Document:

Exhibit 4.23

	
   

  	
   

  
	
   

  	
  SHARE PURCHASE AGREEMENT

  
	
   

  	
   

  
	
   

  	
            THIS
  SHARE PURCHASE AGREEMENT is made and entered
  into as of August 6, 2004 by and among: Elbit Vision Systems Ltd., an Israeli
  company (the “Parent”); M.S. Master Investments (2002) Ltd., S.R. Master
  Investments (2002) Ltd. and R.D. Master Investments (2002) Ltd. (each a
  “Seller” and together the “Sellers”); Menashe Shochat, Silviu Rabinovich and
  Robert Dalfen (each a “Founder” and together the “Founders”); IRT ScanMaster Holdings, Inc., a Delaware
  corporation (the “Company”); ScanMaster Systems (IRT) Ltd., a company
  registered in the State of Israel (the “Israeli Target Company) and IRT
  ScanMaster Systems, Inc., a New Hampshire corporation (the “US Target
  Company”) (Israeli Target Company and US Target Company shall together be
  referred to herein as the “Target Companies”).  Certain other capitalized terms used in this Agreement are
  defined in Exhibit A. 

  
	
   

  	
   

  
	
   

  	
  RECITALS 

  
	
   

  	
   

  
	
   

  	
            A.          The
  Company and the Target Companies are engaged principally in the manufacturing
  of nondestructive inspection systems for a wide range of industrial
  applications using ultrasonic (UT) technologies. The Israeli Target Company
  has its principal office at 5B Ha’Nagar Street, Neve Ne’Eman B, Hod Hasharon
  45800, Israel.

  
	
   

  	
   

  
	
   

  	
            B.          The
  Israeli Target Company has authorized three million four hundred and thirty
  thousand (3,430,000) Ordinary Shares, par value one Israeli agura (NIS 0.01)
  per share, of which eleven thousand (11,000) shares are issued and
  outstanding as of the date hereof (the “Israeli Target Shares”).

  
	
   

  	
   

  
	
   

  	
            C.          The
  US Target Company has authorized one thousand (1,000) shares of common stock,
  par value $0.01 per share of which one hundred (100) shares are issued and
  outstanding as of the date hereof (the “US Target Shares”).  The Israeli Target Shares and US Target
  Shares shall together be referred to herein as the “Target Shares”.

  
	
   

  	
   

  
	
   

  	
            D.          The
  Parent designs, develops, manufactures, markets and supports automatic visual
  inspection and quality monitoring systems for the textile and other fabric
  industries. The Parent has its principal office at New Industrial Park,
  Building 7, Yoqneam, Israel and has an authorized share capital of forty
  million (40,000,000) Ordinary Shares, nominal value NIS 1 each, of which as
  of June 24, 2004, sixteen million four hundred seventy-two thousand four
  hundred thirty-nine (16,472,439) are issued and outstanding. The Parent’s
  Ordinary Shares are currently traded on the Over the Counter Bulletin Board.

  

	
   

  	
   

  
	
   

  	
            E.          The
  Company currently owns all of the Target Shares and, subject to the receipt
  of pre-rulings from the Israeli tax authorities as described in Section 7.9
  below, prior to Closing the Company shall be liquidated and all of the Target
  Shares shall be distributed to the Sellers in the same proportion as the
  shares of the Company are currently held.

  
	
   

  	
   

  
	
   

  	
            F.          Parent
  desires to acquire all of the Target Shares from the Sellers and the Sellers
  desire to sell the Target Shares, to the Parent pursuant to the terms herein.

  
	
   

  	
   

  
	
   

  	
            The parties
  to this Agreement agree as follows:

  
	
   

  	
   

  
	
  SECTION 1.

  	
  DESCRIPTION OF TRANSACTION.

  
	
   

  	
   

  
	
   

  	
            1.1         Purchase
  and Sale.  Subject to the terms and conditions of this
  Agreement, on the Closing Date (as defined below), the Sellers shall
  transfer, assign, convey and deliver to Parent, and Parent shall purchase
  from the Sellers, the Target Shares, free and clear of all Liens. The closing
  of the purchase and sale (the “Closing”) shall take place at the offices of
  Yigal Arnon & Co., 1 Azrieli Center (Round Tower) 46th Floor,
  Tel Aviv on September 1, 2004, or such other earlier business day that all
  the conditions set forth in Sections 6 and 7 have been satisfied or waived,
  or on such other date, time and place as the parties may mutually agree (the
  “Closing Date”).  At the Closing, the
  Founders shall cause the Sellers to deliver to Parent and an escrow agent,
  the identity of which shall be approved by the Parent and the Founders prior
  to the Closing (the “Escrow Agent”), one or more instruments representing the
  Target Shares, and Parent (i) shall issue the Initial Shares (as defined
  below) to the Sellers and the Section 102 trustee on behalf of the Former
  Option Holders, as defined herein in accordance with the column in Schedule A
  captioned “Initial Shares”, (ii) shall pay the Cash Payment (as defined
  below) to the Sellers and to the Former Option Holders in accordance with the
  column in Schedule A
  captioned “Cash Payment”, (iii) shall deposit the Trust Shares (as
  defined below) with the Escrow Agent and (iv) shall deposit the Escrow Shares
  (as defined below) with the Escrow Agent.

  
	
   

  	
   

  
	
   

  	
            1.2         Further
  Assurances.  If, at any time after the Closing Date,
  Parent shall consider or be advised that any deeds, bills of sale,
  assignments or assurances or any other acts or things are reasonably
  necessary, desirable or proper (a) to vest, perfect or confirm, of
  record or otherwise, in Parent, its right to, and title or interest in, the
  Target Shares or (b) otherwise to carry out the purposes of this Agreement,
  Parent shall so advise each of the Sellers and each of the Founders in
  writing, and the Sellers thereupon shall execute and deliver all such deeds,
  bills of sale, assignments and assurances and do all such other acts and
  things reasonably necessary, desirable or proper to vest, perfect or confirm
  its right, title or interest in, to or under the Target Shares, and otherwise
  to carry out the purposes of this Agreement.

  

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            1.3         Purchase
  Price.  The aggregate consideration
  paid to the Sellers and the Former Option Holders for the Target Shares (the
  “Purchase Consideration”), shall be cash in an aggregate amount equal to
  three million United States dollars ($3,000,000) (the “Cash Payment”) and such number of Ordinary Shares of
  Parent, nominal value NIS 1.00 per share, equal to the quotient of: (a) five
  million five hundred thousand United States dollars ($5,500,000), divided by
  (b) the Fair Market Value of the Ordinary Shares of Parent for the thirty
  (30) trading days immediately preceding the Closing, provided however that
  the denominator shall not be greater than one United States dollar and twenty
  five United States cents ($1.25) (the “Ordinary Shares”), as follows: (a)
  Parent shall collectively pay the Sellers and the Former Option Holders cash
  in an aggregate amount equal to the Cash Payment on the Closing Date, in
  accordance with Schedule A attached hereto; (b) on the Closing Date,
  Parent shall collectively issue to the Sellers and the Section 102 trustee on
  behalf of the Former Option Holders, one half (1/2) of the Ordinary Shares
  (the “Initial Shares”), in accordance with Schedule A attached
  hereto; and (c) on the Closing Date, Parent shall collectively issue one half
  (1/2) of the Ordinary Shares (the “Trust Shares”) to the Escrow Agent, and
  which shall be released by the Escrow Agent to the Sellers and one of the
  Former Option Holders on a monthly basis over a two year period commencing as
  of the Closing Date where 1/24 of the Trust Shares shall be released to the
  Seller and that Former Option Holder on a monthly basis, in accordance with Schedule A
  attached hereto, all as further set forth in the Escrow Agreement (as defined
  below) with a portion of the Trust Shares with a Fair Market Value for the
  thirty (30) trading days immediately preceding the Closing equal to one
  million two hundred and seventy-five thousand United States dollars
  ($1,275,000) (the “Escrow Shares”) to be held in the Escrow Fund and shall be
  available to satisfy the indemnification obligations of the Company as
  provided in Section 9 below.

  
	
   

  	
   

  
	
   

  	
            1.4         Method
  of Share Transfer and Cash Payments.  The issuance of all Ordinary Shares as set forth in
  Section 1.3 above shall be made by Parent to the Sellers and the Former
  Option Holders on the Closing Date in accordance with the terms hereof. All
  cash payments made by Parent to the Sellers and the Former Option Holders on
  the Closing Date shall be made by wire transfer of immediately available
  funds to the accounts specified in writing to Parent at least two (2)
  business days prior to the Closing Date (the “Accounts”). 

  
	
   

  	
   

  
	
   

  	
            1.5         Seller
  and Founder Waivers.  Each Seller and each Founder hereby waives
  and releases, effective as of the Closing Date, any and all rights, claims
  and causes of action assertable against the Company and Target Companies in
  respect of its ownership of any securities of the Target Companies and any
  and all agreements between the Sellers, Founders, and Target Companies
  relating to the ownership of any securities of the Company and/or Target
  Companies, which agreements shall all automatically terminate as of the
  Closing Date.

  
	
   

  	
   

  
	
   

  	
            1.6         Options. 

  
	
   

  	
   

  
	
   

  	
                          (a)          There
  are currently outstanding and unexercised options or rights to acquire shares
  that were granted by the Israeli Target Company to employees, directors and
  consultants listed in Schedule A (the “Former Option
  Holders”).  The names of all of the
  Former Option Holders are set forth on Schedule A. 

  

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                          (b)          Prior
  to the Closing Date, the Israeli Target Company shall  secure the written waiver of all outstanding
  options or rights to shares held by the Former Option Holders in exchange for
  the consideration due the Former Option Holders under this Agreement. 

  
	
   

  	
   

  
	
  SECTION 2.

  	
  REPRESENTATIONS AND WARRANTIES
  OF THE COMPANY, SELLERS, AND FOUNDERS. 

  
	
   

  	
   

  
	
   

  	
            The Company
  and each Seller, severally and jointly, and each Founder to the extent of his
  knowledge (provided that such knowledge limitation, as to a specific Founder,
  shall not apply to Section 2.23 below) and severally and not jointly, hereby
  represent and warrant, to and for the benefit of the Parent, the below
  representations and warranties as of the Closing. Unless the context
  otherwise requires and to the extent applicable, any reference to the Company
  in this Section 2 shall also apply to each of the Target Companies.

