Exhibit
4.1

     

    SECURED
CONVERTIBLE PROMISSORY NOTE

     

    THE
SECURITIES REPRESENTED BY THIS CONVERTIBLE NOTE HAVE BEEN ACQUIRED BY THE HOLDER
FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE
DISTRIBUTION OF SUCH SECURITIES. NEITHER THE SECURITIES REPRESENTED BY THIS
CONVERTIBLE NOTE NOR THE SECURITIES THAT ARE ISSUABLE UPON CONVERSION OF THIS
CONVERTIBLE NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE
SECURITIES LAWS, IN COMPLIANCE WITH RULE 144 UNDER THE SECURITIES ACT, OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED.

     

    FOR
PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE UNITED STATES INTERNAL REVENUE
CODE OF 1986, AS AMENDED (THE “CODE”), THIS CONVERTIBLE NOTE IS ISSUED WITH
ORIGINAL ISSUE DISCOUNT.  THE ISSUE PRICE OF THIS CONVERTIBLE NOTE IS
$16,110,585, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $1,889,415, THE ISSUE DATE
IS FEBRUARY 27, 2009 AND THE YIELD TO MATURITY IS 10.92%.

     

    PHOTOMEDEX,
INC.

    SECURED
CONVERTIBLE PROMISSORY NOTE

     

    
      	
              $18,000,000
      (the “Principal
      Amount”)

            	
              February
      27, 2009

            


    

    


    FOR VALUE
RECEIVED, PHOTOMEDEX, INC., a Delaware corporation (the “Company”), promises to pay to
the order of Perseus Partners VII, L.P., or its registered assigns (the “Holder”), the Principal
Amount, or such lesser amount as shall then equal the outstanding Principal
Amount, together with interest thereon at a rate equal to 8.0% per annum,
and computed on the basis of a year consisting of 360 days in accordance with
the terms set forth in Section 2 of
this Secured Convertible Promissory Note (this “Convertible
Note”).

     

    This
Convertible Note is issued pursuant to the Securities Purchase Agreement, dated
as of August 4, 2008 (as amended by Amendment No. 1 thereto, dated as of
February 27, 2009, and as the same may be further amended, modified, or
supplemented from time to time, the ”Purchase Agreement”), by and
between the Company and Perseus Partners VII, L.P.

     

    The
following is a statement of the rights of the Holder and the conditions to which
this Convertible Note is subject, and to which the Holder hereof, by the
acceptance of this Convertible Note, agrees:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    1.        
   Definitions.  Capitalized
terms defined in the Purchase Agreement and used herein without definition have
the same meaning herein as in the Purchase Agreement. In addition, as used in
this Convertible Note, the following capitalized terms have the following
meanings:

     

    “Additional Note” shall have
the meaning set forth in Section 2(a) of this
Convertible Note.

     

    “Conversion Price” means,
initially, $5.16152, as adjusted from time to time pursuant to the terms of this
Convertible Note.

     

    “Date of Issuance” means the
date of issuance of this Convertible Note by the Company under the Purchase
Agreement.

     

    “Default Interest Rate” means
the lesser of 16% or the maximum rate allowed by applicable Law.

     

    “Event of Default” shall have
the meaning set forth in Section 4 of this
Convertible Note.

     

    “Maturity Date” means February
27, 2014 (or, if such day is not a Business Day, on the next succeeding Business
Day).

     

    “Obligations” means the
principal, interest and other amounts payable under this Convertible
Note.

     

    2.    
       Maturity Date;
Interest.

     

    (a)           All
unpaid principal, together with any accrued but unpaid interest and other
amounts payable under this Convertible Note, shall be due and payable on (i) the
Maturity Date, or (ii) when such amounts are declared due and payable by the
Holder or made automatically due and payable upon or after (A) the occurrence of
an Event of Default, (B) the liquidation or dissolution of the Company, or (C)
any Change of Control.  Interest on this Convertible Note shall be
payable (and if not paid when due, shall be compounded) semi-annually in arrears
on each September 1 and March 1 (or, if any such day is not a Business Day, on
the next succeeding Business Day) after the Date of Issuance and shall be
payable at the option of the Company either (i) in lawful money of the United
States of America, or (ii) by the issuance of an additional Note (an “Additional Note”) identical
in all respects to this Convertible Note except that it shall have (x) a
principal amount equal to such interest payment, (y) an initial Conversion Price
equal to the conversion price in effect under this Convertible Note at the date
of issuance of such Additional Note and (z) a different date of
issuance.

