Document:

20-F

Exhibit 4.12  

PURCHASE AGREEMENT 

Dated December 14, 2006  

        The
parties to this agreement are 

         (1)       
          BluePhoenix Solutions Ltd., a company incorporated under the laws of
          Israel (the “Purchaser”), of 8 Maskit St., Herzlia 46120, Israel, and
          BluePhoenix Solutions UK Ltd., a company incorporated under the laws of
          the United Kingdom, of Regus House, Suite 202 Highbridge, Oxford Road
          Uxbridge, Middlesex UB8 1 HR UK, on the one hand; and 

         (2)       
          Codestream Software Ltd., a company incorporated in England and Wales
          (registered number 03134704 whose registered office is at 5TH FLOOR
          EXCHANGE HOUSE 446 MIDSUMMER BOULEVARD MILTON KEYNES BUCKINGHAMSHIRE MK9 2EA UK
          (the “Company”); and 

    (3)        Pine
Street Investments II, a partnership formed under the laws of           Colorado, US (“Pine
Street Investments II”) ;  

    (4)        Henry
W Vandeveer, an individual. Bearer of US ID No. 215912392, with           address at
921 5th Street, Boulder, CO 80302 Colorado, US (“HW           Vandeveer”)  

    (5)        David
Brunel, bearer of US ID No. 215797397 with address at 517 Pine           Street,
Boulder, CO 80302.  

In this agreement each of Pine Street
Investments II and HW Vandeveer are known as “Shareholder” or “Indemnifying
Shareholder”, and collectively as the “Shareholders” or the
“Indemnifying Shareholders”. 

        The
Purchaser wishes to purchase from the Company rights to certain activities and business
which is of going concern including intellectual property, and certain assets, all as set
forth herein, and the Company wishes to sell to the Purchaser such business. Terms defined
in this Agreement are as defined in clause 15 unless otherwise indicated. 

        Accordingly,
the parties agree as follows: 

	    1.        Purchased
Business.  

		    1.1        At
the First Closing, the Company shall in accordance with the terms of this Agreement sell,
assign and transfer to the Purchaser:  

		    (a)        all
Company’s rights, interests and corresponding obligations in connection
          with the agreements, assets, rights (whether tangible or not tangible), set
          forth in Chapter A of Exhibit 1 attached hereto. The agreements assigned
          to Purchaser hereunder listed in such chapter A are hereby referred to as the
          “Contracts”; and  

1

		    (b)        any
and all rights, title and interest in the Developments (as defined herein)           and
the Company Intellectual Property (as such term is defined in clause 15.1           and
clause 6 below). Upon signing of this agreement, the Company hereby assigns           to
the Purchaser with full title guarantee all legal and beneficial right, title
          and interest existing now or in the future in or relating to the Company
          Intellectual Property including all patents, patent rights, copyrights, trade
          secret rights, trademark rights and all other Intellectual Property and all
          rights arising in connection with the Developments throughout the world
          absolutely to the fullest extent permitted by law.  

        Portions
of the Purchased Business are owned by, or under the control of, the Company’s wholly
owned subsidiary, Codestream, Inc. Accordingly, the Company hereby undetakes to effect the
transfer, assignment and novation of such portions of the Purchased Business, as the case
may be, to the Purchaser, and shall be liable for such portions of the Purchased Business
as set forth herein regardless of such portions being owned by Codestream Inc. and shall
perform or procure that Codestream perfoms, all it’s obligations under this Agreement
that related or arise out of any parts of the Purchased Busines which are ownd by or under
the control of Codesstream Inc. Purcahaser shall owe no obligations under this agreement
to Codestream Inc. and the performance of its obligations to the Company, including
without limitation, any payment required under this agreement towards the Company, shall
constitute a complete discharge of its obligations hereunder. 

	 	        (the
 purchased  assets  described  above in this clause under  subsections  (a) and (b)
collectively are referred to in this Agreement as the “Purchased Business”).  

		    1.2        Effective
Date of Purchase. The effective date of purchase of the Purchased Business is December
1, 2006 (the “Effective Date”). The Purchaser shall have no liability nor
obligation for any and all manner of actions, cause and causes of actions, suits,
proceedings, debts, dues, sums of money, accounts, reckonings, bonds, bills, covenants,
contracts, controversies, agreements, promises, damages, punitive damages, claims for
damages, claims for intentional and/or unintentional torts, judgments, extents,
executions, claims for compensation, costs and expenses, attorneys’ fees, costs and
expenses of suits and any and all claims, demands and liabilities whatsoever of every
kind and nature including, without limitation, any liabilities, whether known or unknown,
suspected or unsuspected, accrued or unaccrued, direct or indirect, derivative or
otherwise, now existing or which may develop in the future, in law, equity or otherwise,
in connection with, arising from, or related to the Purchased Business, prior to the
effective date (a “Claim”), including, without limitation, Claims that
the Company or any of the Shareholders became knowledgeable of, or that occurred or
initiated prior to the Effective Date and future Claims that are related to or based on
events or omissions that occurred prior to the Effective Date. Without restricting the
rights of the Purchaser or its ability to claim damages on any basis (but subject to the
terms of 12.4 and other terms herein relating to indemnities herein), the Company and the
Indemnifying Shareholders undertake jointly and severally to indemnify the Purchaser in
respect of all liabilities, losses, charges, costs, claims, or demands as a consequence,
whether direct or indirect, of or by reference to a Claim except as otherwise may be
agreed in writing between the Company and the Purchaser. Exhibit 2 attached to this
agreement sets forth the net value of the Contracts. Such Exhibit was prepared by the
Company and Purchaser based on the Company’s estimates of cost of work in process
and collection expectations.  

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		    1.3        Excluded
Business.  

		    1.3.1       General.
Without derogating from the generality of the forgoing, the Company is neither selling
nor transferring to the Purchaser, and the Purchaser is not purchasing from the Company,
the assets, obligations, agreements and other items set forth in Chapter B of Exhibit 1attached
hereto (“Excluded Business”).  

		    1.3.2       CodeStream
Workbench. Notwithstanding any provision to the contrary provided herein or
elsewhere, Purchaser shall be entitled to notify the Company of its election to exclude
from, or to include in, the Purchased Business the items listed under “CodeStream
Workbench”in Chapter C of Exhibit 1 (all the assets and liabilities listed in the
mentioned paragraph are hereby referred to as “CodeStream Workbench”).
Such notice may be submitted by the Purchaser not later than 30 days following the date
of the First Closing, after the Company has allowed Purchaser’s representatives to
perform a technological, legal, financial and business due diligence check. In the event
that Purchaser elects to include CodeStream Workbench in the Purchased Business, it shall
be considered as part of the Purchased Business from the date of the First Closing; in
the event that Purchaser elects to exclude CodeStream Workbench from the Purchased
Business, it shall be considered as excluded business listed under Chapter B of Exhibit 1
effective from the date of the First Closing. Upon the end of the 30 day period,
regardless of the Purchaser’s decision to include Codestream Workbench in the
Purchased Business or not, the Purchaser shall pay the costs of continuing development,
in any event not to exceed £15,000 but not be further responsible for any
additional costs or liabities associated with the CodeStream Workbench. If the Purchaser
decides to include CodeStream Workbench in the Purchased Business, it shall be
responsible for all costs associated with the CodeStream Workbench from the First Closing
which will be disclosed to the Purchaser in writing. It is hereby clarified, that in no
event is Purchaser obligated to pay any additional consideration regarding the foregoing
and regarding Codestream Workbench, regardless of the inclusion or exclusion of
CodeStream Workbench.  

	 	
Whether
Codestream WorkBench is excluded from, or included in, the Purchased Buisness, by signing
this agreement, the Company assign all Intellectual Property in such source code to the
Company, and the source code of Codestream WorkBench shall be transferred to BluePhoenix
(for no additional consideration). The Company and Indemnifying Shareholders make no
warranty nor give any indemnity relating to the Intellectual Property relating to
Codestream WorkBench. The Purchaser shall be given the source code, design documents, and
all other relevant materials of the software relating to Codestream Workbench.  

		    1.3.3       Keane,
Inc. Agreement. It is hereby specifically and expressly agreed for the
avoidance of doubt that the agreement between the Company’s US subsidiary company
(Codestream, Inc.) and Keane, Inc., any direct or indirect relationship with SuperValu,
Inc., and any related rights or obligations, are not transferred or assigned to the
Purchaser, and the Purchaser shall have no rights or obligations with respect thereto,
notwithstanding any other provision to the contrary herein.  

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		    1.4        Un-Disclosed
Items. (a) In the event that an obligation was not disclosed in Exhibit 1 (“Non-disclosed
Obligation”), the Purchaser shall have no obligation with respect to such
Non-disclosed Obligation; (b) In the event that the Company or any of the Shareholders
has failed to include certain agreement, asset or any other item in Exhibit 1 (“Non-Disclosed
Item”), such item will still be considered to be assigned to the Purchaser.
Notwithstanding the foregoing, if the Purchaser determines in good faith that such
Non-Disclosed Item imposes on the Purchaser a material liability, Purchaser shall have
the right to reject such assignment, by a written notice delivered to the Company not
later than thirty (30) days from the date on which Purchaser became aware of such
Non-Disclosed Item, and in such case, Purchaser shall have no rights or obligations with
respect to such rejected item. Without restricting the rights of the Purchaser or its
ability to claim damages on any basis, each of the Purchaser and Indemnifying
Shareholders undertakes to indemnity the Purchaser in respect of all liabilities, losses,
charges, costs, claims, or demands as a consequence, whether direct or indirect, of or by
reference to any Non-disclosed Obligation. The foregoing does not derogate from Purchaser’s
right to any other remedies available to it by law or under this agreement, for
misrepresentations or breach of warranty made under this agreement or breach of this
agreement by the Company or any of the Shareholders.  

		    1.5        Assignment
of Purchased Business. Each of the Company and the Indemnifying Shareholders shall
use their best efforts to effect the assignment and transfer of the Purchased Business to
the Purchaser or any of the Purchaser subsidiaries, as instructed by the Purchaser. The
Purchaser shall cooperate with the Company and Shareholders for this purpose, and shall
bear reasonable administrative expenses in connection with the assignment of the
Purchased Business.  

		    1.5.1        Without
prejudice to its rights and remedies under this agreement the Purchaser shall direct the
relevant Assigned Employees having the knowledge of the Purchased Business to seek to
effect such novations, assignments and transfers, as set forth in this Section 1.5, and
the Company and the Shareholders shall use their best effort to support all such efforts.
The Purchaser shall not charge the Company for administrative costs so incurred.  

		    1.5.2        The
Company shall with effect from First Closing, assign to the Purchaser the benefit
(including without limitation all accrued as well as current and future benefits) of all
the Contracts which are without the approval, consent or agreement of a third party
capable of assignment. This Agreement shall, with effect from First Closing, constitute
an assignment of the benefit of all such Contracts. The Purchaser undertakes to the
Company that, with effect from First Closing, it will perform the outstanding obligations
and liabilities under the Contracts to the extent that they arise in respect of the
carrying on of the Business by the Purchaser.  

		    1.5.3        The
Company shall, at its own expense (except it shall not be charged for the administrative
services of the Assigned Employees in such regard), use all reasonable endeavours to
procure that on or as soon as possible after First Closing each relevant third party
enters into a novation agreement in a form satisfactory to the Purchaser in respect of
each Contract, with the intent that the Purchaser shall perform the Contract and be bound
by it from whichever is the later of First Closing and the date of such novation
agreement as if the Purchaser were a party to it in place of the Company.  

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		    1.5.4        If
due to no fault on part of the Company, a novation agreement is not entered into in
respect of a Novated Contract, the Purchaser may at any time after the First Closing at
its sole discretion by notice in writing elect to exclude that Contract from novation
under this Agreement.  

	 	
If
the Purchaser makes an election under this Clause 1.5.4 (and provided that notice to the
Company is provided promptly):  

		    (a)        the
Company shall perform all its obligations under such Contract;  

		    (b)        the
Company shall indemnify the Purchaser against any liabilities, losses,           charges,
costs, claims or demands whatsoever arising from the exclusion from the           sale
under this Agreement of that Contract including loss of revenues expected           to be
received as set forth in Exhibit 2, (but excluding any other losses of           future
revenue that are not specified in Exhibit 2); and  

		    (c)        (i)
in connection with any such agreement by which Purchaser is to provide
          services, license or other items for consideration: the Purchaser shall make
          available to the Company personnel, to the extent available, on an hourly basis
          in accordance with project budget presented by the Company and approved by
          Purchaser, in order for the Company to perform its obligations under such
          Contracts. Purchaser shall be entitled to all payments payable for such
          performance and to direct the exercise of all the Company’s rights under
          such Contracts. The Company shall issue invoices to such customers in
accordance           with Purchaser’s instructions. The Company shall inform
Purchaser           immediately upon receipt of payment from such customers and shall
remit the           payments immediately after they are received to the Purchaser. For
purpose of           performing under such agreements, the Purchaser shall assign former
employees of           the Company or its own personnel, as Purchaser deems fit. In the
event that the           Company fails to perform any of its obligations under such
Contract, Purchaser           may, at its sole discretion, without derogating from any
other remedies           available to the Purchaser, exclude such contract from this
agreement and shall           be immediately released from the foregoing obligations.  

		    (ii)        in
connection with any such agreement by which Purchaser is to purchase services
          or rights for consideration: The Purchaser shall have the right, at its sole
          discretion, to exclude these Contracts from this Agreement, by a written notice
          to the Company. The Purchaser shall have no further obligations under this
          Agreement in relation to that Contract.  

