Document:

EXHIBIT
      4.1

     

    
       

      
        

        

      

      
      

       

      Securities
        Purchase Agreement

       

       

      Dated
        as
        of August
        4,
        2008

       

       

      between

       

       

      PhotoMedex,
        Inc.

       

       

      and

       

       

      Perseus
        Partners VII, L.P.

       

       

       

       

      
        

        

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Table
        of
        Contents

      

        
          	 	 	
                  Page

                
	
                  ARTICLE
                    I

                	
                  Definitions

                	
                  1

                
	
                  Section
                    1.1

                	
                  Definitions

                	
                  1

                
	
                  Section
                    1.2

                	
                  Certain
                    Interpretations

                	
                  11

                
	
                  ARTICLE
                    II

                	
                  Purchase
                    and Sale of Securities; Closings

                	
                  11

                
	
                  Section
                    2.1

                	
                  Purchase
                    and Sale of Securities

                	
                  11

                
	
                  Section
                    2.2

                	
                  First
                    Tranche Closing

                	
                  12

                
	
                  Section
                    2.3

                	
                  Transactions
                    to be Effected at the First Tranche Closing

                	
                  12

                
	
                  Section
                    2.4

                	
                  Second
                    Tranche Closing

                	
                  13

                
	
                  Section
                    2.5

                	
                  Transactions
                    to be Effected at the Second Tranche Closing

                	
                  13

                
	
                  Section
                    2.6

                	
                  Adjustments

                	
                  13

                
	
                  ARTICLE
                    III

                	
                  Representations
                    And Warranties Of the Company

                	
                  14

                
	
                  Section
                    3.1

                	
                  Organization
                    and Qualification; Subsidiaries

                	
                  14

                
	
                  Section
                    3.2

                	
                  Authorization;
                    Enforcement

                	
                  14

                
	
                  Section
                    3.3

                	
                  No
                    Conflicts; Government Consents and Permits

                	
                  15

                
	
                  Section
                    3.4

                	
                  Issuance
                    of Securities

                	
                  16

                
	
                  Section
                    3.5

                	
                  Capitalization

                	
                  16

                
	
                  Section
                    3.6

                	
                  SEC
                    Reports, Financial Statements

                	
                  17

                
	
                  Section
                    3.7

                	
                  Financial
                    Reporting

                	
                  18

                
	
                  Section
                    3.8

                	
                  Liabilities

                	
                  18

                
	
                  Section
                    3.9

                	
                  Absence
                    of Changes

                	
                  19

                
	
                  Section
                    3.10

                	
                  Absence
                    of Litigation; Judgments

                	
                  19

                
	
                  Section
                    3.11

                	
                  Compliance

                	
                  19

                
	
                  Section
                    3.12

                	
                  Title
                    to and Sufficiency and Condition of Assets

                	
                  20

                
	
                  Section
                    3.13

                	
                  Intellectual
                    Property Rights

                	
                  20

                
	
                  Section
                    3.14

                	
                  Insurance

                	
                  22

                
	
                  Section
                    3.15

                	
                  Material
                    Contracts

                	
                  22

                
	
                  Section
                    3.16

                	
                  Permits

                	
                  23

                
	
                  Section
                    3.17

                	
                  Transactions
                    with Affiliates and Employees

                	
                  23

                
	
                  Section
                    3.18

                	
                  Tax
                    Matters

                	
                  24

                
	
                  Section
                    3.19

                	
                  Employee
                    Matters

                	
                  24

                
	
                  Section
                    3.20

                	
                  Employee
                    Benefits

                	
                  25

                
	
                  Section
                    3.21

                	
                  Environmental
                    and Safety Laws

                	
                  27

                
	
                  Section
                    3.22

                	
                  Warranties

                	
                  28

                
	
                  Section
                    3.23

                	
                  Real
                    Estate

                	
                  29

                
	
                  Section
                    3.24

                	
                  Inventory;
                    Customers; Suppliers

                	
                  29

                
	
                  Section
                    3.25

                	
                  Accounts
                    Receivable

                	
                  30

                
	
                  Section
                    3.26

                	
                  Regulatory
                    Compliance

                	
                  30

                
	
                  Section
                    3.27

                	
                  Corporate
                    Documents

                	
                  31

                
	
                  Section
                    3.28

                	
                  No
                    General Solicitation; Private Placement

                	
                  32

                
	
                  Section
                    3.29

                	
                  Form
                    S-3 Eligibility

                	
                  32

                
	
                  Section
                    3.30

                	
                  Eligible
                    Market

                	
                  32

                
	
                  Section
                    3.31

                	
                  Disclosure

                	
                  32

                
	
                  Section
                    3.32

                	
                  Acknowledgment
                    Regarding Purchaser's Purchase of Securities

                	
                  33

                

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

        
          	
                  Section
                    3.33

                	
                  Solvency

                	
                  33

                
	
                  Section
                    3.34

                	
                  Application
                    of Takeover Protections

                	
                  33

                
	
                  Section
                    3.35

                	
                  No
                    Manipulation of Stock Price

                	
                  34

                
	
                  Section
                    3.36

                	
                  Placement
                    Agent Fees

                	
                  34

                
	
                  ARTICLE
                    IV

                	
                  Representations
                    and Warranties of the Purchaser

                	
                  34

                
	
                  Section
                    4.1

                	
                  Organization;
                    Authority

                	
                  34

                
	
                  Section
                    4.2

                	
                  No
                    Public Sale or Distribution

                	
                  34

                
	
                  Section
                    4.3

                	
                  Purchaser
                    Status

                	
                  35

                
	
                  Section
                    4.4

                	
                  No
                    Conflicts

                	
                  35

                
	
                  Section
                    4.5

                	
                  Disclosure

                	
                  35

                
	
                  Section
                    4.6

                	
                  Restricted
                    Securities

                	
                  35

                
	
                  ARTICLE
                    V

                	
                  Other
                    Agreements of the Parties

                	
                  35

                
	
                  Section
                    5.1

                	
                  Legends

                	
                  35

                
	
                  Section
                    5.2

                	
                  SEC
                    Reporting; Furnishing of Information

                	
                  36

                
	
                  Section
                    5.3

                	
                  Integration

                	
                  36

                
	
                  Section
                    5.4

                	
                  Reservation
                    of Securities

                	
                  37

                
	
                  Section
                    5.5

                	
                  Securities
                    Law Disclosure; Publicity

                	
                  37

                
	
                  Section
                    5.6

                	
                  Preparation
                    of Proxy Statement; Company Stockholders Meeting

                	
                  37

                
	
                  Section
                    5.7

                	
                  Commercially
                    Reasonable Efforts

                	
                  38

                
	
                  Section
                    5.8

                	
                  Non-Solicitation

                	
                  39

                
	
                  Section
                    5.9

                	
                  Access

                	
                  40

                
	
                  Section
                    5.10

                	
                  Communications
                    with Accountants

                	
                  41

                
	
                  Section
                    5.11

                	
                  Board
                    Representation

                	
                  41

                
	
                  Section
                    5.12

                	
                  Right
                    of First Refusal

                	
                  43

                
	
                  Section
                    5.13

                	
                  Use
                    of Proceeds

                	
                  44

                
	
                  Section
                    5.14

                	
                  Priority
                    of Notes

                	
                  44

                
	
                  Section
                    5.15

                	
                  Corporate
                    Existence

                	
                  44

                
	
                  Section
                    5.16

                	
                  Compliance
                    with Law

                	
                  45

                
	
                  Section
                    5.17

                	
                  Payment
                    of Interest and Principal on Notes

                	
                  45

                
	
                  Section
                    5.18

                	
                  Maintenance
                    of Listing

                	
                  45

                
	
                  Section
                    5.19

                	
                  Negative
                    Covenants

                	
                  45

                
	
                  Section
                    5.20

                	
                  Financial
                    Information

                	
                  47

                
	
                  Section
                    5.21

                	
                  Properties;
                    Insurance

                	
                  47

                
	
                  Section
                    5.22

                	
                  Expenses

                	
                  48

                
	
                  Section
                    5.23

                	
                  Pledge
                    of Securities

                	
                  48

                
	
                  Section
                    5.24

                	
                  Subscription
                    Rights

                	
                  48

                
	
                  Section
                    5.25

                	
                  Prepayment
                    of Notes

                	
                  49

                
	
                  Section
                    5.26

                	
                  Incentives
                    Modifications

                	
                  50

                
	
                  Section
                    5.27

                	
                  Confidentiality

                	
                  50

                
	
                  Section
                    5.28

                	
                  Consultation
                    on Budget

                	
                  51

                
	
                  Section
                    5.29

                	
                  Advice
                    of Breaches

                	
                  51

                
	
                  ARTICLE
                    VI

                	
                  Conditions
                    to Closings

                	
                  52

                
	
                  Section
                    6.1

                	
                  Conditions
                    Precedent to Obligations of the Company at the First Tranche
                    Closing

                	
                  52

                
	
                  Section
                    6.2

                	
                  Conditions
                    Precedent to Obligations of the Purchaser at the First Tranche
                    Closing

                	
                  53

                

        
 

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

      

        
          	
                  Section
                    6.3

                	
                  Conditions
                    Precedent to Obligations of the Company at the Second Tranche
                    Closing

                	
                  55

                
	
                  Section
                    6.4

                	
                  Conditions
                    Precedent to Obligations of the Purchaser at the Second Tranche
                    Closing

                	
                  56

                
	
                  ARTICLE
                    VII

                	
                  Termination

                	
                  58

                
	
                  Section
                    7.1

                	
                  Termination

                	
                  58

                
	
                  Section
                    7.2

                	
                  Effect
                    of Termination

                	
                  59

                
	
                  Section
                    7.3

                	
                  Termination
                    Fees and Expenses

                	
                  59

                
	
                  ARTICLE
                    VIII

                	
                  Indemnification

                	
                  60

                
	
                  Section
                    8.1

                	
                  Indemnification
                    of Purchaser Indemnified Persons

                	
                  60

                
	
                  Section
                    8.2

                	
                  Indemnification
                    of Company Indemnified Persons

                	
                  60

                
	
                  Section
                    8.3

                	
                  Procedures

                	
                  61

                
	
                  ARTICLE
                    IX

                	
                  Miscellaneous

                	
                  62

                
	
                  Section
                    9.1

                	
                  Governing
                    Law; Jurisdiction; Waiver of Jury Trial

                	
                  62

                
	
                  Section
                    9.2

                	
                  Counterparts;
                    Signatures by Facsimile

                	
                  63

                
	
                  Section
                    9.3

                	
                  Headings

                	
                  63

                
	
                  Section
                    9.4

                	
                  Severability

                	
                  63

                
	
                  Section
                    9.5

                	
                  Entire
                    Agreement; Amendments

                	
                  63

                
	
                  Section
                    9.6

                	
                  Amendments
                    and Waivers

                	
                  64

                
	
                  Section
                    9.7

                	
                  Notices

                	
                  64

                
	
                  Section
                    9.8

                	
                  Successors
                    and Assigns

                	
                  65

                
	
                  Section
                    9.9

                	
                  Third
                    Party Beneficiaries

                	
                  65

                
	
                  Section
                    9.10

                	
                  Rescission
                    and Withdrawal Rights

                	
                  65

                
	
                  Section
                    9.11

                	
                  Replacement
                    of Securities

                	
                  65

                
	
                  Section
                    9.12

                	
                  Payment
                    Set Aside

                	
                  66

                
	
                  Section
                    9.13

                	
                  Further
                    Assurances

                	
                  66

                
	
                  Section
                    9.14

                	
                  No
                    Strict Construction

                	
                  66

                
	
                  Section
                    9.15

                	
                  Remedies

                	
                  66

                

        

      

       

      
        	
                EXHIBIT
                  A 

              	
                FORM
                  OF NOTE

              
	
                EXHIBIT
                  B 

              	
                FORM
                  OF WARRANT

              
	
                EXHIBIT
                  C 

              	
                FORM
                  OF MANAGEMENT RIGHTS LETTER

              
	
                EXHIBIT
                  D 

              	
                FORM
                  OF REGISTRATION RIGHTS AGREEMENT

              
	
                EXHIBIT
                  E 

              	
                FORM
                  OF TRANSFER AGENT INSTRUCTIONS

              

      

      
        
          
          

        

        
          iii

          
            

          

        

        
          
          

        

      

      Index
        of
        Defined Terms

      
        

        
          	
                  Acquisition
                    Agreement

                	
                  1

                
	
                  Additional
                    Securities

                	
                  49

                
	
                  Additional
                    Securities Notice

                	
                  49

                
	
                  Affiliate

                	
                  1

                
	
                  Aggregate
                    Perseus Ownership

                	
                  1

                
	
                  Agreement

                	
                  1

                
	
                  Alternative
                    Proposal

                	
                  39

                
	
                  Anti-Bribery
                    Laws

                	
                  31

                
	
                  Anti-Money
                    Laundering/OFAC Laws

                	
                  2

                
	
                  Board

                	
                  2

                
	
                  Business
                    Day

                	
                  2

                
	
                  Bylaws

                	
                  17

                
	
                  CERCLA

                	
                  2

                
	
                  Certificate
                    of Incorporation

                	
                  17

                
	
                  Change
                    of Control

                	
                  2

                
	
                  Common
                    Stock

                	
                  2

                
	
                  Common
                    Stock Equivalents

                	
                  2

                
	
                  Company

                	
                  1

                
	
                  Company
                    Option Event

                	
                  12

                
	
                  Company
                    Stockholders Meeting

                	
                  37

                
	
                  Condition

                	
                  2

                
	
                  Confidential
                    Information

                	
                  50

                
	
                  Contingent
                    Obligation

                	
                  3

                
	
                  Conversion
                    Shares

                	
                  3

                
	
                  Convertible
                    Securities

                	
                  3

                
	
                  Environmental
                    Laws

                	
                  3

                
	
                  Environmental
                    Liabilities

                	
                  3

                
	
                  Environmental
                    Permit

                	
                  3

                
	
                  Equity
                    Securities

                	
                  4

                
	
                  ERISA

                	
                  4

                
	
                  Exchange
                    Act

                	
                  4

                
	
                  FDA

                	
                  4

                
	
                  FDCA

                	
                  4

                
	
                  First
                    Tranche Closing

                	
                  12

                
	
                  First
                    Tranche Closing Date

                	
                  12

                
	
                  First
                    Tranche Common Shares

                	
                  4

                
	
                  First
                    Tranche Conversion Price

                	
                  4

                
	
                  First
                    Tranche Issuance

                	
                  12

                
	
                  First
                    Tranche Market Price

                	
                  4

                
	
                  First
                    Tranche Note

                	
                  4

                
	
                  First
                    Tranche Note Amount

                	
                  4

                
	
                  First
                    Tranche Warrant

                	
                  4

                
	
                  Foreign
                    Corrupt Practices Act

                	
                  4

                
	
                  Fourth
                    Anniversary

                	
                  49

                
	
                  GAAP

                	
                  17

                
	
                  Governmental
                    Entity

                	
                  4

                
	
                  Incentives

                	
                  50

                
	
                  Incentives
                    Modifications

                	
                  50

                
	
                  Indebtedness

                	
                  4

                
	
                  indemnified
                    party

                	
                  61

                
	
                  Insolvent

                	
                  33

                
	
                  Intellectual
                    Property Rights

                	
                  20

                
	
                  Last
                    10-K

                	
                  14

                
	
                  Last
                    10-Q

                	
                  14

                
	
                  Latest
                    Balance Sheet

                	
                  18

                
	
                  Law

                	
                  5

                
	
                  Leased
                    Improvements

                	
                  29

                
	
                  Leased
                    Properties

                	
                  29

                
	
                  Leases

                	
                  29

                
	
                  Liens

                	
                  5

                
	
                  Liquid
                    Securities

                	
                  5

                
	
                  Losses

                	
                  60

                
	
                  Majority
                    Holder

                	
                  8

                
	
                  Manage

                	
                  5

                
	
                  Management

                	
                  5

                
	
                  Management
                    Rights Letter

                	
                  5

                
	
                  Market
                    Price

                	
                  5

                
	
                  Material
                    Adverse Effect

                	
                  6

                
	
                  Material
                    Contracts

                	
                  6

                
	
                  Nasdaq

                	
                  7

                
	
                  Notes

                	
                  7

                
	
                  OFAC

                	
                  7

                
	
                  Options

                	
                  7

                
	
                  Order

                	
                  7

                
	
                  Outside
                    Date

                	
                  58

                
	
                  PATRIOT
                    Act

                	
                  7

                
	
                  PCBs

                	
                  8

                
	
                  Permit

                	
                  7

                
	
                  Permitted
                    Indebtedness

                	
                  7

                
	
                  Permitted
                    Liens

                	
                  7

                
	
                  Perseus

                	
                  8

                
	
                  Perseus
                    Director

                	
                  8

                
	
                  Perseus
                    Directors

                	
                  8

                
	
                  Perseus
                    Observer

                	
                  41

                
	
                  Person

                	
                  8

                
	
                  Photo
                    Therapeutics

                	
                  1

                
	
                  Plan

                	
                  25

                
	
                  Plans

                	
                  25

                

        

        
          
            
            

          

          
            iv

            
              

            

          

          
            
            

          

        

        

        
          	
                  Pollutant

                	
                  8

                
	
                  Prepayment
                    Notice

                	
                  49

                
	
                  Principal
                    Holder

                	
                  8

                
	
                  Proceeding

                	
                  19

                
	
                  Proxy
                    Statement

                	
                  16

                
	
                  PT
                    Acquisition

                	
                  1

                
	
                  PT
                    Earnout

                	
                  8

                
	
                  PT
                    Earnout Amount

                	
                  8

                
	
                  PT
                    Subsidiaries

                	
                  1

                
	
                  Purchaser

                	
                  1

                
	
                  Purchaser
                    Indemnified Persons

                	
                  60

                
	
                  Qualified
                    Earnout Financing

                	
                  8

                
	
                  Qualified
                    Independent Director

                	
                  42

                
	
                  RCRA

                	
                  9

                
	
                  Reference
                    SEC Reports

                	
                  14

                
	
                  Registered

                	
                  35

                
	
                  Registration

                	
                  35

                
	
                  Registration
                    Rights Agreement

                	
                  9

                
	
                  Release

                	
                  9

                
	
                  Remedial

                	
                  9

                
	
                  Removal

                	
                  9

                
	
                  Response

                	
                  9

                
	
                  Reverse
                    Stock Split

                	
                  9

                
	
                  Rule
                    144

                	
                  9

                
	
                  SEC

                	
                  9

                
	
                  SEC
                    Reports

                	
                  17

                
	
                  Second
                    Tranche Closing

                	
                  13

                
	
                  Second
                    Tranche Closing Date

                	
                  13

                
	
                  Second
                    Tranche Conversion Price

                	
                  9

                
	
                  Second
                    Tranche Issuance

                	
                  12

                
	
                  Second
                    Tranche Market Price

                	
                  9

                
	
                  Second
                    Tranche Measurement Date

                	
                  9

                
	
                  Second
                    Tranche Note

                	
                  10

                
	
                  Second
                    Tranche Note Amount

                	
                  9

                
	
                  Second
                    Tranche Warrant

                	
                  10

                
	
                  Securities

                	
                  10

                
	
                  Securities
                    Act

                	
                  10

                
	
                  Significant
                    Customer

                	
                  29

                
	
                  Significant
                    Supplier

                	
                  29

                
	
                  Specified
                    Change of Control

                	
                  10

                
	
                  Specified
                    Representations

                	
                  56

                
	
                  Stockholder
                    Approval

                	
                  10

                
	
                  Subsidiary

                	
                  10

                
	
                  Superior
                    Proposal

                	
                  39

                
	
                  Surgical
                    Innovations Sale Agreement

                	
                  11

                
	
                  Termination
                    Fee

                	
                  60

                
	
                  Third
                    Party Claim

                	
                  61

                
	
                  Trading
                    Day

                	
                  11

                
	
                  Trading
                    Market

                	
                  11

                
	
                  Transaction
                    Documents

                	
                  11

                
	
                  Transaction
                    Expenses

                	
                  48

                
	
                  Transfer
                    Agent

                	
                  11

                
	
                  Transfer
                    Agent Instructions

                	
                  11

                
	
                  Warrant
                    Shares

                	
                  11

                
	
                  Warrants

                	
                  11

                

        
 

      
        
          
          

        

        
          v

          
            

          

        

        
          
          

        

      

       

      
        	 	
                Securities
                  Purchase Agreement,
                  dated as of August 4, 2008 (this "Agreement"),
                  by and between PhotoMedex,
                  Inc.,
                  a Delaware corporation (the "Company"),
                  and Perseus
                  Partners VII, L.P.,
                  a
                  Delaware limited partnership (the "Purchaser").
                  Certain capitalized terms used in this Agreement are defined in
                  Article
                  I. 

                  

                

              

      

       

      Introduction

       

      The
        Company has agreed to acquire all of the outstanding shares of capital stock
        of
        each of Photo Therapeutics Limited, a company organized under the laws of
        England and Wales, and Photo Therapeutics, Inc., a Delaware corporation
        (collectively, the "PT
        Subsidiaries"),
        each
        a wholly owned Subsidiary of Photo Therapeutics Group Limited, a company
        organized under the laws of England and Wales ("Photo
        Therapeutics"),
        pursuant to a Purchase Agreement, dated as of the date hereof (including
        all
        exhibits and the disclosure schedules thereto, the "Acquisition
        Agreement"),
        among
        Photo Therapeutics and the Company (the "PT
        Acquisition").

       

      In
        connection with the PT Acquisition, and on the terms and subject to the
        conditions set forth in this Agreement, the Company desires to issue and
        sell to
        the Purchaser, and the Purchaser desires to purchase from the Company, the
        Securities (as defined below).

       

      In
        consideration of the foregoing and the mutual covenants contained herein
        and
        other good and valuable consideration, the receipt and sufficiency of which
        are
        hereby acknowledged, the Company and the Purchaser hereby agree as
        follows:

       

      ARTICLE
        I

      Definitions

       

      Section
        1.1 Definitions.  The
        following capitalized terms have the following meanings:

       

      "Affiliate"
        means,
        with respect to any Person, any other Person controlling, controlled by or
        under
        direct or indirect common control with such Person (for the purposes of this
        definition "control," when used with respect to any specified Person, shall
        mean
        the power to direct the management and policies of such person, directly
        or
        indirectly, whether through ownership of voting securities, by contract or
        otherwise; and the terms "controlling" and "controlled" shall have meanings
        correlative to the foregoing).

       

      "Aggregate
        Perseus Ownership"
        means,
        at any time from and after the First Tranche Closing, the sum of (i) the
        aggregate number of First Tranche Common Shares issued at the First Tranche
        Closing, (ii) the aggregate number of Conversion Shares that are issuable
        (as of
        the date of issuance of the relevant Notes) upon conversion in full of all
        Notes
        that have been or should have been issued to the Purchaser at or prior to
        such
        time, and (iii) the aggregate number of Warrant Shares that are issuable
        (as of
        the date of issuance of the relevant Warrants) upon exercise in full of all
        Warrants that have been or should have been issued to the Purchaser at or
        prior
        to such time, in each case as adjusted for any subdivision or combination
        of the
        Common Stock (by stock split, reverse stock split, dividend, reorganization,
        recapitalization or otherwise) that may occur on or after the First Tranche
        Closing Date, and, in the case of the Notes and the Warrants and without
        duplication, any adjustments to the conversion ratio of the Notes or exercise
        ratio of the Warrants provided for by the terms thereof.

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      "Anti-Money
        Laundering/OFAC Laws"
        means
        any regulations contained in 31 C.F.R., Subtitle B, Chapter V.

       

      "Board"
        means
        the Board of Directors of the Company.

       

      "Business
        Day"
        means
        any day that is not a Saturday, a Sunday or a day on which commercial banks
        in
        New York City are required or authorized to be closed.

       

      "Common
        Stock"
        means
        the common stock, par value $0.01 per share, of the Company.

       

      "CERCLA"
        means
        the Comprehensive Environmental Response, Compensation and Liability Act
        (42
        U.S.C. § 9601, et
        seq.),
        as
        amended, and all rules, regulations and standards issued thereunder.

       

      "Change
        of Control"
        means
        the occurrence of any of the following events: (i) any merger, consolidation,
        reorganization, recapitalization, or other business combination involving
        the
        Company or any Subsidiary, in which the stockholders of the Company immediately
        prior thereto do not own, directly or indirectly, outstanding voting securities
        representing more than 50% of the combined outstanding voting power of the
        surviving entity in such merger, consolidation, reorganization, recapitalization
        or other business combination; (ii) the sale of all, or substantially all,
        of
        the assets of the Company or any Subsidiary (other than the sale of the Acquired
        Assets (as defined in the Surgical Innovations Sale Agreement)) to a third
        party
        not wholly owned, directly or indirectly, by the Company; (iii) any "person"
        (as
        such term is used in Sections 13(d) and 14(d) of the Exchange Act) other
        than
        the Purchaser becomes the beneficial owner (as defined in Rules 13d-3 and
        13d-5
        under the Exchange Act, except that for purposes of this clause (iii) such
        person shall be deemed to have "beneficial ownership" of all shares that
        any
        such person has the right to acquire, whether such right is exercisable
        immediately or only after the passage of time), directly or indirectly, of
        more
        than 50% of the total voting power of the outstanding capital stock of the
        Company; (iv) individuals who as of the First Tranche Closing Date constituted
        the Board (together with any new directors whose election by the Board or
        whose
        nomination for election by the stockholders of the Company was approved by
        a
        vote of a majority of the directors of the Company then still in office who
        were
        either directors as of the First Tranche Closing Date or whose election or
        nomination for election was previously so approved) cease for any reason
        to
        constitute a majority of the Board then in office; or (v) the adoption of
        a plan
        relating to the liquidation or dissolution of the Company.

       

      "Common
        Stock Equivalents"
        means,
        collectively, Options and Convertible Securities.

       

      "Condition"
        means
        any condition that results in or otherwise relates to an Environmental
        Liability.

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      "Contingent
        Obligation"
        means,
        as to any Person, any direct or indirect liability, contingent or otherwise,
        of
        such Person with respect to any indebtedness, lease, dividend or other
        obligation of another Person if the primary purpose or intent of the Person
        incurring such liability, or the primary effect thereof, is to provide assurance
        to the obligee of such liability that such liability will be paid or discharged,
        or that any agreements relating thereto will be complied with, or that the
        holders of such liability will be protected (as a whole or in part) against
        loss
        with respect thereto.

       

      "Conversion
        Shares"
        means
        the shares of Common Stock issued or issuable upon conversion of a
        Note.

       

      "Convertible
        Securities"
        means
        any stock or securities (other than Options) convertible into or exercisable
        or
        exchangeable for Common Stock.

       

      "Eligible
        Market"
        means
        (i) The Nasdaq Global Market Select, (ii) The Nasdaq Global Market. (iii)
        The
        Nasdaq Capital Market, (iv) The New York Stock Exchange, Inc., (v) the American
        Stock Exchange or (vi) the OTC Bulletin Board.

       

      "Environmental
        Laws"
        means
        all current and future Laws which
        address, are related to, or are otherwise concerned with pollution, the
        environment, natural resources, or health or safety (including occupational
        safety and health), including without limitation any of the foregoing pertaining
        to (i) the presence, receipt, manufacture, processing, generation, use,
        distribution, transport, recycling, shipment, treatment, handling, storage,
        labeling, removal or remediation of any Pollutant; (ii) indoor and outdoor
        air,
        water (including ground, surface and drinking water), wetlands, land surface
        or
        subsurface strata, biota, noise, or odor pollution; (iii) the exposure to
        or the
        Release or threatened Release into the environment of any Pollutant; (iv)
        the
        protection of natural resources, including without limitation wildlife, marine
        sanctuaries, wetlands and all endangered and threatened species; (v) storage
        tanks, vessels and containers whether above- or underground, abandoned, disposed
        or discarded barrels, containers and other closed receptacles; or (vi) health
        and safety of employees and other persons. 

       

      "Environmental
        Liabilities"
        means
        any obligations or liabilities (whether asserted or unasserted, known or
        unknown, contingent or fixed, including any notices, claims, demands,
        complaints, suits or other assertions of obligation or liability) that are:
        (i) related to any environmental, health or safety issues, and
        (ii) based upon or related to any provision of Environmental Law. The term
        "Environmental
        Liabilities"
        includes (without limitation) (A) fines, penalties, judgments, awards,
        settlements, Losses, damages (including foreseeable and unforeseeable
        consequential damages), costs, fees (including attorneys' and consultants'
        fees), expenses and disbursements relating to or arising under any Environmental
        Law; (B) defense and other response to an administrative or judicial action
        (including notices, claims, complaints, Orders, suits and other assertions
        of
        liability) relating to or arising under any Environmental Law; and
        (C) financial responsibility for (1) cleanup costs and injunctive
        relief, including any Removal, Remedial or Response actions, and natural
        resource damages, and (2) any other compliance or remedial measures.

       

      "Environmental
        Permit"
        means
        any Permit that is authorized pursuant to an Environmental Law.

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      "Equity
        Securities"
        of any
        Person means (a) all common stock, preferred stock, participations, shares,
        partnership interests, membership interests or other equity interests in
        and of
        such Person (regardless of how designated and whether or not voting or
        non-voting) and (b) all warrants, options and other rights to acquire any
        of the
        foregoing.