     

    (b)           If
the Company elects to pay interest by issuing an Additional Note, it shall give
notice to the Holder two Business Days prior to the day such payment is due and
deliver such Additional Note to the Holder within three Business Days after such
date.

     

    (c)           Interest
shall be calculated based on the average principal outstanding under this
Convertible Note for such period.  The first payment of interest shall
be on September 1, 2009 (or, if such day is not a Business Day, on the next
succeeding Business Day), and shall be calculated from the Date of Issuance to
such date.

     

    
      
        
        

      

      
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    (d)           Notwithstanding
anything to the contrary contained in this Convertible Note, in addition to the
rights of the Holder specified in Section 5 of this
Convertible Note, for any period during which an Event of Default has occurred
and is continuing, the interest rate on this Convertible Note shall increase to
the Default Interest Rate and interest on this Convertible Note shall be payable
solely in lawful money of the United States of America.

     

    3.     
      Secured Obligations;
Collateral. In order to secure the Company’s payment and performance of
the Obligations and to secure the Company’s prompt, full and faithful
performance and observance of all of the provisions under this Convertible Note
and the other Transaction Documents, the Company has delivered to the Holder a
certain Pledge and Security Agreement (the “Pledge Agreement”), dated as
of the date hereof, between the Company and the Holder, individually and in its
capacity as Collateral Agent (the “Collateral Agent”), pursuant
to which the Company has granted to the Collateral Agent as security and
collateral for the payment and performance of the Obligations, a security
interest in the capital stock of ProCyte Corporation and Photo Therapeutics,
Inc. and a portion of the capital stock of Photo Therapeutics Group Limited, and
any assets of the Company that arise primarily out of, or relate primarily to,
the Skin Care Business or the PT Business (each as defined in the Pledge
Agreement), whether now existing or hereafter arising, and all as more
specifically described, and on the terms and conditions set forth in, the Pledge
Agreement. The security interest granted by the Company under the Pledge
Agreement, securing the indebtedness evidenced by this  Convertible
Note, including all Obligations, is senior to all other liens, security
interests or encumbrances securing any other indebtedness of the
Company.

     

    4.       
    Events of
Default.  The occurrence of any of the following shall
constitute an “Event of
Default” under this Convertible Note:

     

    (a)           Failure to Pay this
Convertible Note or other Notes.

     

    (i)           The
Company shall fail to pay when due any principal payment on this Convertible
Note or any other Note, and such failure continues for three Business Days
thereafter; or

     

    (ii)           The
Company shall fail to pay when due any or any interest or other payment (other
than principal) required under the terms of this Convertible Note or any other
Note, and such failure continues for ten Business Days thereafter;

     

    (b)           Breaches of Representations
and Warranties.  Any representation or warranty made by the
Company in this Convertible Note or in any other Transaction Document shall not
have been true and correct in any material respect when made; provided, that if the facts
or events making such representation or warranty untrue are capable of
correction or cure, then the Company shall have ten Business Days after notice
of the breach is delivered to the Company to correct or cure such
breach.  For purposes of this Section 4(b) only, (i) breaches of the
representations and warranties contained in the Purchase Agreement and made as
of the First Tranche Closing Date shall be disregarded unless such breaches
would, individually or in the aggregate, have given rise to a failure of the
condition precedent set forth in Section 6.2(a) of the Purchase Agreement and
the Company delivers the certificates required by Section 6.2(d) of the Purchase
Agreement, and (ii) breaches of the representations and warranties contained in
the Purchase Agreement and made as of the Second Tranche Closing Date shall be
disregarded unless such breaches would have, individually or in the aggregate,
given rise to a failure of the condition precedent set forth in Section 6.4(a)
of the Purchase Agreement and the Company delivers the certificates required by
Section 6.4(d) of the Purchase Agreement.

