Exhibit 10.1

 

 

ASSET PURCHASE AGREEMENT

 

AND PLAN OF REORGANIZATION

 

among:

 

SOL LOGIC, INC.,

a California corporation;

 

FRANK MITCHELL,
a Shareholder of Sol Logic, Inc.;

 

WINK JONES,

as the Seller Representative;

 

and

 

IMAGEWARE SYSTEMS, INC.,

a Delaware corporation

 

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Dated as of December 19, 2007

 

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ASSET PURCHASE AGREEMENT AND PLAN OF REORGANIZATION

 

THIS ASSET PURCHASE AGREEMENT AND PLAN OF REORGANIZATION is made and entered
into as of December 19, 2007, by and among: SOL LOGIC, INC., a California
corporation (the “Seller”); Frank Mitchell, an individual and a shareholder of
the Seller (“Mitchell”); Wink Jones, in his capacity as the representative of
the shareholders of the Seller; and IMAGEWARE SYSTEMS, INC., a Delaware
corporation (the “Purchaser”). Capitalized terms used herein and not otherwise
defined herein shall have the meanings set forth in EXHIBIT A attached hereto.

 

RECITALS

 

A.                                    The Seller wishes to provide for the sale
of substantially all of the assets of the Seller to the Purchaser for the
consideration and on the terms set forth in this Agreement.

 

B.                                     In connection with such sale, certain of
the parties are entering into the other agreements contemplated herein.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual representations,
warranties, covenants and undertakings contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:

 

1.                                      SALE OF ASSETS; RELATED TRANSACTIONS.

 

1.1                               Sale of Assets. At the Closing (as defined in
Section 1.8), the Seller shall sell, assign, transfer, convey and deliver to the
Purchaser, and the Purchaser shall purchase and acquire from the Seller, all
right, title and interest of the Seller in, and good and valid title to, the
Assets, free and clear of any Encumbrances, on the terms and subject to the
conditions set forth in this Agreement. For purposes of this Agreement, “Assets”
shall mean and include: (a) all of the properties, rights, interests and other
tangible and intangible assets of the Seller (wherever located and whether or
not required to be reflected on a balance sheet prepared in accordance with
GAAP); and (b) any other assets that are owned by any of the Shareholders or any
other Related Party and that are used in or needed for the conduct of, or are
useful in connection with, the business of the Seller; provided, however, that
the Assets shall not include any Excluded Assets. Without limiting the
generality of the foregoing, the Assets shall include:

 

(a)                                  all accounts receivable, notes receivable
and other receivables of the Seller that arise after September 30, 2007;

 

(b)                                  all inventories and work-in-progress of the
Seller, and all rights to collect from customers (and to retain) all fees and
other amounts payable, or that may become payable, to the Seller with respect to
services performed for any Person by or on behalf of the Seller at or prior to
the Closing (including those identified in Part 2.9 of the Disclosure Schedule);

 

(c)                                  all equipment, materials, prototypes,
tools, supplies, furniture, fixtures, improvements and other tangible assets of
the Seller (including the tangible assets identified in Part 2.10 of the
Disclosure Schedule);

 

(d)                                  all advertising and promotional materials
possessed by the Seller;

 

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(e)                                  all Intellectual Property and Intellectual
Property Rights and related goodwill of the Seller (including the right to use
the name “Sol Logic, Inc.”, “Unity”, “Mediator”, “Collab ID” or “Remote Collab
ID”, and any variations thereof, the “sollogic.com” domain name and the
Intellectual Property and Intellectual Property Rights identified in Part 2.12
of the Disclosure Schedule);

 

(f)                                    all rights of the Seller under the Seller
Contracts set forth on Part 1.1(f) of the Disclosure Schedule;

 

(g)                                 all Governmental Authorizations held by the
Seller (including the Governmental Authorizations identified in Part 2.16 of the
Disclosure Schedule);

 

(h)                                 all claims (including claims for past
infringement or misappropriation of Intellectual Property or Intellectual
Property Rights) and causes of action of the Seller against other Persons
(regardless of whether or not such claims and causes of action have been
asserted by the Seller), and all rights of indemnity, warranty rights, rights of
contribution, rights to refunds, rights of reimbursement and other rights of
recovery possessed by the Seller (regardless of whether such rights are
currently exercisable);

 

(i)                                    all insurance benefits, including rights
and proceeds, arising from or relating to the Assets or the Assumed Liabilities
prior to the Closing, unless expended in accordance with this Agreement;

 

(j)                                    all claims of the Seller against third
parties relating to any assets sold, assigned, transferred, conveyed or
delivered pursuant to this Section 1.1, whether choate or inchoate, known or
unknown, contingent or noncontingent, including all such claims listed in
Part 1.1(k) of the Disclosure Schedule; and

 

(k)                                all books, records, files and data of the
Seller, and all goodwill, relating to the assets identified in the second
sentence of Section 1.1 and Sections 1.1(a) through (j).

 

1.2                               Excluded Assets. Notwithstanding anything
herein to the contrary, from and after the Closing, the Seller shall retain all
of its existing right, title and interest in and to, and there shall be excluded
from the sale, conveyance, assignment or transfer to the Purchaser hereunder,
and the Assets shall not include, only the following assets of the Seller
(collectively, the “Excluded Assets”):

 

                                               
(a)                                  cash on hand or in banks and cash
equivalents of the Seller; and

 

                                               
(b)                                  a 2006 FJ Cruiser owned by Seller.

 

1.3                               Assumption of Liabilities. Except as otherwise
specifically set forth in Section 1.4 and subject to the conditions set forth
herein, at the Closing, the Purchaser agrees to assume only those Liabilities of
the Seller set forth below (the “Assumed Liabilities”):

 

(a)                                  all Liabilities under the Seller Contracts
set forth on Part 1.1(f) of the Disclosure Schedule solely to the extent arising
out of or relating to events or conditions, occurring after the Closing, but
only to the extent such Liabilities (i) do not arise from or relate to any
Breach by the Seller of any provision of any of such Contracts, (ii) do not
arise from or relate to any event, circumstance or condition occurring or
existing at or prior to the Closing that, with notice or lapse of time or both,
would constitute or result in a Breach of any of such Contracts, and (iii) are
ascertainable (in nature and amount) solely by reference to the express terms of
such Contracts; and

 

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(b)                                  all Liabilities with respect to the Assets
to the extent relating to the operation or conduct of the Purchaser’s business
after the Closing, but only to the extent such Liabilities do not arise from or
relate to any event, circumstance or condition occurring or existing at or prior
to the Closing.

 

1.4                               Excluded Liabilities. Notwithstanding anything
herein to the contrary, the Purchaser shall not assume or in any way become
liable for any Liability of the Seller, of any nature whatsoever, other than the
Assumed Liabilities (all such Liabilities, the “Excluded Liabilities”), and all
such Excluded Liabilities shall remain the sole responsibility of the Seller and
shall be retained, paid, performed and discharged solely by the Seller. Without
limiting the generality of the foregoing, Excluded Liabilities shall include:

 

(a)                                  any Liability of any Person except, with
respect to the Seller only, the Assumed Liabilities;

 

(b)                                  any Liability of the Seller arising out of
or relating to the execution, delivery or performance of any of the
Transactional Agreements (including the fees and expenses of the Seller’s legal,
accounting, financial and other advisors relating to the Transactions);

 

(c)                                  any Liability of the Seller for any fees,
costs or expenses of the type referred to in Section 6.4(a);

 

(d)                                  any Liability of the Seller arising from or
relating to any action taken or services provided by the Seller, or any failure
on the part of the Seller to take any action, at any time after the Closing;

 

(e)                                  any Liability of the Seller arising from or
relating to (x) any services performed by the Seller for any customer, or
(y) any claim or Proceeding against the Seller;

 

(f)                                    any Liability of the Seller for the
payment of any Tax, including, but not limited to, (A) any Taxes arising as a
result of the Seller’s operation of its business or ownership of the Assets
prior to the Closing, (B) any Taxes that will arise as a result of the sale of
the Assets pursuant to this Agreement and (C) any deferred Taxes of any nature;

 

(g)                                 any Liability of the Seller to any employee
or former employee of the Seller under or with respect to any Seller Employee
Plan, profit sharing plan or dental plan, severance pay, employment agreement,
whether or not written, between the Seller and any Person, or any claim of an
unfair labor practice, or any claim under any state unemployment compensation or
worker’s compensation law or regulation or under any federal or state employment
discrimination law or regulation, or any claim related to payroll, vacation,
sick leave, worker’s compensation, unemployment benefits or compensation or
employee expenses (including travel) that is based on acts or omissions of
Seller that occurred at, prior to, or after the Closing;

 

(h)                                 any Liability of the Seller to any Related
Party;

 

(i)                                    any Liability under any Seller Contract
set forth on Part 1.1(f) of the Disclosure Schedule, if the Seller shall not
have obtained prior to the Closing, any Consent required to be obtained from any
Person with respect to the assignment or transfer to the Purchaser of any rights
or obligations under such Seller Contracts; provided, however, upon obtaining
such Consents, Purchaser shall assume the Liabilities under such Seller
Contracts pursuant to Section 1.3(a) above;

 

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(j)                                    any Liability under any Seller Contract
that is not set forth on Part 1.1(f) of the Disclosure Schedule;

 

(k)                                any Liability of the Seller that relates to
any Excluded Asset;

 

(l)                                    any Liability arising out of or relating
to (A) any product produced or sold or any services performed by or on behalf of
the Seller, (B) the presence of any Hazardous Material at any site owned,
leased, occupied or controlled by the Seller on or at any time prior to the
Closing, (C) the generation, manufacture, production, transportation,
importation, use, treatment, refinement, processing, handling, storage,
discharge, release or disposal of any Hazardous Material (whether lawfully or
unlawfully) by or on behalf of the Seller;

 

(m)                              any Liability arising out of or relating to any
employee grievance whether or not the affected employees are hired by the
Purchaser that is based on acts or omissions of the Seller that occurred at,
prior to, or after the Closing;

 

(n)                                 any Liability to indemnify, reimburse or
advance amounts to any officer, director, employee or agent of the Seller;

 

(o)                                  any Liability to distribute to any of the
Seller’s shareholders or otherwise apply all or any part of the consideration
received hereunder;

 

(p)                                  any Liability arising out of or resulting
from Seller’s compliance or noncompliance with any Legal Requirement or Order of
any Governmental Body;

 

(q)                                  any Liability relating to any failure to
comply with any bulk transfer law, fraudulent transfer law or similar Legal
Requirement in connection with any of the Transactions;

 

(r)                                  any Liability relating to the Worker
Adjustment and Retraining Notification Act, 29 U.S.C. §2101, et seq. (“WARN”) or
any similar state or local Legal Requirement that may result from an “Employment
Loss,” as defined by 29 U.S.C. sect. 2101(a)(6), caused by any action of the
Seller prior to the Closing or by the Purchaser’s decision not to hire previous
employees of the Seller; and

 

(s)                                  any other Liability that is not
specifically referred to in Section 1.3.

 

1.5                               Purchase Price.

 

(a)                                  As consideration for the sale of the Assets
to the Purchaser (such total consideration being referred to herein as the
“Purchase Price”), the Purchaser shall do the following :

 

(i)                                    Assume the Assumed Liabilities;

 

(ii)                                At the Closing, issue to the Seller that
number of shares of common stock of the Purchaser (the “Common Stock”) equal to
(I) the quotient obtained by dividing $1,527,000 by $1.633 (the “Initial Per
Share Price”) multiplied by (II) 50% (rounded up to the nearest whole share)
(the “Initial Shares”).

 

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(iii)                            On the six-month anniversary of the Closing
(the “Additional Issuance Date”), issue to the Seller that number of shares of
Common Stock equal to (I) the quotient obtained by dividing $1,502,000 by the
Additional Per Share Price, multiplied by 90% (rounded up to the nearest whole
share) (the “Additional Shares” and, collectively with the Initial Shares, the
“Issued Shares”). The “Additional Per Share Price” shall be the greater of
(A) the Initial Per Share Price (as adjusted in the event that there occurs any
stock dividend, stock split, recapitalization or similar event with respect to
the Common Stock after the Closing and prior to the Additional Issuance Date);
and (B) the volume weighted average closing price of the Common Stock over the
20 trading-day period ending on the date immediately preceding the Additional
Issuance Date, as reported on The American Stock Exchange (“AMEX”) and, if the
Common Stock is not quoted on AMEX at any time during such period, as reported
on the Over-the-Counter Bulletin Board (the “OTCBB”) or the Pink Sheets
Electronic Quotation Service (the “Pink Sheets”), as applicable, for the portion
of such period that the Common Stock is listed or quoted on the OTCBB or the
Pink Sheets.

 

(iv)                               Deposit into an escrow account (the “Escrow
Account”) to be established as of the Closing pursuant to an escrow agreement by
and among the Seller, the Seller Representative (as defined in Section 6.2(a)),
the Purchaser and LaSalle National Bank (the “Escrow Agent”), in a form to be
agreed upon by such parties (the “Escrow Agreement”):  (I) at the Closing, that
number of shares of Common Stock equal to (A) the quotient obtained by dividing
$1,527,000 by the Initial Per Share Price, multiplied by (B) 50% (rounded down
to the nearest whole share) (the “Initial Escrow Shares”); and (II) on the
Additional Issuance Date, that number of shares of Common Stock equal to (A) the
quotient obtained by dividing $1,502,000 by the Additional Per Share Price
multiplied by (B) 10% (rounded down to the nearest whole share) (the “Additional
Escrow Shares” and, collectively with the Initial Escrow Shares, the “Escrow
Shares” and, together with the Issued Shares, the “Shares”)).  The
“Indemnification Escrow Shares” shall be comprised of 33.33% of the Initial
Escrow Shares and 33.33% of the Additional Escrow Shares. The “Reimbursement
Escrow Shares” shall be comprised of 66.66% of the Initial Escrow Shares and
66.66% of the Additional Escrow Shares, and shall include the proceeds received
from the sale of the Shares.

 

1.6                               Sales Taxes. The Seller shall bear and pay,
and shall reimburse the Purchaser and the Purchaser’s affiliates for, any sales
Taxes, use Taxes, transfer Taxes, documentary charges, recording fees or similar
Taxes, charges, fees or expenses that may become payable in connection with the
sale of the Assets to the Purchaser or in connection with any of the other
Transactions. The Seller shall cooperate with the Purchaser to file all requests
for certifications of sales and use tax due, including, without limitation,
pursuant to Section 6812 of the California Revenue and Taxation Code.

 

1.7                               Tax Treatment.  For federal income tax
purposes, Seller and Purchaser intend for the transactions contemplated hereby
to qualify as a reorganization (a “Reorganization”) within the meaning of
Section 368(a) of the Code and the regulations promulgated thereunder (the
“Treasury Regulations”), and, by approving resolutions authorizing this
Agreement, to adopt this Agreement as a plan of Reorganization.  Neither Seller
nor Purchaser will knowingly take any action or fail to take any action, which
action or failure to act would cause the transactions contemplated hereby to
fail to qualify as a Reorganization.  Seller and Buyer will report the
transaction for federal income tax, financial reporting, and other purposes, as
a Reorganization.

 

1.8                               Closing.  The closing of the sale of the
Assets to the Purchaser (the “Closing”) shall take place concurrently with the
execution and delivery of this Agreement at the offices of Paul, Hastings,
Janofsky & Walker LLP in San Diego, California.