       

      "ERISA"
        means
        the Employee Retirement Income Security Act of 1974, as amended. 

       

      "Exchange
        Act"
        means
        the Securities Exchange Act of 1934, as amended.

       

      "FDA"
        means
        the United States Food and Drug Administration.

       

      "FDCA"
        means
        the Federal Food, Drug and Cosmetic Act.

       

      "First
        Tranche Common Shares"
        means
        327,521 shares of Common Stock.

       

      "First
        Tranche Conversion Price"
        means
        $0.73736.

       

      "First
        Tranche Market Price"
        means
        $0.64118.

       

      "First
        Tranche Note"
        means a
        convertible promissory note of the Company, substantially in the form attached
        hereto as Exhibit
        A,
        having
        an aggregate principal amount equal to the First Tranche Note Amount and
        having
        an initial conversion price equal to the First Tranche Conversion
        Price.

       

      "First
        Tranche Note Amount"
        means
        $18,000,000.

       

      "First
        Tranche Warrant"
        means a
        warrant, substantially in the form attached hereto as Exhibit
        B,
        to
        purchase a number of shares of Common Stock equal to the quotient obtained
        by
        dividing (i) the product of (A) 0.3 and (B) the First Tranche Note Amount
        by
        (ii) the First Tranche Conversion Price, rounded to the nearest whole number,
        at
        a price per share initially equal to the First Tranche Conversion
        Price.

       

      "Foreign
        Corrupt Practices Act"
        means
        the Foreign Corrupt Practices Act of 1977, as amended, and the rules and
        regulations thereunder.

       

      "Governmental
        Entity"
        means
        any U.S. or non-U.S. federal, state, provincial, regional, local or municipal
        legislative, executive or judicial department, commission, board, bureau,
        agency, office, tribunal, court or other instrumentality, governmental or
        quasi-governmental, public international organization and any applicable
        stock
        exchange or securities regulatory authority.

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      "Indebtedness"
        of any
        Person means, without duplication: (i) all indebtedness for borrowed money,
        (ii) all obligations issued, undertaken or assumed as the deferred purchase
        price of property or services (other than trade payables entered into in
        the
        ordinary course of business), (iii) all reimbursement or payment
        obligations with respect to letters of credit, surety bonds and other similar
        instruments, (iv) all obligations evidenced by notes, bonds, debentures or
        similar instruments, including obligations so evidenced incurred in connection
        with the acquisition of property, assets or businesses, (v) all
        indebtedness created or arising under any conditional sale or other title
        retention agreement, or incurred as financing, in either case with respect
        to
        any property or assets acquired with the proceeds of such indebtedness (even
        though the rights and remedies of the seller or bank under such agreement
        in the
        event of default are limited to repossession or sale of such property),
        (vi) all monetary obligations under any leasing or similar arrangement
        which, in connection with generally accepted accounting principles, consistently
        applied for the periods covered thereby, is classified as a capital lease,
        (vii) all Indebtedness referred to in clauses (i) through
        (vi) above secured by (or for which the holder of such Indebtedness has an
        existing right, contingent or otherwise, to be secured by) any mortgage,
        lien,
        pledge, charge, security interest or other encumbrance upon or in any property
        or assets (including accounts and contract rights) owned by such Person,
        even
        though the Person that owns such assets or property has not assumed or become
        liable for the payment of such indebtedness, and (viii) all Contingent
        Obligations in respect of indebtedness or obligations of others of the kinds
        referred to in clauses (vii) through (viii) above.

       

      "Law"
        means
        all United States and non-U.S. federal, state and local laws, statutes, rules,
        regulations, standards, requirements, rules and principles of common law,
        ordinances and codes, now or hereafter in effect, including any judicial
        and
        administrative interpretations thereof, and all Orders.

       

      "Liens"
        means
        any security interest, pledge, bailment, mortgage, hypothecation, deed of
        trust,
        conditional sales and title retention agreement, charge, easement, lease,
        sublease, covenant, right or way, option, claim, restriction or encumbrance
        of
        any kind.

       

      "Liquid
        Securities"
        means
        securities which are (i) listed or quoted on one of the securities exchanges
        identified in clauses (i), (ii) or (iv) of the definition of “Eligible Market”,
        (ii) issued by an issuer with a market capitalization of at least $500,000,000
        (excluding shares held directly
        or indirectly by any officer or director of the issuer or by any person who
        is
        the beneficial owner of more than 10 percent of the total outstanding shares
        of
        the issuer’s common stock),
        (iii)
        traded with an average daily trading volume over the prior 12 months of not
        less
        than $5,000,000, and (iv) individually, and in the aggregate, not subject
        to any
        restrictions on transfer (including any restrictions arising under the
        securities laws of the United States or any other jurisdiction) that would
        prevent, hinder or materially delay the immediate sale of such
        securities

       

      "Manage"
        and
        "Management"
        mean
        generation, manufacture, production, handling, distribution, processing,
        use,
        receipt, storage, treatment, shipment, operation, transportation, recycling,
        discharge, Release, discharge, remediation, labeling, removal, reuse and/or
        disposal.

       

      "Management
        Rights Letter"
        means
        the certain Management Rights Letter to be entered into between the Company
        and
        the Purchaser at the First Tranche Closing, substantially in the form attached
        hereto as Exhibit
        C.

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      "Market
        Price"
        means,
        for any date, the volume-weighted average closing price per share of the
        Common
        Stock for the 30 consecutive Trading Days immediately prior to such date;
        provided,
        however,
        that in
        the event that the Market Price is determined during a period following the
        announcement by the Company of (i) a dividend or distribution on the Common
        Stock payable in shares of Common Stock or securities convertible into shares
        of
        Common Stock, or (ii) any subdivision, combination or reclassification of
        the
        Common Stock and prior to the expiration of 30 Trading Days after the
        ex-dividend date for such dividend or distribution, or the record date for
        such
        subdivision, combination or reclassification, then, and in each such case,
        the
        Market Price shall be appropriately adjusted to reflect the Market Price
        per
        share equivalent of the Common Stock. The closing price for each day shall
        be
        the last sale price, regular way, or, in case no such sale takes place on
        such
        day, the average of the closing bid and asked prices, regular way, in either
        case, as reported in the principal consolidated transaction reporting system
        with respect to Nasdaq (or, if the Common Stock is not then listed on Nasdaq,
        any national securities exchange, market or trading or quotation facility
        on
        which the Common Stock is then listed or quoted).

       

      "Material
        Adverse Effect"
        means a
        material adverse effect on (a) the business, financial condition, operations,
        assets, or prospects of the Company or its Subsidiaries or (b) the ability
        of
        the Company to perform its obligations under this Agreement and the other
        Transaction Documents and to consummate the transactions contemplated hereby
        and
        thereby; provided,
        however,
        that
        none of the following shall be deemed, either alone or in combination, to
        constitute, and none of the following shall be taken into account in determining
        whether there has been or will be, a Material Adverse Effect: (a) any adverse
        change, effect, event, occurrence, state of facts or development attributable
        to
        conditions affecting the U.S. economy as a whole, except to the extent that
        the
        Company or its Subsidiaries are disproportionately affected relative to other
        companies operating in the United States; (b) the fact that the Company or
        any
        of its Subsidiaries fails to meet any internal or published projections,
        forecasts, or revenue or earnings predictions for any period ending on or
        after
        the date of this Agreement; provided,
        that
        any underlying changes, effects, events, occurrences or states of facts that
        give rise or contribute to such failure may be taken into account in determining
        whether there has been or will be a Material Adverse Effect; and (c) the
        acts or
        omissions of the Purchaser in breach of this Agreement.

       

      "Material
        Contracts"
        means
        (i) all ''contracts, agreements, leases or other instruments to which the
        Company or any of its Subsidiaries is a party or by which the Company, its
        Subsidiaries or its properties are bound, which involve prospective fixed
        and/or
        contingent payments or expenditures by or to the Company or its Subsidiaries
        of
        more than $250,000, or in excess of the normal ordinary and usual requirements
        of its business, (ii) all contracts, agreements or other instruments
        governing any Indebtedness of the Company and the Subsidiaries (other than
        the
        Notes); (iii)  all contracts or agreements to which the Company or any
        Subsidiary is a party or that purport to bind the Company, any Subsidiary
        or any
        Affiliate of the Company or any Subsidiary (A) containing any provision or
        covenant prohibiting or limiting the ability of the Company, any Subsidiary
        or
        any Affiliate of the Company or any Subsidiary to engage in any business
        activity or compete with any Person or prohibiting or limiting the ability
        of
        any Person to compete with the Company (other than (x) non-compete or business
        limitation covenants contained in agreements with customers or suppliers
        entered
        into in the ordinary course of business that do not purport to restrict
        Affiliates of the Company or its Subsidiaries and (y) customary confidentiality
        obligations); (B) involving a standstill or similar obligation of the Company
        to
        a third party or of a third party to the Company; (C) containing any
        "non-solicitation" or "no-hire" provision or covenant that restricts the
        Company, any Subsidiary or any Affiliate of the Company or any Subsidiary
        (other
        than non-solicitation covenants contained in agreements with customers or
        suppliers entered into in the ordinary course of business that do not purport
        to
        restrict Affiliates of the Company or its Subsidiaries); or (D) containing
        any
        exclusive dealing or other exclusivity provision, (iv) all contracts for
        the employment of any executive officer of the Company or any Subsidiary,
        (v) all material distributor and sales agency agreements and (vi) any
        collective bargaining or union agreements, contracts or
        commitments.

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      "Nasdaq"
        means
        The Nasdaq Global Market.

       

      "Notes"
        means
        the First Tranche Note, the Second Tranche Note and any promissory notes
        issued
        thereunder as paid in kind interest.

       

      "OFAC"
        means
        Office of Foreign Assets Control of the U.S. Department of the
        Treasury.

       

      "Options"
        means
        any outstanding rights, warrants or options to subscribe for or purchase
        Common
        Stock or Convertible Securities.

       

      "Order"
        means
        any order, injunction, judgment, decree, ruling, writ, arbitration decision
        or
        award, Permit, license or assessment of a Governmental Entity.

       

      "PATRIOT
        Act"
        means
        the USA PATRIOT ACT of 2001, as amended.

       

      "Permit"
        means
        any franchise, permit, license, review, certification, approval, registration,
        consent or other authorization issued by any Governmental Entity or pursuant
        to
        any Law.

       

      "Permitted
        Indebtedness"
        means:
        (i) Indebtedness of the Company under the Notes; (ii) Indebtedness of the
        Company under the Master Term Loan and Security Agreement dated as of December
        31, 2007, among the Company, CIT Healthcare, LLC and Life Sciences Capital
        LLC
        (as the same may be amended, supplemented, modified, increased, refinanced
        or
        replaced) in an amount not to exceed $14,000,000 in the aggregate at any
        time
        outstanding secured by Liens permitted under clause (iii) of the definition
        of
        Permitted Liens; and (iii) the PT Earnout.

       

      "Permitted
        Liens"
        means:
        (i) landlords', mechanics', carriers', workmen's, repairmen's or other like
        liens arising or incurred in the ordinary course of business, in each case
        for
        sums not yet due and payable or due but not delinquent or being contested
        in
        good faith by appropriate proceedings; (ii) statutory liens for taxes not
        yet
        due and payable or due but not delinquent or being contested in good faith;
        (iii) liens upon any equipment acquired by the Company or its Subsidiaries
        after
        the date hereof to secure (A) the purchase price of such equipment or
        indebtedness for borrowed money incurred solely to finance the purchase price
        of
        such equipment or (B) capital lease obligations, so long as, in each case,
        such
        liens extend only to the equipment financed, and any accessions, replacements,
        substitutions and proceeds (including insurance proceeds) thereof or thereto;
        and (iv) easements, reservations, rights of way, restrictions, minor defects
        or
        irregularities in title and other similar charges or encumbrances affecting
        real
        property in a manner not materially or adversely affecting the value or use
        of
        such property.

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      "Perseus"
        means
        Perseus Partners VII, L.P., or any related investment funds under common
        management, to whom Perseus Partners VII, L.P. transfers
        Securities.

       

      "Perseus
        Director"
        and
        "Perseus
        Directors"
        mean
        the representative(s) of the Purchaser appointed or elected to the Board
        pursuant to this Agreement.

       

      "Person"
        means
        any person, individual, corporation, limited liability company, partnership,
        business association, joint venture, trust or other nongovernmental entity
        or
        any Governmental Entity.

       

      "Pollutant"
        means,
        whether alone or in combination, whether solid, liquid or gaseous, any and
        all
        substances, materials, products or articles (including biologic agents or
        vectors, genetically modified organisms (whether or not living), culture,
        or
        serum) that are (i) listed in the HHS and USDA Select Agents and Toxins pursuant
        to 7 CFR Part 311, 9 CFR Part 121, and 42 CFR Part 73, and/or those that
        are not
        otherwise exempt under NIH guidelines for Research Involving Recombinant
        DNA
        Molecules (2002) or otherwise subject to regulation by Environmental Law;
        (ii)
        defined, identified, classified, characterized or otherwise regulated under
        Environmental Law as "hazardous," "toxic," "dangerous," "pollutant,"
        "contaminant," "explosive," "corrosive," "flammable," "radioactive," "reactive,"
        "infectious," "contagious," "special waste," "medical waste," "biomedical
        waste," "mutagenic," "carcinogenic," "endotoxin," or "blood-borne pathogen"
        or
        terms of similar import; (iii) capable of causing harm or injury to human
        health, natural resources or the environment or giving rise to liability
        or an
        obligation to remediate under Environmental Law; or (iv) any oils, petroleum
        product or byproduct, flammable or explosive material, radioactive material,
        nuclear materials, asbestos or asbestos containing materials, pesticides,
        natural or synthetic gas, polychlorinated biphenyls ("PCBs"),
        dioxins, dibenzofurans, urea formaldehyde, heavy metals, lead-based-paint,
        radon
        gas, mold, mold spores, bacteria, fungi, and mycotoxins.

       

      "Principal
        Holder"
        means
        (i) prior to the First Tranche Closing, Perseus, and (ii) after the First
        Tranche Closing, (A) the Person (or group of affiliated Persons (including
        any
        related investment funds under common management), acting together) that
        holds
        Securities representing a majority of the Aggregate Perseus Ownership (the
        "Majority
        Holder")
        (B) in
        the event that no such Majority Holder exists, Perseus, so long as Perseus
        holds
        Securities representing at least 25% of the Aggregate Perseus
        Ownership.

       

      "PT
        Earnout"
        means
        the obligation of the Company to make certain payments to Photo Therapeutics
        following the consummation of the PT Acquisition pursuant to Section 2.5 of
        the Acquisition Agreement.

       

      "PT
        Earnout Amount"
        means
        the aggregate cash payment due from the Company to Photo Therapeutics pursuant
        to the PT Earnout, as finally determined in accordance with the terms and
        conditions of the Acquisition Agreement.

       

      "Qualified
        Earnout Financing"
        means
        an issuance of Common Stock by the Company occurring after the First Tranche
        Closing Date that satisfies all of the following: (i) such issuance consists
        solely of Common Stock, (ii) the price per share in such issuance is equal
        to or
        greater than 150% of the then-effective conversion price under the First
        Tranche
        Note; (iii) such issuance results in net proceeds to the Company in an amount
        no
        less than the PT Earnout Amount; and (iv) the net proceeds of such issuance
        are
        applied by the Company to satisfy in full the Company's obligations under
        the PT
        Earnout.

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      "RCRA"
        means
        the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et
        seq.),
        as
        amended, and all rules, regulations and standards issued
        thereunder.

       

      "Registration
        Rights Agreement"
        means
        the Registration Rights Agreement to be entered into between the Company
        and the
        Purchaser at the First Tranche Closing, substantially in the form attached
        hereto as Exhibit
        D.

       

      "Release"
        means
        any releasing, spilling, leaking, pumping, pouring, emitting, emptying,
        discharging, injecting, escaping, leaching, dumping, placing, discarding,
        abandonment, or disposing into the environment (including the placing,
        discarding or abandonment of any barrel, container or other receptacle
        containing any Pollutant or other material). 

       

      "Removal,"
        "Remedial"
        and
        "Response"
        actions
        include the types of activities covered by CERCLA, RCRA, and other comparable
        Environmental Laws, and whether the activities are (a) those that might be
        taken by a Governmental Entity or (b) those that a Governmental Entity or
        any other Person might seek to be taken by a third party who is or has been
        engaged in the Management of Pollutants. 

       

      "Reverse
        Stock Split"
        means
        an amendment to the Company's Certificate of Incorporation to effect a reverse
        stock split of the Common Stock of the Company by a ratio of one-for-five
        or
        such other ratio as may be agreed between the Company and the Purchaser prior
        to
        the date the Proxy Statement is filed with the SEC in preliminary
        form.

       

      "Rule
        144"
        means
        Rule 144 promulgated under the Securities Act, or any successor
        rule.

       

      "SEC"
        means
        the United States Securities and Exchange Commission.

       

      "Second
        Tranche Conversion Price"
        means
        the lesser of (i) 150% of the conversion price then in effect with respect
        to
        the First Tranche Note (or, if the First Tranche Note shall have been repaid
        or
        converted in full, 150% of the conversion price that would have then been
        in
        effect with respect to the First Tranche Note) as of the Second Tranche
        Measurement Date and (ii) the Second Tranche Market Price.

       

      "Second
        Tranche Market Price"
        means
        the Market Price as of the Second Tranche Measurement Date.

       

      "Second
        Tranche Measurement Date"
        means
        the Second Tranche Closing Date.

       

      "Second
        Tranche Note Amount"
        means
        the lesser of (i) the PT Earnout Amount, and (ii) $7,000,000.

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      "Second
        Tranche Note"
        means a
        convertible promissory note of the Company, substantially in the form attached
        hereto as Exhibit
        A,
        having
        an aggregate principal amount equal to the Second Tranche Note Amount and
        an
        initial conversion price equal to the Second Tranche Conversion
        Price.

       

      "Second
        Tranche Warrant"
        means a
        warrant, substantially in the form attached hereto as Exhibit
        B,
        to
        purchase a number of shares of Common Stock equal to the quotient obtained
        by
        dividing (i) the product of (A) 0.3 and (B) the Second Tranche Note Amount
        by
        (ii) the Second Tranche Conversion Price, rounded to the nearest whole number,
        at a price per share initially equal to the Second Tranche Conversion
        Price.

       

      "Securities"
        means
        the First Tranche Common Shares, the Notes, the Warrants, the Conversion
        Shares
        and the Warrant Shares.

       

      "Securities
        Act"
        means
        the Securities Act of 1933, as amended.

       

      "Specified
        Change of Control"
        means a
        Change of Control that would, upon consummation, result in Perseus receiving
        aggregate consideration (assuming the conversion of any Notes or exercise
        of any
        Warrants immediately prior to the consummation thereof) consisting of cash
        or
        Liquid Securities having an aggregate value that would represent both (i)
        at
        least 150% of the weighted average of the conversion prices of the outstanding
        Notes then in effect and (ii) an annualized yield of at least 35% on the
        aggregate cash purchase price paid by the Purchaser for all Securities then
        held
        by Perseus.

       

      "Stockholder
        Approval"
        means
        the affirmative vote of a majority of the outstanding shares of Common Stock
        present in person or represented by proxy at the Company Stockholders Meeting
        in
        favor of resolutions approving (i) this Agreement and the other Transaction
        Documents and the transactions contemplated hereby and thereby (including
        the
        Company's issuance of all of the Securities pursuant to the Transaction
        Documents), (ii) the Reverse Stock Split and (iii) the Incentives Modifications
        (if approval is necessary to give effect to the Incentives Modifications
        under
        applicable Law (including Tax regulation) or Nasdaq rule), in each case in
        accordance with Law and the rules and regulations of Nasdaq and the Delaware
        General Corporation Law.

       

      "Subsidiary"
        of any
        Person means another Person, an amount of the voting securities, other voting
        ownership or voting partnership interests of which is sufficient to elect
        at
        least a majority of its Board of Directors or other governing body (or, if
        there
        are no such voting interests, 50% or more of the equity interests of which)
        is
        owned directly or indirectly by such first Person or by another Subsidiary
        of
        such Person. Unless otherwise qualified, or the context otherwise requires,
        all
        references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
        refer
        to a Subsidiary or Subsidiaries of the Company and shall include, from and
        after
        the completion of the PT Acquisition, the PT Subsidiaries and their respective
        Subsidiaries.

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      "Surgical
        Innovations Sale Agreement"
        means
        that certain Asset Purchase Agreement dated August 1, 2008, by and between
        PRI
        Medical Technologies, Inc., a Nevada corporation and the Company, as in effect
        on the date hereof.

       

      "Trading
        Day"
        means a
        day on which the Trading Market on which the Common Stock is then listed
        or
        quoted is open for the transaction of business.

       

      "Trading
        Market"
        means
        the Nasdaq Global Market or, if the Common Stock is not then listed or quoted
        on
        the Nasdaq Global Market, any other national securities exchange, market
        or
        trading or quotation facility on which the Common Stock is then listed or
        quoted.

       

      "Transaction
        Documents"
        means
        collectively this Agreement, the Notes, the Warrants, the Transfer Agent
        Instructions, the Registration Rights Agreement, the Management Rights Letter,
        and such other documents, instruments and agreements executed in connection
        with
        the consummation of the transactions contemplated hereby.

       

      "Transfer
        Agent"
        means
        StockTrans, Inc., or any successor transfer agent for the Company. 

       

      "Transfer
        Agent Instructions"
        means
        the Irrevocable Transfer Agent Instructions, substantially in the form of
        Exhibit E,
        instructing the Transfer Agent to credit to the Purchaser the First Tranche
        Common Shares, duly executed by the Company and delivered to and acknowledged
        in
        writing by the Transfer Agent.

       

      "Warrant
        Shares"
        means
        the shares of Common Stock issued or issuable upon exercise of any
        Warrant.

       

      "Warrants"
        means
        the First Tranche Warrant and the Second Tranche Warrant.

       

      Section
        1.2 Certain
        Interpretations.
        Except
        where expressly stated otherwise in this Agreement, the following rules of
        interpretation apply to this Agreement: (i) "or" is not exclusive and "include",
        "includes" and "including" are not limiting and shall be deemed to be followed
        by the words "but not limited to"; (ii) definitions contained in this Agreement
        are applicable to the singular as well as the plural forms of such terms;
        (iii)
        references to an agreement or instrument mean such agreement or instrument
        as
        from time to time amended, modified or supplemented; (iv) references to a
        Person
        are also to its permitted successors and assigns; (v) references to an
        "Article", "Section", "Subsection", "Exhibit" or "Schedule" refer to an Article
        of, a Section or Subsection of, or an Exhibit or Schedule to, this Agreement;
        and (vi) words importing the masculine gender include the feminine or neuter
        and, in each case, vice
        versa.

       

      ARTICLE
        II

      Purchase
        and Sale of Securities; Closings

       

      Section
        2.1 Purchase
        and Sale of Securities.
        Upon
        the
        terms and subject to the conditions set forth in this
        Agreement:

      
        
          
          

        

        
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      (a) at
        the
        First Tranche Closing, the Company shall issue and sell to the Purchaser,
        and
        the Purchaser shall purchase from the Company, (i) the First Tranche Note,
        (ii)
        the First Tranche Warrant, and (iii) the First Tranche Common Shares, for
        an
        aggregate purchase price equal to the First Tranche Note Amount (the
        transactions described in this Section 2.1(a), the "First
        Tranche Issuance");
        and

       

      (b) at
        the
        Second Tranche Closing, unless (i) the PT Earnout Amount is zero or (ii)
        the
        Company shall have satisfied its obligations under the PT Earnout with the
        net
        proceeds of a Qualified Earnout Financing (any of the events in clause (i)
        or
        (ii), a "Company
        Option Event"),
        the
        Company shall issue and sell to the Purchaser, and the Purchaser shall purchase
        from the Company, (A) the Second Tranche Note and (B) the Second Tranche
        Warrant, for an aggregate purchase price equal to the Second Tranche Note
        Amount
        (the transactions described in this Section 2.1(b), the "Second
        Tranche Issuance").

       

      Section
        2.2 First
        Tranche Closing.
        The
        closing of the First Tranche Issuance (the "First
        Tranche Closing")
        shall
        be held at the offices of Covington & Burling LLP, The New York Times
        Building, 620 Eighth Avenue, New York, NY 10018, on the date as soon as
        practicable, and in any event not later than two Business Days, following
        satisfaction of all conditions and taking of all other actions (other than
        those
        that by their terms are to be satisfied or taken at the First Tranche Closing)
        set forth in Sections 6.1 and 6.2 (or, to the extent permitted by Law, waived
        by
        the parties entitled to the benefits thereof), or on such other date, and
        at
        such other time or place, as the Company and the Purchaser may mutually agree
        in
        writing. The date on which the First Tranche Closing occurs is referred to
        in
        this Agreement as the "First
        Tranche Closing Date".

       

      Section
        2.3 Transactions
        to be Effected at the First Tranche Closing.
        At the
        First Tranche Closing:

       

      (a) The
        Purchaser shall pay to the Company cash in an amount equal to the First Tranche
        Note Amount, by wire transfer of immediately available funds in accordance
        with
        wire instructions provided by the Company not less than two Business Days
        prior
        to the First Tranche Closing Date.

       

      (b) The
        Company shall deliver to the Transfer Agent the Transfer Agent
        Instructions.

       

      (c) The
        Company shall deliver to the Purchaser: (i) the First Tranche Note; (ii)
        the
        First Tranche Warrant; and (iii) stock certificates representing First Tranche
        Common Shares.

       

      (d) The
        Company shall deliver to the Purchaser duly executed counterparts of the
        Registration Rights Agreement and the Management Rights Letter.

       

      (e) The
        Purchaser shall deliver to the Company duly executed counterparts of the
        Registration Rights Agreement and the Management Rights Letter.

      
        
          
          

        

        
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      (f) The
        Company shall pay all Transaction Expenses then owed to the Purchaser pursuant
        to Section 5.22, as directed by the Purchaser not less than two Business
        Days
        prior to the First Tranche Closing Date.

       

      Section
        2.4 Second
        Tranche Closing.
        The
        closing of the Second Tranche Issuance (the "Second
        Tranche Closing")
        shall
        be held at the offices of Covington & Burling LLP, The New York Times
        Building, 620 Eighth Avenue, New York, NY 10018, on the date as soon as
        practicable, and in any event not later than ten Business Days, following
        the
        satisfaction of all conditions and taking of all other actions (other than
        those
        that by their terms are to be satisfied or taken at the Second Tranche Closing)
        set forth in Sections 6.3 and 6.4 (or, to the extent permitted by Law, waived
        by
        the parties entitled to the benefits thereof), or on such other date, and
        at
        such other time or place, as the Company and the Purchaser may mutually agree
        in
        writing. The date on which the Second Tranche Closing occurs is referred
        to in
        this Agreement as the "Second
        Tranche Closing Date".
        The
        Company shall deliver notice of any Company Option Event to the Purchaser
        as
        soon as practicable after the occurrence thereof (and in any event not less
        than
        five (5) Business Days prior to the Second Tranche Closing Date).

       

      Section
        2.5 Transactions
        to be Effected at the Second Tranche Closing.
        At the
        Second Tranche Closing:

       

      (a) Unless
        a
        Company Option Event shall have occurred:

       

      (i) the
        Purchaser shall pay to the Company cash in an amount equal to the Second
        Tranche
        Note Amount by wire transfer of immediately available funds in accordance
        with
        wire instructions provided by the Company not less than two Business Days
        prior
        to the Second Tranche Closing Date; 

       

      (ii) the
        Company shall deliver to the Purchaser the Second Tranche Note; and

       

      (iii) the
        Company shall deliver to the Purchaser the Second Tranche Warrant.

       

      (b) The
        Company shall pay all Transaction Expenses then owed to the Purchaser pursuant
        to Section 5.22, as directed by the Purchaser not less than two Business
        Days
        prior to the Second Tranche Closing Date.

       

      Section
        2.6 Adjustments.
        Each of
        the First Tranche Market Price, the First Tranche Conversion Price and the
        First
        Tranche Common Shares shall be proportionately adjusted for any subdivision
        or combination of the Common Stock (by stock split, reverse stock split,
        dividend, reorganization, recapitalization or otherwise) that may occur on
        or
        after the date hereof and prior to the First Tranche Closing, and
        each
        of the Second Tranche Market Price and the Second Tranche Conversion Price
        shall
        be proportionately adjusted for any such subdivision or combination of the
        Common Stock that may occur on or after the Second Tranche Measurement Date
        and
        prior to the Second Tranche Closing.

      
        
          
          

        

        
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      ARTICLE
        III
Representations
        And Warranties Of the Company

       

      The
        Company hereby represents and warrants to the Purchaser, (i) as of the date
        hereof, (ii) as of the First Tranche Closing Date and (iii) as of the Second
        Tranche Closing Date, in each case except as expressly disclosed in (A) the
        Company's annual report on Form 10-K for the fiscal year ended December 31,
        2007
        as filed with the SEC prior to the date hereof (as amended on May 8, 2008,
        the
        "Last
        10-K"),
        or
        (B) the Company's quarterly report on Form 10-Q for the period ended March
        31,
        2008 as filed with the SEC prior to the date hereof (the "Last
        10-Q"
        and,
        together with the Last 10-K, the "Reference
        SEC Reports"),
        in
        each case excluding materials included as exhibits thereto and any risk factors
        or other general cautionary language contained in the Reference SEC Reports;
        provided,
        that
        any disclosure in the Reference SEC Reports shall qualify a section or
        subsection of this Article III only to the extent it is readily apparent
        from a
        reading of such disclosure, and without reference to extrinsic evidence,
        that
        such disclosure is applicable to such section or subsection.