     

    
      
        
        

      

      
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    (c)           Breaches of Other
Covenants.  The Company shall fail to observe or to perform any
covenant, obligation, condition or agreement contained in this Convertible Note
or any other Transaction Document (other than those specified in Section 4(a) of this
Convertible Note) in any material respect; provided, that if such breach
is capable of correction or cure, then the Company shall have ten Business Days
after notice of the breach is delivered to the Company to correct or cure such
breach;

     

    (d)           Cross-Defaults.  The
Company or any of its Subsidiaries shall default under any other agreement,
bond, debenture, note or other evidence of indebtedness for money borrowed
(other than a Note), under any guaranty or under any mortgage, or indenture
pursuant to which there shall be issued or by which there shall be secured or
evidenced any indebtedness for money borrowed by the Company or any of its
Subsidiaries, whether such indebtedness now exists or shall hereafter be
created, which default shall have resulted in indebtedness of at least $250,000
being due and payable prior to the date on which it would otherwise become due
and payable;

     

    (e)           Undischarged
Judgment. One or more judgments for the payment of money in an amount in
excess of $250,000 in the aggregate shall be rendered against the Company or any
of its Subsidiaries (or any combination thereof) and shall remain undischarged
for a period of ten consecutive Business Days during which execution shall not
be effectively stayed, or any action is legally taken by a judgment creditor to
levy upon any such judgment;

     

    (f)           Voluntary Bankruptcy or
Insolvency Proceedings.  The Company or any of its Subsidiaries
shall: (i) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its
property; (ii) be unable, or admit in writing its inability, to pay its debts
generally as they mature; (iii) make a general assignment for the benefit of its
or any of its creditors; (iv) be dissolved or liquidated in full or in part; (v)
become insolvent (as such term may be defined or interpreted under any
applicable statute); (vi) commence a voluntary case or other Proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar Law now or hereafter in effect
or consent to any such relief or to the appointment of or taking possession of
its property by any official in an involuntary case or other Proceeding
commenced against it; or (vii) take any action for the purpose of effecting any
of the foregoing; or

     

    (g)           Involuntary Bankruptcy or
Insolvency Proceedings.  Any Proceeding for the appointment of
a receiver, trustee, liquidator or custodian of the Company or any of its
Subsidiaries or of all or a substantial part of the property thereof, or an
involuntary case or other Proceeding seeking liquidation, reorganization or
other relief with respect to the Company or any of its Subsidiaries or the debts
thereof under any bankruptcy, insolvency or other similar Law now or hereafter
in effect shall be commenced and an order for relief entered, or such case or
Proceeding shall not be dismissed or discharged within 30 days of
commencement.

     

    
      
        
        

      

      
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    5.     
      Rights of Holder upon
Default.  Upon the occurrence or existence of any Event of
Default (other than an Event of Default referred to in Section 4(f) or Section 4(g) of this
Convertible Note) and at any time thereafter during the continuance of such
Event of Default, holders of a majority of the outstanding principal amount of
the Note(s) may declare all outstanding Obligations payable by the Company under
this Convertible Note to be immediately due and payable without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived, anything contained in this Convertible Note or in any other
Transaction Document to the contrary notwithstanding.  Upon the
occurrence or existence of any Event of Default described in Sections 4(f) or
Section 4(g) of
this Convertible Note, immediately and without notice, all outstanding
Obligations payable by the Company hereunder shall automatically become
immediately due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived, anything contained
in this Convertible Note or in any other Transaction Document to the contrary
notwithstanding.  In addition to the foregoing remedies, upon the
occurrence or existence of any Event of Default, the Holder may exercise any
other right, power or remedy granted to it pursuant to any Transaction Document
or otherwise permitted to it by Law, either by suit in equity or by action at
Law, or both.

     

    6.     
      Covenants.  The
Company hereby covenants and agrees for the benefit of the Holder as
follows:

     

    (a)           Additional
Notes.  Any Additional Notes issued pursuant to Section 2(a) of
this Convertible Note will be, when issued, duly authorized, validly issued,
fully paid and nonassessable, free and clear of all Liens other than
restrictions on transfer provided for in the Transaction Documents and
applicable federal and state securities laws.

     

    (b)           Conversion
Shares.  All Conversion Shares that may be issued upon the
conversion of this Convertible Note and any Additional Notes will be, when
issued, duly authorized, validly issued, fully paid and nonassessable, and free
from all preemptive rights and Liens other than restrictions on transfer
provided for in the Transaction Documents and applicable federal and state
securities laws and charges with respect to the issuance thereof.  The
Company will at all times have authorized and reserved and kept available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of this Convertible Note and any Additional Notes, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of this Convertible Note and all Additional
Notes.  If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of this
Convertible Note and all Additional Notes, the Company will take all such
corporate actions as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.