  
	
   

  	
   

  
	
   

  	
            2.1         Due
  Organization; Target Companies; Etc.

  
	
   

  	
   

  
	
   

  	
                          (a)          The
  Israeli Target Company is duly organized and validly existing under the laws
  of the State of Israel. The US Target Company is duly organized, validly
  existing and is in good standing under the laws of the State of New
  Hampshire.  The Company has all
  requisite corporate power and authority to conduct its business in the manner
  in which its business is currently being conducted and to own and use its
  assets in the manner in which its assets are currently owned and used. 

  
	
   

  	
   

  
	
   

  	
                          (b)          Except
  as set forth in Part 2.1 of the Company Disclosure Schedule, the
  Company has not conducted any business under or otherwise used, for any
  purpose or in any jurisdiction, any fictitious name, assumed name, trade name
  or other name, other than the names, “IRT ScanMaster Holdings, Inc.,”
  “ScanMaster Systems (IRT) Ltd.” and “IRT ScanMaster Systems, Inc.”

  
	
   

  	
   

  
	
   

  	
                          (c)          The
  Company is not and has not been required to be qualified, authorized,
  registered or licensed to do business as a foreign corporation in any
  jurisdiction, except where the failure to be so qualified, authorized,
  registered or licensed has not had and will not have a Material Adverse
  Effect.  

  
	
   

  	
   

  
	
   

  	
                          (d)          Part
  2.1 of the Company Disclosure Schedule accurately sets forth (i) the
  names of the members of the Company’s board of directors and (ii) the
  names and titles of the Company’s officers.

  
	
   

  	
   

  
	
   

  	
                          (e)          Except
  for the Target Companies, the Company does not own any controlling interest
  in any Entity.  The Company has not
  agreed and is not obligated to make any future investment in or capital
  contribution to any Entity.  

  

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            2.2         Certificate
  of Incorporation; Records.  Except as set forth in Part 2.2 of the Company Disclosure
  Schedule, the Company has delivered to Parent accurate and complete copies
  of: (1) the Certificate of Incorporation,
  including all amendments thereto; (2) the
  stock records of the Company; and (3) the minutes
  and other records of the meetings and other proceedings (including any
  actions taken by written consent or otherwise without a meeting) of the
  stockholders of the Company and the board of directors of the Company.  There have been no formal meetings or
  other proceedings of the stockholders of the Company or the board of
  directors of the Company that are not fully reflected in such minutes or other
  records.  Except as set forth in Part
  2.2 of the Company Disclosure Schedule, there has not been any violation of
  any of the provisions of the Certificate of Incorporation, nor has the
  Company taken any action that is materially inconsistent with any resolution
  adopted by the Company’s stockholders or the Company’s board of directors. Except as
  set forth in Part 2.2 of the Company Disclosure Schedule, the books of
  account, stock records, minute books and other records of the Company are
  accurate, up-to-date and complete in all respects, except where the failure
  to maintain such books of account, minute books, registers and records would
  not have a Material Adverse Effect.

  
	
   

  	
   

  
	
   

  	
            2.3         Capitalization.  The
issued and outstanding capital stock
  of the Company, on a fully diluted and as-converted basis taking into
  consideration all convertible or exchangeable securities and other interests
  in the Company is set forth in Part 2.3 of the Company Disclosure
  Schedule.  At the Closing Date, there
  will not be any outstanding or authorized subscriptions, options, warrants,
  calls, rights, commitments, convertible securities, or any other agreements
  of any character directly or indirectly obligating the Company or any Target
  Company to issue any additional shares or any securities convertible into, or
  exchangeable for, or evidencing the right to subscribe for, any shares of the
  Company or any Target Company.

  
	
   

  	
   

  
	
   

  	
            2.4         Financial
  Statements. 

  
	
   

  	
   

  
	
   

  	
                          (a)          The
  Israeli Target Company has delivered to Parent the following financial
  statements and notes (collectively, the “Company Financial Statements”):

  
	
   

  	
  
                                       (i)          The
  audited balance sheets of the Israeli Target Company as of December 31, 2001,
  2002 and 2003, and the related audited statements of operations, statements
  of stockholders’ equity and statements of cash flows of the Israeli Target
  Company for the years then ended, together with the notes thereto and the
  unqualified report and opinion of a recognized firm of independent certified
  accountants relating thereto; and

  
	
   

  	
   

  
	
   

  	
                                         (ii)         the
  unaudited balance sheet of the Israeli Target Company as of March 31, 2004
  (the “Unaudited Interim Balance Sheet”), and the related unaudited statement
  of operations of the Israeli Target Company for the six months then ended.

  

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                          (b)          The
  Israeli Target Company Financial Statements are accurate and complete in all
  material respects and present fairly the financial position of the Israeli
  Target Company as of the respective dates thereof and the results of
  operations and (in the case of the financial statements referred to in
  Section 2.4(a)(i)) cash flows of the Israeli Target Company for the periods
  covered thereby.  The Israeli Target
  Company Financial Statements have been prepared in accordance with generally
  accepted accounting principles in Israel consistently applied throughout the
  periods covered.

  
	
   

  	
   

  
	
   

  	
                          (c)          The
  Unaudited Interim Balance Sheet will reflect the following figures:

  
	
   

  	
   

  
	
   

  	
                                         (i)          Cash
and cash equivalents of a value of no
  less than one million United States dollars ($1,000,000);

  
	
   

  	
   

  
	
   

  	
                                         (ii)         No
  outstanding debts and loan facilities other than the loan from the Marketing
  Advancement Fund and with respect to grants from the Office of the Chief
  Scientist in the amounts of one hundred six thousand United States dollars
  ($106,000) and one hundred sixty eight thousand United States dollars
  ($168,000), respectively (not including interest or linkage differentials);

  
	
   

  	
   

  
	
   

  	
                                         (iii)        Shareholder
  equity of not less than two million three hundred thousand United States
  dollars ($2,300,000);

  
	
   

  	
   

  
	
   

  	
                                         (iv)        An
  excess of accounts receivable over accounts payable of at least eight hundred
  thousand United States dollars ($800,000); and

  
	
   

  	
   

  
	
   

  	
                                         (v)         Backlog
  of purchase orders of no less than six million three hundred thousand United
  States dollars ($6,300,000). 

  
	
   

  	
   

  
	
   

  	
                          (d)          As
  of August 1, 2004, the sole assets  of
  the Company are its holdings in the Target Companies. 

  
	
   

  	
   

  
	
   

  	
            2.5         Absence
  of Changes. 
  Except as set forth in Part 2.5 of the Company Disclosure
  Schedule, since March 31, 2004:

  
	
   

  	
   

  
	
   

  	
                          (a)          there
  has not been any material adverse change in the Company’s business,
  prospects, operations, assets, liabilities, debts, work force or its
  condition (financial or otherwise) and no event has occurred that will, or
  could reasonably be expected to, have a Material Adverse Effect;

  
	
   

  	
  
                        (b)          there
  has not been any material loss, damage or destruction to, or any material
  interruption in the use of, any of the Company’s assets (whether or not
  covered by insurance);

  
	
   

  	
   

  
	
   

  	
                          (c)          the
  Company has not declared, accrued, set aside or paid any dividend or made any
  other distribution in respect of any shares of capital stock, and has not
  repurchased, redeemed or otherwise reacquired any shares of capital stock or
  other securities;

  
	
   

  	
   

  
	
   

  	
                          (d)          The
  Company has not sold, issued or authorized the issuance of (i) any
  capital stock or other security, (ii) any option or right to acquire any
  capital stock or any other security or (iii) any instrument convertible
  into or exchangeable for any capital stock or other security;

  

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                          (e)          the
  Israeli Target Company has not amended or waived any of its rights under, or
  permitted the acceleration of vesting under (i) any provision of the
  ESOP for the issuance of Options to employees, directors, officers and
  consultants of the Company and/or the Target Companies and (ii) any
  provision of any agreement evidencing any outstanding Option or rights to
  equity except as required pursuant to Section 1.6(b) of this Agreement;

  
	
   

  	
   

  
	
   

  	
                          (f)          there
  has been no amendment to the Certificate of Incorporation and the Company has
  not effected or been a party to any Acquisition Transaction,
  recapitalization, reclassification of shares, stock split, reverse stock
  split or similar transaction;

  
	
   

  	
   

  
	
   

  	
                          (g)          the
  Company has not formed any subsidiary or acquired any equity interest or
  other interest in any other Entity;

  
	
   

  	
   

  
	
   

  	
                          (h)          the
Company has not made any capital
  expenditure which, when added to all other capital expenditures made on
  behalf of the Company since March 31, 2004, exceeds one hundred thousand
  United States dollars ($100,000) and the Company’s burn rate since March 31,
  2004 has not exceeded three hundred thousand United States dollars ($300,000)
  per month;

  
	
   

  	
   

  
	
   

  	
                          (i)           the
  Company has not (i) entered into or permitted any of the assets owned or
  used by it to become bound by any Contract that is or would constitute a
  Material Agreement (as defined in Section 2.10(a)), except for Contracts in
  the ordinary course of business, or (ii) amended or prematurely
  terminated, or waived any material right or remedy under, any such Contract,
  except in the ordinary course of business;

  
	
   

  	
   

  
	
   

  	
                          (j)           the
  Company has not (i) acquired, leased or licensed any right or other
  asset from any other Person, (ii) sold or otherwise disposed of, or
  leased or licensed, any right or other asset to any other Person, or
  (iii) waived or relinquished any right, except for immaterial rights or
  other immaterial assets acquired, leased, licensed or disposed of in the ordinary
  course of business and consistent with the Company’s past practices;

  
	
   

  	
   

  
	
   

  	
                          (k)          the
  Company has not written off as uncollectible, or established any
  extraordinary reserve with respect to, any account receivable or other
  indebtedness in excess of fifty thousand United States dollars ($50,000);

  
	
   

  	
   

  
	
   

  	
                          (l)           the
  Company has not made any pledge of any of its assets or otherwise permitted
  any of its assets to become subject to any Encumbrance, other than with
  respect to performance guarantees made in the ordinary course of business and
  which do not exceed individually one hundred fifty thousand United States
  dollars ($150,000) and in the aggregate six hundred thousand United States
  dollars ($600,000);

  

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                          (m)         the
  Company has not (i) lent any amount of money greater than ten thousand
  United States dollars ($10,000) to any Person, or (ii) incurred or
  guaranteed any indebtedness for borrowed money;

  
	
   

  	
   

  
	
   

  	
                          (n)          the
  Company has not (i) established or adopted any employee incentive plan,
  (ii) paid any bonus or made any profit-sharing or similar payment to, or
  increased the amount of the wages, salary, commissions, fringe benefits or
  other compensation or remuneration payable to, any of its directors, officers
  or employees, or (iii) hired any new employees or consultants;

  
	
   

  	
   

  
	
   

  	
                          (o)          there
  has been no resignation or termination of employment of any, employee,
  officer or consultant of the Company;

  
	
   

  	
   

  
	
   

  	
                          (p)          the
  Company has not changed any of its methods of accounting or accounting
  practices in any respect;

  
	
   

  	
   

  
	
   

  	
                          (q)          the
  Company has not made any Tax election;

  
	
   

  	
   

  
	
   

  	
                          (r)           the
  Company has not commenced or settled any Legal Proceeding;

  
	
   

  	
   

  
	
   

  	
                          (s)           the
  Company has not entered into any transaction or taken any other action
  outside the ordinary course of business or inconsistent with its past
  practices; and

  
	
   

  	
   

  
	
   

  	
                          (t)           the
  Company has not agreed or committed to take any of the actions referred to in
  clauses “(a)” through “(s)” above.