       

      Section
        3.1 Organization
        and Qualification; Subsidiaries.
        

       

      (a) The
        Company and each of its Subsidiaries is a corporation duly organized, validly
        existing and in good standing under the laws of the jurisdiction of its
        organization, with the requisite corporate power and authority to own and
        use
        its properties and assets and to carry on its business as now conducted and
        proposed to be conducted. Neither the Company nor any Subsidiary is in violation
        of any of the provisions of its respective certificate or articles of
        incorporation, bylaws or other organizational or charter documents. Each
        of the
        Company and its Subsidiaries is duly qualified to conduct business and is
        in
        good standing as a foreign corporation or other entity in each jurisdiction
        in
        which the nature of the business conducted or property owned by it makes
        such
        qualification necessary, except for such failures to be in good standing
        or duly
        qualified that, individually or in the aggregate, have not had and would
        not
        reasonably be expected to have a Material Adverse Effect.

       

      (b) The
        Company has no Subsidiaries other than those listed in Schedule 3.1(b).
        Except
        as disclosed in Schedule 3.1(b),
        the
        Company owns, directly or indirectly, all of the capital stock or other equity
        interests of each Subsidiary, free and clear of any Liens and all the issued
        and
        outstanding shares of capital stock or other equity interests of each Subsidiary
        are validly issued and are fully paid, non-assessable and free of preemptive
        and
        similar rights to subscribe for or purchase such securities.

       

      Section
        3.2 Authorization;
        Enforcement.

       

      (a) The
        Company has all requisite corporate power and authority to enter into and
        consummate the transactions contemplated by each of the Transaction Documents
        to
        which it is a party, to perform its obligations hereunder and thereunder,
        to
        issue the Notes, Warrants and First Tranche Common Shares in accordance with
        the
        terms hereof, to issue the Conversion Shares in accordance with the terms
        of the
        Notes and to issue the Warrant Shares in accordance with the Warrants. The
        execution, delivery and performance by the Company of each of the Transaction
        Documents to which it is a party and the consummation by the Company of the
        transactions contemplated hereby and thereby (including the First Tranche
        Issuance and the Second Tranche Issuance) have been duly authorized by the
        Board
        and no further consent or authorization of the Company, its Board of Directors,
        or its stockholders (other than the Stockholder Approval) is required. Prior
        to
        the date of this Agreement, the Board, at a meeting duly called and held,
        has
        (a) determined that the transactions contemplated by the Transaction Documents
        are fair to, advisable and in the best interests of the Company and the
        stockholders of the Company, and (b) has adopted resolutions recommending
        that
        the stockholders of the Company vote to approve the Transaction Documents
        and
        the transactions contemplated thereby, a true and correct copy of which
        resolutions have been provided to the Purchaser.

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

      (b) This
        Agreement has been duly executed by the Company and constitutes a legal,
        valid
        and binding obligation of the Company enforceable against the Company in
        accordance with its terms, except as enforceability may be limited by
        (i) applicable bankruptcy, insolvency, reorganization or other laws of
        general application relating to or affecting the enforcement of creditors
        rights
        generally, and (ii) the effect of rules of Law governing the availability
        of specific performance and other equitable remedies.

       

      (c) As
        of
        their execution and delivery, each of the Transaction Documents to which
        the
        Company is a party will have been duly executed by the Company and when
        delivered in accordance with the terms hereof, will constitute, the legal,
        valid
        and binding obligation of the Company enforceable against the Company in
        accordance with its terms, except as enforceability may be limited by
        (i) applicable bankruptcy, insolvency, reorganization or other laws of
        general application relating to or affecting the enforcement of creditors
        rights
        generally, and (ii) the effect of rules of Law governing the availability
        of specific performance and other equitable remedies.

       

      Section
        3.3 No
        Conflicts; Government Consents and Permits.

       

      (a) The
        execution, delivery and performance by the Company of the Transaction Documents
        to which it is a party and the consummation by the Company of the transactions
        contemplated hereby and thereby do not and will not: (i) conflict with or
        violate any provision of the Company's or any Subsidiary's certificate or
        articles of incorporation, bylaws or other organizational or charter documents;
        (ii) except as set forth on Schedule 3.3(a), conflict with, violate or result
        in
        a breach of any provision of, or constitute a default under (or an event
        that
        with notice or lapse of time or both would become a default under), or give
        to
        others any rights of termination, amendment, acceleration or cancellation
        (with
        or without notice, lapse of time or both) of, any agreement, credit facility,
        debt or other instrument (evidencing a Company or Subsidiary debt or otherwise)
        or other understanding to which the Company or any Subsidiary is a party
        or by
        which any property or asset of the Company or any Subsidiary is bound, or
        affected; or (iii) subject to obtaining or making the consents, approvals,
        orders, authorizations, registrations, declarations and filings referred
        to in
        paragraph (b) below, result in a violation of any Law or Order of any
        Governmental Entity to which the Company or a Subsidiary is subject (including,
        assuming the accuracy of the representations and warranties of the Purchaser
        set
        forth in Article IV hereof, federal and state securities laws and regulations
        and the rules and regulations of any self-regulatory organization to which
        the
        Company or its securities are subject, including all applicable Trading Markets,
        or by which any property or asset of the Company or any Subsidiary is bound
        or
        affected, except in the case of clauses (ii) and (iii), for such conflicts
        or
        violations that, individually or in the aggregate, are not material and do
        not
        otherwise affect the ability of the Company to consummate the transactions
        contemplated by this Agreement and the other Transaction
        Documents.

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

      (b) The
        Company is not required to obtain any consent, authorization or order of,
        or
        make any filing or registration with, any Governmental
        Entity or any regulatory or self regulatory organization
        to which
        the Company or its securities are subject, including all applicable Trading
        Markets, in order for it to execute, deliver or perform any of its obligations
        under this Agreement or the other Transaction Documents in accordance with
        the
        terms hereof and thereof, or to issue and sell the Securities in accordance
        with
        the terms hereof and thereof, other than (i) those filings required under
        Regulation D under the Securities Act and any applicable state securities
        laws
        and regulations, (ii) the
        filing with the SEC of a proxy statement relating to the Company Stockholders
        Meeting (such proxy statement, as amended or supplemented from time to time,
        the
        "Proxy
        Statement"),
        and
        such reports under Section 13 or 16 of the Exchange
        Act
        and the
        rules and regulations promulgated thereunder, as may be required in connection
        with this Agreement, the other Transaction Documents and the transactions
        contemplated hereby and thereby,
        (iii)
        compliance with the rules of Nasdaq and any filing with Nasdaq required under
        such rules and (iv) such other consents, authorizations, orders, filings
        or
        registrations as have been made or obtained.

       

      Section
        3.4 Issuance
        of Securities.
        All of
        the Securities are duly authorized, and when issued and paid for in accordance
        with this Agreement and the other Transaction Documents, will be duly and
        validly issued, fully paid and nonassessable, free and clear of all Liens
        other
        than restrictions on transfer provided for in the Transaction Documents and
        applicable federal and state securities laws. The Company has reserved from
        its
        duly authorized capital stock the maximum number of shares of Common Stock
        issuable at the First Tranche Closing, the maximum number of Conversion Shares
        and the maximum number of Warrant Shares.

       

      Section
        3.5 Capitalization.
        

      
      

      (a) As
        of the
        date hereof, the authorized capital stock of the Company consists of 100,000,000
        shares of Common Stock. As of June 30, 2008, 63,032,207 shares of Common
        Stock
        were issued and outstanding. Except as set forth on Schedule
        3.5(a),
        since
        June 30, 2008, the Company has not issued any capital stock other than (i)
        pursuant to the exercise of outstanding Common Stock Equivalents, and
        (ii) the issuance of the First Tranche Common Shares. No Person has any
        right of first refusal, preemptive right, right of participation, or any
        similar
        right to participate in the transactions contemplated by the Transaction
        Documents. Except as set forth on Schedule
        3.5(a)
        or
        pursuant to the Securities, there are no outstanding options, warrants, script
        rights to subscribe to, calls or commitments of any character whatsoever
        relating to, or securities, rights or obligations convertible into or
        exercisable or exchangeable for, or giving any Person any right to subscribe
        for
        or acquire, any shares of Common Stock, or securities or rights convertible
        or
        exchangeable into shares of Common Stock. The issue and sale of the Securities
        will not obligate the Company to issue shares of Common Stock or other
        securities to any Person (other than the Purchaser) and will not result in
        a
        right of any holder of the Company's securities to adjust the exercise,
        conversion, exchange or reset price under such securities. All of the
        outstanding shares of capital stock of the Company are validly issued, fully
        paid and nonassessable, have been issued in compliance in all material respects
        with all applicable federal and state securities laws, and none of such
        outstanding shares were issued in violation of any preemptive rights or similar
        rights to subscribe for or purchase securities. The Company's Restated
        Certificate of Incorporation, as amended by the Certificate of Amendment
        of
        Restated Certificate of Incorporation, dated as of June 29, 2007 (the
        "Certificate
        of Incorporation"),
        as in
        effect on the date hereof, and the Company's Amended and Restated Bylaws
        (the
        "Bylaws")
        as in
        effect on the date hereof, are each filed as exhibits to the SEC Reports
        filed
        prior to the date hereof. The rights, preferences, privileges and restrictions
        of the Common Shares are as stated in the Company's Certificate of Incorporation
        and as provided under applicable Law. Except as set forth on Schedule
        3.5(a),
        there
        are no stockholder agreements, voting agreements or other similar agreements
        with respect to the Company's capital stock to which the Company is a party
        or,
        to the knowledge of the Company, between or among any of the Company's
        stockholders.

      
        
          
          

        

        
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      (b) Other
        than the rights granted in the Registration Rights Agreement or as set forth
        on
        Schedule 3.5(a), there are no outstanding contractual rights which permit
        the
        holder thereof to cause the Company to file a registration statement under
        the
        Securities Act or which permit the holder thereof to include securities of
        the
        Company under the Securities Act, and there are no outstanding agreements
        or
        other commitments which otherwise relate to the registration for any securities
        of the Company under the Securities Act.

       

      Section
        3.6 SEC
        Reports, Financial Statements.
        The
        Company's Common Stock is registered under Section 12 of the Exchange Act.
        The
        Company has filed all reports required to be filed by it under the Exchange
        Act,
        including pursuant to Section 13(a)
        or
15(d)
        thereof, since January 1, 2007, on a timely basis or has received a valid
        extension of such time of filing and has filed any such report prior to the
        expiration of any such extension. Such reports required to be filed by the
        Company under the Exchange Act since January 1, 2007, including pursuant
        to
        Section 13(a) or 15(d) thereof, together with any materials filed or
        furnished by the Company under the Exchange Act during such period of time,
        whether or not any such reports were required being collectively referred
        to
        herein as the "SEC
        Reports".
        As of
        their respective dates, the SEC Reports filed with the SEC complied or will
        comply in all material respects with the requirements of the Exchange Act
        and
        the rules and regulations of the SEC promulgated thereunder, and none of
        the SEC
        Reports, when filed by the Company, contained or will contain any untrue
        statement of a material fact or omitted to state a material fact required
        to be
        stated therein or necessary in order to make the statements therein, in the
        light of the circumstances under which they were made, not misleading. The
        financial statements of the Company included in the SEC Reports comply and
        will
        comply as to form in all material respects with applicable accounting
        requirements and the rules and regulations of the SEC with respect thereto
        as in
        effect at the time of filing. Such financial statements have been and will
        have
        been prepared in accordance with United States generally accepted accounting
        principles applied on a consistent basis during the periods involved
        ("GAAP"),
        except as may be otherwise specified in such financial statements, the notes
        thereto and except that unaudited financial statements may not contain all
        footnotes required by GAAP or may be condensed or summary statements, and
        fairly
        present in all material respects the consolidated financial position of the
        Company and its consolidated subsidiaries as of and for the dates thereof
        and
        the results of operations and cash flows for the periods then ended, subject,
        in
        the case of unaudited statements, to normal, year-end audit
        adjustments.

      
        
          
          

        

        
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      Section
        3.7 Financial
        Reporting.
        

       

      (a) Each
        of
        the Company and its Subsidiaries maintains accurate books and records reflecting
        its assets and liabilities and maintains proper and adequate internal accounting
        controls which provide reasonable assurance that (i) transactions are
        executed with management's authorization, (ii) transactions are recorded as
        necessary to permit preparation of the consolidated financial statements
        of the
        Company in accordance with GAAP and to maintain accountability for the Company's
        consolidated assets, (iii) access to the Company's assets is permitted only
        in accordance with management's authorization, (iv) the reporting of the
        Company's assets is compared with existing assets as necessary to permit
        preparation of the consolidated financial statements of the Company in
        accordance with GAAP and to maintain accountability for the Company's
        consolidated assets, (v) accounts, notes and other receivables and
        inventory are recorded accurately, and procedures the Company believes in
        good
        faith to be adequate under the circumstances are implemented to effect the
        collection thereof on a timely basis and (vi) there are procedures in place
        adequate to prevent, or timely detect, unauthorized acquisition, use or
        disposition of the Company's assets. There are no significant deficiencies
        in
        the design or operation of the Company's internal controls over financial
        reporting which could adversely affect the Company's ability to record, process,
        summarize and report financial data or material weaknesses in internal controls
        over financial reporting. There has been no fraud relating to the Company
        or any
        of its Subsidiaries, whether or not material, that involved management or
        other
        employees, whether current or former, of the Company or any of its Subsidiaries
        who have, or had, a significant role in the Company's internal controls over
        financial reporting.

       

      (b) The
        Company is in compliance in all material respects with applicable requirements
        of the Sarbanes-Oxley Act of 2002 and applicable rules and regulations
        promulgated by the SEC thereunder.

       

      Section
        3.8 Liabilities.
        Except
        as reflected in the latest balance sheet included in the Company's Last 10-Q
        (the "Latest
        Balance Sheet"),
        the
        Company and its Subsidiaries taken together as a whole, do not have any
        Indebtedness, obligation or liability (contingent or otherwise), other than
        (i)
        Indebtedness, obligations or liabilities incurred since the date of the Latest
        Balance Sheet in the ordinary course of the Company's or its Subsidiaries'
        businesses (provided,
        that
        the exception in this clause (i) shall not be applicable to any obligations
        or
        liabilities that, individually or in the aggregate, have had, or would
        reasonably be expected to have, a Material Adverse Effect) and (ii)
        Indebtedness, obligations or liabilities that, individually or in the aggregate,
        are not material to the Company and its Subsidiaries taken as a
        whole.

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

      Section
        3.9 Absence
        of Changes.
        Since
        March 31, 2008, (i) there have been no events, occurrences or developments
        that, individually or in the aggregate, have had or would reasonably be expected
        to result in a Material Adverse Effect, (ii) the Company has not altered
        its method of accounting or changed its auditors, except as disclosed in
        its SEC
        Reports filed with the SEC prior to the date hereof, (iii) the Company has
        not declared, set aside for payment, paid or made any dividend or distribution
        of cash or other property to its stockholders or purchased, redeemed or made
        any
        agreements to purchase or redeem any shares of its capital stock (except
        for
        repurchases by the Company of shares of capital stock held by employees,
        officers, directors, or consultants pursuant to an option of the Company
        to
        repurchase such shares upon the termination of employment or services), (iv)
        the
        Company has not sustained any material loss or interference with the Company's
        business from fire, explosion, flood or other calamity, whether or not covered
        by insurance, or from any labor disturbance or dispute or any action, order
        or
        decree of any court or arbitrator or Governmental Entity or regulatory
        authority, (v) no officer, key employee or groups of employees of the Company
        or
        any Subsidiary has resigned or been terminated; and (vi) there have been
        no (A)
        changes, except in the ordinary course of business, in the contingent
        obligations of the Company or any of its Subsidiaries by way of guaranty,
        endorsement, indemnity, warranty or other contractual arrangement; (B) waivers
        by any of the Company or its Subsidiaries of any right or of debt owed to
        it;
        (C) changes in any compensation arrangement or agreement with any employee,
        officer or director other than changes required to comply with Section 409A
        of
        the Code, routine annual increases in compensation or promotions or bonuses
        awarded in the ordinary course of business; (D) debts, obligations or
        liabilities incurred, assumed or guaranteed by the Company or any Subsidiary,
        except for current liabilities incurred in the ordinary course of business;
        (E)
        sales, assignments or transfers of any Intellectual Property, other than
        the
        nonexclusive license by the Company or any Subsidiary of such Intellectual
        Property to customers, suppliers or contract manufacturers in the ordinary
        course of business consistent with past practices; (F) amendments, modifications
        or other changes in any Material Contract to which the Company or any Subsidiary
        is a party or by which it is bound; or (G) arrangements or commitments by
        the
        Company or any Subsidiary to do any of the acts described in this Section 3.9.

       

      Section
        3.10 Absence
        of Litigation; Judgments.
        

       

      (a) Except
        as
        disclosed in the SEC Reports filed with the SEC prior to the date hereof,
        (i) as
        of the date hereof there is no action, suit, claim, proceeding, arbitration,
        mediation, inquiry or investigation, before or by any court, public board,
        Governmental Entity, self-regulatory organization or body (a "Proceeding")
        or, to
        the Company's knowledge, threatened, and (ii) as of each of the First Tranche
        Closing Date and the Second Tranche Closing Date, there is no material
        Proceeding pending or, to the Company's knowledge, threatened, in any such
        case,
        against or affecting the Company or any of its Subsidiaries. To the knowledge
        of
        the Company, has not been, and there is not pending, any investigation by
        the
        SEC involving the Company or any current or former director or officer of
        the
        Company or any of its Subsidiaries. The Company has not received any stop
        order
        or other order suspending the effectiveness of any registration statement
        filed
        by the Company under the Exchange Act or the Securities Act and, to the
        Company's knowledge, the SEC has not issued any such order.

       

      (b) Neither
        the Company nor any of its Subsidiaries is subject to the terms or provisions
        of
        any judgment, decree, order, writ or injunction of any Governmental
        Entity.

       

      Section
        3.11 Compliance.
        

       

      (a) Neither
        the Company nor any Subsidiary (i) is in violation of any provisions of its
        respective certificate or articles of incorporation, bylaws or other
        organizational or charter documents, each as currently in effect; (ii) is
        in default under (and no event has occurred that has not been waived that,
        with
        notice or lapse of time or both, would result in a default by the Company
        or any
        Subsidiary under), nor has the Company or any Subsidiary received notice
        (written or oral) of a claim that it is in default under, any indenture,
        loan or
        credit agreement or any other agreement or instrument to which it is a party
        or
        by which it or any of its properties is bound (whether or not such default
        has
        been waived), (iii) is in violation of any order of any court, arbitrator
        or Governmental Entity, or (iv) is in violation of any Law in any material
        respect.

      
        
          
          

        

        
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      (b) The
        Company is not required to be registered as, and is not an Affiliate of,
        an
        "investment company" within the meaning of the Investment Company Act of
        1940,
        as amended. The Company is not required to be registered as a United States
        real
        property holding corporation within the meaning of the Foreign Investment
        in
        Real Property Tax Act of 1980.

       

      Section
        3.12 Title
        to and Sufficiency and Condition of Assets.
        Except
        as described in Schedule
        3.12
        and
        except for Permitted Liens, the Company and the Subsidiaries have good and
        marketable title in all personal property owned by them, in each case free
        and
        clear of all Liens. Any real property and facilities held under lease by
        the
        Company and the Subsidiaries are held by them under valid, subsisting and
        enforceable leases and no landlord for any such real property or facility
        has
        notified the Company or any such Subsidiary that any of them are in default
        under any such lease. The personal property owned by the Company and the
        Subsidiaries, together with the Leases, constitute all of the tangible assets,
        rights and properties that are used in the operation of the business of the
        Company or any of its Subsidiaries as it is now conducted or that are used
        or
        held by the Company or any of its Subsidiaries for use in the operation of
        the
        Company's business. All assets of the Company and the Subsidiaries are in
        good
        operating condition and repair (reasonable wear and tear excepted) and are
        suitable for their intended use.

       

      Section
        3.13 Intellectual
        Property Rights.

       

      (a) To
        the
        knowledge of Company and it Subsidiaries, each of the Company and its
        Subsidiaries owns, or is validly licensed or otherwise has the right to use
        all
        patents, patent applications, trademarks, trademark rights, trade names,
        trade
        name rights, domain names, service marks, service mark rights, copyrights,
        software, trade secrets, technical know-how, other proprietary intellectual
        property rights, and computer programs (collectively, "Intellectual
        Property Rights")
        which
        are material to the conduct of the business of Company and its Subsidiaries,
        taken as a whole, as presently conducted or employed by them, or as proposed
        to
        be conducted or employed by them, in each case free and clear of all
        Liens.

       

      (b) Other
        than those listed in Schedule 3.13(b), no proceeding is pending or, to the
        Company’s or any Subsidiary’s knowledge, threatened against the Company or any
        Subsidiary that challenges the ownership, validity, scope or enforceability
        of
        any Intellectual Property Rights of the Company or any of its Subsidiaries.
        Neither the Company nor any Subsidiary has knowledge of any facts or
        circumstances that, to the Company's or its Subsidiary's knowledge, could
        form a
        reasonable basis for any such Proceeding. 

      
        
          
          

        

        
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      (c) Other
        than those listed in Schedule 3.13(c), no proceeding is pending concerning
        or,
        to the
        Company's or any Subsidiary's knowledge, threatened, neither has the Company
        or
        any Subsidiaries received any notice of, or has any knowledge of, any
        infringement by Company or any of its Subsidiaries (including with respect
        to
        the manufacture, use, sale or lease by the Company or any of its Subsidiaries
        of
        their respective products or services) of any person’s Intellectual Property
        Rights. Neither the Company nor any Subsidiary has knowledge of any facts
        or
        circumstances that, to the Company's or its Subsidiary's knowledge, could
        form a
        reasonable basis for any such infringement. 

       

      (d) Other
        than those listed on Schedule 3.13(d), neither the Company nor any of its
        Subsidiaries has received any notice of, nor has any knowledge of, infringement
        by any person of any Intellectual Property Rights of the Company or of any
        of
        its Subsidiaries.

       

      (e) The
        Company and its Subsidiaries have used reasonable efforts to maintain in
        confidence trade secrets that are material to the conduct of the business
        of the
        Company or its Subsidiaries, including entering into licenses and contracts
        that
        require licensees, contractors and other third persons that received such
        trade
        secrets to keep such trade secrets confidential. With regards to the XTRAC
        laser
        technology, all persons who have
        received such trade secrets have signed or are aware of an explicit or implied
        non-disclosure and non-use agreement not
        containing a "residuals" clause (i.e., a provision that would permit use
        of
        trade secret information that is retained in the unaided memory of a receiving
        party).

       

      (f) Schedule
        3.13(f)
        sets
        forth, as of the date hereof, a complete and accurate list of all material
        patents and applications therefor, material registered trademarks and
        applications therefor, material domain name registrations and material copyright
        registrations (if any) owned by the Company or any of its
        Subsidiaries.

       

      (i) All
        patents and patent applications required to be listed in Schedule
        3.13(f)
        that are
        owned by the Company or a Subsidiary of the Company are free and clear of
        all
        Liens.

       

      (ii) The
        patent applications required to be listed in Schedule
        3.13(f)
        that are
        owned by the Company or any of its Subsidiaries and are material to the conduct
        of the business of the Company or any of its Subsidiaries are pending, have
        not
        been abandoned, and have been, and continue to be, prosecuted.

       

      (iii) All
        necessary affidavits of continuing use have been timely filed, and all necessary
        maintenance fees have been timely paid, to continue all rights to the registered
        trademarks required to be listed in Schedule
        3.13(f)
        that are
        material to the conduct of the business of the Company or any of its
        Subsidiaries.

       

      (iv) None
        of
        the issued patents required to be listed in Schedule
        3.13(f)
        has
        expired or been declared invalid, in whole or in part, by any Governmental
        Entity,
        except
        as such expiries may be set forth in Schedule
        3.13(f).

       

      (v) There
        are
        no ongoing interferences, oppositions, reissues, reexaminations or other
        proceedings involving any of the patents required to be listed in Schedule
        3.13(f) (except as
        to any
        such proceeding that has been commenced, but as to which the United States
        Patent and Trademark Office or in any foreign patent office or similar
        administrative agency has not provided notice to the Company or its
        Subsidiaries), including ex parte, inter partes, and post-grant proceedings,
        in
        the United States Patent and Trademark Office or in any foreign patent office
        or
        similar administrative agency, except as would not, individually or in the
        aggregate, be material to the Company and its Subsidiaries taken as a
        whole.

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

      (vi) To
        the
        knowledge of the Company and its Subsidiaries, each of the patents and patent
        applications listed in Schedule
        3.13(f)
        properly
        identifies each and every inventor of the claims thereof as determined in
        accordance with and required by the laws of the jurisdiction in which such
        patent is issued or such patent application is pending. 

       

      (vii) To
        the
        knowledge of the Company and its Subsidiaries, each inventor named on the
        patent
        and patent applications list in Schedule 3.13(f) has executed or is obliged
        to
        execute an agreement assigning his or her entire right, title, and interest
        in
        and to such patents or patent applications to the Company or a Subsidiary
        of the
        Company. No such inventor has any contractual or other such obligation that
        would preclude any such assignment or otherwise conflict with the obligations
        of
        such inventor to make such assignment to the Company or such Subsidiary under
        such agreement with the Company or such Subsidiary. 

       

      (g) Schedule
        3.13(g)
        sets
        forth a complete and accurate list of all material options and licenses relating
        to Intellectual Property Rights owned by the Company or its Subsidiaries
        granted
        by Company or any of its Subsidiaries to any other Person or owned by any
        other
        Person and granted to the Company or any of its Subsidiaries. To the knowledge
        of the Company and its Subsidiaries, the Company and its Subsidiaries are
        in
        compliance with the terms of each agreement listed on Schedule
        3.13(g).

       

      (h) To
        the
        knowledge of Company and its
        Subsidiaries, Schedule
        3.13(h)
        contains
        a complete list of all agreements under which the Company and its Subsidiaries
        has agreed to, or has been assigned any obligation or duty to, indemnify,
        hold
        harmless, defend, guarantee or otherwise assume any obligation or liability
        with
        respect to the infringement or misappropriation of any Intellectual Property
        Rights by any person, excluding any obligation or duty arising out of Section
        2
        of the Uniform Commercial Code in connection with sale or lease of a product
        by
        the Company or a Subsidiary of the Company.

       

      Section
        3.14 Insurance.
        The
        Company and the Subsidiaries are insured by insurers of recognized financial
        responsibility against such losses and risks and in such amounts as are prudent
        and customary in the businesses and locations in which the Company and the
        Subsidiaries are engaged.

       

      Section
        3.15 Material
        Contracts.
        

       

      (a) Schedule 3.15
        identifies each Material Contract.

       

      (b) The
        Company has delivered to the Purchaser accurate and complete copies of all
        Material Contracts, including all amendments to such contracts. Neither the
        Company nor any Subsidiary has entered into any oral Material Contracts.
        Each
        Material Contract is valid and in full force and effect, is enforceable by
        either the Company or its Subsidiaries in accordance with its terms, and
        will
        continue to be so immediately following each Closing, except as enforceability
        may be limited by (i) applicable bankruptcy, insolvency, reorganization or
        other laws of general application relating to or affecting the enforcement
        of
        creditors rights generally, and (ii) the effect of rules of Law governing
        the availability of specific performance and other equitable remedies. No
        party
        to any such contract, agreement or instrument has indicated its intention
        to
        cancel, withdraw, modify or amend such contract, agreement or instrument.
        

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

      (c) The
        Company and its Subsidiaries are not in material violation, breach or default
        under any Material Contract and, to the Company's knowledge, no other Person
        is
        in violation or breach, or default under, any Material Contract. No event
        has
        occurred, and no circumstance or condition exists, that (with or without
        notice
        or lapse of time) will, or would reasonably be expected to, (i) result in a
        violation or breach of any of the provisions of any Material Contract,
        (ii) give any Person the right to declare a default or exercise any remedy
        under any Material Contract, (iii) give any Person the right to accelerate
        the maturity or performance of any Material Contract or (iv) give any
        Person the right to cancel, terminate or modify any Material
        Contract.

       

      (d) None
        of
        the Material Contracts contains any provision which would require the consent
        of
        third parties to the sale and issuance of the Securities, or any of the other
        transactions contemplated hereunder or under any of the Transaction
        Documents.

       

      Section
        3.16 Permits.
        The
        Company and its Subsidiaries have all Permits necessary for the conduct of
        their
        respective businesses as described in the SEC Reports filed with the SEC
        prior
        to the date hereof. The Company has not received any written notice of any
        proceeding relating to revocation or modification of any such
        Permit.

