Share Purchase And Redemption Agreement

Exhibit 10.10

Execution Copy

Share Purchase And Redemption Agreement

Alma Lasers Ltd.,

and

Dated as of February 15, 2006

INDEX

		Page
1. Purchase and Sale of Shares; Redemption			3
1.1 Description of Securities			3
1.2 Articles; Debt and Other Pre-Closing Activities			3
1.3 Sale and Purchase of Purchased Shares			4
1.4 Redemption of Shareholders’ Shares			4
1.5 Optionholder Trust			4
1.6 Shareholder Warrants			5
1.7 Closing			5
1.8 Escrow			5
1.9 Contingent Payment			5
1.10 Redemption Tax Payments			7
1.11 Transfer Taxes			8
1.12 Further Assurances			8
1.13 Certain Terms Defined			8
2. Representations and Warranties of the Company			11
2.1 Organization and Corporate Power			11
2.2 Authorization and Non-Contravention			12
2.3 Corporate Records			13
2.4 Capitalization			13
2.5 Subsidiaries; Investments			14
2.6 Financial Statements			14
2.7 Absence of Undisclosed Liabilities			15
2.8 Absence of Certain Developments			16
2.9 Accounts Receivable; Accounts Payable.			17
2.10 Transactions with Affiliates			18
2.11 Properties			18
2.12 Tax Matters			19
2.13 Certain Contracts and Arrangements			20
2.14 Intellectual Property			22
2.15 Litigation			24
2.16 Labor Matters			24
2.17 Licenses; Compliance with Laws; Regulatory Matters			25
2.18 Employee Benefit Programs			27
2.19 Insurance Coverage			28
2.20 Investment Banking; Brokerage			28
2.21 Environmental Matters			29
2.22 Customers, Distributors and Partners			29
2.23 Suppliers			29
2.24 Warranty and Related Matters			29
2.25 Illegal Payments			30

		Page
2.26 Solvency			30
2.27 Privacy of Customer Information			30
2.28 Backlog			30
2.29 Disclosure			30
2A. Representations and Warranties of the Shareholders			31
3. Representations and Warranties of the Buyer			32
3.1 Organization and Corporate Power			32
3.2 Authority and Non-Contravention			32
3.3 Investment Status			33
3.4 Experience			33
3.5 Investment			33
3.6 Rule 144 and Rule 144A			33
3.7 No Public Market			34
4. Covenants			34
4.1 Interim Operations of the Company			34
4.2 Access; Confidentiality			34
4.3 Closing Efforts			35
4.4 Financial Information			35
4.5 Consents			35
4.6 Exclusivity			35
4.7 Covenants of the Buyer			36
4.8 Non-Competition; Non-Solicitation; Confidentiality			36
5. Closing Conditions and Deliveries			37
5.1 Conditions to Each Party’s Obligation to Effect the Closing			37
5.2 Conditions to Obligations of the Buyer to Effect the Closing			37
5.3 Conditions to Obligations of the Company and Shareholders			39
6. Termination			40
6.1 Termination			40
6.2 Effect of Termination			41
6.3 Right to Proceed			41
7. Survival Of Representations And Warranties; Transaction Related Indemnification			42
7.1 Survival of Representations, Warranties and Covenants			42
7.2 Transaction Related Indemnification			42
7.3 Limitations on Transaction Related Indemnification			43
7.4 Notice; Payment of Losses; Defense of Third-Party Claims			44
7.5 Limitation on Contribution and Certain Other Rights			46
7.6 Sole Remedy			46
7.7 Setoff; Order of Application			46
7.8 Appointment of Shareholders’ Representative			46

		Page
8. General			47
8.1 Waivers and Consents; Amendments			47
8.2 Legend on Securities			48
8.3 Governing Law			48
8.4 Section Headings; Construction			48
8.5 Counterparts			48
8.6 Notices and Demands			48
8.7 Dispute Resolution			50
8.8 Consent to Jurisdiction			51
8.9 Remedies; Severability			51
8.10 Integration			51
8.11 Assignability; Binding Agreement			51
8.12 Expenses			52
8.13 Publicity			52

EXHIBITS
Exhibit A		—		Schedule of Shareholders
Exhibit B		—		Schedule of Redemptions and Purchases
Exhibit C-1		—		Form of 1X Shareholder Warrant
Exhibit C-2		—		Form of 1.5X Shareholder Warrant
Exhibit D		—		Form of Articles of Organization
Exhibit E		—		Form of Shareholders’ Agreement
Exhibit F		—		Form of Share Transfer Deed
Exhibit G		—		Form of Escrow Agreement
Exhibit H		—		“Accredited Investor”
Exhibit I		—		Form of Management Rights Letter
Exhibit J		—		Form of Opinion of Counsel
Exhibit K		—		Form of Director Indemnification Agreement
Exhibit L		—		Senior Commitment Letter

Share Purchase And Redemption Agreement

     THIS STOCK PURCHASE AND REDEMPTION AGREEMENT (the “ Agreement ”) is made and entered into as of February 15, 2006, by and among (i) Alma Lasers Ltd. (formerly known as MSQ Ltd.), a corporation organized under Israeli law (the “ Company ”), (ii) the shareholders of the Company named in Exhibit A attached hereto (the “ Initial Shareholders , ” and each individually, an “ Initial Shareholder ”), (iii) Aesthetic Acquisition B.V., an entity organized under Netherlands law (the “ Buyer ”), (iv) the investment partnerships listed on the signature pages hereto under the heading “Funds” (the “ Funds ”), (v) each holder of vested options to purchase Ordinary Shares (as defined below) of the Company (“ Options ”) who has become a party to this Agreement by executing a joinder agreement in form and substance reasonably acceptable to Buyer (“ Joinder Agreement ”) to become a party to this Agreement in connection with its exercise of Options (each, an “ Optionholder ”), and (vi) solely for purposes of Section 4.8 hereof, each of the Persons (as defined below) listed on the signature pages hereto under the heading “Non-Compete Parties” (each, a “ Non-Compete Party ”).

      WHEREAS , as of the date hereof all of the issued and outstanding shares of share capital of the Company are owned beneficially and of record by the Shareholders (as defined below) as set forth on Exhibit A attached hereto (including, in the case of Optionholders, the number of shares of share capital of the Company anticipated to be owned beneficially and of record thereby following the exercise of Options as of immediately prior to the Closing);

      WHEREAS , immediately prior to the Closing, the rights of the Series A Preferred Shares and Series B Preferred Shares (“ Preferred Shares ”) will be amended such that the Preferred Shares shall have the same rights as the Ordinary Shares and immediately thereafter thereafter will be converted into Ordinary Shares (“ Conversion” ) ;

      WHEREAS , immediately after the Conversion and prior to the Pre-Closing Bonus Shares (as defined below), each Optionholder will exercise the Options held thereby as set forth on Exhibit A attached hereto and execute and deliver a Joinder Agreement (such exercises, collectively, the “ Option Exercise Transaction ”);

      WHEREAS , immediately after the Option Exercise Transaction and prior to the Closing, (a) the Company shall declare and effect the issuance of a bonus shares (with such term having the meaning ascribed thereto under the Israeli Companies Law) dividend of 757,688,353 Ordinary Shares (as defined below) (collectively, the “ Pre-Closing Bonus Shares ”), and then (b) the Company shall declare and pay cash dividends in respect of its share capital then outstanding, and cash payments to Optionholders in respect of their vested options to purchase Ordinary Shares as of the Closing Date but which will not be exercised in connection with the Option Exercise Transaction, in the aggregate amount of $8,142,000 (collectively, the “ Pre-Closing Dividends ”), and then (c) 377,172,000 of the Company’s issued and outstanding ordinary shares, par value NIS 0.01 per share, of the Company (“ Ordinary Shares ”), will be reclassified into an aggregate of 377,172,000 Series A-1 Convertible Preferred Shares, par value NIS 0.01 per share, of the Company (“ Series A-1 Preferred Shares ”) (the “ Reclassification ”);