 

1.9                               Deliveries by the Seller. At the Closing, the
Seller shall:

 

(a)                                  execute and deliver to the Purchaser such
bills of sale, endorsements, assignments, permits, third party consents, lien
releases, and such other documents as may (in the judgment of the Purchaser or
its counsel) be necessary or appropriate to sell, assign, transfer, convey and
deliver to the Purchaser good and valid title to the Assets free and clear of
any Encumbrances;

 

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(b)                                  execute and deliver to the Purchaser fully
executed and acknowledged or notarized assignment documents, in form ready for
filing or recording with the appropriate Governmental Body and reasonably
acceptable to the Purchaser, with respect to any Registered IP held in the name
of the Seller Representative or any other employee, contractor or other agent of
the Seller;

 

(c)                                  execute and deliver to the Purchaser fully
executed and acknowledged or notarized assignment documents, in form ready for
filing or recording with the appropriate Governmental Body and reasonably
acceptable to the Purchaser, with respect to any Seller IP;

 

(d)                                  execute and deliver to the Purchaser a duly
executed counterpart of each Transactional Agreement that is to be executed by
or on behalf of the Seller at the Closing;

 

(e)                                  deliver to the Purchaser a certificate of
good standing of the Seller as of a date within three business days of the
Closing issued by the Secretary of State (or similar official) of each of
California and Arizona;

 

(f)                                    execute and deliver to the Purchaser a
certified copy of: (i) resolutions duly adopted by the Seller’s board of
directors in accordance with the Seller’s articles of incorporation and bylaws
and applicable law, authorizing and approving this Agreement, the Escrow
Agreement and the Transactions; and (ii) an executed action by written consent
of the shareholders of the Seller, authorizing and approving this Agreement, the
Escrow Agreement and the Transactions, and appointing the Seller Representative
as the representative of the Seller with respect to the foregoing, in accordance
with the Seller’s articles of incorporation and bylaws and applicable law;

 

(g)                                 execute and deliver to the Purchaser such
other instruments as shall be requested by the Purchaser to vest in the
Purchaser title in and to the Assets free and clear of any Encumbrances in
accordance with the provisions hereof;

 

(h)                                 deliver to the Purchaser forbearance
agreements from the holders of promissory notes issued by Seller, in a form
acceptable to Purchaser; and

 

(i)                                    an employment agreement between the
Purchaser and Mitchell (the “Mitchell Employment Agreement”).

 

1.10                        Deliveries by the Seller Representative. At the
Closing, the Seller Representative shall execute and deliver to the Purchaser
the Escrow Agreement.

 

1.11                        Deliveries by the Purchaser. At the Closing, the
Purchaser shall:

 

(a)                                  issue to the Seller the Initial Shares;

 

(b)                                  deposit the Initial Escrow Shares into the
Escrow Account;

 

(c)                                  execute and deliver to the Seller a duly
executed counterpart of each Transactional Agreement that is to be executed by
or on behalf of the Purchaser at the Closing; and

 

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(d)                                  execute and deliver to Mitchell a
counterpart to the Mitchell Employment Agreement.

 

1.12                        On the Additional Issuance Date, the Purchaser
shall:

 

(a)                                  issue to the Seller the Additional Shares;
and

 

(b)                                  deposit the Additional Escrow Shares into
the Escrow Account.

 

1.13                        The Parties acknowledge that, pursuant to this
Agreement, as part of the plan of reorganization, the Seller will sell the
Liability Payoff Shares pursuant to an effective registration statement as soon
as reasonably practicable after the Closing and shall use the proceeds thereof
solely for payment to creditors of the Seller.

 

2.                                      REPRESENTATIONS AND WARRANTIES OF THE
SELLER AND MITCHELL.

 

Except as set forth in the Disclosure Schedule, the Seller and Mitchell, jointly
and severally, represent and warrant, to and for the benefit of the Purchaser
Indemnitees as follows:

 

2.1                               Due Organization; No Subsidiaries; Etc. The
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the State of California. The Seller is not required to be
qualified, authorized, registered or licensed to do business as a foreign
corporation in any jurisdiction other than the jurisdictions listed in Part 2.1
of the Disclosure Schedule. The Seller is in good standing as a foreign
corporation in each of the jurisdictions listed in Part 2.1 of the Disclosure
Schedule. The Seller does not have any subsidiaries, and does not own,
beneficially or otherwise, any shares or other securities of, or any direct or
indirect interest of any nature in, any other Entity. The Seller has never
conducted any business under or otherwise used, for any purpose or in any
jurisdiction, any fictitious name, assumed name, trade name or other name, other
than “Sol Logic.”

 

2.2                               Articles of Incorporation and Bylaws; Records.
The Seller has delivered to (or made available for inspection by) the Purchaser
accurate and complete copies of: (i) the articles of incorporation and bylaws of
the Seller, as currently in effect; (ii) the stock records of the Seller; and
(iii) the minutes and other records of the meetings and other proceedings
(including any actions taken by written consent or otherwise without a meeting)
of the shareholders of the Seller, the board of directors of the Seller and all
committees of the board of directors of the Seller. There have been no meetings
or other proceedings of the shareholders of the Seller, the board of directors
of the Seller or any committee of the board of directors of the Seller that are
not reflected in such minutes or other records.

 

2.3                               Capitalization.  The shareholders listed on
Part 2.3 of the Disclosure Schedule are the sole shareholders of the Seller. 
There is no:  (a) outstanding subscription, option, call, warrant or right
(whether or not currently exercisable) to acquire any shares of the capital
stock or other securities of the Seller; (b) outstanding security, instrument or
obligation that is or may become convertible into or exchangeable for any shares
of the capital stock or other securities of the Seller; or (c) Contract under
which the Seller is or may become obligated to sell or otherwise issue any
shares of its capital stock or any other securities. No Person other than the
individuals and entities set forth in Part 2.3 of the Disclosure Schedule has
any right to vote with respect to the sale of the Assets to the Purchaser or any
of the other Transactions.

 

2.4                               Financial Statements. The Seller has delivered
to the Purchaser the following financial statements (collectively, the
“Financial Statements”):  (a) the unaudited balance sheet of the Seller as of
December 31, 2006 and the unaudited related statement of income and retained
earnings and cash flows

 

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for the year then ended, together with the notes thereto; and (b) the unaudited
balance sheet of the Seller as of October 31, 2007 (the “Interim Balance
Sheet”), and the unaudited related statements of income and retained earnings
and cash flows for the 10 months then ended. The Financial Statements have been
prepared in accordance with the books and records of Seller applied on a
consistent basis throughout the periods covered and present fairly in all
material respects the financial position of the Seller as of the respective
dates thereof and the results of operations and cash flows of the Seller for the
periods covered thereby (subject to normal recurring year-end audit
adjustments).

 

2.5                               Absence of Changes. Since October 31, 2007:
(a) there has not been any adverse change in, and no event has occurred that has
had a material adverse effect on, the business, condition, assets, liabilities,
operations, financial performance, net income or prospects of the Seller;
(b) there has not been any material loss, damage or destruction to, or any
interruption in the use of, any of the assets of the Seller (whether or not
covered by insurance); (c) the Seller has not (i) declared, accrued, set aside
or paid any dividend or made any other distribution in respect of any shares of
capital stock or other securities, or (ii) repurchased, redeemed or otherwise
reacquired any shares of capital stock or other securities; (d) the Seller has
not purchased or otherwise acquired any material asset from any other Person,
except for supplies acquired by the Seller in the Ordinary Course of Business;
(e) the Seller has not leased or licensed any asset from any other Person (other
than ordinary shrink wrap software); (f) the Seller has not made any material
capital expenditure; (g) the Seller has not sold or otherwise transferred, or
leased or licensed, any asset to any other Person other than in the Ordinary
Course of Business; (h) the Seller has not written off as uncollectible, or
established any extraordinary reserve with respect to, any account receivable or
other indebtedness; (i) the Seller has not made any loan or advance to any other
Person; (j) no Contract by which the Seller or any of the assets owned or used
by the Seller is or was bound, or under which the Seller has or had any rights
or interest, has been amended or terminated; (k) the Seller has not incurred,
assumed or otherwise become subject to any Liability, other than accounts
payable (of the type required to be reflected as current liabilities in the
“liabilities” column of a balance sheet prepared in accordance with GAAP)
incurred by the Seller in bona fide transactions entered into in the Ordinary
Course of Business; (l) the Seller has not discharged any Encumbrance or
discharged or paid any indebtedness or other Liability, except for accounts
payable that (I) are reflected as current liabilities in the “liabilities”
column of the Interim Balance Sheet or have been incurred by the Seller since
October 31, 2007 in bona fide transactions entered into in the Ordinary Course
of Business, and (II) have been discharged or paid in the Ordinary Course of
Business; (m) the Seller has not forgiven any debt or otherwise released or
waived any right or claim; (n) the Seller has not changed any of its methods of
accounting or accounting practices in any respect; (o) the Seller has not
entered into any transaction or taken any other action outside the Ordinary
Course of Business; and (p) the Seller has not agreed, committed or offered (in
writing or otherwise) to take any of the actions referred to in clauses “(c)”
through “(o)” above.

 

2.6                               Title to Assets. The Seller owns, and has good
and valid title to, all of the Assets, including all rights of the Seller under
Seller Contracts.  All of the Assets are owned by the Seller free and clear of
any Encumbrances.  The Assets constitute all of the properties, rights,
interests and other tangible and intangible assets necessary to conduct the
business in the manner in which such business is currently being conducted by
the Seller.

 

2.7                               Receivables. As of the date hereof, there are
no accounts receivable, notes receivable or other receivables of the Seller.

 

2.8                               Customers; Distributors.  Part 2.8 of the
Disclosure Schedule accurately identifies, and provides an accurate and complete
breakdown of the revenues received from, each customer or other Person that
(together which such customer’s or other Person’s affiliates) accounted for
(i) more than $20,000 of the gross revenues of the Seller in any of 2005 or
2006, or (ii) more than $15,000 of the gross

 

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revenues of the Seller in the first 10 months of 2007. Seller has not received
any notice or other communication (in writing or otherwise), and Seller has not
received any other information, indicating that any customer or other Person
identified or required to be identified in Part 2.8 of the Disclosure Schedule
may cease dealing with the Seller or may otherwise reduce the volume of business
transacted by such Person with the Seller below historical levels.  Seller has
not received any notice or other communication (in writing or otherwise), or has
received any other information, indicating that any distributor of any of the
Seller’s products may cease acting as a distributor of such products or
otherwise dealing with the Seller.

 

2.9                               Inventory.  Seller has no inventory.

 

2.10                        Equipment, Etc. Part 2.10 of the Disclosure Schedule
accurately identifies all equipment, materials, prototypes, tools, supplies,
vehicles, furniture, fixtures, improvements and other tangible assets owned by
the Seller with a book value in excess of $5,000.  Part 2.10 of the Disclosure
Schedule also accurately identifies all tangible assets leased to the Seller. 
Each asset identified or required to be identified in Part 2.10 of the
Disclosure Schedule: (i) is structurally sound, free of defects and deficiencies
and in good condition and repair (ordinary wear and tear excepted);
(ii) complies in all material respects with, and is being operated and otherwise
used in material compliance with, all applicable Legal Requirements; and
(iii) is adequate and appropriate for the uses to which it is being put.

 

2.11                        Real Property. The Seller does not own any real
property or any interest in real property, including any leasehold created under
a real property lease.

 

2.12                        Intellectual Property.

 

(a)                                  Part 2.12(a) of the Disclosure Schedule
accurately identifies and describes:

 

(i)                                    in Part 2.12(a)(i) of the Disclosure
Schedule, each proprietary product or service developed, manufactured, marketed,
or sold by the Seller at any time since December 31, 2003, and any product or
service currently under development by the Seller;

 

(ii)                                in Part 2.12(a)(ii) of the Disclosure
Schedule: (A) each item of Registered IP in which the Seller has or purports to
have an ownership interest of any nature (whether exclusively, jointly with
another Person or otherwise); (B) the jurisdiction in which such item of
Registered IP has been registered or filed and the applicable registration or
serial number; (C) any other Person that has an ownership interest in such item
of Registered IP and the nature of such ownership interest; and (D) each product
or service identified in Part 2.12(a)(i) of the Disclosure Schedule that
embodies, utilizes or is based upon or derived from (or, with respect to
products and services under development, that is expected to embody, utilize or
be based upon or derived from) such item of Registered IP;

 

(iii)                            in Part 2.12(a)(iii) of the Disclosure
Schedule: (A) all Intellectual Property Rights or Intellectual Property licensed
to the Seller (other than any non-customized software that: (1) is so licensed
solely in executable or object code form pursuant to a nonexclusive, internal
use software license; (2) is not incorporated into, or used directly in the
development, manufacturing or distribution of, the products or services of the
Seller; and (3) is generally available on standard terms for less than $100);
(B) the corresponding Contract or Contracts pursuant to which such Intellectual
Property Rights or Intellectual Property is licensed to the Seller; and
(C) whether the license or licenses so granted to the Seller are exclusive or
nonexclusive; and

 

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(iv)                               in Part 2.12(a)(iv) of the Disclosure
Schedule, each Contract pursuant to which any Person has been granted any
license under, or otherwise has received or acquired any right (whether or not
currently exercisable) or interest in, any Seller IP.

 

(b)                                  The Seller has provided to the Purchaser a
complete and accurate copy of each standard form of Seller IP Contract currently
used by the Seller, including each standard form of:  (i) end user license
agreement; (ii) development agreement; (iii) distributor or reseller agreement;
(iv) employee agreement containing any assignment or license of Intellectual
Property or Intellectual Property Rights or any confidentiality provision;
(v) consulting or independent contractor agreement containing any assignment or
license of Intellectual Property or Intellectual Property Rights or any
confidentiality provision; or (vi) confidentiality or nondisclosure agreement.
Part 2.12(b) of the Disclosure Schedule accurately identifies each Seller IP
Contract that deviates in any material respect from the corresponding standard
form agreement provided to the Purchaser. Except for the nonexclusive licenses
and rights granted in Contracts identified in Part 2.12(a)(iv) of the Disclosure
Schedule, the Seller is not bound by, and no Seller IP is subject to, any
Contract containing any covenant or other provision that in any way limits or
restricts the ability of the Seller to use, exploit, assert, or enforce any
Seller IP anywhere in the world.

 

(c)                                  The Seller owns all right, title and
interest to and in the Seller IP (other than Intellectual Property Rights or
Intellectual Property exclusively licensed to the Seller, as identified in
Part 2.12(a)(iii) of the Disclosure Schedule) free and clear of any Encumbrances
(other than nonexclusive licenses granted pursuant to the Contracts listed in
Part 2.12(a)(iv) of the Disclosure Schedule). Without limiting the generality of
the foregoing:

 

(i)                                    all documents and instruments necessary
to perfect the rights of the Seller in the Seller IP have been validly executed,
delivered and filed in a timely manner with the appropriate Governmental Body;

 

(ii)                                each Person who is or was an employee or
independent contractor of the Seller and who is or was involved in the creation
or development of any Seller IP has signed a valid and enforceable agreement
containing an irrevocable assignment of Intellectual Property Rights to the
Seller and confidentiality provisions protecting the Seller IP;

 

(iii)                            no Seller Employee has any claim, right
(whether or not currently exercisable) or interest to or in any Seller IP;

 

(iv)                               no employee or independent contractor of the
Seller is: (A) bound by or otherwise subject to any Contract restricting him or
her from performing his or her duties for the Seller; or (B) in breach of any
Contract with any former employer or other Person concerning Intellectual
Property Rights or confidentiality;

 

(v)                                   no funding, facilities or personnel of any
Governmental Body were used, directly or indirectly, to develop or create, in
whole or in part, any Seller IP;

 

(vi)                               the Seller has taken reasonable steps to
maintain the confidentiality of and otherwise protect and enforce its rights in
all proprietary information held by the Seller, or purported to be held by the
Seller, as a trade secret;

 

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(vii)                           since December 31, 2003, the Seller has never
assigned or otherwise transferred ownership of, or agreed to assign or otherwise
transfer ownership of, any Intellectual Property Right to any other Person;

 

(viii)                       the Seller is not now nor has ever been a member or
promoter of, or a contributor to, any industry standards body or similar
organization that could require or obligate the Seller to grant or offer to any
other Person any license or right to any Seller IP; and

 

(ix)                              the Seller owns or otherwise has all
Intellectual Property Rights needed to conduct the business of the Seller as
currently conducted by the Seller.