       

      Section
        3.17 Transactions
        with Affiliates and Employees.
        

       

      (a) None
        of
        the Company's or any of its Subsidiaries' officers, directors, members or
        any
        stockholder disclosed in public filings with the SEC, any supplier, distributor
        or customer of the Company or its Subsidiaries, has any interest in any
        property, real or personal, tangible or intangible, including Intellectual
        Property used in or pertaining to the business of the Company or its
        Subsidiaries, except for the normal rights of any such Person in their capacity
        as a stockholder of the Company or a holder of options or warrants to acquire
        Common Stock.

       

      (b) No
        executive officer or director of the Company or any of its Subsidiaries has
        any
        direct or indirect ownership interest in any Person with which the Company
        or
        any of its Subsidiaries has a business relationship, or any Person that competes
        in any material respect with the Company or any of its Subsidiaries. No member
        of the immediate family of any executive officer or director of the Company
        or
        any of its Subsidiaries is directly or indirectly interested in any Material
        Contract.

       

      (c) The
        Company does not have outstanding, and has not arranged any outstanding,
        "extensions of credit" to directors or executive officers within the meaning
        of
        Section 402 of the Sarbanes-Oxley Act of 2002.

      
        
          
          

        

        
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      Section
        3.18 Tax
        Matters.
        

       

      Other
        than as set forth on Schedule 3.18:

       

      (a) The
        Company and each of its Subsidiaries have timely and properly filed, or had
        filed on its behalf, all material Tax Returns required to be filed by it
        in any
        jurisdiction to which it is subject, and such filed Tax Returns are accurate
        in
        all material respects, has paid all income and all other material Taxes due
        and
        payable (whether or not shown on filed Tax Returns), and has set aside on
        its
        Latest Balance Sheet provisions reasonably adequate for the payment of all
        Taxes
        for periods subsequent to the periods to which such Tax Returns apply. Neither
        Company nor any Subsidiary has received notice of any material unpaid Taxes
        claimed to be due by the Taxing authority of any jurisdiction, and the officers
        of the Company know of no basis for any such claim.

       

      (b) There
        are
        no outstanding agreements or waivers extending the statutory period of
        limitation applicable to any Tax Returns. All Taxes that the Company or any
        Subsidiary has been required to collect or withhold have been duly withheld
        or
        collected and, to the extent required, have been timely paid to the proper
        Taxing authority. Neither the Company nor any Subsidiary is a party to any
        Tax-sharing agreement or similar arrangement with any other Person. At no
        time
        has the Company or any Subsidiary been a member of an affiliated, combined,
        consolidated or unitary Tax group (other than a group for which the Company
        is
        the common parent) for purposes of filing any Tax Return. Neither the Company
        nor any Subsidiary is currently under any contractual obligation to pay to
        any
        Governmental Entity any Tax obligations of, or with respect to any transaction
        relating to, any other Person, or to indemnify any other Person with respect
        to
        any Tax.

       

      (c) There
        have been no audits or examinations of any Tax Returns of the Company or
        its
        Subsidiaries by any Governmental Entity, and none of the Company or its
        Subsidiaries has received any notice from a Governmental Entity that it intends
        to conduct a Tax audit or examination of the Company or the Subsidiaries.
        There
        are no pending assessments, asserted deficiencies or claim for additional
        Taxes
        that have not been paid or duly reserved. No claim has been received by the
        Company or any Subsidiary from a Governmental Entity in a jurisdiction where
        the
        Company or any Subsidiary does not file Tax Returns that it is or may be
        subject
        to taxation by that jurisdiction.

       

      (d) The
        Company and each of its Subsidiaries have made all necessary disclosures
        required by Treasury Regulation section 1.6011-4. The Company and each of
        its
        Subsidiaries have not been a participant in a listed transaction within the
        meaning of Treasury Regulation section 1.6011-4(b).

       

      Section
        3.19 Employee
        Matters.
        

       

      (a) Neither
        the Company nor any of its Subsidiaries has, or has ever had, any collective
        bargaining agreements with respect to any of its or their employees. There
        is no
        labor union organizing activity pending or, to the Company's knowledge,
        threatened with respect to the Company or any of its Subsidiaries. Except
        as set
        forth on Schedule
        3.19(a),
        neither
        the Company nor any of its Subsidiaries is a party to or bound by any currently
        effective employment or consulting agreement, deferred compensation arrangement,
        bonus plan, incentive plan, profit sharing plan, retirement agreement or
        other
        employee compensation plan or agreement. To the Company's knowledge, no employee
        of the Company or any Subsidiary, nor any consultant with whom the Company
        or
        any Subsidiary has contracted, is in violation of any material term of any
        employment or consulting agreement, proprietary information agreement or
        any
        other agreement relating to the performance of services by any such individual
        for or on behalf of the Company or such Subsidiary because of the nature
        of the
        business conducted by the Company or such Subsidiary.

      
        
          
          

        

        
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      (b) The
        Company and its Subsidiaries are in compliance with and have timely filed
        all
        notices required under the WARN Act.

       

      Section
        3.20 Employee
        Benefits.
        

       

      (a) Schedule
        3.20(a)
        contains
        a true and complete list of each "employee benefit plan" (as defined in
        section 3(3) of ERISA) and any other employee benefit or compensation plan,
        program, policy, arrangement or agreement, including bonus, deferred
        compensation, incentive compensation, severance or termination pay, medical,
        life or other insurance, profit-sharing, stock option or other equity-based
        incentive compensation, stock purchase, and pension, welfare and fringe benefit
        plans, for the benefit of, or relating to, any current or former employee,
        director, consultant or independent contractor of the Company or any Subsidiary
        (i) which is or has been sponsored by, entered into, contributed to (or
        required to be contributed to), established by, participated in and/or
        maintained by the Company, any Subsidiary or any ERISA Affiliate or
        (ii) under which the Company or any Subsidiary, or any ERISA Affiliate
        otherwise has any liability, whether or not such plan is terminated (each,
        a
        "Plan"
        and,
        collectively, as the "Plans").
        No
        Plan covers any Person other than a current or former employee or director
        of
        the Company or any Subsidiary (and their dependents and beneficiaries), and
        no
        entity other than the Company or any Subsidiary or sponsors, maintains or
        contributes to, or is required to contribute to, any Plan. Neither the Company
        nor any Subsidiary has any legally binding formal plan or commitment to create
        any additional plan or modify or change any existing Plan, other than as
        required to comply with applicable Law.

       

      (b) No
        Plan
        is subject to section 412 of the Code or section 302 of ERISA or
        Title IV of ERISA, and neither the Company nor any Subsidiary nor any ERISA
        Affiliate has ever sponsored, contributed to, been required to contribute
        to, or
        participated in such a plan. Neither the Company nor any Subsidiary nor any
        ERISA Affiliate has incurred any liability under section 412 of the Code or
        section 302 of ERISA or Title IV of ERISA that has not been satisfied in
        full, and no condition exists that presents a risk to the Company or any
        ERISA
        Affiliate of incurring a liability under said sections or Title.

       

      (c) No
        Plan
        provides health, welfare or fringe benefits, including without limitation
        death
        or medical benefits (whether or not insured), to former employees or directors
        or their respective spouses or dependents after retirement or other termination
        of service, other than the health continuation coverage that may be required
        by
        section 4980B of the Code (COBRA) or similar applicable
        Law.

      
        
          
          

        

        
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      (d) The
        Plans
        (and related trusts and insurance contracts) have been maintained, funded
        and
        administered in all material respects in accordance with their terms and
        with
        applicable Law (including but not limited to ERISA and the Code). Each Plan
        which is intended to be qualified under section 401(a) of the Code has
        received a determination letter or opinion letter from the Internal Revenue
        Service that such Plan is so qualified, and nothing has occurred that could
        reasonably be expected to adversely affect the qualified status of such Plan
        or
        any related trust. Each of the Plans that is intended to satisfy the
        requirements of section 125, 423 or 501(c)(9) of the Code satisfies such
        requirements. 

       

      (e) Each
        option that has been issued under any Plan of the Company or any Subsidiary
        providing for the issuance of options and that has been exercised has been
        properly treated as an incentive stock option under Code section 422 or as
        a non-statutory stock option, as applicable. Each option that has been issued
        under any Plan of the Company or any Subsidiary providing for the issuance
        of
        options has had an exercise price at least equal to the "fair market value"
        of
        the underlying stock (within the meaning and scope of Code section
        409A).

       

      (f) With
        respect to each Plan, (i) no actions, audits, investigations, suits or
        claims against the Plan, the Company or any Subsidiary or any ERISA Affiliate
        or
        with respect to any assets of the Plan (other than routine claims for benefits)
        are pending or, to the knowledge of the Company, threatened, (ii) there is
        no Order of any Governmental Entity or arbitrator outstanding against or
        in
        favor of any Plan or any fiduciary thereof (other than rules of general
        applicability or domestic relations orders), (iii) no event has occurred
        and no condition exists that would subject the Company or any of its
        Subsidiaries, either directly or by reason of its affiliation with any ERISA
        Affiliate, to any material Tax or any fine, Lien, penalty or other liability
        imposed by ERISA or, in connection with any Plan, the Code, (iv) for each
        Plan with respect to which a Form 5500 has been required to be filed, no
        material change has occurred with respect to the matters covered by the most
        recent Form since the date thereof, and (v) no "reportable event" (as such
        term is defined in section 4043 of ERISA) has occurred with respect to any
        Plan.
        None of the Company, any Subsidiary, any ERISA Affiliate, any of the Plans,
        any
        trust created thereunder or any trustee or administrator thereof has engaged
        in
        a transaction in connection with which the Company, any Subsidiary, any of
        the
        Plans, any such trust or any trustee or administrator thereof, could, directly
        or indirectly, be subject to a civil penalty assessed pursuant to section
        409 or
        502(i) of ERISA, a Tax imposed pursuant to section 4975, 4976, 4980B, 4980D,
        4980E or 4980F of the Code, or any other similar liability. 

       

      (g) With
        respect to each of the Plans, the Company has made available to the Purchaser
        true and complete copies of (i) the Plan document (including all amendments
        thereto), the summary plan description and any summaries of material
        modifications, (ii) the trust agreement, (iii) the two most recent
        Form 5500 annual reports, actuarial reports and financial statements, if
        any
        were required to be filed or prepared, (iv) the most recent determination
        letter or opinion letter received from the Internal Revenue Service with
        respect
        to each Plan that is intended to be qualified under the Code and (v) all
        material communications to or from the Internal Revenue Service or any other
        Governmental Entity relating to each Plan and all material employee
        communications with respect each Plan. All contributions required to have
        been
        made under the terms of any Plan have been timely made and all obligations
        in
        respect of each Plan have been paid prior to the Closing or are properly
        accrued
        and reflected on the Latest Balance Sheet to the extent required by GAAP.
        

      
        
          
          

        

        
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      (h) None
        of
        the Plans is a "multiemployer plan," as such term is defined in section 3(37)
        of
        ERISA, a "multiple employer welfare arrangement," as such term is defined
        in
        section 3(40) of ERISA, or a single employer plan that has two or more
        contributing sponsors, at least two of whom are not under common control,
        within
        the meaning of section 4063(a) of ERISA. None of the Company, any
        Subsidiary or any ERISA Affiliate has ever sponsored, contributed to, been
        required to contribute to, or participated in any such plan or
        arrangement.

       

      (i) Each
        Plan
        may be amended or terminated without liability to the Company, any Subsidiary
        or
        any ERISA Affiliate other than for accrued benefits or non-material
        administrative expenses. No amounts payable under the Plans, and no payment
        made
        or other benefit provided, or to be made or provided, to current or former
        employees or directors of the Company or any Subsidiary (including pursuant
        to
        this Agreement or any other Transaction Document) will fail to be deductible
        for
        federal income tax purposes under section 280G of the Code. Each Person who
        performs services for the Company or any Subsidiary has been, and is, properly
        classified by the respective service recipient as an employee or independent
        contractor. 

       

      (j) Neither
        the execution of this Agreement or any other Transaction Document, nor the
        consummation of the transactions contemplated hereby or by any other Transaction
        Document, either alone or in combination with subsequent events, will result
        in,
        or is a precondition to, (i) any employee, independent contractor,
        consultant or director of the Company or any Subsidiary becoming entitled
        to
        severance pay or any similar payment, (ii) except for the Incentives
        Modifications, the acceleration of the time of payment or vesting, or an
        increase in the amount of, any compensation due to any employee, independent
        contractor, consultant or director of the Company or any Subsidiary or
        (iii) the renewal or extensions of the term of any agreement regarding the
        compensation of any employee of the Company or any Subsidiary. 

       

      (k) Each
        Plan, and each other arrangement to which any of the Company or any Subsidiary
        is a party, or with respect to which any of the Company or any Subsidiary
        has
        any liability or obligations that is subject to Section 409A of the Code
        has been operated in good faith compliance with Section 409A of the Code,
        the Treasury regulations relating thereto and the applicable IRS and Treasury
        Department guidance thereunder. None of the transactions contemplated by
        this
        Agreement or by any other Transaction Document will constitute or result
        in a
        violation of Section 409A of the Code.

       

      Section
        3.21 Environmental
        and Safety Laws.
        

       

      (a) There
        are
        no real properties which the Company or any Subsidiary, or other related
        organizations, or any of their predecessors or successors formerly owned,
        operated or leased and which any such entity has ceased to own, operate or
        lease. 

       

      (b) With
        respect to all properties owned or leased by the Company and its Subsidiaries,
        neither the Company nor any of its Subsidiaries nor any current or prior
        owner
        or operator is subject to any Environmental Liabilities; (ii) all properties
        owned or leased by the Company or its Subsidiaries are in compliance in all
        material respects with all Environmental Laws and the terms of any applicable
        leases; (iii) there are no Liens, defaults, equitable interests, covenants,
        deed
        restrictions, notice or registration requirements, or other limitations
        applicable to the Leased Properties, based upon any Environmental Laws; (iv)
        there are no underground storage tanks located in, at, on or under any
        properties owned or leased by the Company or its Subsidiaries and any tanks
        that
        were formerly located in, at, on or under any such properties were at all
        times
        maintained, operated, sealed, closed or disposed of in accordance with all
        applicable Environmental Laws; (v) there are no Conditions in, at, on, under,
        a
        part of, involving or otherwise related to any of the properties owned or
        leased
        by the Company or its Subsidiaries (including but not limited to off-site
        migration of Pollutants from any such property), involving the presence of
        any
        Pollutant, and (vi) there are no PCBs, lead paint, asbestos (of any type
        or
        form), or materials, articles or products containing PCBs, lead paint or
        asbestos, located in, at, on, under, a part of, involving or otherwise related
        to any of the properties owned or leased by the Company or its Subsidiaries
        (including, without limitation, any building, structure, or other improvement
        that is a part of such properties).

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

      (c) The
        Company and each Subsidiary is and has for the past five years been in
        compliance in all material respects with all applicable Environmental Laws,
        which compliance includes obtaining, maintaining and complying with all
        Environmental Permits, if any, required under Environmental Laws in connection
        with the operation of the their businesses, and no Environmental Permit is
        or
        will be subject to review, revision, major modification or prior consent
        by any
        Governmental Authority as a result of the consummation of the transactions
        contemplated by this Agreement. 

       

      (d) There
        are
        no locations at which Pollutants have been Released, or otherwise come to
        be,
        in, at, on, under, or a part of that give rise to material Environmental
        Liabilities of the Company or any Subsidiary or other related organizations,
        or
        any of their predecessors or successors; and each of such locations is in
        compliance with all Environmental Laws. Neither the Company nor any Subsidiary
        or other related organizations, or any of their predecessors or successors,
        has
        Managed any Pollutant in a manner that give or gives rise to material
        Environmental Liabilities of the Company or any Subsidiary. There are no
        pending
        or, to the knowledge of the Company, threatened, demands, claims,
        investigations, proceedings, information requests, complaints, administrative
        or
        judicial orders, or notices against the Company or any Subsidiary or other
        related organizations, or any of their predecessors or successors, or any
        property owned, operated or leased by the Company or any Company Subsidiary
        alleging non-compliance with or liability under any Environmental
        Law.

       

      (e) Neither
        the Company nor any Subsidiary or other related organizations, or any of
        their
        predecessors or successors, has assumed or retained by contract (including
        leases) or other binding agreement or by operation of Law, any liabilities
        of a
        third party arising under or pursuant to any Environmental Law or has agreed
        to
        indemnify, defend or hold harmless any third party for any liabilities arising
        under or pursuant to any Environmental Law. The Company has made available
        to
        Purchaser copies of all material environmental or health and safety assessments,
        audits, investigations, or similar reports pertaining to the operation of
        the
        Company's and the Subsidiaries' businesses and the operation or use of any
        real
        property owned, leased, or operated by the Company or any Subsidiary, to
        the
        extent in the possession, custody or control of the Company or any
        Subsidiary.

       

      Section
        3.22 Warranties.
        Schedule 3.22
        sets
        forth any warranties and indemnities relating to the Company's products or
        technology sold, leased or licensed, or services rendered by the Company,
        that
        are not standard warranties and indemnities (i) offered in the ordinary
        course of business or (ii) imposed by Law. Schedule 3.22
        sets
        forth the aggregate expenses incurred by the Company and its Subsidiaries
        in
        fulfilling their obligations under their guaranty, warranty, right of return
        and
        indemnity provisions during each of the last three fiscal years and the three
        month-period ended March 31, 2008.

      
        
          
          

        

        
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      Section
        3.23 Real
        Estate.

       

      (a) Neither
        the Company nor any Subsidiary owns any real property or is obligated under
        or a
        party to, any option, right of first refusal or any other contractual right
        to
        purchase or acquire any real property.

       

      (b) Schedule 3.23(b)
        contains
        a complete and accurate list of all premises leased by the Company or one
        of its
        Subsidiaries (the "Leased
        Properties"),
        and
        of all leases related thereto (collectively, the "Leases").
        The
        Company has made available to the Purchaser a true and complete copy of each
        of
        the Leases. The Leases are valid, binding and enforceable in accordance with
        their terms and are in full force and effect, except as enforceability may
        be
        limited by (i) applicable bankruptcy, insolvency, reorganization or other
        laws
        of general application relating to or affecting the enforcement of creditors
        rights generally, and (ii) the effect of rules of Law governing the availability
        of specific performance and other equitable remedies. No circumstance or
        conditions exists which (whether with or without notice, lapse of time or
        both
        or the happening or occurrence of any other event) would constitute a default
        under any Lease on the part of the Company. Neither the Company nor any
        Subsidiary has knowledge of the occurrence of any event which (whether with
        or
        without notice, lapse of time or both, or the happening or occurrence of
        any
        other event) would constitute a default under any Lease by any other party.
        Schedule
        3.23(b)
        separately identifies all Leases for which consents or waivers must be obtained
        on or prior to the First Tranche Closing Date (or which have been obtained)
        in
        order for such Leases to continue in effect according to their terms after
        the
        First Tranche Closing Date. 

       

      (c) All
        leasehold improvements and fixtures located on the Leased Properties (the
        "Leased
        Improvements")
        are
        operational and available for use in the business of the Company and its
        Subsidiaries as it is currently conducted. All of the Leased Improvements
        on the
        Leased Properties are located entirely on such Leased Properties.

       

      Section
        3.24 Inventory;
        Customers; Suppliers.
        The
        inventory of the Company and its Subsidiaries, whether in their possession
        or
        not, (i) is sufficient for the operation of the business of the Company and
        its Subsidiaries in the ordinary course, and (ii) is of a quality and
        quantity usable or saleable by the Company or the applicable Subsidiary in
        the
        ordinary course of its business, subject to applicable reserves reflected
        in the
        financial statements of the Company included in the SEC Reports filed with
        the
        SEC prior to the date hereof. Neither the Company nor any Subsidiary has
        received any written notice from any customer that accounted for 5% or more
        of
        the total sales on a consolidated basis of the Company and its Subsidiaries
        (a
        "Significant
        Customer"),
        or
        any supplier from which either the Company or any Subsidiary purchased $200,000
        or more of supplies (a "Significant
        Supplier"),
        in
        each case during the three most recently completed fiscal years of the Company
        to the effect that such customer or supplier will terminate all or a substantial
        portion (including, as applicable, future purchase order releases) of its
        historical business relationship with the Company. Schedule 3.24
        lists
        each Significant Customer, and each Significant Supplier, in each case during
        the three most recently completed fiscal years of the Company prior to the
        date
        of this Agreement.

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

      Section
        3.25 Accounts
        Receivable.
        All
        accounts receivable, notes receivable and other receivables of the Company
        and
        any Subsidiary that are reflected on the Latest Balance Sheet represent bona
        fide receivables created in the ordinary and usual course of business in
        connection with bona fide transactions and consistent with past practice,
        and
        are valid and enforceable receivables, net of any reserves for doubtful accounts
        recorded on the Latest Balance Sheet.

       

      Section
        3.26 Regulatory
        Compliance.
        

       

      (a) All
        activities of the Company or any of its Subsidiaries that are subject to
        the
        jurisdiction of the FDA or subject to the FDCA and the regulations promulgated
        thereunder or similar legal provisions in any foreign jurisdiction have been
        conducted in all material respects in compliance with all applicable
        requirements under the FDCA and similar Laws, including those relating to
        good
        laboratory practices, good clinical practices, and good manufacturing practices,
        recordkeeping, and filing of reports. Neither the Company nor any of its
        Subsidiaries has received any notice or other communication from the FDA
        or any
        other Governmental Entity alleging any violation of any Law by the Company
        or
        any of its Subsidiaries relating to any such activity. None of the Company
        or
        any of its Subsidiaries has received any notices, report, warning letters
        or
        other communication from the FDA that indicate or suggest lack of compliance
        with the FDA regulatory requirements by the Company, any of its Subsidiaries
        or
        by Persons who are otherwise performing services for the benefit of the Company
        or any of its Subsidiaries.

       

      (b) Neither
        the Company nor any of its Subsidiaries, nor any officer, employee or, to
        the
        knowledge of the Company, any agent of the Company or any of its Subsidiaries,
        has made an untrue statement of a material fact or fraudulent statement to
        the
        FDA or any other Governmental Entity, failed to disclose a material fact
        required to be disclosed to the FDA or any other Governmental Entity, or
        committed an act, made a statement, or failed to make a statement that, at
        the
        time such disclosure was made, would reasonably be expected to provide a
        basis
        for the FDA or any other Governmental Entity to invoke its policy respecting
        "Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities",
        set forth in 56 Fed. Reg. 46191 (September 10, 1991) or any similar policy.
        Neither the Company nor any of its Subsidiaries, nor any officer, employee
        or
        agent of the Company or any of its Subsidiaries, has been convicted of any
        crime
        or engaged in any conduct for which debarment is mandated or authorized by
        21
        U.S.C. Section 335a or any similar Law.

       

      (c) The
        Company and each Subsidiary has been and is in compliance with all United
        States
        import and export Laws and regulations (including without limitation those
        laws
        under the authority of U.S. Departments of Commerce (Bureau of Industry and
        Security) codified at 15 CFR, Parts 700-799, Homeland Security (Customs and
        Border Protection) codified at 19 CFR, Parts 1-199, State (Directorate of
        Defense Trade Controls) codified at 22 CFR, Parts 103, 120-130 and Treasury
        (Office of Foreign Assets Control) codified at 31 CFR, Parts 500-599).
        Neither the Company nor any Subsidiary has, within the last five years, violated
        any United States import or export Laws, been the subject of an investigation
        or
        inquiry or subject to civil or criminal penalties imposed by a Governmental
        Entity or made a voluntary disclosure with respect to violations of such
        Laws.
Schedule 3.26(c)
        sets
        forth all valid and pending export control licenses, agreements and/or approvals
        required to be amended, assumed or transferred as a result of, or in connection
        with, the transactions contemplated hereby.

      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

      

      (d) The
        Company is in compliance with, and has not previously violated the PATRIOT
        ACT
        and all other applicable U.S. and non-U.S. anti-money laundering laws and
        regulations, including, but not limited to, the laws, regulations and Executive
        Orders and sanctions programs administered by OFAC, including but not limited,
        to (i) Executive Order 13224 of September 23, 2001 entitled, "Blocking Property
        and Prohibiting Transactions with Persons Who Commit, Threaten to Commit
        or
        Support Terrorism" (66 Fed. Reg. 49079 (2001)); and (ii) any regulations
        contained in the Anti-Money Laundering/OFAC Laws.

       

      (e) The
        Company and each of its Subsidiaries, (including their respective Affiliates,
        officers, directors, employees, consultants or agents) are in compliance
        with
        all legal requirements under (i) the Foreign Corrupt Practices Act and the
        Organization for Economic Cooperation and Development Convention Against
        Bribery
        of Foreign Public Officials in International Business Transactions and
        legislation implementing such convention and (ii) international
        anti-bribery conventions (other than the convention described in
        clause (i)) and local anti-corruption and bribery laws, in each case, in
        jurisdictions in which the Company and its Subsidiaries are operating
        (collectively, the "Anti-Bribery
        Laws").
        Neither the Company nor any Subsidiary has received any communication that
        alleges, nor have they received information based on an internal review from
        which it would be reasonably likely to conclude, that the Company, any
        Subsidiary or any agent thereof is not, or may be, in compliance with, or
        has,
        or may have, any liability under, the Anti-Bribery Laws.

       

      Section
        3.27 Corporate
        Documents.
        The
        Company and each Subsidiary have made available to the Purchaser and its
        counsel
        for their examination true and complete copies of the following documents:
        (i) the certificate or articles of incorporation, bylaws or other
        organizational or charter documents, as applicable, each as currently in
        effect;
        (ii) minute books of the Company and each of its Subsidiaries containing
        required records setting forth proceedings, consents, actions, and meetings
        of
        their respective shareholders, boards of directors and any committees thereof;
        and (iii) all Permits, Orders, and consents issued by any regulatory agency
        with respect to the Company, its Subsidiaries, or any securities of the Company
        or its Subsidiaries, and all applications for such Permits, Orders, and
        consents. The corporate minute books, stock certificate books, stock registers
        and other corporate records of the Company and each of its Subsidiaries are
        complete and accurate in all material respects, and the signatures appearing
        on
        all documents contained therein are the true signatures of the persons
        purporting to have signed the same. All actions reflected in such books and
        records were duly and validly taken in compliance with the Laws of the
        applicable jurisdiction.

      
        
          
          

        

        
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      Section
        3.28 No
        General Solicitation; Private Placement.
        Neither
        the Company, nor any of its affiliates, nor any Person acting on its or their
        behalf, has engaged in any form of general solicitation or general advertising
        (within the meaning of Regulation D) in connection with the offer or sale
        of the Securities. Neither the Company nor any of its Affiliates nor, any
        Person
        acting on the Company's behalf has, directly or indirectly, at any time within
        the past six months, made any offer or sale of any security or solicitation
        of
        any offer to buy any security under circumstances that would (i) eliminate
        the availability of the exemption from registration under Regulation D
        under the Securities Act in connection with the offer and sale by the Company
        of
        the Securities as contemplated hereby or (ii) cause the offering of the
        Securities pursuant to the Transaction Documents to be integrated with prior
        offerings by the Company for purposes of any applicable Law, regulation or
        stockholder approval provisions, including, without limitation, under the
        rules
        and regulations of any Trading Market. Based in part upon and subject to
        the
        representations of the Purchaser contained in Sections 4.2 and 4.3 of this
        Agreement, the Securities will be issued in compliance with all applicable
        federal and state securities laws and the offer, sale and issuance of the
        Securities as contemplated by this Agreement are exempt from the registration
        requirements of the Securities Act.

       

      Section
        3.29 Form
        S-3 Eligibility.
        The
        Company meets the eligibility requirements set forth in the general instructions
        to Form S-3 applicable to "Transactions Involving Secondary
        Offerings".

       

      Section
        3.30 Eligible
        Market.
        As of
        the date hereof, the issued and outstanding shares of Common Stock are listed
        on
        Nasdaq, and, except as set forth in Schedule
        3.30,
        the
        Company has not, since January 1, 2007, received notice (written or oral)
        from
        any Trading Market on which the Common Stock is or has been listed, quoted
        or
        included for trading to the effect that the Company is not in compliance
        with
        the listing requirements, maintenance requirements or the requirements of
        inclusion for trading of such Trading Market. As of the First Tranche Closing
        Date, the issued and outstanding shares of Common Stock will be listed on
        Nasdaq
        and the Company will be in compliance in all material respects with the
        requirements (including any minimum share price requirements) of Nasdaq for
        continued listing of the Common Stock thereon and any other Nasdaq listing
        and
        maintenance requirements. As of the Second Tranche Closing Date, the issued
        and
        outstanding shares of Common Stock are listed on an Eligible Market and the
        Company will be in compliance in all material respects with the requirements
        (including any minimum share price requirements, as applicable) of such Eligible
        Market, for continued listing of the Common Stock thereon and any other Eligible
        Market listing and maintenance requirements.

       

      Section
        3.31 Disclosure.
        