      WHEREAS , immediately prior to or contemporaneously with the Closing, Buyer will lend to the Company an amount equal to $14,998,037 pursuant to the terms of a Note Purchase Agreement (the “ Note Purchase Agreement ”) in return for (i) subordinated notes (collectively, the “ Subordinated Notes ”) and (ii) 12,468,000 Ordinary Shares (the “ Sub-Debt Equity Shares ”) to be issued by the Company at the Closing;

      WHEREAS , immediately prior to or contemporaneously with the Closing, Bank Hapoalim B.M. (the “ Senior Lenders ” and, together with Buyer (but solely in respect of the Subordinated Notes), the “ Lenders ”) will lend to the Company an amount equal to $20,000,000 pursuant to the terms of a senior secured loan agreement (or other similar agreement) (the “ Senior Credit Agreement ”) in return for senior secured promissory notes (collectively, the “ Senior Notes ” and, together with the Subordinated Notes, the “ Notes ”);

      WHEREAS , at the Closing, the Buyer will purchase from the Shareholders, and the Shareholders will sell to the Buyer, a total of 377,172,000 Series A-1 Preferred Shares (the “ Purchased Shares ”) for an aggregate purchase price of $55,000,478 (subject to adjustment pursuant to Section 1.9 and subject to the escrow obligations set forth in Section 1.8) (the “ Cross Purchase ”), which Purchased Shares represent all of the issued and outstanding Series A-1 Preferred Shares;

      WHEREAS , at the Closing, the Company will use, among other things, a portion of the proceeds from the purchase and sale of the Notes to repurchase from the Shareholders, and the Shareholders shall sell to the Company (the “ Redemption ”), a total of 240,003,000 Ordinary Shares (the “ Redeemed Shares ”) for an aggregate repurchase price of $26,856,037 (subject to adjustment pursuant to Section 1.9), with the number of Redeemed Shares to be repurchased from each such Shareholder as set forth on Exhibit B attached hereto and with each such Redeemed Share to be immediately cancelled by the Company immediately following its repurchase;

      WHEREAS , in connection with the Redemption, the Company will issue to the Shareholders (i) warrants to purchase 33,310,505 Ordinary Shares, each in substantially the form attached hereto as Exhibit C-1 (collectively, the “ 1X Shareholder Warrants ”) and (ii) warrants to purchase 33,310,491 Ordinary Shares, each in substantially the form attached hereto as Exhibit C-2 (collectively, the “ 1.5X Shareholder Warrants ” and, together with the 1X Shareholder Warrants, the “ Shareholder Warrants ”);

      WHEREAS , immediately following the Reclassification, Cross Purchase, Loan Transaction, and Redemption, (i) the Buyer will hold a total of (A) 377,172,000 Series A-1 Preferred Shares, which Series A-1 Preferred Shares of will have an aggregate liquidation/sale preference of $55,000,478 (subject to adjustment) and will be convertible into an aggregate of 377,172,000 Ordinary Shares (subject to adjustment), and (B) 12,468,000 Ordinary Shares, and (ii) the Shareholders will hold (A) 140,766,000 Ordinary Shares and (B) Shareholder Warrants representing the right to purchase up to an additional 66,620,996 Ordinary Shares; and

      WHEREAS , in connection with and as a condition precedent to the consummation of the transactions contemplated hereby, among other things (i) the Company shall have adopted amended and restated articles of association in the form attached hereto as Exhibit D (the

“ Articles ”), (ii) the Company shall have reserved for issuance under its current 2005 Share Option Plan (the “ Current Share Option Plan ”), as may be amended or revised, and any additional share option plan, as may be adopted in the future (together with the Current Share Option Plan, collectively, the “ Share Option Plans ”) 143,013,000 Ordinary Shares, and (iii) the Company, the Shareholders and the Buyer shall have entered into a Shareholders Agreement in the form attached hereto as Exhibit F (the “ Shareholders Agreement ” and, together with this Agreement, Note Purchase Agreement and the Subordinated Notes, the “ Transaction Documents ” ).

      NOW THEREFORE , in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows:

1. Purchase and Sale of Shares; Redemption

      1.1 Description of Securities . For purposes of this Agreement, the Series A-1 Preferred Shares to be acquired by the Buyer from the Shareholders hereunder in the Cross Purchase are sometimes referred to as the “ Acquired Series A-1 Preferred Shares ,” the Ordinary Shares issuable upon conversion of the Series A-1 Preferred Shares are referred to as the “ Ordinary Conversion Shares , ” and the Acquired Series A-1 Preferred Shares and the Ordinary Conversion Shares are sometimes referred to herein as the “ Securities .” The Securities shall have the rights, privileges and preferences contained in the Articles.

      1.2 Articles; Debt and Other Pre-Closing Activities .

          (a) As of immediately prior to the Closing, the Option Exercise Transaction shall have been consummated, the Pre-Closing Bonus Shares shall have been issued, the Pre-Closing Dividends shall have been declared and paid, the Reclassification shall have been consummated. Immediately prior to or contemporaneously with the Closing, the Company shall have (a) adopted the Articles, and the same shall have become effective in accordance with Israeli law, and (b) received proceeds of the Notes in the aggregate amount of approximately $35,000,000. As soon as practicable following the Closing, but in event not more than two (2) business days following the Closing Date, the Company shall file the Articles with the Israeli Companies Registrar and shall make all filings necessary with the Israeli Companies Registrar to reflect that the capitalization of the Company as of immediately following the Closing is as set forth on Section 2.4(h) of the Disclosure Schedules .

          (b) Notwithstanding anything in this Agreement to the contrary, in the event that, as of immediately prior to the Closing (but following the consummation of the Option Exercise Transaction), any Optionholder has (i) declined to, or otherwise failed to, exercise the Options anticipated on the date hereof to be exercised thereby prior to the Closing (as the number of Options anticipated to be exercised is reflected on Exhibit A attached hereto opposite the name of such Optionholder), or (ii) failed to deliver a Joinder Agreement in connection with the Option Exercise Transaction, then Exhibits A and B attached hereto shall be amended (without the need for any consent or waiver other than the Buyer’s) to (A) remove the name of such Optionholder therefrom (but solely to the extent of any Options held thereby not being exercised), and (B) to appropriately adjust the number of Purchased Shares and Redeemed Shares purchased from each Shareholder, the consideration payable to each Shareholder in

respect thereof (including appropriately adjusting the amount of any escrow or trust obligation applicable to such Shareholder), the number of any Shareholder Warrants issuable to such Shareholder, and such Shareholder’s Pro Rata Percentage, each in a manner reasonably satisfactory to Buyer, the Company, and the Shareholders’ Representative.

      1.3 Sale and Purchase of Purchased Shares . Upon the terms and subject to the conditions herein, and in reliance on the representations and warranties made by the Company and the Shareholders, respectively, herein, the Buyer hereby agrees to purchase from the Shareholders, and each of the Shareholders hereby agrees to sell to the Buyer, the number of Series A-1 Preferred Shares set forth opposite the name of each such Shareholder on Exhibit B hereto (subject to adjustment, if at all, pursuant to Section 1.2(b)), or an aggregate of 377,172,000 Purchased Shares, free and clear of any and all liens, claims, options, charges, pledges, security interests, deeds of trust, voting agreements, voting trusts, encumbrances, rights or restrictions of any nature (“ Claims ”), in each case for the purchase price set forth opposite such Shareholder’s name on Exhibit B attached hereto (subject to adjustment, if at all, pursuant to Section 1.2(b)) under the heading “Cross Purchase”, or an aggregate purchase price of $55,000,478, such amounts to be subject to adjustment as set forth in Section 1.9 below and subject to the Shareholders’ escrow obligations pursuant to Section 1.8 below and, in the case of the Optionholders, the Optionholders obligations to deposit certain funds into trust pursuant to Section 1.5 below. At the Closing, each Shareholder shall deliver to the Buyer a share transfer deed substantially in the form attached hereto as Exhibit F (each, a “ Share Transfer Deed ”) evidencing its transfer of the Purchased Shares sold thereby to the Buyer pursuant to this Section 1.3.

