MASTER ASSET PURCHASE AGREEMENT

Exhibit 10.1

 

MASTER ASSET PURCHASE AGREEMENT

 

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

 

WITNESSETH:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(e) protecting resources, species or ecological amenities;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Governmental Body” means any:

 

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

 

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

 

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

 

(d) multinational organization or body;

 

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

 

(f) official of any of the foregoing.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2. Purchase and Sale .

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3.1 Consideration .

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3.1.2 Form of Payment; Escrow.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3.2 Assumption of Certain Obligations .

 

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

 

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

 

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

 

4. Closing .

 

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

 

4.2 Deliveries of the Parties at Closing .

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(a) the Closing Payment to STERN;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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5.5 Balance Sheet .

 

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

 

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

 

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

 

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

 

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5.8 Manufacturing Costs and Viability .

 

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

 

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

 

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

 

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

 

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

 

5.10 Regulatory Approval .

 

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

 

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

 

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5.11 Contracts .

 

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

 

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

 

5.12 Clai