     

    (c)           Charges, Taxes and
Expenses.  Issuance and delivery of the Conversion Shares shall
be made without charge to the Holder for any issue or transfer tax, withholding
tax (other than related to the income of the Holder), transfer agent fee or
other incidental tax or expense in respect of the issuance of such certificates,
all of which taxes and expenses shall be paid by the Company; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Conversion Shares in a name other than that of the Holder.  The Holder
shall be responsible for all other tax liability that may arise as a result of
holding or transferring this Convertible Note or receiving Conversion
Shares.

     

    
      
        
        

      

      
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    7.     
      Prepayment.

     

    (a)           Except
as provided in this Section 7, the
Company shall have no right to prepay the principal amount of this Convertible
Note prior to the Maturity Date, or any interest accruing under this Convertible
Note prior to the scheduled date for payment of such interest.

     

    (b)           If
the Market Price as of the fourth anniversary of the First Tranche Closing Date
shall be no less than 200% of the conversion price then in effect under the
First Tranche Note, then the Company shall have the one-time option to prepay up
to one half of the aggregate outstanding principal amount of the Notes, together
with accrued but unpaid interest thereon, on the terms and subject to the
conditions set forth in Section 5.25 of the Purchase Agreement.

     

    8.     
      Conversion.

     

    (a)           Optional
Conversion.  At any time, or from time to time, prior to the
Maturity Date, the Holder shall have the option to convert up to the entire
amount outstanding under this Convertible Note (including accrued but unpaid
interest) into a number of shares of Common Stock equal to the quotient obtained
by dividing (i) the amount to be converted by (ii) the Conversion Price then in
effect.

     

    (b)           Mandatory
Conversion.  If on any date occurring at least 31 Trading Days
following the Date of Issuance, the Market Price as of such date exceeds 300% of
the then-effective Conversion Price, then the entire amount outstanding under
this Convertible Note (including accrued but unpaid interest) shall be
automatically converted into a number of shares of Common Stock equal to the
quotient obtained by dividing (i) the amount outstanding under this Convertible
Note (including accrued but unpaid interest) by (ii) the Conversion Price then
in effect.  The Company shall notify the Holder promptly (and in any
event not later than three Business Days) following any mandatory conversion of
this Convertible Note pursuant to this Section
8(b).

     

    (c)           Mechanics and Effect of
Conversion.  No fractional shares of Common Stock shall be
issued upon conversion of this Convertible Note.  Upon the conversion
of all of the principal and accrued interest outstanding under this Convertible
Note, in lieu of the Company issuing any fractional shares to the Holder, the
Company shall pay to the Holder the amount of outstanding principal and accrued
interest that is not so converted.  Upon any partial conversion of
this Convertible Note, the Company shall issue to the Holder (i) the shares of
Common Stock into which the applicable portion of the principal and accrued
interest under this Convertible Note is converted and (ii) a new Note identical
in all respects to this Convertible Note except that it shall have a principal
amount equal to the difference between (1) the outstanding principal amount of
this Convertible Note immediately prior to such conversion minus (2) the portion
of such outstanding principal amount converted into shares of Common
Stock.  Upon any conversion of this Convertible Note pursuant to this
Section 8, the
Holder shall surrender this Convertible Note, duly endorsed, at the principal
office of the Company.  At the Company’s expense, the Company shall,
as soon as practicable thereafter, and in any event within three (3) Business
Days of such surrender, issue and deliver to the Holder at such principal office
a certificate or certificates for the number of shares of Common Stock to which
the Holder shall be entitled upon such conversion (bearing such legends as are
required by the Purchase Agreement and applicable securities Laws), together
with any other securities and property to which the Holder is entitled upon such
conversion under the terms of this Convertible Note.  Issuance of this
Convertible Note shall constitute full authority to the Company’s officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock issuable upon the
conversion of this Convertible Note.

     

    
      
        
        

      

      
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    (d)           Payment of
Taxes.  The Company will pay all transfer taxes or charges that
may be imposed with respect to the issue or delivery of shares of Common Stock
upon conversion of this Convertible Note, except for any tax or other charge
imposed in connection with any transfer involved in the issue and delivery of
Conversion Shares in a name other than that in which this Convertible Note was
registered.