  
	
   

  	
   

  
	
   

  	
            2.6         Properties
  and Assets.  Full
  and accurate details of the Company’s material properties and assets are
  contained in Part 2.6 of the Company Disclosure Schedule.  Except as disclosed in Part 2.6 of the
  Company Disclosure Schedule or in the notes to the Company Financial
  Statements, the Company has good and marketable title to its material assets,
  including without limitation those reflected in the Company Financial
  Statements, free and clear of any right, interest or equity of any individual
  or entity (including any right to acquire, option, or right of preemption) or
  any mortgage, charge, pledge, lien, or assignment, or any other encumbrance
  or security interest or arrangement of whatsoever nature over or in the
  relevant property (“Security Interests”). With respect to the material assets
  that are leased, the Company is in compliance with all material provisions of
  such leases, such leases are valid and binding, and, the Company holds
  leasehold interests in such assets free and clear of all Security Interests. 

  
	
   

  	
   

  
	
   

  	
            2.7         Bank
  Accounts; Receivables.

  
	
   

  	
   

  
	
   

  	
                          (a)          Part
  2.7(a) of the Company Disclosure Schedule provides a list of the bank
  accounts maintained by or for the benefit of the Company.

  

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                          (b)          Part
  2.7(b) of the Company Disclosure Schedule provides an accurate and complete
  breakdown and aging of all accounts receivable, notes receivable and other
  receivables of the Company in excess of $25,000, as of March 31, 2004. All
  existing accounts receivable of the Company (including those accounts
  receivable reflected on the Unaudited Interim Balance Sheet that have not yet
  been collected and those accounts receivable that have arisen since March 31,
  2004 and have not yet been collected) (i) represent valid obligations of
  customers of the Company arising from bona fide transactions entered into in
  the ordinary course of business and (ii) are current and are expected to
  be collected in full when due, without any counterclaim or set off.

  
	
   

  	
   

  
	
   

  	
            2.8         Equipment;
  Leasehold.

  
	
   

  	
   

  
	
   

  	
                          (a)          All
  material items of equipment and other tangible assets owned by or leased to
  the Company are adequate for the uses to which they are being put, are in
  good condition and repair (ordinary wear and tear excepted) and are adequate
  for the conduct of the Company’s business in the manner in which such
  business is currently being conducted.

  
	
   

  	
   

  
	
   

  	
                          (b)          The
  Company does not own any real property or any interest in real property,
  except for the leasehold created under the real property lease identified in
  Part 2.10 of the Company Disclosure Schedule and except as set forth in Part
  2.8(b) of the Company Disclosure Schedule.

  
	
   

  	
   

  
	
   

  	
            2.9         Intellectual
  Property and Other Intangible Assets 

  
	
   

  	
   

  
	
   

  	
                          (a)          As
  used herein, the term “Intellectual Property” shall mean all registered
  patents, designs and trademarks, all applications for registration thereof,
  and all computer programs developed, or used in connection with the business
  of the Company, and copies thereof in any storage media, and all other works
  of authorship, inventions, concepts, ideas, and discoveries developed,
  discovered, conceived, created, made, reduced to practice, or used by the
  Company and all intellectual property rights therein, including, without
  limitation, all copyrights in the United States, Israel and elsewhere,
  including all rights of registration and publication, rights to create
  derivative works, and all other rights incident to copyright ownership, and
  all inventions (patentable or unpatentable), trade secrets, know-how, ideas
  and confidential information embodied or reflected in such information,
  including any shop rights, for the longest period of protection accorded to
  such interests under applicable law.  

  
	
   

  	
   

  
	
   

  	
                          (b)          Except
  as specifically set forth in Part 2.9(b) of the Company Disclosure Schedule,
  the Company (i) owns or has the right to use, free and clear of all liens,
  claims and restrictions the Intellectual Property used in the conduct of its
  business, and (ii) to the knowledge of the Company, such Intellectual
  Property does not infringe upon or violate any right, lien, or claim of
  others. Except as set forth in Part 2.9(b) of the Company Disclosure
  Schedule, the Company is not currently obligated or under any liability
  whatsoever to make any payments by way of royalties, fees or otherwise to any
  owner or licensee of, or other claimant to, any patent, trademark, service
  mark, trade name, copyright or other intangible asset, with respect to the
  use thereof or in connection with the conduct of its business or otherwise.

  

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                          (c)          Any
  and all Intellectual Property of any kind which has been developed or, is
  currently being developed, by any of the Company or any former or current
  employees or consultants of the Company is the property solely of the
  Company. The Company has taken
  security measures to protect the secrecy, confidentiality and value of all
  the Intellectual Property, which measures are reasonable and customary in the
  industry in which the Company operates. 
  Each person who, either alone or in concert with others, developed,
  invented, discovered, derived, programmed or designed the Intellectual
  Property, or who has knowledge of or access to information about the
  Intellectual Property, has entered into a written non-disclosure agreement
  with the Company regarding ownership and treatment of the Intellectual
  Property.

  
	
   

  	
   

  
	
   

  	
                          (d)          Except
  as specifically set forth in Part 2.9(d) of the Company Disclosure Schedule,
  neither the Company nor, to the knowledge of the Company, any of its
  directors, officers, consultants or employees has received any communications
  alleging that (i) the Company has violated or by conducting its business as
  currently conducted, would violate, any of the patents, trademarks, service
  marks, trade names, copyrights or trade secrets or other proprietary rights
  of any other person or entity; or (ii) there is any infringement of or
  conflict with asserted rights of others, with respect to any of the
  Intellectual Property.  

  
	
   

  	
   

  
	
   

  	
                          (e)          To
  the knowledge of the Company, none of the Company’s employees, officers,
  consultants or directors are obligated under any contract (including
  licenses, covenants or commitments of any nature) or other agreement, or
  subject to any judgment, decree or order of any court or administrative
  agency, that would interfere with the use of such persons’ best efforts to
  promote the interests of the Company or that would conflict with the
  Company’s business as conducted and as proposed to be conducted.

  
	
   

  	
   

  
	
   

  	
                          (f)          The
Intellectual Property owned by
  the Company constitutes all of the Intellectual Property necessary to enable
  the Company to conduct its business in the manner in which such business has
  been and is being conducted.  

  
	
   

  	
   

  
	
   

  	
            2.10       Agreements
  and Trading.

  
	
   

  	
   

  
	
   

  	
                          (a)          All
  the material agreements to which the Company is a party (including
  instruments, leases, licenses, arrangements, or undertakings of any nature,
  written or oral) (the “Material Agreements”) are listed in Part 2.10(a) of
  the Company Disclosure Schedule.

  
	
   

  	
   

  
	
   

  	
                          (b)          To
  the Company’s knowledge, all the Material Agreements are in full force and
  effect and the Company has no knowledge of the invalidity of or grounds for
  rescission, avoidance or repudiation of any of the Material Agreements and,
  the Company has not received any notice of any intention to terminate any
  such agreement.

  

10

	
   

  	
   

  
	
   

  	
                          (c)          Other
  than as set forth in Part 2.10(c) of the Company Disclosure Schedule,
  the Company and all third parties with whom it has transacted business have
  performed in all respects all of their material obligations under the
  Material Agreements. To the Company’s knowledge, and except as set forth in
  Part 2.10(c) of the Company Disclosure Schedule, no party to any of the
  Material Agreements is in breach or in default in any respect of its material
  obligations thereunder. Except as set forth in Part 2.10(c) of the Company
  Disclosure Schedule, no party to any of the Material Agreements has made a
  claim to the Company or the Founders to the effect that the Company has
  failed to perform a material obligation thereunder.

  
	
   

  	
   

  
	
   

  	
                          (d)          Except
  as set forth in Part 2.10(d) of the Company Disclosure Schedule, there are no
  agreements, promises or understandings in force to which the Company is
  party, restricting the competitive freedom of the Company to provide and take
  goods and services by such means and from and to such individuals or entities
  as it may from time to time think fit.

  
	
   

  	
   

  
	
   

  	
                          (e)          The
  Company has delivered to Parent accurate and complete copies of all written
  Material Agreements identified in Part 2.10(a) of the Company Disclosure
  Schedule, including all amendments thereto.
  All Material Agreements are in written form. Except as set forth in
  Part 2.10 of the Company Disclosure Schedule, to the Company’s knowledge each
  Material Agreement identified in Part 2.10(a) of the Company Disclosure
  Schedule is valid and in full force and effect, and, is enforceable by the
  Company in accordance with its terms.

  
	
   

  	
   

  
	
   

  	
                          (f)          Except
  as set forth in Part 2.10(f) of the Company Disclosure Schedule:

  
	
   

  	
   

  
	
   

  	
                                        (i)         the
  Company has not violated or breached, or committed any material default under,
  any Material Agreement, and, to the Company’s knowledge, no other Person has
  violated or breached, or committed any material default under, any Material
  Agreement;

  
	
   

  	
   

  
	
   

  	
                                        (ii)        no
  event has occurred, and no circumstance or condition exists, that (with or
  without notice or lapse of time) will, or could reasonably be expected to,
  (A) result in a material violation or breach of any of the provisions of
  any Material Agreement, (B) give any Person the right to declare a
  material default or exercise any remedy under any Material Agreement,
  (C) give any Person the right to accelerate the maturity or performance
  of any Material Agreement, or (D) give any Person the right to cancel,
  terminate or modify any Material Agreement. With respect to actions taken by
  third parties, this representation shall be limited to the Company’s
  knowledge;

  
	
   

  	
   

  
	
   

  	
                                        (iii)       since
  March 31, 2004, the Company has not received any notice or other
  communication regarding any actual or possible material violation or breach
  of, or material default under, any Material Agreement; and

  
	
   

  	
   

  
	
   

  	
                                        (iv)       the
  Company has not waived any of its material rights under any Material Agreement.

