Execution Copy
 
PURCHASE AGREEMENT

by and between

SUPERCOM INC.

and

THE SHAREHOLDERS of SECURITY HOLDING CORP.

Dated as of July 3, 2007
 

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Table of Contents

ARTICLE I DEFINITIONS
1
     
SECTION 1.1 Definitions
1
 
SECTION 1.2 Other Terms.
6
     
ARTICLE II PURCHASE AND SALE
8
       
SECTION 2.1 Purchase and Sale
8
 
SECTION 2.2 Purchase Price
8
 
SECTION 2.3 Escrow
8
 
SECTION 2.4 The Closing.
9
 
SECTION 2.5 Deliveries At Closing.
10
     
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLERS
10
       
SECTION 3.1 Organization
10
 
SECTION 3.2 Due Authorization
10
 
SECTION 3.3 Noncontravention
11
 
SECTION 3.4 Capitalization
11
 
SECTION 3.5 Litigation
12
 
SECTION 3.6 Financial Statements; Books and Records
13
 
SECTION 3.7 Liabilities Not in the Ordinary Course of Business
13
 
SECTION 3.8 Absence of Change
13
 
SECTION 3.9 Title to Assets; Condition; Sufficiency
15
 
SECTION 3.10 Real Property
15
 
SECTION 3.11 Intellectual Property
16
 
SECTION 3.12 Compliance with Law
18
 
SECTION 3.13 Contracts; Status of Contracts
18
 
SECTION 3.14 Insurance
20
 
SECTION 3.15 Employee Benefits
20
 
SECTION 3.16 Employment Matters
22
 
SECTION 3.17 Taxes
22
 
SECTION 3.18 Accounts Receivable; Accounts Payable
24
 
SECTION 3.19 Environmental Matters
25
 
SECTION 3.20 Customers
25
 
SECTION 3.21 Effect of Transaction
25
 
SECTION 3.22 No Broker
25
 
SECTION 3.23 Additional Information
25
 
SECTION 3.24 Product Warranty and Product Liability
26
 
SECTION 3.25 Accredited Investors
26
 
SECTION 3.26 No Series A Preferred Stock Payment Obligations
27
 
SECTION 3.27 Disclosure
28

 
(i)

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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER
28
       
SECTION 4.1 Organization
28
 
SECTION 4.2 Due Authorization
28
 
SECTION 4.3 Noncontravention
28
 
SECTION 4.4 Issuance of the Vuance Shares.
29
 
SECTION 4.5 Capitalization.
29
 
SECTION 4.6 Financial Statements.
29
 
SECTION 4.7 Private Placement.
29
 
SECTION 4.8 Investment Company.
30
 
SECTION 4.9 Listing and Maintenance Requirements.
30
 
SECTION 4.10 No Integrated Offering.
30
 
SECTION 4.11 Foreign Corrupt Practices.
30
 
SECTION 4.12 No Broker
31
 
SECTION 4.13 Contract Prohibitions
31
     
ARTICLE V OTHER AGREEMENTS
32
       
SECTION 5.1 Lock-Up
32
 
SECTION 5.2 Piggyback Registration Rights
32
 
SECTION 5.3 Voting of HMSC’s Vuance Shares
33
 
SECTION 5.4 Right of First Refusal
33
 
SECTION 5.5 Note Assumption
33
 
SECTION 5.6 HMSC Financing
34
 
SECTION 5.7 Conversion of Series A Preferred Stock; Termination of Certain
Agreement
34
 
SECTION 5.8 Employment Agreements
34
 
SECTION 5.9 Listing of Ordinary Shares
34
 
SECTION 5.10 Form D; Blue Sky Filings.
34
     
ARTICLE VI PRE AND POST-CLOSING COVENANTS
35
       
SECTION 6.1 Conduct of Business
35
 
SECTION 6.2 Pre-Closing Access to Information
37
 
SECTION 6.3 Cooperation; Notices and Consents
37
 
SECTION 6.4 Publicity
38
 
SECTION 6.5 Tax Matters
38
 
SECTION 6.6 Exclusivity
40
 
SECTION 6.7 Non-Competition; Non-Solicitation
40
 
SECTION 6.8 Resignations.
42
 
SECTION 6.9 Pre-Closing Confidentiality.
42
 
SECTION 6.10 Other Seller Obligations
43

 
(ii)

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SECTION 6.11 Update
43
 
SECTION 6.12 Further Assurances; Litigation Support
43
 
SECTION 6.13 Auditors’ Consent
44
     
ARTICLE VII CONDITIONS PRECEDENT TO CONSUMMATION OF THE CLOSING
44
       
SECTION 7.1 Conditions Precedent to Each Party’s Obligations to Close
44
 
SECTION 7.2 Conditions Precedent to Obligations of the Buyer
44
 
SECTION 7.3 Conditions Precedent to Obligations of the Sellers.
46
     
ARTICLE VIII REMEDIES FOR BREACH
47
       
SECTION 8.1 Limitation on and Survival of Representations and Warranties
47
 
SECTION 8.2 Indemnification by the Sellers
47
 
SECTION 8.3 Indemnification by the Buyer.
48
 
SECTION 8.4 Limitation of Liability; Indemnity Procedures
48
 
SECTION 8.5 Method of Indemnification
49
     
ARTICLE IX TERMINATION
50
       
SECTION 9.1 Termination
50
 
SECTION 9.2 Effect of Termination
50
     
ARTICLE X MISCELLANEOUS
51
       
SECTION 10.1 Entire Agreement
51
 
SECTION 10.2 Expenses
51
 
SECTION 10.3 Governing Law; Submission to Jurisdiction; Service of Process
51
 
SECTION 10.4 Assignment
51
 
SECTION 10.5 Notices
52
 
SECTION 10.6 Amendment and Waiver
53
 
SECTION 10.7 Failure or Delay
53
 
SECTION 10.8 Counterparts
53
 
SECTION 10.9 Specific Performance
53
 
SECTION 10.10 Counterpart Facsimile Execution
54
 
SECTION 10.11 Interpretation
54
 
SECTION 10.12 Survival
54
 
SECTION 10.13 Third Party Beneficiaries; No Reliance
54
 
SECTION 10.14 Incorporation of Exhibits and Schedules
55
 
SECTION 10.15 Guarantee.
55

 
(iii)

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EXHIBITS

Exhibit A
 
Form of Power of Attorney
Exhibit B
 
Employment Agreements
Exhibit C
 
Termination Letter
     
DISCLOSURE SCHEDULES
     
Schedule 3.1
 
Company Organization
Schedule 3.3
 
Noncontravention
Schedule 3.4(b)
 
Subsidiaries
Schedule 3.4(c)
 
Restricted Stock Grants
Schedule 3.5(b)
 
Litigation Affecting Company or Subsidiaries
Schedule 3.6(a)
 
Financial Statements
Schedule 3.7
 
Liabilities Not in the Ordinary Course of Business
Schedule 3.9
 
Title to Assets; Conditions; Sufficiency
Schedule 3.8
 
Absence of Changes
Schedule 3.10
 
Real Property
Schedule 3.11(a)
 
Company IP
Schedule 3.11(b)
 
Exceptions to Company IP
Schedule 3.11(c)
 
Licensed Intellectual Property
Schedule 3.12
 
Compliance with Law
Schedule 3.13
 
Contracts
Schedule 3.14
 
Insurance
Schedule 3.15
 
Employee Benefit Plans
Schedule 3.16
 
Employment Matters
Schedule 3.17
 
Taxes
Schedule 3.18(a)
 
Accounts Receivable
Schedule 3.18(b)
 
Accounts Payable
Schedule 3.20
 
Customers
Schedule 3.21
 
Effect of Transaction
Schedule 3.23
 
Additional Information
Schedule 3.24(a)
 
Product Warranty
Schedule 4.5
 
Buyer’s Parent Capitalization
Schedule 4.6
 
Buyer’s Parent Financial Statements
Schedule 6.7
 
Non-Compete Exclusions
Schedule 6.8
 
Resignations
Schedule 6.10(d)
 
Furniture and Fixtures

 
(iv)

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Execution Copy
 
PURCHASE AGREEMENT

This Purchase Agreement is made as of July 3, 2007 by and between Homeland
Security Capital Corporation (“HMSC”), a Delaware corporation, the majority
shareholder of Security Holding Corp. (the “Company”), a Delaware corporation,
the other Shareholders of the Company set forth on the signature pages hereto
(the “Minority Shareholders” and collectively with HMSC, the “Sellers”) and
SuperCom Inc., a Delaware corporation (the “Buyer”) and wholly owned subsidiary
of Vuance Ltd., a company organized under the laws of Israel (“Buyer’s Parent”).
 
RECITALS
 
WHEREAS, the Sellers own of record directly or indirectly all of the outstanding
capital stock of the Company and the Subsidiaries;
 
WHEREAS, the Company, directly and through its Subsidiaries, Compass
Technologies, Inc,, SecurityInc LLC (“SecurityInc”) and Auto Access ID Security
Solutions, Inc. (“AAID”) (the “Subsidiaries”), is engaged in the business of
developing, selling and distributing analytical security systems (the
“Business”); and
 
WHEREAS, the Buyer desires to acquire, and the Sellers desire that the Buyer
acquire at Closing (as defined below) all of the outstanding capital stock of
the Company on the terms set forth in this Agreement.
 
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, conditions and agreements set forth
herein, the sufficiency of which is hereby acknowledged, the parties agree as
set forth below:
 
ARTICLE I
DEFINITIONS
 
SECTION 1.1 Definitions
 
As used in this Agreement, the following terms shall have the meanings set forth
or as referenced below:
 
“Action” shall mean any action, claim, suit, hearing, charge, complaint, demand,
litigation, arbitration, or governmental investigation, indictment, proceeding
or similar matter.
 
“Affiliate” shall mean, with respect to (a) a natural Person (i) each other
member of such individual’s Family; (ii) any Person that is directly or
indirectly Controlled by any one or more members of such individual’s Family;
(iii) any Person in which members of such individual’s Family hold (individually
or in the aggregate) a Material Interest; and (iv) any Person with respect to
which one or more members of such individual’s Family serves as a director,
officer, partner, executor or trustee (or in a similar capacity); and (b) with
respect to a Person other than a natural Person, (i) any Person that directly or
indirectly Controls, is directly or indirectly Controlled by or is directly or
indirectly under common Control with such specified Person; (ii) any Person that
holds a Material Interest in such specified Person; (iii) each Person that
serves as a director, officer, partner, executor or trustee of such specified
Person (or in a similar capacity); and (iv) any Person in which such specified
Person holds a Material Interest.
 
1

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“Agreement” shall mean this Agreement, together with the Exhibits and Schedules
attached hereto, as the same may be amended from time to time in accordance with
the terms hereof.
 
“Basis” means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or would be reasonably likely to form
the basis for any specified consequence.
 
“Business Day” shall mean any day other than a Saturday, Sunday or a day on
which banks in New York City are authorized or obligated by Law to close.
 
“Closing Price Per Share” shall mean the volume weighted average closing price
per share on the OTC Electronic Bulletin Board of Buyer’s ordinary shares for
the 15 trading days immediately prior to the Closing Date; provided, however,
that the Closing Price Per Share will not in any instance exceed $5.714 per
share or be less than $5.170 per share.
 
“Code” shall mean the U.S. Internal Revenue Code of 1986, as amended.
 
“Commercial Arbitration Rules of the AAA” shall mean the amended and effective
commercial arbitration rules of the AAA.
 
“Company IP” shall mean all Intellectual Property owned, held or used by or
required for the Company or the Subsidiaries in their businesses.
 
“Company Shares” shall mean all of the issued and outstanding capital stock of
the Company immediately before Closing, consisting of 4,350,000 shares of common
stock, par value $1.00 per share (assuming conversion of all of the Company’s
Series A Convertible Preferred Stock.
 
“Control” (including the terms “Controlled by” and “under common Control with”)
means possession, directly or indirectly, of the power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
 
“Employee Benefit Plan” shall mean any bonus, incentive, deferred compensation,
pension, profit sharing, retirement, stock option, stock rights, stock purchase,
stock appreciation, leave of absence, layoff, vacation, day or dependent care,
cafeteria, life, health, dental, accident, disability, worker compensation,
severance, change of control, or other employee benefit plan, policy, contract,
practice or arrangement, whether written or oral, whether or not required by Law
or labor or other contract, including, but not limited to any “employee benefit
plan” within the meaning of Section 3(3) of ERISA, established, maintained,
contributed to, or sponsored by the Company or any predecessor or ERISA
Affiliate of the Company, existing at the Closing or prior thereto, to which any
of the Company or the Subsidiaries contributes or has contributed and under
which any employee, former employee, director of the Company or the Subsidiaries
or beneficiary of such Person is eligible or has benefit rights.
 
2

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“Environmental Laws” means all applicable Laws, Orders, common law and other
provisions having the force or effect of law and all contractual obligations
concerning or relating in any manner to public health and safety, worker health
and safety, pollution, or protection of natural resources or the environment,
including, without limitation, all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any Hazardous Materials, noise, or radiation, as
in effect on the date hereof or the Closing Date, as the case may be.
 
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended.
 
“ERISA Affiliate” shall mean any Person in the same controlled group of
corporations or who is under common control with any of the Company or the
Subsidiaries, within the meaning of Section 414(b), (c), (m) or (o) of the Code.
 
“Family” of an individual shall include (i) the individual, (ii) the
individual’s spouse, (iii) any other natural Person who is related to the
individual or the individual's spouse within the second degree and (iv) any
other natural Person who resides with such individual.
 
“GAAP” shall mean generally accepted accounting principles as in effect in the
United States of America at the time of the preparation of the subject financial
statements.
 
“Governmental Authority” shall mean any federal, state, provincial, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, or any court or self-regulatory organization, in each case
whether of the United States, any of its possessions or territories, or of any
foreign nation.
 
“Hazardous Materials” shall mean all hazardous, dangerous or toxic substances or
wastes, including, petroleum (including crude oil or any fraction thereof),
asbestos and asbestos-containing materials, polychlorinated biphenyls,
pesticides, and any other material that is regulated pursuant to any
Environmental Laws or that would reasonably be likely to result in liability
under any Environmental Laws.
 
“Indebtedness” shall mean, at a particular time, without duplication, (i) any
obligation for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (ii) any obligation evidenced by any note,
bond, debenture or other debt security, (iii) any commitment by which a Person
assures a creditor against loss (including contingent reimbursement obligations
with respect to letters of credit), and (iv) any fees, penalties, premiums or
accrued and unpaid interest with respect to the foregoing (in the case of
prepayments or otherwise), all as determined in accordance with GAAP.
 
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“Intellectual Property” shall mean all intellectual property rights, whether or
not embodied in a form which is filed or registered with any Governmental
Authority, including all (i) (a) patents, patent applications, patent
reissuances, continuations, revisions, re-examinations or extensions,
inventions, discoveries, processes, designs, techniques, developments,
technology and know-how; (b) copyrights and works of authorship in any media,
including software, databases and compilations, textual works, documentation,
graphics, advertising, marketing and promotional materials, drawings and the
protected features of any utilitarian objects or pictorial, graphic or
sculptural works; (c) trademarks, service marks, trade names, brand names,
corporate names, domain names, logos, trade dress and other source indicators,
and the goodwill of any business symbolized thereby; (d) trade secrets,
confidential, proprietary or non-public information, documents, analyses,
research and lists, business and marketing plans (including current and
potential customer and user lists, pricing and cost information, formulas,
manufacturing and production processes and techniques); (e) all Systems; and
(ii) all registrations, applications and recordings related to any of the
foregoing.
 
“Knowledge of the Buyer’s Parent” shall mean the actual knowledge of any officer
or employee having a policy making function of the Buyer’s Parent without
independent investigation.
 
“Knowledge of the Sellers” shall mean the actual knowledge of any of the
Minority Shareholders or any officer or employee having a policy making function
of HMSC without independent investigation.
 
“Laws” shall mean any Order, any federal, state, provincial, local or other
statute, law, rule of common law, or code of any kind, domestic or foreign, and
the rules, regulations, ordinances and standards promulgated thereunder and,
where applicable, any interpretation thereof by any authority having
jurisdiction with respect thereto or charged with the administration thereof.
 
“Liability” shall mean any liability, obligation or responsibility (whether
known or unknown, whether asserted or unasserted, whether fixed or unfixed,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, whether secured or unsecured and whether due or to become due),
including any Indebtedness, guaranty, or liability for Taxes.
 
“Liens” shall mean any and all liens, encumbrances, mortgages, charges, claims,
restrictions, options, pledges, security interests or other similar interests,
title defects, tenancies (and other possessory interests), easements, rights of
way, covenants, encroachments, rights of first refusal, preemptive rights,
judgments, conditional sale or other title retention agreements and other
impositions or imperfections of title of any nature whatsoever.
 