     

    (e)           Withholding
Taxes.  Notwithstanding any other provision of this Convertible
Note, the Company shall: (i) not be obliged to reimburse, indemnify, make whole
or otherwise pay to the Holder, and (ii) be entitled to deduct and withhold from
all amounts payable pursuant to this Convertible Note, any amounts required by
applicable Law to be deducted or withheld for any and all taxes, so long as the
Company promptly pays the full amount deducted or withheld to the applicable
Governmental Entity in accordance with applicable Law. Any such amounts deducted
and not owed or paid to the applicable Governmental Entity in accordance with
applicable Law shall be returned to the Holder promptly. The Holder shall
provide any information reasonably requested by the Company to enable it to
determine whether taxes must be withheld or deducted and the amount of such
withholding or deduction.

     

    9.            Conversion Price
Adjustments.

     

    (a)           Adjustments for Splits and
Combinations.  If the Company shall at any time or from time to
time after the Date of Issuance effect a stock split of the outstanding shares
of Common Stock, the Conversion Price in effect immediately before that stock
split shall be proportionately decreased, and, conversely, if the Company shall
at any time or from time to time after the Date of Issuance combine the
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately before the combination shall be
proportionately increased.  In each such case, the Conversion Price
shall be adjusted by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such subdivision, combination or reclassification and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after giving effect to such subdivision or
combination.  Any adjustment under this Section 9(a) shall
become effective immediately after the opening of business on the date the stock
split or combination becomes effective.

     

    
      
        
        

      

      
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    (b)           Adjustment for Dividends and
Distributions of Common Stock.  If the Company at any time or
from time to time after the Date of Issuance issues, or fixes a record date for
the determination of holders of shares of Common Stock entitled to receive, a
dividend or other distribution payable solely in additional shares of Common
Stock, in each such event the Conversion Price that is then in effect shall be
decreased as of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction (i) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(ii) the denominator of which is the sum of the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution; provided, however, that if such record
date is fixed and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Conversion Price shall be adjusted pursuant to this Section 9(b) to
reflect the actual payment of such dividend or distribution.

     

    (c)           Adjustments for Other
Dividends and Distributions.  If the Company at any time or
from time to time after the Date of Issuance issues, or fixes a record date for
the determination of holders of shares of Common Stock entitled to receive, a
dividend or other distribution payable in any securities of the Company (other
than shares of Common Stock) or in other property, in each such event provision
shall be made so that the Holder of this Convertible Note shall receive upon
conversion of this Convertible Note, in addition to the number of shares of
Common Stock receivable hereupon, the amount of securities of the Company or
other property that such Holder would have received had this Convertible Note
been converted into shares of Common Stock immediately prior to the date of such
event and had such Holder thereafter, during the period from the date of such
event to and including the conversion date, retained such securities or other
property receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section 9 with
respect to the rights of the Holder or with respect to such other securities or
other property by their terms.

     

    (d)           Adjustment upon Issuances
for Consideration Below Conversion Price.  If at any time or
from time to time, on or after the Date of Issuance the Company issues or sells,
or in accordance with this Section is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company) for a consideration per share less
than the Conversion Price in effect as of immediately prior to such issuance or
sale (the “Former Conversion
Price”) (such an issuance, a “Dilutive Issuance”), then
immediately after such Dilutive Issuance, the Conversion Price then in effect
shall be reduced (but in no event increased) to an amount equal to a fraction,
the numerator of which equals (A) the sum of (1) the product derived by
multiplying the Former Conversion Price by the number of shares of Common Stock
outstanding on a fully-diluted basis (accounting for Convertible Securities and
Options using the treasury stock method) immediately prior to such Dilutive
Issuance plus (2) the consideration, if any, received by the Company in such
Dilutive Issuance, and the denominator of which equals (B) the number of shares
of Common Stock outstanding on a fully-diluted basis (accounting for Convertible
Securities and Options using the treasury stock method) immediately after such
Dilutive Issuance.  For purposes of this Section 9(d):

     

    
      
        
        

      

      
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    (i)           If
any Convertible Securities are issued by the Company after the Date of Issuance,
the shares of Common Stock into which such Convertible Securities are
convertible shall be deemed to be issued and sold by the Company as of the date
the Convertible Securities are issued, for consideration per share equal to the
sum of the lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of Common Stock (A) upon the issuance
or sale of the Convertible Security, and (B) upon the conversion or exchange or
exercise of such Convertible Security.