       

      (a) All
        written disclosure provided by the Company to the Purchaser regarding the
        Company, its business and the transactions contemplated hereby, including
        the
        Schedules to this Agreement, furnished by or on the behalf of the Company
        are
        true and correct in all material respects and do not contain any untrue
        statement of a material fact or omit to state any material fact necessary
        in
        order to make the statements made therein, in light of the circumstances
        under
        which they were made, not misleading. Except for the transactions contemplated
        by this Agreement, no event or circumstance has occurred or information exists
        with respect to the Company or any of its Subsidiaries or its or their business,
        properties, operations or financial conditions, which, under applicable Law,
        requires public disclosure or announcement by the Company but which has not
        been
        so publicly announced or disclosed. The Company acknowledges and agrees that
        the
        Purchaser does not make and has not made any representations or warranties
        with
        respect to the transactions contemplated hereby other than those set forth
        in
        the Transaction Documents.

      
        
          
          

        

        
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      (b) None
        of
        the information supplied or to be supplied by the Company specifically for
        inclusion or incorporation by reference in the Proxy Statement will, at the
        date
        it is first mailed to the Company's stockholders or at the time of the Company
        Stockholders Meeting, contain any untrue statement of a material fact or
        omit to
        state any material fact required to be stated therein or necessary in order
        to
        make the statements therein, in light of the circumstances under which they
        are
        made, not misleading. The Proxy Statement will comply as to form in all material
        respects with the requirements of the Exchange Act and the rules and regulations
        thereunder. No representation or warranty is made by the Company with respect
        to
        statements made or incorporated by reference therein based on information
        supplied by the Purchaser in writing specifically for inclusion or incorporation
        by reference in the Proxy Statement.

       

      Section
        3.32 Acknowledgment
        Regarding Purchaser's Purchase of Securities.
        The
        Company acknowledges and agrees that the Purchaser is acting solely in the
        capacity of an arm's length purchaser with respect to the Transaction Documents
        and the transactions contemplated hereby and thereby. The Company further
        acknowledges that the Purchaser is not acting as a financial advisor or
        fiduciary of the Company (or in any similar capacity with respect to the
        Company), with respect to the Transaction Documents and the transactions
        contemplated hereby and thereby and any advice given by the Purchaser or
        any of
        its representatives or agents to the Company in connection with the Transaction
        Documents and the transactions contemplated hereby and thereby is merely
        incidental to the Purchaser's purchase of the Securities. The Company further
        represents to the Purchaser that the Company's decision to enter into the
        Transaction Documents has been based upon the independent evaluation of the
        transactions contemplated hereby and thereby by the Company and its
        representatives.

       

      Section
        3.33 Solvency.
        Neither
        the Company nor any Subsidiary has taken any steps to seek protection pursuant
        to any bankruptcy Law nor does the Company nor any Subsidiary have any knowledge
        that its creditors intend to initiate involuntary bankruptcy proceedings
        or any
        actual knowledge of any fact which would reasonably lead a creditor to do
        so.
        Neither the Company nor any Subsidiary is as of the date hereof, and after
        giving effect to the transactions contemplated hereby to occur at the Closing,
        will not be Insolvent (as defined below). For purposes of this Section 3.33,
        "Insolvent"
        means
        (i) the present fair saleable value of the assets of the Company and its
        Subsidiaries is less than the amount required to pay the total Indebtedness
        of
        the Company and its Subsidiaries, (ii) any of the Company or its
        Subsidiaries is unable to pay its debts and liabilities, subordinated,
        contingent or otherwise, as such debts and liabilities become absolute and
        matured, (iii) any of the Company or its Subsidiaries intends to incur or
        believes that it will incur debts that would be beyond its ability to pay
        as
        such debts mature or (iv) any of the Company or its Subsidiaries has
        unreasonably small capital with which to conduct the business in which it
        is
        engaged as such business is now conducted and is proposed to be
        conducted.

       

      Section
        3.34 Application
        of Takeover Protections.
        The
        execution and delivery of the Transaction Documents and the consummation
        of the
        transactions contemplated thereby will not impose any restriction on the
        Purchaser, or create in any party (including any current stockholder of the
        Company) any rights, under any share acquisition, business combination, poison
        pill (including any distribution under a rights agreement), or other similar
        anti-takeover provisions under the Company's charter documents or the laws
        of
        its state of incorporation.

      
        
          
          

        

        
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      Section
        3.35 No
        Manipulation of Stock Price.
        The
        Company has not, and to the Company's knowledge no one acting on the Company's
        behalf has taken, directly or indirectly, any action designed to cause or
        to
        result in the stabilization or manipulation of the price of any security
        of the
        Company or to facilitate the sale or resale of any of the Securities. The
        Company has not, and to its knowledge no one acting on its behalf has
        (i) sold, bid for, purchased, or paid any compensation for soliciting
        purchases of, any of the Securities, or (ii) paid or agreed to pay to any
        person any compensation for soliciting another to purchase any other securities
        of the Company.

       

      Section
        3.36 Placement
        Agent Fees
        The
        Company shall be responsible for the payment of any placement agent's fees,
        financial advisory fees, or brokers' commission (other than for persons engaged
        by any Investor or its investment advisor) relating to or arising out of
        the
        issuance of the Securities pursuant to this Agreement. The Company has not
        engaged any placement agent or other agent in connection with the sale of
        the
        Securities.

       

      ARTICLE
        IV

      Representations
        and Warranties of the Purchaser

       

      The
        Purchaser hereby represents and warrants to the Company, (i) as of the date
        hereof, (ii) as of the First Tranche Closing Date and (iii) as of the Second
        Tranche Closing Date, that: 

       

      Section
        4.1 Organization;
        Authority.
        The
        Purchaser is a limited partnership duly organized, validly existing and in
        good
        standing under the laws of the State of Delaware with the requisite limited
        partnership power and authority to enter into and to consummate the transactions
        contemplated by the Transaction Documents and otherwise to carry out its
        obligations hereunder and thereunder. The purchase by the Purchaser of the
        Securities hereunder has been duly authorized by all necessary action on
        the
        part of the Purchaser. This Agreement has been duly executed and delivered
        by
        the Purchaser and constitutes the valid and binding obligation of the Purchaser,
        enforceable against it in accordance with its terms, except as may be limited
        by
        (i) applicable bankruptcy, insolvency, reorganization or other laws of
        general application relating to or affecting the enforcement of creditors
        rights
        generally, and (ii) the effect of rules of Law governing the availability
        of specific performance and other equitable remedies.

       

      Section
        4.2 No
        Public Sale or Distribution.
        The
        Purchaser (i) is acquiring the Notes, the Warrants and the First Tranche
        Common
        Shares, (ii) upon conversion of the Notes will acquire the Conversion Shares
        then issuable, and (iii) upon exercise of the Warrants will acquire the Warrant
        Shares then issuable, in each case as principal for its own account for
        investment purposes only and not with a view to or for distributing or reselling
        such Securities or any part thereof, except pursuant to sales registered
        or
        exempted under the Securities Act; provided,
        however,
        that by
        making the representations herein, the Purchaser does not agree to hold any
        Securities for any minimum or other specific term and reserves the right
        to
        dispose of the Securities at any time in accordance with or pursuant to a
        registration statement or an exemption under the Securities
        Act.

      
        
          
          

        

        
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      Section
        4.3 Purchaser
        Status.
        The
        Purchaser is an "accredited investor" as defined in Rule 501(a) of Regulation
        D
        under the Securities Act. 

       

      Section
        4.4 No
        Conflicts.
        The
        execution, delivery and performance by the Purchaser of this Agreement and
        the
        consummation by the Purchaser of the transactions contemplated hereby will
        not
        (i) result in a violation of the organizational documents of the Purchaser
        or (ii) conflict with, or constitute a default (or an event which with
        notice or lapse of time or both would become a default) under, or give to
        others
        any rights of termination, amendment, acceleration or cancellation of, any
        agreement, indenture or instrument to which the Purchaser is a party, or
        (iii) result in a violation of any Law (including federal and state
        securities laws) or Order applicable to the Purchaser, except in the case
        of
        clauses (ii) and (iii) above, for such conflicts or violations that,
        individually or in the aggregate are not material and do not otherwise affect
        the ability of the Purchaser to consummate the transactions contemplated
        by this
        Agreement and the other Transaction Documents.

       

      Section
        4.5 Disclosure.
        None of
        the information supplied or to be supplied by the Purchaser in writing
        specifically for inclusion or incorporation by reference in the Proxy Statement
        will, at the date it is first mailed to the Company's stockholders or at
        the
        time of the Company Stockholders Meeting, contain any untrue statement of
        a
        material fact or omit to state any material fact required to be stated therein
        or necessary in order to make the statements therein, in light of the
        circumstances under which they are made, not misleading.

       

      Section
        4.6 Restricted
        Securities.
        The
        Purchaser understands and acknowledges that none of the Securities will be
        registered under the Securities Act or qualified under any state securities
        Laws
        (collectively, "Registered,"
        and
        the act of having securities registered means "Registration"),
        and
        that the Securities will be issued in reliance upon one or more exemptions
        from
        Registration, and that the Company's reliance upon each such exemption is
        predicated upon the Purchaser's representations contained in this Agreement.
        The
        Purchaser understands and acknowledges that resale of the Securities may
        be
        restricted indefinitely unless they are subsequently Registered.

       

      ARTICLE
        V

      Other
        Agreements of the Parties

       

      Section
        5.1 Legends.
        

       

      (a) Each
        certificate representing any of the Securities shall bear legends substantially
        in the following form: 

       

      "THE
        SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER
        FOR
        ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE DISTRIBUTION
        OF SUCH SECURITIES. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
        ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND 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 IN 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."

      
        
          
          

        

        
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      The
        Company may instruct its transfer agent not to register the transfer of the
        Securities, unless the conditions specified in the foregoing legend are
        satisfied. 

      

      (b) Any
        legend endorsed on a certificate pursuant to Section 5.1(a)
        and the
        stop transfer instructions with respect to such Securities as it applies
        to
Section 5.1(a)
        shall be
        removed and the Company shall issue a certificate without such legend to
        the
        holder of such Securities (i) if such Securities are Registered for resale
        and sold under the Securities Act and a prospectus meeting the requirements
        of
        Section 10 of the Securities Act is available, (ii) if such legend may
        be properly removed under the terms of Rule 144 promulgated under the Securities
        Act or (iii) if such holder provides the Company with an opinion of counsel
        for such holder, reasonably satisfactory to legal counsel for the Company,
        to
        the effect that a sale, transfer or assignment of such Perseus Securities
        may be
        made without Registration.

       

      Section
        5.2 SEC
        Reporting; Furnishing of Information.
        Until
        the date that all of the First Tranche Common Shares, Conversion Shares and
        Warrant Shares may be sold under Rule 144(k) of the Securities Act (or any
        successor provision), the Company shall timely file with the SEC (or obtain
        extensions in respect thereof and file with the SEC within the applicable
        grace
        period) all reports required to be filed by the Company after the date hereof
        pursuant to the Exchange Act, and the Company will not terminate its status
        as
        an issuer required to file reports under the Exchange Act even if the Exchange
        Act or the rules and regulations thereunder would permit such termination.
        The
        financial statements to be included in any SEC Report will be prepared in
        accordance with GAAP (except (i) as may be otherwise indicated in such financial
        statements or the notes thereto, or (ii) in the case of unaudited interim
        statements, to the extent they may not include footnotes, may be condensed
        or
        summary statements or may conform to the SEC's rules and instructions for
        Reports on Form 10-Q), and will fairly present in all material respects the
        consolidated financial position of the Company and consolidated results of
        its
        operations and cash flows as of, and for the periods covered by, such financial
        statements (subject, in the case of unaudited statements, to normal and
        recurring year-end audit adjustments). The Company further covenants that
        it
        will take such further action as any holder of Securities may reasonably
        request, all to the extent required from time to time to enable such Person
        to
        sell such Securities without registration under the Securities Act within
        the
        limitation of the exemptions provided by Rule 144.

       

      Section
        5.3 Integration.
        The
        Company shall not, and shall use its reasonable best efforts to ensure that
        no
        Affiliate thereof shall, sell, offer for sale or solicit offers to buy or
        otherwise negotiate in respect of any security (as defined in Section 2 of
        the Securities Act) that would be integrated with the offer or sale of the
        Securities in a manner that would require the registration under the Securities
        Act of the sale of the Securities to the Purchaser or that would be integrated
        with the offer or sale of the Securities for purposes of the rules and
        regulations of any Trading Market.

      
        
          
          

        

        
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      Section
        5.4 Reservation
        of Securities.
        So long
        as any Notes remain outstanding, or any Warrants remain exercisable, the
        Company
        shall maintain a reserve from its duly authorized shares of Common Stock
        for
        issuance pursuant to the Transaction Documents, free of preemptive rights,
        in
        such amount as may be required to fulfill its obligations to issue such Shares
        under the Transaction Documents. In the event that at any time the then
        authorized shares of Common Stock are insufficient for the Company to satisfy
        its obligations to issue such shares of Common Stock under the Transaction
        Documents, the Company shall promptly take all such actions as may be required
        to increase the number of authorized shares.

       

      Section
        5.5 Securities
        Laws Disclosure; Publicity.
        The
        Company shall, on or before 8:30 a.m., Eastern time, on the first Trading
        Day
        following execution of this Agreement issue a press release reasonably
        acceptable to the Purchaser disclosing all material terms of the transactions
        contemplated hereby. The Company shall, on or before 8:30 a.m., Eastern time,
        on
        the fourth Business Day following the execution of this Agreement file a
        Current
        Report on Form 8-K describing the material terms of the transactions
        contemplated by the Transaction Documents and including as exhibits to such
        Current Report on Form 8-K this Agreement, the form of Notes and the form
        of
        Warrants, in the form required by the Exchange Act. Thereafter, the Company
        shall timely file any filings and notices required by the SEC or applicable
        Law
        with respect to the transactions contemplated hereby. Except as herein provided,
        the Company shall not publicly disclose the name of the Purchaser, or include
        the name of the Purchaser in any press release without the prior written
        consent
        of the Purchaser, unless otherwise required by Law or listing
        standard.

       

      Section
        5.6 Preparation
        of Proxy Statement; Company Stockholders Meeting.
        

       

      (a) As
        soon
        as practicable following the date hereof, the Company shall, prepare and
        file
        with the SEC the Proxy Statement in preliminary form, and the Company shall
        use
        its commercially reasonable efforts to respond as promptly as practicable
        to any
        comments of the SEC with respect thereto. The Company shall notify the Purchaser
        promptly of the receipt of any comments from the SEC or its staff and of
        any
        request by the SEC or its staff for amendments or supplements to the Proxy
        Statement or for additional information and shall promptly supply the Purchaser
        with copies of all correspondence between the Company or any of its
        representatives, on the one hand, and the SEC or its staff, on the other
        hand,
        with respect to the Proxy Statement. If at any time prior to receipt of the
        Stockholder Approval there shall occur any event that should be set forth
        in an
        amendment or supplement to the Proxy Statement, the Company shall promptly
        prepare and mail to its stockholders such an amendment or supplement. The
        Company shall not mail any Proxy Statement, or any amendment or supplement
        thereto, to which the Purchaser reasonably objects. The Company shall use
        its
        commercially reasonable efforts to cause the Proxy Statement to be mailed
        to the
        Company's stockholders as promptly as practicable after filing with the SEC.
        If
        advisable, the Company shall retain a proxy solicitation firm to assist in
        the
        solicitation of proxies in connection with the Stockholder
        Approval.

      
        
          
          

        

        
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      (b) As
        soon
        as practicable following the mailing of the Proxy Statement to the Company's
        stockholders, the Company shall duly call, give notice of, convene and hold
        a
        meeting of its stockholders (the "Company
        Stockholders Meeting")
        for
        the purpose of seeking the Stockholder Approval. The Company shall, through
        the
        Board, recommend to its stockholders that they give the Stockholder Approval.
        The Board shall use its commercially reasonable efforts to solicit from
        stockholders of the Company proxies in favor of approval of the Reverse Stock
        Split, the Incentives Modifications (if approval is necessary to give effect
        thereto under applicable Law (including Tax regulation) or Nasdaq rule) and
        the
        Transaction Documents and the transactions contemplated hereby and thereby,
        and
        shall take all other action necessary or advisable to secure the vote or
        consent
        of stockholders required by applicable Law to effect the Reverse Stock Split,
        the Incentives Modifications, and the transactions contemplated by this
        Agreement and the other Transaction Documents including the First Tranche
        Issuance and the Second Tranche Issuance. Once the Company Stockholders Meeting
        has been called and noticed, the Company shall not postpone or adjourn the
        Company Stockholders Meeting without the consent of the Purchaser, which
        shall
        not be unreasonably withheld or delayed (other than (i) for the absence of
        a
        quorum or (ii) to allow reasonable additional time for the filing and mailing
        of
        any supplemental or amended disclosure which it believes in good faith is
        necessary under applicable Law and for such supplemental or amended disclosure
        to be disseminated and reviewed by the Company's stockholders prior to the
        Company Stockholders Meeting).

       

      Section
        5.7 Commercially
        Reasonable Efforts.
        Upon
        the terms and subject to the conditions set forth in this Agreement, each
        of the
        parties shall use its commercially reasonable efforts to take, or cause to
        be
        taken, all actions, and to do, or cause to be done, and to assist and cooperate
        with the other parties in doing, all things necessary, proper or advisable
        to
        satisfy the conditions precedent set forth in Article VI, and to consummate
        and
        make effective, in the most expeditious manner practicable, the transactions
        contemplated by this Agreement and by the other Transaction Documents, including
        (i) the obtaining of all necessary actions or nonactions, waivers, consents
        and approvals from any Governmental Entity or any regulatory or self regulatory
        organization and the making of all necessary registrations and filings
        (including filings with any Governmental Entity or any regulatory or self
        regulatory organization) and the taking of all reasonable steps as may be
        necessary to obtain an approval or waiver from, or to avoid an action or
        proceeding by, any Governmental Entity or any regulatory or self regulatory
        organization, (ii) the obtaining of all necessary consents, approvals or
        waivers from third parties, (iii) the defending of any lawsuits or other
        legal proceedings, whether judicial or administrative, challenging this
        Agreement or any other Transaction Document or the consummation of the
        transactions contemplated hereby or thereby, including seeking to have any
        stay
        or temporary restraining order entered by any Governmental Entity or any
        regulatory or self regulatory organization vacated or reversed and (iv) the
        execution and delivery of any additional instruments necessary to consummate
        the
        transactions contemplated by this Agreement and the other Transaction Documents
        and to fully carry out the purposes of this Agreement and the other Transaction
        Documents. In connection with and without limiting the foregoing, the Company
        and the Board shall (i) take all action necessary to ensure that no state
        takeover statute or similar statute or regulation is or becomes applicable
        to
        this Agreement or any other Transaction Document or the transactions
        contemplated hereby or thereby and (ii) if any state takeover statute or
        similar statute or regulation becomes applicable to this Agreement or any
        other
        Transaction Document, take all action necessary to ensure that the transactions
        contemplated hereby and thereby may be consummated as promptly as practicable
        on
        the terms contemplated by this Agreement and the other Transaction Documents
        and
        otherwise to minimize the effect of such statute or regulation on the
        transactions contemplated hereby and thereby.

      
        
          
          

        

        
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      Section
        5.8 Non-Solicitation.

       

      (a) During
        the period from the date of this Agreement until the First Tranche Closing,
        the
        Company shall not take, cause or permit (and shall use its reasonable best
        efforts to ensure that none of its officers, directors, agents or
        representatives takes, causes or permits) any person to take, directly or
        indirectly, any of the following actions: (i) solicit, knowingly encourage,
        facilitate, initiate or participate in any discussions or negotiations with
        respect to any offer or proposal to acquire 10% or more of the business,
        assets
        or capital stock of the Company, whether by merger, consolidation, other
        business combination, investment, purchase of capital stock or securities
        convertible into or exercisable for capital stock, purchase of assets, license,
        lease, tender or exchange offer or otherwise (other than a sale of the Acquired
        Assets (as defined in the Surgical Innovations Sale Agreement)) (each of
        the
        foregoing, an "Alternative
        Proposal");
        (ii)
        disclose, in connection with an Alternative Proposal, any nonpublic information
        concerning the Company's business or properties or afford to any third party,
        in
        connection with an Alternative Proposal, access to its properties, books
        or
        records, except in the ordinary course of business, as required by Law, or
        pursuant to a request for information from a Governmental Entity; (iii) enter
        into or execute any agreement providing for an Alternative Proposal; (iv)
        make
        or authorize any public statement, recommendation or solicitation in support
        of
        any Alternative Proposal or any offer or proposal relating to an Alternative
        Proposal; or (v) take any action that would reasonably be expected to lead
        to
        any Person making any Alternative Proposal; provided,
        however,
        that
        prior to the receipt of the Stockholder Approval, in response to an unsolicited
        Superior Proposal (as defined below) or an Alternative Proposal that the
        Board
        reasonably believes (after consultation with its financial advisor and outside
        legal counsel) will lead to a Superior Proposal, the Company and its
        representatives may (x) furnish information with respect to the Company and
        its
        Subsidiaries to the person making such Alternative Proposal or Superior Proposal
        and its representatives pursuant to a confidentiality agreement in customary
        form that shall contain provisions that expressly permit the Company to comply
        with the provisions of this Section
        5.8
        and (y)
        conduct such additional discussions with the party making such Alternative
        Proposal or Superior Proposal as the Board shall determine. For purposes
        of this
        Agreement, a "Superior
        Proposal"
        means a
        bona fide written offer from a third party in respect of (i) any transaction
        as
        a result of which the Company's stockholders cease to own at least 50% of
        the
        voting securities of the ultimate parent entity resulting from such transaction
        or sale of all or substantially all of the assets of the Company, or (ii)
        a
        merger, consolidation, reorganization, share exchange, recapitalization,
        liquidation, direct or indirect business combination, or other similar
        transaction, which in any such case provides for consideration to the Company's
        stockholders consisting of cash and/or securities, and in the case of clause
        (i)
        or (ii) is
        on
        terms that the Board determines in its good faith judgment (after consultation
        with
        its
        financial advisor and outside legal counsel), taking into account all relevant
        factors, including
        whether such transaction is
        subject
        to any financing condition or other financing contingencies (including as
        to the
        funding of any committed financing),
        (A)
        would, if consummated, result in a transaction that is more favorable to
        the
        Company's stockholders from a financial point of view than the PT Acquisition
        and the transactions contemplated by this Agreement (including the terms
        of any
        proposal by the Purchaser to modify the terms of the transactions contemplated
        by this Agreement) and (B) is
        reasonably capable of being completed on the terms proposed.

       

      (b) In
        the
        event that the Company is contacted by any third party expressing an interest
        in
        discussing an Alternative Proposal, the Company will promptly, but in no
        event
        later than 24 hours following such contact, notify the Purchaser in writing
        of
        such contact and the identity of the third party so contacting the Company
        and
        shall promptly, but in no event later than 24 hours following any material
        modification or proposed modification thereto, advise the Purchaser of such
        modification or proposed modification.

      
        
          
          

        

        
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      (c) Notwithstanding
        the provisions of Section
        5.8(a),
        at any
        time prior to the receipt of the Stockholder Approval, the Board may (i)
        withdraw (or amend or modify in a manner adverse to the Purchaser), or publicly
        propose to withdraw (or amend or modify in a manner adverse to the Purchaser),
        the recommendation or declaration of advisability by the Board of this
        Agreement, or the transactions contemplated by this Agreement; (ii) recommend,
        or publicly propose to recommend any Alternative Proposal or Superior Proposal,
        or (iii) to the extent permitted pursuant to and in compliance with Section
        7.1(d)(ii),
        allow
        the Company to enter into a binding written agreement concerning a transaction
        that constitutes a Superior Proposal, if in the case of any of the foregoing
        clauses (i), (ii) or (iii) the Board (or the applicable committee thereof)
        determines in good faith (after consultation with its financial advisor and
        outside legal counsel) that it is required to do so in order to comply with
        its
        fiduciary duties or otherwise under applicable Law.

       

      (d) Nothing
        contained in this Agreement shall prohibit the Company or the Board from
        taking
        and disclosing to the Company's stockholders a position with respect to an
        unsolicited bona fide tender or exchange offer by a third party pursuant
        to Rule
        14e-2(a) or Rule 14d-9 of the Exchange Act or from making any disclosure
        required by applicable Law.

       

      Section
        5.9 Access.
        To the
        extent permitted by Law, from the date hereof through the First Tranche Closing
        Date, and following the First Tranche Closing Date the Company shall permit
        representatives of Perseus (subject to the last sentence of this Section 5.9)
        and any
        Principal Holder reasonable access to examine the corporate books and make
        copies or extracts from such corporate books and to discuss the affairs,
        finances and accounts of the Company and its Subsidiaries with the principal
        officers and employees of the Company upon request, all during regular business
        hours, as often as Perseus or such Principal Holder may reasonably request;
        provided,
        however,
        that
        (i) Perseus, such Principal Holder or their respective representatives, as
        the
        case may be, shall hold all information so received in strict confidence
        pursuant to Section
        5.27
        and
        shall not trade in the Common Shares while in possession of material non-public
        information and (ii) the Company reserves the right to exclude the
        representatives of Perseus and such Principal Holder (but not the Perseus
        Directors) from access to information protected by the attorney-client privilege
        in favor of the Company if the Company believes, upon the advice of counsel,
        that such exclusions is required to preserve such attorney-client privilege
        of
        the Company; provided,
        further,
        that
        the Company shall use its commercially reasonable efforts to provide any
        requested information to the representatives of Perseus and such Principal
        Holder in a manner that would not waive the attorney-client privilege. Perseus'
        access rights pursuant to this Section 5.9
        (but not
        the access rights of any Principal Holder) shall terminate at such time as
        Perseus is no longer the beneficial owner of any Securities.

      
        
          
          

        

        
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      Section
        5.10 Communications
        with Accountants.
        The
        Company authorizes the Perseus Directors to communicate with its independent
        public accountants and tax advisors to the same degree afforded to any other
        member of the Board. Notwithstanding the foregoing, the Company shall facilitate
        discussions between such accountants and the representatives of Perseus (subject
        to the last sentence of this Section 5.10)
        or any
        Principal Holder in the event Perseus or such Principal Holder reasonably
        desires to speak with such accountants, and shall authorize those accountants
        to
        disclose to Perseus or such Principal Holder any and all reasonably requested
        financial statements and other supporting financial documents and schedules
        (excluding their internal working papers) including copies of any management
        letters with respect to the business, financial condition and other affairs
        of
        the Company and any Subsidiary. Any such information provided to the
        representatives of Perseus or such Principal Holder shall be held in strict
        confidence pursuant to Section
        5.27
        and may
        additionally be provided to the Company's directors at their request or at
        the
        Company's own determination. At or before the First Tranche Closing Date,
        the
        Company shall deliver a letter addressed to such accountants and tax advisors
        instructing them to comply with the provisions of this Section 5.10.
        Perseus'
        access rights pursuant to this Section 5.10
        (but not
        the access rights of any Principal Holder) shall terminate at such time Perseus
        no longer is the beneficial owner of any Securities.
        Notwithstanding the foregoing, the Company reserves the right to exclude
        the
        representatives of Perseus and such Principal Holder (but not the Perseus
        Directors) from access to information protected by the attorney-client privilege
        in favor of the Company if the Company believes, upon the advice of counsel,
        that such exclusions are required to preserve such attorney-client privilege
        of
        the Company; provided,
        however, that the Company shall use its commercially reasonable efforts to
        provide any requested information to the representatives of Perseus and such
        Principal Holder in a manner that would not waive the attorney-client privilege.
        Perseus' access rights pursuant to this Section 5.10 (but not the access
        rights
        of any Principal Holder) shall terminate at such time as Perseus is no longer
        the beneficial owner of any Securities.

       

      Section
        5.11 Board
        Representation.

       

      (a) From
        and
        after the First Tranche Closing Date and for as long as the Purchaser holds
        any
        Securities, the Company shall take all actions within its control as are
        necessary to cause the election or appointment as a member of the Board (and
        any
        executive committee thereof) of an individual to be designated by the Purchaser,
        including without limitation, nominating the representative identified by
        the
        Purchaser for election as a director of the Company at any meeting of the
        Company's stockholders at which directors will be elected, recommending such
        representative's election to the Board, soliciting and voting proxies in
        favor
        of such representative's election, and filling any vacancies created by death,
        resignation, removal or otherwise with such representative.

