Exhibit 10.1

CONSULTING AGREEMENT

This Consulting Agreement (this “Agreement”) is made as of the 9th day of
August, 2007 (the "Effective Date"), by and between TraceGuard Technologies Ltd.
(the “Company”) a company registered in Israel, having its principal place of
business at 6 Ravnitzky Street, P.O. Box 4708, Segula Industrial Park, Petach
Tikva, Israel, and Akis Ltd., a company registered in Israel, having its
principal place of business at 14Mishol Hakitron, Jerusalem, 97278, Israel, (the
“Consultant”). Each of the Company and the Consultant may be referred to as a
"Party" and collectively as the "Parties".

 
Whereas,
the Company is engaged in the business of development, manufacture and
production of explosives trace detection devices based on technology that
automatically extracts traces of suspect substances from the interior and
exterior of checked items, for later analysis (the Company's "Business"), in the
field of homeland security (the "Field"); and
 
Whereas,
the Company desires to obtain the Services (as defined below) of Consultant
solely through its employee Avi Kostelitz in connection with the Company’s
business, and Consultant has agreed to provide such services to the Company all
as more fully described herein;

Now, therefore, in consideration of the Parties' mutual covenants and other good
and valuable consideration, the sufficiency of which is hereby acknowledged, the
Parties agree as follows:

 
1.
Engagement

 

 
1.1.
Subject to the receipt of all approvals required under applicable law, the
Company hereby engages Consultant solely through its employee Avi Kostelitz, and
Consultant hereby agrees to hold itself available (solely through its employee
Avi Kostelitz) to render, at the request of Company, at such dates and times as
shall be mutually agreed upon between the Parties from time to time,
non-exclusive, advisory and consulting services, to the best of its and Avi
Kostelitz's ability, in compliance with all applicable laws, the Company's
policies and the terms and condition set forth herein.

 

 
1.2.
Until otherwise agreed upon between the Parties, the Consultant through its
employee, Avi Kostelitz, shall devote such time and attention as may be required
for the performance of the Services. Neither the Consultant nor Avi Kostelitz
shall, during the term of this Agreement, without providing the Company a prior
written notice, be engaged, directly or indirectly, in any other business or
professional activity that directly competes with the Company's Business as
defined hereinabove, whether or not such activities are pursued for gain, profit
or other pecuniary advantage.

 

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1.3.
Consultant shall have no authority and shall make no commitment or
representation on behalf of the Company, without the Company’s prior written
approval.

 

 

 
2.
Services

 
Within the framework of this Agreement, Consultant through its employee Avi
Kostelitz undertakes to provide the following services to the Company (the
"Services"):
 

 
2.1.
Serve as an advisor with respect to regulatory affairs.

 

 
2.2.
Aid and consult the Company in connection with Company's business related to
airport security.

 

 
2.3.
Assist the Company in the process of receiving the approval of Israeli Security
Agency (the "ISA") with respect to the CompactSafe Device (the "CompactSafe").

 

 
2.4.
Assist in business development.

 

 
2.5.
Dedicate time to attending meetings, consulting on an ad-hoc basis and rendering
the Services at such times and places to be reasonabley agreed upon between the
Parties from time to time.

 

 
2.6.
Utilize the highest professional skill, diligence, ethics and care to ensure
that all the Services are performed to the full satisfaction of the Company.
Consultant acknowledges and agrees that the performance of the Services may
require domestic and international travel (although such expenses incurred for
such travel shall be borne solely by the Company).

 

 
2.7.
In rendering the Services, the Consultant shall comply with all policies and
procedures of the Company, as may be in effect from time to time, provided he
has been properly briefed ahead of time of such policies or procedures.

 
 
 

 
3.
Compensation

 
For and in consideration of the Services to be performed by Consultant under the
terms and conditions of this Agreement, the Company agrees to pay Consultant as
follows:
 

 
3.1.
A monthly retainer’s fee of One Thousand US Dollars (US$1,000), payable on a
monthly basis no later than the 7th of each month with respect to the preceding
month, for a period of twelve (12) months commencing as of the Effective Date
(respectively, the "Period", the “Monthly Fee”).

 

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3.2.
An amount equal of Two Hundred Fifty US Dollars (US$ 250) per each working
meeting in which Consultant participates, in the Company's matters, including,
but not limited to, Board of Directors meetings, presentations and meetings with
the ISA or similar entities (each, a "Meeting Fee").

 

 
3.3.
In addition, Company shall pay Consultant the following one-time payments upon
achievement of the following milestones (the "Milestones"), as specified below
(collectively, the "Milestone Fees"):

 

 
3.3.1.
The receipt during the term of this Agreement of a formal letter from the ISA
defining the ISA's technical specifications related to the CompactSafe and its
operational performance (the "Security Requirements" and the "First Milestone",
respectively) - the Company shall pay Consultant an amount equal to Ten Thousand
US Dollars (US$10,000).