     

    (ii)           If
any Options are issued by the Company after the Date of Issuance, the shares of
Common Stock issuable upon exercise of such Option (or upon conversion of the
Convertible Securities issuable upon exercise of such Option) shall be deemed to
be issued and sold by the Company as of the date the Options are issued for
consideration per share equal to the sum of the of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock (A) upon granting or sale of the Option, (B) upon
exercise of the Option and (C) in the case of an Option to acquire a Convertible
Security, upon conversion or exchange or exercise of such Convertible
Security.

     

    (iii)           If
the purchase price provided for in any Option is reduced after the date of
issuance, the additional consideration, if any, payable upon the issue,
conversion,  exchange or exercise of any Convertible Security is
reduced after the date of issuance, or the rate at which any Convertible
Security is convertible into or exchangeable or exercisable for shares of Common
Stock is increased at any time on or after the Date of Issuance, the shares of
Common Stock issuable upon exercise of such Option (or upon conversion of the
Convertible Securities issuable upon exercise of such Option) or issuable upon
exercise of such Convertible Security shall be deemed to be issued and sold by
the Company as of the date of such modification.

     

    (iv)           If
any Options are issued in connection with the issuance of other securities of
the Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties to such transaction,
such Options will be deemed to have been issued for the difference between (A)
the aggregate fair market value of such Options and other securities of the
Company issued in such integrated transaction, less, (B) the fair market value
of the securities other than such Option, issued in such transaction, and the
other securities issued or sold in such integrated transaction will be deemed to
have been issued for the balance of the consideration received by the
Company.  If any Common Stock, Options or Convertible Securities are
issued or sold for a consideration consisting as a whole or in part of
consideration other than cash, the amount of the consideration other than cash
received by the Company will be the fair market value of such consideration,
except where such consideration consists of securities, in which case the amount
of consideration received by the Company will be the closing price of such
securities on the date of receipt by the Company.

     

    (v)           For
purposes of this Section 9(d), the
fair market value of any non-cash consideration received by the Company upon the
issuance of any shares of Common Stock, Options or Convertible Securities will
be as determined in good faith by the Board.

     

    
      
        
        

      

      
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    (e)           Adjustment for
Reclassification, Exchange and Substitution.  If at any time or
from time to time after the Date of Issuance, the shares of Common Stock
issuable upon the conversion of this Convertible Note are changed into the same
or a different number of shares of any class or series of stock of the Company,
whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Section 9), then in
any such event the Holder shall have the right thereafter to convert this
Convertible Note into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other change
by the holder of the number of shares of Common Stock into which this
Convertible Note could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided in this Convertible Note or with respect to such other securities or
property by the terms thereof.

     

    (f)           Fundamental
Transactions.  If at any time or from time to time after the
Date of Issuance (i) the Company effects any merger or consolidation of the
Company with or into (whether or not the Company is the surviving corporation)
another Person, (ii) the Company effects any sale, assignment, transfer,
conveyance or other disposition of all or substantially all its assets in one or
a series of related transactions, (iii) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of more than 50% of the outstanding shares of Common Stock are permitted
to tender or exchange their shares of Common Stock for other securities, cash or
property, (iv) the Company consummates a stock purchase agreement or other
business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person or
other Persons or (v) the Company effects a capital reorganization of the shares
of Common Stock (other than a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for elsewhere in
this Section 9)
pursuant to which the Common Stock is effectively converted into or exchanged
for other securities, cash or property (each of the foregoing, a “Fundamental Transaction”),
then as a part of such Fundamental Transaction provision shall be made so that
the Holder shall thereafter be entitled to receive upon conversion of this
Convertible Note the same amount and kind of securities, cash or other property
as it would have been entitled to receive if it had been, immediately prior to
such Fundamental Transaction, the holder of the number of shares of Common Stock
then deliverable upon the conversion in full of this Convertible Note, subject
to adjustment in respect of such securities by their terms (the “Alternate
Consideration”).  In any such case, (i) the aggregate
Conversion Price under this Convertible Note will not be affected, but the
Company shall apportion the Conversion Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components
of the Alternate Consideration, (ii) if holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Convertible Note following
such Fundamental Transaction, and (iii) appropriate adjustment shall be made in
the application of the provisions of this Section 9 with
respect to the rights of the Holder after such Fundamental Transaction to the
end that the provisions of this Section 9
(including adjustment of the Conversion Price then in effect and the number of
shares of common stock, securities or other property issuable upon conversion of
this Convertible Note) shall be applicable after that event and be as nearly
equivalent as practicable.  At the Holder’s request, any successor to
the Company or surviving entity in such Fundamental Transaction shall issue to
the Holder a new secured convertible note consistent with the foregoing
provisions and evidencing the Holder’s right to convert such secured convertible
note into Alternate Consideration.  The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this Section 9(f) and insuring that this Convertible Note (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction.