		    1.5.5        Subject
always to clause 12.4 (including the period limitation set forth in clause 12.4.4), the
Company and Indemnifying Shareholders shall jointly and severally indemnify the Purchaser
against all liabilities, losses, charges, costs, claims or demands brought or made
against or incurred by the Purchaser arising from:  

		    (a)        any
failure by the Company to procure that any third party enters into a           novation
agreement in accordance with Clause 1.5.3; or  

		    (b)        any
breach of any Contract caused by the Company’s breach of this           Agreement.  

		    1.5.6        During
the period commencing on the First Closing and until a Novation Agreement is signed:  

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		    (a)        In
connection with any such agreement by which Purchaser is to provide services,
          license or other items for consideration: The Purchaser shall perform
          Company’s obligations under such Contracts, and shall be entitled to all
          payments payable for such performance and to direct the exercise of all
          Company’s rights under such agreements. The Company shall issue invoices
to           such customers in accordance with Purchaser’s instructions. The Company
          shall inform Purchaser immediately upon receipt of payment from such customers
          and shall remit the payments immediately after they are received to the
          Purchaser. For purpose of performing under such agreements, the Purchaser shall
          assign former employees of the Company or its own personnel, as Purchaser deems
          fit. The parties shall cooperate in order to perform such agreements in an
          efficient and professional manner.  

		    (b)        In
connection with any such agreement by which Purchaser is to purchase services
          or rights for consideration: The Purchaser shall perform Company’s payment
          obligations under such Contracts, and shall assume all Company’s rights
          under such agreements. The Company shall issue invoices to the Purchaser for
          each such payment made by Purchaser.  

		    1.5.7        (A)
In respect of the period from First Closing and until a Contract is novated in accordance
with Clause 1.5.3; or  

		    (B)        if
a Contract is excluded from this assignment under this agreement in  accordance with Clause
1.5.4; 

	 	        the
Company  shall act in  accordance  with  Clause  1.5.6 and shall hold the benefit of that
Contract on trust for the Purchaser and will:  

		    (i)        account
to the Purchaser immediately for any money or other benefits received in
          relation to it;  

		    (ii)        not
without the Purchaser’s prior written consent exercise any rights, take
          any action, make any compromise, amendment, release, waiver or settlement of or
          in relation to it; and  

		    (iii)        if
and when directed by the Purchaser take such steps (including legal action)           as
the Purchaser may reasonably require to enforce its rights under that           Contract.  

		    1.5.8        In
respect of the period from First Closing and until a Contract: 

		    (a)        is
novated in accordance with Clause 1.5.3 ; or  

		    (b)        if
a Contract is excluded from assignment under this agreement in accordance  with Clause 1.5.4; 

	 	        the
Purchaser  shall act (to the extent that  sub-contracting  or agency is  permissible and
lawful under the Contract), as the Company’s sub-contractor or agent, perform all
the obligations of the Company under that Contract which then fall due to be discharged.
To the extent that such sub-contracting or agency is not permissible and lawful, the
Company shall act (at the Purchaser’s expense) under the direction of the Purchaser
in all matters relating to the performance of that Contract pursuant to an agreed upon
project plan for so long as the Company is required and authorised to do so by the
Purchaser.  

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		    1.5.9        The
Company shall continue to be responsible for and shall promptly discharge all debts,
liabilities and obligations in respect of the Purchased Business existing at First
Closing not assumed by the Purchaser under the express provisions of this Agreement (even
if assumed by the Purchaser by operation of law) including, without limitation, the
creditors and shall indemnify the Purchaser against all liabilities, losses, charges,
costs, claims, or demands in respect of all such debts, liabilities and obligations
(subject to clause 12.4), provided that nothing in this clause shall prevent the Company
from, in the ordinary course of business, negotiating in good faith and seeking
legitimate adjustments from creditors and otherwise minimising such liabilities.  

		    1.5.10        If
there is any breach or delay by the Company in the performance of any of its obligations
under or in connection with Clause 1.5.11, the Purchaser shall at its sole discretion be
entitled, to undertake, on behalf of the Company, whatever is reasonably required to
satisfy or discharge any such liability. The Company will indemnify the Purchaser from
and against all liabilities, losses, charges, costs, claims or demands which the
Purchaser may reasonably suffer or incur as a result, subject to clause 12.4.  

		    1.5.11        During
the Escrow Period (as defined herein below) and unless otherwise agreed between the
Company and the Purchaser in writing that such date shall be earlier, the Company and the
Shareholders shall not commence or attempt to commence any procedures or process for the
liquidation or winding up administration or receivership of the Company or similar
proceedings, whether voluntary or compulsory, or make arrangements with or for the
benefit of the Company’s creditors or similar arrangements, and shall not make any
act or omission that may cause such proceedings against the Company. The Company and
Shareholders undertake to perform all the Company’s obligations towards such third
parties and use their best efforts to ensure such third parties’ satisfaction of the
Company’s performance and act in a workmanlike and professional manner in order to
ensure the continuance of business of such customers with the Purchaser in the future.  

		    1.5.12        If
one Party receives any monies after First Closing which belong to the other Party, the
recipient shall (subject to any provisions to the contrary contained in this agreement)
hold them on trust for and account to that other Party for them within five Business Days
of receipt.  

		    1.5.13        Purchaser
acknowledges the Company has statutory obligations (reporting and the like) associated
with the period before First Closing and that Purchaser may have possession of past
records and employ personnel that may be necessary for the Company to access in order to
fulfill such requirements. Purchaser hereby consents to provide such access to records
and personnel in order to enable and facilitate such obligations, subject to coordination
with Purchaser reasonably in advance and provided that consummation of such employees’ time
and efforts shall not interrupt their work for the Purchaser.  

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    2.        Consideration.  

		    2.1        In
consideration of the Company’s and Shareholders’ obligations and covenants
hereunder, (i) the Purchaser shall pay the Company at the First Closing, £5,050,000
(five million and fifty thousand pounds), such amount is apportioned to the Purchased
Business excluding only the Assets; (ii) BluePhoenix Solutions UK Ltd. shall pay the
Company at the First Closing £150,000 (one hundred fifty thousand pounds), such
amount is apportioned to the Assets, both amounts by wire transfer of immediately
available funds, to be remitted to the Company’s bank account at National
Westminster Bank Plc, Milton Kenyes Branch, 501 Silbury Boulevard, Saxon Gate East,
Milton Kenyes MK9 3ER, Account Number 82117004, except for the Escrow Amount which is
deducted from the amount mentioned under roman number (i) hereof (to be deposited in the
Escrow Account, all as more fully set forth in the Escrow Agreement). The amount
apportioned to the Assets shall be paid together with VAT, against an invoice duly issued
by the Company to BluePhoenix Solutions UK Ltd.  

		    2.2        At
the First Closing the Purchaser and the Company shall enter into the Escrow Agreement and
shall each pay £200,000 (totalling £400,000) into the Escrow Account in
accordance with the terms of the Escrow Agreement.  

		    2.3        In
the event that the Purchaser and the Company determine that as of the Release Date the
actual net cash value of the Contracts (computed based on the same practice used for
preparing Exhibit 2) is greater than the net value set forth in Exhibit 2, then, within
15 days from the Release Date, Purchaser shall remit to the Company the surplus amount.
In the event that the Purchaser and the Company determines that as of the Release Date
the actual net cash value of the Contracts (computed based on the same practice used for
preparing Exhibit 2) is less than the net value set forth in Exhibit 2, then, upon the
Release Date, the Company shall remit to Purchaser the deficient amount. In such event,
such amount shall be deducted from the monies transferred to the Company on the Release
Date pursuant to the Escrow Agreement. Without prejudice to Purchaser’s rights and
remedies under this agreement, in the event of a dispute with a customer, as a result of
which a deduction could be made from the Escrow Amount under the Escrow Agreement,
Purchaser will allow the Company to be involved in good faith in the negotiation with
such customer in connection with such dispute for purpose of resolving such dispute
amicably and allowing the ongoing business relationship of Purchaser with such customer.  

        The
parties shall appoint an expert in accordance with this paragraph (“Expert”) to
resolve any dispute arising in relation to the calculation of the actual net cash value.
The parties shall agree on the appointment of an independent Expert. If the parties are
unable to agree on an Expert within seven days of either party serving details of a
suggested expert on the other, either Party shall then be entitled to request the
President for the time being the Institute of Chartered Accountants in England and Wales
to appoint an independent chartered accountant as Expert. The Expert is required to
prepare a written decision and give notice (including a copy) of the decision to the
parties within a maximum of twenty one days of the matter being referred to the Expert. If
the Expert dies or becomes unwilling or incapable of acting, or does not deliver the
decision within the time required by this paragraph then: 

		    (a)        either
Party may apply to the then current President of the Institute of           Chartered
Accountants in England and Wales to discharge the Expert and to           appoint a
replacement Expert with the required expertise; and  

		    (b)        this
paragraph applies in relation to the new Expert as if he were the first  Expert appointed. 

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        The
parties are entitled to make submissions to the Expert and shall provide (or procure that
others provide) the Expert with such assistance and documents as the Expert reasonably
requires for the purpose of reaching a decision. To the extent not provided for by this
paragraph, the Expert may in his reasonable discretion determine such other procedures to
assist with the conduct of the determination as he considers just or appropriate,
including (to the extent he considers necessary) instructing professional advisers to
assist him in reaching his determination. All matters under this paragraph shall be
conducted, and the Expert’s decision shall be written, in the English language. Each
Party shall with reasonable promptness supply each other with all information and give
each other access to all documentation and personnel as any other Party reasonably
requires to make a submission under this paragraph. The Expert shall act as an expert and
not as an arbitrator. The Expert shall determine the actual net cash value which may
include any issue involving the interpretation of any provision of this agreement, his
jurisdiction to determine the matters and issues referred to him or his terms of
reference. The Expert’s written decision on the matters referred to him shall be
final and binding in the absence of manifest error or fraud. Each Party shall bear its own
costs in relation to the reference to the Expert. The Expert’s fees and any costs
properly incurred by him in arriving at his determination (including any fees and costs of
any advisers appointed by the Expert) shall be borne by the parties equally or in such
other proportions as the Expert shall direct. 

    3.           Contingent
Consideration. In addition to the consideration           set forth in
Section 2 above, and in further exchange for the Purchased           Business, in the
event that the terms and conditions set forth herein are           fulfilled, the
Purchaser shall issue to the Company convertible debentures (the           “Debentures”),
all under the terms and conditions set forth herein:  

		    3.1        In
the event that the First Condition Precedent (as defined herein) occurs not later than
December 14, 2008, the Purchaser shall issue to the Company or its Permitted Transferees,
at the Second Closing (as hereinafter defined), a debenture in the form of Exhibit A with
a principal amount of £2.9 million (two million and nine hundred thousand pounds),
registered in the name of the Company (“Debenture A”) or its Permitted
Transferees.  

        “First
Condition Precedent” means a Purchase Order, in the aggregate value of not less
than £2.2 million (two million and two hundred thousand pounds) excluding value
added tax, of which at least £1 million (one million pounds) are license fees
payable for software products which qualify as the Company Licensed IP, and such payment
is to be paid (whether collected or not) by the Purchaser from EDS (as defined herein
below, but including also from DWP itself) under the terms of the purchase order within a
period of 36 months from the Date of the First Closing. The Purchaser shall ensure that it
acts in good faith in the ordinary course of business in relation to negotiation of such
purchase order and that relating to the Second Condition Precedent and shall not deflect
or refer any Purchase Order to or defer the consideration thereunder to bring it
artificially under these limits to frustrate the payment herein. 

		    3.2        In
the event that the First Condition Precedent occurred pursuant to the terms of section
3.1 above, and in addition, the Second Condition Precedent occurs not later than December
14, 2010, the Purchaser shall issue to the Company or its Permitted Transferees, at the
Third Closing (as hereinafter defined), a debenture in the form of Exhibit B with
a principal amount equal to £500,000 (five hundred thousands pounds), registered in
the name of the Company or its Permitted Transferees.  

9

        “Second
Condition Precedent” means Purchase Order, in the aggregate value of not less
than £800,000 (eight hundred thousands pounds) excluding value added tax, and such
payment is fully collected by the Purchaser from EDS within a period of 36 months from the
Date of the Second Closing. 

        It
is hereby clarified that purchase orders already attributed to the First Condition
Precedent, shall not be counted for the Second Condition Precedent. 

        For
the purpose of this clause 3.2, a “Purchase Order” means a valid, legally
binding, duly executed written order (or series of orders) submitted to the Purchaser (or
any wholly owned subsidiary thereof, including without limitation BluePhoenix Solutions UK
Ltd) by Electronic Data Systems Limited (“EDS”) or by its successor, for
its customer, UK Department for Work and Pensions (“DWP”) or by DWP
itself, by which such order(s) the Purchaser is to provide EDS (for DWP) license of
products which qualify as the Company Licensed IP and/or related services and/or related
maintenance. 

        It
is hereby clarified that the current purchase order to provide license, services or
maintenance related to the purchase order issued by EDS dated November 25, 2006 for 44
CodeStream Data Warehouse Licenses IDMSX to RDBMS in the amount of
£3,046,160 in license fees and additional fees for related maintenance and services
(the “OTMI Project”), shall not be considered as fulfillment of the First
Condition Precedent or the Second Condition Precedent. 