 

(d)                                  All Seller IP is valid, subsisting and
enforceable. Without limiting the generality of the foregoing:

 

(i)                                    each U.S. patent application and U.S.
patent in which the Seller has or purports to have an ownership interest was
filed within one year of the first printed publication, public use or offer for
sale of each invention described in such U.S. patent application or U.S. patent;

 

(ii)                                each foreign patent application and foreign
patent in which the Seller has or purports to have an ownership interest was
filed, or claims priority to a patent application filed, before the time at
which each invention described in such foreign patent application or foreign
patent was first made available to the public;

 

(iii)                            no trademark (whether registered or
unregistered) or trade name owned, used, or applied for by the Seller conflicts
or interferes with any trademark (whether registered or unregistered) or trade
name owned, used or applied for by any other Person;

 

(iv)                               none of the goodwill associated with or
inherent in any trademark (whether registered or unregistered) in which the
Seller has or purports to have an ownership interest has been impaired;

 

(v)                                   each item of Seller IP that is Registered
IP is and at all times has been in compliance with all Legal Requirements, and
all filings, payments and other actions required to be made or taken to maintain
such item of Seller IP in full force and effect have been made by the applicable
deadline;

 

(vi)                               no application for a patent or for a
copyright, mask work or trademark registration or any other type of Registered
IP filed by or on behalf of the Seller has been abandoned, allowed to lapse or
rejected;

 

(vii)                           Part 2.12(d)(vii) of the Disclosure Schedule
identifies each filing, payment, and action that must be made or taken on or
before the date that is 180 days after the date of this Agreement in order to
maintain each such item of Seller IP in full force and effect;

 

(viii)                       the Seller has provided to the Purchaser complete
and accurate copies of all applications, correspondence and other material
documents related to each such item of Registered IP; and

 

(ix)                              no interference, opposition, reissue,
reexamination or other Proceeding of any nature is or has been pending or, to
the best of the Knowledge of each of the Seller and each Shareholder,
threatened, in which the scope, validity or enforceability of any Seller IP is
being, has been or could reasonably be expected to be contested or challenged.

 

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(e)                                  Neither the execution, delivery or
performance of any of the Transactional Agreements nor the consummation of any
of the Transactions will, with or without notice or the lapse of time or both,
result in or give any other Person the right or option to cause or declare:
(i) a loss of, or Encumbrance on, any Seller IP; (ii) a breach of any Contract
listed or required to be listed in Part 2.12(a)(iii) of the Disclosure Schedule;
(iii) the release, disclosure or delivery of any Seller IP by or to any escrow
agent or other Person; or (iv) the grant, assignment or transfer to any other
Person of any license or other right or interest under, to or in any of the
Seller IP.

 

(f)                                    To the Knowledge of the Seller, no Person
has infringed, misappropriated, or otherwise violated, and no Person is
currently infringing, misappropriating or otherwise violating, any Seller IP.
Part 2.12(f) of the Disclosure Schedule accurately identifies (and the Seller
has provided to the Purchaser a complete and accurate copy of) each letter or
other written or electronic communication or correspondence that has been sent
or otherwise delivered by or to the Seller or any Representative of the Seller
regarding any actual, alleged or suspected infringement or misappropriation of
any Seller IP and provides a brief description of the current status of the
matter referred to in such letter, communication or correspondence.

 

(g)                                 The Seller has never infringed (directly,
contributorily, by inducement or otherwise), misappropriated or otherwise
violated any Intellectual Property Right of any other Person. Without limiting
the generality of the foregoing:

 

(i)                                    no product, information or service ever
manufactured, produced, distributed, published, used, provided or sold by or on
behalf of the Seller, and no Intellectual Property ever owned, used or developed
by the Seller, has ever infringed, misappropriated or otherwise violated any
Intellectual Property Right of any other Person;

 

(ii)                                no infringement, misappropriation or similar
claim or Proceeding is pending or has been threatened against the Seller or
against any other Person who may be entitled to be indemnified, defended, held
harmless or reimbursed by the Seller with respect to such claim or Proceeding;

 

(iii)                            the Seller has never received any notice or
other communication (in writing or otherwise) relating to any actual, alleged or
suspected infringement, misappropriation or violation of any Intellectual
Property Right of another Person;

 

(iv)                               the Seller is not bound by any Contract to
indemnify, defend, hold harmless or reimburse any other Person with respect to
any intellectual property infringement, misappropriation or similar claim (other
than pursuant to the standard forms of Seller IP Contracts described in
Section 2.12(b));

 

(v)                                   the Seller has never assumed, or agreed to
discharge or otherwise take responsibility for, any existing or potential
liability of another Person for infringement, misappropriation or violation of
any Intellectual Property Right; and

 

(vi)                               no claim or Proceeding involving any
Intellectual Property or Intellectual Property Right licensed to the Seller is
pending or, to the best of the Knowledge of each of the Seller and each
Shareholder, has been threatened, except for any such claim or Proceeding that,
if adversely determined, would not adversely affect: (A) the use or exploitation
of such Intellectual Property or Intellectual Property Right by the Seller; or
(B) the manufacturing, distribution or sale of any product or service being
developed, offered, manufactured, distributed or sold by the Seller.

 

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(h)                                 None of the Seller Software: (i) contains
any bug, defect or error (including any bug, defect or error relating to or
resulting from the display, manipulation, processing, storage, transmission or
use of date data) that materially and adversely affects the use, functionality
or performance of such Seller Software or any product or system containing or
used in conjunction with such Seller Software; or (ii) fails to comply with any
applicable warranty or other contractual commitment relating to the use,
functionality or performance of such software or any product or system
containing or used in conjunction with such Seller Software. The Seller has
provided to the Purchaser a complete and accurate list of all known bugs,
defects and errors in each version and component of the Seller Software.

 

(i)                                    None of the Seller Software contains any
“back door,” “drop dead device,” “time bomb,” “Trojan horse,” “virus,” or “worm”
(as such terms are commonly understood in the software industry) or any other
code designed or intended to have, or capable of performing, any of the
following functions: (i) disrupting, disabling, harming or otherwise impeding in
any manner the operation of, or providing unauthorized access to, a computer
system or network or other device on which such code is stored or installed; or
(ii) damaging or destroying any data or file without the user’s consent.

 

(j)                                    None of the Seller Software is subject to
any “copyleft” or other obligation or condition (including any obligation or
condition under any “open source” license such as the GNU Public License, Lesser
GNU Public License or Mozilla Public License) that: (i) could or does require,
or could or does condition the use or distribution of such Seller Software on,
the disclosure, licensing or distribution of any source code for any portion of
such Seller Software; or (ii) could or does otherwise impose any limitation,
restriction or condition on the right or ability of the Seller to use or
distribute any Seller Software.

 

(k)                                No source code for any Seller Software has
been delivered, licensed or made available to any escrow agent or other Person
who is not, as of the date of this Agreement, an employee of the Seller. The
Seller does not has any duty or obligation (whether present, contingent or
otherwise) to deliver, license or make available the source code for any Seller
Software to any escrow agent or other Person who is not, as of the date of this
Agreement, an employee of the Seller. No event has occurred, and no circumstance
or condition exists, that (with or without notice or lapse of time or both)
will, or could reasonably be expected to, result in the delivery, license or
disclosure of any source code for any Seller Software to any other Person who is
not, as of the date of this Agreement, an employee of the Seller.

 

2.13                        Contracts. Part 2.13 of the Disclosure Schedule
identifies each Seller Contract, except for any Immaterial Contract. The Seller
has delivered to the Purchaser accurate, complete and fully executed copies of
all Seller Contracts identified in Part 2.13 of the Disclosure Schedule,
including all amendments, exhibits and schedules thereto. Each Seller Contract
is valid and in full force and effect.  To the Knowledge of Seller, no Person
has violated or breached, or declared or committed any default under, any Seller
Contract. No event has occurred, and no circumstance or condition exists, that
is reasonably likely to (with or without notice or lapse of time or both)
(A) result in a violation or breach of any of the material provisions of any
Seller Contract, (B) give any Person the right to declare a default or exercise
any remedy under any Seller Contract, (C) give any Person the right to
accelerate the maturity or performance of any Seller Contract, or (D) give any
Person the right to cancel, terminate or modify any Seller Contract (except
pursuant to the amendment provisions contained therein and except with respect
to the termination of Seller Contracts by their terms). The Seller has not
received any notice or other

 

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communication (in writing or otherwise) regarding any actual, alleged, possible
or potential violation or breach of, or default under, any Seller Contract. The
Seller has not waived any material right under any Seller Contract. To the
Knowledge of Seller, each Person against which the Seller has or may acquire any
rights under any Seller Contract is solvent and is able to satisfy all of such
Person’s current and future monetary obligations and other obligations and
Liabilities thereunder. The Seller has never guaranteed or otherwise agreed to
cause, insure or become liable for, and the Seller has never pledged any of its
assets to secure, the performance or payment of any obligation or other
Liability of any other Person. The performance of the Seller Contracts will not
result in any violation of or failure to comply with any Legal Requirement. No
Person is renegotiating, or has the right to renegotiate, any amount paid or
payable to the Seller under any Seller Contract. The Contracts identified in
Part 2.13 of the Disclosure Schedule collectively constitute all of the
Contracts necessary to enable the Seller to conduct its business in the manner
in which such business is currently being by the Seller. Part 2.13 of the
Disclosure Schedule identifies each proposed Contract as to which any bid,
offer, written proposal, term sheet or similar document has been submitted or
received by the Seller.

 

2.14                        Liabilities; Major Suppliers.

 

(a)                                  The Seller has no Liabilities of a nature
required to be reflected on or reserved against in financial statements that are
prepared in accordance with GAAP, except for: (i) liabilities identified as such
in the “liabilities” columns of the Interim Balance Sheet; (ii) accounts payable
(of the type required to be reflected as current liabilities in the
“liabilities” column of a balance sheet prepared in accordance with GAAP) or
other Liabilities incurred by the Seller in bona fide transactions entered into
in the Ordinary Course of Business since October 31, 2007; (iii) performance
obligations under the Contracts listed in Part 2.13 of the Disclosure Schedule;
and (iv) those incurred by the Seller in connection with the execution of this
Agreement.

 

(b)                                  Part 2.14 of the Disclosure Schedule
provides: (i) an accurate and complete breakdown and aging of the accounts
payable of the Seller as of the date hereof, and (ii) an accurate and complete
breakdown of all notes payable and other indebtedness for borrowed money of the
Seller as of the date hereof.

 

(c)                                  Part 2.14 of the Disclosure Schedule
accurately identifies, and provides an accurate and complete breakdown of the
amounts paid to, each supplier or other Person that (together which such
Person’s affiliates) received (i) more than $20,000 in the aggregate from the
Seller in 2005 or 2006, or (ii) more than $15,000 in the aggregate from the
Seller in the first 10 months of 2007.

 

(d)                                  Seller has never (i) made a general
assignment for the benefit of creditors, (ii) filed, or had filed against it,
any bankruptcy petition or similar filing, (iii) suffered the attachment or
other judicial seizure of all or a substantial portion of its assets,
(iv) admitted in writing its inability to pay its debts as they become due or
(vi) taken or been the subject of any action that may have an adverse effect on
its ability to comply with or perform any of its covenants or obligations under
any of the Transactional Agreements.

 

2.15                        Compliance with Legal Requirements. The Seller is in
material compliance with each Legal Requirement that is applicable to it or to
the conduct of its business or the ownership or use of any of its assets;
(b) the Seller has at all times been in material compliance with each Legal
Requirement that is or was applicable to it or to the conduct of its business or
the ownership or use of any of its assets; (c) no event has occurred, and no
condition or circumstance exists, that is reasonably likely to (with or without
notice or lapse of time or both) constitute or result directly or indirectly in
a violation by the Seller of, or a failure on the part of the Seller to comply
with, any Legal Requirement; and (d) the Seller has not received, at any time,
any notice or other communication (in writing or otherwise) from any

 

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Governmental Body or any other Person regarding (i) any actual, alleged,
possible or potential violation of, or failure to comply with, any Legal
Requirement, or (ii) any actual, alleged, possible or potential obligation on
the part of the Seller to undertake, or to bear all or any portion of the cost
of, any cleanup or any remedial, corrective or response action of any nature. To
Seller’s Knowledge, no Governmental Body has proposed or is considering any
Legal Requirement that, if adopted or otherwise put into effect, (Y) may have an
adverse effect on the Assets or the Seller to comply with or perform any
covenant or obligation under any of the Transactional Agreements, or (Z) may
have the effect of preventing, delaying, making illegal or otherwise interfering
with any of the Transactions.

 

2.16                        Governmental Authorizations. Part 2.16 of the
Disclosure Schedule identifies: (a) each material Governmental Authorization
that is held by the Seller; and (b) each other Governmental Authorization that,
to the Knowledge of the Seller, is held by any employee of the Seller and is
used by Seller in connection with the business of the Seller. The Seller has
delivered to the Purchaser accurate and complete copies of all of the
Governmental Authorizations identified in Part 2.16 of the Disclosure Schedule,
including all renewals thereof and all amendments thereto. Each Governmental
Authorization identified or required to be identified in Part 2.16 of the
Disclosure Schedule is valid and in full force and effect. The Seller is and has
at all times been in material compliance with all of the terms and requirements
of each Governmental Authorization identified or required to be identified in
Part 2.16 of the Disclosure Schedule. No event has occurred, and no condition or
circumstance exists, that is reasonably likely to (with or without notice or
lapse of time) (A) constitute or result directly or indirectly in a violation of
or a failure to comply with any term or requirement of any Governmental
Authorization identified or required to be identified in Part 2.16 of the
Disclosure Schedule, or (B) result in the revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization
identified or required to be identified in Part 2.16 of the Disclosure Schedule.
The Seller has never received any notice or other communication (in writing or
otherwise) from any Governmental Body or any other Person regarding (I) any
actual, alleged, possible or potential violation of or failure to comply with
any term or requirement of any Governmental Authorization, or (II) any actual,
proposed, possible or potential revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization. All
applications required to have been filed for the renewal of the Governmental
Authorizations required to be identified in Part 2.16 of the Disclosure Schedule
have been duly filed on a timely basis with the appropriate Governmental Bodies,
and each other notice or filing required to have been given or made with respect
to such Governmental Authorizations has been duly given or made on a timely
basis with the appropriate Governmental Body. The Seller has all of the
Governmental Authorizations necessary (Y) to enable the Seller to conduct its
business in the manner in which such business is currently being conducted by
the Seller and (Z) to permit the Seller to own and use its assets in the manner
in which they are currently being owned and used by the Seller.

 

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2.17                        Tax Matters. Each Tax required to have been paid, or
claimed by any Governmental Body to be payable, by the Seller has been duly paid
in full on a timely basis. Any Tax required to have been withheld or collected
by the Seller has been duly withheld and collected; and (to the extent required)
each such Tax has been paid to the appropriate Governmental Body. Part 2.17 of
the Disclosure Schedule accurately identifies each examination or audit of any
Tax Return of the Seller that has been conducted since December 31, 2003. The
Shareholders and the Seller have delivered to the Purchaser accurate and
complete copies of all audit reports and similar documents (to which any
Shareholder or the Seller has access) relating to such Tax Returns. No claim or
other Proceeding is pending or has been threatened against or with respect to
the Seller in respect of any Tax. There are no unsatisfied Liabilities for Taxes
(including liabilities for interest, additions to tax and penalties thereon and
related expenses) with respect to any notice of deficiency or similar document
received by the Seller. The Seller has not entered into or become bound by any
agreement or consent pursuant to Section 341(f) of the Code. There is no
agreement, plan, arrangement or other Contract covering any Seller Employee
that, individually or collectively, could give rise directly or indirectly to
the payment of any amount that would not be deductible pursuant to Section 280G
or Section 162 of the Code. The Shareholders and the Seller have delivered to
the Purchaser accurate and complete copies of all Tax Returns that have been
filed on behalf of or with respect to the Seller since December 31, 2003. The
information contained in such Tax Returns is accurate and complete in all
respects.

 

2.18                        Employee and Labor Matters.

 

(a)                                  Part 2.18(a) of the Disclosure Schedule
accurately sets forth, with respect to each current employee of the Seller
(including any employee of the Seller who is on a leave of absence or on layoff
status) who has accepted employment with Purchaser (a “Continuing Employee”):
(i) the name of such employee and the date as of which such employee was
originally hired by the Seller; (ii) such employee’s title; (iii) the aggregate
dollar amount of the compensation (including wages, salary, commissions,
director’s fees, fringe benefits, bonuses, profit-sharing payments and other
payments or benefits of any type) received by such employee from the Seller with
respect to services performed in 2006 and the 11 months ended November 30, 2007;
and (iv) such employee’s annualized compensation as of immediately prior to the
Closing. No current employee of the Seller holds any Governmental Authorization
that is used by the Seller in the conduct of its business.

