unless deemed earlier received pursuant to
this section.

 

To PHMD:

 

PhotoMedex, Inc.

147 Keystone Drive

Montgomeryville, PA 18936

Attention: President

 

with a copy to:

 

Jenkens & Gilchrist, LLP

12100 Wilshire Boulevard, 15th Floor

Los Angeles, CA 90025

Attention: Jeffrey P. Berg, Esquire

 

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To STERN:

 

Stern Laser Srl

Via Johann Georg Plazer, 42a

Appiano BZ 39057

Italy

Attention: President

 

with a copy to:

Studio legale Brandstätter

Via Dr. Streiter 12

39100 Bolzano

Italy

Attention: Claudia Longi, Esquire

 

Any party may from time to time change its address for purpose of notices to
that party by a similar notice specifying a new address, but no such change
shall be deemed to have been given until it is actually received by the parties
to be charged therewith.

 

13.10 Public Announcements. PHMD and STERN shall use their best efforts to agree
upon the form and content of a press release or public announcement of the
execution of this Agreement as promptly as practicable after execution hereof to
the extent such agreement is not reached prior to the date hereof.
Notwithstanding the foregoing, STERN agrees not to make any such announcement
without prior consent to the form and content thereof by PHMD and acknowledges
that PHMD, as a public company, will be required to and may make such an
announcement without the prior consent of STERN in the event the parties are
unable to reach agreement on the form and content thereof within a reasonable
period of time after the execution hereof.

 

13.11 Force Majeure. In the event that the performance by any party hereto of
its obligations hereunder shall be interrupted or delayed by any occurrence not
occasioned by the conduct of either party hereto, whether such occurrence be an
act of God or the common enemy or the result of war, riot, civil commotion or
sovereign conduct, then the party whose performance is so delayed or interrupted
shall be excused from such performance for such period of time as is reasonably
necessary after the occurrence to remedy the effects thereof, but in no event
shall such excused time exceed 180 days.

 

13.12 Severability. In the event that any particular provision or provisions of
this Agreement or the other agreements contained herein shall for any reason
hereafter be determined to be unenforceable, or in violation of any Legal
Requirement, governmental order or regulation, such unenforceability or
violation shall not affect the remaining provisions of such agreements, which
shall continue in full force and effect and be binding upon the respective
parties hereto.

 

13.13 Amendment or Waiver. Every right and remedy provided herein shall be
cumulative with every other right and remedy, whether conferred herein, at Legal
Requirement,

 

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or in equity, and may be enforced concurrently herewith, and no waiver by any
party of the performance of any obligation by the other shall be construed as a
waiver of the same or any other default then, theretofore, or thereafter
occurring or existing. At any time prior to the Closing Date, this Agreement may
be amended by a writing signed by all parties hereto, with respect to any of the
terms contained herein, and any term or condition of this Agreement may be
waived or the time for performance hereof may be extended by a writing signed by
the party or parties for whose benefit the provision is intended. This Agreement
may not be amended or modified, except by a written agreement signed by all
parties hereto.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, each of the parties hereto, intending to be legally bound
hereby, has caused this Agreement to be signed in its name by the undersigned
thereunto duly authorized, all as of the date first above written.

 

“PHMD”:

PHOTOMEDEX, INC.,

a Delaware corporation

By:

 

/s/ Jeffrey F. O’Donnell

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

Name:

 

Jeffrey F. O’Donnell

Title:

 

President/CEO

“STERN”:

STERN LASER SRL,

an Italian corporation

By:

 

/s/ Massimo Gritti

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

Name:

 

Massimo Gritti

Title:

 

Managing Director

 

SIGNATURE PAGE TO MASTER ASSET PURCHASE AGREEMENT