      1.4 Redemption of Shareholders’ Shares . At the Closing, and immediately following the issuance of the Notes and the purchase and sale of the Purchased Shares as provided herein, upon the terms and subject to the conditions herein, and in reliance on the representations and warranties made by the Shareholders to the Company herein, the Company hereby agrees to apply a portion of the proceeds from the issuance and sale of the Notes to repurchase from the Shareholders, and the Shareholders, severally but not jointly, hereby agree to sell, transfer and convey to the Company, the number of Redeemed Shares set forth opposite the name of such Shareholder on Exhibit B attached hereto (subject to adjustment, if at all, pursuant to Section 1.2(b)), or an aggregate of 240,003,000 Redeemed Shares, free and clear of all Claims, in each case for the repurchase price set forth opposite such Shareholder’s name on Exhibit B attached hereto (subject to adjustment, if at all, pursuant to Section 1.2(b)) under the heading “Redemption”, or an aggregate repurchase price of $26,856,037 (the “ Redemption Price ”), such amount to be subject to adjustment as set forth in Section 1.9 below. At the Closing, each Shareholder shall deliver to the Company a Share Transfer Deed evidencing its transfer of the Redeemed Shares sold thereby to the Company pursuant to this Section 1.4. Immediately following the repurchase of each Redeemed Share, the Company shall cancel and retire such Redeemed Share so that each such Redeemed Share is no longer issued or outstanding (whether as a dormant share or otherwise).

      1.5 Optionholder Trust . Prior to the Closing, the Company, the Optionholders who have executed Joinder Agreements and Employees Remuneration Trust Company (the “ Trustee ”), as trustee, will establish a trust for the benefit of the Optionholders who have executed Joinder Agreements (the “ Optionholder Trust ”). At the Closing, the Buyer and the

Company will deposit in the Optionholder Trust for the benefit of each Optionholder the amount set forth on Exhibit B attached hereto (subject to adjustment, if at all, pursuant to Section 1.2(b)) under the heading “Trust” opposite its name, representing the aggregate consideration to be received by such Optionholder in respect of the shares of share capital issuable upon exercise of the Options and purchased by the Buyer or the Company in accordance with the terms and conditions hereof.

      1.6 Shareholder Warrants . At the Closing, and concurrently with the Redemption, upon the terms and subject to the conditions herein, and in reliance on the representations and warranties made by the Shareholders herein, the Company shall issue to each Shareholder (a) a 1X Shareholder Warrant entitling such Shareholder to purchase up to that number of Ordinary Shares as set forth on Exhibit B attached hereto (subject to adjustment, if at all, pursuant to Section 1.2(b)) under the heading “1X Warrant Shares” opposite such Shareholder’s (as applicable) name, and (b) a 1.5X Shareholder Warrant entitling such Shareholder to purchase up to that number of Ordinary Shares as set forth on Exhibit B attached hereto (subject to adjustment, if at all, pursuant to Section 1.2(b)) under the heading “1.5X Warrant Shares” opposite such Shareholder’s name.

      1.7 Closing . Subject to Section 6.1 below, the closing of the transactions contemplated by this Agreement (herein called the “ Closing ”) shall be held at the offices of Goodwin Procter LLP, Exchange Place, Boston, Massachusetts 02109, at 10:00 a.m., Boston time, as soon as possible, but in no event later than three (3) business days, following the satisfaction or waiver of each of the conditions to the Closing set forth in Section 5 (the “ Closing Date ”).

      1.8 Escrow . At the Closing, the Company, the Buyer, the Shareholders and Mellon Trust of New England, N.A. (the “ Escrow Agent ”), as escrow agent, will execute an Escrow Agreement, substantially in the form of Exhibit G hereto (the “ Escrow Agreement ”), in accordance with which each Shareholders will deposit in escrow with the Escrow Agent the amount set forth on Exhibit B attached hereto (subject to adjustment, if at all, pursuant to Section 1.2(b)) under the heading “Escrow” opposite its name, representing an aggregate amount of $13,500,000 (the “ Escrow Amount ”), with (a) $11,000,000 of such Escrow Amount to be held in escrow pursuant to the Escrow Agreement until December 31, 2007 (the “ Indemnification Escrow Amount ”), and (b) $2,500,000 of such Escrow Amount to be held in escrow until such time as the Company has satisfied its obligations to pay the Redemption Tax Payment Amount (as defined below) pursuant to Section 1.10 (the “ Tax Redemption Escrow Amount ”), all as more fully set forth in (and subject to the terms of) the Escrow Agreement. The Escrow Amount shall be subject to claims by Buyer for indemnification under Section 7.2, shall be subject to release in accordance with the provisions of Section 1.10, shall be subject to the procedures specified in the Escrow Agreement and to release in accordance with the provisions thereof.

      1.9 Contingent Payment .

          (a) In addition to the payments to the Shareholders otherwise set forth in this Agreement, the Shareholders shall be entitled to additional payments pursuant to the following terms and conditions and in the following amounts (any such payment, a “ Contingent Payment ”):

          (i) Subject to the first sentence of Section 1.9(c), for every one dollar ($1.00) by which the Company’s consolidated aggregate revenues for the fiscal year ended December 31, 2006 as set forth in the Company’s audited financial statements for the year then ended (the “ 2006 Revenues ”) exceed $40,350,000 (the “ 2006 Revenue Threshold ”), if at all, each Shareholder shall be entitled to be paid an amount equal to (each a “ Revenue Contingent Payment ”) the product of (x) $0.8401487, and (y) the percentage set forth on Exhibit B attached hereto (subject to adjustment, if at all, pursuant to Section 1.2(b)) opposite such Shareholder’s name (each such percentage, a “ Pro Rata Percentage ”); provided , however , that the aggregate amount of Revenue Contingent Payments payable to the Shareholders under this Section 1.9(a)(i) (without giving effect to any adjustment or increase pursuant to the first sentence of Section 1.9(c)) shall not exceed $11,300,000.

          (ii) Subject to the first sentence of Section 1.9(c), for every one dollar ($1.00) by which the Company’s consolidated aggregate operating profits for the fiscal year ended December 31, 2006 as set forth in the Company’s audited financial statements for the year then ended (the “ 2006 Operating Profits ”) exceed $15,825,000 (the “ 2006 Operating Profits Threshold ”), if at all, each Shareholder shall be entitled to be paid an amount equal to (each a “ Profits Contingent Payment ”) the product of (x) $1.5436696, and (y) such Shareholder’s Pro Rata Percentage; provided , however , that the aggregate amount of Profits Contingent Payments payable to the Shareholders under this Section 1.9(a)(ii) (without giving effect to any adjustment or increase pursuant to the first sentence of Section 1.9(c)) shall not exceed $5,700,000.

          (iii) Notwithstanding anything in this Agreement to the contrary, in the event of a breach by any Shareholder of any non-competition, non-solicitation or confidentiality obligations to the Company, including, without limitation pursuant to Section 4.8 or pursuant to any Employee Agreement (as defined below), no Contingent Payment shall be due or payable to such Shareholder pursuant to Sections 1.9(a)(i) or (ii); provided , however , that the Company and the Buyer shall have given such Shareholder written notice of their intentions not to make such payments under Section 1.9(b) at least ten (10) days prior to the date such payment is due; provided further , that the number of days of such notice shall be reduced in the event that, and to the extent that, such breach occurs less than ten (10) days prior to the date such payment is due.