 

(b)                                  There is no former employee of the Seller
who is receiving or is scheduled to receive (or whose spouse or other dependent
is receiving or is scheduled to receive) any benefits (whether from the Seller
or otherwise) relating to such former employee’s employment with the Seller.

 

(c)                                  The employment of each of the Seller’s
employees is terminable by the Seller at will. The Seller has delivered to the
Purchaser accurate and complete copies of all employee manuals and handbooks,
disclosure materials, policy statements and other materials relating to the
employment of the Continuing Employees.

 

(d)                                  To the Knowledge of the Seller:  (i) no
employee of the Seller has received an offer to join a business that Seller
believes is competitive with the Seller’s business; (ii) no employee of the
Seller is a party to or is bound by any confidentiality agreement,
noncompetition agreement or other Contract (with any Person) that may have an
adverse effect on: (A) the performance by such employee of any of his or her
duties or responsibilities as an employee of the Seller; (B) the Seller’s
business or operations; or (B) the Purchaser’s business or operations as of or
after the Closing in the event such employee becomes an employee or other
service provider of the Purchaser or an affiliate thereof.

 

(e)                                  The Seller has no independent contractors.

 

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(f)                                    The Seller is not a party to or bound by,
and the Seller has never been a party to or bound by, any employment agreement
or any union contract, collective bargaining agreement or similar Contract. The
Seller is not engaged, and the Seller has never been engaged, in any unfair
labor practice of any nature. There are no actions, suits, claims, labor
disputes or grievances pending or, to the Knowledge of the Seller, threatened or
reasonably anticipated relating to any labor, safety or discrimination matters
involving any Seller Employee, including, without limitation, charges of unfair
labor practices or discrimination complaints.

 

2.19                        Employee Benefit Plans and Compensation.

 

(a)                                  Part 2.19(a) of the Disclosure Schedule
contains an accurate and complete list as of the date hereof of each Seller
Employee Plan and each Seller Employee Agreement. The Seller does not intend nor
has it committed to establish or enter into any new Seller Employee Plan or
Seller Employee Agreement, or to modify any Seller Employee Plan or Seller
Employee Agreement (except to conform any such Seller Employee Plan or Seller
Employee Agreement to the requirements of any applicable Legal Requirements, in
each case as previously disclosed to the Purchaser in writing or as required by
this Agreement).

 

(b)                                  The Seller has delivered to the Purchaser:
(i) correct and complete copies of all documents setting forth the terms of each
Seller Employee Plan and each Seller Employee Agreement, including all
amendments thereto and all related trust documents; (ii) the three most recent
annual reports (Form Series 5500 and all schedules and financial statements
attached thereto), if any, required under ERISA or the Code in connection with
each Seller Employee Plan; (iii) if the Seller Employee Plan is subject to the
minimum funding standards of Section 302 of ERISA, the most recent annual and
periodic accounting of Seller Employee Plan assets; (iv) the most recent summary
plan description together with the summaries of material modifications thereto,
if any, required under ERISA with respect to each Seller Employee Plan; (v) all
material written Contracts relating to each Seller Employee Plan, including
administrative service agreements and group insurance contracts; (vi) all
written materials provided to any Seller Employee relating to any Seller
Employee Plan and any proposed Seller Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events that
would result in any liability to the Seller or any Seller Affiliate; (vii) all
correspondence to or from any Governmental Body relating to any Seller Employee
Plan; (viii) all COBRA forms and related notices; (ix) all insurance policies in
the possession of the Seller or any Seller Affiliate pertaining to fiduciary
liability insurance covering the fiduciaries for each Seller Employee Plan;
(x) all discrimination tests required under the Code for each Seller Employee
Plan intended to be qualified under Section 401(a) of the Code for the three
most recent plan years; and (xi) the most recent IRS determination or opinion
letter issued with respect to each Seller Employee Plan intended to be qualified
under Section 401(a) of the Code.

 

(c)                                  The Seller and each of the Seller
Affiliates have performed all obligations required to be performed by them under
each Seller Employee Plan and are not in default or violation of, and neither
the Seller nor any of the Shareholders have Knowledge of any default or
violation by any other party to, the terms of any Seller Employee Plan, and each
Seller Employee Plan has been established and maintained substantially in
accordance with its terms and in substantial compliance with all applicable
Legal Requirements, including ERISA and the Code. Any Seller Employee Plan
intended to be qualified under Section 401(a) of the Code has obtained a
favorable determination letter (or opinion letter, if applicable) as to its
qualified status under the Code. No “prohibited transaction,” within the meaning
of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise
exempt under Section 408 of ERISA, has occurred with respect to any Seller
Employee Plan. There are no claims or Proceedings pending, or, to the best of
the Knowledge of each of the Seller and each Shareholder, threatened or
reasonably anticipated (other than routine claims for benefits), against any

 

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Seller Employee Plan or against the assets of any Seller Employee Plan. Each
Seller Employee Plan (other than any Seller Employee Plan to be terminated prior
to the Closing in accordance with this Agreement) can be amended, terminated or
otherwise discontinued after the Closing in accordance with its terms, without
liability to the Purchaser, the Seller or any Seller Affiliate (other than
ordinary administration expenses). There are no audits, inquiries or Proceedings
pending or, to the best of the Knowledge of each of the Seller and each
Shareholder, threatened by the IRS, DOL, or any other Governmental Body with
respect to any Seller Employee Plan. Neither the Seller nor any Seller Affiliate
has ever incurred any penalty or tax with respect to any Seller Employee Plan
under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code. The
Seller and each Seller Affiliate have made all contributions and other payments
required by and due under the terms of each Seller Employee Plan.

 

(d)                                  Neither the Seller nor any Seller Affiliate
has ever maintained, established, sponsored, participated in, or contributed to
any: (i) Seller Pension Plan subject to Title IV of ERISA; or
(ii) “multiemployer plan” within the meaning of Section (3)(37) of ERISA.
Neither the Seller nor any Seller Affiliate has ever maintained, established,
sponsored, participated in or contributed to, any Seller Pension Plan in which
stock of the Seller or any Seller Affiliate is or was held as a plan asset. The
fair market value of the assets of each funded Foreign Plan, the liability of
each insurer for any Foreign Plan funded through insurance, or the book reserve
established for any Foreign Plan, together with any accrued contributions, is
sufficient to procure or provide in full for the accrued benefit obligations,
with respect to all current and former participants in such Foreign Plan
according to the actuarial assumptions and valuations most recently used to
determine employer contributions to and obligations under such Foreign Plan, and
no transaction contemplated by this Agreement shall cause any such assets or
insurance obligations to be less than such benefit obligations.

 

(e)                                  No Seller Employee Plan provides (except at
no cost to the Seller or any Seller Affiliate), or reflects or represents any
liability of the Seller or any Seller Affiliate to provide, retiree life
insurance, retiree health benefits or other retiree employee welfare benefits to
any Person for any reason, except as may be required by COBRA or other
applicable Legal Requirements. Other than commitments made that involve no
future costs to the Seller or any Seller Affiliate, neither the Seller nor any
Seller Affiliate has ever represented, promised or contracted (whether in oral
or written form) to any Seller Employee (either individually or to Seller
Employees as a group) or any other Person that such Seller Employee(s) or other
person would be provided with retiree life insurance, retiree health benefit or
other retiree employee welfare benefits, except to the extent required by
applicable Legal Requirements.

 

(f)                                    Except as expressly required or provided
by this Agreement, neither the execution of this Agreement nor the consummation
of the transactions contemplated hereby will (either alone or upon the
occurrence of any additional or subsequent events) constitute an event under any
Seller Employee Plan, Seller Employee Agreement, trust or loan that will or may
result (either alone or in connection with any other circumstance or event) in
any payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any Seller Employee.

 

(g)                                 The Seller and each of the Seller
Affiliates: (i) are, and at all times have been, in substantial compliance with
all applicable Legal Requirements respecting employment, employment practices,
terms and conditions of employment and wages and hours, in each case, with
respect to Seller Employees, including the health care continuation requirements
of COBRA, the requirements of FMLA, the requirements of HIPAA and any similar
provisions of state law; (ii) have withheld and reported all amounts required by
applicable Legal Requirements or by Contract to be withheld and reported with
respect to wages, salaries and other payments to Seller Employees; (iii) are not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with the Legal Requirements applicable of the foregoing; and (iv) are not
liable for any payment to any trust or other fund governed by or maintained

 

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by or on behalf of any Governmental Body with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Seller Employees (other than routine payments to be made in the normal course of
business and consistent with past practice). There are no pending or, to the
best of the Knowledge of the Seller and the Shareholders, threatened or
reasonably anticipated claims or Proceedings against the Seller or any Seller
Affiliate under any worker’s compensation policy or long-term disability policy.

 

(h)                                 To the best of the Knowledge of the Seller
and the Shareholders, no shareholder nor any Seller Employee is obligated under
any Contract or subject to any judgment, decree, or order of any court or other
Governmental Body that would interfere with such Person’s efforts to promote the
interests of the Seller or that would interfere with the business of the Seller
or any Seller Affiliate. Neither the execution nor the delivery of this
Agreement, nor the carrying on of the business of the Seller or any Seller
Affiliate as presently conducted nor any activity of such shareholder or Seller
Employees in connection with the carrying on of the business of the Seller or
any Seller Affiliate as presently conducted will, to the best of the Knowledge
of the Seller and the Shareholders, conflict with, result in a breach of the
terms, conditions or provisions of, or constitute a default under, any Contract
under which any of such shareholders or Seller Employees is now bound.

 

2.20                        Environmental Matters. The Seller is not liable or
potentially liable for any response cost or natural resource damages under
Section 107(a) of CERCLA, or under any other so-called “superfund” or
“superlien” law or similar Legal Requirement, at or with respect to any site.
The Seller has never received any notice or other communication (in writing or
otherwise) from any Governmental Body or other Person regarding any actual,
alleged, possible or potential Liability arising from or relating to the
presence, generation, manufacture, production, transportation, importation, use,
treatment, refinement, processing, handling, storage, discharge, release,
emission or disposal of any Hazardous Material. No Person has ever commenced or
threatened to commence any contribution action or other Proceeding against the
Seller in connection with any such actual, alleged, possible or potential
Liability; and no event has occurred, and no condition or circumstance exists,
that may directly or indirectly give rise to, or result in the Seller becoming
subject to, any such Liability. The Seller has never generated, manufactured,
produced, transported, imported, used, treated, refined, processed, handled,
stored, discharged, released or disposed of any Hazardous Material (whether
lawfully or unlawfully). The Seller has never permitted (knowingly or otherwise)
any Hazardous Material to be generated, manufactured, produced, used, treated,
refined, processed, handled, stored, discharged, released or disposed of
(whether lawfully or unlawfully): (i) on or beneath the surface of any real
property that is, or that has at any time been, owned by, leased to, controlled
by or used by the Seller; (ii) in or into any surface water, groundwater, soil
or air associated with or adjacent to any such real property; or (iii) in or
into any well, pit, pond, lagoon, impoundment, ditch, landfill, building,
structure, facility, improvement, installation, equipment, pipe, pipeline,
vehicle or storage container that is or was located on or beneath the surface of
any such real property or that is or has at any time been owned by, leased to,
controlled by or used by the Seller. All property that is owned by, leased to,
controlled by or used by the Seller, and all surface water, groundwater, soil
and air associated with or adjacent to such property: (a) is in clean and
healthful condition; (b) is free of any Hazardous Material and any harmful
chemical or physical conditions; and (c) is free of any environmental
contamination of any nature. No storage tank or other storage container is or
has been owned by, leased to, controlled by or used by the Seller, or is located
on or beneath the surface of any real property owned by, leased to, controlled
by or used by the Seller.

 

2.21                        Sale of Products. Each product that has been sold,
licensed or distributed by the Seller to any Person: (i) conformed and complied
in all material respects with the terms and requirements of any applicable
warranty or other Contract and with all applicable Legal Requirements; and
(ii) was free of any design defects construction defects or other defects or
deficiencies at the time of sale. The Seller has not incurred or otherwise
become subject to any Liability arising directly or indirectly from any product

 

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manufactured or sold by the Seller. No product manufactured or sold by the
Seller has been the subject of any recall or other similar action; and no event
has occurred, and no condition or circumstance exists, that might (with or
without notice or lapse of time) directly or indirectly give rise to or serve as
a basis for any such recall or other similar action relating to any such
product.

 

2.22                        Performance of Services.  All services that have
been performed on behalf of the Seller were performed properly and in full
conformity with the terms and requirements of all applicable warranties and
other Contracts and with all applicable Legal Requirements. There is no claim
pending or being threatened against the Seller relating to any services
performed by the Seller, and, to the best of the Knowledge of each of the Seller
and each Shareholder, there is no basis for the assertion of any such claim.

 

2.23                        Insurance.

 

(a)                                  Part 2.23 of the Disclosure Schedule
accurately sets forth, with respect to each insurance policy maintained by or at
the expense of, or for the direct or indirect benefit of, the Seller:   the name
of the insurance carrier that issued such policy. Part 2.23 of the Disclosure
Schedule also identifies each self-insurance or risk-sharing arrangement
affecting the Seller or any of the assets of the Seller. The Seller has
delivered to the Purchaser accurate and complete copies of all of the insurance
policies identified in Part 2.23 of the Disclosure Schedule (including all
renewals thereof and endorsements thereto). Each of the policies identified or
required to be identified in Part 2.23 of the Disclosure Schedule is valid,
enforceable and in full force and effect, and has been issued by an insurance
carrier that, to the best of the Knowledge of the Seller, is solvent,
financially sound and reputable. All of the information contained in the
applications submitted in connection with said policies was (at the times said
applications were submitted) accurate and complete, and all premiums and other
amounts owing with respect to said policies have been paid in full on a timely
basis.

 

(b)                                  No insurance claim has been made by the
Seller since inception.  The Seller has not received: (i) any notice or other
communication (in writing or otherwise) regarding the actual or possible
cancellation or invalidation of any of the policies identified in Part 2.23 of
the Disclosure Schedule or regarding any actual or possible adjustment in the
amount of the premiums payable with respect to any of said policies; (ii) any
notice or other communication (in writing or otherwise) regarding any actual or
possible refusal of coverage under, or any actual or possible rejection of any
claim under, any of the policies identified in Part 2.23 of the Disclosure
Schedule; or (iii) any indication that the issuer of any of the policies
identified in Part 2.23 of the Disclosure Schedule may be unwilling or unable to
perform any of its obligations thereunder.

 

2.24                        Related Party Transactions. No Related Party has any
direct or indirect interest of any nature in any of the Assets. No Related Party
is, or has at any time since December 31, 2003 been, indebted to the Seller. 
Since December 31, 2004, no Related Party has entered into, or has had any
direct or indirect financial interest in, any Seller Contract, transaction or
business dealing of any nature involving the Seller. To the Knowledge of Seller,
no Related Party is competing, or has at any time since December 31, 2004,
competed, directly or indirectly, with the Seller. No Related Party has any
claim or right against the Seller.

 

2.25                        Certain Payments, Etc. The Seller has not, and, to
the Knowledge of Seller, no officer, employee, agent or other Person associated
with or acting for or on behalf of the Seller has, at any time: (a) used any
corporate funds (i) to make any unlawful political contribution or gift or for
any other unlawful purpose relating to any political activity, (ii) to make any
unlawful payment to any governmental official or employee, or (iii) to establish
or maintain any unlawful or unrecorded fund or account of any nature; (b) made
any false or fictitious entry, or failed to make any entry that should have

 

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been made, in any of the books of account or other records of the Seller;
(c) made any payoff, influence payment, bribe, rebate, kickback or unlawful
payment to any Person; (d) performed any favor or given any gift which was not
deductible for federal income tax purposes; (e) made any payment (whether or not
lawful) to any Person, or provided (whether lawfully or unlawfully) any favor or
anything of value (whether in the form of property or services, or in any other
form) to any Person, for the purpose of obtaining or paying for (Y) favorable
treatment in securing business, or (Z) any other special concession; or
(f) agreed, committed or offered (in writing or otherwise) to take any of the
actions described in clauses “(a)” through “(e)” above.