“Material Adverse Effect” or “Material Adverse Change” shall mean an occurrence,
event, incident, development, circumstance or omission which, alone or when
aggregated with others, has a material adverse effect on or change in (or would
reasonably be expected to have a material adverse effect on or change in) (a)
the business, operations, assets, liabilities, financial condition, properties,
or results of operations of the Company or the Subsidiaries including any
material changes to any Laws affecting the Company or the Subsidiaries, or (b)
the ability of the Sellers to perform their obligations hereunder or consummate
the transactions contemplated hereby on a timely basis, including any adverse
change, development, or effect arising from or relating to the taking of any
action contemplated by this Agreement and the other agreements contemplated
hereby, regardless of whether Buyer has knowledge of such effect or change on
the date hereof, unless such occurrence, event, incident, development,
circumstance or omission is fully and clearly disclosed on the Schedules hereto.
Notwithstanding the foregoing, none of the following events or the resulting
effects on the business or operations of the Company will be deemed to be, or
result in, a Material Adverse Effect or Material Adverse Change: (1) the sale of
Cyberlynk Network, Inc. and (2) the merger of the Compass operations into
SecurityInc.
 
4

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“Material Interest” shall mean direct or indirect beneficial ownership of voting
securities or other voting interests representing at least 10% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 10% of the outstanding equity securities or
equity interests in a Person.
 
“Order” shall mean any judgment, injunction, decree, order, ruling, award,
stipulation or settlement rendered by or subject to any Government Authority or
arbitrator.
 
“Permits” shall mean all written permits, consents, licenses and governmental
authorizations, registrations and approvals required for conduct of the business
of the Company or the Subsidiaries and for the occupation or use of the Leased
Properties as currently conducted, occupied or used and as contemplated to be
conducted, occupied or used immediately following the Closing Date, including
certificates of occupancy.
 
“Permitted Liens” shall mean any (i) liens for Taxes not yet due and payable
and, for those existing on May 31, 2007, for which adequate reserves in
accordance with GAAP are reflected on the May 31, 2007 balance sheet, and (ii)
mechanics or, materialmen liens arising or incurred in the ordinary course of
business and other inchoate liens arising or incurred in the ordinary course of
business, provided that the obligations in respect of which such liens were
created are not delinquent, and, for those existing on May 31, 2007, for which
adequate reserves in accordance with GAAP are reflected on the May 31, 2007
balance sheet.
 
“Person” means an individual, a corporation, a partnership, an association, a
limited liability company, a trust, a Governmental Authority or any other entity
or organization of any kind.
 
“Systems” means computer software (including source code, executable code, data
and databases), hardware, databases, systems, networks, information technology,
and Internet and domain web sites, and all information contained or stored
therein or transmitted thereby.
 
“Tax Return” means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
 
5

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“Tax” or “Taxes” means any federal, state, municipal, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
§59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not and including any
obligations to indemnify or otherwise assume or succeed to the Tax liability of
any other Person.
 
“Trading Markets” means the OTC Electronic Bulletin Board and Euronext Brussels.
 
“Treasury Regulations” means the treasury regulations promulgated under the
Code, as amended.
 
SECTION 1.2 Other Terms.
 
Accounting terms not defined in Section 1.1 and accounting terms partly defined
in Section 1.1, to the extent not defined, shall have the respective meanings
given to them under GAAP. In addition to the terms defined in Section 1.1, the
following terms are defined in the Sections of this Agreement noted below:

Defined Term
 
Section
AAA
 
2.3(d)(iii)
AAID
 
Recitals
Abba
 
7.2(p)
Another Transaction
 
6.6
Arbitrator
 
2.3(d)(iii)
Arbitrator’s Decision
 
2.3(d)(iii)
Assignment and Assumption Agreement
 
5.5
Business
 
Recitals
Buyer
 
Preamble
Buyer Claim
 
8.2(a)
Buyer Indemnified Parties
 
8.2(a)
Buyer Parties
 
8.3
Buyer’s Parent
 
Preamble
Buyer’s Parent Financial Statements
 
3.25(c)
Claim Settlement Agreement
 
2.3(d)(i)
Closing
 
2.4
Closing Date
 
2.4
Company
 
preamble
Company Financial Statements
 
3.6(a)
Contracts
 
3.13
Employment Agreements
 
5.8
Escrow Agent
 
2.3

 
6

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Defined Term
 
Section

Escrow Agreement
 
2.3
Escrow Fund
 
2.3
Exchange Act
 
5.1(a)
Expiration Date
 
8.1
First Offer Period
 
5.4(a)
HMSC
 
preamble
HMSC Financing
 
5.6
Indemnification Claim
 
2.3(a)(i)
Indemnified Party
 
8.4(b)
Indemnifying Party
 
8.4(b)
Involuntary Sale
 
5.4
Leased Property
 
3.10
Leases
 
3.10
License Agreement
 
7.2(p)
Losses
 
8.2(a)
Maximum Indemnity Amount
 
8.4(a)
Merger Agreement
 
5.7(b)
Minority Shareholders
 
preamble
Note
 
5.5
Noteholders
 
5.5
Notice of Claim Dispute
 
2.3(d)(i)
Offer
 
5.4(a)
Offered Shares
 
5.4(a)
Pre-Closing Tax Period
 
6.5(b)
Premises
 
7.2(r)
Purchase Price
 
2.2
Restricted Stock Agreement
 
5.7(b)
Restrictive Period
 
6.7(b)
RFID
 
6.10(b)
Sale Notice
 
5.4(a)
Second Offer Period
 
5.4(d)
Second Purchase Notice
 
5.4(e)
Schedules
 
Article III
Securities Act
 
3.25(b)
SecurityInc
 
Recitals
Sellers
 
Preamble
Sellers Claim
 
8.3
Series A Preferred Stock Agreement
 
5.6
Straddle Period
 
6.5(a)
Subsidiaries
 
recitals
Threshold
 
8.4(a)
Vuance Shares
 
2.2

 
7

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ARTICLE II
PURCHASE AND SALE
 
SECTION 2.1 Purchase and Sale
 
Upon and subject to the terms and conditions set forth in this Agreement, the
Sellers agree to, and shall at Closing, sell, assign, transfer and convey to the
Buyer and the Buyer agrees to and shall at Closing purchase and acquire from the
Sellers, all right, title and interest in and to the Company Shares, free and
clear of all Liens.
 
SECTION 2.2 Purchase Price
 
Upon the terms and subject to the conditions set forth in this Agreement, in
consideration of the aforesaid sale, assignment, transfer and conveyance to the
Buyer, the Buyer will pay to the Sellers a total consideration of $5,100,000
(the “Purchase Price”) consisting of newly issued ordinary shares (the “Vuance
Shares”) of Buyer’s Parent. The Vuance Shares issuable as Purchase Price will be
calculated based on the Closing Price per Share. The Purchase Price will be
allocated among the Sellers in the percentage amounts set forth on the signature
pages hereto. The parties agree that 15% of the Purchase Price (the “Holdback
Amount”) will be paid into an escrow account under a mutually agreed escrow
agreement (the “Escrow Agreement”) among the Buyer, the Sellers and an escrow
agent (the “Escrow Agent”), to serve as a fund (the “Escrow Fund”) to be held in
accordance with Section 2.3 of this Agreement, for payments that may be due to
the Buyer for claims under this Agreement, including the indemnification
provisions of Article VIII.
 
SECTION 2.3 Escrow
 
(a) The Escrow Fund shall be disbursed by the Escrow Agent as follows:
 
(i) from time to time upon joint instructions of the Buyer and the Seller, or,
subject to subparagraph (d) below, from time to time, upon Buyer’s instructions,
for indemnification under Article VIII of this Agreement (an “Indemnification
Claim”); and
 
(ii) 15 months after the Closing Date, to the Sellers, the Holdback Amount minus
the sum of the amount of any Indemnification Claim that has been asserted by the
Buyer but not satisfied and the amount of any such claim theretofore paid to the
Buyer; and
 
(iii) all remaining amounts after all Indemnification Claims have been finally
determined in accordance with this Agreement.
 
(b) The Buyer on the one hand and the Sellers on the other hand shall pay the
fees and expenses of the Escrow Agent in equal parts as they become due.
 
8

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(c) Interest and proceeds earned on the Escrow Fund that constitute taxable
income for United States federal income and other Tax purposes on the Escrow
Fund shall be allocated to the party to which it is distributed.
 
(d) Objections
 
(i) Notwithstanding anything contained in Section 2.3(a)(i), the Sellers shall
have ten (10) Business Days from the date an Indemnification Claim is given to
the Sellers to object in writing to all or part of an Indemnification Claim (a
“Notice of Claim Dispute”). If the Buyer and the Sellers fail to resolve any
objection contained in such Notice of Claim Dispute within ten (10) days after
the date the Notice of Claim Dispute is delivered, then, at the request of
either party, the Buyer and the Sellers shall meet in an attempt to resolve an
objection described in such Notice of Claim Dispute and reach a written
agreement with respect to such objection (the “Claim Settlement Agreement”).
 
(ii) If the Buyer and the Sellers enter into a Claim Settlement Agreement, the
objections contained in such Notice of Claim Dispute shall be deemed to be as
resolved therein. If the Buyer and the Sellers are unable to resolve the
objection described in such Notice of Claim Dispute within twenty (20) days
after delivery to the recipient of such Notice of Claim Dispute, then the Buyer
and Sellers shall submit the objections contained in such Notice of Claim
Dispute to arbitration as described in Section 2.3(d)(iii).
 
(iii) Any objection contained in a Notice of Claim Dispute not resolved in a
Claim Settlement Agreement shall be resolved by submission to arbitration as
follows: The Buyer and the Sellers shall select a single arbitrator from the
American Arbitration Association (“AAA”) in New York, NY (an “Arbitrator”) (or,
if they cannot agree upon a selection, the Buyer and the Sellers shall each
select an Arbitrator, and the two Arbitrators so selected shall choose a third
Arbitrator who shall act as the Arbitrator to resolve the dispute). The
Arbitrator shall resolve the objection contained in the Notice of Claim Dispute
pursuant to the Commercial Arbitration Rules of the AAA as promptly as possible
and a decision by the Arbitrator as to the resolution of such objection shall be
(absent an agreement of the parties regarding an error that is manifest)
conclusive and binding upon the parties for purposes of this Agreement (the
“Arbitrator’s Decision”). The Arbitrator’s Decision shall be (i) in writing and
(ii) nonappealable and incontestable by the Buyer and Sellers and each of their
respective Affiliates and personal representatives, heirs, successors and
assigns and not subject to collateral attack for any reason. The fees and costs
payable to the AAA shall be paid 50% by the Buyer and 50% from the Escrow Fund.
Counsel fees and other costs incurred in connection with the dispute, shall be
paid if incurred by the respective parties.
 
SECTION 2.4 The Closing. The closing of the transactions contemplated by this
Agreement (the “Closing”) shall take place at the offices of Carter Ledyard &
Milburn LLP, 2 Wall Street, New York, NY 10005, on the date that all closing
conditions set forth in Article VII have been satisfied or waived, but not
earlier than three Business Days after the date on which the shareholders of
Buyer’s Parent have duly authorized this Agreement and the transactions
contemplated hereunder and not later than 50 days after the date of the
execution of this Agreement, or on such other date as the Buyer and the Sellers
shall mutually determine in writing (the “Closing Date”).
 
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SECTION 2.5 Deliveries At Closing. At the Closing, (i) the Sellers will deliver
to the Buyer the various certificates, instruments, and documents referred to in
Section 7.2 below, (ii) the Buyer will deliver to the Sellers the various
certificates, instruments, and documents referred to in Section 7.3 below, and
(iii) the Buyers will pay to Sellers the Purchase Price.
 
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
 
Except as set forth in the disclosure schedules (the “Schedules”) delivered by
Sellers and annexed to this Agreement, the Sellers hereby represent and warrant
to the Buyer that the statements contained in this Article III are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article III).

SECTION 3.1 Organization 
 
The Company and the Subsidiaries are companies duly formed, validly existing and
in good standing under the Laws (as in effect on the date hereof and on the
Closing Date) of their respective States of formation. The Company and the
Subsidiaries have full organizational power and authority to conduct their
businesses as now being conducted or as is currently contemplated to be
conducted and to own, operate and lease their properties. The Company and the
Subsidiaries are duly licensed or qualified to do business as foreign business
entities and are in good standing in each jurisdiction in which the property
owned or leased by them, or the nature of the activities conducted by them,
requires such qualification (except any where the failure to be so qualified
would not have a Material Adverse Effect). Schedule 3.1 lists (i) each
jurisdiction in which the Company and the Subsidiaries are qualified to do
business as foreign business entities and (ii) the directors, managers (as the
case may be) and officers of the Company and the Subsidiaries. The Sellers have
delivered to the Buyer true, correct and complete copies of the Company’s and
the Subsidiaries’ by-laws or other organizational documents, as the case may be
(as amended to date), which are in full force and effect and there are no other
documents or agreements affecting the rights or obligations of the equityholders
of the Company and the Subsidiaries. The Company and the Subsidiaries are not in
default under or in violation of any provision of their organizational
documents.

SECTION 3.2 Due Authorization
 
The Sellers have full right, power and authority to enter into and perform this
Agreement and each agreement or instrument executed and delivered in connection
herewith or pursuant hereto to which they are a party, to consummate the
transactions contemplated hereby and thereby and to perform their obligations
hereunder and thereunder. The Sellers are not bound by or subject to any
contractual or other obligation that would be violated by the execution or
performance of this Agreement. This Agreement and all agreements or instruments
executed and delivered by the Sellers in connection herewith or pursuant hereto
have been duly executed and delivered by the Sellers and this Agreement and all
agreements and instruments executed and delivered by the Sellers in connection
herewith or pursuant hereto constitute, and will at Closing constitute, legal,
valid and binding obligations of the Sellers, enforceable against the Sellers in
accordance with their respective terms (except to the extent that enforcement
may be affected by applicable bankruptcy, reorganization, insolvency and similar
Laws affecting creditors’ rights and remedies generally and by general
principles of equity (regardless of whether enforcement is sought at law or in
equity)).
 
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SECTION 3.3 Noncontravention
 
The execution, delivery and performance by the Sellers of this Agreement and of
all the other agreements or instruments contemplated hereby and the consummation
of the transactions contemplated hereby and thereby do not and will not
(a) conflict with or violate any applicable Laws (as in effect on the date
hereof and on the Closing Date), (b) conflict with or violate any provision of
the certificate of incorporation, bylaws or other organizational documents of
the Company or the Subsidiaries, (c) except as set forth on Schedule 3.3,
violate, result in a breach, default or acceleration under, or give rise to any
penalty or any right of termination or modification under, or any other remedy
under, or result in the creation of any Lien upon the Company Shares or (d)
except as set forth on Schedule 3.3, require the consent, approval,
authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Governmental Authority or any other
Person.
 
SECTION 3.4 Capitalization
 
(a) The Company. The authorized capital stock of the Company will consist
immediately before the Closing of 4,350,000 shares of common stock, each with a
par value of US $0.01 per share. All of the Company Shares will be immediately
before the Closing (i) duly authorized and validly issued, (ii) fully paid and
nonassessable, (iii) issued in compliance with all applicable Laws (as in effect
on the date of issuance) concerning the issuance of securities, (iv) not issued
in violation of, or subject to, any preemptive, subscription or other similar
rights of any Person, and (v) held of record by the Sellers in the amounts set
forth on the signature page hereto free and clear of all Liens. The Company
Shares will constitute immediately before Closing all of the issued and
outstanding capital stock of the Company. Upon delivery of and payment for the
Company Shares as contemplated herein, the Sellers will transfer to the Buyer
valid title to the Company Shares, free and clear of all Liens.
 
(b) Subsidiaries. Schedule 3.4(b) sets forth a list of all entities in which the
Company directly or indirectly, has, on the date of this Agreement, an ownership
interest and for each entity disclosed thereon (i) its name and jurisdiction of
incorporation, (ii) the number of shares and class of authorized capital stock,
(iii) the number of all issued and outstanding shares of its capital stock, the
names of the holders thereof and the number of shares held by each such holder
and (iv) the number of shares of its capital stock held in treasury.
 
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(c) Other Arrangements. Other than as set forth on Schedule 3.4(c), there (i)
are no outstanding obligations of the Company or the Subsidiaries to issue,
sell, offer for sale, repurchase, redeem or otherwise acquire any securities of
the Company or the Subsidiaries or rights convertible into, or exercisable or
exchangeable for, any such securities; (ii) is no voting trust, proxy,
stockholder or other agreement or understanding to which any of the Sellers is a
party or is bound by with respect to the voting or transfer of the capital stock
or other voting securities of The Company or the Subsidiaries; and (iii) are no
subscriptions, options, calls, warrants, purchase rights or other rights
(including registration rights, whether demand or piggyback registration
rights), agreements, arrangements or commitments of any character relating to
the issued or unissued capital stock of the Company or the Subsidiaries
(including commitments that could require the Sellers to transfer or otherwise
dispose of the capital stock or ownership interests of the Company or the
Subsidiaries). Schedule 3.4(c) sets forth a list of all grants of restricted
stock since inception (stating the date of the grant, the amount of restricted
stock issued and the date of termination) under the Restricted Stock Agreements.
The consummation of the transactions contemplated by this Agreement will not
trigger any pre-emptive rights, rights of first refusal, demands, conversion
rights, subscription rights or other agreements or arrangements of any character
or nature whatsoever under which the Company or the Subsidiaries are or may be
obligated to issue or acquire their shares of capital stock or any other equity
or ownership interests.
 
SECTION 3.5 Litigation
 
(a) Affecting this Transaction. There are no Actions pending or, to the
Knowledge of the Sellers, threatened against the Sellers, the Company or the
Subsidiaries, nor any outstanding Orders against the Sellers, the Company or the
Subsidiaries, which seek to prohibit or adversely restrict or delay the
consummation of the transactions contemplated hereby or would adversely affect
the ability of the Sellers, the Company or the Subsidiaries, to consummate the
transactions contemplated hereby.
 