          (iv) The Company’s 2006 Operating Profits and 2006 Revenues shall be calculated, by the Company (subject to approval by the Board of Directors) on or prior to June 30, 2007, based on the Company’s audited financial statements for the fiscal year ended December 31, 2006 prepared in a manner consistent with the Company’s past practice but excluding, for the purposes of such calculations, the effects of (or any impairments, write-offs, expenses or costs made directly in connection with) (i) any one time or other extraordinary events occurring outside the Company’s ordinary course of business (but including any one-time bona fide, arms-length sales of any Products to the Company’s or its Subsidiaries’ customers), (ii) the transactions contemplated hereby, (iii) the grants of options to purchase Ordinary Shares under the Share Option Plans, or (iv) the Company’s acquisition of Alma Lasers, Inc. (but including the effects of the operations of Alma Lasers, Inc. as a wholly-owned subsidiary of the Company). For

purposes of calculating any Contingent Payment due hereunder, the 2006 Revenue Threshold, the 2006 Operating Profits Threshold and the figures set forth in clause (x) of each of Sections 1.9(a)(i) and (ii) above shall be appropriately adjusted in connection with any spin-off transaction, merger, consolidation, other business combination or divestiture transaction or any other acquisition, sale or divestiture of any material line of business consummated in the fiscal year ended December 31, 2006.

          (b) In the event that any Contingent Payments are payable to the Shareholders pursuant to Section 1.9(a), such payments shall be made by the Buyer and the Company in accordance with the following:

          (i) The Company shall pay to each Shareholder the aggregate amount of all Contingent Payments due to such Shareholder pursuant to Section 1.9(a); provided , however , that the amount payable by the Company to all Shareholders pursuant to this Section 1.9(b)(i) (without giving effect to any adjustment or increase pursuant to the first sentence of Section 1.9(c)) shall not exceed $10,000,000 in the aggregate.

          (ii) In the event that the aggregate Contingent Payments payable to the Shareholders pursuant to Section 1.9(a) exceed $10,000,000, the Buyer shall pay to the Shareholder the excess of the aggregate amount of such Contingent Payments over $10,000,000, with each Shareholder being paid an amount equal to the product of (x) such excess, and (y) such Shareholder’s Pro Rata Percentage; provided , however , that the amount payable by the Buyer to all Shareholders pursuant to this Section 1.9(b)(ii) (without giving effect to any adjustment or increase pursuant to the first sentence of Section 1.9(c)) shall not exceed $7,000,000 in the aggregate. The Funds hereby, jointly and severally, guarantee the Buyer’s obligations (if any) to make payments pursuant to this Section 1.9(b)(ii).

          (c) Each Contingent Payment shall be deemed to bear interest at an annual rate of 5.570%, with such interest commencing to accrue on the Closing Date and accruing until the date which is two (2) business days prior to the date such Contingent Payment is actually made. The amount of any Contingent Payment payable pursuant to Section 1.9(a) (together with interest thereon in accordance with this Section 1.9(b)) shall be paid by Buyer and the Company within sixty (60) days of the completion of an audit by the Company’s independent auditors at such time of the Company’s financial statements for the fiscal year ended December 31, 2006. Each such payment shall be made in immediately available funds via wire transfer to an account designated in writing by the Shareholder entitled to receive such payment.

          (d) Any amounts paid by Buyer to any Shareholder pursuant to this Section 1.9 shall constitute an increase to the purchase price paid by Buyer in respect of the Purchased Shares. Any amounts paid by the Company to any Shareholder pursuant to this Section 1.9 shall constitute an increase to the Redemption Price paid by the Company in respect of the Redeemed Shares.

      1.10 Redemption Tax Payments . The Company shall pay all Taxes (as defined below) incurred by the Company as a result of the Redemption (the aggregate amount thereof, the “ Redemption Tax Payment Amount ”) when due and payable (if at all). The Company shall

provide the Buyer with five (5) business days prior written notice of its intention to pay the Redemption Tax Payment Amount. Upon payment by the Company of the Redemption Tax Payment Amount, an amount equal to sixty-five percent (65%) of the Redemption Tax Payment Amount (the “ Buyer Redemption Tax Portion ”) shall be distributed by the Escrow Agent out of the Tax Redemption Escrow Amount to the Buyer, which shall be the Buyer’s sole and exclusive remedy from the Shareholders or the Company with respect to the Redemption Tax Payment Amount; provided that in the event that the Buyer Redemption Tax Portion is less than $2,500,000 then an amount equal to the excess of $2,500,000 over the Buyer Redemption Tax Portion shall be distributed by the Escrow Agent out of the Tax Redemption Escrow Amount to the Shareholders.

      1.11 Transfer Taxes . All transfer taxes, fees and duties under applicable law incurred in connection with the sale and transfer of the Purchased Shares, the sale, issuance or transfer of the Shareholder Warrants, the Reclassification or the Redemption, under this Agreement will be borne and paid by the Company and it shall promptly reimburse the Buyer and Shareholders for any such tax, fee or duty which any of them is required to pay under applicable law.

      1.12 Further Assurances . The Company, the Shareholders and the Buyer from time to time after the Closing at the request of any other party hereto and without further consideration shall execute and deliver further instruments of transfer and assignment and take such other action as a party may reasonably require to more effectively transfer and assign to, and vest in, the Buyer, the Securities and all rights thereto, and to fully implement the provisions of this Agreement.

      1.13 Certain Terms Defined . The following terms, as used in this Agreement, have the meaning set forth in this Section:

     “ Affiliate ” of a Person means (i) with respect to a Person, any member of such Person’s family (including any child, step-child, parent, step-parent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law); (ii) with respect to an entity, any officer, director, shareholder, partner or investor in such entity or of or in any affiliate of such entity; and (iii) with respect to a Person or entity, any Person or entity which directly or indirectly controls, is controlled by, or is under common control with such Person or entity.

     “ Approval Date ” means the first date on which the Company has received the Redemption Approval.

     “ Business ” means the business of the Company and its Subsidiaries as currently conducted but including the Company’s and its Subsidiaries’ currently proposed sales of (i) RF Products (as defined below) in the United States and (ii) the Company’s and its Subsidiaries’ skin-tightening products anywhere in the world.

     “ business day ” means a day except a Saturday, a Sunday or other day on which the SEC or banks in the City of Boston, Massachusetts are authorized or required under any Legal Requirement to be closed.

     “ Company Intellectual Property Assets ” means all Intellectual Property Assets owned by the Company or any of its Subsidiaries or used in the Business. “Company Intellectual Property

Assets” includes, without limitation, any Patents, Marks, Copyrights or Trade Secrets owned by the Company or any of its Subsidiaries.

     “ Consents ” means all licenses, permits, authorizations, certifications, accreditations, or similar approvals of Governmental Authorities and other third parties necessary to permit the Transaction to be consummated lawfully in accordance with this Agreement, without forfeiture or material impairment of any Contract or any other License, including any such consent, permit, or approval required to be obtained after the Closing and including those listed on Section 2.2 of the Disclosure Schedule .

     “ Control ” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, or as trustee or executor, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of shares, as trustee or executor, by contract or credit arrangement or otherwise;

     “ Copyrights ” means copyrights in both published and unpublished works, including, without limitation, all curricula, program materials, compilations, databases and computer programs, manuals and other documentation and all copyright registrations and applications, and all derivatives, translations, adaptations and combinations of the above.

     “ Governmental Authority ” means any federal, state, local, municipal, foreign, tribal, or other governmental or regulatory authority of any nature and of any jurisdiction (including Israel, the United States, and the European Union) or supranational organization (which organization has the authority to make and enforce, or cause the enforcement of, rules and regulations), including any governmental agency, branch, bureau, commission, ministry, department, official, or entity and any court or other tribunal (including the FDA, as defined below, and all other regulatory and other authorities in which the Company markets its Products or otherwise conducts Business.

     “ Intellectual Property Assets ” means Patents, Marks, Copyrights, Trade Secrets, other intellectual property rights and/or proprietary rights relating to any of the foregoing and goodwill, franchises, licenses, permits, consents, approvals, and claims of infringement against third parties.