       

      (b) In
        addition to, and without limitation of the Purchaser's rights pursuant to
        paragraph (a) of this Section, from and after the First Tranche Closing Date
        and
        for as long as the sum of (i) all First Tranche Common Shares, (ii) all
        Conversion Shares (including for purposes of this clause (ii) all Conversion
        Shares that would be issuable upon conversion in full of all outstanding
        Notes
        as of such time) and (iii) all Warrant Shares (including for purposes of
        this
        clause (iii) all Warrant Shares that would be issuable upon exercise in full
        of
        all outstanding Warrants as of such time), held by the Purchaser equals or
        exceeds 50% of the Aggregate Perseus Ownership as of such time, the Company
        shall take all actions as are necessary to: (A) cause the election or
        appointment as a member of the Board of a Qualified Independent Director
        (as
        defined below); and (B) permit an individual to be designated by the Purchaser
        to attend (in person or by telephone) as an observer (a "Perseus
        Observer")
        all
        meetings of the Board (and any executive committee thereof). Notwithstanding
        the
        foregoing, if any Second Tranche Notes are purchased by the Purchaser, then
        at
        any time that the Purchaser would be entitled to designate an observer
        to the Board
        pursuant
        to the foregoing clause (B), the Purchaser shall be entitled in lieu thereof,
        to
        designate a second representative for election or appointment to the Board
        and
        the Company shall take all actions within its control as are necessary to
        cause
        the election or appointment as a member of the Board (and any executive
        committee thereof) of such representative, including without limitation,
        nominating the representative identified by the Purchaser for election as
        a
        director of the Company at any meeting of the Company's stockholders at which
        directors will be elected, recommending such representative's election to
        the
        Board, soliciting and voting proxies in favor of such representative's election,
        and filling any vacancies created by death, resignation, removal or otherwise
        with such representative. For purposes of this paragraph (b), a "Qualified
        Independent Director"
        means
        an individual to be designated by the Company, who meets the applicable Nasdaq
        listing standards to qualify as an independent director of the Company and
        whose
        election to director has been affirmatively consented to in advance by the
        Purchaser. The Company shall provide to any Perseus Observer copies of
all
        notices, minutes, consents and other materials, financial or otherwise, which
        the Company provides to its Board of Directors at the same time such materials
        are provided to members of the Board. At least one Perseus Director shall
        have
        the right to attend and participate fully in a non-voting capacity in all
        meetings of each of the Board's Nominating and Corporate Governance and
        Compensation Committees, or any equivalent committees, including receipt
        of all
        information provided to Committee members at the same time such information
        is
        provided to Committee members.

      
        
          
          

        

        
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      (c) At
        any
        time that the Purchaser have the right to designate one member of the Board
        pursuant to paragraph (a) of this Section, the Company shall take all actions
        as
        are necessary to cause the Board to consist of not more than seven members,
        including the member of the Board designated by the Purchaser; provided,
        that at
        any time that the Purchaser has the right to designate a second member of
        the
        Board pursuant to paragraph (b) of this Section, the Company shall take all
        actions as are necessary to cause the Board to consist of not more than eight
        members, including the two members designated by the Purchaser.

       

      (d) The
        Company shall reimburse all reasonable expenses (including travel and lodging
        expenses) incurred by the Perseus Directors or the Perseus Observers, in
        connection with their attendance at meetings of the Board or committees thereof.
        The Company shall provide and maintain in effect customary indemnification
        (including provisions relating to the advancement of expenses incurred in
        the
        defense of any action or suit) of the Perseus Directors, and in any event
        such
        indemnification shall be on terms no less favorable than those provided as
        of
        the date of this Agreement to the members of the Board of Directors pursuant
        to
        the Certificate of Incorporation, the Bylaws, applicable Law or otherwise.
        In
        addition, the Company shall obtain and maintain in effect a customary officers'
        and directors' liability insurance policy covering acts and omissions of
        the
        Perseus Directors and having a coverage limit of not less than
        $5,000,000.

      (e) At
        any
        time that the Purchaser is entitled to designate a member of the Board pursuant
        to this Section, the Purchaser may elect to substitute in lieu thereof a
        Perseus
        Observer, or may waive such rights in their entirety. As promptly as practicable
        (and in any event no later than 10 Business Days) following the Purchaser's
        written request, made at such time as (i) the Purchaser shall have waived
        its
        right to designate any Perseus Directors and Purchaser's right to a Perseus
        Observer; and (ii) no member of the Board is a director, officer, employee
        or
        partner of the Purchaser or any Affiliate of the Purchaser, the Company shall
        publicly disclose any material event or circumstance that has occurred or
        material information that exists with respect to the Company or any of its
        Subsidiaries or its or their business, properties, operations or financial
        conditions, which, under applicable Law, requires public disclosure or
        announcement by the Company prior to the Company's purchase or sale of its
        securities but which has not been so publicly announced or disclosed. From
        and
        after the delivery of a written request described in the preceding sentence,
        the
        Company shall not, and shall cause each of its Subsidiaries and its and each
        of
        their respective officers, directors, employees and agents not to, provide
        the
        Purchaser with any material nonpublic information regarding the Company or
        any
        of its Subsidiaries without the express written consent of the
        Purchaser.

       

      
        
          
            
            

          

          
            42

            
              

            

          

          
            
            

          

        

      

       

       

      (f) The
        actions to be taken by the Company pursuant to this Section
        5.11
        shall
        include appointing the Perseus Directors to the Board, granting one Perseus
        Director the rights contemplated by the last sentence of Section
        5.11(b),
        and
        nominating the representatives identified by the Purchaser for election as
        directors of the Company at any meeting of the Company's stockholders at
        which
        such directors will be elected, recommending their election to the Board,
        and
        soliciting and voting proxies in favor of their election. For purposes of
        clarification, the Company shall not be deemed to be in breach of its
        obligations under this Section 5.11, in the event that the Company has complied
        with the terms and conditions set forth herein, and the representatives
        identified by the Purchaser are not elected to the Board by the Company's
        stockholders.

       

      Section
        5.12 Right
        of First Refusal.
        

       

      (a) Except
        in
        a transaction constituting a Change of Control permitted under Section 5.19(d),
        from the date hereof through the First Tranche Closing Date and following
        the
        First Tranche Closing Date, until such time as no Notes remain outstanding
        and
        Perseus does not hold at least 66% of the Aggregate Perseus Ownership, prior
        to
        issuing any Additional Securities (as defined in Section 5.24 below but
        disregarding for the purposes of this Section 5.12 the exception from the
        definition of “Additional Securities” set forth in subsection 5.24(c)(iv))
the
        Company shall first give written notice (an “Offer
        Notice”)
        to the
        Purchaser at least 10 Business Days in advance of any such proposed issuance
        of
        Additional Securities stating the Company’s intention to issue the Additional
        Securities, the number of the relevant securities intended to be sold and
        the
        terms thereof (the “Offered
        Securities”),
        the
        issue price in cash for the proposed issuance of Additional Securities (the
        “First
        Offer Price”)
        and
        the other material terms upon which such issuance is proposed to be
        effected.

      
        

        (b) Upon
          receipt of the Offer Notice, the Purchaser will have an irrevocable, option
          to
          purchase all (but not less than all) of the Offered Securities at the First
          Offer Price and otherwise on the terms and conditions described in the
          Offer
          Notice (the “First
          Offer”).
          Such
          option shall be non-transferable, except to another entity within the scope
          of
          the definition of “Perseus”. In order to exercise this option, the Purchaser
          must, within 10 Business Days from receipt of the Offer Notice, send irrevocable
          written notice of its acceptance of the First Offer to the Company (the
          “Acceptance
          Notice”),
          and
          the Purchaser will then be obligated to purchase all such Offered Securities
          on
          the terms and conditions set forth in the Sale Notice.

      

      
        
          
          

        

        
          43

          
            

          

        

        
          
          

        

      

      (c) If
        the
        Purchaser does not elect to purchase all of the Offered Securities pursuant
        to
        this Section 5.12, then the Company shall be
        free, for
        a
        period of 30 days from the date the Acceptance Notice was due to be received
        by
        the Company, to enter into definitive agreements to issue the Offered Securities
        to a transferee for cash consideration of not less than 100% of the First
        Offer
        Price; provided,
        that
        any such definitive agreement provides for the consummation of such issuance
        to
        take place within 30 days from the date of such definitive agreement and
        is
        otherwise on terms not more favorable to the purchaser of the Offered Securities
        in any material respect than were contained in the Offer Notice.

       

      (d) If
        (i)
        the Purchaser does not elect to purchase all of the Offered Shares pursuant
        to
        this Section 5.12 and the Company has not entered into a definitive agreement
        described in Section 5.12(c) within 30 days from the date the Acceptance
        Notice
        was due to be received by the Purchaser, or (ii) the Company has entered
        into
        such an agreement but has not consummated the issuance of such securities
        within
        30 days from the date of such definitive agreement, then the provisions of
        this
        Section 5.12 shall again apply, and the Company shall not issue or offer
        to
        issue any Additional Securities without again complying with this Section
        5.12.

       

      (e) Upon
        exercise by the Purchaser of its rights of first refusal under this Section
        5.12, the Company shall be legally obligated to consummate the issuance
        contemplated thereby and shall use its commercially reasonable efforts to:
        (i)
        secure any required governmental authorization; (ii) comply as soon as
        reasonably practicable with all applicable legal requirements; and (iii)
        take
        all such other actions and to execute such additional documents as are
        reasonably necessary or appropriate to consummate the isssuance of the Offered
        Securities as promptly as practicable. At such closing, the Company shall
        issue
        the Offered Securities free and clear of any encumbrances and with all requisite
        transfer taxes, if any, paid, and the Purchaser shall deliver or cause to
        be
        delivered payment for such Offered Shares as provided in the Acceptance
        Notice.

       

      Section
        5.13 Use
        of
        Proceeds.
        The
        Company shall use the net proceeds from the First Tranche Issuance (i) to
        fund
        the initial cash payment due to Photo Therapeutics upon completion of the
        PT
        Acquisition and (ii) for general corporate purposes consistent with the
        Company's business plan provided to the Purchaser prior to the date hereof.
        The
        Company shall use the net proceeds from the Second Tranche Issuance to fund
        the
        aggregate cash payment due from the Company to Photo Therapeutics pursuant
        to
        the PT Earnout.

       

      Section
        5.14 Priority
        of Notes.
        The
        Indebtedness evidenced by the Notes shall not be junior or subordinate to
        any
        other Indebtedness of the Company or its Subsidiaries except that to the
        extent
        of any Liens granted in favor of the holders of 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
        Indebtedness evidenced by the Notes.

       

      Section
        5.15 Corporate
        Existence.
        The
        Company shall: (i) do or cause to be done all things necessary to preserve
        and
        keep in full force and effect its corporate existence, rights and franchises
        and
        the corporate existence, rights and franchises of each of its Subsidiaries;
        (ii)
        use commercially reasonable efforts to at all times maintain, preserve and
        protect all of the Company's and its Subsidiaries' patents, trademarks and
        trade
        names, and preserve all the remainder of the Company's and its Subsidiaries'
        material assets necessary for the conduct of its business in a manner consistent
        with past practices.

      
        
          
          

        

        
          44

          
            

          

        

        
          
          

        

      

      Section
        5.16 Compliance
        with Law.
        The
        Company shall, and shall cause each of its Subsidiaries to, conduct its business
        activities in compliance in all material respects with all applicable Laws.
        The
        Company shall pay all transfer, excise, withholding and similar Taxes (not
        including income or franchise Taxes) that it is obligated by applicable Law
        to
        so pay in connection with the issuance, sale, delivery or transfer by the
        Company to the Purchaser of the Securities.

       

      Section
        5.17 Payment
        of Interest and Principal on Notes.
        The
        Company shall promptly pay the principal of and interest on the Notes on
        the
        dates and in the manner provided in the Notes and in this Agreement. The
        Company
        shall pay interest on overdue principal at the rate specified therefor in
        the
        Notes, and it shall pay interest on overdue installments of interest at the
        same
        rate to the extent lawful.

       

      Section
        5.18 Maintenance
        of Listing.
        From
        and after the First Tranche Closing Date, and following the First Tranche
        Closing Date for so long as the Purchaser holds any Securities, the Company
        shall maintain the continued listing of the Common Stock for trading on an
        Eligible Market and shall use its commercially reasonable efforts to comply
        in
        all material respects with the reporting, filing and other requirements of
        such
        Eligible Market on which the Common Stock is then listed, for continued listing
        of the Common Stock thereon and any other Eligible Market listing and
        maintenance requirements (including any minimum share price requirements).
        Without limitation of the foregoing, the Company shall use its commercially
        reasonable efforts to maintain the continued listing of the Common Stock
        for
        trading on one of the stock exchanges identified in clauses (i) through (v)
        of
        the definition of "Eligible Market," and to comply in all material respects
        with
        all requirements for the continued listing of the Common Stock for trading
        on
        such stock exchange (including any minimum share price
        requirements).

       

      Section
        5.19 Negative
        Covenants.
        From
        the
        date hereof through the First Tranche Closing Date, and following the First
        Tranche Closing Date until such time as no Notes remain outstanding and Perseus
        does not hold at least 66% of the Aggregate Perseus Ownership, the Company
        shall
        not, and shall not permit any of its Subsidiaries to take any of the following
        actions without first obtaining the consent of the
        Purchaser:

       

      (a) create,
        incur, assume or permit to exist any Indebtedness other than Permitted
        Indebtedness;

       

      (b) make
        or
        commit to make capital expenditures in excess of $250,000, individually or
        in
        the aggregate, in any fiscal year, unless such expenditures are approved
        during
        the annual budgeting process;

       

      (c) create,
        incur, assume or permit to exist any Lien on or with respect to any of its
        assets or property of any character, whether now owned or hereafter acquired,
        except for Permitted Liens;

      
        
          
          

        

        
          45

          
            

          

        

        
          
          

        

      

      (d) consummate
        any Change of Control other than a Specified Change of Control; provided,
        that
        this clause (d) shall cease to be of effect at such time as no Notes remain
        outstanding;

       

      (e) Except
        in
        a transaction that constitutes a Change of Control in compliance with Section
        5.19(d), acquire
        by
        merging or consolidating with, or by purchasing a substantial portion of
        the
        assets of, or by any other manner, any business or any corporation, partnership,
        association or other business organization or division thereof or otherwise
        acquire any assets (other than inventory) that are material;

       

      (f) Except
        in
        a transaction that constitutes a Change of Control in compliance with Section
        5.19(d), sell,
        lease, license or otherwise dispose of any of its assets (including capital
        stock of Subsidiaries) that are material, individually or in the aggregate,
        to
        the Company and the Subsidiaries, taken as a whole, except for (i) inventory
        and
        obsolete or excess equipment sold in the ordinary course of business and
        consistent with past practice and (ii) the sale of the Acquired Assets (as
        defined in the Surgical Innovations Sale Agreement);

       

      (g) Except
        in
        a transaction that constitutes a Change of Control in compliance with Section
        5.19(d), enter
        into any joint ventures that would be material, individually or in the
        aggregate, to the Company and the Subsidiaries, taken as a whole;

       

      (h) Except
        in
        a transaction that constitutes a Change of Control in compliance with Section
        5.19(d), declare
        or pay any dividend or make any other distribution to its stockholders whether
        or not upon or in respect of any shares of its capital stock; provided,
        however,
        that dividends and distributions may continue to be made by the
        Subsidiaries to the Company or to other wholly owned Subsidiaries

       

      (i) make
        any
        investment in any Person other than investments in wholly owned Subsidiaries
        of
        the Company;

       

      (j) redeem
        or
        otherwise acquire any shares of its capital stock (except for repurchases
        by the
        Company of shares of capital stock held by employees, officers, directors,
        or
        consultants pursuant to an Option of the Company to repurchase such shares
        upon
        the termination of employment or services);

       

      (k) hire
        or
        terminate the employment of the Chief Executive Officer of the Company or
        the
        Chief Financial Officer of the Company;

       

      (l) amend
        or
        modify any compensation arrangement or agreement with any executive officer
        or
        director of the Company or any Subsidiary, except for the Incentives
        Modifications and for amendments or modifications required to comply with
        applicable Law, routine annual increases in compensation or promotions or
        bonuses awarded in the ordinary course of business, or adopt or amend any
        Plan,
        except for amendments or modifications required to comply with applicable
        Law;

       

      (m) pay,
        loan
        or advance any amount to, or sell, transfer or lease any of its assets to,
        or
        enter into any agreement or arrangement with, any Affiliate of the Company
        or
        any Subsidiary, except for (i) transactions among the Company and the
        Subsidiaries, (ii) dividends and distributions permitted under
        clause (h) above, (iii) intercompany transactions in the ordinary
        course of business, (iv) repurchases of capital stock permitted under clause
        (j)
        above, and the payment of compensation permitted under clause (l)
        above.;

      
        
          
          

        

        
          46

          
            

          

        

        
          
          

        

      

      (n) commence
        or settle any litigation or other proceedings before or threatened to be
        brought
        before any Governmental Entity or any regulatory or self regulatory organization
        or any arbitral proceeding that would in either case, be material, individually
        or in the aggregate, to the Company and its Subsidiaries, taken as a whole,
        except for settlement of litigation of claims for payments by the Company
        not in
        excess of $250,000 in the aggregate or in connection with the Company's
        enforcement of its rights or defense of claims under this Agreement or any
        of
        the Transaction Documents; or

       

      (o) authorize
        any of, or commit or agree to take, whether in writing or otherwise, to do
        any
        of, the foregoing actions set forth in clauses (a) - (c) or (e) - (n)
        above.

       

      Section
        5.20 Financial
        Information.
        The
        Company shall furnish to Perseus and any Principal Holder (in each case,
        subject
        to the last sentence of this Section 5.20):
        (i)
        not later than 90 days after the end of each fiscal year of the Company,
        copies
        of the audited consolidated balance sheets of the Company and its Subsidiaries
        as of the end of such fiscal year, and audited consolidated statements of
        income
        and cash flows for such fiscal year, together with a report of the Company's
        independent accountants with respect thereto; (ii) not later than 45 days
        after
        the end of each fiscal quarter of the Company, copies of the unaudited
        consolidated balance sheets of the Company and its Subsidiaries as of the
        end of
        such fiscal quarter, and unaudited consolidated statements of income and
        cash
        flows for such fiscal quarter and for the portion of such fiscal year then
        ended; (iii) not later than 15 days after the end of each calendar month
        that
        does not coincide with the end of a fiscal quarter, copies of the unaudited
        financial statements provided to the management of the Company; and (iv)
        as soon
        as practicable following the preparation thereof (and in any event no later
        than
        such projections are provided to any other party), projections for the Company's
        and its Subsidiary's performance for the following three calendar months,
        the
        following two fiscal quarters and the following fiscal year. The financial
        statements referred to in clause (i) and (ii) above will be prepared in
        accordance with GAAP (except in the case of unaudited interim statements,
        to the
        extent they may not include footnotes), and will fairly present in all material
        respects the consolidated financial position of the Company and consolidated
        results of its operations and cash flows as of, and for the periods covered
        by,
        such financial statements (subject, in the case of unaudited statements,
        to
        normal and recurring year-end audit adjustments). The financial statements
        referred to in clause (iii) above will be the Company's internal management
        reports and shall be consistent with the internal books and records of the
        Company and its Subsidiaries. In addition, the Company shall furnish to Perseus
        and any Principal Holder (in each case, subject to the last sentence of this
        Section 5.20)
        such
        other financial information (including projections) as Perseus or such Principal
        Holder may reasonably request from time to time. The Company shall not be
        obligated to, and shall not provide any financial information pursuant to
        this
Section
        5.20:
        (i) to
        Perseus following such time as Perseus is no longer the beneficial owner
        of any
        Securities and (ii) to Perseus or the Principal Holder following delivery
        of a
        written request contemplated by Section 5.11(e).

       

      Section
        5.21 Properties;
        Insurance.

       

      (a) The
        Company will keep its, and cause its Subsidiaries to keep their respective,
        properties in good repair, working order and condition, reasonable wear and
        tear
        excepted, and from time to time make all necessary repairs, renewals,
        replacements, additions and improvements thereto. The Company will, and will
        cause its Subsidiaries to, at all times comply in all material respects with
        each provision of all leases to which it is a party or under which it occupies
        property.

      
        
          
          

        

        
          47

          
            

          

        

        
          
          

        

      

      (b) The
        Company shall and shall cause each Subsidiary to maintain insurance
        (i) covering, without limitation, fire, theft, burglary, public liability,
        property damage, product liability and workers' compensation and (ii) on
        all property and assets material to the operation of the business, all in
        amounts customary for the Company's industry. The Company shall, and shall
        cause
        each of its Subsidiaries to, pay all insurance premiums payable by
        them.

       

      Section
        5.22 Expenses.
        The
        Company will reimburse the Purchaser for all out-of-pocket expenses incurred
        in
        connection with (i) the review of the Company and its Subsidiaries and Photo
        Therapeutics and its Subsidiaries, and the negotiation, preparation, execution
        and delivery of this Agreement and the other Transaction Documents, including,
        without limitation the reasonable fees and disbursements of legal, accounting
        and other professionals; and (ii) any amendment, modification or waiver,
        or
        consent with respect to, any of the Transaction Documents or any documentation
        or agreements in connection therewith requested by the Company (collectively,
        the "Transaction
        Expenses").

       

      Section
        5.23 Pledge
        of Securities.
        The
        Company acknowledges and agrees that the Securities may be pledged by the
        Purchaser in connection with a bona
        fide
        margin
        agreement or other loan or financing arrangement that is secured by the
        Securities, in each case in accordance with applicable Law. The pledge of
        Securities shall not be deemed to be a transfer, sale or assignment of the
        Securities hereunder, and the Purchaser shall not be required to provide
        the
        Company with any notice of a pledge of the Securities or otherwise make any
        delivery to the Company pursuant to this Agreement; provided
        that the
        Purchaser and its pledgee shall comply with the provisions of this Agreement
        in
        order to effect a sale, transfer, or assignment of any such Securities to
        such
        pledgee. At the expense of the Purchaser, the Company hereby agrees to execute
        and deliver such documentation as pledgee of the Securities may reasonably
        request in connection with a pledge of the Securities to such pledgee by
        the
        Purchaser.

       

      Section
        5.24 Subscription
        Rights.

       

      (a) From
        and
        after the date of this Agreement, the Company shall not issue any Additional
        Securities (as defined below) except in compliance with this Section. Each
        of
        Perseus (subject to Section 5.24(d))
        and any
        Principal Holder shall have a right of first refusal to purchase its
pro
        rata share
        of all
        Additional Securities that the Company may, from time to time, propose to
        sell
        and issue after the date of this Agreement. With respect to any issuance
        of
        Additional Securities, a Person's pro
        rata share
        shall be
        determined as the fraction, the numerator of which is equal to the sum of
        (i)
        all First Tranche Common Shares held by such Person, (ii) all Conversion
        Shares
        held by such Person (including for purposes of this clause (ii) all Conversion
        Shares that would be issuable upon conversion in full of all outstanding
        Notes
        held by such Person as of such time) and (iii) all Warrant Shares held by
        such
        Person (including for purposes of this clause (iii) all Warrant Shares that
        would be issuable upon exercise in full of all outstanding Warrants held
        by such
        Person as of such time), and the denominator of which is equal to the aggregate
        outstanding shares of the Company's Common Stock on a fully diluted basis,
        determined using the treasury stock method. Each of Perseus and the Principal
        Holder shall be entitled to apportion the right to purchase Additional
        Securities pursuant to this Section among itself and its general partners,
        limited partners, members and Affiliates in such proportions as it deems
        appropriate.

      
        
          
          

        

        
          48

          
            

          

        

        
          
          

        

      

      (b) If
        the
        Company proposes to issue any Additional Securities, it shall give Perseus
        and
        any Principal Holder written notice of its intention (the "Additional
        Securities Notice"),
        describing the Additional Securities, the price and the terms and conditions
        upon which the Company proposes to issue the same. Each of Perseus and such
        Principal Holder shall have 10 Business Days from the giving of such notice
        to
        agree to purchase its pro
        rata share
        of the
        Additional Securities for the price and upon the terms and conditions specified
        in the notice by giving written notice to the Company and stating therein
        the
        quantity of Additional Securities to be purchased. Notwithstanding the
        foregoing, the Company shall not be required to offer or sell such Additional
        Securities to Perseus or any Principal Holder if it would cause the Company
        to
        be in violation of applicable federal securities laws by virtue of such offer
        or
        sale. With respect to each of Perseus and any Principal Holder, if such Person
        does not agree to purchase its pro
        rata share
        of the
        Additional Securities within such 10 day period, then the Company shall have
        60
        days in which to consummate the transaction contemplated in the Additional
        Securities Notice. If such transaction is not consummated within such 60
        day
        period, then any subsequent issuance of Additional Securities shall require
        delivery of a new Additional Securities Notice to Perseus and the Principal
        Holder and compliance with this Section 5.24.

       

      (c) For
        the
        purposes of this Section, "Additional
        Securities"
        shall
        mean, whether or not authorized on the date hereof, any shares of Common
        Stock,
        any Common Stock Equivalents and any other equity securities of the Company;
        provided,
        however,
        that
        "Additional Securities" do not include securities issued: (i) in connection
        with
        an equity compensation plan or other bona fide compensation arrangement that
        is
        approved by the Board; (ii) pursuant to a stock split or stock dividend;
        (iii)
        pursuant to the terms of any outstanding option, warrant or convertible security
        or other outstanding right to acquire securities of the Company not issued,
        created or granted in violation of this Agreement; (iv) pursuant to a bona
        fide
        firm commitment underwritten public offering of shares of Common Stock; or
        (v)
        as consideration or otherwise in connection with a bona fide acquisition
        by the
        Company or any of its Subsidiaries.

       

      (d) Perseus'
        subscription rights pursuant to this Section 5.24
        (but not
        the subscription rights of any Principal Holder) shall terminate at such
        time as
        Perseus is no longer the beneficial owner of any Securities.

       

      Section
        5.25 Prepayment
        of Notes.

       

      (a) Except
        as
        provided in this Section
        5.25,
        the
        Company shall have no right to prepay the principal amount of the Notes prior
        to
        the Maturity Date, or any interest accruing under the Notes prior to the
        scheduled date for payment of such interest.

       

      (b) The
        Company may, by delivery of written notice (the "Prepayment
        Notice")
        to the
        Purchaser not less than 30 days prior to the fourth anniversary of the First
        Tranche Closing Date (or if such date is not a Business Day, the next succeeding
        Business Day) (the "Fourth
        Anniversary"),
        require the Purchaser to submit to the Company up to 50% of the outstanding
        aggregate principal amount of the Notes for prepayment on the Fourth
        Anniversary, subject to following terms and conditions:

      
        
          
          

        

        
          49

          
            

          

        

        
          
          

        

      

      (i) In
        lieu
        of submitting Notes for prepayment on the Fourth Anniversary, the Purchaser
        may
        at any time following receipt of the Prepayment Notice and on or prior to
        the
        Fourth Anniversary, convert up to the principal amount of Notes specified
        in the
        Prepayment Notice. Any principal amount of Notes so converted by the Purchaser
        shall reduce on a dollar for dollar basis the principal amount of Notes the
        Purchaser is required to submit for prepayment on the Fourth
        Anniversary.

       

      (ii) The
        Purchaser shall be entitled to select the Note or Notes (or the portions
        thereof) for conversion or prepayment pursuant to this Section
        5.25.

       

      (iii) The
        Prepayment Notice shall have no force or effect, and the Purchaser shall
        not be
        obligated to submit any Notes for prepayment (or to convert any principal
        amount
        of Notes in lieu thereof) unless the Market Price as of the Fourth Anniversary
        is at least equal to 200% of the conversion price then in effect under the
        First
        Tranche Note.

       

      (iv) The
        Company may not deliver more than one Prepayment Notice.

       

      Section
        5.26 Incentives
        Modifications.
        The
        Company has commenced and following the date hereof shall continue a review
        of
        the incentive compensation arrangements of the Company's senior management
        (the
        "Incentives")
        and
        shall consult with the Purchaser regarding any proposed modifications to
        the
        Incentives. At least five Business Days prior to the date on which the Company
        files the Proxy Statement with the SEC in preliminary form, the Company shall
        provide the Purchaser with a summary of any proposed modifications to the
        Incentives that have been approved by the Board (the "Incentives
        Modifications")
        and
        the Incentives (as modified by the Incentives Modifications) shall be reasonably
        satisfactory to the Purchaser.

       

      Section
        5.27 Confidentiality.

       

      (a) For
        purposes of this Agreement, "Confidential
        Information")
        means
        any information concerning the Company (whether prepared by the Company,
        its
        representatives or otherwise and irrespective of the form of communication)
        that
        is furnished to the Purchaser or its representatives by or on behalf of the
        Company, and all notes, analyses, compilations, studies, interpretations
        memoranda, reports or other documents (regardless of the form thereof) prepared
        by the Purchaser or its representatives which contain any material information
        furnished to the Purchaser or its representatives pursuant to this Agreement;
        provided,
        however,
        that
"Confidential
        Information" does not include information of the Company which: (i) is or
        becomes generally available to the public other than as a result of a disclosure
        by the Purchaser or its representatives; (ii) was within the Purchaser's
        possession prior to it being furnished to the Purchaser or its representatives
        by or on behalf of the Company pursuant to this Agreement (provided,
        that
        such information is not known to the Purchaser to be subject to another
        confidentiality agreement with or other contractual, legal or fiduciary
        obligation of confidentiality to the Company with respect to such information);
        (iii) becomes available to the Purchaser on a non-confidential basis from
        a
        source other than the Company or any of its representatives (provided,
        that
        such source is not known to the Purchaser to be bound by a confidentiality
        agreement with or other contractual, legal or fiduciary obligation of
        confidentiality to the Company with respect to such information); or (iv)
        is
        independently developed by the Purchaser or others on its behalf without
        reference to or reliance upon any information furnished to the Purchaser
        or any
        of its representatives by or on behalf of the Company.

      
        
          
          

        

        
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      (b) Except
        as
        otherwise provided in this Section
        5.27,
        the
        Purchaser hereby agrees that it and its representatives shall keep the
        Confidential Information confidential in accordance with the terms of this
        Section
        5.27
        and not
        disclose any Confidential Information except in accordance with the terms
        of
        this Agreement.