 

 
3.3.2.
The receipt during the term of this Agreement of the ISA's written principle
approval to perform trials of the CompactSafe along with a definitive timetable
for doing so (the "Trials" and the "Second Milestone", respectively) - the
Company shall pay Consultant an amount equal to Ten Thousand US Dollars
(US$10,000).

 

 
3.3.3.
Upon commencement of the Trials (the "Third Milestone") - the Company shall pay
Consultant an amount equal to Thirty Thousand US Dollars (US$30,000).

 

 
3.3.4.
The receipt of the written confirmation of the ISA that the CompactSafe meets
the Security Requirements and is qualified for operational use (the "Fourth
Milestone") - the Company shall pay Consultant an amount equal to Sixty Thousand
US Dollars (US$60,000).

 

 
3.3.5.
Consummation of an agreement with a Business Partner, introduced, pursuant to
Company's written request, by Consultant or with respect to which Consultant
provided active assistance pursuant to the Company's written request (the "Fifth
Milestone") - the Company shall pay Consultant an amount equal to Twenty
Thousand US Dollars (US$20,000).

 
For the pupose hereof, a "Business Partner" shall mean a partner with whom the
Company enters into an agreement (of any sort or kind) in order to promote its
business in the Field.
 

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Notwithstanding the aforesaid, the right of the Consultant for the payment of
Milestone Fees concerning the Third Milestone, the Fourth Milestone and the
Fifth Milestone shall be in effect during the later of (i) the term of this
Agreement or (ii) the final termination of Consultant’s activities in the
service of the Company, and twelve (12) months thereafter.
 

 
3.4.
Payment of the Fee, the Meeting Fee and the Milestone Fees, as applicable, shall
be made against the Consultant's itemized invoice, and shall be exclusive of VAT
as may be applicable (subject to withholding tax, unless Consultant provides the
Company with an appropriate exemption of withholding tax).

 

 
3.5.
The Company will grant Consultant options to purchase shares of Common Stock of
TraceGuard Technologies, Inc. (hereinafter, "TG US" and together with the
Company and any of their affiliates "TG Group"), par value US$0.001 each (the
"Shares"), upon the achievement of the Milestones, as specified in the Grant
Letter attached hereto as Exhibit A and in accordance with the terms and
conditions specified therein (the "Options"). The Options shall be subject to
the receipt of any legal and/or regulartory approvals, registrations or
exemptions from registration required under law.

 

 
3.6.
The Company agrees to reimburse the Consultant for out of pocket expenses
incurred by it in connection with the rendering of the Services hereunder,
against valid receipts, but only if approved by the Company in advance and in
writing (the “Expenses”). Subject to the foregoing, unless otherwise agreed upon
by the Parties, such Expenses of exceptional proportion, e.g. international
travel and hotel expenses, at the election of the Consultant, shall be borne
directly by the Company and not by the Consultant.

 

 
3.7.
For the avoidance of any doubt, the Fee, the Meeting Fee, the Milestone Fees and
the Options specified above (subject to their terms) constitute the full and
final consideration for the Services, and Consultant shall not be entitled to
any additional consideration, of any sort, for the Services.

 

 
4.
 Reports 

 

 
4.1.
The Consultant shall submit to the Chief Executive Officer or the Board of
Directors of the Company, as reasonably requested from time to time, oral
reports upon request, subject to the provisions of sec. 4.2 hereunder.

 

 
4.2.
In the event that Consultant participates in a conference or meeting on behalf
of the Company with a party external to TG Group, the Consultant shall submit to
the Company an oral report on the subject matter of such conference or meeting
as soon as practicable thereafter, unless otherwise instructed by the Company,
subject to the ISA’s or Israeli Airport Authority’s expectation of Kostelitz’s
discretion and confidentiality.

 
 

 
5.
Confidentiality

 

 
5.1.
The Consultant shall not disclose or put to its own use, or to the use of any
third party, any Proprietary Information (as hereinafter defined) of the Company
and/or TG US ("TG US" and together with the Company and any of their affiliates
"TG Group") which has been divulged to the Consultant, whether or not developed
by the Consultant. For the sake of avoiding any doubt, this Article 5 also binds
Avi Kostelitz individually.
 