     

    
      
        
        

      

      
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    (g)           Certificate of
Adjustment.  In each case of an adjustment or readjustment of
the Conversion Price for the number of shares of Common Stock or other
securities or property issuable upon conversion of this Convertible Note, the
Company, at its own expense, shall cause its Chief Financial Officer to compute
such adjustment or readjustment in accordance with the provisions of this
Convertible Note and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to the Holder at the Holder’s address as shown in the Company’s
books.  The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based.  No adjustment in the Conversion Price shall be
required to be made unless it would result in an increase or decrease of at
least one cent, but any adjustments not made because of this sentence shall be
carried forward and taken into account in any subsequent adjustment otherwise
required hereunder.

     

    (h)           Notices of Record
Date.  Upon (i) the establishment by the Company of a record of
the holders of any class of securities for the purpose of determining the
holders of such securities who are entitled to receive any dividend or other
distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the shares of the Company, any merger or
consolidation of the Company with or into any other Company, or any transfer of
all or substantially all the assets of the Company to any other Person or any
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the Company shall mail to the Holder at least 20 Business Days prior to the
record date specified therein a notice specifying (A) the date on which any such
record is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (B) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective, and (C) the date, if
any, that is to be fixed as to when the holders of record of shares of Common
Stock (or other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property deliverable upon
such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up.

     

    (i)           Certain Issues
Excepted.  Notwithstanding anything herein to the contrary set
forth herein, the following issuances of securities will not trigger an
adjustment to the Conversion Price: (i) securities issued pursuant to the
conversion or exercise of convertible or exercisable securities issued or
outstanding on or prior to the First Tranche Closing Date, and (ii) Common Stock
issued or options to purchase Common Stock granted or issued pursuant to the
Company’s equity compensation plans and employee stock purchase plans as they
now exist or are hereafter approved by the Company’s Board of
Directors.

     

    
      
        
        

      

      
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    (j)        
   No
Impairment.  The Company shall not amend its Certificate of
Incorporation or Bylaws or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the Holder of this Convertible Note
against dilution or other impairment as provided herein. If the Company takes
any action in breach of this Convertible Note, the Holder shall be entitled to
any and all remedies available at Law or in equity.

     

    (k)     
      Fractional
Share.  No fractional share of Common Stock shall be issuable
upon conversion of this Convertible Note and the number of Conversion Shares to
be issued shall be rounded down to the nearest whole share. If the conversion of
this Convertible Note shall result in the issuance of any fractional Conversion
share, the Company shall eliminate such fractional share by paying the Holder an
amount computed by multiplying such fraction by the fair market value of a full
share.

     

    (l)    
       Other
Adjustments.  If and whenever the Company shall take any action
affecting or relating to the shares of Common Stock, other than any action
described in this Section 9, which in
the opinion of the Board would prejudicially affect the rights of the Holder,
the Conversion Price and, if required, the number of shares of Common Stock or
other securities or property to be issued upon conversion of this Convertible
Note will be adjusted by the Board in such manner, and at such time, as the
Board may, subject to the approval of any stock exchange(s) on which the shares
of Common Stock are listed and posted for trading, reasonably determine to be
equitable in the circumstances to such Holder.

     

    10.           Priority of
Obligations.  The Obligations shall not be junior or
subordinate to any other Indebtedness of the Company, except for such de facto
subordination as may result from Permitted Liens or Liens in existence as of the
date hereof that secure Permitted Indebtedness.  The Company shall not
issue any Indebtedness that by its terms is subordinate or junior in any respect
to any other Indebtedness of the Company, unless such Indebtedness provides that
it is subordinate and junior on the same terms to the Obligations.

     

    11.           Waiver and
Amendment.  Any provision of this Convertible Note may be
amended, waived or modified upon the written consent of both the Company and the
holders of a majority of the outstanding principal amount of the
Note(s).