     “ Legal Requirement ” means applicable common law and any applicable law, statute, regulation, rule, ordinance, order, administrative order, treaty, standard, decree, or judgment duly enacted, adopted, or promulgated by any Governmental Authority and having the force and effect of law or constituting the published policy of a Governmental Authority.

     “ Loan Transactions ” means, collectively, the transactions contemplated by the Note Purchase Agreement and the Senior Credit Commitment Letter, including, without limitation, the issuance of the Notes thereunder.

     “ Marks ” means trade names, trade dress, logos, packaging design, slogans, Internet domain names, registered and unregistered trademarks and service marks and related registrations and applications for registration and all common law rights relating thereto.

     “ Patents ” means patents, patent applications, patent rights, foreign counterparts, divisionals, continuations, continuations-in-part, reissues, reexaminations, and continuing prosecution applications (whether or not patented).

     “ Person ” means an individual, a corporation, a joint venture, a trust, an unincorporated organization, a limited liability company or partnership, any other legal entity, a government and any agency or political subdivision thereof.

     “ Products ” means those products and/or services and related documentation researched, designed, developed, manufactured, marketed, performed, licensed, sold and/or distributed by the Company and/or any of its Subsidiaries; provided, however, that with respect to Sections 2.17 and 2.24, the term Products shall only include those Products actually manufactured, marketed, licensed, sold and/or distributed by the Company and/or any of its Subsidiaries.

     “ Public Software ” means any software that (i) contains, or is derived in any manner (in whole or in part) from, any software that is distributed as free software, open source software (e.g., Linux) or (ii) requires as a condition of its use, modification or distribution that it be disclosed or distributed in source code form or made available at no charge. Public Software includes without limitation software licensed under the GNU’s General Public License (GPL) or Lesser/Library GPL, the Mozilla Public License, the Netscape Public License, the Sun Community Source License, the Sun Industry Standards License, the BSD License, and the Apache License.

     “ Qualifying Exit Event ” means (i) any Liquidation Event or Change of Control Event (as each such term is defined in the Articles), in connection with which the Buyer (x) receives cash proceeds totaling at the time of such Liquidation Event or Change of Control Event, and/or (y) is issued securities freely tradable without restriction (other than pursuant to a contractual provision or pursuant to applicable law) entered into by the Buyer with an aggregate value at the time of such Liquidation Event or Change of Control Event (or, in the case of such freely tradable securities, at the earlier of (m) any time after a Loss Payment is to be made in respect of an Infringement Indemnity Claim, and (n) the time at which the Buyer sells any such freely tradeable securities (but only the value of such sold securities), of, or (ii) the initial public offering of the Company’s Ordinary Shares, pursuant to which the Buyer is holding securities or securities convertible into securities freely tradable without restriction (other than pursuant to a contractual provision or pursuant to applicable law) with an aggregate value at the earlier of (m) any time after a Loss Payment is to be made in respect of an Infringement Indemnity Claim, and (n) the time at which the Buyer sells any freely tradeable securities (but only the value of such sold securities), of, (a) if such event occurs on or prior to the second (2 ^nd ) anniversary of the Closing Date, an amount equal to two (2) times the product of (A) 377,172,000 and (B) the Series A-1 Original Purchase Price (as such term is defined in the Articles), and (b) if such event occurs following the second (2 ^nd ) anniversary of the Closing Date, an amount equal to two and one-half (2.5) times the product of (A) 377,172,000 and (B) the Series A-1 Original Purchase Price.

     “ Redemption Approval ” means a final order, writ or other approval from an Israeli court permitting the Company to effect the Redemption at the Closing under Section 303 of the Israeli companies law.

     “ Regulatory Authorizations ” means any and all approvals, licenses, registrations, clearances or authorizations of any Governmental Authority, including any supplements or amendments thereto, necessary to distribute, sell, or market the Products commercially.

     “ Shareholder ” means any Initial Shareholder or, effective immediately following its exercise of Options, any Optionholder; provided , however , that unless explicitly stated otherwise herein, an Optionholder shall constitute a Shareholder for all purposes of Sections 2-8 hereof; provided further , that for purposes of this Agreement, an Optionholder shall be deemed to be an Initial Shareholder for purposes of any representations and warranties made by it pursuant to Section 2A hereof effective as of the time of its exercise of Options (but contingent upon the occurrence of the Closing).

     “ Subsidiary ” of a Person means any corporation more than fifty (50%) percent of whose outstanding voting securities, or any partnership, limited liability company joint venture or other entity more than fifty percent (50%) of whose total equity interest, is directly or indirectly owned by such Person; provided, however, that each of Optunix, Inc. and T.L.M. – Advanced Laser Technology Ltd. shall constitute a Subsidiary for purposes of this Agreement.

     “ Trade Secrets ” means know-how, trade secrets, confidential or proprietary information, research in progress, algorithms, data, designs, processes, formulae, drawings, schematics, blueprints, flow charts, models, strategies, prototypes, techniques, Beta testing procedures and Beta testing results.

     “ Transaction ” means, collectively, the transactions contemplated by this Agreement and by the other Transaction Documents.

     “ U.S. Subsidiaries ” means each of the Company’s Subsidiary which are incorporated or otherwise organized under the laws of a state of the United States, including, without limitation, Alma Lasers, Inc.; provided, however, that any reference to “ the U.S. Subsidiary ” shall mean Alma Lasers, Inc.

2. Representations and Warranties of the Company

     In order to induce the Buyer to enter into this Agreement and consummate the Transaction, the Company hereby makes to the Buyer the representations and warranties contained in this Section 2. Such representations and warranties are subject to the qualifications and exceptions set forth in the disclosure schedule delivered to the Buyer pursuant to this Agreement (the “ Disclosure Schedule ”). References herein to the “knowledge” or “awareness” of the Company are deemed to mean the actual knowledge of Ziv Karni or Yaron Suher and any other officers of the Company and/or Alma Lasers, Inc., in each case, after reasonable inquiry (except as otherwise indicated), if applicable; provided , however , that, solely for purposes of Section 2.14, the term “knowledge” shall also mean the knowledge of Yoav Avni, Nadav Bayer, Yariv Matzliach and Hillel Bachrach.

      2.1 Organization and Corporate Power . The Company is a corporation duly organized, validly existing under the laws of State of Israel, and is duly qualified or registered to do business as a foreign corporation (a) in each jurisdiction listed in Section 2.1 of the Disclosure

Schedule and (b) in each jurisdiction in which the failure to be so duly qualified or registered has had, or could be reasonably expected to have, a material adverse effect on the Business or the assets (whether tangible or intangible), liabilities, condition (financial or other), results of operations of the Company or any of its Subsidiaries (a “ Material Adverse Effect ”). Except as set forth in Section 2.1 of the Disclosure Schedule , each Subsidiary of the Company is a corporation duly organized, validly existing and in good standing under the laws of Delaware, and is duly qualified or registered to do business as a foreign corporation (a) in each jurisdiction listed in Section 2.1 of the Disclosure Schedule and (b) in each jurisdiction in which the failure to be so duly qualified or registered has had, or could be reasonably expected to have, a Material Adverse Effect. The Company and each of its Subsidiaries, as applicable, has all required corporate power and authority to carry on its business as presently conducted, to enter into and perform this Agreement and the agreements contemplated hereby to which it is a party and to carry out the transactions contemplated hereby and thereby, including the issuance of the Securities. The copies of the Articles, as amended as of the Closing Date, the Company’s other organizational documents, (each as amended as of the Closing Date), each of the Company’s Subsidiaries’ organizational documents, (each as amended as of the Closing Date) (collectively, together with the Articles, the “ Company Organizational Documents ”), have been furnished to the Buyer by the Company, are correct and complete as of the date hereof, and neither the Company nor any Subsidiary of the Company is in violation of any term of the Company Organizational Documents applicable to it.