(b) Affecting the Company or the Subsidiaries. Schedule 3.5(b) sets forth a list
of all pending, and, to the Knowledge of the Sellers, threatened Actions,
Orders, disputes and grievances against or, to the Knowledge of the Sellers,
affecting the Company or any of their respective properties, assets, operations
or business. Neither the Company nor any of the Subsidiaries is in default under
any Order entered against, or, to the Knowledge of the Sellers, applicable to,
them or any of their respective properties, assets, operations or business.
Except as set forth on Schedule 3.5(b), there are no Actions by the Company or
the Subsidiaries pending, or which the Company or the Subsidiaries intend to
initiate, against any Person. Except as set forth on Schedule 3.5(b), none of
the Sellers, the Company or the Subsidiaries, and, to the Knowledge of the
Sellers, none of the employees, officers, directors or agents of the Company or
the Subsidiaries, has been or is subject to any Order with respect to any
criminal violation or alleged criminal violation of any Law and, to the
Knowledge of the Sellers, there are no pending, threatened or imminent Actions
or Orders with respect to any criminal violation or alleged criminal violation
of any Law against any such Persons.
 
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SECTION 3.6 Financial Statements; Books and Records
 
(a) Financial Statements. The audited financial statements for the fiscal years
ended December 31, 2005 and the unaudited financial statements for the fiscal
year ended December 31, 2006 and the fiscal quarter ended March 31, 2007 (which
have been prepared in a manner consistent with the Company’s audited financial
statements for the years ended December 31, 2005 and December 31, 2006)
(collectively, the “Company Financial Statements”), all of which are attached as
Schedule 3.6(a) hereto, present fairly, and, with respect to the June 30, 2007
projected financial statements, will present fairly, in all material respects
the consolidated financial position, the consolidated income, shareholders’
equity and cash flows of the Company and the Subsidiaries, as of the dates and
for the periods indicated therein, in accordance with GAAP and are consistent
with the books and records of the Company and the Subsidiaries.
 
(b) Books and Records. The books of account, minute books, stock record books,
and other records of the Company and the Subsidiaries, all of which have
previously been made available to the Buyer, are complete and correct in all
material respects, contain accurate and complete records of all meetings held
of, and corporate or organizational action taken by, the stockholders or holders
of ownership interests, as the case may be, the directors, managers and
committees of the directors or managers, as the case may be, and have been
maintained in accordance with sound business practices. No meetings were held
for which minutes were not prepared and are not contained in such minute books.
 
SECTION 3.7 Liabilities Not in the Ordinary Course of Business
 
Except as set forth on Schedule 3.7 or the Company Financial Statements, the
Company and the Subsidiaries do not and immediately following the Closing will
not have any material Liabilities (and there is no Basis for any present or
future Action giving rise to any material Liability) except for (i) Liabilities
incurred in the ordinary course of business and consistent with past practices
(none of which arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement or violation of
law including the income Tax laws applicable to each jurisdiction in which the
Company and the Subsidiaries operate) and (ii) obligations not in default under
contracts entered into in the ordinary course of business.

SECTION 3.8 Absence of Change
 
Since December 31, 2006, except as set forth on Schedule 3.8, the Company and
the Subsidiaries have conducted their business in the ordinary course,
consistent with past practice, and:
 
(a) there has not been any Material Adverse Change;
 
(b) the Company and the Subsidiaries have not entered into any transaction or
incurred, created, assumed or guaranteed any Liability or obligation other than
in the ordinary course of business substantially consistent with past practice
and the Company and the Subsidiaries have not made any capital expenditure (or
series of related capital expenditures) either involving more than $50,000 or
outside the ordinary course of business;
 
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(c) the Company and the Subsidiaries have not sold, leased, transferred or
assigned any assets other than in the ordinary course of business substantially
consistent with past practice, other than assets that have been replaced with
other assets of equal or greater value nor sold or otherwise disposed of their
capital stock, or granted any options, warrants or other rights to purchase or
obtain any of their capital stock;
 
(d) the Company or the Subsidiaries have not mortgaged, pledged or subjected to
any Lien any of their assets other than Liens with respect to current Taxes not
yet due;
 
(e) the Company or the Subsidiaries have not suffered any material damage,
destruction or loss, whether or not covered by insurance, (i) that individually
or in the aggregate would have a Material Adverse Effect or (ii) of any item
carried on their books of account at more than $25,000, or suffered any
repeated, recurring or prolonged shortage, cessation or interruption of supplies
or utility services required to conduct their business and operations;
 
(f) the Company or the Subsidiaries have not (i) changed any of the Employee
Benefit Plans, (ii) granted any general increase in any rate or rates of
salaries or compensation or in benefits of any kind to its employees other than
in the ordinary course of business substantially consistent with past practice
or (ii) any specific increase in the salary of or compensation to any employee
whose total salary and compensation after such increase would be at an annual
rate in excess of $75,000;
 
(g) the Company or the Subsidiaries have not made or suffered any amendment or
termination of any material agreement, contract, commitment, or lease to which
they are a party or by which they are bound, or cancelled, modified or waived
any debts or claims held by them, other than in the ordinary course of business
consistent with past practice, or waived any rights of substantial value,
whether or not in the ordinary course of business;
 
(h) the Company or the Subsidiaries have not changed any of the accounting
principles followed by them or the methods of applying such principles, except
as required by GAAP;
 
(i) the Company or the Subsidiaries have not made any material tax elections;
 
(j) the Company or the Subsidiaries have not postponed or delayed the payment of
accounts payable and other Liabilities outside the ordinary course of business
or accelerated the collection of their accounts receivable;
 
(k) the Company or the Subsidiaries have not transferred, assigned or granted
any license or sublicense of any rights under or with respect to any
Intellectual Property;
 
(l) the Company or the Subsidiaries have not declared, set aside or paid any
dividend or made any distribution with respect to their capital;
 
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(m) the Company or the Subsidiaries have not made any loan to or entered into
any other transaction with, any of their directors, managers, officers and
employees; and
 
(n) the Company or the Subsidiaries have not agreed to do any of the foregoing.
 
SECTION 3.9 Title to Assets; Condition; Sufficiency
 
Except as set forth on Schedule 3.9, the Company and the Subsidiaries have good
and marketable title to, or a valid leasehold interest in and to, all of the
properties and assets used by them, free and clear of all Liens (other than
Permitted Liens), except for properties and assets disposed of in the ordinary
course of business consistent with past practice. All of these assets are in
good and usable condition, ordinary wear and tear excepted, are free from
defects (patent and latent), have been maintained in accordance with normal
industry practice and are being used in the business of the Company and the
Subsidiaries and are suitable for the purposes for which they are used. The
Company’s and Subsidiaries’ assets, together with the Company IP, and the other
properties being leased by the Company and the Subsidiaries pursuant to the
leases described on Schedule 3.10, constitute all of the assets, properties,
rights and interests necessary to conduct the business of the Company and the
Subsidiaries in substantially the same manner as such is and since December 31,
2005 has been conducted by the Company and the Subsidiaries.

SECTION 3.10 Real Property
 
The Company and the Subsidiaries do not own any real property. Schedule 3.10
contains a brief description of all real property leased by the Company and the
Subsidiaries and lists all agreements, in each case as amended, modified and
supplemented to date (the “Leases”), pursuant to which the Company and the
Subsidiaries lease, sublease, or otherwise occupy (whether as landlord, tenant,
subtenant or pursuant to any other occupancy arrangement) any real property and
interests in real property (the “Leased Property”). The Sellers have delivered
to the Buyer true and complete copies of the Leases, together with all
amendments, modifications and supplements thereto. With respect to each Leased
Property:
 
(a) The Company and the Subsidiaries have a valid and enforceable leasehold
interest in the Leased Property, free and clear of all Liens other than
Permitted Liens;
 
(b) (i) each Lease is in full force and effect and constitutes a valid and
binding obligation of, and is legally enforceable against, each of the other
parties thereto, (ii) the Company and the Subsidiaries enjoy peaceful and
undisturbed possession under all Leases, and (iii) all of the buildings and
structures (including all fixtures, equipment, roof, heating, ventilation, air
conditioning, mechanical, electrical and other holding systems, wiring, computer
and cable installations) leased by the Company and the Subsidiaries are in
reasonably good repair and operating condition, subject to normal wear and tear,
and are adequate and suitable for their present uses;
 
(c) with respect to each Lease, the Company and the Subsidiaries are not in
breach or default, and no event has occurred which, with notice or lapse of time
or both, would constitute a breach or default or permit termination or
acceleration thereunder and there are no disputes, oral agreements or
forbearance programs in effect, as to such Lease;
 
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(d) except as expressly set forth on Schedule 3.10, the transactions
contemplated by this Agreement do not require the consent of any other party to
such Lease, will not result in a breach of or default under such Lease, and will
not otherwise cause such Lease to cease to be legal, valid, binding, enforceable
and in full force and effect on identical terms following the Closing;
 
(e) the Leased Properties and all improvements on the Leased Properties are in
compliance with all applicable Laws including those applicable to zoning,
building and planning and the establishment and maintenance of working
conditions for labor;
 
(f) current use and occupancy of the Leased Properties and the operation of the
Company’s and the Subsidiaries Business as currently conducted thereon do not
violate any easement, covenant, condition, restriction or similar provision in
any instrument of record or other unrecorded agreement affecting such properties
and the Sellers, the Company and the Subsidiaries (including their key
employees, directors and officers) have not received (and there is no Basis for)
any notice of any such violation;
 
(g) the Company and the Subsidiaries have not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in any Leased Property and
except as expressly set forth in Schedule 3.10 the Company and the Subsidiaries
have not subleased, licensed or otherwise granted any Person the right to use or
occupy the Leased Properties or any portion thereof; and
 
(h) there is no condemnation, expropriation or other proceeding in eminent
domain, pending or threatened, affecting any parcel of Leased Property or any
portion thereof or interest therein.
 
SECTION 3.11 Intellectual Property
 
(a) Company IP. Schedule 3.11 (a) sets forth a list of (i) all registrations and
applications for the registration of Company IP, (ii) all unregistered Company
IP, (iii) all websites, domain names and material software owned or used by the
Company or the Subsidiaries, (iv) the names of all distributors of the Company
or the Subsidiaries who have a right to use the any of the Company’s or the
Subsidiaries’ names in connection with the Business, and (v) each license,
sublicense, agreement or other permission that the Company or the Subsidiaries
have granted to any third party with respect to the Company IP. All of the
Company IP is valid, has not expired, been abandoned or cancelled. To the
Knowledge of the Sellers, the Company IP and the use thereof does not infringe,
dilute or otherwise impair or violate the rights of any other Person. To the
Knowledge of the Sellers, the Company IP is not being infringed, diluted or
otherwise impaired or violated by any other Person. Neither the Company or the
Subsidiaries (including its key employees, directors and officers) nor the
Sellers have received any written notice alleging any such infringement. No
Action or Order is pending or outstanding, or, to the Knowledge of the Sellers,
is threatened or imminent, that seeks to cancel, limit or challenge the
validity, enforceability, ownership or use of any Company IP, and neither the
Company or the Subsidiaries (including their key employees, directors and
officers) nor the Sellers know of any valid Basis for same. To the Knowledge of
the Sellers, no loss of any Company IP is threatened, pending, or reasonably
foreseeable (and not as a result of any act or omission by Sellers or of the
Company or the Subsidiaries). No expiration of any Company IP is threatened,
pending, or reasonably foreseeable, except for patents expiring at the end of
their statutory terms (and not as a result of any act or omission by Sellers or
of the Company or the Subsidiaries).
 
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(b) Exceptions to Company IP. Except as expressly set forth on Schedule 3.11(b),
the Company and the Subsidiaries (i) own and possess all right, title and
interest in and to, or (ii) possess a valid and enforceable license and right to
use, the Company IP in the manner in which it has been used and is proposed to
be used by the Company and the Subsidiaries, free and clear of all Liens. Except
as set forth on Schedule 3.11(b), the Company and the Subsidiaries have taken
reasonable actions (including executing with current and past employees,
contractors and agents non-disclosure and intellectual property assignment
agreements, filing for statutory protections and paying such employees,
contractors and agents all remuneration required by Law or agreement with
respect to intellectual property developed by them which constitutes Company IP)
to protect, preserve, police and maintain the Company IP. The Company IP
constitutes all of the Intellectual Property necessary for the operation of the
Business as presently conducted and as proposed to be conducted. Each item of
Company IP existing immediately prior to the Closing will be owned or available
for use by the Company or the Subsidiaries on identical terms and conditions
immediately subsequent to the Closing. No actions are necessary (including
filing of documents or payment of fees, including with respect to pre-Closing
periods) within 120 days after the Closing Date to maintain or preserve the
validity or status of any Company IP that is registered or for which an
application is pending.
 
(c) Licensed Intellectual Property. Schedule 3.11(c) identifies each item of
Company IP that any third party owns and that the Company or the Subsidiaries
use pursuant to license, sublicense, agreement, or permission. The Sellers have
delivered to the Buyer correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date). With respect to
each item of Company IP identified on Schedule 3.11(c): (i) the license,
sublicense, agreement, or permission covering the item is and will following the
Closing continue to be (on identical terms) legal, valid, binding, enforceable,
and in full force and effect; (ii) to the Knowledge of the Sellers, no party to
the license, sublicense, agreement, or permission is in breach or default, and
no event has occurred that with notice or lapse of time would constitute a
breach or default or permit termination, modification, or acceleration
thereunder; (iii) the underlying item of Intellectual Property is not subject to
any outstanding Order; and (iv) no Action is pending or to the Knowledge of the
Sellers is threatened that challenges the legality, validity, or enforceability
of the underlying item of Intellectual Property, and there is no Basis for the
same.
 
(d) New Developments. To the Knowledge of the Sellers, there are no new
products, inventions, procedures, or methods of manufacturing or processing that
any competitors or other third parties have developed that reasonably would be
expected to supersede or make obsolete any product or process of the Company or
the Subsidiaries or to limit the Business as presently conducted or as presently
proposed to be conducted.
 
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(e) Systems. The Company and the Subsidiaries (i) use commercially reasonable
efforts to protect the confidentiality, integrity and security of their Systems;
(ii) obey and follow in all material respects all applicable Laws (as in effect
on the date hereof and on the Closing Date) with respect to data protection and
privacy and have not violated their own privacy policy, (iii) use reliable
encryption (or equivalent) protection, to ensure the security and integrity of
transactions executed through their Systems; (iv) use reliable methods
(including passwords) to ensure the correct identity of the users of its
Systems; (v) use commercially reasonable mechanisms to ensure the accuracy of
any transactions executed through its Systems; and (vi) have implemented
commercially reasonable disaster recovery and business continuity capabilities
for their Systems and their Business.
 
SECTION 3.12 Compliance with Law
 
To the Knowledge of the Sellers, other than as stated in Schedule 3.12, neither
the Company or the Subsidiaries nor the operations of the Company’s or the
Subsidiaries’ Business, as conducted at the date hereof and as will be conducted
through the Closing Date, violate, in any material respect, any foreign,
federal, state or local law, ordinance, rule or regulation. For purposes of
clarity, this Section 3.12 does not apply, and Section 3.17 contains the sole
representations of the Company related to, Tax matters.
 
SECTION 3.13 Contracts; Status of Contracts
 
Schedule 3.13 contains a correct and complete list of the following material
commitments, contracts, agreements, arrangements or undertakings, whether oral
or written (and in the case of oral commitments, contracts, agreements,
arrangements or undertakings, also contains a description of the material terms
thereof) to which the Company or the Subsidiaries are a party or by which their
assets or properties are bound (“Contracts”):
 
(a) all Contracts (or group of related Contracts), for the purchase or sale or
lease of goods, services, supplies, real property or capital assets, each
requiring aggregate future payments by or to the Company or the Subsidiaries of
more than $25,000 or having a non-cancelable term of more than six months;
 
(b) all Contracts for the distribution of the products of the Company or the
Subsidiaries;
 
(c) prior to Closing, Seller shall present copies of all employment, management,
consulting, profit sharing, stock option, stock purchase or stock appreciation
Contracts or other equity-incentive, deferred compensation, retirement, change
in control or severance Contracts or other agreements that provide for payments
relating to the foregoing, including service agreements with self-employed
persons, and all collective bargaining agreements, and, with respect to standard
form employment contracts and service agreements, a description of the general
provisions thereof, applicable to remuneration and other compensation (e.g.
company car, vacation bonus, vacation entitlements, termination and prohibition
of competition) and provisions applicable to specific Persons only;
 
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(d) all joint venture, partnership or other Contracts involving the sharing of
profits or losses;
 
(e) all acquisition or divestiture agreements that are currently enforceable
against the Company or the Subsidiaries, including all Contracts relating to the
acquisition by the Company or the Subsidiaries of the outstanding capital stock,
equity interests or substantially all of the assets of any business enterprise;
 
(f) all material Contracts with the Company’s or Subsidiaries’ Affiliates, or
with any of the Sellers or with any of the Company’s or the Subsidiaries’
directors, officers or any combination of such Persons;
 
(g) all notes, mortgages, indentures, loan or credit agreements and other
commitments, Contracts or instruments reflecting obligations for borrowed money
or other monetary Indebtedness or otherwise relating to the borrowing of money
by, or the extension of credit to, the Company or the Subsidiaries and all
security agreements securing Indebtedness of the Company or the Subsidiaries;
 
(h) outstanding guarantees, subordination agreements, indemnity agreements and
other similar types of Contracts under which the Company or the Subsidiaries are
or may become liable for or obligated to discharge, or any asset of the Company
or the Subsidiaries are or may become subject to the satisfaction of, any
Indebtedness, obligation, performance or undertaking of any Person;
 
(i) all Contracts preventing or restricting the Company’s or the Subsidiaries’
business activities in any location, including all non-competition agreements;
 
(j) all other agreements, commitments and understandings (written or oral) that
require payment by or to the Company or the Subsidiaries of more than $25,000 or
that cannot be terminated on less than 30 days’ notice without liability or are
otherwise material to the business operations of the Company or the
Subsidiaries; and
 
(k) all other material commitments, agreements, arrangements or undertakings to
enter into any of the foregoing agreements.
 