 

2.26                        Proceedings; Orders. There is no pending Proceeding,
and no Person has, to the Knowledge of Seller, threatened to commence any
Proceeding: (i) that involves the Seller; or (ii) that challenges, or that may
have the effect of preventing, delaying, making illegal or otherwise interfering
with, any of the Transactions. To Seller’s Knowledge, no event has occurred, and
no claim, dispute or other condition or circumstance exists, that might directly
or indirectly give rise to or serve as a basis for the commencement of any such
Proceeding No Proceeding has ever been commenced by or against the Seller. The
Seller has delivered to the Purchaser accurate and complete copies of all
pleadings, correspondence and other written materials (to which the Seller has
access) that relate to the Proceedings identified in Part 2.26 of the Disclosure
Schedule. There is no Order to which the Seller, or any of the assets owned or
used by the Seller, is subject; and, to the Knowledge of Seller, no Related
Party is subject to any Order that relates to the Seller’s business or to any of
the assets of the Seller. To the Knowledge of Seller, no Continuing Employee is
subject to any Order that may prohibit employee from engaging in or continuing
any conduct, activity or practice relating to the business of the Seller or the
business of the Purchaser at or after the Closing. To Seller’s Knowledge, there
is no proposed Order that, if issued or otherwise put into effect, (Y) may have
an adverse effect on the business, condition, assets, liabilities, operations,
financial performance, net income or prospects of the Seller or on the ability
of the Seller to comply with or perform any covenant or obligation under any of
the Transactional Agreements, or (Z) may have the effect of preventing,
delaying, making illegal or otherwise interfering with any of the Transactions.

 

2.27                        Authority; Binding Nature of Agreements.

 

(a)                                  The Seller has the requisite corporate
power and authority to enter into and to perform its obligations under each of
the Transactional Agreements to which it is a party; and the execution, delivery
and performance by the Seller of the Transactional Agreements to which it is a
party have been duly authorized by all necessary action on the part of the
Seller and its shareholders, board of directors and officers.  Assuming the due
authorization, exeuction and delivery by the other parties hereto, this
Agreement and the other Transactional Agreements to which Seller is a party
constitute a valid and binding obligation of the Seller, enforceable against the
Seller in accordance with respective terms, subject only to the effect, if any,
of (i) applicable bankruptcy and other similar laws affecting the rights of
creditors generally and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies (the “Enforceability Exception”).

 

(b)                                  Mitchell has the absolute and unrestricted
right, power and capacity to enter into and to perform his obligations under
each of the Transactional Agreements to which he is a party. Assuming the due
authorization, exeuction and delivery by the other parties hereto, this
Agreement and the other Transactional Agreements to which Mitchell is a party
constitute a valid and binding obligation of Mitchell, enforceable against
Mitchell in accordance with respective terms, subject only to the effect, if
any, of the Enforceability Exception.

 

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2.28                        Non-Contravention; Consents. Neither the execution
and delivery of any of the Transactional Agreements, nor the consummation or
performance of any of the Transactions, will directly or indirectly (with or
without notice or lapse of time or both): (a) contravene, conflict with or
result in a violation of, or give any Governmental Body or other Person the
right to challenge any of the Transactions or to exercise any remedy or obtain
any relief under, any Legal Requirement or any Order to which any of the Seller,
or any of the Assets, is subject; (b) contravene, conflict with or result in a
violation of any of the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel, terminate or modify, any
Governmental Authorization that is to be included in the Assets; (c) contravene,
conflict with or result in a violation or breach of, or result in a default
under, any provision of any Seller Contract; (d) give any Person the right to
(i) declare a default or exercise any remedy under any Seller Contract,
(ii) accelerate the maturity or performance of any Seller Contract (other than
an Immaterial Contract), or (iii) cancel, terminate or modify any Seller
Contract (other than an Immaterial Contract); or (g) result in the imposition or
creation of any Encumbrance upon or with respect to any of the Assets. The
Seller is not and will not be required to make any filing with or give any
notice to, or to obtain any Consent from, any Person in connection with the
execution and delivery of any of the Transactional Agreements or the
consummation or performance of any of the Transactions that has not been
obtained prior to the Closing.

 

2.29                        Brokers. Seller has not agreed or become obligated
to pay, or has taken any action that might result in any Person claiming to be
entitled to receive, any brokerage commission, finder’s fee or similar
commission or fee in connection with any of the Transactions.

 

2.30                        Securities Law Matters.

 

(a)                                  The Seller is acquiring the Shares for its
own account and not with a present view toward the public sale or distribution
thereof and has no intention of selling or distributing any of such Shares or
any arrangement or understanding with any other Persons regarding the sale or
distribution of such Shares except as would not result in a violation of the
Securities Act of 1933, as amended (the “Securities Act”) (it being understood
and acknowledged by Purchaser that Seller intends to sell the Liability Payoff
Shares as soon as reasonably practicable pursuant to an effective registration
statement following the Closing). The Seller will not, directly or indirectly,
offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to
buy, purchase or otherwise acquire or take a pledge of) any of the Shares except
pursuant to and in accordance with the Securities Act. The Seller understands
that the Shares are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of the United States and that the
Purchaser is relying upon the truth and accuracy of, and the Seller’s compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Seller set forth herein in order to determine the
availability of such exemptions and the eligibility of the Seller to acquire the
Shares. The Seller has been afforded the opportunity to ask questions of the
Purchaser in connection with this Agreement and the Transactions.  The Seller
acknowledges and understands that its investment in the Shares involves a
significant degree of risk, including, without limitation: (i) an investment in
the Purchaser is speculative; (ii) the Seller may not be able to liquidate its
investment; (iii) the transferability of the Shares is limited; (iv) in the
event of a disposition of the Shares, the Seller could sustain the loss of its
entire investment; and (v) the Purchaser has not paid any dividends on its
Common Stock since inception and does not anticipate the payment of dividends in
the foreseeable future. Such risks are more fully set forth in the Purchaser’s
Annual Report on Form 10-K for the year ended December 31, 2006, as amended, and
the Purchaser’s Quarterly Reports on Form 10-Q for the quarters ended March 31,
2007, June 30, 2007 and September 30, 2007. The Seller is able to bear the
economic risk of holding the Shares for an indefinite period, and has knowledge
and experience in financial and business matters such that it is capable of
evaluating the risks of the investment in the Shares. The Seller understands
that no federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Shares or an
investment therein.

 

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(b)                                  The Seller understands that the Shares will
be issued at Closing and at the Additional Issuance Date in reliance upon
Section 4(2) of the Securities Act or any available rule or regulation
promulgated thereunder.

 

(c)                                  The Seller understands that the
certificates representing the Shares will bear restrictive legends in the
following forms (and a stop-transfer order may be placed against transfer of the
certificates for such Shares):

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR
UNLESS OFFERED, SOLD, PLEDGED, HYPOTHECATED OR TRANSFERRED PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. THE
COMPANY SHALL BE ENTITLED TO REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED TO THE EXTENT THAT SUCH OPINION
IS REQUIRED PURSUANT TO THAT CERTAIN ASSET PURCHASE AGREEMENT UNDER WHICH THE
SECURITIES WERE ISSUED.”

 

2.31                        Solvency of the Seller. The Seller is not now
insolvent nor will it be rendered insolvent by the Transactions. As used in this
Section 2.31, “insolvent” means that the sum of the liabilities of the Seller
exceeds the present fair market value of the Seller’s assets. Immediately after
giving effect to the consummation of the Transactions: (i) the Seller will be
able to pay its liabilities as they become due in the ordinary course of its
business; (ii) the Seller will not have unreasonably small capital with which to
conduct its business following the Closing; and (iii) the Seller will be able to
satisfy any judgments and other obligations to which it is subject, as well as
any judgments that are likely to arise as a result of any pending or threatened
litigation against it.

 

2.32                        Full Disclosure. None of the Transactional
Agreements contains any untrue statement of fact; and none of the Transactional
Agreements omits to state any fact necessary to make any of the representations,
warranties or other statements or information contained therein not misleading.

 

3.                                      REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER.

 

The Purchaser represents and warrants, to and for the benefit of the Seller, as
follows:

 

3.1                               Due Organization. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.

 

3.2                               Shares. The Shares have been duly authorized
and, when issued and delivered in accordance with the terms of this Agreement,
will be duly and validly issued, fully paid, and nonassessable, and will be free
of restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable federal and state securities laws.

 

3.3                               Authority; Binding Nature of Agreements. The
Purchaser has the requisite corporate power and authority to enter into and to
perform its obligations under each of the Transactional Agreements to which it
is a party; and the execution, delivery and performance by the Purchaser of the

 

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Transactional Agreements to which it is a party have been duly authorized by all
necessary action on the part of the Seller and its shareholders, board of
directors and officers.  Assuming the due authorization, execution and delivery
by the other parties hereto, this Agreement and the other Transactional
Agreements to which Purchaser is a party constitute a valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with respective terms, subject only to the effect, if any, of the Enforceability
Exception.

 

3.4                               Proceedings; Orders. There is no pending
Proceeding, and no Person has, to the Knowledge of Purchaser, threatened to
commence any Proceeding: (i) that involves the Purchaser; or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, any of the Transactions.

 

3.5                               Non-Contravention; Consents. Neither the
execution and delivery of any of the Transactional Agreements, nor the
consummation or performance of any of the Transactions, will directly or
indirectly (with or without notice or lapse of time or both): (a) contravene,
conflict with or result in a violation of, or give any Governmental Body or
other Person the right to challenge any of the Transactions or to exercise any
remedy or obtain any relief under, any Legal Requirement or any Order to which
Purchaser, is subject; or (b) contravene, conflict with or result in a violation
or breach of, or result in a default under, any provision of any material
Contract to which Purchaser is party or by which its properties are bound.  The
Purchaser is not and will not be required to make any filing with or give any
notice to, or to obtain any Consent from, any Person in connection with the
execution and delivery of any of the Transactional Agreements or the
consummation or performance of any of the Transactions that has not been
obtained prior to the Closing, provided, however that Purchaser may make all
filings that are required to comply with federal and state securities laws, and
AMEX.

 

3.6                               Brokers. The Purchaser has not become
obligated to pay, and has not taken any action that might result in any Person
claiming to be entitled to receive, any brokerage commission, finder’s fee or
similar commission or fee in connection with any of the Transactions.

 

4.                                      INDEMNIFICATION, ETC.

 

4.1                               Survival of Representations and Covenants.

 

(a)                                  The representations, warranties, covenants
and obligations of each party to this Agreement shall survive (without
limitation): (i) the Closing and the sale of the Assets to the Purchaser;
(ii) any sale or other disposition of any or all of the Assets by the Purchaser;
and (iii) the death or dissolution of any party to this Agreement.  Subject to
Section 4.1(b) and except in the case of fraud or intentional misrepresentation,
all representations and warranties contained in this Agreement shall survive
until, and shall terminate upon, the expiration of the one-year anniversary of
the Closing (the “Indemnification Deadline”); it being understood that in the
event notice of any claim for indemnification under Section 4.2 has been given
prior to the Indemnification Deadline, the representations and warranties that
are the subject of such indemnification claim shall survive with respect to such
claim until such time as such claim is finally resolved, either by means of
(x) a written settlement agreement executed on behalf of the Seller
Representative and the Purchaser, (y) a final, non-appealable order or judgment
issued by a court of competent jurisdiction, or (z) a final, non appealable
determination rendered by an arbitration or like panel to which the parties have
agreed to submit such matter. The right to indemnification, payment of Damages
or other remedy based on the representations, warranties, covenants, and
obligations contained in this Agreement will not be affected by any Knowledge
acquired with respect to the accuracy or inaccuracy of or compliance with, any
such representation, warranty, covenant or obligation.  For purposes of this
Agreement, each statement or other item of information set forth in the
Disclosure Schedule shall be deemed to be a representation and warranty made by
the Seller in this Agreement.

 

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(b)                                  Notwithstanding anything to the contrary,
and without limiting the generality of anything contained in Section 4.1(a),
(i) if Mitchell or the Seller had Knowledge, at or prior to the Closing, of any
circumstance that constitutes a Breach of any representation or warranty set
forth in Section 2, or (ii) if the Purchaser had Knowledge, at or prior to the
Closing, of any circumstance that constitutes a Breach of any representation or
warranty set forth in Section 3, then in either case such representation or
warranty shall not expire, but rather shall remain in full force and effect for
an unlimited period of time (regardless of whether any claim relating to such
representation or warranty has been made).  For purposes of this Agreement, each
statement or other item of information set forth in the Disclosure Schedule
shall be deemed to be a representation and warranty made by Mitchell and the
Seller in this Agreement.

 

4.2                               Indemnification by the Seller.

 

(a)                                  The Seller shall hold harmless and
indemnify each of the Purchaser Indemnitees from and against, and shall pay,
compensate and reimburse each of the Purchaser Indemnitees for, any Damages that
are suffered or incurred by any of the Purchaser Indemnitees or to which any of
the Purchaser Indemnitees may otherwise become subject at any time (regardless
of whether or not such Damages relate to any third-party claim) and that arise
from or as a result of, or are connected with:

 

(i)                                    any Breach of any representation or
warranty made by the Seller in any Transactional Agreement (including this
Agreement) and the Disclosure Schedule as of the date of this Agreement (without
giving effect to any qualification as to materiality contained or incorporated
in such representation or warranty);

 

(ii)                                any Breach of any covenant or obligation of
the Seller contained in any of the Transactional Agreements (other than the
Registration Rights Agreement);

 

(iii)                            any Liability of the Seller or of any Related
Party, other than the Assumed Liabilities;

 

(iv)                               any Liability (other than the Assumed
Liabilities) to which the Purchaser or any of the other Purchaser Indemnitees
may become subject and that arises from or relates to (A) any product produced
or sold or any services performed by or on behalf of the Seller, (B) the
presence of any Hazardous Material at any site owned, leased, occupied or
controlled by the Seller on or at any time prior to the Closing, (C) the
generation, manufacture, production, transportation, importation, use,
treatment, refinement, processing, handling, storage, discharge, release or
disposal of any Hazardous Material (whether lawfully or unlawfully) by or on
behalf of the Seller, (D) any failure to comply with any bulk transfer law,
fraudulent transfer law or similar Legal Requirement in connection with any of
the Transactions, (E) WARN or any similar state or local Legal Requirement that
may result from an “Employment Loss,” as defined by 29 U.S.C. sect. 2101(a)(6),
caused by any action of the Seller prior to the Closing or by the Purchaser’s
decision not to hire previous employees of the Seller, (F) any Seller Employee
Plan, profit sharing plan or dental plan, employment agreement, severance
agreement, change in control agreement, whether or not written, between the
Seller and any Person, (G) 280G payments and excise taxes, sales bonuses and
other retention arrangements established by the Seller or the loss of any tax
benefits, deductions or credits by or on behalf of the Purchaser as a result of
the foregoing and (H) the failure of the Seller to qualify to transact business
in Arizona at any time prior the Closing during which the Seller was required to
so qualify;

 

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(v)                                   any Proceeding relating directly or
indirectly to any Breach, alleged Breach, Liability or matter of the type
referred to in clause “(i),” “(ii),” “(iii),” or “(iv)” above (including any
Proceeding commenced by any Purchaser Indemnitee for the purpose of enforcing
any of its rights under this Section 4); or

 

(vi)                               any claim by any Person that such Person has
any rights in or to the Intellectual Property and Intellectual Property Rights
transferred to Buyer pursuant to Section 1.1.