  

11

	
   

  	
   

  
	
   

  	
                          (g)         Except
  as set forth in Part 2.10(g) of the Company Disclosure Schedule, no
  Person is renegotiating, or has a right pursuant to the terms of any Material
  Agreement to renegotiate, any amount paid or payable to or by the Company
  under any Material Agreement or any other material term or provision of any
  Material Agreement.

  
	
   

  	
   

  
	
   

  	
                          (h)         The
  Material Agreements identified in Part 2.10(a) of the Company Disclosure
  Schedule collectively constitute all of the Contracts necessary to enable the
  Company to conduct its business in the manner in which its business is
  currently being and proposed to be conducted, in all material respects.

  
	
   

  	
   

  
	
   

  	
                          (i)          Part
  2.10(i) of the Company Disclosure Schedule provides an accurate description
  and breakdown of the Company’s backlog under Material Agreements.

  
	
   

  	
   

  
	
   

  	
            2.11       Capital
  Expenditure and Commitments.  Except as disclosed in Part 2.11 of the
  Company Disclosure Schedule or in the Company Financial Statements:

  
	
   

  	
   

  
	
   

  	
                          (a)          The
  Company has not undertaken to make any material capital commitment,
  expenditure or purchase in excess of fifty thousand United States dollars
  ($50,000).

  
	
   

  	
   

  
	
   

  	
                          (b)          The
  Company is not a party to any material hire, hire purchase, credit sale or
  conditional sale agreement or any contract providing for payment on deferred
  terms in respect of assets purchased by the Company.

  
	
   

  	
   

  
	
   

  	
                          (c)          The
  Company is not in breach of any material obligation under any material deed,
  agreement or transaction to which it is a party, and to its knowledge, no
  third party that has transacted business with the Company is in breach of any
  of its material obligations under any material deed, agreement, or
  transaction with the Company to which it is a party.

  
	
   

  	
   

  
	
   

  	
                          (d)          To
  the knowledge of the Company there is no a Security Interest on, over or
  affecting the issued or unissued share capital of the Company, nor to the
  knowledge of the Company is there any agreement or commitment to give or
  create any such Security Interest and no claim has been made by any Person to
  be entitled to any such Security Interest.

  
	
   

  	
   

  
	
   

  	
                          (e)          The
  Company has not given any material guarantee, indemnity or security for, or
  otherwise agreed to become directly or contingently liable for, any obligation
  of any other individual or entity, and to the Company’s knowledge, no
  individual or entity has given any guaranty of or security for any of the
  Company’s obligations.

  
	
   

  	
   

  
	
   

  	
                          (f)          There
  are in force no powers of attorney given by the Company with respect to any
  asset or business of the Company, and no individual or entity, as agent,
  representative, distributor or otherwise, is entitled or authorized to bind
  or commit the Company to any obligation not in the ordinary course of the
  Company’s business. 

  

12

	
   

  	
   

  
	
   

  	
                          (g)          The
  Company has not applied for or received any grant, right or allowance from
  any governmental authority in any jurisdiction with the exception of grants,
  rights and allowances received from the Office of the Chief Scientist
  (“OCS”), the Marketing Advancement Fund and the Investment Center (“IC”) of
  the Ministry of Industry and Trade of the State of Israel.  Part 2.11(g) of the Company Disclosure
  Schedule provides an accurate description and breakdown of all grants, rights
  and allowances received from the OCS, the Marketing Advancement Fund and the
  IC to date.

  
	
   

  	
   

  
	
   

  	
            2.12       Compliance
  with Legal Requirements.

  
	
   

  	
   

  
	
   

  	
                          (a)          To
  its knowledge, and except as set forth in Part 2.12(a) of the Company
  Disclosure Schedule, the Company has carried on its business and affairs in
  all material respects in accordance with all applicable laws and regulations,
  to the extent material to the Company’s business or assets, including, inter
  alia, in accordance with the provisions of the General Corporation Law of
  Delaware (and in accordance with the Companies Law – 1999 in the case of the
  Israeli Target Company) and in accordance with the Certificate of
  Incorporation, and, the Company is not in violation or default with respect
  to any statute, regulation, order, decree, or judgment of any court or any
  governmental agency which could have a Material Adverse Effect. The Company
  has been granted and there are now in force all material approvals, consents,
  and licenses necessary for the carrying on of its business in the places and
  in the manner in which it is now carried on the absence of which would have a
  Material Adverse Effect, and, except as set forth in Part 2.12(a) of the
  Company Disclosure Schedule, to the knowledge of the Company there are no
  circumstances which evidence or indicate that any such approvals, consents or
  licenses, are likely to be suspended, canceled, revoked or not renewed.

  
	
   

  	
   

  
	
   

  	
                          (b)          The
  copy of the Certificate of Incorporation of the Company, as amended, as
  provided to Parent, is complete, true and accurate.

  
	
   

  	
   

  
	
   

  	
                          (c)          Except
  as set forth in Part 2.12(c) of the Company Disclosure Schedules, to the
  Company’s knowledge, all documents required to be filed with or delivered to
  any government authority in respect of the Company have been properly filed
  or delivered in a timely manner.

  

13

	
   

  	
   

  
	
   

  	
            2.13       Governmental
  Authorizations. 
  Part 2.13 of the Company Disclosure Schedule identifies
  each material Governmental Authorization held by the Company, and the Company
  has delivered to Parent accurate and complete copies of all material
  Governmental Authorizations identified in Part 2.13 of the Company Disclosure
  Schedule.  The Governmental
  Authorizations identified in Part 2.13 of the Company Disclosure
  Schedule are valid and in full force and effect, and collectively constitute
  all Governmental Authorizations necessary to enable the Company to conduct
  its business in the manner in which its business is currently being and is
  proposed to be conducted.  Except as
  set forth in Part 2.13 of the Company Disclosure Schedule, the Company is in
  compliance with the terms and requirements of the respective Governmental
  Authorizations identified in Part 2.13 of the Company Disclosure Schedule,
  except to the extent non-compliance would not have a Material Adverse Effect.
  The Company has not received any notice or other communication from any
  Governmental Body regarding (a) any actual or possible violation of or
  failure to comply with any term or requirement of any Governmental Authorization,
  or (b) any actual or possible revocation, withdrawal, suspension,
  cancellation, termination or modification of any Governmental Authorization.

  
	
   

  	
   

  
	
   

  	
            2.14       Tax
  Matters. 

  
	
   

  	
   

  
	
   

  	
                          (a)          The
  Company Financial Statements make full provisions for all Taxes for which the
  Company was then or thereafter became or may hereafter become liable or
  accountable in respect of or by reference to any income, profit, receipt,
  gain, transaction, agreement, distribution or event which was earned,
  accrued, received, or realized, entered into except as specifically set forth
  in Part 2.14(a) of the Company Disclosure Schedule, paid, made or accrued on
  or before December 31, 2003, and the Company promptly paid or fully provided
  in its books of account for all Taxes for which it has or may hereafter
  become liable or accountable in the period from the date of its incorporation
  to the Closing Date. 

  
	
   

  	
   

  
	
   

  	
                          (b)          To
  the Company’s knowledge, and except as set forth in Part 2.14(b) of the
  Company Disclosure Schedule, the Company has at all times and within the
  requisite time limits promptly, fully and accurately observed, performed and
  complied with all material obligations or conditions imposed on it, or to
  which any claim, deduction, allowance or relief made, claimed by or afforded
  to it was made subject, under any legislation relating to Taxes. 

  
	
   

  	
   

  
	
   

  	
                          (c)          Except
  as specifically set forth in Part 2.14(c) of the Company Disclosure Schedule,
  to the knowledge of the Company there are no circumstances which will or may,
  whether by lapse of time or the issue of any notice of assessment or
  otherwise, give rise to any dispute with any relevant Government Body in
  relation to its liability or accountability for Taxes, any claim made by it,
  any relief, deduction, or allowance afforded to it, or in relation to the
  status or character of the Company or any of its enterprises under or for the
  purpose of any provision of any legislation relating to Taxes. 

  
	
   

  	
   

  
	
   

  	
            2.15       Employees.

  
	
   

  	
   

  
	
   

  	
                          (a)          Full
  particulars of all the directors, officers, employees and consultants of the
  Company (each, an “Employee”), including their present compensation packages,
  are disclosed in Part 2.15(a) of the Company Disclosure Schedule, which
  particulars show all benefits including, without limitation, salaries, social
  benefits, commissions, automobile, and reimbursement of expenses (“Benefits”)
  payable or which the Company is bound to provide (whether now or in the
  future) to each director, officer, employee and consultant of the Company,
  and are true, accurate and complete in all material respects.

  

14

	
   

  	
   

  
	
   

  	
                          (b)          Except
  as set forth in Part 2.15(b) of the Company Disclosure Schedule, no employee
  or consultant of the Company has been dismissed in the last six months or has
  given notice of termination of his employment.

  
	
   

  	
   

  
	
   

  	
                          (c)          The
  employment agreements of each of Menashe Shochat, Silviu Rabinovich and
  Robert Dalfen were previously provided to and confirmed by the Parent. Part 2.15(c) of the Company
  Disclosure Schedule includes the standard form of employment contract of the
  Company’s employees.

  
	
   

  	
   

  
	
   

  	
                          (d)          Subject
  to the provisions of any applicable law and except as set forth in Part
  2.15(d) of the Company Disclosure Schedule, there are no agreements or arrangements
  (whether legally enforceable or not) for the payment of any pensions,
  allowances, lump sums, or other like benefits on retirement or on death or
  termination or during periods of sickness or disablement for the benefit of
  any employee, director or officer of the Company or for any former employee,
  director or officer of the Company or for the benefit of the dependents of
  any such individual in operation at the date hereof.

  
	
   

  	
   

  
	
   

  	
                          (e)          Except
  as set forth in Part 2.15(e) of the Company Disclosure Schedule, all the
  Benefits to which any employee, officer or director of the Company or any
  former officer, director or employee of the Company is or may be entitled
  including, inter alia, severance pay, leave and health, have been paid or
  adequately provided for in the Company Financial Statements.

  
	
   

  	
   

  
	
   

  	
                          (f)          Except
  as set forth in Part 2.15(f) of the Company Disclosure Schedule, the Company
  does not maintain any share incentive scheme, share option scheme or profit
  sharing scheme for the benefit of any of its directors, officers, employees
  or consultants.