The Sellers have delivered to the Buyer true and complete copies of each
material Contract set forth on Schedule 3.13, including all amendments,
exhibits, schedules, modifications, waivers and elections applicable thereto.
Except as set forth on Schedule 3.13, with respect to each Contract: (i) such
Contract is legal, valid, binding, enforceable and in full force and effect;
(ii) such Contract will continue to be legal, valid, binding, enforceable and in
full force and effect on identical terms immediately following the consummation
of the transactions contemplated hereby; (iii) neither the Company or the
Subsidiaries nor, to the Knowledge of the Sellers, any other party thereto is in
breach or default with respect to such Contract; (iv) to the Knowledge of the
Sellers, no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under any such Contract; and (v) such Contract was entered into in
the ordinary course of business. Except as expressly set forth on Schedule 3.13,
no consent, approval, authorization, license, order or permit of, or
declaration, filing or registration with, or notification to, any Governmental
Authority or any other Person is required under any Contract in connection with
the transaction contemplated by this Agreement.
 
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SECTION 3.14 Insurance
 
The Company and the Subsidiaries maintains insurance coverage on their
respective structures, facilities, equipment and other assets and properties and
with respect to their employees and operations, which covers liabilities and
risks prudently insured against by similar businesses and which insurance
provides coverage that is, in light of industry practices and the operations of
the Company and the Subsidiaries. At least five (5) Business Days prior to
Closing, Sellers shall deliver Schedule 3.14 which sets forth the following
information with respect to each insurance policy (including any self insurance
arrangements) to which the Company and the Subsidiaries have been a party, a
named insured, or otherwise the beneficiary of coverage at any time within the
past two years: (a) the name, address, and telephone number of the agent; (b)
the name of the insurer, the name of the policyholder, and the name of each
covered insured; (c) the policy number and the period of coverage; and (d) the
scope (including an indication of whether the coverage was on a claims made,
occurrence, or other basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of coverage. With respect
to each such insurance policy: (a) the policy is and will continue following the
Closing to be (on identical terms) legal, valid, binding and enforceable in
accordance with its terms and is outstanding and in full force and effect;
(b) neither the Company and the Subsidiaries or, to the Knowledge of the
Sellers, any other party to the policy, are in breach or default (including with
respect to the payment of premiums or the giving of notices), and, to the
Knowledge of the Sellers, no event has occurred which, with notice or the lapse
of time, would constitute such a breach or default, or permit termination,
modification or acceleration under the policy; and (c) there are no outstanding
unpaid premiums or claims under any such policy. Since December 31, 2005, no
disallowance of any claim under any such insurance policy has been received by
the Company and the Subsidiaries and the Company and the Subsidiaries have not
been refused any insurance nor received any notice of cancellation or
nonrenewal. The Company and the Subsidiaries are not now, nor will in the future
be, obligated to pay any retroactively or retrospectively rated premiums or
premium adjustments, deductible amounts or self-insured retentions in connection
with any such insurance policies with respect to the period prior to the Closing
Date. Since December 31, 2005, there has not been any failure to present any
material claim under any such insurance policy in a timely fashion or in the
manner or detail required by such insurance policy.
 
SECTION 3.15 Employee Benefits
 
(a) Schedule 3.15 (i) contains a true and complete list and description of each
Employee Benefit Plan, other than the Employee Benefit Plans which are expressly
required by applicable Law to be maintained and are maintained in accordance
with (and do not in any manner differ from) the requirements of applicable Law
and (ii) identifies each Employee Benefit Plan that is intended to qualify under
Section 401(a) of the Code. With respect to each oral Employee Benefit Plan,
Schedule 3.15 sets forth a complete summary of its terms and conditions.
 
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(b) True and complete copies of each Employee Benefit Plan, including all
amendments thereto and related trust, insurance contracts, and other funding
arrangements have been delivered to the Buyer prior to the execution of this
Agreement.
 
(c) Each Employee Benefit Plan is, and has been since its inception,
administered in accordance with its terms and with the requirements of all Laws,
including but not limited to ERISA, that are applicable to each such Employee
Benefit Plan. In respect of each Employee Benefit Plan, the Company and the
Subsidiaries have not failed to make any contribution to, or to pay any premium,
tax, or funding obligation due and payable or typically paid as of a date on or
before the Closing Date, as required by applicable Law, employment contract, or
the terms of such Employee Benefit Plan. None of the Company or the
Subsidiaries, any Employee Benefit Plan or any “party in interest,” as defined
in Section 3(14) of ERISA, has engaged in a “prohibited transaction” which could
subject any of them or Buyer to liability under Section 409 or Section 502(i) of
ERISA or Section 4975 of the Code.
 
(d) Neither the Sellers, the Company or the Subsidiaries, any predecessor or
ERISA Affiliate nor any other person Controlled by or under common Control with
any of the foregoing within the meaning of Section 4001 of ERISA, has at any
time contributed to any (i) “multiemployer plan,” as defined in Section 4001 of
ERISA, or (ii) defined benefit pension plan which is subject to Part 3 of Title
I of ERISA, Title IV of ERISA or Section 412 of the Code.
 
(e) There is no pending or, to the Knowledge of the Sellers, threatened legal
Action, against the Sellers, the Company or the Subsidiaries or any Employee
Benefit Plan which would reasonably be expected to result in liability to the
Buyer, to any Person, or to any Employee Benefit Plan, and, to the Knowledge of
the Sellers, there is no Basis for any such action, proceeding or investigation.
 
(f) No benefit under any Employee Benefit Plan, including, without limitation,
any severance, change of control, or “parachute” payment plan or agreement, will
be established or become accelerated, vested, funded or payable on account of
any transaction contemplated by this Agreement.
 
(g) The Sellers and the Company and the Subsidiaries have not scheduled or
agreed upon future increases of benefit levels under any Employee Benefit Plan
or the establishment of new benefits or Employee Benefit Plans, and no such
increases or establishment of benefits have been proposed, made the subject of
representations to employees or their representatives, requested or demanded by
employees under circumstances which make it reasonable to expect that such
increases or benefits will be effected.
 
(h) The Sellers have provided or will provide timely notice to all Governmental
Authorities, benefit administrators, employees, employee representatives or
other Persons as required by Law, labor or other contract, or the terms of any
Employee Benefit Plan to be given on or before the Closing Date on account of a
change of control or identity of the employer or sponsor of an Employee Benefit
Plan, termination of employees, or any transaction contemplated by this
Agreement.
 
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SECTION 3.16 Employment Matters 
 
Except as disclosed on Schedule 3.16, (a) the Company and the Subsidiaries are
not a party to, bound by, or negotiating in respect of any collective bargaining
agreement or any other agreement with any labor union, association or other
representative of any employees of the Company and the Subsidiaries, nor is any
employee of the Company and the Subsidiaries represented by any labor union or
other representative organization; (b) no labor union or other representative
organization has been certified or recognized as the collective bargaining
representative of any employees of the Company and the Subsidiaries; (c) there
are no organizing campaigns or representation proceedings or campaigns in
process to form a union, or collective bargaining unit or, to the Knowledge of
Sellers, threatened, with respect to any employees of the Company and the
Subsidiaries; (d) there are no existing nor, to the Knowledge of the Sellers,
threatened labor strikes, work stoppages, organized slowdowns, unfair labor
practice charges or complaints or labor arbitration proceedings affecting any
employee of the Company and the Subsidiaries, and the Company and the
Subsidiaries have not experienced any such labor controversy within the past
five years; (e) the Company and the Subsidiaries paid in full to its employees
all wages, salaries, commissions, bonuses, benefits and other compensation
payable, as applicable, on or before the date hereof and on or before the
Closing Date or otherwise arising as of such date under any policy, practice,
agreement, plan, program, statute or other Law; (f) the Company and the
Subsidiaries have not closed any plant or facility, effectuated any layoffs of
employees or implemented any early retirement, separation or window program
within the past five years, nor have the Company and the Subsidiaries planned or
announced any such action or program for the future, and (g) the Company and the
Subsidiaries are in compliance with all notification and bargaining obligations
arising under applicable Laws. The Company and the Subsidiaries are in
compliance with all applicable Laws, collective bargaining agreements, and
employment contracts respecting employment, employment practices, work permits,
terms and conditions of employment, and wages and hours requirements. The
Company and the Subsidiaries are not engaged in any unfair labor practice and
there is no unfair labor practice complaint against the Company and the
Subsidiaries or grievance or labor arbitration pending. Neither the Sellers nor
the Company and the Subsidiaries (including its key employees, directors and
officers) have received any notice that any petition respecting any of the
Company and the Subsidiaries employees has been filed with the U.S. National
Labor Relations Board.
 
SECTION 3.17 Taxes
 
(a) Each of the Company and the Subsidiaries have filed timely all Tax Returns
that they were required to file under applicable Laws. All such Tax Returns were
correct and complete in all respects and were prepared in compliance with all
applicable Laws. All Taxes due and owing by the Company and the Subsidiaries
(whether or not shown on any Tax Return) have been paid. The Company and the
Subsidiaries currently are not the beneficiaries of any extension of time within
which to file any Tax Return other than as stated in Schedule 3.17. No claim has
ever been made by an authority in a jurisdiction where the Company and the
Subsidiaries do not file Tax Returns that the Company or the Subsidiaries is or
may be subject to taxation by that jurisdiction. There are no Liens for Taxes
(other than Taxes not yet due and payable) upon any of the assets of the Company
and the Subsidiaries.
 
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(b) The Company and the Subsidiaries have 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, stockholder, or other third
party.
 
(c) Neither the Sellers nor any of the directors and officers (or employees
responsible for Tax matters) of the Company or the Subsidiaries expect any
Governmental Authority to assess any additional Taxes for any period for which
Tax Returns have been filed. No foreign, federal, state, or local Tax audits or
administrative or judicial Tax proceedings are pending or being conducted with
respect to the Company or the Subsidiaries. The Company and the Subsidiaries
have not received from any foreign, federal, state, or local taxing authority
(including jurisdictions where such Company has not filed Tax Returns) any (i)
notice indicating an intent to open an audit or other review, (ii) request for
information related to Tax matters, or (iii) notice of deficiency or proposed
adjustment for any amount of Tax proposed, asserted, or assessed by any taxing
authority against the Company or the Subsidiaries. Schedule 3.17 lists all Tax
Returns filed with respect to the Company or the Subsidiaries for taxable
periods ended on or after December 31, 2000, indicates those Tax Returns that
have been audited, and indicates those Tax Returns that currently are the
subject of audit. The Sellers have delivered to the Buyer correct and complete
copies of all Tax Returns for Taxes, and all examination reports, and statements
of deficiencies assessed against or agreed to by the Company or the Subsidiaries
filed or received since December 31, 2003.
 
(d) The Company and the Subsidiaries have not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
 
(e) Neither the Company nor any of its Subsidiaries is a party to any agreement,
contract, arrangement or plan that has resulted or could result, separately or
in the aggregate, in the payment of (i) any “excess parachute payment” within
the meaning of Code Section 280G (or any corresponding provision of state, local
or foreign Tax law) and (ii) any amount that will not be fully deductible as a
result of Code Section 162(m) (or any corresponding provision of state, local or
foreign Tax law). Neither the Company nor any of its Subsidiaries has been a
United States real property holding corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii). The Company and the Subsidiaries are not a party to or bound
by any Tax allocation or sharing agreement. The Company and the Subsidiaries (i)
have not been a member of an Affiliated Group filing a consolidated federal
income Tax Return (other than a group the common parent of which was the
Company) and (ii) have satisfied any Liability for the Taxes of any Person
(other than the Company or the Subsidiaries) under Reg. §1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
 
(f) The unpaid Taxes of the Company and the Subsidiaries (i) did not, as of May
31, 2007, exceed the reserve for Tax Liability (including any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) set forth on the face of the March 31, 2007 balance sheet (rather than
in any notes thereto) and (ii) do not exceed that reserve as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company and the Subsidiaries in filing their Tax Returns. Since
March 31, 2007, the Company and the Subsidiaries have not incurred any liability
for Taxes arising from extraordinary gains or losses, as that term is used in
GAAP, outside the ordinary course of business consistent with past custom and
practice.
 
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(g) To the Knowledge of the Sellers, the Company and the Subsidiaries will not
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 Date as a result of any:
 
(i) change in method of accounting for a taxable period ending on or prior to
the Closing Date;
 
(ii) any agreement with any Tax authority executed on or prior to the Closing
Date;
 
(iii) intercompany transaction or excess loss account described in Treasury
Regulations under Code §1502 (or any corresponding or similar provision of state
or local income Tax law);
 
(iv) installment sale or open transaction disposition made on or prior to the
Closing Date; or
 
(v) prepaid amount received on or prior to the Closing Date.
 
(h) The Company and the Subsidiaries have met all prerequisites and requirements
for any investment grants and subsidies received or accrued.
 
SECTION 3.18 Accounts Receivable; Accounts Payable
 
(a) Accounts Receivable; Accounts Payable. All accounts receivable of the
Company and the Subsidiaries are reflected properly on their books and records,
are valid receivables subject to no setoffs or counterclaims, are, to the
Knowledge of Sellers, current and collectible and will be collected in the
ordinary course of business at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the May 31, 2007 balance sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the Company
and the Subsidiaries. Schedule 3.18(a) sets forth a complete and accurate list
of all outstanding accounts receivable as of the date of this Agreement, which
list sets forth the aging of such accounts receivables.
 
(b) Accounts Payable. Schedule 3.18(b) contains a complete and accurate list of
all accounts payable as of the date of this Agreement, which list sets forth the
aging of each such account payable. All accounts payable that are reflected on
the March 31, 2007 balance sheet, on Schedule 3.18(b), or on the accounting
records of the Company and the Subsidiaries as of the Closing Date represent
valid obligations arising from products or services actually received by or
loans actually made to the Company and the Subsidiaries in the ordinary course
of business.
 
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SECTION 3.19 Environmental Matters
 
To the Knowledge of the Sellers, the Company and the Subsidiaries are, and at
all prior times have been, in continuous compliance with all Environmental Laws
and there is no condition that would reasonably be expected to prevent or
interfere with such compliance with all Environmental Laws in the future.
 
SECTION 3.20 Customers
 
Schedule 3.20 lists for the year ended December 31, 2006 and for the five months
ended May 30, 2007, its top 10 customers, listing for each customer the
aggregate value of the sales made by the Company and the Subsidiaries in the
year ended December 31, 2006 and the five months ended May 30, 2007. Since
December 31, 2006, there has not been (i) any material change in the business
relationship of the Company and the Subsidiaries with any of their material
customers, including all of the customers listed on Schedule 3.20, or (ii) any
change in any material term (including credit terms) of the customer agreements
or other arrangements with any such customers.
 
SECTION 3.21 Effect of Transaction
 
Except as indicated on Schedule 3.21, no creditor, employee, client, customer,
supplier or other Person having a business relationship with the Company and the
Subsidiaries has informed the Sellers or the Company and the Subsidiaries
(including their key employees, directors and officers) that such Person will,
and, to the Knowledge of the Sellers, no such Person intends to, cancel,
terminate or otherwise modify such relationship because of the consummation of
any of the transactions contemplated hereby or otherwise.
 
SECTION 3.22 No Broker
 
None of the Sellers the Company and the Subsidiaries (i) has had any dealings,
negotiations or communications with or retained any broker or other intermediary
in connection with the transactions contemplated by this Agreement or (ii) is
committed to any liability for any brokers’ or finders’ fees or any similar fees
in connection with the transactions contemplated by this Agreement.
 
SECTION 3.23 Additional Information
 
Schedule 3.23, to the extent not described on another Schedule to this
Agreement, contains accurate lists and summary descriptions of the following:
 
(a) the names and addresses of every bank and other financial institution in
which the Company or the Subsidiaries maintain an account (whether checking,
savings or otherwise), lock box or safe deposit box, and the account numbers and
names of persons having signing authority or other access thereto;
 
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(b) the names of all persons authorized to borrow money or incur or guarantee
indebtedness on behalf of the Company and the Subsidiaries;
 
(c) the names of all Persons holding powers of attorney from the Company and the
Subsidiaries empowering them to act on behalf of the Company and the
Subsidiaries and a summary statement of the terms thereof; and
 
(d) any and all outstanding loans made, or taken or held by the Company and the
Subsidiaries.
 