 

(b)                                  Seller shall not be required to make any
indemnification payment pursuant to Section 4.2(a)(i) for any Breach as set
forth in such Section until such time as the total amount of all Damages
(including the Damages arising from such Breach and all other Damages arising
from any other Breaches of its representations or warranties) that have been
suffered or incurred by any one or more of the Purchaser Indemnitees, or to
which any one or more of the Purchaser Indemnitees has or have otherwise become
subject, exceeds $25,000.  If the total amount of such Damages exceeds the
$25,000, the Purchaser Indemnitees shall be entitled to be indemnified against
and compensated and reimbursed for only that amount that exceeds $25,000.

 

(c)                                  Notwithstanding anything herein to the
contrary:

 

(i)                                    recovery from the Indemnification Escrow
Shares shall be the sole and exclusive remedy for the indemnity obligations
under the Agreement for the matters set forth in Section 4.2(a)(i) and
Section 4.2(a)(v) (but only to the extent that such Section 4.2(a)(v) relates to
a Proceeding related to Section 4.2(a)(i)); and

 

(ii)                                recovery of the Shares from Seller
(including the Indemnification Escrow Shares and the Reimbursement Escrow
Shares) shall be the sole and exclusive remedy for the indemnity obligations
under this Agreement for matters set forth in Sections 4.2(a)(ii), 4.2(a)(iii),
4.2(a)(iv), 4.2(a)(v), and 4.2(a)(vi) (but only to the extent that such
Section 4.2(a)(v) relates to a Proceeding related to Sections 4.2(a)(ii),
4.2(a)(iii), 4.2(a)(iv) and 4.2(a)(vi)); provided, that, the Purchaser
Indemnitees shall only be entitled to make a claim for Damages pursuant to
Section 4.2(a)(vi) until the one year anniversary of the Closing.

 

(d)                                  Nothing in this Section 4 shall prevent
Purchaser from bringing a common law action for fraud or intentational
misrepresentation against any Person whose own fraud or intentional
misrepresentation has caused Purchaser to incur indemnifiable Damages or limit
the indemnifiable Damages recoverable by Purchaser in such common law action;
provided, that, no Indemitee shall be entitled to recover more than once for the
same idemnifiable Damages.

 

4.3                               Indemnification by the Purchaser.

 

(a)                                  The Purchaser shall hold harmless and
indemnify the Seller from and against, and shall compensate and reimburse the
Seller for, any Damages that are suffered or incurred by the Seller or to which
the Seller may otherwise become subject at any time (regardless of whether or
not such Damages relate to any third-party claim) and that arise from or as a
result of, or are connected with:

 

(i)                                    any Breach of any representation or
warranty made by the Purchaser in this Agreement; or

 

(ii)                                any Proceeding relating directly or
indirectly to any failure or Breach of the type referred to in clause “(i)”
above (including any Proceeding commenced by the Seller for the purpose of
enforcing its rights under this Section 4.3).

 

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(b)                                  The Purchaser shall not be required to make
any indemnification payment pursuant to Section 4.3(a) for any Breach of any of
its representations and warranties until such time as the total amount of all
Damages (including the Damages arising from such Breach and all other Damages
arising from any other Breaches of its representations or warranties) that have
been directly or indirectly suffered or incurred by the Seller, or to which the
Seller have otherwise become subject, exceeds $25,000 in the aggregate; provided
that this limitation shall not apply to any Breach arising directly or
indirectly from any circumstance of which the Purchaser had Knowledge at or
prior to the Closing. If the total amount of such Damages exceeds $25,000 in the
aggregate, the Seller shall be entitled to be indemnified against and
compensated and reimbursed for only that amount that exceeds $25,000.)
Notwithstanding anything herein to the contrary, the Purchaser shall have the
right, in its sole discretion, to satisfy any payment obligation pursuant to
this Section 4.3 by delivering that number of shares of Common Stock obtained by
dividing (a) the amount payable by the Purchaser under this Section 4.3, by
(b) the volume weighted average closing price of the Common Stock over the 20
trading-day period ending on the date immediately preceding the Indemnification
Determination Date, as reported on AMEX, and, if the Common Stock is not quoted
on AMEX at any time during such period, as reported on the OTCBB or the Pink
Sheets for the portion of such period that the Common Stock is listed or quoted
on the OTCBB or the Pink Sheets.

 

4.4                               Value of Escrow Shares.  For the purposes of
this Section 4, the price per share attributable to the Shares shall be the
volume weighted average closing price of the Common Stock over the 20
trading-day period ending on the date immediately preceding the Indemnification
Determination Date, as reported on AMEX, and, if the Common Stock is not quoted
on AMEX at any time during such period, as reported on the OTCBB or the Pink
Sheets for the portion of such period that the Common Stock is listed or quoted
on the OTCBB or the Pink Sheets.

 

4.5                               Setoff. In addition to any rights of setoff or
other rights that the Purchaser or any of the other Purchaser Indemnitees may
have at common law or otherwise, subject to and in accordance with the
provisions of this Section 4, the Purchaser shall have the right to setoff and
deduct any sum that may be owed to any Purchaser Indemnitee under this Section 4
from the  Escrow Shares.

 

4.6                               Defense of Third Party Claims. In the event of
the assertion or commencement by any Person (other than Purchaser or the Seller)
of any Proceeding (whether against the Purchaser, Seller or against any other
Person) with respect to which any Person (a “Third Party Claim Indemnitee”) may
be entitled to indemnification, compensation or reimbursement pursuant to this
Section 4, each Third Party Claim Indemnitee shall have the right, at its
election, to proceed with the defense of such Proceeding on its own; provided,
however, that the Third Party Claim Indemnitee may not settle or compromise any
such Proceeding without the prior written consent of the indemnifying party
(which consent shall not be unreasonably withheld), unless such settlement or
compromise includes a full release of Liability with respect to the indemnifying
party; and provided further that such settlement or compromise shall not be
conclusive evidence of the amount of Damages incurred by the Third Party Claim
Indemnitee in connection with such Proceeding. All reasonable expenses relating
to the defense of such claim or Proceeding shall be borne and paid exclusively
by the indemnifying party if the indemnifying party is obligated to otherwise
indemnify the Third Party Claim Indemnitee under this Section 4. The
indemnifying party shall make available to the Third Party Claim Indemnitee any
documents and materials in its possession or control that may be necessary to
the defense of such claim or Proceeding. The Third Party Claim Indemnitee shall
give the indemnifying party prompt notice after it becomes aware of the
commencement of any such Proceeding against the Third Party Claim Indemnitee;
provided, however, any failure on the part of the Third Party Claim Indemnitee
to so notify the indemnifying party shall not limit any of the obligations of
the indemnifying party, or any of the rights of any Third Party Claim
Indemnitee, under this Section 4 (except to the extent such failure materially
prejudices the defense of such Proceeding). If the Third Party Claim Indemnitee
does not elect to proceed with the defense of

 

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any such Proceeding, the indemnifying party may proceed with the defense of such
Proceeding; provided, however, that the indemnifying party may not settle or
compromise any such Proceeding without the prior written consent of the Third
Party Claim Indemnitee (which consent may not be unreasonably withheld) unless
such settlement includes a full release of Liability with respect to the Third
Party Claim Indemnitee.

 

4.7                               Exercise of Remedies by Purchaser Indemnitees
other than the Purchaser. No Purchaser Indemnitee (other than the Purchaser or
any successor thereto or assign thereof) shall be permitted to assert any
indemnification claim or exercise any other remedy under this Agreement unless
the Purchaser (or any successor thereto or assign thereof) shall have consented
to the assertion of such indemnification claim or the exercise of such other
remedy.

 

4.8                               Escrow. Upon the one-year anniversary of the
date of the Closing, in accordance with the terms of the Escrow Agreement, the
Escrow Agent shall release from the Escrow Account the Escrow Shares that are
not subject to any claims made pursuant to setoff or indemnification pursuant to
this Section 4 (whether or not such claims have been determined to be valid as
of such date, provided that such remaining Indemnification Escrow Shares shall
be so released as soon as and to the extent that any such claim has been
determined not to be valid).

 

4.9                               Exclusive Remedy.  This Section 4 shall
provide the sole and exclusive remedy with respect to any and all claims
relating to the subject matter of this Agreement and the other Transactional
Agreements to which Purchaser is a party.

 

5.                                      CERTAIN COVENANTS.

 

5.1                               Further Actions. From and after the Closing,
the Seller shall cooperate with the Purchaser and the Purchaser’s affiliates and
Representatives, and shall execute and deliver such documents and take such
other actions as the Purchaser may reasonably request, for the purpose of
evidencing the Transactions and placing the Purchaser in possession and control
of all of the Assets.  Without limiting the generality of the foregoing, from
and after the Closing, the Seller shall promptly remit to the Purchaser any
funds that are received by the Seller and that are included in, or that
represent payment of receivables included in, the Assets. The Seller: (a) hereby
irrevocably authorizes the Purchaser, at all times on and after the Closing, to
endorse in the name of the Seller any check or other instrument that is made
payable to the Seller and that represents funds included in, or that represents
the payment of any receivable included in, the Assets; and (b) hereby
irrevocably nominates, constitutes and appoints the Purchaser as the true and
lawful attorney-in-fact of the Seller (with full power of substitution)
effective as of the Closing, and hereby authorizes the Purchaser, in the name of
and on behalf of the Seller, to execute, deliver, acknowledge, certify, file and
record any document, to institute and prosecute any Proceeding and to take any
other action (on or at any time after the Closing) that the Purchaser may deem
appropriate for the purpose of (i) collecting, asserting, enforcing or
perfecting any claim, right or interest of any kind that is included in or
relates to any of the Assets, (ii) defending or compromising any claim or
Proceeding relating to any of the Assets, or (iii) otherwise carrying out or
facilitating any of the Transactions. The power of attorney referred to in the
preceding sentence is and shall be coupled with an interest and shall be
irrevocable, and shall survive the dissolution, bankruptcy or insolvency of the
Seller.

 

5.2                               Publicity. Seller shall ensure that, on and at
all times at and after the Closing: (a) no press release or other publicity
concerning any of the Transactions is issued or otherwise disseminated by or on
behalf of the Seller without the Purchaser’s prior written consent; (b) the
Seller continues to keep the terms of this Agreement and the other Transactional
Agreements strictly confidential (provided, that, the terms of this Agreement
may be disclosed to the shareholders of the Seller and such shareholders may

 

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communicate the existence of the transaction and consideration paid in the
transaction to its general and limited partners); and (c) except as permitted in
subsection (b), the Seller keep strictly confidential, and the Seller does not
use or disclose to any other Person, any non-public document or other
information that relates directly or indirectly to the business of the Seller,
the Purchaser or any affiliate of the Purchaser, except (i) with respect to such
information has been previously made publicly available by the Purchaser and
(ii) to the extent the Seller is required by law to make such disclosure (in
which case the Seller shall advise the Purchaser at least five business days
before making such disclosure of the nature and content of the intended
disclosure.

 

5.3                               Change of Name. As promptly as practicable
after the Closing, the Seller shall change its name to a name that does not
include the words “Sol Logic” or any variation thereof and that is reasonably
satisfactory to the Purchaser.

 

5.4                               Lock-up Agreement. Without the prior written
consent of the Purchaser, the Seller will not, during the period commencing at
the Closing and ending on the one-year anniversary of the date of the Closing,
directly or indirectly: (1) offer, sell, contract to sell, pledge, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend, or otherwise distribute,
dividend, transfer or dispose of any Shares to any Person (including to any
Shareholder); or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Shares, or any securities convertible into or exchangeable for the Shares,
regardless of whether any such transaction described herein is to be settled by
delivery of the Shares or such other securities, or by delivery of cash or
otherwise. Notwithstanding the foregoing, the restrictions on the Seller
described in this Section 5.4 shall not apply with respect to the Liability
Payoff Shares.  The Seller hereby agrees and consents to the entry of stop
transfer instructions with the Purchaser’s transfer agent against the transfer
of the Shares, except in compliance with this Section 5.4.

 

5.5                               Employee Matters. The Seller shall be
responsible for providing or discharging any and all notifications, benefits and
liabilities to its employees and governmental authorities required by WARN or by
any other applicable Legal Requirement relating to plant closings or employee
separations or severance pay that are required to be provided before the Closing
as a result of the Transactions. Following the Closing, the Seller shall comply
with COBRA or similar state statutes with respect to all current and former
employees of the Seller.

 

5.6                               Payment of All Taxes Resulting from Sale of
Assets by Seller. The Seller shall pay in a timely manner all Taxes resulting
from or payable in connection with the sale of the Assets pursuant to this
Agreement, regardless of the Person on whom such Taxes are imposed by Legal
Requirements.  Prior to and after the Closing, the Seller shall cooperate with
the Purchaser to comply with all applicable provisions of state tax laws that,
in the absence of such compliance, would hold the Purchaser liable for unpaid
Taxes of the Seller. Within one year following the Closing or at such time as
required by applicable Legal Requirements, the Seller shall deliver to the
Purchaser tax clearance certificates from such states for all such state Taxes.

 

5.7                               Nonsolicitation of Employees. Beginning on the
date hereof and ending on the third anniversary of the date of the Closing (the
“No-Solicit Period”), the Seller shall not solicit or cause to be solicited any
employee, consultant or other agent of the Purchaser to leave employment or
service with the Purchaser; provided that this Section 5.7 will not apply to
general solicitations of employment or service not specifically directed toward
the Purchaser’s employees, consultants or other agents.

 

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5.8                               Restrictions on Competition. During the
No-Solicit Period, the Seller, without the prior written consent of the
Purchaser: (a) engage in any aspect of business related to multi-lingual
communications, automatic speech recognition (ASR), machine translation (MT) and
text to speech (TTS) technologies (the “Business”) anywhere in the world; or
(b) participate in, invest in, provide services to or otherwise deal with any
Person that engages, or has plans to engage, directly or indirectly in any
aspect of the Business anywhere in the world; provided, however, that (i) any
venture capital firms that are affiliates of the Seller are not subject to the
restrictions set forth in this Section 5.8; and (ii) this Section 5.8 shall not
prohibit any Person that is then engaged in activities substantially similar to
the Business from investing or proposing to invest in the Seller, or acquiring
all of the stock or all or substantially all of the assets of the Seller, during
the No-Solicit Period, so long as no information relating to the Business or the
Assets is provided or disclosed by the Seller or its Representatives, directly
or indirectly, to such Person.

 

5.9                               No Interference with Customers. During the
No-Solicit Period, the Seller shall not, for itself or on behalf of any other
Person: (a) induce or attempt to induce any customer to cease doing business
with the Purchaser or any of the Purchaser’s subsidiaries or reduce the volume
of business transacted by such customer with the Purchaser or any of the
Purchaser’s subsidiaries; or (b) solicit the business of any Person known to the
Seller to be a customer of the Purchaser or any of the Purchaser’s subsidiaries,
with respect to the Business or the Assets; provided, however, that this
Section 5.9 shall not prohibit any Person that is then engaged in activities
substantially similar to the Business from investing or proposing to invest in
the Seller, or acquiring all of the stock or all or substantially all of the
assets of the Seller, during the No-Solicit Period, so long as no information
relating to the Business or the Assets is provided or disclosed by the Seller or
its Representatives, directly or indirectly, to such Person.

 

5.10                        Customer and Other Business Relationships. From and
after the Closing, the Seller shall promptly satisfy the Liabilities of the
Seller (other than the Assumed Liabilities) in a manner that is not detrimental
to any of the ongoing relationships of the Business.

 

5.11                        Payment of Other Retained Liabilities. In addition
to payment of Taxes pursuant to Section 5.6, the Seller shall pay, or make
adequate provision for the payment reasonably acceptable to the Purchaser, in
full all of the Liabilities existing as of the Closing other than the Assumed
Liabilities (the “Retained Liabilities”). If any such Retained Liabilities are
not so paid or provided for, or if the Purchaser reasonably determines that
failure to make any payments will impair the Purchaser’s use or enjoyment of the
Assets or conduct of the Business previously conducted by the Seller with the
Assets, the Purchaser may, at any time at or prior to the one-year anniversary
of the date of the Closing, elect to make all such payments directly (but shall
have no obligation to do so) and setoff and deduct the full amount of all such
payments (each, a “Purchaser Payment”) from that number of Reimbursement Escrow
Shares obtained by dividing the (a) amount of each Purchaser Payment, by (b) the
volume weighted average closing price of the Common Stock over the 20
trading-day period ending on the date immediately preceding the date of such
Purchaser Payment, as reported on AMEX, and, if the Common Stock is not quoted
on AMEX at any time during such period, as reported on the OTCBB or the Pink
Sheets for the portion of such period that the Common Stock is listed or quoted
on the OTCBB or the Pink Sheets; provided that the Purchaser shall not be
permitted to set off and deduct the amount of any such Purchaser Payment from
the Reimbursement Escrow Shares until 30 days after the Registration Statement
is declared effective by the SEC. The setoff and deduction of any such sum shall
operate for all purposes as a complete discharge (to the extent of such sum) of
the obligation to pay the amount, in the form of the issuance of the Shares to
the Seller, from which the sum was set off and deducted.