       

      (c) If
        the
        Purchaser or any of its representatives is requested or required (by oral
        questions, interrogatories, requests for information or documents in legal
        proceedings, subpoena, civil investigative demand or other similar process,
        or
        by the rules or regulations of any regulatory authority having jurisdiction
        over
        the Purchaser) to disclose any of the Confidential Information, the Purchaser
        shall, except as prohibited by Law, provide the Company with prompt written
        notice of any such request or requirement so that the Company may seek, at
        the
        Company's expense, a protective order or other remedy and/or waive compliance
        with the provisions of this Section
        5.27.
        If the
        Company seeks a protective order or other remedy, the Purchaser shall provide
        such cooperation as the Company shall reasonably request. If, in the absence
        of
        a protective order or other remedy or the receipt by the Purchaser of a waiver
        from the Company, the Purchaser or any of its representatives is nonetheless,
        upon the advice of its outside legal counsel, legally compelled to disclose
        Confidential Information, to any tribunal or other entity the Purchaser may,
        without liability hereunder, disclose to such tribunal or other entity only
        that
        portion of the Confidential Information which such counsel advises the Purchaser
        or such representatives is legally required to be disclosed; provided,
        that
        the Purchaser and its representatives shall exercise reasonable efforts to
        minimize the disclosure of the Confidential Information and to preserve the
        confidentiality thereof.

       

      Section
        5.28 Consultation
        on Budget.
        From
        the date hereof through the First Tranche Closing Date, and following the
        First
        Tranche Closing Date for so long as a Principal Holder exists, the Company
        shall
        consult with such Principal Holder regarding the preparation of the Company's
        annual budget or business plan for the Company and its Subsidiaries, including
        providing the Purchaser with copies of any draft annual budget or business
        plan
        at least five Business Days prior to the submission thereof to the Board
        for
        approval.

       

      Section
        5.29 Advice
        of Breaches.
        From
        time to time prior to the Second Tranche Closing, the Company will promptly
        disclose in writing to the Purchaser any matter hereafter arising which,
        if
        existing, occurring or known at the date of this Agreement would have been
        required to be disclosed to the Purchaser or which would have rendered
        inaccurate any of the representations, warranties or statements set forth
        in
Article III
        hereof.
        No disclosure pursuant to this Section 5.29 will be binding on the Purchaser
        or
        modify or qualify the representations and warranties contained in this Agreement
        for any purpose without the prior written consent of the
        Purchaser.

      
        
          
          

        

        
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      ARTICLE
        VI

      Conditions
        to Closings

       

      Section
        6.1 Conditions
        Precedent to Obligations of the Company at the First Tranche
        Closing.
        The
        Company's obligation to effect the transactions specified to occur at the
        First
        Tranche Closing pursuant to Section 2.3 is subject to the fulfillment or
        waiver
        as of the First Tranche Closing Date of the following conditions:

       

      (a) Representations
        and Warranties.
        The
        representations and warranties made by the Purchaser in this Agreement shall
        be
        true and correct in all material respects as of the date hereof and as of
        the
        First Tranche Closing Date, except to the extent such representations and
        warranties expressly relate to an earlier date (in which case such
        representations and warranties shall be true and correct in all material
        respects on and as of such earlier date), in each case, disregarding for
        the
        purposes of this sentence any qualifications as to "materiality" contained
        within such representations and warranties.

       

      (b) Covenants.
        All
        covenants, agreements, and conditions contained in this Agreement to be
        performed by the Purchaser on or prior to the First Tranche Closing Date
        shall
        have been performed or complied with in all material respects.

       

      (c) Officer's
        Certificate.
        The
        Purchaser shall have delivered to the Company a certificate of an authorized
        officer of the Purchaser, dated the First Tranche Closing Date, confirming
        satisfaction of the conditions set forth in paragraphs (a) and (b)
        above.

       

      (d) Receipt
        of Funds.
        The
        Company shall have received immediately available funds from the Purchaser
        in
        the amount of the First Tranche Note Amount.

       

      (e) Stockholder
        Approval.
        The
        Company Stockholders Meeting shall have been duly called and the Stockholder
        Approval shall have been obtained.

       

      (f) Blue
        Sky.
        The
        Company shall have obtained all necessary blue sky law permits and
        qualifications, or secured exemptions therefrom, required by any State for
        the
        offer and sale of the First Tranche Common Shares, the First Tranche Notes
        and
        the First Tranche Warrants.

       

      (g) Absence
        of Litigation.
        No
        proceeding challenging this Agreement or the other Transaction Documents
        or the
        transactions contemplated hereby and thereby, or seeking to prohibit, alter,
        prevent or materially delay the First Tranche Closing, shall have been
        instituted or be pending before any Governmental Entity, arbitrator, agency
        or
        official.

       

      (h) No
        Governmental Prohibition.
        No
        temporary restraining order, preliminary or permanent injunction or other
        order
        or decree that has the effect of preventing the sale of the First Tranche
        Common
        Shares, the First Tranche Notes and the First Tranche Warrants by the Company
        at
        the First Tranche Closing and the consummation of the transactions contemplated
        in this Agreement and the other Transaction Documents shall have been issued
        by
        any court of competent jurisdiction and remain in effect.

      
        
          
          

        

        
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      (i) No
        Stop Order.
        No stop
        order or suspension of trading shall have been imposed by Nasdaq, the SEC
        or any
        other Governmental Entity with respect to public trading in the Common
        Stock.

       

      (j) Consents
        and Waivers.
        All
        consents of and notices to Governmental Entities
        required
        in connection with the transactions described in this Agreement and the other
        Transaction Documents shall have been obtained and made, as applicable, and
        be
        in full force and effect.

       

      (k) Transaction
        Documents.
        The
        Company shall have received counterparts of the Registration Rights Agreement
        and the Management Rights Letter, in each case duly executed by the
        Purchaser.

       

      Section
        6.2 Conditions
        Precedent to Obligations of the Purchaser at the First Tranche
        Closing.
        The
        Purchaser's obligation to effect the transactions specified to occur at the
        First Tranche Closing pursuant to Section 2.3 is subject to the fulfillment
        or
        waiver as of the First Tranche Closing Date of the following
        conditions:

       

      (a) Representations
        and Warranties.
        Taken
        as a whole, the representations and warranties made by the Company in this
        Agreement shall be true and correct in all material respects as of the date
        hereof and as of the First Tranche Closing Date (except to the extent such
        representations and warranties expressly relate to an earlier date, in which
        case as of such earlier date), in each case, disregarding for the purposes
        of
        this sentence any qualifications as to "materiality" contained within such
        representations and warranties.

       

      (b) Covenants.
        All
        covenants, agreements, and conditions contained in this Agreement to be
        performed by the Company on or prior to the First Tranche Closing Date shall
        have been performed or complied with in all material respects.

       

      (c) Absence
        of Material Adverse Effects.
        Since
        March 31, 2008, no event, change, effect or development shall have occurred
        that, individually or in the aggregate, has had or would reasonably be expected
        to have, a Material Adverse Effect. Since March 31, 2008, no event, change,
        effect or development shall have occurred that, individually or in the
        aggregate, has had or would reasonably be expected to have, a Material Adverse
        Effect on the business, financial condition, operations, assets, or prospects
        of
        Photo Therapeutics or its Subsidiaries.

       

      (d) Officers'
        Certificates.
        The
        Company shall have delivered to the Purchaser (i) a certificate of the Chief
        Executive Officer or Chief Financial Officer of the Company, dated the First
        Tranche Closing Date, confirming the satisfaction of the conditions set forth
        in
        paragraphs (a), (b) and (c) above, and (ii) a certificate of the Secretary
        of
        the Company, dated the First Tranche Closing Date, certifying as to the
        incumbency and signatures of the officers executing this Agreement and the
        resolutions of the Board of Directors approving this Agreement and the
        transactions contemplated hereby.

       

      (e) Transfer
        Agent Instructions; Stock Certificates; Notes; Warrants.
        The
        Company shall have delivered to the Transfer Agent, the Transfer Agent
        Instructions, duly executed by the Company. The Company shall have delivered
        to
        the Purchaser (i) the First Tranche Note, (ii) the First Tranche Warrant
        and,
        (iii) stock certificates representing First Tranche Common
        Shares.

      
        
          
          

        

        
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      (f) Transaction
        Expenses.
        The
        Company shall have tendered payment or reimbursement of all Transaction
        Expenses.

       

      (g) Legal
        Opinion.
        The
        Company shall have delivered to the Purchaser an opinion, dated as of the
        First
        Closing Date, from Morgan Lewis & Bockius LLP, counsel to the Company, in
        the form previously provided to counsel to the Purchaser prior to the date
        hereof.

       

      (h) Stockholder
        Approval.
        The
        Company Stockholders Meeting shall have been duly called and the Stockholder
        Approval shall have been obtained.

       

      (i) Reverse
        Stock Split.
        The
        Company shall have effected the Reverse Stock Split.

       

      (j) Incentives
        Modifications.
        The
        Company shall have implemented the Incentives Modifications.

       

      (k) Blue
        Sky.
        The
        Company shall have obtained all necessary blue sky law permits and
        qualifications, or secured exemptions therefrom, required by any State for
        the
        offer and sale of the First Tranche Common Shares, the First Tranche Notes
        and
        the First Tranche Warrants.

       

      (l) Absence
        of Litigation.
        No
        proceeding challenging this Agreement or the other Transaction Documents
        or the
        transactions contemplated hereby and thereby, or seeking to prohibit, alter,
        prevent or materially delay the First Tranche Closing, shall have been
        instituted or be pending before any Governmental Entity, arbitrator, agency
        or
        official.

       

      (m) No
        Governmental Prohibition.
        No
        temporary restraining order, preliminary or permanent injunction or other
        order
        or decree that has the effect of preventing the sale of the First Tranche
        Common
        Shares, the First Tranche Notes and the First Tranche Warrants by the Company
        at
        the First Tranche Closing and the consummation of the transactions contemplated
        in this Agreement and the other Transaction Documents shall have been issued
        by
        any court of competent jurisdiction and remain in effect.

       

      (n) No
        Stop Order.
        No stop
        order or suspension of trading shall have been imposed by Nasdaq, the SEC
        or any
        other Governmental Entity with respect to public trading in the Common
        Stock.

       

      (o) Completion
        of PT Acquisition.
        The PT
        Acquisition and the other transactions contemplated by the Acquisition Agreement
        shall have been completed, or shall be completed simultaneously with the
        First
        Tranche Closing, without any modification thereof or waivers thereto that
        were
        not consented to in writing by the Purchaser. 

       

      (p) Board
        Representation.
        The
        Board shall have duly appointed the individual designated by the Purchaser,
        not
        less than three (3) Business Days prior to the First Tranche Closing Date,
        as a
        member of the Board of Directors, effective as of the First Tranche Closing
        Date.

      
        
          
          

        

        
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      (q) Consents
        and Waivers.
        All
        consents of and notices to Governmental Entities required
        in connection with the transactions described in this Agreement and the other
        Transaction Documents shall have been obtained and made, as applicable, and
        be
        in full force and effect.

       

      (r) Transaction
        Documents.
        The
        Purchaser shall have received counterparts of the Registration Rights Agreement
        and the Management Rights Letter, in each case duly executed by the
        Company.

       

      Section
        6.3 Conditions
        Precedent to Obligations of the Company at the Second Tranche
        Closing.
        The
        Company's obligation to effect the transactions specified to occur at the
        Second
        Tranche Closing pursuant to Section 2.5 is subject to the fulfillment or
        waiver
        as of the Second Tranche Closing Date of the following conditions:

       

      (a) Representations
        and Warranties.
        The
        representations and warranties made by the Purchaser in this Agreement shall
        be
        true and correct in all material respects as of the date hereof and as of
        the
        Second Tranche Closing Date, except to the extent such representations and
        warranties expressly relate to an earlier date (in which case such
        representations and warranties shall be true and correct in all material
        respects on and as of such earlier date), in each case, disregarding for
        the
        purposes of this sentence any qualifications as to "materiality" contained
        within such representations and warranties.

       

      (b) Covenants.
        All
        covenants, agreements, and conditions contained in this Agreement to be
        performed by the Purchaser on or prior to the Second Tranche Closing Date
        shall
        have been performed or complied with in all material respects.

       

      (c) Officer's
        Certificate.
        The
        Purchaser shall have delivered to the Company a certificate of an authorized
        officer of the Purchaser, dated the Second Tranche Closing Date, confirming
        satisfaction of the conditions set forth in paragraphs (a) and (b)
        above.

       

      (d) Receipt
        of Funds.
        Unless
        a Company Option Event shall have occurred, the Company shall have received
        immediately available funds from the Purchaser equal to the Second Tranche
        Note
        Amount.

       

      (e) First
        Tranche Closing.
        The
        First Tranche Closing shall have occurred.

       

      (f) Blue
        Sky.
        The
        Company shall have obtained all necessary blue sky law permits and
        qualifications, or secured exemptions therefrom, required by any State for
        the
        offer and sale of the Second Tranche Notes and the Second Tranche
        Warrants.

       

      (g) Absence
        of Litigation.
        No
        proceeding challenging this Agreement or the other Transaction Documents
        or the
        transactions contemplated hereby and thereby, or seeking to prohibit, alter,
        prevent or materially delay the Second Tranche Closing, shall have been
        instituted or be pending before any Governmental Entity, arbitrator, agency
        or
        official.

      
        
          
          

        

        
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      (h) No
        Governmental Prohibition.
        No
        temporary restraining order, preliminary or permanent injunction or other
        order
        or decree that has the effect of preventing the sale of the Second Tranche
        Notes
        and the Second Tranche Warrants by the Company at the Second Tranche Closing
        and
        the consummation of the transactions contemplated in this Agreement and the
        other Transaction Documents shall have been issued by any court of competent
        jurisdiction and remain in effect.

       

      (i) No
        Stop Order.
        No stop
        order or suspension of trading shall have been imposed by the
        Eligible Market on which the Common Stock is then listed,
        the SEC
        or any other Governmental Entity with respect to public trading in the Common
        Stock.

       

      (j) Determination
        of PT Earnout Amount.
        The PT
        Earnout Amount shall have been finally determined in accordance with the
        terms
        and conditions of the Acquisition Agreement.

       

      Section
        6.4 Conditions
        Precedent to Obligations of the Purchaser at the Second Tranche
        Closing.
        The
        Purchaser's obligation to effect the transactions specified to occur at the
        Second Tranche Closing pursuant to Section 2.5 is subject to the fulfillment
        or
        waiver as of the Second Tranche Closing Date of the following
        conditions:

       

      (a) Representations
        and Warranties.
        Taken
        as a whole, the representations and warranties made by the Company in this
        Agreement (other than Section 3.8
        (Liabilities), Section 3.9
        (Absence
        of Changes) and Section
        3.10
        (Absence
        of Litigation; Judgments) (collectively, the "Specified
        Representations"))
        shall
        be true and correct in all material respects as of the date hereof and as
        of the
        Second Tranche Closing Date (except to the extent such representations and
        warranties expressly relate to an earlier date, in which case as of such
        earlier
        date), in each case, disregarding for the purposes of this sentence any
        qualifications as to "materiality" contained within such representations
        and
        warranties. Taken as a whole, the Specified Representations shall be true
        and
        correct in all material respects as of the date hereof and as of the Second
        Tranche Closing Date (except to the extent such representations and warranties
        expressly relate to an earlier date, in which case as of such earlier date),
        except for such breaches of the Specified Representations as of the Second
        Tranche Closing Date attributable to matters arising after the date of this
        Agreement that in the aggregate have not had, and would not reasonably be
        expected to have, a Material Adverse Effect, in each case disregarding for
        the
        purposes of this sentence any qualifications as to "materiality" or "Material
        Adverse Effect" contained within the Specified Representations.

       

      (b) Covenants.
        All
        covenants, agreements, and conditions contained in this Agreement to be
        performed by the Company on or prior to the Second Tranche Closing Date shall
        have been performed or complied with in all material respects.

       

      (c) Absence
        of Material Adverse Effect.
        Since
        March 31, 2008, no event, change, effect or development shall have occurred
        that, individually or in the aggregate, has had or would reasonably be expected
        to have, a Material Adverse Effect.

      
        
          
          

        

        
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      (d) Officers'
        Certificates.
        The
        Company shall have delivered to the Purchaser (i) a certificate of the Chief
        Executive Officer or Chief Financial Officer of the Company, dated the Second
        Tranche Closing Date, confirming the satisfaction of the conditions set forth
        in
        paragraphs (a), (b) and (c) above, and (ii) a certificate of the Secretary
        of
        the Company, dated the Second Tranche Closing Date, certifying as to the
        incumbency and signatures of the officers executing this Agreement and the
        resolutions of the Board of Directors approving this Agreement and the
        transactions contemplated hereby.

       

      (e) Notes;
        Warrants.
        The
        Company shall have delivered to the Purchaser (i) unless a Company Option
        Event
        shall have occurred, the Second Tranche Note, and (ii) the Second Tranche
        Warrant.

       

      (f) Transaction
        Expenses.
        The
        Company shall have tendered payment or reimbursement of all Transaction
        Expenses.

       

      (g) Legal
        Opinion.
        The
        Company shall have delivered to the Purchaser an opinion, dated as of the
        Second
        Closing Date, from Morgan Lewis & Bockius LLP, counsel to the Company, in
        the form previously provided to counsel to the Purchaser prior to the date
        hereof.

       

      (h) Blue
        Sky.
        The
        Company shall have obtained all necessary blue sky law permits and
        qualifications, or secured exemptions therefrom, required by any State for
        the
        offer and sale of the Second Tranche Notes and the Second Tranche
        Warrants.

       

      (i) Absence
        of Litigation.
        No
        proceeding challenging this Agreement or the other Transaction Documents
        or the
        transactions contemplated hereby and thereby, or seeking to prohibit, alter,
        prevent or materially delay the Second Tranche Closing, shall have been
        instituted or be pending before any Governmental Entity, arbitrator, agency
        or
        official.

       

      (j) No
        Governmental Prohibition.
        No
        temporary restraining order, preliminary or permanent injunction or other
        order
        or decree that has the effect of preventing the sale of the Second Tranche
        Notes
        and the Second Tranche Warrants by the Company at the Second Tranche Closing
        and
        the consummation of the transactions contemplated in this Agreement and the
        other Transaction Documents shall have been issued by any court of competent
        jurisdiction and remain in effect.

       

      (k) No
        Stop Order.
        No stop
        order or suspension of trading shall have been imposed by the Eligible Market
        on
        which the Common Stock is then listed, the SEC or any other Governmental
        Entity
        with respect to public trading in the Common Stock.

       

      (l) Determination
        of PT Earnout Amount.
        The PT
        Earnout Amount shall have been determined in accordance with the terms and
        conditions of the Acquisition Agreement, without any modification thereof
        or
        waivers thereto that were not consented to in writing by the Purchaser and
        the
        Company shall have paid the PT Earnout Amount to Photo Therapeutics or shall
        make such payment simultaneously with the Second Tranche Closing.

       

      (m) No
        Default.
        No
        Event of Default (as defined in the First Tranche Notes) or event which,
        with
        the passage of time and/or the giving of notice, would constitute an Event
        of
        Default, shall have occurred and be continuing.

      
        
          
          

        

        
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      (n) Consents
        and Waivers.
All
        consents of and notices to Governmental Entities required in connection with
        the
        transactions described in this Agreement and the other Transaction Documents
        shall have been obtained and made, as applicable, and be in full force and
        effect.

       

      ARTICLE
        VII

      Termination

       

      Section
        7.1 Termination.
        This
        Agreement may be terminated at any time prior to the First Tranche Closing
        Date,
        whether before or after receipt of the Stockholder Approval:

       

      (a) by
        mutual
        written consent of the Company and the Purchaser;

       

      (b) by
        either
        the Company or the Purchaser:

       

      (i) if
        the
        First Tranche Issuance is not consummated on or before
        February 28, 2009
        (the "Outside
        Date"),
        unless the failure to consummate the First Tranche Issuance is the result
        of a
        breach of any Transaction Document by the party seeking to terminate this
        Agreement;

       

      (ii) if
        any
        Governmental Entity issues an order, decree or ruling or has taken any other
        action permanently enjoining, restraining or otherwise prohibiting the
        transactions contemplated by this Agreement and the other Transaction Documents
        and such order, decree, ruling or other action shall have become final and
        nonappealable;

       

      (iii) if
        any
        condition to the obligation of such party to consummate the First Tranche
        Issuance set forth in Section 6.1 (in the case of the Company) or 6.2 (in
        the case of the Purchaser) becomes incapable of satisfaction prior to the
        Outside Date; provided,
        however,
        that
        the failure of such condition is not the result of a breach of any Transaction
        Document by the Party seeking to terminate this Agreement; or

       

      (iv) if,
        upon
        a vote at a duly held meeting to obtain the Stockholder Approval, the
        Stockholder Approval is not obtained;

       

      (c) by
        the
        Purchaser:

       

      (i) if
        the
        Company breaches or fails to perform in any material respect any of its
        representations, warranties or covenants contained in any Transaction Document,
        which breach or failure to perform (A) would give rise to the failure of a
        condition set forth in Section 6.2(a)
        or
Section 6.2(b),
        and
        (B) cannot be or has not been cured within 30 days after the giving of
        written notice to the Company of such breach (provided that the Purchaser
        is not
        then in breach of any representation, warranty or covenant in any Transaction
        Document); or

       

      (ii) if
        the
        Board or any committee thereof withdraws (or amends or modifies, in a manner
        adverse to the Purchaser) or publicly proposes to withdraw (or amend or modify),
        in a manner adverse to the Purchaser, its approval or recommendation of this
        Agreement or the transactions contemplated by this Agreement and the other
        Transaction Documents or fails to recommend to the Company's stockholders
        that
        they give the Stockholder Approval;

      
        
          
          

        

        
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      (d) by
        the
        Company:

       

      (i) if
        the
        Purchaser breaches or fails to perform in any material respect of any of
        its
        representations, warranties or covenants contained in any Transaction Document,
        which breach or failure to perform (A) would give rise to the failure of a
        condition set forth in Section 6.1(a)
        or
Section 6.1(b),
        and
        (B) cannot be or has not been cured within 30 days after the giving of
        written notice to the Purchaser of such breach (provided that the Company
        is not
        then in breach of any representation, warranty or covenant in any Transaction
        Document); or

       

      (ii) prior
        to
        receipt of the Stockholder Approval, (A) the Company is in compliance with
        its
        obligations under Section
        5.8,
        (B) the
        Board has received a Superior Proposal, (C) the Company provided three Business
        Days written notice to the Purchaser that it is prepared to accept such Superior
        Proposal, (D) the Board concurrently approves, and the Company concurrently
        enters into, a definitive agreement providing for the implementation of such
        Superior Proposal and (E) the Company prior to such termination pays to the
        Purchaser in immediately available funds any fees and expenses required to
        be
        paid or reimbursed pursuant to Section
        7.3.

       

      (iii) if
        the
        Acquisition Agreement is terminated in accordance with its terms; provided,
        that
        the Company has not theretofore breached Section 5.8.

       

      Section
        7.2 Effect
        of Termination.
        In the
        event of termination of this Agreement by either the Company or the Purchaser
        as
        provided in Section 7.1,
        this
        Agreement shall forthwith become void and have no effect, without any liability
        or obligation on the part of the Purchaser or the Company, other than the
        last
        sentence of Section 5.5,
        Section 5.12,
        Section 5.22,
        this
Section 7.2,
        Section 7.3,
        Article VIII and Section
        9.5,
        which
        provisions shall survive such termination, and except to the extent that
        such
        termination results from the willful and material breach by a party of any
        representation, warranty or covenant set forth in any Transaction
        Agreement.

       

      Section
        7.3 Termination
        Fees and Expenses.

       

      (a) If
        this
        Agreement is terminated by either party for any reason (other than a termination
        of this Agreement by the Company (i) pursuant to Section 7.1(b)(iii) on account
        of the conditions set forth in Sections 6.1(a) or (b) having become incapable
        of
        satisfaction prior to the outside date or (ii) pursuant to Section 7.1(d)(i)),
        then the Company shall promptly, but in no event later than one Business
        Day
        after termination of this Agreement, pay to the Purchaser the Transaction
        Expenses; provided,
        that
        such payment shall be made concurrently with any termination by the Company
        pursuant to Section 7.1(d)(ii).

      

        
          
            
            

          

          
            59

            
              

            

          

          
            
            

          

        

      

       

      (b) In
        addition:

      (i) 
        if this
        Agreement is terminated pursuant to Section 7.1(b)(iv) or Section
        7.1(d)(iii), and within 12 months of such termination the Company shall either
        complete the PT Acquisition or shall consummate or enter into, directly or
        indirectly, an agreement with respect to a transaction constituting an
        Alternative Proposal (substituting each reference to 10% in the definition
        of
        "Alternative Proposal" with a reference to 50%), the Company shall promptly,
        but
        in no event later than one Business Day after such consummation or, if earlier,
        entry into such agreement, pay to the Purchaser a fee in immediately available
        funds of $250,000 (the "Termination
        Fee");

       

      (c) if
        this
        Agreement is terminated by the Purchaser pursuant to Section 7.1(c)(ii),
        the Company shall promptly, but in no event later than one Business Day after
        termination of this Agreement, pay to the Purchaser the Termination Fee;
        and

       

      (d) if
        this
        Agreement is terminated by the Company pursuant to Section 7.1(d)(ii), then
        concurrently with such termination, the Company shall pay to the Purchaser
        the
        Termination Fee.

       

      ARTICLE
        VIII

      Indemnification

       

      Section
        8.1 Indemnification
        of Purchaser Indemnified Persons.
        The
        Company shall indemnify, defend and hold harmless the Purchaser and each
        of its
        Affiliates, partners, directors, officers, and employees (collectively, the
        "Purchaser
        Indemnified Persons")
        from
        and against any and all demands, claims, actions or causes of action,
        assessments, losses, damages, liabilities, interest and penalties, costs
        and
        expenses (including, without limitation, reasonable legal fees and disbursements
        incurred in connection therewith and in seeking indemnification therefor,
        and
        any amounts or expenses required to be paid or incurred in connection with
        any
        action, suit, proceeding, claim, appeal, demand, assessment or judgment)
        (collectively, "Losses"),
        suffered or incurred by or imposed upon any Purchaser Indemnified Person
        as a
        result of: (i) any breach of any representation or warranty of the Company
        contained in this Agreement or in any other Transaction Document (provided,
        that
        (A) the Company shall not be obligated to indemnify the Purchaser Indemnified
        Persons with respect to any breaches of the representations and warranties
        of
        the Company contained in this Agreement and made as of the First Tranche
        Closing
        Date unless such breaches, individually or in the aggregate, would have given
        rise to a failure of the condition set forth in Section 6.2(a) and the Company
        delivers the certificates required by Section 6.2(e), and (B) the Company
        shall
        not be obligated to indemnify the Purchaser Indemnified Persons with respect
        to
        any breaches of the representations and warranties of the Company contained
        in
        this Agreement and made as of the Second Tranche Closing Date unless such
        breaches, individually or in the aggregate, would have given rise to a failure
        of the condition set forth in Section 6.4(a) and the Company delivers the
        certificates required by Section 6.4(d)) or (ii) any breach of any covenant
        of
        the Company contained in this Agreement or in any other Transaction
        Document.

       

      Section
        8.2 Indemnification
        of Company Indemnified Persons.
        The
        Purchaser shall indemnify, defend and hold harmless the Company and each
        of its
        directors, officers, and employees (collectively, the "Company
        Indemnified Persons")
        from
        and against any and all Losses suffered or incurred by or imposed upon any
        Company Indemnified Person as a result of: (i) any breach of any representation
        or warranty of the Purchaser contained in this Agreement or in any other
        Transaction Document or (ii) any breach of any covenant of the Purchaser
        contained in this Agreement or in any other Transaction
        Document.

      
        
          
          

        

        
          60

          
            

          

        

        
          
          

        

      

      Section
        8.3 Procedures.
        Procedures. 

       

      (a) Third
        Party Claims.
        In order
        for a person (the "indemnified
        party")
        to be
        entitled to any indemnification provided for under Section 7.1 or 7.2 in
        respect of, arising out of or involving a claim made by any person against
        the
        indemnified party (a "Third
        Party Claim"),
        such
        indemnified party must notify the indemnifying party in writing of the Third
        Party Claim promptly following receipt by such indemnified party of written
        notice of the Third Party Claim; provided,
        however,
        that
        failure to give such notification shall not affect the indemnification provided
        hereunder except to the extent the indemnifying party shall have been actually
        prejudiced as a result of such failure. Thereafter, the indemnified party
        shall
        deliver to the indemnifying party, promptly following the indemnified party's
        receipt thereof, copies of all notices and documents (including court papers)
        received by the indemnified party relating to the Third Party
        Claim.