SECTION 3.24 Product Warranty and Product Liability
 
(a) Product Warranty. To the Knowledge of the Sellers, each product
manufactured, sold, leased, or delivered by the Company and the Subsidiaries has
been in conformity with all applicable contractual commitments and all express
and implied warranties. To the Knowledge of the Sellers, the Company and the
Subsidiaries have no Liability (and there is no Basis for any present or future
Action against any of them giving rise to any Liability) for replacement or
repair thereof or other damages in connection therewith, subject only to the
reserve for product warranty claims set forth on the face of the March 31, 2007
balance sheet (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of
the Company and the Subsidiaries. Schedule 3.24(a) includes copies of the
standard terms and conditions of sale or lease for the Company and the
Subsidiaries (containing applicable guaranty, warranty, and indemnity
provisions). No product manufactured, sold, leased, or delivered by the Company
and the Subsidiaries is subject to any guaranty, warranty, or other indemnity
beyond the applicable standard terms and conditions of sale or lease set forth
in Schedule 3.24(a).
 
(b) Product Liability. To the Knowledge of the Sellers, the Company and the
Subsidiaries have no Liability (and there is no Basis for any present or future
Action against any of them giving rise to any Liability) arising out of any
injury to individuals or property as a result of the ownership, possession, or
use of any product manufactured, sold, leased, or delivered by the Company and
the Subsidiaries.
 
SECTION 3.25 Accredited Investors
 
With respect to the issuance of the Vuance Shares to the Minority Shareholders:
 
(a) The Minority Shareholders can bear the economic risk of this investment and
can afford a complete loss thereof. The Minority Shareholders (i) have adequate
means of providing for their current and presently foreseeable future needs,
(ii) have no present need for liquidity of their investment in the Shares, and
(iii) will not have an overall commitment to non-marketable investments
disproportionate to its net worth.

(b) The Minority Shareholders each qualify as an “accredited investor” as such
term is defined under Rule 501 under the Securities Act of 1933 (the “Securities
Act”), as amended.
 
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(c) The Minority Shareholders, and such other persons whom the Minority
Shareholders have found it necessary or advisable to consult, have sufficient
knowledge and experience in business and financial matters to evaluate the risks
of the investment and to make an informed investment decision with respect
thereto; and the Minority Shareholders have been provided with copies of the
audited financial statements of the Buyer’s Parent for the fiscal years ended
December 31, 2005 and 2006 and the unaudited financial statements for the three
months ended March 31, 2007 (collectively, the “Buyer’s Parent Financial
Statements”) and a copy of the Buyer’s Parent annual report on Form 20-F for
2005, and have been given the opportunity to ask Buyer’s Parent management
questions related to the operations and financial condition of Buyer’s Parent.

(d) The Minority Shareholders understand that the issuance of the Vuance Shares
has not been registered under the Securities Act, or pursuant to the provisions
of the securities or other laws of any other applicable jurisdictions. The
Minority Shareholders understand that the Vuance Shares are being issued in
reliance upon the exemptions for private offerings contained in Regulation D as
promulgated under the Securities Act and upon the laws of such other applicable
jurisdictions based upon the fact that this issuance of Vuance Shares will only
be made to a limited number of investors, and acknowledges that any certificate
representing shares of the Vuance Shares shall bear a legend to such effect. The
Minority Shareholders are fully aware that the reliance on such exemptions for
their purchase of the Vuance Shares is based, in part, upon its representations,
warranties and agreements hereto. As the issuance has not been registered under
the Securities Act, the Minority Shareholders are fully aware that (i) they must
bear the economic risk of its investment herein for the period of time which is
required by the Act, and (ii) their investment in the Vuance Shares cannot be
offered or sold unless the offering is subsequently registered under the
Securities Act or an exemption from such registration of the Vuance Shares
issued hereunder is contemplated. The Minority Shareholders understand that no
federal or state agency has passed upon or made any recommendation or
endorsement of the Vuance Shares.

The Minority Shareholders understand the meaning and legal consequences of the
foregoing representations and warranties. Each such representation and warranty
made by the Minority Shareholders shall survive the issuance of the Vuance
Shares.

SECTION 3.26 No Series A Preferred Stock Payment Obligations
 
As of the date of this Agreement, HMSC has no outstanding payment obligations to
the Company pursuant to the Series A Convertible Preferred Stock Purchase
Agreement, dated August 21, 2006 (the “Series A Preferred Stock Agreement”).

SECTION 3.27 Disclosure 
 
The representations and warranties contained in this Article III do not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements and information contained in this
Article III not materially misleading.
 
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
 
The Buyer and the Buyer’s Parent (with respect to Section 4.4 through 4.13)
hereby represent and warrant to the Sellers that the statements contained in
this Article IV are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article IV.
 
SECTION 4.1 Organization
 
The Buyer is a corporation duly organized, validly existing and in good standing
under the Laws of the State of Delaware (as in effect on the date hereof and on
the Closing Date).
 
SECTION 4.2 Due Authorization
 
The Buyer has full right, power and authority to execute and deliver this
Agreement and each agreement or instrument executed and delivered in connection
herewith or pursuant hereto to which it is a party, to consummate the
transactions contemplated hereby and thereby and to perform its obligations
hereunder and thereunder. The Buyer’s execution, delivery and performance of
this Agreement and all agreements and instruments executed in connection
herewith and delivered pursuant hereto and its performance of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
corporate action. This Agreement and all agreements or instruments executed and
delivered by the Buyer in connection herewith or pursuant hereto have been or
will at Closing be duly executed and delivered by the Buyer, and this Agreement
and all agreements and instruments executed by the Buyer in connection herewith
or delivered by the Buyer pursuant hereto constitute and will at Closing
constitute legal, valid and binding obligations of the Buyer enforceable against
the Buyer in accordance with their respective terms (except to the extent that
enforcement may be affected by applicable bankruptcy, reorganization, insolvency
and similar Laws affecting creditors’ rights and remedies generally and by
general principles of equity (regardless of whether enforcement is sought at law
or in equity)).
 
SECTION 4.3 Noncontravention
 
The execution, delivery and performance by the Buyer of this Agreement and all
of the other agreements or instruments contemplated hereby do not and will not
(a) conflict with or violate any Laws (as in effect on the date hereof and on
the Closing Date) applicable to the Buyer, (b) conflict with or violate any
provision of the Buyer’s organization documents (c) violate, result in a breach,
default or acceleration under, or give rise to any penalty or any right of
termination, cancellation or modification under, any agreement to which the
Buyer is a party or by which it is bound or (d) require the consent, approval,
authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Governmental Authority, or any other
Person.
 
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SECTION 4.4 Issuance of the Vuance Shares. 
 
The Vuance Shares, when issued and paid for in accordance with this Agreement,
will be duly authorized and validly issued, fully paid and nonassessable, free
and clear of all Liens imposed by the Buyer’s Parent other than restrictions on
transfer provided for in this Agreement.
 
SECTION 4.5 Capitalization.
 
The capitalization of the Buyer’s Parent is as set forth on Schedule 4.5. Except
as set forth on Schedule 4.5, (i) no Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by this Agreement, (ii) there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for or acquire, any Vuance Shares, or contracts, commitments,
understandings or arrangements by which the Buyer’s Parent or any of its
subsidiaries is or may become bound to issue additional ordinary shares or
ordinary share equivalents and (iii) the issuance of the Vuance Shares pursuant
to this Agreement will not obligate the Buyer’s Parent to issue ordinary shares
of its share capital or other securities to any Person (other than the Sellers)
and will not result in a right of any holder of Buyer’s Parent securities to
adjust the exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of the share capital of the Buyer’s
Parent are validly issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. As of the Closing Date, no
further approval or authorization of any stockholders, the Board of Directors of
the Buyer’s Parent or others will be required for the issuance and sale of the
Vuance Shares. There are no stockholders agreements, voting agreements or other
similar agreements with respect to the Buyer’s Parent’s share capital to which
the Buyer’s Parent is a party or, to the Knowledge of the Buyer’s Parent,
between or among any of the Buyer’s Parent’s stockholders.
 
SECTION 4.6 Financial Statements.
 
The Buyer’ Parent Financial Statements (attached as Schedule 4.6 hereto) have
been prepared in accordance with GAAP, except as may be otherwise specified in
such Buyer Parent’s Financial Statements or the notes thereto and except that
unaudited portion of the Buyer Parent’s Financial Statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Buyer’s Parent and its consolidated subsidiaries as of
and for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
 
SECTION 4.7 Private Placement. 
 
No registration under the Securities Act is required for the offer and sale of
the Vuance Shares by the Buyer’s Parent to the Sellers as contemplated hereby.
The issuance and sale of the Vuance Shares hereunder does not contravene the
rules and regulations of the Trading Markets. The issuance of the Vuance Shares
pursuant to this Agreement will not require any registration or qualification
under any non-U.S. jurisdiction.
 
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SECTION 4.8 Investment Company. 
 
The Buyer’s Parent is not, and is not an Affiliate of, and immediately after
receipt of payment for the Vuance Shares, will not be or be an Affiliate of, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended. The Buyer’s Parent shall conduct its business in a manner so that it
will not become subject to the Investment Company Act of 1940, as amended.
 
SECTION 4.9 Listing and Maintenance Requirements. 
 
The Buyer’s Parent ordinary shares are registered pursuant to 12(g) of the
Exchange Act, and the Buyer’s Parent has taken no action designed to, or which
to its knowledge is likely to have the effect of, terminating the registration
of the Buyer’s Parent’s ordinary shares under the Exchange Act nor has the
Buyer’s Parent received any notification that the Securities and Exchange
Commission is contemplating terminating such registration. The Buyer’s Parent
has not, in the 12 months preceding the date hereof, received notice from any
Trading Market on which the ordinary shares are or have been listed or quoted to
the effect that the Buyer’s Parent is not in compliance with the listing or
maintenance requirements of such Trading Market. The Buyer’s Parent is, and has
no reason to believe that it will not in the foreseeable future continue to be,
in compliance with all such listing and maintenance requirements.
 
SECTION 4.10 No Integrated Offering. 
 
Assuming the accuracy of the Minority Shareholders’ representations and
warranties set forth in Section 3.25, neither the Buyer’s Parent, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Vuance Shares to be integrated with prior offerings by the Buyer’s Parent for
purposes of the Securities Act in a manner that would require the registration
under the Securities Act of the sale of the Vuance Shares to the Sellers or any
applicable shareholder approval provisions of any Trading Markets on which any
of the securities of the Buyer’s Parent are listed or designated.
 
SECTION 4.11 Foreign Corrupt Practices. 
 
Neither the Buyer’s Parent or any of its subsidiaries, nor to the Knowledge of
the Buyer’s Parent, any agent or other person acting on behalf of the Buyer’s
Parent, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Buyer’s Parent or any of its
subsidiaries (or made by any person acting on their behalf of which the Buyer’s
Parent is aware) which is in violation of law, or (iv) violated in any material
respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.
 
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SECTION 4.12 No Broker
 
Except for Oberon Securities, LLC, the Buyer Parties (i) have not had any
dealings, negotiations or communications with or retained any broker or other
intermediary in connection with the transactions contemplated by this Agreement
and (ii) are not committed to any liability for any brokers’ or finders’ fees or
any similar fees in connection with the transactions contemplated by this
Agreement.
 
SECTION 4.13 Contract Prohibitions
 
Neither the Buyer Parties nor any of their subsidiaries is, due to any past
action, omission of affiliation, prohibited from, or would reasonably be
expected to be prohibited from, entering into any supply, service or other
contract with the United States government or any instrumentality thereof.
 
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ARTICLE V
OTHER AGREEMENTS
 
SECTION 5.1 Lock-Up
 
(a) Other than as set forth herein or a security interest granted by HSMC to its
largest existing lender in the Vuance Shares, the Sellers will not offer, sell,
contract to sell, hypothecate, pledge or otherwise dispose of (or enter into any
transaction which is designed to, or might reasonably be expected to, result in
the disposition (whether by actual disposition or effective economic disposition
due to cash settlement or otherwise) by the Sellers or any Affiliate of the
Sellers or any person in privity with the Sellers or any Affiliate of the
Sellers), directly or indirectly, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the meaning
of Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”) with
respect to, any Vuance Shares beneficially owned, held or hereafter acquired by
the Sellers. Beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act. The prohibition under this Section 5.1 shall not
apply to a transfer by the Sellers of up to an aggregate of 7,000 Vuance Shares
to Peter Miller, William LaPointe or Rampart Partners, LLC, provided that such
Persons execute a lock-up agreement with prohibitions identical to those
contained in this Section 5.1 and such Persons represent that they are
“accredited investors” as such term is defined under Rule 501 under the
Securities Act. Buyer will impose irrevocable stop-transfer instructions
preventing its transfer agent from effecting any actions in violation of this
Section 5.1.
 
(b) The restrictions on the transfer of the Vuance Shares set forth in Section
5.1(a) will expire (i) for the Minority Shareholders in twelve equal
installments, commencing with the end of the first calendar quarter following
the Closing and each of the eleven following calendar quarters thereafter, and
(ii) for HMSC in eight equal installments, commencing with the end of the first
calendar quarter following the Closing and each of the seven following calendar
quarters thereafter.
 
(c) Following expiration of the restrictions under Section 5.1(a) pursuant to
Section 5.1(b), the Vuance Shares may be transferred in accordance with the
limitations under Rule 144 under the Securities Act, provided that in no event
may HMSC transfer any of its Vuance Shares to any of its shareholders or
creditors.
 
SECTION 5.2 Piggyback Registration Rights
 
If at any time or times after the date hereof Buyer’s Parent shall seek to
register any of its ordinary shares under the Securities Act for sale to the
public for its own account or on the account of others (except with respect to
registration statements on Form S-4, Form S-8 or another form not available for
registering the Vuance Shares for sale to the public), Buyer’s Parent will
promptly give written notice thereof to HMSC. If within twenty (20) days after
their receipt of such notice HMSC requests the inclusion of some or all of the
Vuance Shares owned by it in such registration, Buyer’s Parent will use its
reasonable best efforts to effect the registration under the Securities Act of
such Vuance Shares. In the case of the registration of ordinary shares by
Buyer’s Parent in connection with any underwritten public offering to which this
Section 5.2 applies, if the underwriter(s) determines that reasonable and
customary marketing factors require a limitation on the number of Vuance Shares
to be offered, then Buyer’s Parent shall not be required to register Vuance
Shares of HMSC in excess of the amount, if any, of ordinary shares which the
principal underwriter of such underwritten offering shall reasonably and in good
faith agree to include in such offering in addition to any amount to be
registered for the account of Buyer’s Parent.
 
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SECTION 5.3 Voting of HMSC’s Vuance Shares
 
HMSC will grant an irrevocable power of attorney in the form attached hereto as
Exhibit A to the chairman of the board of directors of Buyer’s Parent to
exercise all voting rights related to its Vuance Shares, until a voluntary sale
or transfer of the Vuance Shares in accordance with Section 5.1 has occurred.
 
SECTION 5.4 Right of First Refusal
 
To the extent that and as long as HMSC’s Vuance Shares remain subject to the
restrictions set forth in Section 5.1(a), upon the occurrence of any sale by
HMSC of its Vuance Shares due to HSMC’s bankruptcy, insolvency or otherwise by
operation of law (an “Involuntary Sale”), Buyer’s Parent or Buyer will have the
right to purchase all (but not less than all) HSMC’s Vuance Shares on the
following terms and conditions:
 
(a) HSMC will give Buyer prompt written notice (the “Sale Notice”) of any
pending Involuntary Sale and Buyer or Buyer’s Parent will have five (5) Business
Days to elect to purchase HSMC’s Vuance Shares. The purchase of HSMC’s Vuance
Shares must occur within five (5) Business Days of such election at a purchase
price per share equal to the average closing price of the Buyer Parent’s common
stock on the Trading Markets for the fifteen (15) Business Days prior to the
purchase date. The purchase price for Vuance Shares acquired pursuant to this
Section 5.4(a) must be paid in immediately available funds.
 
(b) In the event that neither Buyer’s Parent nor the Buyer elects to purchase
HMSC’s Vuance Shares, will not have the right to prevent or delay the
Involuntary Sale..
 
SECTION 5.5 Note Assumption
 
As of the date of this Agreement, the Company has outstanding a note payable to
the Minority Shareholders Messrs. Joel Konicek, James Peroutka and James Vinson
(the “Noteholders”) in the amount of $467,582 (subject to adjustment for regular
interest payments not paid) (the “Note”). At the Closing, Buyer will assume all
obligations under the Note from the Company pursuant to a customary assignment
and assumption agreement (the “Assignment and Assumption Agreement”).
Alternatively, Buyer’s Parent may issue a number of ordinary shares to the
Noteholders equal to the outstanding amount of the Note divided by the Closing
Price Per Share, in which event (i) all of the Company’s obligations under the
Note shall terminate, and (ii) such ordinary shares shall be subject to the
restrictions set forth in Section 5.1(a), which restrictions shall expire in
twelve equal installments, commencing with the end of the first calendar quarter
following the Closing and each of the eleven following calendar quarter
thereafter.
 
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SECTION 5.6 HMSC Financing
 
In the event that HMSC provides debt financing to the Company prior to the
Closing (the “HMSC Financing”), the Buyer will cause the Company to repay such
financing in immediately available funds up to $400,000 with an 8% per annum
interest rate promptly after Closing.
 