        For
the avoidance of doubt, it is hereby clarified, that the First Condition Precedent or the
Second Condition Precedent shall not be considered fulfilled, unless the complete and full
amount of the respective condition, as stated above, is ordered, and in connection with
the Second Condition Precedent only, paid. It is further clarified that in the event the
First Condition Precedent occurs, and the amount collected under such Purchase Order
qualified for the purpose of the First Condition Precedent exceeds £2.2 million,
then any such surplus amount collected by the Purchaser shall be credited to the Second
Condition Precedent, provided that all other conditions of the Second Condition Precedent
were fulfilled. 

    4.        Closings.  

		    4.1        First
Closing. The first closing (the “First Closing”) of the
transactions contemplated by this agreement will take place at the offices of the
Purchaser on December 14, 2006 (the “Date of First Closing”). At the First
Closing, simultaneously with the execution and delivery of this agreement, unless
otherwise indicated below or mutually agreed by the parties, the parties shall perform or
procure performance of the following transactions and actions:  

		    (a)                     The
Company, shall present to the Purchaser a written consent by EDS to sign and
          execute an assignment agreement, in the form of Exhibit 4(a).          Notwithstanding
the forgoing, such consent may be presented by the Company after           the First
Closing but not later than twenty one (21) days following the First           Closing;  

10

		    (b)                     each
of BluePhoenix Solutions USA, Inc. and Greg Schottland shall execute and
          deliver an employment agreement, noncompetition agreement, and trade
          secret agreement, effective as of the Effective Date, in the form of Exhibit
4(c) (“Executive Agreement”);  

		    (c)                     the
Company shall deliver to the Purchaser a copy (certified as correct by the
          Secretary of the Company) of a minute of the board of directors of the Company
          approving the transaction contemplated by this Agreement and authorising the
          signature, execution and First Closing (as appropriate), of this Agreement and
          any documents ancillary to it and a copy (certified as correct by the Secretary
          of the Company) of the resolution of the shareholders of the Company
authorizing           the execution and delivery of the transactions contemplated by this
Agreement;  

		    (d)                     the
Company shall deliver (at their then current location) all the assets which           are
capable of transfer by delivery with the intent that legal and beneficial
          ownership of those assets shall pass on delivery;  

		    (e)                     each
of the Company and Purchaser shall deposit in the Escrow Account the amount           to
be deposited by the respective party as set forth under the Escrow Agreement.
          Notwithstanding the forgoing, the parties shall make such deposit within three
          (3) business days follwoing the date of the First Closing;  

		    (f)                     the
Company shall deliver to the Purchaser or such person as the Purchaser may
          nominate:  

		    (i)                     duly
executed assignments in the agreed form of all the Intellectual Property           and
all documents of title relating to the Intellectual Property;  

		    (ii)                     the
originals of any Contracts;  

		    (iii)                     duly
executed approvals, consents or agreements to the assignment or novation of           the
Contracts;  

		    (iv)                     all
documents of title and registration documents relating to the fixed plant,           the
loose plant and equipment, the leased assets;  

		    (v)                     duly
executed releases or certificates of non-crystallisation as required by the
          Purchaser in respect of all encumbrances over the assets;  

		    (vi)                     such
duly executed transfers and assignments as the Purchaser may require to           vest in
the Purchaser full title to and of the other assets and rights to be           sold; and  

		    (vii)                     Counterparts
of the Escrow Agreement duly executed by the Company and the           Company’s
Representative.  

		    (h)                        the
Purchaser shall deliver to the Company counterparts of the Escrow Agreement
          duly executed by the Purchaser and the Purchaser’s Solicitors.  

11

		    (i)                     the
Company and the Purchaser shall deliver a notice in the agreed form to each           of
the counterparties to the Contracts and a notice in the agreed form to all of
          the Company’s Employees  

		    (j)                     The
Purchaser shall remit the consideration due at First Closing as provided           under
clause 2.1.  

		    4.2        Second
Closing. The second closing (the “Second Closing”) shall take
place at the offices of the Purchaser on the fourteenth business day following the
satisfaction or waiver of the conditions set forth in this section 4.2.  

		    (a)                     The
obligation of the Purchaser to consummate the Second Closing is subject to           the
fulfillment or waiver by the Purchaser of the following conditions on the           date
of the Second Closing:  

		    (i)                     on
or before December 14, 2008, the First Precedent Condition was completed;  

		    (ii)                     all
the Company’s and Shareholders’ representations and warranties in
          this agreement were true and correct on the date of this agreement, and shall
be           true and correct in all material respects at the Second Closing as if made
again           at and as of that time save for any matter incorrect because of
subsequent           action by the Purchaser since First Closing;  

		    (iii)                     the
Company and the Shareholders shall have performed and carried out all the
          covenants and other provisions in this agreement, required to have been
          performed and carried out by it prior to the Second Closing (except that breach
          thereof which is not material breach shall not prevent the performance of the
          Second Closing);  

		    (iv)                     there
shall not be in effect any injunction or restraining order issued by a           court of
competent jurisdiction in any action or proceeding against the           consummation of
the transactions contemplated by this agreement; and  

		    (v)                     the
Company shall have delivered to the Purchaser a certificate of an executive
          officer or certificate signed by the Permitted Transferees or their officers,
as           the case maybe, confirming that the conditions specified in clauses (ii)
through           (v) above have been fulfilled.  

		    (b)                     At
the Second Closing, the Purchaser shall issue to the Company or its Permitted
          Transferees Debenture A.  

		    (c)                     The
obligations to consummate the Second Closing and the Third Closing may be
          terminated at any time prior to the Second Closing: (i) by a written agreement
          between the Company and the Purchaser; or (ii) by the Purchaser, if any
          condition specified in this section 4.2 shall not have been satisfied or waived
          in writing by the Purchaser on or before the date of the Second Closing.  

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		    4.3        Third
Closing. The third closing (the “Third Closing”) shall take
place at the offices of the Purchaser on the fourteenth business day following the
satisfaction or waiver of the conditions set forth in this section 4.3.  

		    (a)                     The
obligation of the Purchaser to consummate the Third Closing is subject to           the
fulfillment or waiver by the Purchaser of the following conditions on the           date
of the Third Closing:  

		    (i)                     on
or before December 14, 2010, the Second Condition Precedent was completed;  

		    (ii)                     all
the Company’s representations and warranties in this agreement were           true
and correct on the date of this agreement, the Company’s           representations
and warranties in this agreement shall be true and correct in           all material
respects at the Third Closing as if made again at and as of that           time save for
any matter incorrect because of subsequent action by the Purchaser           since First
Closing;  

		    (iii)                     the
Company and the Shareholders shall have performed and carried out all the
          covenants and other provisions in this agreement, required to have been
          performed and carried out by it prior to the Third Closing (except that breach
          thereof which is not material breach shall not prevent the performance of the
          Third Closing);  

		    (iv)                     there
shall not be in effect any injunction or restraining order issued by a           court of
competent jurisdiction in any action or proceeding against the           consummation of
the transactions contemplated by this agreement; and  

		    (v)                     the
Company shall have delivered to the Purchaser a certificate of an executive
          officer or certificate signed by the Permitted Transferees or their officers,
as           the case maybe, confirming that the conditions specified in clauses (ii)
through           (v) above have been fulfilled.  

		    (b)                     At
the Third Closing, the Purchaser shall issue to the Company or its Permitted
          Transferees the Second Debenture.  

		    (c)                     The
obligations to consummate the Third Closing may be terminated at any time           prior
to the Third Closing: (i) by a written agreement between the Company or           its
Permitted Transferees and the Purchaser; or (ii) by the Purchaser, if any
          condition specified in section 4.3 shall not have been satisfied or waived in
          writing by the Purchaser on or before December 14, 2010.  

		    4.4        The
parties shall appoint an expert to resolve a dispute arising in relation to whether the
First and Second Condition Precedent occured. The appointment of the expert, his
resolution and other terms shall be as set forth clause 2.3 above.  

		    4.5        Notwithstanding
the provisions of clause 4.2(iii) and 4.3(iii), in the event of a breach by the Company
or the Shareholders which can be fully compensated by monetary damages to the
satisfaction of the Purchaser, the Purchaser shall not rely on such breach to avoid
performing the Second Closing or the Third Closing, as the case may be, and, shall issue
the respective Debenture for principal amount equal to the undisputed amount (the amount
set forth in clauses 3.1 or 3.2, as the case may be, after deduction from the principal
amount of the relevant Debenture of the amount of compensation due to the Purchaser) and
the issue of such Debenture subject to such deduction shall be a good discharge of the
Purchaser’s obligations under Clause 4.2(b) or 4.2(c) as the case may be.  

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    5.        Representations
and Warranties  

		    5.1        The
Company and the Indemnifying Shareholders jointly and severally represent and warrant to
the Purchaser that each of the statements in clause 6 (the “Warranties”) below
is true, accurate and not misleading.  

		    5.2        Subject
as specifically otherwise provided in this Agreement, the Warranties shall remain in full
force and effect notwithstanding First Closing.  

		    5.3        Each
of the Warranties shall be separate and independent and shall not be limited by reference
to any other Warranty or any other provision of this agreement.  

		    5.4        The
Company undertakes to notify the Purchaser in writing fully and promptly of anything of
which the Company is or becomes aware which renders or may render any of the Warranties
untrue, inaccurate or misleading.  

    6.        Representations
and Warranties of the Company and Shareholders. 

		    6.1        Authorization
and Enforceability.  The Company has the full power and authority and has taken all
required corporate and other action necessary to permit the Company to execute, deliver,
and perform this agreement. Each of this agreement and any other agreements referred to
hereunder to which a particular Shareholder is a party (this agreement and such other
agreements, collectively, the “Transaction Agreements”) constitutes the legal,
valid, and binding agreement of that Shareholder, enforceable against that Shareholder in
accordance with its terms. Each Transaction Agreement to which the Company is a party
constitutes the legal, valid, and binding agreement of the Company, enforceable against
the Company in accordance with its terms. At the Closing, the Purchased Business will be
transferred to the Purchaser clear and free from any liens, adverse claims, security
interests, or other charges or encumbrances.  

		    6.2        Capitalization. As
of the date of this agreement, the authorized and issued capital stock of the Company is
as set forth in schedule 6.2, which sets forth the number of Shares owned legally and
beneficially by each shareholder (“the Shares”). The Shares are validly issued,
fully paid and have been issued in compliance with all applicable laws. Except as set
forth in schedule 6.2, which sets forth the number of Shares issuable upon exercise of
all outstanding options and warrants and the persons and entities that hold those options
and warrants, each as of the date of this agreement, the Company has not granted or
issued or undertook or promised to issue, any options, convertible securities, warrants,
preemptive rights, rights of first offer, rights of first refusal, antidilution rights,
registration rights, or commitments of any kind relating to any issued or unissued equity
interests of the Company. No person has the right (whether exercisable now or in the
future and whether contingent or not) to call for the allotment, conversion, issue, sale
or transfer of any share or loan capital or any other security of any kind giving rise to
a right over the capital of the Company.  

14

		    6.3        No
Conflict. The execution, delivery, and performance of the obligations under the
Transaction Agreements by the Shareholders do not and will not, with the giving of notice
or lapse of time, or both, (a) violate, conflict with, or result in a breach or default
under any license, permit, agreement, or instrument to which any Shareholder is a party
or by which any Shareholder or his properties may be bound, or (b) violate or conflict
with any law, ordinance, rule, order, judgment, decree or ruling of any court, arbitral
tribunal or other foreign, state, or governmental authority (“Regulatory Authority”)
applicable to any Shareholder. The execution, delivery, and performance of the
obligations under the Transaction Agreements by the Company do not and will not, with the
giving of notice or lapse of time, or both, (c) violate, conflict with, or result in a
breach or default under, or loss of rights under, result in, cause, or create any
liability pursuant to, or cause the termination or acceleration of any term or condition
of any license, permit, agreement, or instrument to which the Company is a party or by
which it or its properties may be bound, (d) violate or conflict with any law, ordinance,
rule, order, judgment, decree, or ruling of any Regulatory Authority applicable to the
Company or its assets, or (e) result in the creation or imposition of any lien, claim,
charge, restriction, security interest, or encumbrance of any kind upon any asset
of the Company.  

		    6.4        Financial
Statements; Disclosure.  

		    6.4.1        To
the best of the knowledge of the Company and Indemnifying Shareholders having made all
reasonable enquiries, the trial balance as of November 30, 2006, consolidated to include
the results of CodeStream Software, Inc., attached hereto as schedule 6.4 (the
“Financial Statements”) is in accordance with the books and records of the
Company and fairly present the financial condition and results of operations of the
Purchased Business, as of November 30, 2006 (the “Current Balance Sheet Date”)
and for the period indicated, in accordance with generally accepted accounting principles
consistently applied. Schedule 6.4.2 attached hereto contains a true and complete
copy of all the information and documentation that exists under the control of the
Company, to its best knowledge having made all reasonable enquiries, or at its premises
(including such information stored in computers or intangible form) with respect to
prospects and contacts approached by the Company or that had communicated with the
Company with respect to its business during the three (3) year period prior to the First
Closing.  

		    6.4.2        The
Financial Statements have been prepared in accordance with applicable law and in
accordance with accounting practice generally accepted in the United Kingdom at the time
they were prepared by companies preparing Companies Act accounts (as defined in section
262(1) of the Act).  

		    6.4.3        No
change in accounting bases, policies, practices or procedures has been made in preparing
the Financial Statements of the Company for each of the three financial years of the
Company ended on the Current Balance Sheet Date.  

		    6.4.4        The
Financial Statements give a true and fair view of the state of affairs of the Company as
at the Current Balance Sheet Date and of the results of the Company for the financial
year ended on that date.  