       

      (b) Assumption.
        If a
        Third Party Claim is made against an indemnified party, the indemnifying
        party
        shall be entitled to participate in the defense thereof and, if it so chooses,
        to assume the defense thereof by notifying the indemnified party in writing
        to
        such effect within 30 days of receipt of the indemnified party's notice of
        such
        Third Party Claim; provided,
        however,
        that
        the indemnified party shall have the right to employ counsel to represent
        it if,
        in the indemnified party's reasonable judgment, it is advisable to, in light
        of
        the separate interests of the indemnified party, to be represented by separate
        counsel (including, as applicable, local counsel), and in that event the
        reasonable fees and expenses of such separate counsel shall be paid by the
        indemnifying party and; provided,
        further,
        that
        the indemnifying party shall not have the right to assume the defense of
        such
        Third Parry Claim unless (i) the indemnifying party acknowledges fully the
        rights of the Indemnified Party (and does not contest, as a whole or in part)
        the indemnified party's indemnification rights for the Third Party Claim,
        (ii) the counsel selected by the indemnifying party is reasonably
        satisfactory to the indemnified party, (iii) the indemnified party is kept
        informed of all material developments and is furnished copies of all material
        papers filed or sent to or from the opposing party or parties and (iv) the
        indemnifying party prosecutes the defense of such Third Party Claim with
        commercially reasonable diligence in a manner which does not materially
        prejudice the defense of such Third Party Claim. If the indemnifying party
        does
        not give timely notice in accordance with the preceding sentence, the
        indemnifying party shall be deemed to have given notice that it does not
        wish to
        control the handling of such Third Party Claim. In the event the indemnifying
        party elects (by notice in writing within such 30 day period) to assume the
        defense of or otherwise control the handling of any such Third Party Claim
        for
        which indemnity is sought, the indemnifying party shall indemnify and hold
        harmless the indemnified party from and against any and all reasonable
        professional fees (including attorneys' fees, accountants, consultants and
        engineering fees) and investigation expenses incurred by the indemnified
        party
        prior to such election, notwithstanding the fact that the indemnifying party
        may not have been so liable to the indemnified party had the indemnifying
        party not elected to assume the defense of or to otherwise control the handling
        of such Third Party Claim. If the indemnifying party assumes such defense
        in
        accordance with this Section
        8.3(b),
        the
        indemnified party shall have the right to participate in the defense thereof
        and
        to employ counsel, at its own expense, separate from the counsel employed
        by the
        indemnifying party, it being understood that the indemnifying party shall
        control such defense. Notwithstanding the foregoing, the indemnifying party
        shall not be entitled to assume the defense of any Third Party Claim (and
        shall
        be liable for the fees and expenses of counsel incurred by the indemnified
        party
        in defending such Third Party Claim) if the Third Party Claim seeks an order,
        injunction or other equitable relief or relief for other than money damages
        against the indemnified party that the indemnified party reasonably determines,
        after conferring with its outside counsel, cannot be separated from any related
        claim for money damages. If such equitable relief or other relief portion
        of the
        Third Party Claim can be so separated from that for money damages, the
        indemnifying party shall be entitled to assume the defense of the portion
        relating to money damages.

      
        
          
          

        

        
          61

          
            

          

        

        
          
          

        

      

      (c) If
        the
        indemnifying party chooses to defend or prosecute a Third Party Claim, all
        the
        indemnified parties shall cooperate in the defense or prosecution thereof.
        Such
        cooperation shall include the retention and (upon the indemnifying party's
        request) the provision to the indemnifying party of records and information
        that
        are reasonably relevant to such Third Party Claim, and making employees
        available on a mutually convenient basis to provide additional information
        and
        explanation of any material provided hereunder. 

       

      (d) Other
        Claims.
        In the
        event any indemnified party should have a claim against any indemnifying
        party
        under Section 8.1 or 8.2 that does not involve a Third Party Claim being
        asserted against or sought to be collected from such indemnified party, the
        indemnified party shall deliver notice of such claim with reasonable promptness
        to the indemnifying party. The failure by any indemnified party so to notify
        the
        indemnifying party shall not relieve the indemnifying party from any liability
        that it may have to such indemnified party under Section 8.1 or 8.2, except
        to the extent that the indemnifying party demonstrates that it has been actually
        prejudiced by such failure. If the indemnifying party does not notify the
        indemnified party within 20 calendar days following its receipt of such notice
        that the indemnifying party disputes its liability to the indemnified party
        under Section 8.1 or 8.2, such claim specified by the indemnified party in
        such notice shall be conclusively deemed a liability of the indemnifying
        party
        under Section 8.1 or 8.2 and the indemnifying party shall pay the amount of
        such liability to the indemnified party on demand or, in the case of any
        notice
        in which the amount of the claim (or any portion thereof) is estimated, on
        such
        later date when the amount of such claim (or such portion thereof) becomes
        finally determined.

       

      ARTICLE
        IX

      Miscellaneous

       

      Section
        9.1 Governing
        Law; Jurisdiction; Waiver of Jury Trial.
        THE
        CORPORATE LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING
        THE
        RELATIVE RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. 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 AND THE PURCHASER HEREBY IRREVOCABLY SUBMIT 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
        OR ANY PURCHASER 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
        WAIVE,
        AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE
        COMPANY
        OR ANY PURCHASER, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
        JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR PROCEEDING IS
        IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS
        AND
        CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
        MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
        (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
        TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE
        GOOD
        AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
        SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
        PERMITTED BY LAW. THE COMPANY AND PURCHASERS HEREBY WAIVE ALL RIGHTS TO A
        TRIAL
        BY JURY.

      
        
          
          

        

        
          62

          
            

          

        

        
          
          

        

      

      Section
        9.2 Counterparts;
        Signatures by Facsimile.
        This
        Agreement may be executed in two or more counterparts, all of which when
        taken
        together shall be considered one and the same agreement and shall become
        effective when counterparts have been signed by each party and delivered
        to the
        other party, it being understood that both parties need not sign the same
        counterpart. In the event that any signature is delivered by facsimile
        transmission or email attachment, such signature shall create a valid and
        binding obligation of the party executing (or on whose behalf such signature
        is
        executed) with the same force and effect as if such facsimile or email-attached
        signature page were an original thereof.

       

      Section
        9.3 Headings.
        The
        headings of this Agreement are for convenience of reference only, are not
        part
        of this Agreement and do not affect its interpretation.

       

      Section
        9.4 Severability.
        If any
        provision of this Agreement is held to be invalid or unenforceable in any
        respect, the validity and enforceability of the remaining terms and provisions
        of this Agreement shall not in any way be affected or impaired thereby and
        the
        parties will attempt to agree upon a valid and enforceable provision that
        is a
        reasonable substitute therefor, and upon so agreeing, shall incorporate such
        substitute provision in this Agreement.

       

      Section
        9.5 Entire
        Agreement; Amendments.
        The
        Transaction Documents, together with the exhibits and schedules thereto,
        contain
        the entire understanding of the parties with respect to the subject matter
        hereof and supersede all prior agreements and understandings, oral or written,
        with respect to such matters (including that certain letter agreement dated
        February 7, 2008, between the Company and Perseus, L.L.C. with respect to
        the
        transactions contemplated hereby), which the parties acknowledge have been
        merged into such documents, exhibits and schedules.

      
        
          
          

        

        
          63

          
            

          

        

        
          
          

        

      

      Section
        9.6 Amendments
        and Waivers.
        No
        provision of this Agreement may be waived or amended except in a written
        instrument signed by the Company, Perseus Partners VII, L.P. (at any time
        that
        Perseus holds any Securities), and any Principal Holder. No waiver of any
        default with respect to any provision, condition or requirement of this
        Agreement shall be deemed to be a continuing waiver in the future or a waiver
        of
        any subsequent default or a waiver of any other provision, condition or
        requirement hereof, nor shall any delay or omission of either party to exercise
        any right hereunder in any manner impair the exercise of any such
        right.

       

      Section
        9.7 Notices.
        Any and
        all notices or other communications or deliveries required or permitted to
        be
        provided hereunder shall be in writing and shall be deemed given and effective
        on the earliest of (a) the date of transmission, if such notice or communication
        is delivered via facsimile 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. The addresses for such communications are:

       

      
        	
                If
                  to the Company:

              	
                PhotoMedex,
                  Inc.

              
	 	
                147
                  Keystone Drive, 

              
	 	
                Montgomery,
                  PA 18936

              
	 	
                Attn:
                  President and Chief Executive Officer

              
	 	 
	
                With
                  a copy to:

              	
                Morgan
                  Lewis & Bockius LLP

              
	 	
                1701
                  Market Street

              
	 	
                Philadelphia,
                  PA 19103

              
	 	
                Attn:
                  Stephen M. Goodman

              
	 	 
	
                If
                  to the Purchaser:

              	
                Perseus
                  Partners VII, L.P.

              
	 	
                c/o
                  Perseus L.L.C.

              
	 	
                2099
                  Pennsylvania Avenue, N.W., Suite 900

              
	 	
                Washington,
                  D.C. 20006

              
	 	
                Attn:
                  Teresa Y. Bernstein

              
	 	 
	 	
                and
                  to

              
	 	 
	 	
                Perseus
                  Partners VII, L.P.

              
	 	
                c/o
                  Perseus L.L.C.

              
	 	
                1325
                  Avenue of the Americas, 25th Floor

              
	 	
                New
                  York, NY 10019

              
	 	
                Attn:
                  John M. Glazer

              
	 	 
	
                With
                  a copy to:

              	
                Covington
                  & Burling LLP

              
	 	
                The
                  New York Times Building

              
	 	
                620
                  Eighth Avenue

              
	 	
                New
                  York, NY 10018

              
	 	
                Attn:
                  Scott F. Smith

              

      

      
        
          
          

        

        
          64

          
            

          

        

        
          
          

        

      

      

      Section
        9.8 Successors
        and Assigns.
        This
        Agreement shall be binding upon and inure to the benefit of the parties hereto
        and their successors and permitted assigns. The Company may not assign this
        Agreement or any rights or obligations hereunder without the prior written
        consent of the holders of a majority of the Securities. The Purchaser may
        assign
        its rights under this Agreement to any Person to whom the Purchaser assigns
        or
        transfers any Securities, provided (i) the Purchaser agrees in writing with
        the
        transferee or assignee to assign such rights, and a copy of such agreement
        is
        furnished to the Company after such assignment, (ii) the Company is furnished
        with written notice of the name and address of such transferee or assignee,
        (iii) following such transfer or assignment, the further disposition of such
        securities by the transferee or assignee is restricted under the Securities
        Act
        and applicable state securities laws, (iv) such transferee agrees in writing
        to
        be bound, with respect to the transferred Securities, by the provisions hereof
        that apply to the "Purchaser," and, if such transferee (or the group of which
        such transferee is a part) would be the Principal Holder, the provisions
        hereof
        that apply to the "Principal Holder," (v) such transfer shall have been made
        in
        accordance with the applicable requirements of this Agreement and with all
        laws
        applicable thereto; (vi) the Purchaser's rights under Sections 5.9,
        5.10,
        5.19,
        5.20,
        5.24
        and
5.28
        may not
        be assigned except to a transferee (or group) that would constitute the
        Principal Holder and any such assignment shall be an assignment in part and
        the
        Purchaser shall retain such rights with respect to any Securities retained
        by
        the Purchaser; and (vii) the Purchaser's rights under Section 5.11
        may not
        be assigned except as a whole (and not in part) to a transferee (or group)
        that
        would constitute the Principal Holder.

       

      Section
        9.9 Third
        Party Beneficiaries.
        This
        Agreement is intended for the benefit of the parties hereto and their respective
        successors and permitted assigns and is not for the benefit of, nor may any
        provision hereof be enforced by, any other Person, except that the Purchaser
        Indemnified Person is an intended third party beneficiary of Section 8.1
        and
        each Company Indemnified Person is an intended third party beneficiary of
        Section 8.2, and (in each case) may enforce the provisions of such Sections
        directly against the parties with obligations thereunder.

       

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

       

      Section
        9.11 Replacement
        of Securities.
        If any
        certificate or instrument evidencing any Securities is mutilated, lost, stolen
        or destroyed, the Company shall issue or cause to be issued in exchange and
        substitution for and upon cancellation thereof, or in lieu of and substitution
        therefor, a new certificate or instrument, but only upon receipt of evidence
        reasonably satisfactory to the Company of such loss, theft or destruction
        and
        the execution by the holder thereof of a customary lost certificate affidavit
        of
        that fact and an agreement to indemnify and hold harmless the Company for
        any
        losses in connection therewith. The applicants for a new certificate or
        instrument under such circumstances shall also pay any reasonable third-party
        costs associated with the issuance of such replacement
        Securities.

      
        
          
          

        

        
          65

          
            

          

        

        
          
          

        

      

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

       

      Section
        9.13 Further
        Assurances.
        Each
        party will do and perform, or cause to be done and performed, all such further
        acts and things, and will execute and deliver all other agreements,
        certificates, instruments and documents, as another party may reasonably
        request
        in order to carry out the intent and accomplish the purposes of this Agreement
        and the consummation of the transactions contemplated hereby.

       

      Section
        9.14 No
        Strict Construction.
        The
        language used in this Agreement is deemed to be the language chosen by the
        parties to express their mutual intent, and no rules of strict construction
        will
        be applied against any party.

       

      Section
        9.15 Remedies.
        In
        addition to being entitled to exercise all rights provided herein including
        recovery of damages, each of the Purchaser and the Company will be entitled
        to
        seek specific performance under the Transaction Documents. The parties agree
        that monetary damages may not be adequate compensation for any loss incurred
        by
        reason of any breach of obligations described in the foregoing sentence and
        hereby agrees to waive in any action for specific performance of any such
        obligation (other than in connection with any action for temporary restraining
        order) the defense that a remedy at law would be adequate.

       

      Section
        9.16 Survival
        of Representations and Warranties.
        The
        representations and warranties set forth in this agreement shall survive
        the
        First Tranche Closing and, if applicable, the Second Tranche
        Closing.

       

      [Signature
        Page Follows]

      
        
          
          

        

        
          66

          
            

          

        

        
          
          

        

      

      In
        Witness Whereof, the
        Purchaser and the Company have caused this Agreement to be duly executed
        as of
        the date first above written.

       

      
        	
                PhotoMedex,
                  Inc.

              
	 	 
	
                By:
                  

              	/s/
	
                Name:

              	 
	
                Title:

              	 

      

      

      
        	
                Perseus
                  Partners VII, L.P.

              
	 	 
	
                By:
                  

              	
                Perseus
                  Partners VII GP, L.P.,

              
	 	
                its
                  general partner

              
	 	 
	
                By:
                  

              	
                Perseus
                  Partners VII GP, L.L.C.,

              
	 	
                its
                  general partner

              

      

      

      
        	
                By:
                  

              	/s/
	
                Name:

              	 
	
                Title:

              	 

      

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      

        EXHIBIT
          A

        

        FORM
          OF
          CONVERTIBLE NOTE

        

        [Omitted.
          Please refer to Exhibit 4.2 of the Form 8-K]

        

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        EXHIBIT
          B

        

        FORM
          OF
          WARRANT

        

        [Omitted.
          Please refer to Exhibit 4.3 of the Form 8-K]

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    EXHIBIT
      C

     

     

    [Letterhead
      of PhotoMedex]

     

    [           
      ], 2008

     

    

    Perseus
      Partners VII, L.P.

    c/o
      Perseus, L.L.C.

    2099
      Pennsylvania Avenue, NW, Suite 900

    Washington,
      DC 20006

    

    and

    

    Perseus
      Partners VII, L.P.

    c/o
      Perseus L.L.C.

    1325
      Avenue of the Americas, 25th Floor

    New
      York,
      NY 10019

    

    Ladies
      and Gentlemen:

    

    Pursuant
      to this letter agreement, PhotoMedex, Inc. (the “Company”) grants the following
      rights to Perseus Partners VII, L.P. (the “Fund”) in connection with the Fund’s
      investment in the Company: 

    

    
      	 	
              (a)

            	
              to
                obtain true and correct copies of all documents, reports, financial
                data
                and other information regarding the Company and its subsidiaries
                as may be
                reasonably requested by the Fund;

            

    

     

    
      	 	
              (b)

            	
              to
                consult with and advise the management of the Company and its subsidiaries
                at such reasonable times on all matters relating to the operation
                of the
                Company and its subsidiaries as may be reasonably requested by the
                Fund;

            

    

     

    
      	 	
              (c)

            	
              to
                discuss the Company’s and the Company’s subsidiaries’ affairs, finances
                and accounts with the Company’s and the Company’s subsidiaries’ officers,
                directors and outside accountants at such reasonable times as may
                be
                reasonably requested by the Fund;
                and

            

    

     

    
      	 	
              (d)

            	
              to
                visit and inspect any of the Company’s and the Company’s subsidiaries’
                properties and facilities, including but not limited to books of
                account,
                    at such reasonable times as may be requested by the
                Fund.

            

    

     

    In
      addition to the above rights, the Company agrees to deliver to the
      Fund:

     

    

    
      
        
          
          

        

        
          -
            1 -

          
            

          

        

        
          
          

        

      

    

     

     

    
      	
            	(a)	
              as
                soon as available and in any event within 45 days after the end of
                each of
                the first three quarters of each fiscal year of the Company, consolidated
                balance sheets of the Company and its subsidiaries as of the end
                of such
                period and consolidated income and cash flows of the Company and
                its
                subsidiaries for the period then ended prepared in conformity with
                generally accepted accounting principles in the United States (or
                applicable international accounting standards) applied on a consistent
                basis, except as otherwise noted therein, and subject to the absence
                of
                footnote disclosures and to year-end adjustments;
                

            

    

     

    
      	 	
              (b)

            	
              as
                soon as available and in any event within 90 days after the end of
                each
                fiscal year of the Company, a consolidated balance sheet of the Company
                and its subsidiaries as of the end of such year and consolidated
                statements of income and cash flows of the Company and its subsidiaries
                for the year then ended prepared in conformity with generally accepted
                accounting principles in the United States (or applicable international
                accounting standards) applied on a consistent basis, except as otherwise
                noted therein, together with an auditor’s report thereon of a firm of
                established national reputation; and

            

    

     

    
      	 	
              (c)

            	
              to
                the extent the Company is required by law or pursuant to the terms
                of any
                outstanding indebtedness of the Company to prepare such reports,
                any
                annual reports, quarterly reports and other periodic reports pursuant
                to
                Section 13 or 15(d) of the Securities Exchange Act of 1934 (or comparable
                reports under other applicable law) actually prepared by the Company
                as
                soon as available.

            

    

     

    The
      Company agrees to consider, in good faith, the recommendations of the Fund
      or
      the Fund’s designated representatives in connection with the matters on which
      the Fund is consulted as described above, recognizing that the ultimate
      discretion with respect to all such matters shall be retained by the Company.
      

     

    In
      addition, if at any time the Fund does not have a contractual right (or elects
      to waive such contractual right) to designate a member of the Board of Directors
      of the Company (the “Board”), the Fund shall have the right to appoint a
      representative to attend meetings of the Board in a non-voting capacity (an
      “Observer”), to change the Observer so appointed at any time upon 15 days prior
      written notice to the Board and, upon the resignation of the Observer for any
      reason, to appoint a new Observer upon written notice to the Board. Further,
      the
      Company shall provide any such Observer with a copy of any materials to be
      distributed or discussed at such meetings at the same time as provided to
      members of the Board.

     

    Notwithstanding
      anything herein to the contrary, the Company reserves the right to exclude
      the
      Fund and the Fund’s designated representatives (other than those that may
      otherwise serve on the Board) from access to any material or portion thereof
      if

     

     

    

    
      
        
          
          

        

        
          -
            2 -

          
            

          

        

        
          
          

        

      

    

     

     

    and
      only
      to the extent the Company believes upon advice of counsel that such exclusion
      is
      reasonably necessary to preserve the attorney-client privilege of the Company
      or
      its subsidiaries, to protect highly confidential proprietary information (unless
      the Fund and the Fund’s designated representatives enter into a confidentiality
      agreement reasonably satisfactory to the Company) or for substantially similar
      reasons.

     

    The
      Fund
      agrees, and any representative of the Fund will agree, to hold in confidence
      pursuant to Section 5.27 of the Securities Purchase Agreement dated as of August
      4, 2008 by and between the Company and the Fund, any confidential information
      provided to or learned by it in connection with its rights under this letter.
      

     

    The
      rights described herein shall terminate and be of no further force or effect
      (a) at such time as no shares of the Company’s common stock (or securities
      convertible or exerciseable for the Company’s common stock) are held by the Fund
      or its affiliates; or
      (b) upon the consummation of a merger or consolidation of the Company that
      is effected (i) for independent business reasons unrelated to extinguishing
      such rights and (ii) for purposes other than (A) the reincorporation
      of the Company in a different state or (B) the formation of a holding
      company that will be owned exclusively by the Company’s stockholders and will
      hold all of the outstanding shares of capital stock of the Company’s successor.
      The confidentiality obligations referenced herein will survive any such
      termination.

     

     

    
      
        
        

      

      
        -
          3 -

        
          

        

      

      
        
        

      

    

     

     

    The
      rights described herein are granted in consideration of the Fund’s investment in
      the Company on or around the date hereof. 

     

    Our
      signatures below indicate our assent to the terms of this letter agreement
      as of
      the date set forth above.

     

     

    Very
      truly yours,

     

    PhotoMedex,
      Inc.

     

     

    By: 
      
      
        

      

    

    Name:

    Title:
      

    

     

    

     

    

     

    

     

    Agreed
      to
      and accepted:

     

    

    PERSEUS
      PARTNERS VII, L.P.

    

    By:
      Perseus Partners VII GP, L.P., its General Partner

    By:
      Perseus Partners VII GP, L.L.C., its General Partner

    By:
      Perseus, L.L.C., its Sole Member

     

    

    By:

    
      

    

    Name:

    Title:

     

     

     

    [Signature
      Page to Management Rights Letter]

     

     

    
      
        
        

      

      
        - 4
          -

        
          

        

      

      
        
        

      

    

    

      EXHIBIT
        D

      

      FORM
        OF
        REGISTRATION RIGHTS AGREEMENTS

      

      [Omitted.
        Please refer to Exhibit 4.4 of the Form 8-K]

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
        E

      

      
        

        [Photomedex
          Letterhead]

         

        ______
          ___, 2008

        StockTrans
          Inc.

        ____________

        ____________

        ____________

        Attn:
          ______________

         

        VIA
          FACSIMILE AND OVERNIGHT DELIVERY

         

        Re: Photomedex,
          Inc. - Securities Purchase Agreement

         

        Dear
          Sir
          or Madam:

         

        Reference
          is made to that certain Securities Purchase Agreement (the “Purchase
          Agreement”),
          dated
          as of August 4, 2008, by and among PhotoMedex, Inc., a Delaware corporation
          (the
“Company”),
          and
          the purchaser named therein (the “Purchaser”),
          pursuant to which the Company is issuing to the Purchaser ________ shares
          (the
“Shares”)1
          of the
          Company’s common stock, par value $0.01 per share (the “Common
          Stock”).
          The
          Company hereby irrevocably requests and authorizes you, as Transfer Agent
          and
          Registrar for the Common Stock, to issue and register the Shares in the
          Purchaser’s name as set forth in the enclosed table and to deliver the Shares to
          the Purchaser at its address as set forth in the enclosed table. Please
          place
          the following legend on the certificate:

         

        “THE
          SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER
          FOR
          ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE DISTRIBUTION
          OF SUCH SECURITIES. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
          ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND 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 IN 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.”

         

        Please
          provide a copy of such certificate to me at the address set forth above
          and a
          copy of such certificate to Colby Smith at Morgan, Lewis & Bockius LLP, 1701
          Market Street, Philadelphia, PA 19103.

         

        
          	 	
                  Very
                    truly yours,

                   

                  PHOTOMEDEX,
                    INC.

                   

                   

                  By:
                    _________________________

                  Name:
                     Davis
                    Woodward

                  Title:
                     General
                    Counsel

                

        

         

          
            

          

        

        1
          To be equal to 327,521 shares (proportionately adjusted for any subdivision
          or
          combination of the Common Stock (by stock split, reverse stock split, dividend,
          reorganization, recapitalization or otherwise) that may occur on or after
          the
          date hereof and prior to the First Tranche Closing).

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
        

        Purchaser
          Address

        

        
          	
                  Name,
                    Address and Tax Identification Number of Registered
                    Holder:

                	
                  Number
                    of Shares of Common Stock:

                	
                  Deliver
                    to:

                
	
                  Perseus
                    Partners VII, L.P.

                  c/o
                    Perseus L.L.C.

                  2099
                    Pennsylvania Avenue, N.W., Suite 900

                  Washington,
                    D.C. 20006

                  [Tax
                    Identification Number]

                	
                  [        ]

                	
                  Perseus
                    Partners VII, L.P.

                  c/o
                    Perseus L.L.C.

                  2099
                    Pennsylvania Avenue, N.W., Suite 900

                  Washington,
                    D.C. 20006

                  Attn:
                    Teresa Y. BernsteinEXHIBIT
      4.2

    

    [Form
      of]

    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 $_________,
      THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $____________, THE ISSUE DATE IS
      _____________, 200__ AND THE YIELD TO MATURITY IS ____%.

    

    PHOTOMEDEX,
      INC.

    CONVERTIBLE
      PROMISSORY NOTE

    
      	 	 
	$[                           ]
              (the "Principal
              Amount")1	
               [                           ]

            

    

    

    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
      Convertible Promissory Note (this "Convertible
      Note").

     

    This
      Convertible Note is issued pursuant to the Securities Purchase Agreement, dated
      as of August 4, 2008 (the "Purchase
      Agreement"),
      by
      and between the Company and Perseus Partners VII, L.P.

     

    
      
        

      

    

    1
      The
      Principal Amount will be equal to the First Tranche Note Amount (as defined
      in
      the Purchase Agreement) for the First Tranche Note and will be equal to the
      Second Tranche Note Amount (as defined in the Purchase Agreement) for the Second
      Tranche Note.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    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, [                           ]2 ,
      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
      3
      of this
      Convertible Note.

     

    "Maturity
      Date"
      means
      [                           ]3 
      (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
      [                           ]
      and
      [                           ]4 
      (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.

    
      
        
          
            

          

        

        2
          The
          initial Conversion Price will be equal to $0.73736 for the First Tranche
          Note
(and
          shall be proportionately adjusted for any subdivision or combination of
          the
          Common Stock (by stock split, reverse stock split, dividend, reorganization,
          recapitalization or otherwise) that may occur on or after the date hereof
          and
          prior to the First Tranche Closing) and
          be
          equal to the Second Tranche Conversion Price (as defined in the Securities
          Purchase Agreement) for the Second Tranche Note.

      

      
        3
          The
          Maturity Date will be the fifth anniversary of the First Tranche Closing
          Date.

      

      
        4
          The
          first and second interest payment dates will occur on the 1st or 15th day
          of a
          calendar month, closest to the six and 12 month anniversaries of the day
          and
          calendar month of the Date of Issuance.

      

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (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
      [                           ]5 
      (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.

     

    (d) Notwithstanding
      anything to the contrary contained in this Convertible Note, in addition to
      the
      rights of the Holder specified in Section
      4
      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. 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 3(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(e) 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.

    
      
      

      
        
          

        

      

      5
        Insert
        the interest payment date occurring closest to six months after the Date
        of
        Issuance.

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (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
      3(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.

     

    4. 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
      3(f)
      or
Section
      3(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
      3(f)
      or
Section
      3(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.

     

    
      
        
          
            
              
              

            

            
              4

              
                

              

            

            
              
              

            

          

        

      

    

     

    5. 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.

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    6. Prepayment.
      

     

    (a) Except
      as
      provided in this Section
      6,
      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.

     

    7. 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
      7(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
      7,
      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.

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (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.

     

    8. 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
      8(a)
      shall
      become effective immediately after the opening of business on the date the
      stock
      split or combination becomes effective.

     

    (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
      8(b)
      to
      reflect the actual payment of such dividend or distribution. 

     

    
      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

    

    

    (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
      8
      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 8(d):

     

    (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.

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (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
      8(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.

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (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
      8),
      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
      8)
      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
      8
      with
      respect to the rights of the Holder after such Fundamental Transaction to the
      end that the provisions of this Section 8
      (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 convertible note consistent with the foregoing provisions and evidencing
      the
      Holder’s right to convert such 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 8(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.

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (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.

     

    (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.

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (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
      8,
      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.

     

    9. Priority
      of Obligations.
      The
      Obligations shall not be junior or subordinate to any other Indebtedness of
      the
      Company. 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.

     

    10. 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).

     

    11. 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.

     

    12. 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
      11
      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
      13,
      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.

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    13. 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.

     

    14. Successors
      and Assigns.
      Subject
      to the restrictions on transfer described in Section
      11
      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.

     

    15. 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.

     

    16. 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 AND THE PURCHASER HEREBY IRREVOCABLY SUBMIT 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
      OR ANY PURCHASER 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 WAIVE,
      AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY
      OR ANY PURCHASER, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
      JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR PROCEEDING IS
      IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS
      AND
      CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
      MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
      (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
      TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
      AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
      SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
      PERMITTED BY LAW. THE COMPANY AND PURCHASERS HEREBY WAIVE ALL RIGHTS TO A TRIAL
      BY JURY.

     

    * 
      *  *  *  *

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    ISSUED
      as
      of the date first above written.

    

    
      	
              PHOTOMEDEX,
                INC.

            
	 	 
	
              By:

            	
                 

            
	
              Name:

            	 
	
              Title:

            	 

    

    [Signature
      Page to Convertible Note]

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