SECTION 5.7 Conversion of Series A Preferred Stock; Termination of Certain
Agreement
 
(a) All shares of Series A Preferred Stock issued under the Series A Preferred
Stock Agreement will be converted into shares of common stock immediately prior
to the Closing.
 
(b) All rights and obligations arising out of (i) the Series A Preferred Stock
Agreement, (ii) the Agreement and Plan of Merger among the Company, Security
Holding Enterprises, Inc. and the Minority Shareholders (the “Merger Agreement”)
and (iii) certain restricted stock agreements between the Company on the one
hand and the Minority Shareholders and certain employees of the Company on the
other hand (the “Restricted Stock Agreements”) will be terminated before
Closing.
 
SECTION 5.8 Employment Agreements
 
Prior to the Closing, Messrs. Joel Konicek, James Peroutka and Charles Martin
will have entered into employment agreements with the company or the
subsidiaries, forms of which are attached hereto as Exhibit B (the “Employment
Agreements”).
 
SECTION 5.9 Listing of Ordinary Shares
 
The Buyer’s Parent hereby agrees to use best efforts to maintain the listing or
quotation of the Buyer’s Parent ordinary shares on the Trading Markets, and as
soon as reasonably practicable following the Closing (but not later than first
anniversary of the Closing Date) to list (or include for quotation) all of the
Vuance Shares issued to the Sellers on such Trading Markets. The Buyer’s Parent
further agrees, if the Buyer’s Parent applies to have the Buyer’s Parent
ordinary shares traded on any other securities exchange, trading market or
quotation system, it will include in such application all of the ordinary
shares, and will take such other action as is necessary to cause all of the
Vuance Shares to be listed on such other securities exchange, trading market or
quotation system as promptly as possible.
 
SECTION 5.10 Form D; Blue Sky Filings. 
 
The Buyer’s Parent agrees to timely file a Form D with respect to the Vuance
Shares as required under Regulation D and to provide a copy thereof, promptly
upon request of any Seller. The Buyer’s Parent shall take such action as the
Buyer’s Parent shall reasonably determine is necessary in order to obtain an
exemption for, or to qualify the Vuance Shares for, sale to the Sellers at the
Closing under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of any Seller.
 
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ARTICLE VI
PRE AND POST-CLOSING COVENANTS
 
SECTION 6.1 Conduct of Business
 
From the date of this Agreement until the earlier of the Closing Date and the
date of the termination of this Agreement in accordance with its terms, the
Sellers shall cause the Company and the Subsidiaries to, and the Company and the
Subsidiaries shall, conduct their Business in the ordinary course consistent
with past practice and in conformance with all Laws, to preserve their assets,
properties, business goodwill, and relationships with their suppliers, customers
and others having business relationships with it and retain the services of its
employees. Without limiting the generality of the foregoing, from the date of
this Agreement until the earlier of Closing or the termination of this Agreement
in accordance with its terms, except as specifically permitted elsewhere in this
Agreement or by this Agreement, the Sellers must not cause the Company or the
Subsidiaries to:
 
(a) declare, set aside or pay any dividend or other distribution with respect to
their capital stock (whether in cash or in kind) or redeem, purchase or
otherwise acquire any of its capital stock;
 
(b) (i) mortgage, pledge or otherwise encumber, incur or suffer to exist any
Lien (other than Permitted Liens) on any of its properties or assets;
(ii) guarantee any Indebtedness of another Person or enter into any “keep well”
or other agreement to maintain any financial condition of another Person; or
(iii) make any loans, advances or capital contributions to, or investments in,
any other Person;
 
(c) forgive, cancel or compromise any Indebtedness owing to them or any claims
which they may have possessed, or waive any right of substantial value;
 
(d) (i) issue, deliver, dispose of, pledge, sell or otherwise encumber or
authorize or propose the issuance, sale, disposition or pledge or other
encumbrance of any shares of capital stock of any class or any securities or
rights convertible into, exchangeable for, or evidencing the right to subscribe
for any shares of its capital stock, or grant any rights, warrants, options,
calls, commitments or any other agreements of any character to purchase or
acquire any shares of their capital stock or any securities or rights
convertible into, exchangeable for, or evidencing the right to subscribe for,
any shares of their capital stock, or redeem, repurchase or otherwise acquire
any such securities, or (ii) split, combine or reclassify any shares of their
capital stock;
 
(e) sell, lease, transfer, assign or otherwise dispose of any assets of the
Company or the Subsidiaries;
 
(f) enter into any new unrelated line of business or acquire any business or any
corporation, partnership, association or other business organization or division
thereof;
 
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(g) fail to comply, in any material respect, with all applicable Laws (as in
effect from the date hereof to the Closing Date) and with all applicable Orders;
 
(h) amend their articles of incorporation, bylaws or other organizational
documents, or merge, reorganize or consolidate with or into any other Person;
 
(i) make any change in its accounting methods or practices other than those
required to effect compliance with GAAP;
 
(j) grant any license or sublicense of any rights under or with respect to any
Company IP;
 
(k) make any loan to, or enter into any other transaction with, any director,
officer or employee;
 
(l) (i) increase the compensation or fringe benefits of any present or former
director, officer, employee or consultant of the Company or the Subsidiaries
(except for increases in salary or wages, in the ordinary course of business
consistent with past practice or the payment of accrued or earned but unpaid
bonuses or as otherwise required by Law), (ii) grant any bonus, severance or
termination pay to any present or former director, officer, employee or
consultant of the Company or the Subsidiaries, except pursuant to an Employee
Benefit Plan in existence on the date of this Agreement the terms of which have
been disclosed on Schedule 3.15, (iii) establish, adopt, enter into, amend,
modify or terminate any Employee Benefit Plan or any plan, agreement, program,
policy, trust, fund or other arrangement that would be an Employee Benefit Plan
if it were in existence as of the date of this Agreement, except for amendments
required by Law, (iv) grant any equity or equity-based awards, or (v) terminate,
hire or materially modify the employment terms of any employee of the Company;
 
(m) fail to maintain or renew any Permits required for their business;
 
(n) amend, modify or terminate any Contract of a type required to be disclosed
pursuant to Section 3.13 or enter into any new Contract of a type required to be
disclosed pursuant to Section  3.13;
 
(o) (i) enter into or renew any lease, agreement or commitment which, if entered
into prior to the date of this Agreement would be required to be disclosed on
Schedule 3.10, or cause, or take any action to allow, any lease, agreement or
commitment listed on Schedule 3.10 to lapse (other than in accordance with its
terms), to be modified in any material adverse respect, or otherwise to become
impaired in any material manner;
 
(p) make or pledge to make any charitable or other capital contribution;
 
(q) initiate any Action or settle any Action, which in either case is not fully
covered by insurance;
 
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(r) enter into any transaction or incur any liability or obligation that is
material to their business or operations, including commencing any new research,
development or marketing programs and incurring any liability or obligation in
connection therewith;
 
(s) (i) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization with
respect to any of the Company or the Subsidiaries; (ii)  make any acquisition by
means of stock purchase, asset purchase, merger, consolidation or otherwise;
(iii) enter into any agreement providing for acceleration of payment or
performance or other consequence as a result of a change of control of the
Company or the Subsidiaries; (iv) enter into any negotiations or discussions
with, regarding or relating to recognizing any collective bargaining
representative for the employees of the Company or the Subsidiaries; (v) submit
or file with, or otherwise voluntarily participate as a party to any material
stipulation, pleading, filing or other proceeding with any Governmental
Authority with jurisdiction over the Company or the Subsidiaries or fail to
notify the Buyer promptly of any involuntary participation in any of the
foregoing; or
 
(t) without the prior written approval of Buyer, (i) create, incur or assume any
Indebtedness (other than the HMSC Financing) in excess of $25,000 in the
aggregate; (ii) make or agree to make any new capital or other expenditures
involving more than $25,000 in the aggregate; acquire or invest in any assets
involving more than $25,000; or
 
(u) authorize any of, or agree or commit to do any of, the foregoing actions.
 
SECTION 6.2 Pre-Closing Access to Information
 
(a) Access to Books; Records; Personnel; Properties. From the date hereof until
the Closing Date, the Sellers shall cause the Company and the Subsidiaries to
permit the Buyer and its authorized agents, officers and representatives to have
full access to the properties, personnel, customers, suppliers, advisors
(including attorneys and accountants), books, records, contracts, information
and documents of the Company and the Subsidiaries to conduct such examinations
and investigations of the Company and the Subsidiaries as the Buyer deems
desirable or necessary; provided, however, that such examinations and
investigations shall be conducted during normal business hours. The Sellers and
the Company and the Subsidiaries shall cooperate in all reasonable respects and
in a prompt and timely manner with the Buyer’s examinations and investigations,
and will authorize the Buyer and its employees, agents and representatives to
gain access to governmental records concerning environmental matters that relate
to or affect the Company’s or the Subsidiaries’ facilities.
 
SECTION 6.3 Cooperation; Notices and Consents
 
(a) Generally. Upon the terms and subject to the conditions of this Agreement,
each of the parties hereto hereby agrees to use its commercially reasonable
efforts to take all actions which are necessary, proper or advisable in order to
consummate and make effective the transactions contemplated hereby.
 
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(b) Notices and Consents. The Sellers shall cause the Company and the
Subsidiaries to (i) give any notices to third parties necessary for the
consummation of the transactions contemplated hereunder, (ii) use their
commercially reasonable efforts to as soon as practicable obtain all third-party
consents, approvals and waivers necessary for the consummation of the
transactions contemplated hereunder, including, but not limited to, the
consents, approvals and waivers necessary with respect to the Leases disclosed
on Schedule 3.10, and (iii) consult with and obtain the Buyer’s prior approval
to any notice or consent letter submitted to a third party pursuant to (i) and
(ii). Each of the parties shall (and the Sellers shall cause the Company and the
Subsidiaries to) give any notices to, make any filings with, and use its
commercially reasonable efforts to obtain any authorizations, consents, and
approvals of, Governmental Authorities required in connection with the
consummation of the transactions contemplated by this Agreement.
 
(c) Duty to Keep Informed. The Buyer and the Sellers shall consult with each
other and keep each other informed of the status of the matters referred to in
this Section 6.3 and, except to the extent confidential treatment has been given
in any document filed with a Governmental Authority pursuant to this Section
6.3, shall provide each other with copies of all such documents prepared on its
behalf and all correspondence relating to the matters referred to in this
Section 6.3.
 
SECTION 6.4 Publicity
 
All general notices, releases, statements and communications to employees,
suppliers, distributors and customers of the Company and the Subsidiaries and to
the general public and the press relating to the transactions covered by this
Agreement shall be made only at such times and in such manner as may be
reasonably agreed upon in advance between the Buyer and the Sellers; provided,
however, that any party hereto shall be entitled to make a public announcement
of the foregoing if, in the written opinion of its legal counsel delivered to
the other party, such announcement is required to comply with any Law,
provided that such party first consults with the other party hereto and gives
prior written notice of its intention to make such public announcement.
 
SECTION 6.5 Tax Matters
 
The following provisions shall govern the allocation of responsibility as
between the Buyer and the Sellers for certain Tax matters following the Closing
Date:
 
(a) Straddle Period. In the case of any taxable period that includes (but does
not end on) the Closing Date (a “Straddle Period”), the amount of any Taxes
based on or measured by income or receipts of the Company and the Subsidiaries
for the Pre-Closing Tax Period shall be determined based on an interim closing
of the books as of the close of business on the Closing Date (and for such
purpose, the taxable period of any partnership or other pass-through entity in
which the Company or the Subsidiaries hold a beneficial interest shall be deemed
to terminate at such time) and the amount of other Taxes of the Company and the
Subsidiaries for a Straddle Period that relates to the Pre-Closing Tax Period
shall be deemed to be the amount of such Tax for the entire taxable period
multiplied by a fraction the numerator of which is the number of days in the
taxable period ending on the Closing Date and the denominator of which is the
number of days in such Straddle Period.
 
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(b) Indemnity. Sellers shall, severally and jointly, indemnify the Buyer
Indemnified Parties and hold them harmless from and against (without
duplication) any Losses attributable to (i) all Taxes (or the non-payment
thereof) of the Company and the Subsidiaries for all taxable periods ending on
or before the Closing Date and the portion through the end of the Closing Date
for any taxable period that includes (but does not end on) the Closing Date
(“Pre-Closing Tax Period”), (ii) all Taxes of any member of an affiliated,
consolidated, combined or unitary group of which the Company or the Subsidiaries
(or any predecessor of any Company or the Subsidiaries) are or were a member on
or prior to the Closing Date, including pursuant to Treasury Regulation
§1.1502-6 or any analogous or similar Law, and (iii) any and all Taxes of any
person (other than the Company and the Subsidiaries) imposed on the Company and
the Subsidiaries as a transferee or successor, by contract or pursuant to any
Law, which Taxes relate to an event or transaction occurring before the Closing.
 
(c) Responsibility for Filing Tax Returns.  The Buyer shall prepare or cause to
be prepared and file or cause to be filed all Tax Returns for the Company and
the Subsidiaries that are filed after the Closing Date. The Buyer shall permit
the Sellers to review and comment on any such Tax Return that covers a
Pre-Closing Tax Period.
 
(d) Cooperation on Tax Matters.
 
(i) The Buyer, the Company, the Subsidiaries, and the Sellers shall cooperate
fully, as and to the extent reasonably requested by the other Party, in
connection with the filing of Tax Returns pursuant to this Section 6.5 and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other Party's request) the provision
of records and information that are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Buyer, the Company and the Subsidiaries and the
Sellers will (A) retain all books and records with respect to Tax matters
pertinent to the Company and the Subsidiaries relating to any taxable period
beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by the Buyer or the Sellers, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (B) to
give the other Party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other Party so requests,
the Buyer, the Company, the Subsidiaries or the Sellers, as the case may be,
shall allow the other Party, at such Party’s sole cost, to take possession of
such books and records.
 
(ii) The Buyer and the Sellers further agree, upon request, to use their best
efforts to obtain any certificate or other document from any Governmental
Authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby).
 
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(e) Tax-Sharing Agreements.  All tax-sharing agreements or similar agreements
with respect to or involving the Company and the Subsidiaries shall be
terminated as of the Closing Date and, after the Closing Date, the Company and
the Subsidiaries shall not be bound thereby or have any liability thereunder.
 
(f) Certain Taxes and Fees. All transfer, documentary, sales, use, stamp,
registration and other such Taxes, and all conveyance fees, recording charges
and other fees and charges (including any penalties and interest) incurred in
connection with consummation of the transactions contemplated by this Agreement
shall be paid by the Sellers when due. The Sellers will, at its own expense,
file all necessary Tax Returns and other documentation with respect to all such
Taxes, fees and charges, and, if required by applicable law, the Buyer will, and
will cause its Affiliates to, join in the execution of any such Tax Returns and
other documentation.
 
SECTION 6.6 Exclusivity
 
From the date hereof until the earlier of the Closing Date or the date of the
termination of this Agreement in accordance with its terms, the Sellers, the
Company and the Subsidiaries shall not, and shall cause their officers,
directors, representatives, agents and Affiliates not to: (a) enter into any
written or oral agreement or understanding with any Person (other than the
Buyer) regarding a sale of the Company or the Subsidiaries, any part of their
stock, assets (other than inventory in the ordinary course of business) or
business, or a merger, consolidation, or re-capitalization involving the Company
or a Subsidiary (“Another Transaction”); (b) enter into, participate or continue
any negotiations or discussions with any Person (other than the Buyer or the
Buyer’s advisors and agents) relating to Another Transaction; or (c) provide any
non-public or other confidential or proprietary information regarding this
Agreement, the Company or the Subsidiaries or their Affiliates (including legal
and contractual documentation or any financial information, projections, or
proposals regarding any of their respective businesses) to any Person (other
than to the Buyer or the Buyer’s advisors and agents). The Sellers, the Company
and the Subsidiaries shall promptly disclose to the Buyer any requests or
inquiries (in each case, whether written or oral) from any Person regarding
Another Transaction or relating to the circumstances described in clauses (a)
through (c) above. In the event of a breach of the covenant set forth in this
Section 6.6, the Sellers will be severally and jointly liable to pay to the
Buyer all of the Buyer’s expenses related to the transaction contemplated under
this Agreement, whether or not consummated, up to $100,000.
 
SECTION 6.7 Non-Competition; Non-Solicitation
 
(a) Non-Competition. Except as described on Schedule 6.7, the Minority
Shareholders (other than James Vinson) agree that for a period of two years from
the Closing Date (the “Restrictive Period”) they shall not, and shall cause
their Affiliates not to, directly or indirectly, own, manage, operate, control
or participate in the ownership, management, operation or control of, or provide
any financing to or advise or render services to or guarantee the obligations of
any Person that engages in or is planning to become engaged in, or in any other
manner engage in, any activity, operation or business that competes with the
business of the Company or the Subsidiaries and the business of the Buyer
Parties consisting of innovative incident management, active radio-frequency
identification (“RFID”) and credentialing solutions to the public safety, for
the commercial and government sectors, in each case as presently conducted and
as such business may evolve, in the United States, except that each such Person
may hold less than 1% of the capital stock of any such Person that is a publicly
traded company.
 