      2.2 Authorization and Non-Contravention . This Agreement and all agreements, documents and instruments executed and delivered by the Company pursuant hereto are valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the enforcement of creditors’ rights generally; and (ii) limitations on the enforcement of the remedy of specific performance and other equitable remedies. The execution, delivery and performance of this Agreement and all agreements, documents and instruments executed and delivered by the Company pursuant hereto, the Reclassification, the Redemption, the sale and issuance of the Shareholder Warrants, the sale, transfer and delivery of the Purchased Shares and, upon conversion of the Acquired Series A-1 Preferred Shares, the issuance and delivery of the Ordinary Conversion Shares, and all other transactions contemplated by this Agreement have been duly authorized by all necessary corporate or other action of the Company, except for filing with the Israeli Companies Registrar, which will be made in a timely manner. Except as set forth on Section 2.2(a) of the Disclosure Schedule , the execution and delivery of this Agreement and all agreements, documents and instruments executed and delivered by the Company or any of its Subsidiaries, if applicable, pursuant hereto, the Reclassification, the Redemption, the sale and issuance of the Shareholder Warrants, the sale, transfer and delivery of the Purchased Shares and, upon conversion of the Acquired Series A-1 Preferred Shares, the issuance and delivery of the Ordinary Conversion Shares, and all other transactions contemplated by this Agreement and such other agreements, documents and instruments, do not and will not: (i) violate or result in a violation of, conflict with or constitute or result in a violation of or default (whether after the giving of notice, lapse of time or both) or loss of benefit under any provision of any Company Organizational Documents (other than strictly of the result of any changes to the Company’s articles of association from time to time to effect the Reclassification or to adopt the Articles), or cause the creation of any Claim upon any of the assets of the Company or any of its Subsidiaries;

(ii) violate, conflict with or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, any Legal Requirement applicable to the Company or any of its Subsidiaries; (iii) require from the Company or any of its Subsidiaries any notice to, declaration or filing with, or consent or approval of any Governmental Authority or other third party; or (iv) violate or result in a violation of, or conflict with or constitute or result in a violation of or default (whether after the giving of notice, lapse of time or both) under, accelerate any obligation under, or give rise to a right of termination or loss of, any contract, agreement, permit, license, authorization, Regulatory Authorization or other obligation (including, without limitation, the Company’s status as a “Beneficial Enterprise”) issued to the Company or any of its Subsidiaries by any Governmental Authority or other third party, to which the Company or any of its Subsidiaries is a party or by which the Company, any of its Subsidiaries, or their assets are bound (collectively, the “ Licenses ” and each, a “ License ”).

      2.3 Corporate Records . The corporate record books of the Company and of each of its Subsidiaries accurately reflect all corporate actions taken by its shareholders and board of directors and committees. The copies of the corporate records of the Company and of each of its Subsidiaries, as delivered to the Buyer, are true and complete copies of the originals of such documents.

      2.4 Capitalization .

          (a) The authorized share capital of the Company immediately prior to the Reclassification, Pre-Closing Bonus Shares, and Option Exercise Transaction consist of (i) 3,685,120 Ordinary Shares, of which 139,922 shares are issued and outstanding, but of which 7,948 are dormant, (ii) 61,160 Series A Preferred Shares, all of which shares are issued and outstanding, (iii) 42,840 Series B Preferred Shares, all of which shares are issued and outstanding, but of which 5,100 are dormant, (iv) 10,880 Series C Preferred Shares, none of which are issued and outstanding.

          (b) As of the Closing and after giving effect to the Reclassification, Pre-Closing Bonus Shares, and the Option Exercise Transaction (but assuming no Optionholder has declined to exercise its Options), and the other transactions contemplated hereby, the authorized share capital of the Company will consist of (i) 1,022,828,000 Ordinary Shares, of which 153,234,000 shares will be issued and outstanding, and (ii) 377,172,000 Series A-1 Preferred Shares, all of which shares will be issued and outstanding.

          (c) As of the Closing, and after giving effect to the transactions contemplated hereby, all of the outstanding shares of share capital of the Company will have been duly and validly authorized and issued, and are fully paid and non-assessable, and will have been offered, issued, sold and delivered in compliance with applicable securities laws and other Legal Requirements without giving rise to preemptive rights of any kind.

          (d) As of the Closing, the relative rights, preferences and other provisions relating to the Acquired Series A-1 Preferred Shares and the Ordinary Shares will be as set forth in the Articles, and such rights and preferences will be valid and enforceable in accordance with their terms under Israeli law.

          (e) Except for the Shareholder Warrants, pursuant to the Current Share Option Plan or as otherwise contemplated by the Transaction Documents, there are no outstanding subscriptions, options, warrants, commitments, preemptive rights, agreements, arrangements or commitments of any kind (whether in writing or otherwise) relating to the issuance or sale of, or outstanding securities convertible into or exercisable or exchangeable for, any shares of share capital of any class or other equity interests of the Company or any of its Subsidiaries. Except as provided herein and as set forth in Section 2.4 of the Disclosure Schedule , neither the Company nor any of its Subsidiaries has any obligation to purchase, repurchase, redeem, or otherwise acquire any of its share capital or any interests therein, and has not repurchased or redeemed any shares of its share capital in the past three (3) years.

          (f) As of the Closing, the Company has duly and validly authorized and reserved (i) 143,013,000 Ordinary Shares for issuance in connection with awards (whether written or oral) to be granted or exercised under the Share Option Plans, (ii)  377,172,000 Ordinary Shares, for issuance upon conversion of the Series A-1 Preferred Shares, and (iii)  66,620,996 Ordinary Shares for issuance upon exercise of the Shareholder Warrants, and the shares of share capital so issued will, upon such grant, exercise or conversion, be validly issued, fully paid and non-assessable.

          (g) As of the Closing and after giving effect to the transactions contemplated hereby, other than rights set forth herein or in Section 2.4 of the Disclosure Schedule or in the Articles or the Shareholders’ Agreement, there are (i) no preemptive rights, rights of first refusal, put or call rights or obligations or anti-dilution rights with respect to the issuance, sale or redemption of the Company’s share capital or any interests therein, (ii) no rights to have the Company’s share capital registered for sale to the public in connection with the laws of any jurisdiction, and (iii) no documents, instruments or agreements relating to the voting of the Company’s voting securities or restrictions on the transfer of the Company’s share capital.

          (h) As of the Closing and after giving effect to the transactions contemplated hereby, the Ordinary Shares and the Series A-1 Preferred Stock will be held as set forth on Section 2.4(h) of the Disclosure Schedule free and clear of any Claims (other than restrictions imposed by securities laws applicable to unregistered securities generally and the Shareholders Agreement).

      2.5 Subsidiaries; Investments . The Company does not own or control, directly or indirectly, any interest in any other corporation, partnership, limited liability company, association or other business entity, except as set forth in Section 2.5 of the Disclosure Schedule . Neither the Company nor any of its Subsidiaries has made any investment and does not hold any interest in or have any outstanding loan or advance to or from, any person, including, without limitation, any officer, director or shareholder of the Company or any of its Subsidiaries. Each Subsidiary is wholly owned by the Company and the Company is the sole record and beneficial owner of all equity interests or shares of capital stock thereof.