“Proprietary Information” shall mean confidential and proprietary information
concerning the business and financial activities of TG Group, including, inter
alia, TG Group’s product research and development, the Company’s banking,
investments, investors, properties, employees, marketing plans, customers, trade
secrets, and test results, processes, data, know-how, improvements, inventions,
techniques and products (actual or planned), whether documentary, written, oral
or computer generated. However, excluded from the above definition with respect
to Consultant's confidentiality undertaking is any information that (i) is or
later becomes part of the public knowledge except as a result of the breach of
Consultant's undertakings towards the Company; (ii) reflects information and
data generally known in the industries or trades in which the Company operates;
(iii) as shown by written records, is received by Consultant from a third party
exempt from confidentiality undertakings towards the Company; (iv) the
Consultant is compelled to disclose by court or government action pursuant to
applicable law, provided, however, that Consultant provides the Company prompt
notice thereof so that it may seek a protective order or other appropriate
remedy prior to the compelled disclosure.

 
 

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5.2.
The Consultant will use the Proprietary Information solely for the performance
of the Services for the benefit of the Company. The Consultant shall use best
efforts to protect all Proprietary Information.

 
 

  5.3
Upon termination of its engagement with the Company, the Consultant will
promptly deliver to the Company all documents and materials of any nature
pertaining to the Company's Proprietary Information.
 

  5.4
Consultant recognizes that TG Group received and will receive confidential
and/or proprietary information from third parties subject to a duty on the part
of TG Group to maintain the confidentiality of such information and to use it
only for certain limited purposes. At all times, both during its engagement and
after its termination, Consultant undertakes to keep and hold all such
information in strict confidence and trust, and not to use or disclose any of
such information without the prior written consent of the Company, except as may
be necessary to perform its duties hereunder and consistent with TG Group
agreement with such third party. Upon termination of its engagement with the
Company, the Consultant shall act, with respect to such information, as set
forth in Section 5.2 and 5.3, mutatis mutandis.

     

  5.5
Consultant’s undertakings under this Section 5 shall remain in full force and
effect after termination or expiration of this Agreement or of any renewal
thereof.

 

 
6.
Intellectual Property Rights

 
N/A
 
7. Term and Termination
 
 

 
7.1.
The term of this Agreement shall be twelve (12) months, commencing upon the
Effective Date (the "Original Engagement Period"), unless terminated at any
earlier date as provided in Section 7.3 hereunder.

 
 

  7.2.
Following the Original Engagement Period, the Parties shall be entitled to
extend this Agreement for an additional twelve (12) months period (the "Option
Period"), under terms and conditions to be agreed upon by and between the
Parties.
 

  7.3.
This Agreement may be terminated by either Party, at any time, without any
further obligation to the other Party under this Agreement (other than those
obligations surviving termination or expiration hereof or compensatory rights to
which Consultant is already entitled at such time), by ninety (90) days prior
written notice to the other Party, unless terminated as a result of a material
breach, in which case this Agreement may be terminated by either Party upon
fourteen (14) days prior written notice to the other party if such a breach was
not cured during the aforesaid fourteen (14) days period. 

     

 
 

 

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8. Assurances; No Conflict
 

 
8.1.
Consultant hereby warrants, represents and confirms to the Company that on the
date hereof it is free to be engaged by the Company upon the terms contained in
this Agreement and that there are no engagements, contracts, consulting
contracts or restrictive covenants preventing full performance of its duties
hereunder.

     

  8.2. Consultant hereby further represents warrants and confirms that nothing
in this Agreement conflicts with any of Consultant's current affiliations or
other current relationships with any other entity. If such conflict shall occur
during the term of this Agreement, Consultant shall promptly notify the Company
in writing of such conflict.

     

  8.3. The Services performed hereunder will not be conducted during the same
time that is required to be devoted by Consultant to any other third party.
Consultant shall not use the funding, facilities and resources of any third
party to perform the Services hereunder and shall not perform the Services
hereunder in any manner that would give any third party rights to produce such
work. Nothing done in the Consultant work for any third party shall be
considered part of the Services performed hereunder.

 
 
 

 
9.
Competitive Activity; Non-Solicitation

 

 
9.1.
Consultant will not, as long as Consultant provides services to the Company
hereunder and for a period of twelve (12) months thereafter, directly or
indirectly, as owner, partner, joint venturer, stockholder, employee, broker,
agent, principal, corporate officer, director, consultant, licensor or in any
other capacity whatsoever engage in, become financially interested in (except
for any form of mutual fund, insurance company investment portfolio, pension
plan investment portfolio etc. with respect to which Consultant has no direct or
indirect material influence), be employed by, or have any connection with any
business or venture that is engaged in any activities which are in direct
competition with the Company's Business as defined hereinabove without TG Group
prior consent.

     

  9.2. During the Term of this Agreement and for a period of twelve (12) months
thereafter, Consultant will not solicit or induce any employee, advisor,
contractor or customer of TG Group to terminate or breach any employment,
contractual or other relationship with TG Group.