		    6.4.5        Without
limiting the generality of paragraphs 6.4.1 – 6.4.4, in the Financial Statements:  

15

		    (a)        depreciation
of the fixed assets has been made at a rate sufficient to write           down the value
of such assets to nil or their residual value not later than the           end of their
useful working lives, and no fixed asset has attributed to it a           value exceeding
its current market value at the Accounts Date;  

		    (b)        all
work in progress, as set forth in Exhibit 2, has been valued on the basis           set
out in that Schedule;  

		    6.5        Absence
of Certain Changes.  

		    (a)        Except
as set forth in schedule 6.5, from the Current Balance Sheet Date to the           date
of this agreement, to the extent any of the following is related to, or has
          bearing on, the Purchased Business, the Company has not:  

		    (i)        Incurred
any liabilities, other than current liabilities stated in  the Assigned Contracts; 

		    (ii)        paid,
discharged, or satisfied any claim, lien, or liability, other than any           claim,
lien, or liability (A) reflected or reserved against on the balance sheet           as of
the Current Balance Sheet Date referred to in schedule 6.5 (the           “Current
Balance Sheet”) and paid, discharged, or satisfied in the           ordinary course
of business and consistent with past practice since the Current           Balance Sheet
Date, or (B) incurred and paid, discharged, or satisfied since the           Current
Balance Sheet Date in the ordinary course of business and consistent           with past
practice;  

		    (iii)        sold,
leased, assigned, or otherwise transferred any of its assets, tangible or
          intangible, or sold any of its services (other than sales of assets or services
          in the ordinary course of business and consistent with past practice);  

		    (iv)        Permitted
any of its assets, tangible or intangible, to become subject to any           lien,
security interest, or other charge or encumbrance;  

		    (v)        written
off or should have written off as uncollectible any accounts  receivable; 

		    (vi)        terminated
or amended, or suffered the termination or amendment of, or failed to           perform
in all material respects, all its obligations, or suffered or permitted           any
material default to exist under, any agreement, license, or permit;  

		    (vii)        suffered
any damage, destruction, or loss of any fixed assets (whether or not           covered by
insurance);  

		    (viii)        canceled,
waived, or released any debt, claim, or right;  

		    (ix)        paid
any amount to, or entered into any agreement, arrangement, or transaction           with,
any affiliate (including its officers, directors, and employees), other           than
payments of salary and benefits to employees in the ordinary course of           business
and consistent with past practice;  

16

		    (x)        granted
any increase in the compensation of any officer or employee or made any           other
change in employment terms of any officer or employee;  

		    (xi)        made
any change in accounting or cash management practices;  

		    (xii)        suffered
or caused any other occurrence, event, or transaction outside the           ordinary
course of business;  

		    (xiii)        acquired
or disposed of, or agreed to acquire or dispose of, any business or any           asset
having a value in excess of £5,000;  

		    (xiv)        declared,
paid or made any dividend or other distribution; or  

		    (xv)        agreed,
in writing or otherwise, to any of the foregoing.  

		    (b)        Since
the Current Balance Sheet Date there has been no material adverse change           in the
financial position or prospects or turnover of the business and no event,           fact
or matter has occurred or is known to the Company to be likely to occur           which
will or is likely to give rise to any such change and the business has           been
carried on in the ordinary and usual course, without any interruption or
          alteration in its nature, scope or manner, and so as to maintain the same as a
          going concern.  

		    6.6        Agreements.  

		    (a)        To
the best knowledge of the Company and the Indemnifying Shareholders, having
          made all reasonable enquiries. Exhibit A (chapters A and B) specifies all the
          Company’s rights and corresponding obligations, including, but not limited
          to, all business, agreements, legal instruments, and assets (whether tangible
or           not tangible), which are owned by the Company or under the Company’s
          possession or which are used by the Company for purpose of its ongoing
business,           including:  

		    (i)        All
the equipment that the Company has used immediately prior to signing of this
          agreement and equipment required for conducting the Company’s business,
          including, but not limited to, computers, office furniture, software, hardware,
          professional materials and literature and vehicles;  

		    (ii)        All
the agreements entered into by the Company, including agreements with
          customers, prospects, partners, suppliers and contractors;  

		    (iii)        All
Intellectual Property;  

		    (iv)        Every
obligation and warranty given or obligated to be given to the Company by a
          supplier, customer, employee, service provider, contractor or any other third
          party;  

		    (v)        Goodwill
and reputation, including the right to use the Company’s name and           any
other name used (whether currently or in the past) by the Company, including
          solution names, buzz words and products names;  

17

		    (vi)        All
records, lists, books and information related to the Company’s           business,
including, information related to the Company’s sales, lists of           customers,
prospects and suppliers (from the incorporation of the Company),           accounting
books and spreadsheets, and all information related to the forgoing,           in
tangible or non tangible form, held by the Company or its Shareholders; and  

		    (vii)        All
agreements, rights, assets, information, data, documents, software and other
          items which are required to continue the Company’s business, that are in
          the possession of the Company or its Shareholders or owned by any of them;  

		    (b)        As
of the date of this agreement, except as set forth in schedule 6.6, neither           the
Company nor any of the Shareholders has any knowledge of any material breach           or
anticipated material breach by any other party to any of the Contracts.  

		    (c)        To
the best knowledge of the Company and the Indemnifying Shareholders, having
          made all reasonable enquiries, the Purchaser has been provided with a true and
          correct copy of all written agreements referred to in Chapter A of Exhibit A,
          together with all amendments, waivers, or other changes to those agreements.
          Exhibit A contains an accurate and complete description of all material terms
of           all oral contracts and agreements referred to in that Exhibit.  

		    6.7        No
Undisclosed Liabilities. To the best knowledge of the Company and the
Indemnifying Shareholders, having made all reasonable enquiries, other than the Company’s
obligation for ongoing performance under the Contracts, which such obligations have been
performed on schedule to date, on the date of the Closing, the Company shall have no
liabilities or obligations of any nature, whether known or unknown, absolute, accrued,
contingent, or otherwise, and whether due or to become due, which are based on, or
related to, the Purchased Business. The Company or any of its officers, managers,
directors, employees and other representatives have not received any notice or became
otherwise knowledgeable of any claim, demand, allegation, threatened claim or any
proceedings in connection with the Purchased Business with respect to any act or omission
occurred prior to the First Closing Date, and to the best knowledge of the Company and
Indemnifying Shareholders, as of the signing of this agreement, there is no cause for any
such claims, allegations or proceedings. None of the Company’s employees or
contractors listed in Exhibit 4(b), Section A is entitled to a termination notice longer
than 10 weeks.  

		    6.8        No
Grant of Exclusive Rights. The Company is not a party to or bound by any agreement,
which provides exclusive usage or sales rights to the Company’s Intellectual
Property or services.  

		    6.9        Litigation.
Except as disclosed in Schedule 6.9,as of the date of this agreement, no
claim, suit, proceeding, or investigation is pending or, to the knowledge of the Company
or the Indemnifying Shareholders, threatened against or affecting the Company, or, in a
matter relating to the Company’s business, any officer or director of the Company,
and there is no valid basis for any claim, suit, or proceeding against the Company, or,
in a matter relating to the Company’s business, any officer or director of the
Company. 

18

		    6.10        Licenses,
Compliance with Law, Other Agreements. To the best knowledge of the Company and the
Indemnifying Shareholders, having made all reasonable enquiries, the Company has all
material franchises, permits, licenses, and other rights to allow it to conduct its
business and is not in violation, in any material respect, of any order or decree of any
court, or of any law, order, or regulation of any Governmental Agency, or of the
provisions of any contract or agreement to which it is a party or by which it is bound,
and neither any of the Contracts, nor the transactions contemplated by any of the
Contracts will result in any such violation. The Company’s business has been
conducted in all material respects in compliance with all applicable laws, rules, and
regulations.  

		    6.11        Tangible
Assets. The Company owns or leases all tangible assets used or reasonably necessary
in connection with the conduct of its business. All material tangible assets owned or
leased by the Company are free from any liens, security interests, or other charges or
encumbrances, are free from any material defects, have been maintained in accordance with
normal industry practice and any regulatory standard or procedure to which such assets
are subject, are in good operating condition and repair (subject to normal wear and
tear), and are suitable for the purposes for which such assets are used or proposed to be
used, other than liens, security interests, other charges and encumbrances, defects, and
wear and tear that, in the aggregate, could not be expected to have a material adverse
effect on the Company.  

		    6.12        Property.  

		    (a)        Complete
and accurate particulars of each Property are set out in Part C of           Chapter A of
Exhibit 1 and the lease under which that Property is held is           correctly
summarised in Exhibit A and the current rents quoted are duly           evidenced by
memoranda.  

		    (b)        The
Properties set out in Part C of Chapter A of Exhibit 1 are the only land and
          buildings in which the Company has any right, title or interest or which it
uses           or occupies.  

		    (c)        Each
Property is occupied exclusively by the Company for the purposes of the
          Purchased Business and the Company has quiet enjoyment of that Property and
          (save as stated in Exhibit A) is entitled to vacant possession of it. There is
          no lease, sub-lease, tenancy, service occupancy or licence affecting any
          Property other than those summarised in Part C of Chapter A of Exhibit 1 nor is
          there any person in possession or occupation of any Property.  

		    (d)        The
Company uses each Property for the purpose of conducting the Purchased           Business
only.  

		    (iii)        no
advance payment or commutation of future rents or licence fees has been
          accepted or agreed in respect of any lease, sub-lease, tenancy, service
          occupancy or licence affecting any Property nor are there any rent reviews in
          the course of being determined or otherwise outstanding or unimplemented;  

		    (iv)        in
the case of each Property specified in Part C of Chapter A of Exhibit 1:  

		    (aa)        all
rents have been paid and reviewed at the times and in the manner specified           in
the relevant lease, and there are no rights for the lessor to determine any
          such lease other than by way of forfeiture for non-payment of rent or breach of
          covenant;  

19

		    (bb)        all
rates, rents, service and other charges payable by or to the Company in           respect
of each Property have been paid in full for the period ending on the           date of
this Agreement and receipts have been obtained for all payments by the           Company;  

		    (cc)        no
claims against the Company are outstanding or likely to arise in relation to
          any obligation to contribute to common services or other facilities enjoyed by
          any Property or to repay any compensation received in respect of any Property;  

		    (dd)        the
Properties are not affected by any surcharge imposed or liable to be  imposed under the Local
Government Act 1974; 

		    (ee)        each
Property has direct and adequate access on to and egress from a road or           roads
which are maintained at public expense;  

		    (ff)        there
is in force a valid fire certificate for each building on each Property           and all
conditions contained in it are now being and have at all times been           complied
with;  

		    6.13        Intellectual
Property.  

		    (i)        Part
A of Schedule 6.13(a) sets forth a true, complete, and correct list of all
          Company Owned IP and Part B of Schedule 6.13(a) sets forth a true, complete,
and           correct list of all Company Licensed IP.  

		    (b)        Except
as set forth in schedule 6.13(b):  

		    (i)        the
Company owns and possesses all right, title, and interest in and to all  the Company Owned IP; 

		    (ii)        the
Company Intellectual Property is not subject to any liens, security           interests,
or other charges or encumbrances, and is not subject to any           restrictions or
limitations regarding use, transfer or disclosure;  

		    (iii)        the
Company Owned IP is valid, enforceable and in full force and effect;  

		    (iv)        the
Company Owned IP is registered (so far as it is capable of registration) in           the
Company’s sole name;  

		    (v)        the
Company has not infringed, misappropriated, or otherwise conflicted with,           and
the operation of the Company’s business as currently conducted, or as
          currently proposed to be conducted, will not infringe, misappropriate, or
          otherwise conflict with, any Intellectual Property of any third party; the
          Company and the Indemnifying Shareholders are not aware of any facts that
          indicate a likelihood of any of the foregoing, and neither the Company nor any
          of the Shareholders has received any notices regarding any of the foregoing;  

		    (vi)        the
Company has taken all reasonable actions to maintain and protect all the
          Company Intellectual Property and has not disclosed any source codes to any
          third party;  

20

		    (vii)        the
Company does not license any Intellectual Property from any third parties
          (other than Company Licensed IP and commercially available off-the-shelf
          software), and does not require any license from any third party to use any
          Intellectual Property (other than Company Licensed IP and commonly available
          off-the-shelf software) for the operation of the Company’s business as
          presently conducted or as presently proposed to be conducted;  

		    (viii)        to
the knowledge of the Company and the Indemnifying Shareholders, as of the           date
of this agreement, no third party has infringed, misappropriated, or           otherwise
conflicted with any of the Company Intellectual Property, and, as of           the date
of this agreement, the Company and the Indemnifying Shareholders are           not aware
of any facts that indicate a likelihood of any of the foregoing;  

		    (ix)        as
of the date of this agreement, the Company has not agreed to indemnify any
          third party for or against any interference, infringement, misappropriation, or
          other conflict with respect to any Intellectual Property;  

		    (x)        all
fees for the grant or renewal of the Company Owned IP registered, applied           for
or used by the Company has been paid for and there are no outstanding           amounts
to be paid;  

		    (xi)        each
person who is employed or engaged to create Intellectual Property for the
          Company is bound by a written contract to vest without receiving payment all
          Intellectual Property so created in the Company and to keep it confidential and
          only use it in relation to the business;  

		    (xii)        the
moral rights in all copyright works forming part of the Company Intellectual
          Property have been waived and the Company is not aware of any attempt or likely
          attempt to assert such moral rights;  

		    (xiii)        all
Company Licensed IP is validly licensed to the Company and all fees for use           of
such Company Licensed IP have been paid promptly and there are no           circumstances
which might lead the cancellation of any such Company Licensed IP  

		    (xiv)        any
agreements relating to the Company Intellectual Property (including any
          maintenance and support agreements) are freely transferable to the Purchaser
          without any need for consent from or payment to any third party;  

		    (xv)        the
Company has not assigned, nor granted any right, title, interest or license           in
or in respect of, any Company Intellectual Property to any third party, nor
          disclosed or provided any Company Intellectual Property of a confidential
nature           to any third party (other than an employee under enforceable obligations
of           confidence) except as disclosed in Schedule 6.13.  