      2.6 Financial Statements .

     (a) The Company has previously furnished to the Buyer and attached hereto on Section 2.6 of the Disclosure Schedule copies of the Company’s (i) audited balance sheets for

the fiscal years ended December 31, 2004 and 2003 and the related audited statements of income, retained earnings and cash flows for the fiscal years then ended, with a report thereon by the independent certified public accountants of the Company, (ii) unaudited balance sheet for the nine (9)-month fiscal period ended September 30, 2005 and the related unaudited statement of income for the fiscal period then ended, and (iii) unaudited balance sheet and related statement of income for the nine (9)-month fiscal period ended September 30, 2005, with such financial statements prepared on a pro forma consolidated basis giving effect to any mergers, business combination transaction, acquisitions and divestitures consummated by the Company on or prior to September 30, 2005 (such unaudited balance sheet of the Company as of September 30, 2005 being referred to herein as the “ Base Balance Sheet ”) (the financial statements described in clauses (i), (ii) and (iii) above collectively, the “ Financial Statements ”). The Financial Statements were prepared in conformity with generally accepted accounting principles of the United States applied on a consistent basis, are consistent in all material respects with the books and records of the Company and its Subsidiaries and fairly present the financial position and sales of the Company and its Subsidiaries (as applicable) as of the dates thereof and the results of operations and cash flows of the Company and its Subsidiaries for the periods shown therein. Neither the Company nor any of its Subsidiaries has entered into any transactions involving the factoring of receivables, synthetic leases, off balance sheet research and development arrangements or the use of special purpose entities for any off balance sheet activity. The Company’s and its Subsidiaries’ revenue recognition policies and the application of those policies is in compliance with applicable standards under generally accepted accounting principles of the United States applied on a consistent basis. Nothing has come to the attention of the Company or any of its Subsidiaries since such respective dates that would indicate that the Financial Statements are not true and correct in all material respects as of the date thereof.

     (b) For the fiscal year ended December 31, 2005, the Company estimates earnings before interest, taxes, depreciation and amortization of $13.25, excluding the effects of any extraordinary events occurring outside the Company’s ordinary course of business. Such estimates represent good faith estimates of the performance of the Company and its Subsidiaries for such fiscal year based upon all available data and based upon assumptions which were believed in good faith to be reasonable when made and continue to be reasonable as of the date hereof. During the fiscal quarter ended December 31, 2005, the Company estimates that the Company and its Subsidiaries issued invoices to customers in an aggregate value of $10.8 million.

     (c) As of immediately prior to the Closing and prior to giving effect to the transactions contemplated hereby or the payment of any transaction-related expenses payable by the Company hereunder, the Company has cash and cash equivalents of not less than $14 million (as determined in accordance with generally accepted accounting principles of the United States applied on a consistent basis).

      2.7 Absence of Undisclosed Liabilities . Neither the Company nor any of its Subsidiaries has any material liabilities or obligations of any nature, whether accrued, absolute, contingent, asserted, unasserted or otherwise, except liabilities or obligations (i) stated or adequately reserved against in the Base Balance Sheet, (ii) incurred as a result of or arising out of the transactions contemplated under this Agreement, (iii) incurred in the ordinary course of

business since the date of the Base Balance Sheet, or (iv) as set forth in Section 2.7 of the Disclosure Schedule .

      2.8 Absence of Certain Developments . Since the date of the Base Balance Sheet, each of the Company and each of its Subsidiaries has conducted its business in the ordinary course consistent with past practice and, except as explicitly set forth in Section 2.8 of the Disclosure Schedule or the Financial Statements, there has not been:

          (a) any change in the Business or assets, liabilities, condition (financial or other), properties or operations of the Company or any of its Subsidiaries, which change by itself or in conjunction with all other such changes, whether or not arising in the ordinary course of business, has had or could be reasonably expected to have a Material Adverse Effect;

          (b) any mortgage, charge, lien or other Claim placed on any of the properties of the Company or any of its Subsidiaries, other than purchase money liens and liens for taxes not yet due and payable and liens that arise in the ordinary course of business and do not materially impair the Company’s ownership or use of such property or assets;

          (c) any purchase, sale or other disposition, or any agreement or other arrangement for the purchase, sale or other disposition, of any properties or assets by the Company or any of its Subsidiaries, including any of its Intellectual Property Assets (as defined below), involving the payment or receipt of more than $100,000;

          (d) any damage, destruction or loss, whether or not covered by insurance, that has had or could be reasonably expected to have a Material Adverse Effect;

          (e) except for the Redemption and/or the payment of the Pre-Closing Dividends and/or the issuance of the Pre-Closing Bonus Shares, any declaration, setting aside or payment of any dividend by the Company or any of its Subsidiaries, or the making of any other distribution in respect of the share capital of the Company or any of its Subsidiaries, any direct or indirect redemption, purchase or other acquisition by the Company of its own share capital; or any bonus payments made to or with any officers or employees of the Company or any of its Subsidiaries;

          (f) any labor trouble or claim of unfair labor practices involving the Company or any of its Subsidiaries, any change in the compensation payable or to become payable by the Company or any of its Subsidiaries to any of its officers or employees other than normal merit increases to employees in accordance with its usual practices, or any bonus arrangements made to or with any of such officers or employees or any establishment or creation of any employment, deferred compensation or severance arrangement or employee benefit plan (other than the Current Share Option Plan) with respect to such persons, or the amendment of any of the foregoing;

          (g) any resignation, termination or removal of any officer or key employee of the Company or any of its Subsidiaries, or material loss of personnel of the Company or any of its Subsidiaries, or material change in the terms and conditions of the employment of the Company’s or any of its Subsidiaries’ officers or key personnel;

          (h) any payment or discharge of a material lien or liability of the Company or any of its Subsidiaries which was not shown on the Base Balance Sheet or incurred in the ordinary course of business thereafter;

          (i) any contingent liability incurred by the Company or any of its Subsidiaries as guarantor or otherwise with respect to the obligations of others or any cancellation of any material debt or claim owing to, or waiver of any material right of, the Company or any of its Subsidiaries, including any write-off or compromise of any accounts receivable other than in the ordinary course of business consistent with past practices;

          (j) any obligation or liability incurred by the Company or any of its Subsidiaries to any of its officers, directors, shareholders or employees, or any loans or advances made by the Company or any of its Subsidiaries to any of its officers, directors, shareholders or employees, except normal compensation and expense allowances payable to officers or employees in the ordinary course of business;

          (k) any change in accounting methods or practices, collection policies, pricing policies, discount policies, sales incentive policies or payment policies of the Company or any of its Subsidiaries;

          (l) any loss or, to the knowledge of the Company, any development that could reasonably be expected to result in a loss, of any significant supplier, customer, distributor or account of the Company or any of its Subsidiaries;

          (m) any amendment, modification, renewal or termination of, or waiver of any material right under, any material contract or agreement to which the Company and/or any of its Subsidiaries is a party or by which it is bound;

          (n) any arrangements relating to any royalty or similar payment based on the revenues, profits or sales volume of the Company or any of its Subsidiaries, whether as part of the terms of the Company’s share capital or by any separate agreement;

          (o) any transaction or agreement involving fixed price terms or fixed volume arrangements;

          (p) any other transaction entered into by the Company and/or any of its Subsidiaries other than transactions in the ordinary course of business; or

          (q) any agreement or understanding whether in writing or otherwise, for the Company and/or any of its Subsidiaries to take any of the actions specified in clauses (a) through (p) above.

      2.9 Accounts Receivable; Accounts Payable.

          (a) Except as set forth in Section 2.9 of the Disclosure Schedule, all of the accounts receivable of the Company and each of its Subsidiaries are valid and, to the knowledge of the Company, enforceable claims, are subject to no set-off or counterclaim, and are fully collectible in the normal course of business, after deducting the reserve for doubtful accounts

stated in the Base Balance Sheet, which reserve is in accordance with generally accepted accounting principles of the United States. Since the date of the Base Balance Sheet, each of the Company and each of its Subsidiaries has collected its accounts receivable in the ordinary course of its business and in a manner which is consistent with its past practices and has not accelerated any such collections. Except as set forth in Section 2.9 of the Disclosure Schedule , neither the Company nor any of its Subsidiaries has any accounts receivable or loans receivable from any person which is affiliated with it or any of its directors, officers, employees or shareholders.

          (b) Except as set forth in Section 2.9 of the Disclosure Schedule , all accounts payable and notes payable of the Company and each of its Subsidiaries arose in bona fide arm’s length transactions in the ordinary course of business and, to the knowledge of the Company, no such account payable or note payable is delinquent in its payment. Since the date of the Base Balance Sheet, the Company and each of its Subsidiaries has paid its accounts payable in the ordinary course of its business and in a manner which is consistent with its past practices. Except as set forth in Section 2.9 of the Disclosure Schedule , neither Company nor any of its Subsidiaries has any account payable to any person which is affiliated with it or any of its directors, officers, employees or shareholders.