  
	
   

  	
   

  
	
   

  	
                          (g)          Except
  as set forth in Part 2.15(g) of the Company Disclosure Schedule and except as
  provided for in this Agreement, neither the execution, delivery or
  performance of this Agreement, nor the consummation of any of the other
  transactions contemplated by this Agreement, will result in any payment
  (including any bonus, golden parachute or severance payment) to any current
  or former employee, officer or director of the Company (whether or not under
  any incentive plan), or materially increase the benefits payable under any
  incentive plan, or result in any acceleration of the time of payment or
  vesting of any such benefits.

  
	
   

  	
   

  
	
   

  	
                          (h)          The
  Company is not a party to any collective bargaining contract or other
  Contract with a labor union involving any of its employees. 

  
	
   

  	
   

  
	
   

  	
                          (i)           Except
  as set forth in Part 2.15(i) of the Company Disclosure Schedule, the Company
  is in material compliance with all applicable Legal Requirements and
  Contracts relating to employment, employment practices, wages, bonuses and
  terms and conditions of employment, including employee compensation matters.

  

15

	
   

  	
   

  
	
   

  	
                          (j)          To
  the knowledge of the Company there are not any organizational campaigns,
  petitions or other unionization activities seeking recognition of a
  collective bargaining unit which could affect the Company; nor to the
  knowledge of the Company are there any controversies, strikes, slowdowns or
  work stoppages pending or threatened between the Company and any of its
  employees.  

  
	
   

  	
   

  
	
   

  	
            2.16       Environmental
  Matters. 
  The Company is in compliance in all material respects with all
  applicable Environmental Laws (as defined below).  The Company has not received any notice or other communication
  (in writing or otherwise), whether from a Governmental Body, citizens group,
  employee or otherwise, that alleges that the Company is not in compliance
  with any Environmental Law, and, to the Company’s knowledge, there are no
  circumstances that may prevent or interfere with the Company’s compliance with
  any Environmental Law in the future. 
  All Governmental Authorizations currently held by the Company pursuant
  to Environmental Laws are identified in Part 2.16 of the Company Disclosure
  Schedule. For purposes of this Section 2.16: 
  (i) “Environmental Law” means any federal, state, local or
  foreign Legal Requirement relating to pollution or protection of human health
  or the environment (including ambient air, surface water, ground water, land
  surface or subsurface strata), including any law or regulation relating to
  emissions, discharges, releases or threatened releases of Materials of
  Environmental Concern, or otherwise relating to the manufacture, processing,
  distribution, use, treatment, storage, disposal, transport or handling of
  Materials of Environmental Concern; and (ii) “Materials of Environmental
  Concern” include chemicals, pollutants, contaminants, wastes, toxic
  substances, petroleum and petroleum products and any other substance that is
  now regulated by any Environmental Law.

  
	
   

  	
   

  
	
   

  	
            2.17       Insurance. 

  
	
   

  	
   

  
	
   

  	
                          (a)          A
full and accurate list of the
  Company’s insurance policies is included in Part 2.17(a) of the Company
  Disclosure Schedule.

  
	
   

  	
   

  
	
   

  	
                          (b)          Except
  as specifically set forth in Part 2.17(b) of the Company Disclosure Schedule,
  the Company has the benefit of adequate insurance policies usually taken out
  by companies carrying on the same or a similar business and (without
  prejudice to the generality of the foregoing) against accident, damage,
  injury, third party loss (including product liability) and loss of profits
  with a well established and reputable insurer.

  
	
   

  	
   

  
	
   

  	
                          (c)          Except
  as specifically set forth in Part 2.17(c) of the Company Disclosure Schedule,
  the Company has not done anything or suffered any damage which has rendered
  or might render any policies of insurance taken out by it void or voidable or
  which to the Company’s knowledge might result in an increase in premiums and
  the Company has complied with all material conditions attached to such
  policies.

  

16

	
   

  	
   

  
	
   

  	
                          (d)          There
  is no claim outstanding under any of such policies nor, to the Company’s
  knowledge, are there any circumstances likely to give rise to such a claim.

  
	
   

  	
   

  
	
   

  	
            2.18       Related
  Party Transactions.  Except for the transactions contemplated by this Agreement:
  (a) no Related Party (as defined below) has, and no Related Party has at
  any time, any direct or indirect interest in any material asset used in or
  otherwise relating to the business of the Company; (b) no Related Party
  is, or has at any time been, indebted to the Company; (c) no Related
  Party has entered into, or has had any direct or indirect financial interest
  in, any Material Agreement, transaction or business dealing involving the
  Company; (d) no Related Party is competing directly or indirectly, with
  the Company; and (e) no Related Party has any claim or right against the
  Company. For purposes of this Section 2.18 each of the following shall be
  deemed to be a “Related Party”: 
  (i) each of the Company stockholders that owns an aggregate of
  five percent (5%) or more of the capital stock of the Company; (ii) each
  individual who is, or who has at any time been, an officer or director of the
  Company; (iii) each member of the immediate family of each of the
  individuals referred to in clauses “(i)” and “(ii)” above; and (iv) any trust
  or other Entity (other than the Company) in which any one of the individuals
  referred to in clauses “(i)”, “(ii)” and “(iii)” above holds (or in which
  more than one of such individuals collectively hold), beneficially or
  otherwise, a material voting, proprietary or equity interest.

  
	
   

  	
   

  
	
   

  	
            2.19       Legal
  Proceedings; Orders.

  
	
   

  	
   

  
	
   

  	
                          (a)          Except
  as set forth in Part 2.19 of the Company Disclosure Schedule there is no
  pending Legal Proceeding, and, to the Company’s knowledge, no Person has
  threatened to commence any Legal Proceeding: 
  (i) that involves the Company or any of the assets owned or used
  by the Company or any Person whose liability the Company has or may have
  retained or assumed, either contractually or by operation of law; or
  (ii) that challenges, or that may have the effect of preventing,
  delaying, making illegal or otherwise interfering with, any of the
  transactions contemplated by this Agreement. 
  To the Company’s knowledge no material event has occurred, and no
  material claim, dispute or other condition or circumstance exists, that will,
  or that could reasonably be expected to, give rise to or serve as a basis for
  the commencement of any such Legal Proceeding.

  
	
   

  	
   

  
	
   

  	
                          (b)          There
is no order, writ, injunction,
  judgment or decree to which the Company, or any of the assets owned or used
  by the Company, is subject.  To the
  Company’s knowledge, no director, officer, consultant or employee of the
  Company is subject to any order, writ, injunction, judgment or decree that
  prohibits such director, officer, consultant or employee from engaging in or
  continuing any conduct, activity or practice relating to the Company’s
  business.

  

17

	
   

  	
   

  
	
   

  	
            2.20       Authority;
  Binding Nature of Agreement.  The Company has the absolute and
  unrestricted right, power and authority to enter into and to perform its
  obligations under this Agreement and the execution, delivery and performance
  by the Company of this Agreement have been duly authorized by all necessary
  action on the part of the Company and its board of directors.  This Agreement constitutes the legal,
  valid and binding obligation of the Company, enforceable against the Company
  in accordance with its terms, subject to (i) laws of general application
  relating to bankruptcy, insolvency and the relief of debtors, and
  (ii) rules of law governing specific performance, injunctive relief and
  other equitable remedies.

  
	
   

  	
   

  
	
   

  	
            2.21       Non-Contravention;
  Consents. 
  Except as set forth in Part 2.21 of the Company Disclosure Schedule,
  neither (1) the execution, delivery or performance of this Agreement or
  any of the other agreements referred to in this Agreement, nor (2) the
  consummation of any of the transactions contemplated by this Agreement, will
  directly or indirectly (with or without notice or lapse of time):

  
	
   

  	
   

  
	
   

  	
                          (a)          contravene,
  conflict with or result in a violation of (i) any of the provisions of
  the Certificate of Incorporation, or (ii) any resolution adopted by the
  Company’s stockholders, the Company’s board of directors or any committee of
  the Company’s board of directors;

  
	
   

  	
   

  
	
   

  	
                          (b)          contravene,
  conflict with or result in a violation of, or give any Governmental Body or
  other Person the right to challenge any of the transactions contemplated by
  this Agreement or to exercise any remedy or obtain any relief under, any
  Legal Requirement or any order, writ, injunction, judgment or decree to which
  the Company, or any of the assets owned or used by the Company, is subject;

  
	
   

  	
   

  
	
   

  	
                          (c)          contravene,
  conflict with or result in a violation of any of the terms or requirements
  of, or give any Governmental Body the right to revoke, withdraw, suspend,
  cancel, terminate or modify, any Governmental Authorization that is held by
  the Company or that otherwise relates to the Company’s business or to any of
  the assets owned or used by the Company;

  
	
   

  	
   

  
	
   

  	
                          (d)          contravene,
  conflict with or result in a violation or breach of, or result in a default
  under, any provision of any Material Agreement that is or would constitute a
  Material Agreement, or give any Person the right to (i) declare a
  default or exercise any remedy under any such Material Agreement,
  (ii) accelerate the maturity or performance of any such Material Agreement,
  or (iii) cancel, terminate or modify any such Material Agreement; or

  
	
   

  	
   

  
	
   

  	
                          (e)          result
  in the imposition or creation of any Lien or other Encumbrance upon or with
  respect to any asset owned or used by the Company.

  
	
   

  	
   

  
	
   

  	
  Except as
  set forth in Part 2.21 of the Company Disclosure Schedule, the Company
  is not and will not be required to make any filing with or give any notice
  to, or to obtain any Consent from, any Person in connection with (x) the
  execution, delivery or performance of this Agreement or any of the other
  agreements referred to in this Agreement, or (y) the consummation of any
  of the transactions contemplated by this Agreement.

  

18

	
   

  	
   

  
	
   

  	
            2.22       No
  Conflicting Interest.  Except as set forth in Part 2.22 of the Company Disclosure
  Schedule, to the knowledge of the Company no director, officer, employee or
Related Party of the Company has any interest in any corporation, partnership,
  or other entity that is engaged in a business which is in competition with
  that of the Company, is a supplier or customer of the Company, or is a party
  to any Contract which may have any effect on the business of the Company. 