		    (xvi)        the
Company has in place all documentation and support and maintenance           agreements
necessary for the Company to operate and maintain the technology           required for
its business;  

		    (xvii)        the
Company has in place technical and organisational measures which will ensure
          the security of the technology including (without limitation) firewalls meeting
          standards in line with current industry practice and procedures to prevent
          unauthorised access to data or the introduction of viruses;  

21

		    (xviii)        No
maintenance or support contract is terminable by the contractor on less than           12
months’ notice or is due to expire within the 12 months from Closing;  

		    (xix)        If
any person providing maintenance or support services for the technology           ceases
to do so, the Company has all necessary rights and information (including           the
right of access and use of source code) to perform the services itself or by           a
third party; and  

		    (xx)        the
Company is not aware of any infringement of the Data Protection Act 1998 and
          has never received a complaint from an individual or a notice from the
          Information Commissioner in respect of any actual or alleged breach of the Data
          Protection Act 1998.  

		    6.14        Assigned
Employees.  

		    6.14.1       Terms.
The disclosures set out in Exhibit 3 for the purposes of this Agreement and accepted
by the latter immediately before the execution of this Agreement (the ” Disclosures
set out in Exhibit 3”) contains complete and accurate details of the following
matters in relation to each Assigned Employee:  

		    (a)        full
name and date of birth, job description, length of service (including any
          deemed to be continuous with previous employers), remuneration, notice
          entitlement and any entitlement (whether legally binding or not) to pension,
          pension contributions, life assurance, permanent health insurance and any other
          material terms or benefits not mentioned below;  

		    (b)        entitlement
(whether legally binding or not) to any bonus, commission, or profit           sharing
scheme;  

		    (c)        current
absence on, or agreed or proposed entitlement to absence on, secondment,
          maternity leave, adoption leave, paternity leave, parental leave, sick leave,
          disability grounds or other leave of absence;  

		    (d)        any
court order, restrictive covenant or other obligation of which the Company           is
aware which might restrict him from fully performing his duties in relation           to
the Purchased Business;  

		    (e)        any
right or potential right (whether statutory or contractual) to return to           work
or to be re-instated or re-engaged;  

		    (f)        any
current entitlement to receive payments under any disability, permanent           health
or similar insurance scheme or any circumstances known to the Company           which may
give rise to such an entitlement;  

22

		    (g)        any
amounts owing between him and the Company (other than remuneration and           pension
contributions accrued due in respect of the current month or           reimbursements of
business expenses properly incurred in the two weeks ending on           the date of this
Agreement);  

		    (h)        any
involvement in dismissal, disciplinary or grievance proceedings in the 12
          months ending on the date of this Agreement and the procedures that have been
          followed in respect of those proceedings;  

		    (i)        any
dispute or claim with the Company or any circumstances known to the Company
          which could give rise to any such dispute or claim;  

		    (j)        any
entitlement to damages (whether for breach of contract or otherwise) or
          compensation for loss of office or employment or any other liability of the
          Company arising from his employment or the termination of his employment, or
any           circumstances known to the Company which could give rise to any such
liability;  

		    (k)        any
employee liability information under the Employment Regulations received by           the
Company;  

		    (l)        all
employee liability information under the Employment Regulations required to           be
provided to the Purchaser.  

		    6.14.2        There
are attached to the Disclosures set out in Exhibit 3 complete copies of: 

		    (a)        all
contracts with Assigned Employees;  

		    (b)        all
maternity, paternity, parental, adoption, equal opportunities, dismissal,
          disciplinary, grievance and any other policies and procedures (whether legally
          binding or not) applicable to all or any of the Assigned Employees.  

		    6.14.3        There
are disclosed in Exhibit 3 full details of: 

		    (a)        all
the Company’s schemes or arrangements for the grant of share options or
          other share incentives to employees or others;  

		    (b)        any
approvals required and/or obtained for those schemes or arrangements; and            

		    (c)        all
rights granted under those schemes.  

		    6.14.4        The
Company is not under any obligation (whether legally binding or not) to make and has not
made any announcement or proposal to alter any of the terms of employment of any of the
Assigned Employees.  

23

		    6.14.5        No
Assigned Employee has given or is under notice of resignation, dismissal or termination
or is, so far as the Company is aware, contemplating leaving the Company or under threat
of dismissal or termination.  

		    6.14.6        No
person other than the individuals listed in Exhibit 4(b) under the title “Assigned
Employees” is employed in or assigned to the Purchased Business.  

		    6.15        Pension
Schemes.  

		    6.15.1       Interpretation
and definitions. For the purposes of this clause 6.15, the following expressions shall
have the following meanings:  

	 	        Abbey
Life Scheme means the stakeholder pension scheme operated by Abbey Life insofar as it
relates to the Assigned Employees.  

	 	        Disclosed
Scheme means the Norwich Union Scheme and the Abbey Life Scheme or either of them.  

	 	        Norwich
Union Scheme means the the stakeholder pension scheme operated by Norwich Union
Assurance insofar as it relates to the Assigned Employees.  

	 	        Relevant
Benefits means any pension, lump sum, gratuity or other like benefit given or to be
given on retirement or on death, or in anticipation of retirement, or, in connection with
past service, after retirement or death, or to be given on or in anticipation of or in
connection with any change in the nature of the service of the Assigned Employee in
question, except that it does not include any benefit which is to be afforded solely by
reason of the disablement by accident of a person occurring during his service or of his
death by accident so occurring and for no other reason.  

		    6.15.2        Other
than the Disclosed Scheme there are no agreements or arrangements or obligations or
commitments (whether funded or unfunded and whether legally binding or otherwise) under
which the Company pays a contribution (whether pursuant to an obligation to do so or on
an ex gratia basis) towards the provision of Relevant Benefits for the benefit of
an Assigned Employee or an Assigned Employee’s dependants.  

		    6.15.3        No
undertaking or assurance (whether legally binding, written or oral) has been given by the
Company to or in respect of any Assigned Employee as to:  

		    (a)        the
continuance or introduction of any scheme or arrangement for the provision           of
Relevant Benefits; or  

		    (b)        the
increase, improvement or augmentation of any Relevant Benefit (including but
          not restricted to those provided under the Disclosed Scheme); or  

		    (c)        the
commencement of a contribution by the Company to the Disclosed Scheme for or           in
respect of that person; or  

		    (d)        continuance
or increase in the rate of contributions which the Company is paying           or will
pay to the Disclosed Scheme.  

		    6.15.4        All
material particulars of the Disclosed Scheme sufficient to enable the Purchaser
reasonably to understand the nature of the Disclosed Scheme, the benefits thereunder and
the extent of the obligations of the Company to make contributions thereto, both
currently and in the future, have been disclosed to the Purchaser.  

24

		    6.15.5        Without
prejudice to the generality of the preceding paragraphs:  

		    (a)        the
Disclosed Scheme is a stakeholder pension scheme (that term having the same
          meaning as in section 1(1) of the Pension Schemes Act 1993) and is a registered
          pension scheme within the meaning of Part 4 of the Finance Act 2004 and there
is           no ground on which such registration could be withdrawn or could cease to
apply;  

		    (b)        there
is no contracting-out certificate in force to cover employments of           Assigned
Employees to which the Disclosed Scheme relates.  

	 	        The
 Company  has  notified  to the  Purchaser  the  particulars  of all those  Assigned
Employees who are entitled or will become entitled to receive a contribution from the
Company to the Disclosed Scheme, as set forth in the Company’s response to the due
diligence questionnaire dated December 14, 2006;  

		    (c)        the
Company has complied fully with all equal pay, equal entitlement, sex and           other
discrimination legislation including Article 141 of the Treaty of Rome and           no
part-time Assigned Employee has been refused a contribution from the Company           to
the Disclosed Scheme on grounds of his or her part-time status;  

		    (d)        there
are not in respect of the Disclosed Scheme any outstanding contributions           or ex
gratia sums payable by the Company or the Assigned Employees;  

		    (e)        the
benefits payable under the Disclosed Scheme (including the death benefits)
          consist exclusively of money-purchase benefits as defined in section 181 of the
          Pension Schemes Act 1993 and no promise, assurance or undertaking (whether
          legally binding or not) has been given to or in respect of any Assigned
Employee           as to the provision of retirement, death or disability benefits at a
particular           level;  

		    (f)        no
claim has been made or threatened by or in respect of an Assigned Employee
          against the Company (including any complaint to the Pensions Ombudsman), or
          against any person whom the Company is or may be liable to indemnify or
          compensate, in connection with the Disclosed Scheme, nor are there any
          circumstances which may give rise to any such claim;  

		    (g)        the
Company has no liability to or in respect of any Assigned Employee to           provide
any benefits relating to an occupational pension scheme within the           meaning of
Regulation 10 of the Transfer of Undertakings (Protection of           Employment)
Regulations 2006, Council Directive 77/187/EEC or Council Directive           2001/23/EC
by virtue of a relevant transfer to it within the meanings of those           Regulations
or those Directives.  

		    6.16        Effect
of this Agreement.  

		    6.16.1        No
Assigned Employee will be entitled to any payment or benefit or variation of the terms of
his employment or engagement by virtue of the signature or performance of this Agreement.  

		    6.16.2        So
far as the Company is aware none of the Assigned Employees have expressed opposition to
the Purchaser acquiring the Purchased Business or has expressed any objection to becoming
employed by the Purchaser.  

25

		    6.17        Trade
unions.  

		    6.17.1        There
is no consultation, recognition, wage bargaining or other collective or similar
agreement, arrangement, or understanding (the “Collective Arrangement”) in
force, proposed or requested between the Company and any trade union, staff association,
or other organisation representing the Assigned Employees or any section of the Assigned
Employees, and the Company has not done any act that may be construed as recognising any
such body.  

		    6.17.2        No
applications have been made to the Central Arbitration Committee for the recognition of a
trade union or the agreement of an appropriate bargaining unit in respect of the Company
in relation to the Purchased Business.  

		    6.17.3        No
Collective Arrangement is observed or taken account of when fixing remuneration, benefits
or other terms or conditions of employment or engagement.  

		    6.17.4        There
is no dispute (current or threatened) between the Company and any trade union, staff
association, or other organisation representing the Assigned Employees or any section of
the Assigned Employees, and the Company has not received any statutory notice of
industrial action.  

		    6.17.5        In
the three years ending on the date of this Agreement there has not been any strike,
lock-out, or other labour related dispute or industrial action affecting the Purchased
Business.   

		    6.18        Information
and consultation arrangements. There are no information and consultation procedures
or similar agreements, arrangements or understandings applicable to collectively
informing and consulting with the Assigned Employees or employee representatives of the
Assigned Employees or any section of the Assigned Employees in relation to redundancies,
business transfers and other decisions affecting the Assigned Employees and the
activities of the Purchased Business in force, proposed or requested. 

		    6.19        Investigations
and compliance.  

		    6.19.1        The
Company in relation to the Purchased Business is not subject to any enquiry or
investigation by the Equal Opportunities Commission, the Disability Rights Commission,
the Commission for Racial Equality or the Information Commissioner and there are no
circumstances known to the Company which could give rise to any such enquiry or
investigation.  

		    6.19.2        The
Company in relation to the Purchased Business has complied with all obligations in and
awards under any statute, regulation, Collective Arrangement, works council agreement,
code of conduct and the terms of employment or engagement in relation to all Assigned
Employees.  

		    6.20        Redundancies.
There is no plan, scheme, commitment, custom or practice relating to redundancy
(whether legally binding or not) affecting any Assigned Employees which imposes greater
obligations than UK statutory redundancy provisions.  

26

		    6.21        Immigration.
Each Assigned Employee who is subject to immigration control has been granted leave
to remain in the United Kingdom or United States, as the case may be, and has a work
permit issued in relation to his employment with the Company in the Business which is
valid for at least 4 years following First Closing, and the Company is not aware of any
circumstances which might cause any such leave to remain or work permit to be curtailed
or any Assigned Employee to be required to leave the United Kingdom or the United States,
as the case may be.  

		    6.22        Investment
Company. The Company is not, and is not controlled by or under common control with an
affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940.  

		    6.23        Certain
Fees. No fees or commissions will be payable by the Company to any broker, financial
advisor, finder, investment banker, or bank with respect to the transactions contemplated
by this agreement.  

		    6.24        Insurance Until
the First Closing, the Company has maintained and paid the premium for adequate and
customary insurance policies, as acceptable for the type and scope of business conducted
by the Company at the relevant period.  

		    6.25        Full
Disclosure; No Changes. The representations made by the Company and the Shareholders
under this agreement shall be true and correct in all material respects at the date of
the Closing as if made again at and as of that time. No representation or warranty made
by them in this agreement contains any untrue statement of a material fact, or omits to
state any fact required to make any statement contained herein not misleading. The
Company and the Indemnifying Shareholders are not aware of any impending or contemplated
event or occurrence that would cause any of the representations or warranties in this
section 5 not to be true and complete on the date of such event or occurrence as if made
on that date.  