 

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10.
Independent Contractor

 

 
10.1.
Consultant agrees and acknowledges that it is performing the Services hereunder
as an independent contractor and that no employer-employee relationship exists
or will exist between the Consultant and/or any one on its behalf (including its
employee Avi Kostelitz) and the Company.

     

 
10.2.
If, despite the parties' explicit intent as reflected in this agreement, a
competent court determines the existence of an employer-employee relationship
between the Company and the Consultant and decides that the Consultant, or any
one on its behalf, is entitled to payments and/or other benefits in connection
with such employment relationship, then Consultant shall indemnify the Company
and hold it harmless from any loss or damage incurred by the Company as a result
of, or in connection with, such court decision, including reasonable expenses
and legal fees.

 

 
11.
Resolution of Disputes 

 
11.1.
All disputes between the parties related to this Agreement shall be resolved
amicably by the Parties within fourteen (14) days. In the event the Parties fail
to settle such dispute, the dispute shall be resolved exclusively by arbitration
proceedings to be held in Tel Aviv before a mutually agreed upon arbitrator, or
in the event that the parties cannot reach such mutual agreement within 14 days
of an initial request to this effect, an arbitrator named by the Chairman of the
Tel Aviv District Council of the Israeli Bar Association (the "Arbitrator").

 
 

  11.2
The Arbitrator shall decide the matters in dispute in accordance with the
substantive laws of the State of Israel, without reference to the conflict of
laws rules thereof, and in accordance with the provisions of this Agreement, but
will not be subject to the procedures and evidence law and the Arbitrator must
substantiate his decision, including interim decisions within forty five (45)
days with an option to extend this period by additional forty five (45) days. In
addition to the provisions of sec. 24 of the Arbitration Law, 5728-1968, the
Arbitrator’s final decision shall be subject to full judicial appellate review
as if such decision was the decision of the Court of Peace (Beit Mishpat
Hashalom) in Tel Aviv. This Section constitutes an arbitration agreement in
terms of the Arbitration Law, 5728-1968.
 

  11.3
The cost of arbitration shall be borne by the Party whose contention was not
upheld by the arbitration proceedings, unless otherwise provided in the
arbitration award.

     

  11.4
Nothing in this section shall prevent the Parties from applying to court for
interim orders at any time.

 

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12.
Miscellaneous

 
12.1.
The Consultant shall not assign this Agreement or any of its rights and
privileges hereunder, whether voluntarily or by operation of law, to any person,
firm or corporation without the prior written consent of the Company.

 
 

  12.2
The Consultant shall be solely responsible for the payment of any taxes,
including all business taxes arising out of the Consultant's activities.
 

  12.3
Except as otherwise provided herein, this Agreement constitutes the entire
agreement between the Parties with respect to the matters referred to herein,
and no other arrangement, understanding or agreement, verbal or otherwise, shall
be binding upon the parties hereto. This Agreement may not be amended, modified
or supplemented in any respect, except by a subsequent writing executed by the
Parties.

     

  12.4
No failure, delay or forbearance of either party in exercising any power or
right hereunder shall in any way restrict or diminish such Party's rights and
powers under this Agreement, or operate as a waiver of any breach or
non-performance by either Party of any of the terms or conditions hereof.

     

  12.5 If any term or provision of this Agreement shall be declared invalid,
illegal or unenforceable, then such term or provision shall be enforceable to
the extent that a court shall deem it reasonable to enforce such term or
provision and if such term or provision shall be unreasonable to enforce to any
extent, such term or provision shall be severed and all remaining terms and
provisions shall be unaffected and shall continue in full force and effect.

     

  12.6 Any notice from one party to the other shall be effectively served if
sent in writing by recorded delivery to the address of the receiving Party as
stated in the preamble of this Agreement, unless said Party informs the other
Party in writing on a change of address.

 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and
year first hereinabove written.

 
 
TRACEGUARD TECHNOLOGIES LTD.
 
AKIS LTD.
/s/ David Ben-Yair
By: David Ben-Yair   
Its: Chief Financial Officer
/s/ Avi Kostelitz
Name: Avi Kostelitz
Date: August 9, 2007

I, the undersigned, Avi Kostelitz, residing at 14 Mishol Hakitron, Jerusalem,
hereby represent, warrant and undertake that I fully agree to this Agreement
(including, but not limited to, Sections 1, 5, 6, 9-11 therein), as if I entered
into this Agreement myself and I undertake to fully comply with all such
provisions.

/s/ Avi Kostelitz
Avi Kostelitz
Date: August 9, 2007

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EXHIBIT "A"
 
GRANT LETTER
 
[ SEE EXHIBIT 10.2 ]