 

5.12                        Restrictions on Seller Dissolution and
Distributions. The Seller shall not dissolve or make any distribution of the
Shares or of the proceeds received from the sale of the Shares (other than with
respect to the Liability Payoff Shares) by or on behalf of the Seller until the
one year anniversary following the Closing.

 

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5.13                        Acknowledgment Regarding Payable.  The Purchaser
acknowledges that the payable owed by the Seller to the Purchaser in the amount
of $25,000 has been extinguished and satisfied in full.

 

6.                                      MISCELLANEOUS PROVISIONS.

 

6.1                               Seller Representative.

 

(a)                                  The Seller hereby irrevocably nominates,
constitutes and appoints Wink Jones as the agent and true and lawful
attorney-in-fact of the Seller (the “Seller Representative”), with full power of
substitution, to act in the name, place and stead of the Seller for purposes of
executing any documents and taking any actions that the Seller Representative
may, in his sole discretion, determine to be appropriate in connection with any
of the Transactional Agreements or any of the Transactions. Wink Jones hereby
accepts his appointment as Seller Representative.

 

(b)                                  Seller  hereby grants to the Seller
Representative full authority to execute, deliver, acknowledge, certify, file
and record on behalf of the Seller (in the name of the Seller  or otherwise) any
and all documents that the Seller Representative may, in his sole discretion,
determine to be appropriate, in such forms and containing such provisions as the
Seller Representative may, in his sole discretion, determine to be appropriate
(including any amendment to or waiver of rights under any of the Transactional
Agreements). Notwithstanding anything to the contrary contained in any of the
Transactional Agreements: (i) the Purchaser shall be entitled to deal
exclusively with the Seller Representative on all matters relating to the
respective Transactional Agreements and the Transactions (including all matters
relating to any notice to, or any Consent to be given or action to be taken by,
the Seller); and (ii) each Purchaser Indemnitee shall be entitled to rely
conclusively (without further evidence of any kind whatsoever) on any document
executed or purported to be executed on behalf of the Seller by the Seller
Representative, and on any other action taken or purported to be taken on behalf
of the Seller by the Seller Representative, as fully binding upon the Seller.

 

(c)                                  Seller hereby, recognizes and intends that
the power of attorney granted in Section 7.1(a): (i) is coupled with an interest
and is irrevocable; (ii) may be delegated by the Seller Representative; and
(iii) shall survive any dissolution of the Seller.

 

(d)                                  If the Seller Representative shall die,
become disabled or otherwise be unable to fulfill his responsibilities
hereunder, the Seller, within ten days after such death or disability, shall
appoint a successor to the Seller Representative and immediately thereafter
notify the Purchaser of the identity of such successor. Any such successor shall
succeed the Seller Representative as Seller Representative hereunder. No Seller
Representative shall resign until a successor representative shall have been
appointed.

 

(e)                                  The Seller Representative shall not be
liable to Seller for any act done or omitted hereunder as the Seller
Representative while acting in good faith (and any act done or omitted pursuant
to the advice of counsel shall be conclusive evidence of such good faith) and
without gross negligence or willful misconduct. All losses, liabilities and
expenses incurred by the Seller Representative in connection with the
performance of its duties as Seller Representative shall be borne and paid
exclusively by the Seller.  If not paid directly to the Seller Representative by
the Seller, such losses, liabilities and expenses may be recovered by the Seller
Representative from the Escrow Shares otherwise distributable to the Seller (and
not distributed or distributable to a Purchaser Indemnitee).

 

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6.2                               Further Assurances. Each party hereto shall
execute and/or cause to be delivered to each other party hereto such instruments
and other documents, and shall take such other actions, as such other party may
reasonably request (at or after the Closing) for the purpose of carrying out or
evidencing any of the Transactions.

 

6.3                               Fees and Expenses.

 

(a)                                  The Seller shall bear and pay all fees,
costs and expenses (including all legal fees and expenses payable to Cooley
Godward Kronish LLP and any other counsel to the Seller) that have been incurred
or that are in the future incurred by, on behalf of or for the benefit of the
Seller in connection with: (i) the negotiation, preparation and review of any
letter of intent or similar document relating to any of the Transactions;
(ii) the investigation and review conducted by the Purchaser and its
Representatives with respect to the business of the Seller (and the furnishing
of information to the Purchaser and its Representatives in connection with such
investigation and review); (iii) the negotiation, preparation and review of this
Agreement (including the Disclosure Schedule), the other Transactional
Agreements and all bills of sale, assignments, certificates, opinions and other
instruments and documents delivered or to be delivered in connection with the
Transactions; (iv) the preparation and submission of any filing or notice
required to be made or given in connection with any of the Transactions, and the
obtaining of any Consent required to be obtained in connection with any of the
Transactions; and (v) the consummation and performance of the Transactions.

 

(b)                                  The Purchaser shall bear and pay all fees,
costs and expenses (including all legal fees and expenses payable to Paul,
Hastings, Janofsky & Walker LLP) that have been incurred or that are in the
future incurred by or on behalf of the Purchaser in connection with: (i) the
negotiation, preparation and review of any letter of intent or similar document
relating to any of the Transactions; (ii) the investigation and review conducted
by the Purchaser and its Representatives with respect to the business of the
Seller; (iii) the negotiation, preparation and review of this Agreement, the
other Transactional Agreements and all bills of sale, assignments, certificates,
opinions and other instruments and documents delivered or to be delivered in
connection with the Transactions; and (iv) the consummation and performance of
the Transactions.

 

6.4                               Attorneys’ Fees. If any legal action or other
legal proceeding relating to any of the Transactional Agreements or the
enforcement of any provision of any of the Transactional Agreements is brought
against any party to this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys’ fees, costs and disbursements (in addition to any
other relief to which the prevailing party may be entitled).

 

6.5                               Notices. Any notice or other communication
required or permitted to be delivered to any party under this Agreement shall be
in writing and shall be deemed properly delivered, given and received when
delivered (by hand, by registered mail, by courier or express delivery service
or by facsimile) to the address or facsimile telephone number set forth beneath
the name of such party below (or to such other address or facsimile telephone
number as such party shall have specified in a written notice given to the other
parties hereto)(1):

 

if to the Seller Representative:

 

 

Wink Jones, as agent of the Seller

1020 West Main St., Suite 100J

Boise, ID, 83702

Facsimile: 303-484-5397

 

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(1) Allow for delivery of notice via electronic mail?

 

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if to the Seller or Mitchell:

 

 

Sol Logic, Inc.

PMB 472

1396 Willow Creek Rd STE A103

Prescott, AZ 86301

Attn: Frank Mitchell

Facsimile: 877-819-9359

 

 

with a copy (which shall not constitute notice to the Seller) to:

 

 

Cooley Godward Kronish LLP

380 Interlocken Crescent, Suite 900

Broomfield, CO 80021

Attn: Laura M. Medina

Facimile: 720-566-4099

 

 

if to the Purchaser:

 

 

ImageWare Systems, Inc.

10883 Thornmint Road

San Diego, CA 92127

Facsimile: 858-673-1770

 

 

with a copy (which shall not constitute notice to the Purchaser) to:

 

 

Paul, Hastings, Janofsky & Walker LLP

3579 Valley Centre Drive

San Diego, CA 92130

Attn: Carl R. Sanchez

Facsimile: 858-720-2555

 

6.6                               Time of the Essence.  Time is of the essence
of this Agreement.

 

6.7                               Headings. The underlined headings contained in
this Agreement are for convenience of reference only, shall not be deemed to be
a part of this Agreement and shall not be referred to in connection with the
construction or interpretation of this Agreement.

 

6.8                               Counterparts. This Agreement may be executed
in one or more counterparts, each of which will be deemed to be an original copy
of this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement. Signatures of the parties transmitted by
facsimile shall be deemed to be their original signatures for all purposes.

 

6.9                               Governing Law; Venue. This Agreement shall be
construed in accordance with, and governed in all respects by, the internal laws
of the State of California (without giving effect to principles of conflicts of
laws). The Seller agrees that, if any Proceeding is commenced against any
Purchaser Indemnitee by any Person in or before any court or other tribunal
anywhere in the world, then such Purchaser Indemnitee may proceed against the
Seller in or before such court or other tribunal with respect to any
indemnification claim or other claim arising directly or indirectly from or
relating directly or

 

33

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indirectly to such Proceeding or any of the matters alleged therein or any of
the circumstances giving rise thereto. The Seller irrevocably constitutes and
appoints the Seller Representative as its agent to receive service of process in
connection with any legal proceeding relating to this Agreement or any other
Transactional Agreement or the enforcement of any provision of this Agreement or
any other Transactional Agreement.

 

6.10                        Successors and Assigns; Parties in Interest. This
Agreement shall be binding upon: the Seller and its successors and assigns (if
any); and the Purchaser and its successors and assigns (if any). This Agreement
shall inure to the benefit of: the Seller; the Purchaser; the other Purchaser
Indemnitees (subject to Section 4.6); and the respective successors and assigns
(if any) of the foregoing. The Purchaser may freely assign any or all of its
rights under this Agreement (including its indemnification rights under
Section 4), in whole or in part, to any other Person without obtaining the
consent or approval of any other Person. Seller shall not be permitted to assign
any of its rights or delegate any of its obligations under this Agreement
without the Purchaser’s prior written consent. Except for the provisions of
Section 4, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties to this Agreement and
their respective successors and assigns (if any). Without limiting the
generality of the foregoing, (i) no employee of the Seller shall have any rights
under this Agreement or under any of the other Transactional Agreements, and
(ii) no creditor of the Seller shall have any rights under this Agreement or any
of the other Transactional Agreements.

 

6.11                        Remedies Cumulative; Specific Performance. The
rights and remedies of the parties hereto shall be cumulative (and not
alternative).  The Seller agrees that: (a) in the event of any Breach or
threatened Breach by Seller of any covenant, obligation or other provision set
forth in this Agreement, the Purchaser shall be entitled (in addition to any
other remedy that may be available to it) to (i) a decree or order of specific
performance or mandamus to enforce the observance and performance of such
covenant, obligation or other provision, and (ii) an injunction restraining such
Breach or threatened Breach; and (b) neither the Purchaser nor any other
Purchaser Indemnitee shall be required to provide any bond or other security in
connection with any such decree, order or injunction or in connection with any
related action or Proceeding. The Purchaser agrees that: (A) in the event of any
Breach or threatened Breach by the Purchaser of any covenant, obligation or
other provision set forth in this Agreement, the Seller shall be entitled (in
addition to any other remedy that may be available to it) to (I) a decree or
order of specific performance or mandamus to enforce the observance and
performance of such covenant, obligation or other provision, and (II) an
injunction restraining such Breach or threatened Breach; and (B) the Seller
shall not be required to provide any bond or other security in connection with
any such decree, order or injunction or in connection with any related action or
Proceeding.

 

6.12                        Waiver. No failure on the part of any Person to
exercise any power, right, privilege or remedy under this Agreement, and no
delay on the part of any Person in exercising any power, right, privilege or
remedy under this Agreement, shall operate as a waiver of such power, right,
privilege or remedy; and no single or partial exercise of any such power, right,
privilege or remedy shall preclude any other or further exercise thereof or of
any other power, right, privilege or remedy. No Person shall be deemed to have
waived any claim arising out of this Agreement, or any power, right, privilege
or remedy under this Agreement, unless the waiver of such claim, power, right,
privilege or remedy is expressly set forth in a written instrument duly executed
and delivered on behalf of such Person; and any such waiver shall not be
applicable or have any effect except in the specific instance in which it is
given.

 

6.13                        Amendments. This Agreement may not be amended,
modified, altered or supplemented other than by means of a written instrument
duly executed and delivered on behalf of the Purchaser and the Seller
Representative.

 

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6.14                        Severability. Any term or provision of this
Agreement that is invalid or unenforceable in any situation in any jurisdiction
shall not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction. If the final
judgment of a court of competent jurisdiction declares that any term or
provision hereof is invalid or unenforceable, the parties hereto agree that the
court making such determination shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified. In the event such court does not exercise the power granted to it in
the prior sentence, the parties hereto agree to replace such invalid or
unenforceable term or provision with a valid and enforceable term or provision
that will achieve, to the extent possible, the economic, business and other
purposes of such invalid or unenforceable term.

 

6.15                        Entire Agreement. The Transactional Agreements set
forth the entire understanding of the parties relating to the subject matter
thereof and supersede all prior agreements and understandings among or between
any of the parties relating to the subject matter thereof.

 

6.16                        Construction. For purposes of this Agreement,
whenever the context requires: the singular number shall include the plural, and
vice versa; the masculine gender shall include the feminine and neuter genders;
the feminine gender shall include the masculine and neuter genders; and the
neuter gender shall include the masculine and feminine genders. All of the
parties to this Agreement have participated jointly in the negotiation and
drafting of this Agreement. In the event any ambiguity or question of
interpretation arises, this Agreement, the other Transactional Agreements and
the other documents and instruments executed in connection with this Agreement
shall be construed as if drafted jointly, and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
provision of this Agreement, the other Transactional Agreements or such other
documents and instruments. The language used in this Agreement and the other
Transactional Agreements shall be deemed to be the language chosen by the
parties hereto to express their mutual intent, and no rule of strict
construction shall be applied against any Person. The parties hereto intend that
each representation, warranty, and covenant contained herein shall have
independent significance. If any party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
party has not breached shall not detract from or mitigate the fact that the
party is in breach of the first representation, warranty, or covenant. Any
reference to any particular Code Section or any other statute, law or regulation
will be interpreted to include any revision of or successor to that
Section regardless of how it is numbered or classified. As used in this
Agreement, the words “include” and “including,” and variations thereof, shall
not be deemed to be terms of limitation, but rather shall be deemed to be
followed by the words “without limitation.” Except as otherwise indicated, all
references in this Agreement to a “Section,” a “Schedule” and an “Exhibit” are
intended to refer to a section, a schedule or an exhibit to this Agreement,
respectively.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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The parties to this Agreement have caused this Agreement to be executed and
delivered as of December       , 2007.

 

 

“SELLER”

 

 

 

 

 

SOL LOGIC, INC.,

 

 a California corporation

 

 

 

 

 

By:

 

 

Name: Frank Mitchell

 

Title: President

 

 

 

 

 

“MITCHELL”

 

 

 

 

 

FRANK MITCHELL, a shareholder of the Seller

 

 

 

 

 

By:

 

 

Name: Frank Mitchell

 

 

 

 

 

“PURCHASER”

 

 

 

 

 

IMAGEWARE SYSTEMS, INC.,

 

 a Delaware corporation

 

 

 

 

 

By:

 

 

Name: S. James Miller, Jr.

 

Title: Chief Executive Officer

 

 

 

 

 

“SELLER REPRESENTATIVE”

 

 

 

 

 

By:

 

 

Name: Wink Jones

 

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EXHIBIT A

 

CERTAIN DEFINITIONS

 

For purposes of the Agreement (including this Exhibit A):

 

“Agreement” shall mean the Asset Purchase Agreement to which this Exhibit A is
attached (including the Disclosure Schedule), as it may be amended from time to
time.

 

There shall be deemed to be a “Breach” of a representation, warranty, covenant,
obligation or other provision if there is or has been (a) any inaccuracy in or
breach (including any inadvertent or innocent breach) of, or any failure
(including any inadvertent failure) to comply with or perform, such
representation, warranty, covenant, obligation or other provision, or (b) any
claim (by any Person) or other circumstance that is inconsistent with such
representation, warranty, covenant, obligation or other provision; and the term
“Breach” shall be deemed to refer to any such inaccuracy, breach, failure, claim
or circumstance.