		    6.26        Taxes.
The Company has filed all tax returns it was required to file with respect to the
Purchased Business, and has paid all taxes shown on those tax returns as owing. As of the
date of this agreement, there is no dispute or claim concerning any tax liability of the
Company in connection with the Purchased Business, either (i) claimed or raised by any
authority in writing or (ii) as to which the Company or any of the Shareholders has
knowledge.  

		    6.27        Disclosures. The
disclosures to be set out in Exhibit 3 are acknowledged to be disclosed. The Purchaser
acknowledges and agrees that the Warrantiesare given subject to all facts and
matters fairly disclosed in the schedules attached hereto pursuant to this Section 6 and
that the Purchaser shall have no claim in respect of any of the Warranties in relation to
any such fact or matter fairly disclosed.  

		    6.28        The
disclosure exhibit shall be deemed to disclose, and the Purchaser acknowledges and agrees
that there shall be treated as disclosed, the following:  

		    (i)        the
contents of the documents annexed to this agreement;  

27

		    (ii)        the
contents of the due diligence questionnaire dated December 14, 2006;  

		    (iii)        the
contents of this Agreement and the contents of all documents referred to in
          this Agreement as being in agreed terms if any;  

		    6.29        In
the event of there being any inconsistency between any document or information referred
to above and any description or summary in respect of the same subject matter in
respective Schedule referred to in this Section 6 or in this agreement, the terms of such
description or summary shall prevail, unless expressly otherwise specified in such
Schedule or in this agreement.  

    7.        Representations
and Warranties of the Purchaser.The Purchaser           represents and warrants
to the Company and Shareholders that it has taken all           action necessary to
permit it to execute, deliver, and perform this agreement           and the transaction
contemplated hereby The execution, delivery, and performance           of the obligations
under this agreement by the Purchaser do not and will not,           with the giving of
notice or lapse of time, or both, (i) violate, conflict with,           or result in a
breach or default under, any license, permit, agreement, or           instrument to which
the Purchaser is a party or by which it or its properties           may be bound, or (ii)
violate or conflict with any law, ordinance, rule, order,           judgment, decree, or
ruling of any Regulatory Authority applicable to the           Purchaser or its assets;  

    8.        Assigned
Employees.  

		    8.1        Transfer
of Assigned Employees under the Employment Regulations. The Company and the Purchaser
acknowledge that the transfer contemplated by this Agreement is one to which the Transfer
of Undertakings (Protection of Employment) Regulations 2006 (the “Employment
Regulations”) apply. Accordingly with effect from the Effective Date the contracts
of employment of the Assigned Employees shall have effect as if originally made between
the Assigned Employees and the Purchaser.  

		    8.2        Authority
to Assigned Employees. The Company undertakes to authorise each Assigned Employee to
disclose to the Purchaser after the Effective Date all information in his possession
relating to the Purchased Business notwithstanding any term of his employment with the
Company (whether express or implied) which would otherwise preclude him from so doing.  

		    8.3        Compliance
with the Employment Regulations. The Company confirms that, to the extent applicable
by law, it has complied with:  

		    (i)        its
duty to inform or to inform and consult trade union and/or employee
          representatives under the Employment Regulations in connection with the sale of
          the Purchased Business under this Agreement; and  

		    (ii)        its
duty to provide employee liability information under the Employment
          Regulations.  

28

		    8.4        Indemnity
by Company. The Company shall indemnify the Purchaser against all liabilities,
losses, charges, costs claims or demands whatsoever in connection with or arising out of:  

		    (i)        the
employment or termination of employment before the First Closing Date of any           of
the Assigned Employees or other person employed in, or assigned to, the
          Purchased Business;  

		    (ii)        any
matter which occurred before the First Closing Date for which the Company is           or
would have been liable but for the transfer of liability for that matter to           the
Purchaser pursuant to the Employment Regulations;  

		    (iii)        any
failure by the Company to comply with its obligations to any trade union or
          other worker representative prior to the First Closing Date; or  

		    (iv)        any
payments due to Assigned Employees in respect of their employment up to and
          including the Effective Date (including but not limited to payments under or in
          connection with any profit related pay or other incentive or bonus scheme
          applicable to the Assigned Employees immediately before the Effective Date)
          whether or not such payment arises from or in connection with the period of
          employment on or after the Effective Date;  

		    (v)        any
accrued but untaken holiday entitlements of the Assigned Employees up to and
          including the Effective Date which are not expressly disclosed in the
          Disclosures set out in Exhibit 3;  

		    (vi)        the
employment or termination of employment of any person other than the           Assigned
Employees, including but not limited to those persons listed in Section           B of
Exhibit 4(b) of this Agreement, whose contract of employment is, or who           claims
that his contract of employment is, transferred to the Purchaser as a           result of
the signature or performance of this Agreement;  

		    (vii)        the
employment details of the Assigned Employees set out in the Disclosures set           out
in Exhibit 3 or any employee liability information as defined in Regulation           11
of the Employment Regulations being in any respect untrue, inaccurate,
          incomplete or misleading.  

		    (viii)        any
right of or claim by an Assigned Employee arising from or relating to any
          entitlement under any share option scheme in particular the Enterprize
          Management Incentive Share Option Plan with the Company.  

		    8.5        Indemnity
by Purchaser. The Purchaser shall indemnify the Company from and against all
liabilities, losses, charges, costs, claims or demands whatsoever arising in connection
with the employment of the Assigned Employees in the Purchased Business during the period
beginning from the date of the Effective Date (other than any matter which is the
responsibility of the Company under the foregoing provisions of this Clause).  

29

		    8.6        CodeStream
Workbench Personnel. The Company represents that it has contracted with a company
incorporated in the United Kingdom for the provision of services for the CodeStream
Workbench project. Those individuals work for the contractor not the Company and for the
avoidance of doubt are not Assigned Employees. Execpt as outlined in Section 1.3.2, the
Purchaser shall have no liability or any obligation of any kind with respect to
CodeStream Workbench employees/contractors, and the Company shall bear all and any such
liabilities expenses and costs, as more fully set forth under this section 8. Each of the
Company and the Indemnifying Shareholders undertakes to indemnify the Purchaser in
respect of all liabilities, losses, charges, costs, claims, or demands as a consequence,
whether direct or indirect, incurred as a result of termination or non assignment of any
of CodeStream Workbench contracs for programming services.  

    9.        Hand
Over of Records and Information.  

Prior to or at the First Closing, the
Company and Shareholders shall cause all records, books, agreements, contracts,
customers’ lists, business plans, internal reports, reports made available to the
Company’s board and shareholders during the 12 month period preceding the First
Closing, and any other document and/or information related to the Purchased Business which
is in its possession and/or control (the “Company’s Information”) whether
in a tangible or non-tangible form, including information stored on magnetic media or by
oral, visual or other means and including magnetic tapes, disks, or other tangible media
upon which the Company’s Information is written or stored, to be delivered to the
Purchaser. However, Company shall retain all financial records, in accordance with HMRC
regulations, existing previous to the First Closing, subject to the Company’s
obligation of confidentiality hereunder and provided, however, that Purchaser can request
copies of any such records and they will be promptly provided by the Company. 

    10.        Noncompetition,
Confidentiality, Etc. Each of the Company           and Shareholders
acknowledges that (a) his experience with the Company has given           him access to
the Company’s confidential and proprietary information; (b)           From the First
Closing, the value of all goodwill resulting from the operation           of the Company’s
business related to the Purchased Business should properly           belong to the
Purchaser; (c) the agreements of the Company and Shareholders in           this section
10 are essential to such goodwill; and (d) the Purchaser would not           enter into
this agreement but for the agreements in this section 10.           Accordingly, each of
the Company and Indemnifying Shareholder agrees as follows:  

		    10.1        Noncompetition. From
the date of this agreement to the third anniversary of the First Closing (the “Restricted
Period”), they shall not engage (and shall not assist any person in engaging)
anywhere in the United Kingdom, France, Belgium, Germany, Switzerland, the Netherlands,
United States, Canada, South Africa, Singapore and Australia (collectively, the “Restricted
Territories”) in (whether as a principal, agent, owner, manager, employee, operator,
officer, director, consultant, advisor, representative, or otherwise), directly or
indirectly, in any Prohibited Activity (as defined below); provided, however, that
ownership of less than 5% of any class or series of outstanding equity securities of any
publicly-traded company shall not be deemed to be engaging solely by reason thereof in
any of its business. They acknowledge and agree that the restrictions imposed by this
section 10.1 are reasonable with respect to subject matter, time period, and geographical
area. The term “Prohibited Activity” means any activity that competes
with the Purchased Business, including, but not limited to, any business or enterprise
that develops, markets, or sells any product or service that competes with any product or
service specified in Schedule 6.13, developed, marketed, or sold, or any product or
service planned to be developed, marketed, or sold, while he was employed by, owned
securities of, or otherwise was affiliated with the Company (as demonstrated by
contemporaneous documentation thereof), except for the Excluded IP.  

30

	 	        Without
 derogating  from the generality of the  foregoing,  each of the Company and the
Indemnifying Shareholders hereby undertakes, during the Restricted Period to refrain from
any contact or attempted contact or business relationship with a customer, or any entity
who is a party to, or affiliated with, a Contract or with a prospect listed in Schedule
6.4.2.  

		    10.2        Non-use
of Name. Immediately following the First Closing, the Company and Shareholders shall
cease to use any corporate or trading name, mark or style which may suggest a connection
to or which is similar to any corporate or trading name, mark or style used by Purchased
Business immediately prior to the First Closing and at any time during the three (3)
years period preceding the date of the First Closing, including, without limitation the
names: CodeStream, Xitec and any product name used by the Company during the said period,
except that use of such names by the Company for purpose of assigning and transferring
the Purchased Business under this agreement and for the purpose of liquidating the
Company is allowed. Notwithstanding the foregoing, the Company shall not be requested to
change its name, until after 12 months following date of the First Closing. The Company
and Shareholders shall, not later than 14 days after such date deliver to the Purchaser a
certified copy of a special resolution passed by the shareholders of the Company changing
the name of the Companyfrom Codestream Software Limited to a name not including
the word Codestream or Xitec and the Company and Shareholders shall procure that such
change of name be registered at Companies House within 14 days. The Company shall, within
30 days following the Date of the First Closing, change the name of the Company’s US
subsidiary, Codestream Inc.  

		    10.3        Non-Interference.
During the Restricted Period, (a) they shall not, directly or indirectly, induce or
attempt to induce any third party doing business with the Purchaser or its subsidiaries
in a Restricted Territory in connection with a Prohibited Activity to cease engaging in
such business with the Purchaser or its subsidiaries, or in any way interfere with the
relationship between any such third party and the Purchaser or its subsidiaries
(including making any negative or disparaging statements or communications regarding any
of them).  

		    10.4        Non-Solicitation.
They undertake towards the Purchaser that during the Restrictive Period they will not:  

		    10.4.1        Solicit
or entice away (or assist anyone else in soliciting or enticing away) any key employee or
consultant of the Company or the Purchaser who has been involved in the Company’s
business or in the delivery of services or performance of project related to the Company
during the 12 months immediately prior to any such approach; or  

		    10.4.2        Employ
any such person or engage them in any way to provide services. 

“Key employees or
consultants” are defined as any employee or consultant who is exposed to Confidential
Information related with the Purchased Business. 

31

		    10.5        Equitable
Relief. If the final judgment of a court of competent jurisdiction declares that any
term or provision of this section 10 is invalid or unenforceable, the parties agree that
the court making the determination of invalidity or unenforceability shall have the power
to reduce the scope, duration, or area of 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 after the expiration of the time within which the judgment may
be applicable.  

    11.        Confidentiality.
Each of the Company and Shareholders hereby undertakes           to keep
confidential, refrain from using, and deliver promptly to the Purchaser,           at the
Closing, all tangible embodiments (and all copies) of Confidential           Information,
without making or keeping a copy thereof, except for Confidential           Information
required for performance of services under employment or services           agreements
entered into with the Purchaser, BluePhoenix Solutions UK Ltd. or           BluePhoenix
Solutions USA, Inc. as authorized for use by the Purchaser.           Notwithstanding the
foregoing, they may disclose such information, to the           extent: (a) authorized by
the prior written consent of the Purchaser, (b)           required by applicable law, or
(c) such information is or becomes generally           available to the public other than
as a result of a violation of this provision.  

“Confidential
Information” means all confidential or proprietary information relating to the
Purchased Business, including: (i) any software, know how, methodologies, processes,
technologies, tools, support manuals; (ii) any Company’s customer identities
and customer information; (iii) any test results, error data or other reports made in
connection with the Purchased Business; (iv) any notes, extracts, analysis or materials
prepared by or for the Company with respect to the Purchased Business and other
information which, from the substance of such information, can be inferred or otherwise
understood to be confidential. 

The confidentiality obligations set
forth herein shall remain in effect without limitation of time. 

    12.        Survival
and Indemnification  

		    12.1        Survival.
The representations and warranties of the parties subject to the limitations thereon
set out in this Agreement shall survive the execution and delivery of this agreement and
the consummation of the transactions contemplated by this agreement until the end of the
Indemnification Period, regardless of any investigation made by the Purchaser or on its
behalf.  

		    12.2        Indemnification.
Without restricting the rights of the Purchaser or its ability to claim damages on
any basis, the Company and the Indemnifying Shareholders jointly and severally (the “Indemnitors”)
undertake to indemnify the Purchaser and its affiliates, officers, directors, employees,
and agents (including without limitation, those retained in connection with the
transactions contemplated by this agreement with the exception of Greg Schottland)
(collectively, the “Indemnitees”) in respect of all liabilities, losses,
charges, costs, claims or demands incurred or made by the Purchaser as a consequence of
or which would not have occurred or arisen either directly or indirectly but for any
warranty or covenant hereunder being breached, inaccurate or misleading, subject always
to clause 12.4.  