     

    12.           Transfer of this Convertible
Note or Securities Issuable on Conversion or Payment
Hereunder.  This Convertible Note may not be transferred in
violation of any restrictive legend set forth hereon. Each new Note issued upon
transfer of this Convertible Note or securities issuable on conversion of this
Convertible Note shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with the Securities Act, unless in
the opinion of counsel for the Company such legend is not required in order to
ensure compliance with the Securities Act. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions. Subject
to the foregoing, transfers of this Convertible Note shall be registered upon
registration books maintained for such purpose by or on behalf of the
Company.  Prior to presentation of this Convertible Note for
registration of transfer, the Company shall treat the registered holder hereof
as the owner and holder of this Convertible Note for the purpose of receiving
all payments of principal and interest hereon and for all other purposes
whatsoever, whether or not this Convertible Note shall be overdue and the
Company shall not be affected by notice to the contrary.

     

    
      
        
        

      

      
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    13.           Assignment. Neither
this Convertible Note nor any of the rights, interests or obligations hereunder
may be assigned, by operation of law or otherwise, as a whole or in part, by the
Company without the prior written consent of the Holder.  The Holder
may assign the rights, interests or obligations under this Convertible Note, as
a whole or in part, at any time, subject to compliance with Section 12 of this
Convertible Note, upon written notice to the Company of such
assignment.  Upon request, the Company shall, as soon as practicable
(and in any event within three Business Days) following such request, provide
any assignee of all or a portion of this Convertible Note a new Note having
terms and conditions identical in all respects to this Convertible Note except
that it shall identify the assignee as the payee, and it shall have (x) a
principal amount equal to principal amount of this Convertible Note that was
assigned, (y) an initial Conversion Price equal to the conversion price in
effect under this Convertible Note as of the date of assignment and (z) a
different date of issuance.  Notwithstanding the foregoing, until the
Company receives notice in accordance with Section 14, the
Company shall treat the registered holder hereof as the owner and holder of this
Convertible Note for the purpose of receiving all payments of principal and
interest on this Convertible Note and for all other purposes whatsoever, whether
or not this Convertible Note shall be overdue.

     

    14.           Notices.  Any
notice, request or other communication required or permitted hereunder shall be
in writing and shall be deemed to have been duly given if personally delivered
or mailed by registered or certified mail, postage prepaid, or by recognized
overnight courier, personal delivery or facsimile transmission at the respective
addresses or facsimile number of the parties as set forth in or otherwise
designated by either party pursuant to the Purchase Agreement or on the register
maintained by the Company.  Any party hereto may by notice so given
change its address or facsimile number for future notice
hereunder.  Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile or email at the
facsimile number or email address specified in this Section prior to 6:30 p.m.
(Eastern time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile or
email at the facsimile number or email address specified in this Section on a
day that is not a Trading Day or later than 6:30 p.m. (Eastern time) on any
Trading Day, (c) the Trading Day following the date of deposit with a nationally
recognized overnight courier service, or (d) upon actual receipt by the party to
whom such notice is required to be given.

     

    15.           Successors and
Assigns. Subject to the restrictions on transfer described in Section 12 of this
Convertible Note, the rights and obligations of the Company and the Holder of
this Convertible Note shall be binding upon and benefit the successors, assigns,
heirs, administrators and transferees of the parties.

     

    16.           Expenses;
Waivers.  If action is instituted to collect this Convertible
Note, the Company shall pay all costs and expenses, including, without
limitation, reasonable attorneys’ fees and costs, incurred in connection with
such action. The Company hereby waives notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor and all other notices
or demands relative to this instrument.

     

    
      
        
        

      

      
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    17.           Governing Law; Venue; Waiver
of Jury Trial.  ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE. THE COMPANY HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN
THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE
BROUGHT BY THE COMPANY HEREUNDER, IN CONNECTION HEREWITH OR WITH ANY TRANSACTION
CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE
ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES,
AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE
COMPANY, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY
SUCH COURT, OR THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. THE COMPANY
HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS
BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF
VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF
DELIVERY) TO THE COMPANY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THE
PURCHASE AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND
SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL
BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED
BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.

     

    
      
         


      

      
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    ISSUED as
of the date first above written.

     

    
      
        
          
            
              	
                      PHOTOMEDEX,
      INC.

                    
	 
      
	
                      By:

                    	/s/
      Dennis M. McGrath	 
      
	 
      	
                      Name:  Dennis
      M. McGrath

                    
	 
      	
                      Title:  Chief
      Financial
Officer