      2.10 Transactions with Affiliates . Except as set forth in Section 2.10 of the Disclosure Schedule , there are no loans, leases or other agreements or transactions between the Company or any of its Subsidiaries or any present or former shareholder, director, officer or employee of the Company or any of its Subsidiaries or, to the knowledge of the Company (without any inquiry), any member of such officer’s, director’s, employee’s or shareholder’s immediate family, or any person controlled by such officer, director, employee or shareholder or his or her immediate family. Except as set forth in Section 2.10 of the Disclosure Schedule , to the knowledge of the Company (without any inquiry), no shareholder, director, officer or employee of the Company or any of its Subsidiaries or, any of their respective spouses or family members, owns directly or indirectly, on an individual or joint basis, any interest in, or serves as an officer or director or in another similar capacity of, any competitor, customer or supplier of the Company and/or any of its Subsidiaries, or any organization which has a material contract or arrangement with the Company or any of its Subsidiaries.

      2.11 Properties . Each of the Company and each of its Subsidiaries have good, valid and (if applicable) marketable title to all assets material to its business and to those assets reflected on the Base Balance Sheet or acquired by it after the date thereof (except for properties disposed of since that date in the ordinary course of business), free and clear of Claims, except for liens for Taxes (as hereinafter defined) not yet due and payable, and minor liens and encumbrances that do not materially detract from the value of the property subject thereto or impair the operations of the Company and/or any of its Subsidiaries. All equipment included in such properties which is necessary to the Business is in good condition and repair (ordinary wear and tear excepted) and all leases of real or personal property to which the Company and/or each of its Subsidiaries is a party are fully effective and afford the Company and/or each of its Subsidiaries peaceful and undisturbed possession of the subject matter to the lease. The property and assets of the Company and its Subsidiaries are sufficient for the conduct of its business as presently conducted.

      2.12 Tax Matters .

          (a) The Company and each of its Subsidiaries has timely and properly filed all United States federal, state and local, Israeli and other foreign Tax Returns (as defined below) required to be filed by it through the date hereof, and all such Tax Returns filed by the Company and/or any of its Subsidiaries are true, correct and complete in all material respects. In this Agreement, “ Tax Return ” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes (as defined below), including any schedule or attachment thereto, and including any amendment thereof. Except as set forth in Section 2.12 of the Disclosure Schedule , each of its Subsidiaries has paid or caused to be paid all United States federal, state and local taxes, Israeli taxes, other foreign taxes and other taxes, including without limitation, income taxes, taxes imposed under Section 1374 of the Code, estimated taxes, alternative or add-on minimum taxes, excise taxes, sales taxes, franchise taxes, employment and payroll related taxes, withholding taxes, transfer taxes, gross receipts taxes, license taxes, severance taxes, stamp taxes, occupation taxes, premium taxes, windfall profits taxes, environmental taxes (including taxes under Section 59A of the Code), customs duties taxes, capital stock taxes, profits taxes, social security (or similar) taxes, unemployment taxes, disability taxes, real property taxes, personal property taxes, registration taxes, value added taxes or other taxes of any kind whatsoever and all deficiencies, or other additions to tax, interest, fines and penalties owed by it, and including any obligation to indemnify or otherwise assume or succeed to the tax liability of any other person or entity (collectively, “ Taxes ”), required to be paid by it (whether or not shown on any Tax Return) through the date hereof whether disputed or not, except Taxes which have not yet accrued or otherwise become due. The reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Base Balance Sheet (rather than any notes thereto) is sufficient as of its date for the payment of any accrued and unpaid Taxes of any nature of the Company or any of its Subsidiaries and since the date of the Base Balance Sheet neither the Company nor any of its Subsidiaries has incurred any Taxes other than in the ordinary course of its business. All Taxes and other assessments and levies which the Company or any of its Subsidiaries was or is required to withhold or collect have been withheld and collected and have been paid over to the proper governmental authorities. There are no liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of the Company or any of its Subsidiaries. Except as set forth in Section 2.12 of the Disclosure Schedule , the Company has delivered to the Buyer correct and complete copies of all annual Tax Returns, examination reports, and statements of deficiencies filed by, assessed against, or agreed to by the Company and/or any of its Subsidiaries since its inception. The Company and each of its Subsidiaries has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to any Tax payment, assessment, deficiency or collection. Except as set forth in Section 2.12 of the Disclosure Schedule : (i) neither the Company nor any of its Subsidiaries has ever received notice of any audit or of any proposed deficiencies from the United States Internal Revenue Service (the “ IRS ”), the Israeli Taxing Authority (the “ ITA ”) or any other taxing authority; (ii) there are in effect no waivers of applicable statutes of limitations with respect to any Taxes owed by the Company or any of its Subsidiaries for any year; (iii) neither the IRS, the ITA nor any other taxing authority is now asserting or, to the knowledge of the Company, threatening to assert against the Company or any of its Subsidiaries any deficiency or claim for additional Taxes or interest thereon or penalties in connection therewith; and (iv) neither the Company nor any of its Subsidiaries has ever been a member of an affiliated group of

corporations within the meaning of Section 1504(a) of the Code filing a combined United States federal income Tax Return nor does the Company nor any of its Subsidiaries have any liability for Taxes of any other Person under Treasury Regulations § 1.1502-6 (or any similar provision of foreign, state or local law) or otherwise. Neither the Company nor any of its Subsidiaries is a party to any Tax allocation or sharing arrangement. Neither the Company nor any of its Subsidiaries is a party to any contract, agreement, plan or arrangement covering any employee or former employee thereof, that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Section 280G or Section 162 of the Code.

          (b) The taxable year of the Company and of each of its Subsidiaries for Israeli, United States federal and state income tax purposes is the fiscal year ended December 31st.

          (c) The Company has never been a “passive foreign investment company” (as defined in the Code).

          (d) Neither the Company nor any of its Subsidiaries will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing as a result of any (i) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing; (ii) installment sale or open transaction disposition made on or prior to the Closing; or (iii) prepaid amount received on or prior to the Closing.

          (e) The Company and each of its Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party, and all Forms W-2 and 1099 (and comparable Israeli forms) required with respect thereto have been properly completed and timely filed.

          (f) Neither the Company nor any of its Subsidiaries will be required to include any adjustment under Section 481(c) of the Code (or any corresponding provision of state, local or foreign law) in taxable income for any Tax period ending after the Closing as a result of a change in accounting method for a Tax period beginning on or before the Closing.

          (g) The U.S. Subsidiary has used an accrual method of accounting within the meaning of Section 446(c) of the Code at all times during its existence.

          (h) Neither the Company nor any of its Subsidiaries has distributed stock of another entity, and has not had its stock distributed by another entity, in a transaction that was purported or intended to be governed in whole or in part by Section 355 or 361 of the Code.

          (i) The Company and each of its Subsidiaries has maintained any transfer pricing information, analyses and records with respect to its inter-company transactions required to be so maintained for Unites States Tax purposes.

      2.13 Certain Contracts and Arrangements . Except as set forth in Section 2.13 of the Disclosure Schedule (with, to the extent written, true and correct copies of, and, to the extent

oral, true and correct descriptions of, each agreement referred to therein provided to the Buyer), neither the Company nor any of its Subsidiaries is a party or subject to or bound by:

          (a) any contract or agreement involving a potential commitment or payment by the Company and/or any of its Subsidiaries in excess of $100,000;

          (b) any contract, lease or agreement which is not cancelable by the Company and/or any of its Subsidiaries without penalty on not less than ninety (90) days notice;

          (c) any contract containing covenants directly or explicitly limiting in any respect the freedom of the Company and/or any of its Subsidiaries to compete in any line of business or with any person or entity;

          (d) any contract or agreement relating to the licensing, distribution, development, purchase or sale of any of its Intellectual Property Assets;

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