32

		    12.3        Defense
of Claims. Any Indemnitee who wishes to assume the defense of any claim as to which
indemnity is sought shall so notify the Indemnitors not later than 60 days after it has
actual knowledge of the claim, and, after giving such notice, shall be entitled to
control the defense of the claim, with counsel reasonably satisfactory to the Company or
the Indemnifying Shareholders; provided, that the Company and Indemnifying
Shareholders may participate in such defense and provided no settlement is reached
without the Indemnitors’ written consent, such consent shall not be unreasonably
withheld. If the Indemnitee does not so notify the Company or Indemnifying Shareholders
within that 60-day period, the Indemnitors shall assume the defense of the claim, with
counsel reasonably satisfactory to the Indemnitee; provided, that the Indemnitee
may participate in such defense. The Indemnitors, in the defense of any such claim, shall
not, except with the consent of the Indemnitee, consent to entry of any judgment or entry
into any settlement that does not include as an unconditional term the giving by the
claimant or plaintiff to the Indemnitee of a release from all liability with respect to
such claim. Each party shall use reasonable efforts to cooperate with each other party in
connection with the defense of any claim referred to above.  

		    12.4        Limitations
on Indemnification.  

		    12.4.1        The
indemnification obligations of each, and in total for all, Indemnifying Shareholder for
the Indemnitees’ losses claims or any other indemnified loss, damage or expenses
hereunder shall be limited to an aggregate amount, notwithstanding however many claims
may be brought, equal to £1,900,000 (one million and nine hundred thousand pounds)
plus reasonable legal expenses and fees related to such claims.  

		    12.4.2       Threshold.
It is hereby agreedthat each of the Company and the Indemnifying Shareholders
or the Purchaser is exempted from their obligation to indemnify under this agreement with
respect to a demand or a claim unless the liability in respect of that demand or claim
when aggregated with the liability in respect of all demands or claims against that party
under this Agreement exceeds £25,000 (twenty five thousands pounds) in which case
that party shall be liable for the whole amount and not merely the excess.  

		    12.4.3        Disclosure
of any fact or matter in an Exhibit hereto shall only be effective to prevent the Company
and/or Indemnifying Shareholder being liable for such matter pursuant to the relevant
Warranty to the extent that such matter or circumstance has been fairly disclosed
therein.  

		    12.4.4        No
party shall be entitled to bring a claim under any indemnity in this Agreement unless
notice in writing of such claim is given to the other party by the first anniversary of
First Closing.  

		    12.4.5        It
is hereby clarified that the foregoing shall not derogate from the enforceability and
effect of any provision contained herein or elsewhere with respect to the Escrow or any
provision in the Escrow Agreement and shall not, in any manner, restrict the rights of
the Purchaser with respect to the Escrow Agreement provided that any sum paid under the
Escrow Agreement shall be included in applying any cap or limit as set out above.  

33

    13.        Transfer
Restrictions; Company’s Status. The Company,           each
Shareholder and the equity holder of each shareholder is, as of the date           hereof
and shall be as of the date the Company, each shareholder or equity           holder of a
shareholder receives a Debenture, if applicable, an “accredited           investor” (as
defined in Rule 501 under the Securities Act). The Company           and the Shareholders
understand that none of the Debentures, or any shares           issuable upon exercise of
the Debentures (collectively, the           “Securities”) have been registered
for sale under the Securities Act,           and none of the Securities may be resold,
except pursuant to registration under           the Securities Act or an exemption from
such registration. The Company           understands any certificates evidencing any
Securities will bear a legend to the           effect set forth in the immediately
preceding sentence. The Company or any of           the Permitted Transferee (as such
term is defined below), as the case may be, is           acquiring or will be acquiring
the Securities for its own account, with no           present intention of selling or
otherwise distributing any such Securities in           violation of the Securities Act.  

	 	        At
the time of signing this Agreement, they are, and on each date on which it receive or
converts any Debentures they will be, “accredited investors” as defined in Rule
501(a) under the Securities Act. The Company has not been formed solely for the purpose
of acquiring the Securities. The Company is not a registered broker-dealer under Section
15 of the Exchange Act.  

	 	        Immediately
 prior to issuance of a Debenture  Hereunder,  the Company or its  Permitted Transferees,
as the case may be, shall sign a written confirmation of the foregoing, in a form
reasonably satisfactory to the Purchaser’s counsels.  

    14.        Taxes. Each
Party shall bear its or his own taxes,           including with respect to the
Debentures. The Purchased Business is a going           concern that will be integrated
with the existing business of BluePhoenix           Solutions UK Ltd. which is UK VAT
registered.  

    15.        Press
Release. The Company and Shareholders agreed to issue a           press release
shortly prior to the First Closing.  

    16.        David
Brunel Guarantee for Pine Street Investments II. David Brunel hereby
irrevocably and unconditionally guarantees as           a continuing guarantee the
payment when demanded by the Purchaser of all sums           due owing or outstanding
from Pine Street Investments II to the Purchaser           hereunder and the due
performance by Pine Street Investments II of all and           severally Pine Street
Investments II’s obligations hereunder and all           documents ancillary hereto
and thereto agrees to indemnify the Purchaser from           and against all loss,
damage, costs and expenses which the Purchaser may suffer           through or arising
from any failure by Pine Street Investments II to perform any           of its said
obligations or any failure by Pine Street Investments II to duly,           fully and
punctually to pay any such sum or any other sum required to be paid by           it in
relation to or otherwise to perform its said obligations.  

All sums payable hereunder by David
Brunel shall be paid immediately on demand by the Purchaser in full without any deduction,
withholding, counter-claim or set off. If David Brunel is compelled by law to make any
deduction or withholding from any such sums or if any payment hereunder shall be or become
subject to any tax, duty, levy or impost of any nature (whether before or after the same
has been paid to the Purchaser) David Brunel shall immediately pay to the Purchaser such
additional amount or amounts as will result in payment to and retention by the Purchaser
of the full amount which would have been received and retained by the Purchaser but for
such deduction or withholding or the imposition of such tax, duty, levy or impost. 

34

Without prejudice to the
Purchaser’s rights against Pine Street Investments II as between the Purchaser and
David Brunel, David Brunel shall be liable hereunder as if it were the sole principal
debtor and not merely a surety, and its liability hereunder shall not be released,
discharged or diminished by: 

any legal limitation, lack of
capacity or authorisation or defect in the actions of Pine Street Investments II or any
co-surety in relation to, any invalidity or unenforceability of, or any variation (whether
or not agreed by David Brunel) of any of the terms of this Agreement or any document
ancillary hereto or thereto, or the bankruptcy, liquidation, insolvency, or dissolution of
Pine Street Investments II or any change in Pine Street Investments II’s identity,
constitution, status or control; or 

any forbearance, neglect or delay in
seeking performance of the obligations of Pine Street Investments II or any co-surety, any
granting of time indulgence or other relief to Pine Street Investments II or any co-surety
in relation to such performance, or any composition with, discharge, waiver or release of
Pine Street Investments II or any co-surety; or 

any other act, omission, fact or
circumstance which might otherwise release, discharge or diminish the liability of a
guarantor. 

Any release, settlement or discharge
between the Purchaser and David Brunel shall be conditional upon no security or payment
made or given to the Purchaser being avoided, reduced, set aside or rendered unenforceable
by virtue of any provision or enactment now or hereafter in force relating to bankruptcy,
insolvency or liquidation and if any such security or payment shall be avoided, reduced,
set aside or rendered unenforceable the Purchaser shall be entitled to recover the full
amount or value of any such security or payment from David Brunel and otherwise to enforce
this Clause as if such release, settlement or discharge had not taken place. 

    17.        General.  

		    17.1        Definitions.
For purposes of this agreement, the following terms have the indicated meanings:  

	 	        “Acquisition
Documents” is defined in clause 15.13.  

	 	        “Assigned
Employees” means those individuals employed by the Company in the Purchased Business
and named in Exhibit 4(b), Section A  

	 	        "Assets"
 is  defined  as the  assets  included  under the item "Net  Euipment"  in the Balance
Sheet which constitutes part of Exhibit 1.  

	 	        “Claim”is
defined in clause 1.2.  

	 	        “CodeStream
Workbench” is defined in clause 1.3.2  

35

	 	        “Collective
Arrangement”is defined in clause 6.16.1.  

	 	        “Company”is
defined on page 1.  

	 	        "Company
 Intellectual  Property" means all Intellectual  Property,  except Excluded IP, used by
the Company in the conduct of its business as of the date of this agreement or necessary
for the operation of the Company’s business as presently conducted or as presently
proposed to be conducted.  

	 	        “Company
Licensed IP” means all Company Intellectual Property that is licensed to the  Company. 

	 	        "Company
 Owned  IP"  means  all  Company  Intellectual  Property,  other  than  Company Licensed
IP.  

	 	        “Confidential
Information” is defined in clause 11.  

	 	        “Contracts”means
any contract listed in Chapter A of Exhibit 1 as defined in clause 1.1(a) being either an
Assigned or a Novated Contract.  

	 	        "Current
 Balance  Sheet" and "Current  Balance  Sheet Date" is defined in clauses 6.4.1 and 6.5.  

	 	        “Debentures”is
defined in clause 3.  

	 	        “Debenture
A” is defined in clause 3.1  

	 	        "Developments"
mean any invention,  discovery,  idea, process,  technique,  know-how and data,
improvement, technology, algorithms, trade secret, design, graphic, work of authorship,
source, HTML and other code, computer program and other works of authorship, audio, video
or other files or content, whether or not patentable or copyrightable, and any
documentation of the foregoing, made, discovered, conceived, reduced to practice or
developed (in whole or in part, either alone or jointly with others) by the Shareholders,
employees or contractors of the Company, during their employment or provision of services
to the Company.  

	 	        “Disclosures
Set out in Exhibit 3” mean the disclosures mentioned in clause 6.14.1 and elsewhere
in this agreement where mention is made to a disclosure by specific reference to such
exhibit.  

	 	        “DWP”is
defined in clause 3.2  

	 	        “EDS” is
defined in clause 3.2  

	 	        “EDS
Agreement” is defined in clause 3.2  

	 	        “Effective
Date” is defined in clause 1.2.  

	 	        “Escrow
Account” means the deposit account in the joint names of the Purchaser’s
Solicitors and the Company’s Solicitors at the Bank entitled Codestream Escrow
Account to be administered in accordance with the Escrow Agreement;  

36

	 	        “Escrow
Agreement” means the escrow agreement in agreed form to be entered into by the
Company, the Purchaser, the Purchasers Solicitors and the Company’s Solicitors at
the First Closing;  

	 	        “Escrow
Amount” means an amount of £400,000 (four hundred thousand pounds); “Escrow
Period” means the period from the First Closing until the Release Date. 

	 	        “Excluded
Business” is defined in clause 1.3.1  

	 	        "Excluded
 IP" means all  Intellectual  Property  set out in Part C of Schedule  6.13(a) that is
owned by and/or licensed to the Company.  

	 	        “Executive
Agreement” is defined in clause 4.1 (b)  

	 	        “Financial
Statements” is defined in clause 6.4.1  

	 	        "First
 Closing"  "Second  Closing" and "Third  Closing" are defined in clauses 4.1, 4.2 and 4.3
respectively. “First Closing Date” means date of First Closing.  

	 	        "First
 Condition  Precedent"  and "Second  Condition  Precedent"  are defined in clause 5.3.1
and 5.3.2 respectively  

	 	        "Governmental
 Agency" means any federal,  state, local,  foreign, or other governmental agency,
instrumentality, commission, authority, board, or body.  

	 	        “Indemnification
Period” means the period of 12 months from First Closing.  

	 	        “Indemnifying
Shareholders” is defined on page 1.  

	 	        “Indemnitee” and
“Indemnitors” are defined in clause 12.2.  

	 	        "Intellectual
 Property" means all of the following in any  jurisdiction  throughout the world: (a)
patents, patent applications, and patent disclosures; (b) registered and unregistered
trademarks, service marks, trade dress, trade names, corporate names, logos, and slogans
(and all translations, adaptations, derivations, and combinations of the foregoing) and
Internet domain names, together with all goodwill associated with each of the foregoing;
(c) copyrights and copyrightable works; (d) registered and unregistered designs: (e)
database rights; (f) registrations and applications for any of the foregoing; (g) trade
secrets, confidential information, know-how, and inventions; (h) computer software
(including, but not limited to, source code, executable code, data, databases, and
documentation); (i) customers’ database and prospects list; and (j) all other
intellectual property.  

	 	        “OTMI
Project” is defined in clause 3.2  

37

	 	        “Prohibited
Activity” is defined in clause 10.1  

	 	        "Property"
 means the  properties  mentioned  in  clause  6.12(a)  and its  accompanying schedule.  

	 	        “Purchase
Order” is defined in clause 3.2  

	 	        “Purchased
Business” is defined in clause 1.1.  

	 	        “Regulatory
Authority” is defined in clause 6.3  

	 	        “Release
Date” is defined in the Escrow Agreement.  

	 	        “Restricted
Period” is defined in clause 10.1  

	 	        “Restricted
Territories”is defined in clause 10.1  

	 	        “Securities
Act” means the United States Securities Act of 1933, as amended.  