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(b) Customer, Other Business Relation, Non-Solicitation. The Sellers shall not,
and shall cause their Affiliates not to, directly or indirectly, take any action
during a period of four years from the Closing (the “Restrictive Period”) that
is designed, intended or likely to have the effect of discouraging any lessor,
licensor, customer, or supplier from having a business relationship or potential
business relationship with the Company or the Subsidiaries or from maintaining
business relationships or entering into a new business relationship with the
Company or the Subsidiaries. During the Restrictive Period the Sellers will
refer all inquiries relating to the businesses of the Company and the
Subsidiaries to the Buyer.
 
(c) Employee Non-Solicitation. During the Restrictive Period the Sellers shall
not, and shall cause his Affiliates not to, directly or indirectly, interfere
with, or attempt to interfere with, the employment of any directors, officers,
employees, representatives or agents of the Company or the Subsidiaries, or
solicit, hire or attempt to induce any of them to leave the employ of the
Company or the Subsidiaries.
 
(d) Confidentiality. The Sellers shall not and shall cause his Affiliates not
to, directly or indirectly, during the Restrictive Period disclose to any Person
or use any information, in any form, whether acquired prior to or after the
Closing Date, relating to the business of the Company or the Subsidiaries,
except information which the Sellers can establish (i) is in the public domain,
or becomes public knowledge through no fault of the Sellers, (ii) is disclosed
to the Sellers following the Closing Date by a third party that had the right to
do so or (iii) is required to be disclosed by court order or other government
process or to comply with applicable Law, provided, that, in the case of (iii)
the Sellers first notify the Buyer and give the Buyer a reasonable opportunity
to seek a protective order.
 
(e) Relief. The Sellers acknowledge and agree that the covenants set forth in
this Section 6.7 are necessary to protect the business and goodwill of the
Company and the Subsidiaries that are being purchased by the Buyer and that the
Buyer’s willingness to enter into this Agreement is conditioned and dependent
upon the Sellers’ promise to be bound by this Section 6.7. The Sellers
acknowledge that any breach of the restrictive covenants contained in this
Section 6.7 would cause injury to the Company, the Subsidiaries and to the
Buyer, which cannot be adequately compensated for by money damages, and the
Sellers agree that in addition to any other remedy available to the Buyer,
temporary and permanent injunctive relief may be granted in any Action which may
be brought by the Buyer to enforce such restrictive covenants, without necessity
of proof that any other remedy is inadequate and without the posting of a bond.
 
(f) Severability. The Sellers acknowledge and agree that all of the
restrictions, covenants and agreements in Section 6.7 hereof are appropriate,
reasonable and valid (including with respect to geographic scope and duration)
and fully necessary for the protection of the legitimate interests of the Buyer.
If any provision contained in this Section 6.7 (or portion thereof) shall for
any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provisions
of this Section 6.7 (or portion thereof) but this Section 6.7 shall be construed
as if such invalid, illegal or unenforceable provision (or portion thereof) had
never been contained herein. It is the intention of the parties that if any of
the restrictions or covenants contained herein is held to cover a geographic
area or to be for a length of time which is not permitted by applicable law, or
in any way construed to be too broad or to any extent invalid, such provision
shall not be construed to be null, void and of no effect, but a court of
competent jurisdiction under Section 10.3(b) hereof is hereby requested by the
parties to construe and interpret or reform this Section to provide for a
covenant having the maximum enforceable geographic area, time period and other
provisions (not greater than those contained herein) as shall be valid and
enforceable under such applicable law.
 
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SECTION 6.8 Resignations.
 
On the Closing Date, the Sellers shall cause to be delivered to the Buyer duly
signed resignations, effective immediately upon the Closing, of those directors
and officers of the Company and the Subsidiaries listed on Schedule 6.8 and the
Sellers shall use their best efforts to ensure that such Persons as the Buyer
shall nominate prior to the Closing Date are appointed as directors and officers
of the Company and the Subsidiaries effective as of the Closing Date.
 
SECTION 6.9 Pre-Closing Confidentiality.
 
All information furnished by the Sellers, the Company and the Subsidiaries (or
their agents and representatives) to the Buyer (or its agents and
representatives) pursuant hereto shall until the Closing Date be treated as the
sole property of the Company and the Subsidiaries, as the case may be, and, if
the Closing shall not occur, the Buyer shall return to the Sellers all copies of
any documents or other materials containing or reflecting such information,
shall use its commercially reasonable efforts to keep con-fidential all of such
information regarded as confidential by the Company and the Subsidiaries, and
shall not directly or indirectly use such information for any competitive or
other commercial purpose, for a period of two years after the date of
termination of this Agreement. The obligation to keep such information
confidential shall not apply to (i) any information which (w) the Buyer can
establish was already in its possession prior to the disclosure thereof by the
Person furnishing the information, (x) was then generally known to the public,
(y) became known to the public through no fault of the Buyer, or (z) was
disclosed to the Buyer by a third party not bound by an obligation of
confidentiality to the Company or the Subsidiaries; (ii) disclosures in
accordance with an order of a court of competent jurisdiction; or (iii)
disclosures made in connection with enforcing the Buyer’s rights hereunder or
defending Buyer in a claim relating to this Agreement. Notwithstanding the
foregoing, if Buyer is requested or required (by oral questions,
interrogatories, requests for information or document subpoena, civil
investigative demand or similar process) to disclose any of the above-referenced
documents or information, the Buyer will promptly notify the Sellers of such
request so that the Sellers may seek an appropriate protective order or waive
compliance with the provisions hereof. If, in the absence of a protective order
or the receipt of a waiver hereunder, the Buyer is, in the opinion of its
counsel, compelled to disclose any terms or conditions of the above-referenced
documents to any tribunal or else stand liable for contempt or suffer other
censure or penalty, such party may disclose such information to such tribunal
without liability hereunder.
 
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SECTION 6.10 Other Seller Obligations
 
(a) Prior to Closing, the Company will use commercially reasonable best efforts
to amend the License to Manufacture Agreement dated April 25, 2007 between Abba
Logic LLC (“Abba”) to the effect that (i) the license granted under the License
Agreement shall be converted into an exclusive license for a duration of not
less than three years and (ii) SecurityInc shall have been granted an option to
purchase the Intellectual Property licensed under the License Agreement for a
purchase price which is to be approved by Buyer, which approval may not be
unreasonably withheld.
 
(b) Prior to Closing, AAID will use commercially reasonable best efforts to
enter into a supply agreement with Wavetrend in a form to be approved by Buyer
(which approval may not be unreasonably withheld) for active radio-frequency
identification (“RFID”) products distributed by AAID, which agreement shall (i)
provide for a sufficient supply of “Readers” and “Tags” so that AAID may satisfy
the demands of its customers and (ii) have a duration of at least one year
before it can be terminated by Wavetrend.
 
SECTION 6.11 Update
 
From the date of this Agreement and until the Closing Date, each party hereto
will disclose to the other in writing any information contained in its
representations and warranties and on its Schedules that becomes in such
post-signing, pre-Closing period incomplete or no longer correct (including with
respect to Schedules 3.18(a) and 3.18(b)) or that, if known prior to the date of
this Agreement, would have been required to be disclosed in such party’s
schedules to this Agreement. The disclosures made pursuant to this Section 6.10
shall not be deemed to modify, amend or supplement (for purposes of an
indemnification claim) the representations and warranties of the party making
such disclosures, and, may be the basis for a party to terminate this Agreement
in accordance with Section 9.1(b) and for any claim that any representation or
warranty is inaccurate or has been breached for purposes of Article VIII.
 
SECTION 6.12 Further Assurances; Litigation Support
 
(a) Further Assurances. Subject to the terms and conditions of this Agreement,
each of the parties hereto shall use all reasonable efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Laws to consummate and make effective
transactions contemplated by this Agreement and the other agreements entered
into pursuant hereto. From time to time after the date hereof (including after
the Closing Date if requested), Sellers shall (or shall cause his Affiliates
to), at their own expense and without further consideration, execute and deliver
such documents to the Buyer as the Buyer may reasonably request in order more
effectively to vest in the Buyer good title to the Company Shares and to more
effectively consummate the transactions contemplated by this Agreement and the
other agreements entered into pursuant hereto.
 
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(b) Litigation Support. In the event and for so long as the Buyer is actively
contesting or defending against any Action in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction involving the Company or the
Subsidiaries, the Sellers shall (and shall cause his Affiliates to) cooperate
with Buyer and its counsel in the contest or defense, make available their
personnel, and provide such testimony and access to books and records as shall
be necessary in connection with the contest or defense, all at the sole cost and
expense of the Buyer (unless the Buyer is entitled to indemnification therefore
under Article VII below).
 
SECTION 6.13 Auditors’ Consent
 
Sellers will also cause the independent registered accounting firm of the
Company and the Subsidiaries to provide any necessary consents as necessary to
allow Buyer to comply with its obligations, if any, under Regulation S-X under
the Securities Exchange Act of 1934, as amended, to file audited financial
statements of the Company and the Subsidiaries with the Securities and Exchange
Commission, to the extent necessary.
 
ARTICLE VII
CONDITIONS PRECEDENT TO CONSUMMATION OF THE CLOSING
 
SECTION 7.1 Conditions Precedent to Each Party’s Obligations to Close
 
The respective obligations of each party to consummate the transactions
contemplated by this Agreement on the Closing Date are subject to the
satisfaction or waiver, in writing, by the Buyer and the Sellers at or prior to
the Closing of the following condition precedent:
 
(a) no Action or Order shall be pending or threatened before any Governmental
Authority which would (i) prevent consummation of any of the transactions
contemplated by this Agreement or (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation; and
 
(b) the Escrow Agreement shall have been duly entered into.
 
SECTION 7.2 Conditions Precedent to Obligations of the Buyer
 
The obligation of the Buyer to consummate the transactions contemplated by this
Agreement on the Closing Date is subject to the satisfaction at or prior to the
Closing of the following conditions precedent (any of which may be waived in
writing by the Buyer):
 
(a) since the date of this Agreement there shall have occurred no Material
Adverse Change;
 
(b) (i) the Sellers shall have performed and satisfied all of their agreements
and obligations and complied with all covenants set forth in this Agreement
required to be performed and satisfied by him or it on or prior to the Closing
Date; and (ii) the representations and warranties of the Sellers contained in
this Agreement shall be true and correct in all material respects (A) at and as
of the time given (or with respect to any representation or warranty that speaks
as of a later date, as of such date) and (B) at and as of the Closing Date;
 
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(c) the Sellers shall have delivered to the Buyer certificates, from the
appropriate Governmental Authority, for the Company and the Subsidiaries
certifying as to their organization, valid existence and good standing in the
state of its incorporation and certifying as to its good standing in each
jurisdiction in which they qualified to conduct its business as a foreign entity
as of a date no more than 10 days prior to the Closing Date;
 
(d) the Sellers shall have delivered to the Buyer true and complete copies of
the certificates of incorporation or other formation documents, as the case may
be, of each of the Company and the Subsidiaries, certified as true and complete
by the Secretary of State or other appropriate governmental official of their
jurisdictions of organization, and a copy of the bylaws or other organizational
documents, as the case may be, of each of the Company and the Subsidiaries,
certified as true and complete by their Secretary, Assistant Secretary or by a
director;
 
(e) the Sellers shall have delivered to the Buyer original stock certificates
representing all of the Company Shares, endorsed in blank or accompanied by duly
executed assignment documents in form reasonably satisfactory to the Buyer;
 
(f) all shares of Series A Preferred Stock issued under the Series A Preferred
Stock Agreement shall have been converted into shares of common stock of the
Company;
 
(g) all obligations under the Series A Preferred Stock Agreement, the Merger
Agreement, warrant, stock option agreement and the Restricted Stock Agreements
shall have been terminated;
 
(h) the Buyer shall have received the resignations (effective as of the Closing
Date) of all of the directors and officers of the Company and the Subsidiaries
listed on Schedule 6.8;
 
(i) the Buyer shall have received all of the minute or other corporate books of
the Company and the Subsidiaries, including all stock registers, corporate seals
and related material;
 
(j) the Company and the Subsidiaries shall have received all necessary
governmental or contractual consents for the completion of the transactions
under this Agreement;
 
(k) the Buyer shall have received a certificate, dated the Closing Date, duly
executed by the Secretary or an Assistant Secretary of each of the HMSC, on
behalf of HMSC, certifying as to the attached copy of the resolutions of the
Board of Directors (or a duly authorized committee) of HMSC authorizing and
approving the execution, delivery and performance of, and the consummation of
the transactions contemplated by, this Agreement and any other documents or
instruments contemplated hereby, and stating that the resolutions thereby
certified have not been amended, modified, revoked or rescinded;
 
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(l) Sellers shall have caused their counsel to deliver to Buyer their counsel’s
opinion in a form reasonably satisfactory to Buyer’s counsel;
 
(m) each Seller shall deliver to Buyer a non-foreign affidavit dated as of the
Closing Date, sworn under penalty of perjury and in form and substance required
under the Treasury Regulations issued pursuant to Code Section 1445 stating that
such Seller is not a “Foreign Person” as defined in Code Section 1445;
 
(n) the shareholders of Buyer’s Parent shall have duly authorized this Agreement
and the transactions contemplated hereunder, including an increase in Buyer’s
Parent’s share capital, under applicable Israeli law and NASDAQ Stock Market
Rules; and
 
(o) the Company and the Subsidiaries shall have entered into the Employment
Agreements with the individuals set forth in Schedule 5.8.
 
(p) (i) HMSC and the Company shall have entered into a Termination Letter (in
the form attached as Exhibit C hereto) (the “Termination Letter”) for the
termination of the Services Agreement, dated August 22, 2006, by and among the
Company and Homeland Security Advisory Services, Inc. and (ii) the transactions
contemplated by the Termination Letter have been consummated.
 
SECTION 7.3 Conditions Precedent to Obligations of the Sellers. 
 
The obligation of the Sellers to consummate the transactions contemplated by
this Agreement on the Closing Date is subject to the satisfaction or waiver at
or prior to the Closing of the following conditions precedent (any of which may
be waived in writing by the Sellers):
 
(a) (i) the Buyer shall have performed and satisfied all of its agreements and
obligations and complied with all covenants set forth in this Agreement required
to be performed and satisfied by it on or prior to the Closing Date; (ii) the
representations and warranties of the Buyer contained in this Agreement shall be
true and correct in all material respects (A) at and as of the time given (or
with respect to any representation or warranty that speaks as of a later date,
as of such date) and (B) at and as of the Closing Date;
 
(b) the Sellers shall have received a certificate, dated the Closing Date, duly
executed by the Secretary or an Assistant Secretary of the Buyer, on behalf of
the Buyer, certifying as to (i) the attached copy of the resolutions of the
Board of Directors (or a duly authorized committee) of the Buyer authorizing and
approving the execution, delivery and performance of, and the consummation of
the transactions contemplated by, this Agreement and any other documents or
instruments contemplated hereby, and stating that the resolutions thereby
certified have not been amended, modified, revoked or rescinded and (ii) the
incumbency, authority and specimen signature of each officer of the Buyer
executing this Agreement or any other document or instrument contemplated
hereby;
 
(c) the Buyer shall have caused its counsel to deliver an opinion in a form
reasonably satisfactory for Sellers;
 
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(d) Buyer shall have delivered the Assignment and Assumption Agreement or the
Vuance Warrant, as the case may be; and
 
(e) the Buyer shall have paid the Purchase Price in accordance with Sections 2.2
and 2.3.
 
ARTICLE VIII
REMEDIES FOR BREACH
 
SECTION 8.1 Limitation on and Survival of Representations and Warranties
 
All representations and warranties contained in Articles III and IV of this
Agreement shall survive the Closing Date, but no party shall be liable to the
other for misrepresentation or breach of warranty except to the extent that
notice of a claim is asserted in writing and delivered to the other party prior
to 5:00 p.m. New York City time on the day 15 months after the Closing Date,
except that the representations and warranties contained in Sections 3.4(a) and
4.5 (Capitalization), Section 3.15 (ERISA), Section 3.17 (Taxes) and Section
3.19 (Environmental) shall survive until sixty (60) days after the expiration of
the applicable legal statute of limitations, as the same may have been extended
or tolled. In order to seek a remedy pursuant to this Article VIII in respect of
a breach of representation or warranty, the Person seeking such remedy shall
give notice of such breach or claim in writing to the party against whom
indemnification is sought within such period. Any claim for indemnification for
which notice has been given within the prescribed period may be prosecuted to
conclusion notwithstanding the subsequent expiration of such period. All
covenants and agreements of the parties shall continue in full force and effect
in accordance with their respective terms and thereafter until the expiration of
the applicable statute of limitations as the same may have been extended or
tolled.
 
For purposes of this Article VIII, a party shall have the right to
indemnification for a breach of a representation, warranty or covenant
regardless of (a) the due diligence activities conducted by the party seeking
indemnification, (b) such party’s prior knowledge or notice of the existence of
the breach, and (c) the presence of information in the due diligence materials
relating to the breach, provided, however, that a representation shall not be
deemed breached if appropriate disclosures are made in the Schedules.
 