  
	
   

  	
   

  
	
   

  	
            2.23       Sellers. 
  Each Founder has full title and ownership of all of his shares and ownership
  interests in his respective Seller and such shares and rights with respect
  thereto, are free from and clear of any liens, claims, charges, attachments,
  encumbrances, interests or any other third party rights or claims of any type
  or nature whatsoever. Each Seller is a private company duly incorporated,
  organized and validly existing under the laws of the State of Israel. No
  proceeding or resolution for bankruptcy, dissolution, liquidation,
  winding-up, appointment of a receiver and/or similar proceeding has been
  instituted or taken by it, and, to each Founder’s knowledge, no such
  proceeding has been instituted or threatened against his respective
  Seller.  Each Seller has the full
  corporate power and authority to enter into, execute and deliver this
  Agreement, bind itself thereunder and comply with its obligations thereunder.
  The execution, delivery and performance of this Agreement by each Seller has
  been duly approved and the relevant corporate action required to be taken by
  each such Seller will occur prior to the Closing. The actions taken by each
  Seller under this Agreement, including but not limited to the actions
  required to effectuate the sale of the Target Shares by the Sellers, do not
  conflict with, give rise to, or result in, any breach or default of any terms
  of any provision of law, or regulation, agreement, obligation, commitment,
  ruling, judgment or order to which any Seller is a party or by which it might
  be bound.

  
	
   

  	
   

  
	
   

  	
            2.24       Agreement
  with Marmon Corporation.  This Agreement does not conflict with, give rise to, or result
  in, any breach or default of any terms of a certain Stock Transfer Agreement
  entered into on January 21, 2002 by and between the Marmon Corporation, Masubim
  Investments (2002) Ltd., M.S. Green Investments (2002) Ltd. and Shafirim
  Investments (2002) Ltd., as amended, and as terminated by a certain
  Assignment, Termination and Release Agreement dated January 20, 2004
  (together the “Marmon Agreement”). As of the date hereof, the Marmon
  Agreement grants no rights to or in the Company to any Person, with the
  exception of the Founders or their respective Sellers.

  
	
   

  	
   

  
	
   

  	
            2.25       Brokers. 
No 
  broker, finder or investment banker, for which any of the  Founders, Sellers, Company or Target
  Companies may be liable, is entitled to any brokerage, finder’s or other fee
  or commission in connection with the transactions contemplated by this
  Agreement.

  
	
   

  	
   

  
	
   

  	
            2.26       Full
  Disclosure.  This Agreement (including the
  Company Disclosure Schedule) does not, and the Company Closing Certificate
  will not, (i) contain any representation, warranty or information that
  is false or misleading with respect to any material fact, or (ii) omit
  to state any material fact necessary in order to make the representations,
  warranties and information contained and to be contained herein and therein
  (in the light of the circumstances under which such representations,
  warranties and information were or will be made or provided) not false or
  misleading.

  

19

	
   

  	
   

  
	
  SECTION
  3.

  	
  REPRESENTATIONS
  AND WARRANTIES OF PARENT 

  
	
   

  	
   

  
	
   

  	
            Parent
  represents and warrants herein and to each of the Founders and each of the
  Sellers each of the below representations and warranties as of the Closing. 

  
	
   

  	
   

  
	
   

  	
            3.1         Due
  Organization. 
  

  
	
   

  	
   

  
	
   

  	
                          (a)          Parent
  is a company duly organized and validly existing under the laws of the State
  of Israel.  Parent has all requisite
  corporate power and authority to conduct its business in the manner in which
  its business is currently being conducted and to own and use its assets in
  the manner in which its assets are currently owned and used.

  
	
   

  	
   

  
	
   

  	
                          (b)          The
  Parent is not and has not been required to be qualified, authorized,
  registered or licensed to do business as a foreign corporation in any
  jurisdiction, except where the failure to be so qualified, authorized,
  registered or licensed has not had and will not have a Material Adverse
  Effect on the Parent.  

  
	
   

  	
   

  
	
   

  	
            3.2         Capitalization.  The
issued and outstanding share capital
  of the Parent, on a fully diluted and as-converted basis taking into
  consideration all convertible or exchangeable securities and other interests
  in the Parent is set forth in Part 3.3 of the Parent Disclosure
  Schedule.  At the Closing Date, there
  will not be any outstanding or authorized subscriptions, options, warrants,
  calls, rights, commitments, convertible securities, or any other agreements
  of any character directly or indirectly obligating the Parent to issue any
  additional shares or any securities convertible into, or exchangeable for, or
  evidencing the right to subscribe for any shares of the Parent except as set
  forth in the Part 3.3 of the Parent Disclosure Schedule.

  
	
   

  	
   

  
	
   

  	
            3.3         Valid
  Issuance.  The Ordinary Shares to be issued in the
  transactions contemplated by this Agreement will, when issued in accordance
  with the provisions of this Agreement, be validly authorized, issued, fully
  paid and nonassessable and issued in accordance with all applicable laws,
  rules and regulations.

  
	
   

  	
   

  
	
   

  	
            3.4         SEC
  Filings; Financial Statements.

  
	
   

  	
   

  
	
   

  	
                          (a)          Parent
  has timely filed all required forms, reports and documents with the SEC since
  December 31, 2002, each of which has complied in all material respects with
  all applicable requirements of the Securities Act and the Exchange Act and
  the rules and regulations promulgated thereunder, each as in effect on the
  dates such forms, reports, and documents were filed.  As of the time it was filed with the SEC
  (or, if amended or superseded by a filing prior to the date of this
  Agreement, then on the date of such filing): 
  (i) each of the Parent SEC Documents, including, any financial
  statements or schedules included or incorporated by reference therein,
  complied in all material respects with the applicable requirements of the
  Securities Act or the Exchange Act (as the case may be); and (ii) none
  of the Parent SEC Documents contained any untrue statement of a material fact
  or omitted to state a material fact required to be stated therein or
  necessary in order to make the statements therein, in the light of the
  circumstances under which they were made, not misleading.

  

20

 

	
   

  	
   

  
	
   

  	
                          (b)          The
  consolidated financial statements contained in the Parent SEC Documents for
  the year ending December 31, 2003 (the “Parent Financial Statements”):  (i) complied as to form in all
  material respects with the published rules and regulations of the SEC
  applicable thereto; (ii) were prepared in accordance with generally
  accepted accounting principles applied on a consistent basis throughout the
  periods covered, except as may be indicated in the notes to such financial statements,
  and except that unaudited financial statements may not contain footnotes and
  are subject to year-end audit adjustments; and (iii) fairly present the
  consolidated financial position of Parent and its subsidiaries as of the
  respective dates thereof and the consolidated results of operations of Parent
  and its subsidiaries for the periods covered thereby.

  
	
   

  	
   

  
	
   

  	
            3.5         Tax
  Matters.

  
	
   

  	
   

  
	
   

  	
                          (a)          The
  Parent Financial Statements make full provisions for all Taxes for which the
  Parent was then or thereafter became or may hereafter become liable or
  accountable in respect of or by reference to any income, profit, receipt,
  gain, transaction, agreement, distribution or event which was earned,
  accrued, received, or realized, entered into except as specifically set forth
  in Part 3.5 of the Parent Disclosure Schedule, paid, made or accrued on or
  before December 31, 2003, and the Parent promptly paid or fully provided in
  its books of account for all Taxes for which it has or may hereafter become
  liable or accountable in the period from the date of its incorporation to the
  Closing Date. 

  
	
   

  	
   

  
	
   

  	
                          (b)          To
  the Parent’s knowledge, and except as set forth in Part 3.5 of the Parent
  Disclosure Schedule, the Parent has at all times and within the requisite
  time limits promptly, fully and accurately observed, performed and complied
  with all material obligations or conditions imposed on it, or to which any
  claim, deduction, allowance or relief made, claimed by or afforded to it was
  made subject, under any legislation relating to Taxes. 

  
	
   

  	
   

  
	
   

  	
                          (c)          Except
  as specifically set forth in Part 3.5 of the Parent Disclosure Schedule, to
  the knowledge of the Parent there are no circumstances which will or may,
  whether by lapse of time or the issue of any notice of assessment or
  otherwise, give rise to any dispute with any relevant Government Body in
  relation to its liability or accountability for Taxes, any claim made by it,
  any relief, deduction, or allowance afforded to it, or in relation to the
  status or character of the Parent any of its enterprises under or for the
  purpose of any provision of any legislation relating to Taxes. 

  

21

	
   

  	
   

  
	
   

  	
            3.6         Legal
  Proceedings; Orders.

  
	
   

  	
   

  
	
   

  	
                          (a)          Except
  as set forth in Part 3.6 of the Parent Disclosure Schedule there is no
  pending Legal Proceeding, and, to the Parent’s knowledge, no Person has
  threatened to commence any Legal Proceeding: 
  (i) that involves the Parent or any of the assets owned or used
  by the Parent or any Person whose liability the Parent has or may have retained
  or assumed, either contractually or by operation of law; or (ii) that
  challenges, or that may have the effect of preventing, delaying, making
  illegal or otherwise interfering with, any of the transactions contemplated
  by this Agreement.  To the Parent’s
  knowledge no material event has occurred, and no material claim, dispute or
  other condition or circumstance exists, that will, or that could reasonably
  be expected to, give rise to or serve as a basis for the commencement of any
  such Legal Proceeding.

  
	
   

  	
   

  
	
   

  	
                          (b)          To
  the Parent’s knowledge, there is no order, writ, injunction, judgment or
  decree to which the Parent, or any of the assets owned or used by the Parent,
  is subject.  To the Parent’s
  knowledge, no director, officer, consultant or employee of the Parent is subject
  to any order, writ, injunction, judgment or decree that prohibits such
  director, officer, consultant or employee from engaging in or continuing any
  conduct, activity or practice relating to the Parent’s business.

  
	
   

  	
   

  
	
   

  	
            3.7         Authority;
  Binding Nature of Agreement.  Parent has the absolute and unrestricted right, power and
  authority to enter into and perform its obligations under this Agreement and
  the execution, delivery and performance by Parent of this Agreement
  (including the contemplated issuance of Ordinary Shares in accordance with
  this Agreement) have been duly authorized by all necessary action on the part
  of Parent and its board of directors. 
  No vote of Parent’s shareholders is needed to approve any of the
  transactions contemplated by this Agreement. 
  This Agreement constitutes the legal, valid and binding obligation of
  Parent, enforceable against it in accordance with its terms, subject to
  (i) laws of general application relating to bankruptcy, insolvency and
  the relief of debtors, and (ii) rules of law governing specific
  performance, injunctive relief and other equitable remedies.