	 	        “Shares” is defined in clause 6.2  

	 	        “Shareholders”is
defined on page 1.  

	 	        “Transaction
Agreements” is defined in clause 6.1  

	 	        “Warranties”and
“Warranty” are defined in clause 5.1.  

		    17.2        Successors
and Assigns. This agreement shall inure to the benefit of the parties and their
respective successors and assigns, including each subsequent holder of the debentures
issued pursuant to this agreement. Neither Party may assign this agreement or any rights
or obligations hereunder without the prior written consent of the other party.  

        Notwithstanding
the immediately precedent sub-clause, the Company may novate or request that the Purchaser
issues the Debentures to its current shareholders listed in Schedule 6.2 (or the
respective equity holders of the Shareholders) (“Permitted Transferees”),
provided that such number of Permitted Transferees to which Debentures are novated shall
not exceed 9. Any Permitted Transferee to which this Agreement is novated, shall undertake
in writing to be bound by the terms of this agreement and the Debenture on the same terms
as the Company, on terms reasonably satisfactory to the Purchaser. The Permitted
Transferees may not assign a Debenture other than by will or the laws of descent, provided
that the conditions set forth herein for assignment, and in particular in clause 13, have
been met 

        In
the event that the Company anticipates transferring any Debentures, the Company shall
notify so in wrting to the Purchaser, before issuance of a Debenture or following issuance
of Debenture, as the case may be, and surrender the Debentures to the Purchaser in
connection with such transfer of Debentures. The Company may require, as a condition of
allowing such transfer and novation (i) that the transferee of the Debenture furnish to
the Purchaser a written opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions) to the effect that
such transfer may be made without registration under the Securities Act and under
applicable state securities or blue sky laws, (ii) that the transferee execute and deliver
to the Purchaser an investment letter in form and substance acceptable to the Purchaser
and (iii) that the transferee be an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a
qualified institutional buyer as defined in Rule 144A(a) under the Securities Act. 

38

		    17.3        Notices.
All notices, requests, consents, and other communications provided for in this
agreement shall be in writing and shall be (i) delivered in person, (ii) transmitted by
facsimile, (iii) sent by first-class, registered or certified mail, postage prepaid, or
(iv) sent by reputable overnight courier service, fees prepaid, to the recipient at the
address or facsimile number set forth below, or such other address or facsimile number in
the United Kingdom or Israel as may hereafter be designated in writing by such recipient.
Notices shall be deemed given upon personal delivery, seven days following deposit in the
mail as set forth above, upon acknowledgment by the receiving facsimile or one day
following deposit with an overnight courier service.  

	 	        If
to the Company, to it at: 

	 	c/o Ilana Martin LLM (Intl Bus Law) FCIS

Director

Company Law International Limited

Seven Gables House

30 Letchmore Road

Radlett, Herts

WD7 8HT, United Kingdom

Facsimile:  +44- (0)1923 469174

With a copy to:

2060 Broadway, Suite 250

Boulder, Colorado, 80302

Facsimile:  +1 303-417-9700

Attention:  David Brunel

39

	 	        If
to the Purchaser, to it at: 

	 	c/o Denton Wilde Sapte LLP

One Fleet Place London EC4M 7WS UK

Facsimile: +44 (0)20 7246 7777

Attention:  Mr. Jeremy Cohen and to DWS ASP Limited

With a copy to:

8 Maskit Street

P.O. Box 2062

Herzliya 46120

Israel

Facsimile:  972-9-9526111

Attention:  Chief Financial Officer and General Counsel

	 	If to any of the Shareholders, to them at:

c/o Ilana Martin LLM (Intl Bus Law) FCIS

Director

Company Law International Limited

Seven Gables House

30 Letchmore Road

Radlett, Herts

WD7 8HT United Kingdom

Facsimile:  +44- (0)1923 469174

	 	        Any
claim form,  application notice,  judgment,  orders or other notice of legal process
relating to this Agreement may be served on a party at that party’s address for
service and in the manner specified in this Clause.  

		    17.4        Fees
and Expenses. Each party shall bear its or his own costs and expenses, including,
without limitation, fees and disbursements of counsel, incurred in connection with this
agreement and the transactions contemplated by this agreement.  

		    17.5        Amendment
and Waiver. No amendment of any provision of this agreement shall be effective,
unless it is in writing and signed by the party to be charged. Any failure of a party to
comply with any provision of this agreement may only be waived in writing by the parties
affected. No such waiver shall operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. No failure by any party to take any action against any
breach of this agreement or default by any other party shall constitute a waiver of that
party’s right to enforce any provision of this agreement or to take any such action.  

		    17.6        Counterparts.
This agreement may be executed in counterparts, each of which shall be deemed an
original, but both of which together shall constitute one agreement.  

40

		    17.7        Headings.The
headings of the various sections of this agreement have been inserted for reference only
and shall not be deemed to be a part of this agreement.  

		    17.8        Specific
Performance. The parties acknowledge that money damages would not be a sufficient
remedy for any breach of this agreement. Accordingly, the parties agree that they shall
be entitled to specific performance and injunctive relief as remedies for any such
breach, these remedies being in addition to any other remedies to which they may be
entitled at law or equity.  

		    17.9        Governing
Law. This agreement shall be governed by and construed in accordance with English law.  

		    17.10        Consent
to Jurisdiction. Any dispute arising out of or in connection with this agreement,
except for the specific matters expressly referred to for expert determination as set
forth in clauses 2.3 and 4.4, but including any question regarding its existence,
validity or termination, shall be referred to and finally resolved by arbitration under
the LCIA Rules, which rules are deemed to be incorporated by reference into this clause.  

	 	        The
number of arbitrators shall be one.  

	 	        The
seat, or legal place, of arbitration shall be London.  

	 	        The
language to be used in the arbitral proceedings shall be English.  

		    17.11        No
Third Party Beneficiaries. Nothing in this agreement is intended or shall be
construed to confer upon any person or entity other than the parties to this agreement
and their successors or assigns any rights or remedies under or by reason of this
agreement.  

		    17.12        Severability.
If any provision of this agreement is held by a court of competent jurisdiction to be
invalid, void, or unenforceable, the remainder of the agreement shall remain in full
force and effect and shall not be affected, impaired, or invalidated.  

		    17.13        Entire
Agreement. This Agreement, and any other documents referred to in this Agreement
(together the “Acquisition Documents”) set out the entire agreement
between the parties relating to the sale and purchase of the Purchased Business. The
Acquisition Documents supersede all previous agreements between the parties relating to
the sale and purchase of the Purchased Business.  

- signatures page to follow - 

41

        IN
WITNESS THE PARTIES HAVE SIGNED THIS PURCHASE AGREEMENT ON THE DATE AND YEAR FIRST ABOVE
WRITTEN. 

	 	(1) BLUEPHOENIX SOLUTIONS LTD

              ________________________________

              Acting by:

                       Name: ________________

                       Title: _________________

      BLUEPHOENIX SOLUTIONS UK LTD

              ________________________________

              Acting by:

                       Name: ________________

                       Title: _________________

 (2) CODESTREAM SOLUTIONS LTD.

              ________________________________

              Acting by:

                       Name: ________________

                       Title: _________________ 

	                                          

                                         

____________________                     

Acting By:                               

            Name: _____________________  

            Title: ______________________
	(3) signed as a deed and delivered by

Pine Street Investments II

                 _____________________________

                  Acting By:

                       Name: _________________

                       Title: __________________ 

	 	(4) signed as a deed and delivered by Henry W Vandeveer

             ________________________________

             in the presence of:

             Signature of Witness: ________________

             Name of Witness: ___________________

             Address: ___________________________

 (5) David Brunel is a party to this agreement solely in his

 capacity as guarantor in respect of Pine Street Investments II

 pursuant to clause 16 below.

  signed as a deed and delivered by David Brunel

             ________________________________

             in the presence of:

             Signature of Witness: ________________

             Name of Witness: ___________________

             Address: ___________________________ 

4220-F

Exhibit 4.13  

Principles of
Cooperation 

Between Matrix IT Ltd.
(“Matrix”) and BluePhoenix Solutions Ltd. (“BluePhoenix”), dated
August 8,  2006. 

	 	A. 	Allocation
of Human Resources

	 	1. 	The
parties hereto, BluePhoenix and Matrix (the “Companies”) shall
                    order, from time to time, services from each other. Each party shall
provide the                     services ordered by the other party, as aforesaid,
performed by such                     party’s employees, all under the terms set
forth herein. 

	 	2. 	The
parties shall execute a purchase order for each employee to provide services
                    as aforementioned, and each purchase order shall include the
following terms:                     term of services, availability of the employee,
terms of payment and rates. 

	 	3. 	Each
party may terminate the services provided by the other party’s
                    employee by a two weeks advance notice. 

	 	4. 	As
long as an employee is employed by a party or a related company thereof, such
                    party may not transfer an employee providing services hereunder from
its                     assignment for the other party. 

	 	5. 	A
Party’s employee performing services hereunder for the other party may be
                    recruited by the other party purchasing such services, after a period
of                     provision of services of no less than 12 months. 

	 	6. 	A
party shall remain employer of its employee performing services hereunder for
                    the other party during the entire term of provision of services
hereunder, and                     shall remain liable for all such employee’s
rights. 

	 	7. 	Fees
shall be paid against an invoice, 60 days following the end of the month in
                    which the invoice was issued. Payments shall be made in NIS, unless
otherwise                     agreed by both parties. Daily rates for each employee are
set froth in Exhibit A                     attached hereto. For services rendered abroad,
the daily rate shall be in the                     range of $280 to $365 (and
approximately 50% for a day flight). The                     specific rate and terms for
each employee shall be agreed upon by the parties in                     the respective
purchase order executed by the parties. 

	 	B. 	Cooperation
in performing projects

	 	
The
agreed upon principles for cooperation in the sale process and performance of projects for
prospects of either party (the “Customers”) for performance of conversion
projects (the “Projects”) are as follows: 

	 	1. 	A
party wishes to cooperate with the other party will provide the other party
               the required information related to performing the project in hand. 

	 	2. 	The
project shall be performed and managed by the party assigned as the prime
               contractor. The prime contractor may assign to the other party, acting as
a                subcontractor, parts of the project which were examined and found to be
fitted                to the scope of the agreement, providing that the subcontractor
posses the                technological knowledge for performing the relevant components
in projects of                this type. 

	 	3. 	A
proposal to the Customer shall be submitted by the prime contractor. The
               subcontractor shall sign a back-to-back agreement to the agreement between
the                prime contractor and the Customer with respect to the components to be
performed                by the subcontractor, subject to the subcontractor’s
examination of, and                consent to, the terms of the agreement and changes
thereto. Each party shall                perform its obligations towards the Customer and
shall act for completing the                project phases on their due dates and shall
refrain from acts or omissions which                shall cause the Customer to withhold
payments. Parts of the main agreement                between the prime contractor and the
customer, which are relevant to the                subcontractor’s components, shall
be provided to the subcontractor and                shall be subject to its prior
approval. 

	 	4. 	The
subcontractor shall provide the prime contractor, in advance, a quote for
               its components of the Project. At the prime contractor’s election,
the                subcontractor’s proposal shall be incorporated in the proposal
submitted by                the prime contractor or shall be submitted as part of a joint
proposal submitted                to the Customer by both parties. 

	 	5. 	In
the event that it is agreed by the parties with respect to a certain Project
               that a party shall provide services to the other party on a time and
material                basis, the rates shall be as set froth in Exhibit A attached
hereto. 

	 	6. 	Consideration.
The prime contractor’s margins for the components                performed by the
subcontractor shall not be greater than 15% of the prices                charged by the
subcontractor. Payments shall be made proportionately to the                payments
actually collected from the Customer for such components. Prime                contractor
shall provide the subcontractor information related to invoices                issued to
the Customer and payments made by the Customer. The prime contractor                shall
act for the purpose of collecting payment from the Customer and shall
               endeavor to collect any payment due to it as prime contractor when it
becomes                due. Prime contractor shall pay subcontractor 3 business days
after collection                of the respective payment from the Customer.
Notwithstanding the foregoing, in                the event that Customer does not remit
payment because of an act or omission of                the prime contractor, the prime
contractor shall be held responsible for payment                to the subcontractor.
Notwithstanding the foregoing, in the event that the                subcontractor’s
components are less than 50% of the whole Project, the                prime contractor
shall not be bound by the restrictions mentioned above with                respect to
maximum margins charged by it. 

	 	7. 	The
parties shall execute a mutual non disclosure agreement. 

	 	8. 	It
is hereby clarified that consent for a specific cooperation between the
               parties shall be subject to a specific mutual agreement of both parties,
reduced                to writing and signed by them with respect to each
Project/Customer. 

	 	9. 	Immediately
after the prime contractor discloses to the subcontractor the                identity of
a Customer for purpose of cooperation under this agreement, the                following
terms shall apply: each of BluePhoenix and Matrix undertakes that they
               will not approach the Customer, independently or together with a third
party, in                connection with the Project. However, if a party or a controlled
subsidiary                thereof, has an earlier business relation with such Customer,
such party shall                not be subject to this Agreement, and the parties shall
renegotiate terms of                agreement between them. 

	 	10. 	As
long as a Project was not awarded to the prime contractor, this agreement
               shall remain in force for a period of 3 months from the date of signing a
               specific agreement by the parties in connection with such Project, unless
such                term was extended by the parties. 

	 	
The
parties hereof hereby agree to the principles of cooperation set forth herein:  

		 
——————————————

BluePhoenix Solutions Ltd.	 
——————————————

Matrix IT Ltd.

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