SECTION 8.2 Indemnification by the Sellers
 
(a) General Indemnity. The Sellers hereby agree, severally (but not jointly) to
indemnify and hold the Buyer and its directors, officers, and Affiliates
(collectively, the “Buyer Indemnified Parties”) harmless from and against any
and all Actions, Orders, Liabilities, damages and costs (collectively, “Losses”)
asserted against, imposed upon or suffered by one or more of the Buyer
Indemnified Parties (any of such Losses by one or more Buyer Indemnified Parties
being herein called a “Buyer Claim”) as a result of or in connection with any of
the following:
 
(i) any breach of a representation or warranty made by the Sellers in this
Agreement or any agreement or certificate executed and delivered pursuant to
this Agreement;
 
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(ii) the non-fulfillment or breach of, or default in the performance by the
Sellers, the Company or the Subsidiaries of, any covenant, agreement or
obligation to be performed by the Sellers, the Company or the Subsidiaries
pursuant to this Agreement or any agreement or instrument executed and delivered
in connection herewith or pursuant hereto; and
 
(iii)  litigations of any kind with any party or any disputes with distributors
which have arisen in the period prior to the Closing Date.
 
(b) Tax Indemnity. The Sellers agree to indemnify and hold harmless the Buyer
Indemnified Parties as contemplated by Section 6.5(b).
 
(c) Satisfaction of Buyer Indemnified Parties’ indemnity claims shall first be
effected in accordance with Section 2.3.
 
SECTION 8.3 Indemnification by the Buyer.
 
The Buyer and Buyer’s Parent (the “Buyer Parties”) hereby agree to indemnify and
hold the Sellers harmless from and against any and all Losses imposed upon or
incurred by the Sellers (any of such Losses by the Sellers being herein called a
“Sellers Claim”) as a result of or in connection with any of the following:
 
(i) any breach of a representation or warranty made by the Buyer Parties in this
Agreement or any instrument executed and delivered pursuant to this Agreement;
and
 
(ii) the non-fulfillment or breach of or default in the performance by the Buyer
Parties of any covenant, agreement or obligation to be performed by the Buyer
Parties pursuant to this Agreement.
 
SECTION 8.4 Limitation of Liability; Indemnity Procedures
 
(a) Limitation of Liability. Notwithstanding anything to the contrary contained
in this Article VIII, the Sellers (in the aggregate) shall be obligated to
indemnify the Buyer Indemnified Parties pursuant to Sections 8.2(a)(i) and the
Buyer shall be obligated to indemnify the Sellers pursuant to Sections 8.3(i)
only (i) once the aggregate amount of all Losses incurred by the other party
exceeds $60,000 (“Threshold”), in which event the other party shall be entitled
to recover all such Losses that exceed the Threshold, and (ii) up to an
aggregate maximum of sixty-two and one-half percent (62.5%) of the Purchase
Price (the “Maximum Indemnity Amount”); provided that the limitations contained
in the immediately preceding clauses (i) and (ii) shall not apply to any breach
of a representation or warranty contained in Sections 3.4(a) and 4.5
(Capitalization), Section 3.15 (ERISA), Section 3.17 (Taxes) and Section 3.19
(Environmental).
 
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(b) Indemnity Procedures. Promptly (i) after receipt by the Sellers or a Buyer
Indemnified Party of notice of, or the Sellers or Buyer Indemnified Party
becoming aware of, the commencement of an Action with respect to which such
Party is entitled to indemnification under this Article VIII and (ii) after the
Sellers or a Buyer Indemnified Party becoming aware of any fact, situation,
circumstance, condition, event or occurrence giving rise to a claim with respect
to which such Party is entitled to indemnification under this Article VIII, the
party receiving such notice or becoming aware of such Action, fact, situation,
circumstance, condition, event or occurrence (the “Indemnified Party”) shall
notify the other (the “Indemnifying Party”) in writing; provided, however, that
failure to give such notice shall not affect the right to indemnification
hereunder except to the extent of actual prejudice to the Indemnifying Party
and, provided, further, that no such notice shall be required if the Threshold
applies until the Threshold has been exceeded. With respect to such Action, the
Indemnifying Party shall have the option, and shall notify the Indemnified Party
in writing within 10 Business Days after the date of the notice of its election,
either: (i) to take charge of and control the defense (at its own expense) or
(ii) to participate in the defense (in which case the defense shall be
controlled by the Indemnified Party). If the Indemnifying Party fails to notify
the Indemnified Party of its election within the applicable response period,
then the Indemnifying Party shall be deemed to have elected not to control the
defense. If the Indemnifying Party elects to control the defense, the
Indemnified Party shall have the right to employ separate counsel and
participate in the defense, but the fees and expenses of such counsel shall be
at the expense of the Indemnified Party unless: (i) the named parties in such
Action (including any impleaded parties) include both the Indemnified Party and
the Indemnifying Party, and the Indemnified Party shall have been advised by its
counsel in writing that there may be one or more legal defenses available to it
that are different from or additional to those available to the Indemnifying
Party, (ii) the Indemnified Party has been advised by its counsel that
representation by the counsel to the Indemnifying Party is inappropriate in
light of an actual or potential conflict of interest between them, (iii) the
Indemnified Party has reasonably determined that Losses that may be incurred may
exceed either individually, or when aggregated, the Maximum Indemnity Amount (in
which case, the Indemnifying Party shall not have the right to assume the
defense on behalf of the Indemnified Party), or (iv) the Indemnified Party has
been advised by counsel that the Indemnifying Party is not diligently conducting
such defense. The Indemnified Parties may not settle any Action or Buyer Claim
without the written consent of the Indemnifying Party. The Indemnifying Party
shall not be released from any obligation to indemnify the Indemnified Party
hereunder with respect to a claim without the prior written consent of the
Indemnified Party, unless the Indemnifying Party shall deliver to the
Indemnified Party a duly executed agreement settling or compromising such claim
with no monetary liability to or injunctive relief against the Indemnified Party
and a complete release of the Indemnified Party with respect thereto, which
agreement shall not limit or impair the Indemnified Party’s ability to conduct
its business.
 
SECTION 8.5  Method of Indemnification 
 
The Sellers hereby agree and acknowledge that if any of them are required to
provide any indemnification payments pursuant to Section 8.2 hereof,
indemnifiable amounts shall be paid by such Sellers to the Buyer (and its
related Indemnified Parties) first from the Escrow Fund; provided, however, that
if such breach is limited to a particular Seller, such Seller will satisfy such
Indemnification Claim out of his or its separate holdings. For purposes of
satisfaction of Indemnification Claims, the value of the Vuance Shares will be
calculated based on Closing Price Per Share.
 
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ARTICLE IX
TERMINATION
 
SECTION 9.1 Termination 
 
This Agreement may be terminated and the transactions contemplated by this
Agreement may be abandoned at any time, prior to the Closing, only as follows:
 
(a) by mutual written consent of the Buyer and the Sellers at any time prior to
the Closing;
 
(b) by the Buyer, upon written notice to the Sellers, at any time prior to the
Closing, in the event the Sellers has breached any representation, warranty,
covenant, or agreement contained in this Agreement in any material respect, the
Buyer has notified the Sellers of the breach, and the breach has continued
without cure for a period of ten (10) Business Days after the notice of breach;
 
(c) by the Sellers, upon written notice to the Buyer at any time prior to the
Closing, in the event the Buyer has breached any representation, warranty,
covenant or agreement contained in this Agreement in any material respect, the
Sellers have notified the Buyer of the breach, and the breach has continued
without cure for a period of ten (10) Business Days after the notice of breach;
 
(d) by the Buyer or the Sellers, upon written notice to the other party at any
time prior to the Closing, if the Closing Date shall not have occurred on or
before 50 days after the execution of this Agreement (provided that the right to
terminate this Agreement under this Section 9.1(d) shall not be available to any
party whose breach of any obligation under this Agreement has been the cause of,
or has resulted in, the failure of the Closing Date to occur on or before such
date);
 
(e) by the Buyer or the Sellers, upon written notice to the other party at any
time prior to the Closing, if any Governmental Authority shall have issued an
Order or taken any other Action restraining, enjoining or otherwise prohibiting
the transactions contemplated hereby and such Order or Action shall have become
final and nonappealable; provided that the right to terminate this Agreement
under this Section 9.1(e) shall not be available to any party whose breach of
any obligation under this Agreement has been the cause of, or has resulted in,
such denial; or
 
(f) by the Buyer, upon written notice to the Sellers, at any time prior to
Closing, in the event a Material Adverse Change shall have occurred since the
date of this Agreement.
 
SECTION 9.2  Effect of Termination
 
If this Agreement is terminated pursuant to Section 9.1(a), (d), (e) or (f) and
the transactions contemplated by this Agreement are not consummated, all rights
and obligations of the parties under or pursuant to this Agreement shall
terminate without further liability of either party to the other; provided,
however, the obligations contained in this Section 9.2, the publicity provisions
contained in Section 6.4, the confidentiality provisions contained in Section
6.9, and the expenses provision contained in Section 10.2 of this Agreement
shall survive any termination; provided, further, that no termination shall
relieve any party from liability for any willful breach of this Agreement.
 
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ARTICLE X
MISCELLANEOUS
 
SECTION 10.1 Entire Agreement
 
This Agreement and the Schedules and Exhibits hereto and the documents referred
to herein and to be delivered pursuant hereto constitute the entire agreement
between the parties pertaining to the subject matter hereof, and supersede all
prior and contemporaneous agreements, understandings, negotiations and
discussions of the parties, whether oral or written, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof, except as specifically set forth
herein or therein.
 
SECTION 10.2 Expenses
 
Whether or not the transactions contemplated by this Agreement are consummated,
each of the parties hereto shall pay the fees and expenses of its respective
counsel, investment bankers, financial advisors, accountants and other experts
and the other expenses incident to the negotiation and preparation of this
Agreement and consummation of the transactions contemplated hereby.
 
SECTION 10.3 Governing Law; Submission to Jurisdiction; Service of Process
 
(a) Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York (regardless of
conflict of law provisions thereof).
 
(b) Submission to Jurisdiction. The federal Courts of New York shall have
exclusive jurisdiction to adjudicate and determine any claim or dispute arising
out of or in connection with this Agreement. The parties to this Agreement
irrevocably submit to such jurisdiction and waive any objection to it on the
grounds of inconvenient forum or otherwise. A judgment, order or decision of
those courts in respect of any such claim or dispute may be recognized and
enforced by any courts of any state, country or other jurisdiction which, under
the laws and rules applicable in that state, country or other jurisdiction, are
competent or able to grant such recognition or enforcement.
 
SECTION 10.4 Assignment
 
This Agreement and each party’s respective rights hereunder may not be assigned
without the prior written consent of the other party, except that the Buyer may
(i) assign any or all of its rights and obligations hereunder to one or more of
its Affiliates, and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
 
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SECTION 10.5 Notices
 
All communications, notices, waivers and disclosures required or permitted by
this Agreement shall be in writing and shall be deemed to have been given when
delivered by overnight delivery service (Federal Express, UPS or comparable
service), or when received via facsimile, in all cases addressed to the Person
for whom it is intended at his address set forth below or to such other address
as a party shall have designated by notice in writing to the other parties in
the manner provided by this Section 10.5.
 
If to HMSC:
 
Homeland Security Capital Corporation
1005 Glebe Road, Suite 500
Arlington, VA 22201
Attn: C. Thomas McMillen
Facsimile: (703) 528-0956
     
with a copy to:
 
Kirkpatrick & Lockhart Preston Gates Ellis LLP
201 South Biscayne Blvd.
Suite 2000
Miami, FL 33313
Attention: Martin T. Schrier, Esq.
Facsimile:  305-358-7095
     
If to the Minority Shareholders:
 
To the address set forth on the signature page hereto.
     
If to the Buyer:
 
SuperCom Inc.
c/o Vuance Ltd.
Sagid House “Hasharon Industrial Park”
P.O.B 5039, Qadima 60920
Israel
Attention:
Facsimile:

 
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If to Buyer’s Parent:
 
Vuance Ltd.
Sagid House “Hasharon Industrial Park”
P.O.B 5039, Qadima 60920
Israel
Attention:
Facsimile:
     
with a copy to:
 
Carter Ledyard & Milburn LLP
2 Wall Street
New York, NY 10005
Attention: Steven J. Glusband
Facsimile:  212-732-3232

 
SECTION 10.6 Amendment and Waiver
 
No amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by the Buyer and the Sellers. No waiver by any
party of any default, misrepresentation or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
 
SECTION 10.7 Failure or Delay
 
No failure on the part of any party to exercise, and no delay in exercising, any
right, power or privilege hereunder operates as a waiver thereof; nor does any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof, or the exercise of any other right, power
or privilege. No notice to or demand on any party in any case entitles such
party to any other or further notice or demand in similar or other
circumstances.
 
SECTION 10.8 Counterparts 
 
This Agreement may be executed in several counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
Agreement.
 
SECTION 10.9 Specific Performance
 
Each of the parties acknowledges and agrees that the other parties would be
damaged irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or are otherwise breached.
Accordingly, each of the parties agrees that the other parties shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof, in addition to any other remedy to which they may be
entitled, at law or in equity.
 
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SECTION 10.10 Counterpart Facsimile Execution
 
For purposes of this Agreement, a document (or signature page thereto) signed
and transmitted by facsimile machine is to be treated as an original document.
The signature of any party thereon, for purposes hereof, is to be considered as
an original signature, and the document transmitted is to be considered to have
the same binding effect as an original signature on an original document. At the
request of any party, any facsimile or scanned document is to be re-executed in
original form by the parties who executed the facsimile or scanned document. No
party may raise the use of a facsimile machine, or the fact that any signature
was transmitted through the use of a facsimile as a defense to the enforcement
of this Agreement or any amendment or other document executed in compliance with
this Section 10.10.
 
SECTION 10.11 Interpretation
 
(a) Generally. The article and section headings in this Agreement are inserted
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement. Unless the context of this Agreement clearly
requires otherwise: (i) references to the plural include the singular and vice
versa; (ii) references to any Person include such Person’s successors and
assigns but, if applicable, only if such successors and assigns are permitted by
this Agreement; (iii) references to one gender include all genders; (iv)
“including” and similar terms are not limiting; (v) “or” has the inclusive
meaning represented by the phrase “and/or”; (vi) the terms “dollars” and “$”
shall mean United States dollars; (vii) section, clause and Schedule and Exhibit
references are to this Agreement unless otherwise specified; (viii) reference to
any agreement (including this Agreement), document or instrument means such
agreement, document or instrument as amended or modified and in effect from time
to time in accordance with the terms thereof and, if applicable, the terms
hereof; and (ix) general or specific references to any Law shall mean such Law
as amended, modified, codified or reenacted, in whole or in part, and in effect
from time to time and shall be deemed also to refer to all rules and regulations
promulgated thereunder in effect from time to time.
 
(b) Joint Drafting. The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises regarding this Agreement, this Agreement will be construed
as if drafted jointly by the parties and no presumption or burden of proof will
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. The parties intend that each representation,
warranty, and covenant contained herein shall have independent significance.
 
SECTION 10.12 Survival
 
Except as otherwise provided in Article VIII, the agreements, covenants and
obligations of each party made under this Agreement shall survive indefinitely
(or for the relevant period specified in the particular provision, if
applicable).
 
SECTION 10.13 Third Party Beneficiaries; No Reliance
 
This Agreement is solely for the benefit of the parties and their respective
successors and permitted assigns, and no other Person has any right, benefit,
priority or interest under or because of the existence of this Agreement except
as specifically set forth herein.
 
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SECTION 10.14 Incorporation of Exhibits and Schedules
 
The Exhibits and Schedules identified in this Agreement are incorporated herein
by reference and made a part hereof.
 
SECTION 10.15 Guarantee. 
 
Buyer’s Parent guarantees all of the obligations of the Buyer hereunder.
 
[Remainder of Page Intentionally Left Blank]
 
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the day and year first above written.
 

  BUYER:         SUPERCOM INC.  
   
   
    By:   /s/ Eyal Tuchman  

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Name: Eyal Tuchman   Title: Director

 

  BUYER’S PARENT:         VUANCE LTD.  
   
   
    By:   /s/ Eyal Tuchman    

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/s/ Lzor Maza

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Name: Eyal Tuchman and Lzor Maza   Name: Eyal Tuchman   Title: CEO and CFO

 

  SELLERS:         HOMELAND SECURITY CAPITAL CORPORATION  
   
   
    By:   /s/ C. Thomas McMillen  

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Name: C. Thomas McMillen   Title: President and CEO   Percentage Share of
Purchase Price: 68.9655%   Number of Shares: 3,000,000   Address:   Tax ID No.:
52-2050585          
/s/ Joel Konicek

--------------------------------------------------------------------------------

Name: Joel Konicek   Percentage Share of Purchase Price: 10.2753%   Number of
Shares: 446,976   Address:   Tax ID No.: ###-##-####

   

--------------------------------------------------------------------------------

   

         /s/ James Peroutka  

--------------------------------------------------------------------------------

Name: James Peroutka   Percentage Share of Purchase Price: 10.2753%     Number
of Shares: 446,976     Address:     Tax ID No.: 392-60-383

 

         /s/ James Vinson  

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Name: James Vinson   Percentage Share of Purchase Price: 7.0186%     Number of
Shares: 305,309     Address:     Tax ID No.: ###-##-####

 

         /s/ Charles Martin  

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/s/ Elizabeth Martin
   

--------------------------------------------------------------------------------

Name: Charles and Elizabeth Martin   Percentage Share of Purchase Price: 3.4652%
    Number of Shares: 150,738     Address:     Tax ID No.: ###-##-#### (Charles
Martin) and     ###-##-#### (Elizabeth Martin)

 
 

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