  
	
   

  	
   

  
	
   

  	
            3.8         Non-Contravention;
  Consents. 
  Except as set forth in Part 3.8 of the Parent Disclosure Schedule, to the Parent’s knowledge, neither (1) the
  execution, delivery or performance of this Agreement or any of the other
  agreements referred to in this Agreement, nor (2) the consummation of
  any of the transactions contemplated by this Agreement, will directly or
  indirectly (with or without notice or lapse of time):

  
	
   

  	
   

  
	
   

  	
                          (a)          contravene,
  conflict with or result in a violation of (i) any of the provisions of
  its Articles of Association or Memorandum of Association, or (ii) any
  resolution adopted by the Parent’s shareholders, the Parent’s board of
  directors or any committee of the Parent’s board of directors;

  

22

	
   

  	
   

  
	
   

  	
                          (b)          contravene,
  conflict with or result in a violation of, or give any Governmental Body or
  other Person the right to challenge any of the transactions contemplated by
  this Agreement or to exercise any remedy or obtain any relief under, any
  Legal Requirement or any order, writ, injunction, judgment or decree to which
  the Parent, or any of the assets owned or used by the Parent, is subject;

  
	
   

  	
   

  
	
   

  	
                          (c)          contravene,
  conflict with or result in a violation of any of the terms or requirements
  of, or give any Governmental Body the right to revoke, withdraw, suspend,
  cancel, terminate or modify, any Governmental Authorization that is held by
  the Parent or that otherwise relates to the Parent’s business or to any of
  the assets owned or used by the Parent;

  
	
   

  	
   

  
	
   

  	
                          (d)          contravene,
  conflict with or result in a violation or material breach of, or result in a
  default under, any provision of any material agreements to which the Parent
  is a party (including instruments, leases, licenses, arrangements, or
  undertakings of any nature, written or oral) (the “Parent Material
  Agreements”) that is or would constitute a Parent Material Agreement, or give
  any Person the right to (i) declare a default or exercise any remedy
  under any such Parent Material Agreement, (ii) accelerate the maturity
  or performance of any such Parent Material Agreement, or (iii) cancel,
  terminate or modify any such Parent Material Agreement; or

  
	
   

  	
   

  
	
   

  	
                          (e)          result
  in the imposition or creation of any Lien or other Encumbrance upon or with
  respect to any asset owned or used by the Parent.

  
	
   

  	
   

  
	
   

  	
            No
  filing or registration with, no notice to and no permit, authorization,
  consent or approval of any third party or any Governmental Body is necessary
  for the consummation by Parent of the transactions contemplated by this
  Agreement.

  
	
   

  	
   

  
	
   

  	
            3.9         Brokers. 
No 
  broker, finder or investment banker, for which the Parent may be
  liable, is entitled to any brokerage, finder’s or other fee or commission in
  connection with the transactions contemplated by this Agreement. 

  
	
   

  	
   

  
	
   

  	
            3.10       Full
  Disclosure.  This
  Agreement does not, and the Parent Closing Certificate will not,
  (i) contain any representation, warranty or information that is false or
  misleading with respect to any material fact, or (ii) omit to state any
  material fact necessary in order to make the representations, warranties and
  information contained and to be contained herein and therein (in the light of
  the circumstances under which such representations, warranties and
  information were or will be made or provided) not false or misleading.

  
	
   

  	
   

  
	
  SECTION 4.

  	
  CERTAIN COVENANTS OF THE COMPANY.

  
	
   

  	
   

  
	
   

  	
            All
  references to the Company in this Section 4 and the covenants thereon shall
  also apply to each of the Target Companies, and with respect to Section 4.3
  and 4.4 below, such covenants shall also apply to the Founders and the
  Sellers.

  

23

	
   

  	
   

  
	
   

  	
            4.1         Access
  and Investigation.  During the period from the date of this Agreement through the
  Closing Date, or the earlier termination hereof in accordance with Section 8
  (the “Pre-Closing Period”), the Company shall, and shall cause its
  Representatives to:  (a) provide
  Parent and Parent’s Representatives with reasonable access to the Company’s
  Representatives, personnel and assets and to all existing books, records, Tax
  Returns, work papers and other documents and information relating to the
  Company; and (b) provide Parent and Parent’s Representatives with copies
  of such existing books, records, Tax Returns, work papers and other
  documents and information relating to the Company, and with such additional
  financial, operating and other data and information regarding the Company, as
  Parent may reasonably request.

  
	
   

  	
   

  
	
   

  	
            4.2         Operation
  of the Company’s Business.  Other than as contemplated hereunder, during the Pre-Closing
  Period:

  
	
   

  	
   

  
	
   

  	
                          (a)          the
  Company shall conduct its business and operations in the ordinary course and
  in substantially the same manner as such business and operations have been
  conducted prior to the date of this Agreement;

  
	
   

  	
   

  
	
   

  	
                          (b)          the
  Company shall use reasonable efforts to preserve intact its current business
  organization, keep available the services of its current officers and
  employees and maintain its relations and good will with all suppliers,
  customers, landlords, creditors, employees and other Persons having business
  relationships with the Company;

  
	
   

  	
   

  
	
   

  	
                          (c)          the
  Company shall keep in full force all insurance policies referred to in
  Part 2.17 of the Company Disclosure Schedule;

  
	
   

  	
   

  
	
   

  	
                          (d)          the
  Company shall cause its officers to orally report regularly (but in no event
  less frequently than weekly) to Parent concerning the status of the Company’s
  business;

  
	
   

  	
   

  
	
   

  	
                          (e)          except
as contemplated in Section 1.6
  herein, the Company shall not declare, accrue, set aside or pay any
  dividend or make any other distribution in respect of any shares of capital
  stock, and shall not repurchase, redeem or otherwise reacquire any shares of
  capital stock or other securities

  
	
   

  	
   

  
	
   

  	
                          (f)           except
as contemplated in Section 1.6
  herein, the Company shall not sell, issue or authorize the issuance of
  (i) any capital stock or other security, (ii) any option or right
  to acquire any capital stock or other security, or (iii) any instrument
  convertible into or exchangeable for any capital stock or other security;

  
	
   

  	
   

  
	
   

  	
                          (g)          except
as contemplated in Section 1.6
  herein, the Company shall not amend or waive any of its rights under,
  or permit the acceleration of vesting under, (i) any provision of the
  ESOP or (ii) any provision of any agreement evidencing any outstanding
  Option;

  
	
   

  	
   

  
	
   

  	
                          (h)          the
  Company shall not amend or permit the adoption of any amendment to the
  Certificate of Incorporation or effect or permit the Company to become a
  party to any Acquisition Transaction, recapitalization, reclassification of
  shares, stock split, reverse stock split or similar transaction;

  

24

	
   

  	
   

  
	
   

  	
                          (i)           the
  Company shall not form any subsidiary or acquire any equity interest or other
  interest in any other Entity;

  
	
   

  	
   

  
	
   

  	
                          (j)          the
  Company shall not make any capital expenditure, except for capital
  expenditures that, when added to all other capital expenditures made on
  behalf of the Company during the Pre-Closing Period, do not exceed fifteen
  thousand United States dollars ($15,000) per month;

  
	
   

  	
   

  
	
   

  	
                          (k)          the
  Company shall not, other than in the ordinary course of business,
  (i) enter into, or permit any of the assets owned or used by it to
  become bound by, any Contract that is or would constitute a Material
  Agreement, or (ii) amend or prematurely terminate, or waive any right or
  remedy under, any such Contract;

  
	
   

  	
   

  
	
   

  	
                          (l)           the
  Company shall not, other than in the ordinary course of business,
  (i) acquire, lease or license any right or other asset from any other
  Person, (ii) sell or otherwise dispose of, or lease or license, any
  right or other asset to any other Person, or (iii) waive or relinquish
  any right, except for rights relinquished by the Company pursuant to
  Contracts that are not Material Agreements;

  
	
   

  	
   

  
	
   

  	
                          (m)         the
  Company shall not, other than in the ordinary course of business,
  (i) lend money to any Person in excess of two thousand five hundred
  United States dollars ($2,500) or (ii) incur or guarantee any
  indebtedness for borrowed money in excess of seven thousand five hundred
  United States dollars ($7,500); 

  
	
   

  	
   

  
	
   

  	
                          (n)          the
  Company shall not (i) establish, adopt or amend any employee benefit
  plan, (ii) pay any bonus or make any profit-sharing payment, cash
  incentive payment or similar payment to, or increase the amount of the wages,
  salary, commissions, fringe benefits or other compensation or remuneration
  payable to, any of its directors, officers, consultants or employees, or
  (iii) hire any new employee; 

  
	
   

  	
   

  
	
   

  	
                          (o)          the
  Company shall not change any of its methods of accounting or accounting
  practices in any material respect;

  
	
   

  	
   

  
	
   

  	
                          (p)          the
  Company shall not make any Tax election;

  
	
   

  	
   

  
	
   

  	
                          (q)          the
  Company shall not commence or settle any material Legal Proceeding;

  
	
   

  	
   

  
	
   

  	
                          (r)          the
  Company shall not agree or commit to take any of the actions described in
  clauses “(a)” through “(q)” above.

  

25

	
   

  	
   

  
	
   

  	
            4.3         Notification;
  Updates to Disclosure Schedule.

  
	
   

  	
   

  
	
   

  	
                          (a)          During
  the Pre-Closing Period, the Company shall promptly notify Parent in writing
  of:

  
	
   

  	
   

  
	
   

  	
                                         (i)          the
  discovery by the Company of any event, condition, fact or circumstance that
  occurred or existed on or prior to the date of this Agreement and that caused
  or constitutes a material inaccuracy in or breach of any representation or
  warranty made by the Company in this Agreement;

  
	
   

  	
   

  
	
   

  	
                                         (ii)        
  any event, condition, fact or circumstance that occurs, arises or exists
  after the date of this Agreement and that would cause or constitute a
  material inaccuracy in or breach of any representation or warranty made by
  the Company in this Agreement if (A) such representation or warranty had
  been made as of the time of the occurrence, existence or discovery of such
  event, condition, fact or circumstance, or (B) such event, condition,
  fact or circumstance had occurred, arisen or existed on or prior to the date
  of this Agreement;

  
	
   

  	
   

  
	
   

  	
                                         (iii)       
  any material breach of any material covenant or obligation of the Company;
  and

  
	
   

  	
   

  
	
   

  	
                                         (iv)       
  any event, condition, fact or circumstance that would make the timely
  satisfaction of any of the conditions set forth in Section 6 or
  Section 7 impossible or unlikely.