 

“CERCLA” shall mean the Comprehensive Environmental Response, Compensation and
Liability Act.

 

“COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended.

 

 “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

“Consent” shall mean any approval, consent, ratification, permission, waiver or
authorization (including any Governmental Authorization).

 

 “Contract” shall mean any written, oral, implied or other agreement, contract,
understanding, arrangement, instrument, note, guaranty, indemnity,
representation, warranty, deed, assignment, power of attorney, certificate,
purchase order, work order, insurance policy, benefit plan, commitment,
covenant, assurance or undertaking of any nature.

 

 “Damages” shall include any loss, damage, injury, decline in value, Liability,
claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including
any reasonable legal fee, expert fee, accounting fee or advisory fee), charge,
cost (including any cost of investigation) or expense of any nature.

 

 “Disclosure Schedule” shall mean the schedule (dated as of the date of the
Agreement) delivered to the Purchaser on behalf of Seller, a copy of which is
attached to the Agreement and incorporated in the Agreement by reference.

 

“DOL” shall mean the United States Department of Labor.

 

“Encumbrance” shall mean any lien, pledge, hypothecation, charge, mortgage,
security interest, encumbrance, equity, trust, equitable interest, claim,
preference, right of possession, lease, tenancy, license, encroachment,
covenant, infringement, interference, Order, proxy, option, right of first
refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
transfer of any asset, any restriction on the receipt of any income derived from
any asset, any restriction on the use of any asset and any restriction on the
possession, exercise or transfer of any other attribute of ownership of any
asset).

 

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“Entity” shall mean any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, cooperative, foundation, society, political party,
union, company (including any limited liability company or joint stock company),
firm or other enterprise, association, organization or entity.

 

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended.

 

“FMLA” shall mean the Family Medical Leave Act of 1993, as amended.

 

“Foreign Plan” shall mean: (i) any plan, program, policy, practice, Contract or
other arrangement mandated by a Governmental Body other than the United States;
(ii) any Seller Employee Plan maintained or contributed to by the Seller or any
Seller Affiliate that is not subject to United States law; and (iii) any Seller
Employee Plan that covers or has covered Seller Employees whose services are
performed primarily outside of the United States.

 

“GAAP” shall mean U.S. generally accepted accounting principles.

 

“Governmental Authorization” shall mean any: (a) permit, license, certificate,
franchise, concession, approval, consent, ratification, permission, clearance,
confirmation, endorsement, waiver, certification, designation, rating,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.

 

“Governmental Body” shall mean any: (a) nation, principality, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; (c) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency, bureau,
branch, office, commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or other
tribunal); (d) multi-national organization or body; or (e) individual, Entity or
body exercising, or entitled to exercise, any executive, legislative, judicial,
administrative, regulatory, police, military or taxing authority or power of any
nature.

 

“Hazardous Material” shall include: (a) any petroleum, waste oil, crude oil,
asbestos, urea formaldehyde or polychlorinated biphenyl; (b) any waste, gas or
other substance or material that is explosive or radioactive; (c) any “hazardous
substance,” “pollutant,” “contaminant,” “hazardous waste,” “regulated
substance,” “hazardous chemical” or “toxic chemical” as designated, listed or
defined (whether expressly or by reference) in any statute, regulation or other
Legal Requirement (including CERCLA and any other so-called “superfund” or
“superlien” law and the respective regulations promulgated thereunder); (d) any
other substance or material (regardless of physical form) or form of energy that
is subject to any Legal Requirement which regulates or establishes standards of
conduct in connection with, or which otherwise relates to, the protection of
human health, plant life, animal life, natural resources, property or the
enjoyment of life or property from the presence in the environment of any solid,
liquid, gas, odor, noise or form of energy; and (e) any compound, mixture,
solution, product or other substance or material that contains any substance or
material referred to in clause “(a)”, “(b)”, “(c)” or “(d)” above.

 

“HIPAA” shall mean the Health Insurance Portability and Accountability Act of
1996, as amended.

 

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“Immaterial Contract” shall mean any Seller Contract that is currently in effect
that: (a) was entered into by the Seller in the Ordinary Course of Business;
(b) has a term of less than 90 days or may be terminated by the Seller (without
penalty) within 30 days after the delivery of a termination notice by the Seller
to the other party thereto; and (c) does not contemplate or involve the payment
of cash or other consideration after the date hereof in an amount or having a
value in excess of $5,000.

 

“Indebtedness” means, with respect to the Seller: (a) all indebtedness of the
Seller for borrowed money (including bank overdrafts) whether or not contingent,
including, without limitation, any amounts outstanding or owing under capital
leases, bonds, debentures or similar instruments, letters of credit, notes or
dividends payable; (b) all obligations of the Seller in respect of banker’s
acceptances or other similar instruments (including reimbursement obligations
with respect thereto); (c) all obligations of the Seller to pay the deferred and
unpaid purchase price of property or services (other than trade payables
incurred in the Ordinary Course of Business); (d) the capitalized portion of all
obligations of the Seller as lessee under leases that have been or should be, in
accordance with GAAP, be recorded as capital leases; (e) all indebtedness (fixed
or contingent) of others under which the Seller acts as surety, guarantor or
indemnitor, to the extent such indebtedness is guaranteed by the Seller; (f) all
obligations secured by an Encumbrance on the property and assets of the Seller;
(g) to the extent not otherwise included in this definition, obligations under
any interest rate swap, cap or collar agreement or other hedging agreements and
(h) all interest, prepayment penalties, fees, expenses, charges, reimbursements,
indemnities and other payment obligations in respect of the Indebtedness set
forth in clauses (a) through (g) above.

 

“Indemnification Determination Date” shall mean the date that the final amount
of the Damages are (i) agreed to by the parties in writing, (ii) entered by a
court of competent jurisdiction pursuant to a final and non-appealable order or
judgment, or (iii) rendered by an arbitration or like panel to which the parties
have agreed to submit such matters pursuant to a final, non-appealable
determination thereby.

 

“Intellectual Property” shall mean algorithms, APIs, apparatus, circuit designs
and assemblies, gate arrays, IP cores, net lists, photomasks, semiconductor
devices, test vectors, databases, data collections, diagrams, formulae,
inventions (whether or not patentable), know-how, logos, marks (including brand
names, product names, logos, and slogans), methods, network configurations and
architectures, processes, proprietary information, protocols, schematics,
specifications, software, software code (in any form, including source code and
executable or object code), subroutines, techniques, user interfaces, URLs, web
sites, works of authorship and other forms of technology (whether or not
embodied in any tangible form and including all tangible embodiments of the
foregoing, such as instruction manuals, laboratory notebooks, prototypes,
samples, studies and summaries).

 

“Intellectual Property Rights” shall mean all past, present, and future rights
of the following types, which may exist or be created under the laws of any
jurisdiction in the world: (A) rights associated with works of authorship,
including exclusive exploitation rights, copyrights, moral rights and mask
works; (B) trademark and trade name rights and similar rights; (C) trade secret
rights; (D) patent and industrial property rights; (E) other proprietary rights
in Intellectual Property; and (F) rights in or relating to registrations,
renewals, extensions, combinations, divisions, and reissues of, and applications
for, any of the rights referred to in clauses “(A)” through “(E)” above.

 

“IRS” shall mean the United States Internal Revenue Service.

 

“Knowledge” shall mean the following: (a) with respect to Mitchell, such
individual shall be deemed to have Knowledge of a particular fact or other
matter if (i) such individual is actually aware of the fact or matter (after
such inquiry as would be customary for a transaction of the nature contemplated
by this Agreement), or (ii) such individual would reasonably be expected to have

 

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Knowledge of the fact or matter (after such inquiry as would be customary for a
transaction of the nature contemplated by this Agreement) given such
individual’s employment position with the Seller; and (b) with respect to the
Seller, the Seller will be deemed to have Knowledge of a particular fact or
other matter if any individual who is currently serving as a director or
executive officer of the Seller has, or at any time had, Knowledge of that fact
or other matter (as determined in accordance with clause (a) above).

 

“Legal Requirement” shall mean any federal, state, local, municipal, foreign or
other law, statute, legislation, constitution, principle of common law,
resolution, ordinance, code, edict, decree, proclamation, treaty, convention,
rule, regulation, ruling, directive, pronouncement, requirement, specification,
determination, decision, opinion or interpretation issued, enacted, adopted,
passed, approved, promulgated, made, implemented or otherwise put into effect by
or under the authority of any Governmental Body.

 

“Liability” shall mean any debt, obligation, duty or liability of any nature
(including any unknown, undisclosed, unmatured, unaccrued, unasserted,
contingent, indirect, conditional, implied, vicarious, derivative, joint,
several or secondary liability), regardless of whether such debt, obligation,
duty or liability would be required to be disclosed on a balance sheet prepared
in accordance with generally accepted accounting principles and regardless of
whether such debt, obligation, duty or liability is immediately due and payable.

 

“Liability Payoff Shares” shall mean that number of Shares received at the
Closing having an aggregate value equal to the lesser of $500,000 or the dollar
amount owed by Seller to its creditors at the time the Shares are sold (based on
the price per share at which the Shares are sold).

 

“Order” shall mean any: (a) order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence, subpoena,
writ or award issued, made, entered, rendered or otherwise put into effect by or
under the authority of any court, administrative agency or other Governmental
Body or any arbitrator or arbitration panel; or (b) Contract with any
Governmental Body entered into in connection with any Proceeding.

 

An action taken by or on behalf of the Seller shall not be deemed to have been
taken in the “Ordinary Course of Business” unless:

 

(a)                                  such action is recurring in nature, is
consistent with the past practices of the Seller and is taken in the ordinary
course of the normal day-to-day operations of the Seller;

 

(b)                                 such action is taken in accordance with
sound and prudent business practices;

 

(c)                                  such action is not required to be
authorized by the shareholders of the Seller, the board of directors of the
Seller or any committee of the board of directors of the Seller and does not
require any other separate or special authorization of any nature; and

 

(d)                                 such action is similar in nature and
magnitude to actions customarily taken, without any separate or special
authorization, in the ordinary course of the normal day-to-day operations of any
Entity (other than the Seller) that is engaged in businesses similar to the
business of the Seller.

 

“PBGC” shall mean the United States Pension Benefit Guaranty Corporation.

 

“Person” shall mean any individual, Entity or Governmental Body.

 

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“Proceeding” shall mean any action, suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding and any informal proceeding), prosecution, contest, hearing, inquiry,
inquest, audit, examination or investigation commenced, brought, conducted or
heard by or before, or otherwise involving, any Governmental Body or any
arbitrator or arbitration panel.

 

“Purchaser Indemnitees” shall mean the following Persons: (a) the Purchaser;
(b) the Purchaser’s current and future affiliates; (c) the respective
Representatives of the Persons referred to in clauses “(a)” and “(b)” above; and
(d) the respective successors and assigns of the Persons referred to in clauses
“(a)”, “(b)” and “(c)” above.

 

“Registered IP” shall mean all Intellectual Property Rights that are registered,
filed, or issued under the authority of, with or by any Governmental Body,
including all patents, registered copyrights, registered mask works and
registered trademarks and all applications for any of the foregoing.

 

Each of the following shall be deemed to be a “Related Party”: (a) each
individual who is an officer of the Seller; (b) each member of the family of
each of the individuals referred to in clause “(a)” above; and (c) any Entity
(other than the Seller) in which any one of the individuals referred to in
clauses “(a)” and “(b)” above holds or held (or in which more than one of such
individuals collectively hold or held), beneficially or otherwise, a controlling
interest or a material voting, proprietary or equity interest.

 

“Registration Rights Agreement” shall mean the registration rights agreement, by
and between the Purchaser and the Seller, in a form to be agreed upon thereby,
covering the registration for resale of certain of the Shares.

 

“Representatives” shall mean officers, directors, employees, agents, attorneys,
accountants, advisors and representatives.

 

“Seller Affiliate” shall mean any Person under common control with the Seller
within the meaning of Sections 414(b), (c), (m) and (o) of the Code, and the
regulations issued thereunder.

 

“Seller Contract” shall mean any Contract that is currently in effect: (a) to
which the Seller is a party; (b) by which the Seller or any of its assets is
bound or under which the Seller has any obligation; (c) under which the Seller
has any right or interest; or (d) to which a Seller is a party, the rights,
interest or benefits of which are used by the Seller in the Business.

 

“Seller Employee” shall mean any current or former employee, independent
contractor or director of the Seller or any Seller Affiliate.

 

“Seller Employee Agreement” shall mean each management, employment, severance,
consulting, relocation, repatriation or expatriation agreement or other Contract
between the Seller or any Seller Affiliate and any Seller Employee, other than
any such management, employment, severance, consulting, relocation, repatriation
or expatriation agreement or other Contract with a Seller Employee which is
terminable “at will” without any obligation on the part of the Seller or any
Seller Affiliate to make any payments or provide any benefits in connection with
such termination.

 

“Seller Employee Plan” shall mean any plan, program, policy, practice, Contract
or other arrangement providing for compensation, severance, termination pay,
deferred compensation, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits or remuneration of any kind, whether
written, unwritten or otherwise, funded or unfunded, including each

 

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“employee benefit plan,” within the meaning of Section 3(3) of ERISA (whether or
not ERISA is applicable to such plan), that is or has been maintained,
contributed to, or required to be contributed to, by the Seller or any Seller
Affiliate for the benefit of any Seller Employee, or with respect to which the
Seller or any Seller Affiliate has or may have any liability or obligation,
except such definition shall not include any Seller Employee Agreement.

 

“Seller IP” shall mean all Intellectual Property Rights and Intellectual
Property in which the Seller has (or purports to have) an ownership interest or
an exclusive license or similar exclusive right.

 

“Seller IP Contract” shall mean any Contract to which the Seller is or was a
party or by which the Seller is or was bound, that contains any assignment or
license of, or any covenant not to assert or enforce, any Intellectual Property
Right or that otherwise relates to any Seller IP or any Intellectual Property
developed by, with or for the Seller.

 

“Seller Pension Plan” shall mean each Seller Employee Plan that is an “employee
pension benefit plan,” within the meaning of Section 3(2) of ERISA.

 

“Seller Software” shall mean any software (including firmware and other software
embedded in hardware devices) owned, developed (or currently being developed),
used, marketed, distributed, licensed or sold by the Seller at any time (other
than non-customized third-party software licensed to the Seller for internal use
on a non-exclusive basis).

 

“Standard Form Agreements” shall mean the forms of agreements attached as
Appendices 2.14(A) and 2.14(B) to the Disclosure Schedule.

 

“Tax” shall mean any tax (including any income tax, franchise tax, capital gains
tax, estimated tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, occupation tax, inventory tax, occupancy tax, withholding tax or payroll
tax), levy, assessment, tariff, impost, imposition, toll, duty (including any
customs duty), deficiency or fee, and any related charge or amount (including
any fine, penalty or interest), that is, has been or may in the future be
(a) imposed, assessed or collected by or under the authority of any Governmental
Body, or (b) payable pursuant to any tax-sharing agreement or similar Contract.

 

“Tax Return” shall mean any return (including any information return), report,
statement, declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information that is, has been or may
in the future be filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.

 

“Transactional Agreements” shall mean: (a) the Agreement; (b) the Escrow
Agreement; and (c) the Registration Rights Agreement.

 

“Transactions” shall mean (a) the execution and delivery of the respective
Transactional Agreements, and (b) all of the transactions contemplated by the
respective Transactional Agreements, including: (i) the sale of the Assets by
the Seller to the Purchaser in accordance with the Agreement; (ii) the
assumption of the Assumed Liabilities by the Purchaser; and (iii) the
performance by the Seller, the Seller Representative and the Purchaser of their
respective obligations under the Transactional Agreements, and the exercise by
the Seller, the Seller Representative and the Purchaser of their respective
rights under the Transactional Agreements.

 

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“Treasury Regulations” shall mean the final and temporary (but not proposed)
income tax regulations promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).

 

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