  
	
   

  	
   

  
	
   

  	
                          (b)          If
  any event, condition, fact or circumstance that is required to be disclosed
  pursuant to Section 4.3(a) requires any change in the Company Disclosure
  Schedule, or if any such event, condition, fact or circumstance would require
  such a change assuming the Company Disclosure Schedule were dated as of the
  date of the occurrence, existence or discovery of such event, condition, fact
  or circumstance, then the Company shall promptly deliver to Parent an update
  to the Company Disclosure Schedule specifying such change.  

  
	
   

  	
   

  
	
   

  	
            4.4         No
  Negotiation. 
  During the Pre-Closing Period, the Company shall not directly or
  indirectly:

  
	
   

  	
   

  
	
   

  	
                          (a)          solicit
  or encourage the initiation of any inquiry, proposal or offer from any Person
  (other than Parent) relating to a possible Acquisition Transaction;

  
	
   

  	
   

  
	
   

  	
                          (b)          participate
  in any discussions or negotiations or enter into any agreement with, or
  provide any non-public information to, any Person (other than Parent) relating
  to or in connection with a possible Acquisition Transaction; or

  
	
   

  	
   

  
	
   

  	
                          (c)          consider,
  entertain or accept any proposal or offer from any Person (other than Parent)
  relating to a possible Acquisition Transaction.

  
	
   

  	
   

  
	
   

  	
  The Company
  shall promptly notify Parent in writing of any material inquiry, proposal or
  offer relating to a possible Acquisition Transaction that is received by the
  Company or any of its Representatives during the Pre-Closing Period.

  

26

	
   

  	
   

  
	
  SECTION 4A.

  	
  CERTAIN COVENANTS OF THE PARENT.

  
	
   

  	
   

  
	
   

  	
            4A         Notification;
  Updates to Disclosure Schedule; Access.

  
	
   

  	
   

  
	
   

  	
                          (a)          During
  the Pre-Closing Period, the Parent shall promptly notify the Company, Target
  Companies, Founders and Sellers in writing of:

  
	
   

  	
   

  
	
   

  	
                                         (i)          the
  discovery by the Parent of any event, condition, fact or circumstance that
  occurred or existed on or prior to the date of this Agreement and that caused
  or constitutes an inaccuracy in or breach of any representation or warranty
  made by the Parent in this Agreement;

  
	
   

  	
   

  
	
   

  	
                                         (ii)         any
  event, condition, fact or circumstance that occurs, arises or exists after
  the date of this Agreement and that would cause or constitute an inaccuracy
  in or breach of any representation or warranty made by the Parent in this
  Agreement if (A) such representation or warranty had been made as of the
  time of the occurrence, existence or discovery of such event, condition, fact
  or circumstance, or (B) such event, condition, fact or circumstance had
  occurred, arisen or existed on or prior to the date of this Agreement;

  
	
   

  	
   

  
	
   

  	
                                         (iii)        any
  material breach of any material covenant or obligation of the Parent; and

  
	
   

  	
   

  
	
   

  	
                                         (iv)        any
  event, condition, fact or circumstance that would make the timely
  satisfaction of any of the conditions set forth in Section 6 or
  Section 7 impossible or unlikely.

  
	
   

  	
   

  
	
   

  	
                          (b)          If
  any event, condition, fact or circumstance that is required to be disclosed
  pursuant to Section 4A.1(a) requires any change in the Parent Disclosure
  Schedule, or if any such event, condition, fact or circumstance would require
  such a change assuming the Parent Disclosure Schedule were dated as of the
  date of the occurrence, existence or discovery of such event, condition, fact
  or circumstance, then the Parent shall promptly deliver to the Company,
  Target Companies, Founders and Sellers an update to the Parent Disclosure
  Schedule specifying such change.

  
	
   

  	
   

  
	
   

  	
                          (c)          During
  the Pre-Closing Period, the Parent shall, and shall cause its Representatives
  to:  (a) provide the Target
  Company, the Founders and their respective Representatives with reasonable
  access to the Parent’s Representatives, personnel and assets and to all
  existing books, records, Tax Returns, work papers and other documents and
  information relating to the Parent; and (b) provide the Company, Target
  Companies, Founders, Sellers and their respective Representatives with copies
  of such existing books, records, Tax Returns, work papers and other documents
  and information relating to the Parent, and with such additional financial,
  operating and other data and information regarding the Parent, as the
  Company, Target Companies, Sellers and Founders may reasonably request.

  

27

	
   

  	
   

  
	
  SECTION 5.

  	
  ADDITIONAL COVENANTS OF THE PARTIES.

  
	
   

  	
   

  
	
   

  	
            5.1         Filings
  and Consents. 
  As promptly as practicable after the execution of this Agreement, each
  party to this Agreement (a) shall make all filings (if any) and give all
  notices (if any) required to be made and given by such party in connection
  with the transactions contemplated by this Agreement, and (b) shall use
  all commercially reasonable efforts to obtain all Consents (if any) required
  to be obtained (pursuant to any applicable Legal Requirement or Contract, or
  otherwise) by such party in connection with the transactions contemplated by
  this Agreement.  Each party to this
  Agreement shall (upon request) promptly deliver to the other parties a copy
  of each such filing made, each such notice given and each such Consent
  obtained by such party during the Pre-Closing Period. 

  
	
   

  	
   

  
	
   

  	
            5.2         Public
  Announcements.  During the Pre-Closing Period, (a) the Target Company,
  Founders and Sellers shall not issue any press release or make any public
  statement regarding this Agreement, or regarding any of the transactions
  contemplated by this Agreement, without Parent’s prior written consent, and
  (b) Parent shall not issue any press release or make any public
  statement regarding this Agreement, or regarding any of the transactions contemplated
  by this Agreement, without the Company’s and Founders prior written
  consent.  Notwithstanding the
  provisions of the preceding sentence, each party shall be permitted to issue
  any press release or make any public statement as such party is advised by
  counsel is legally required to be issued or made under any applicable laws;
  provided, however, that in such event the party issuing such press release or
  making such public statement will provide the other parties with prompt
  written notice of such requirement and a copy of the press release to be
  issued or public statement to be made, and the parties shall use reasonable
  commercial efforts to coordinate the content of such press release or public
  statement.

  
	
   

  	
   

  
	
   

  	
            5.3         Best
  Efforts.  During the Pre-Closing Period,
  (a) the Target Companies, the Sellers and the Founders shall use their
  respective best efforts to cause the conditions set forth in Section 6
  to be satisfied on a timely basis, and (b) Parent shall use its best
  efforts to cause the conditions set forth in Section 7 to be satisfied
  on a timely basis.

  
	
   

  	
   

  
	
   

  	
            5.4         Employment
  Agreements.  At the Closing, Parent will guaranty all of the undertakings
  and obligations in the Employment Agreements of the Founders, as amended in
  accordance with the letter exchanged between the Parties on the date hereof.

  
	
   

  	
   

  
	
   

  	
            5.5          Registration
  of Shares. 
  Parent will no earlier than six (6) months after the Closing and as
  directed by all of the Founders, prepare and file with the SEC a registration
  statement under the Securities Act with respect to the registration of the
  Ordinary Shares issuable to the Sellers or the Former Option Holders in
  connection with the transactions contemplated by this Agreement (the
  “Registration Statement”).  Parent
  will, and will cause its accountants and lawyers to, cause the Registration
  Statement to be declared effective as promptly as practicable after filing
  with the SEC, but no more than 135 days after the request of the Founders and
  the Registration Statement shall be kept effective continuously for a period
  of at least two years following the date on which the Registration Statement
  is declared effective by the SEC. To the extent such registration statement
  does not register one hundred percent (100%) of the Ordinary Shares issuable
  to the Sellers under this Agreement, the Parent shall file a Registration
  Statement as directed by all of the Founders within two (2) months of the
  date of any such subsequent request by the Founders for filing, to cover any
  and all remaining Ordinary Shares.

  

28

	
   

  	
   

  
	
   

  	
            5.6         Legend. 
  The Sellers hereby agrees to the imprinting, until the Registration
  Statement is declared effective, of the following legend on certificates
  representing the Ordinary Shares:

  
	
   

  	
   

  
	
   

  	
  “THE
  SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
  SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED,
  DIRECTLY OR INDIRECTLY, WITHOUT A REGISTRATION STATEMENT IN EFFECT OR AN
  EXEMPTION FROM REGISTRATION.

  
	
   

  	
   

  
	
   

  	
  The legend
  set forth above shall be removed at any time after the Registration Statement
  has been declared effective under the Securities Act, or, such legend is no
  longer required under applicable requirements of the Securities Act
  (including judicial interpretations and pronouncements issued by the staff of
  the SEC) in the opinion of counsel to Parent experienced in the area of
  United States securities laws. The share certificates representing the
  Ordinary Shares shall also bear any other legends required by applicable
  United States federal or state securities laws, which legends may be removed
  when, in the opinion of counsel to Parent experienced in the applicable
  securities laws, such legend is no longer required under applicable
  requirements of the Securities Act (including judicial interpretations and
  pronouncements issued by the staff of the SEC). Parent agrees that it will
  provide Seller, upon request, with a substitute share certificate or
  certificates free from such legend at such time as such legend is no longer
  applicable. Seller agrees that, in connection with any transfer of the
  Ordinary Shares by it pursuant to an effective registration statement under
  the Securities Act, it will comply with all prospectus delivery requirements
  of the Securities Act.

  
	
   

  	
   

  
	
   

  	
            5.7         Lock-up
  Restrictions. 
  All Ordinary Shares issued to the Sellers pursuant to this Agreement
  by the Parent shall be subject to restrictions upon resale and consequently
  may not be offered, sold, granted, assigned, pledged, transferred or
  otherwise disposed of during a six (6) month period from the Closing Date
  unless the transfer is made to a third party and where such third party
  provides its prior written consent to be bound by the abovementioned selling restrictions.
  All certificates representing such Ordinary Shares issued to the Sellers
  shall bear restrictive legends referencing the abovementioned lock-up period.

  

29

	
   

  	
   

  
	
   

  	
            5.8         Employees
  and Stock Options in Parent. 
  Commencing as of January 1, 2005, Parent shall provide to
  all employees of the Target Companies listed on Exhibit C hereto, participation in the Parent’s employee
  stock option plan (“EVS Plan”) based on the basic terms and conditions
  (including as to amount and exercise price) listed on Exhibit C and subject to the terms of
  the EVS Plan and applicable law. 

  
	
   

  	
   

  
	
   

  	
            5.9         Continuation
  of Target Companies’ Business.  Following the Closing and for as long as
  Parent or its subsidiaries shall employ at least two (2) of the Founders,
  Parent shall operate the business of the Target Companies in accordance with
  the principles attached hereto as Exhibit
  D. 

  
	
   

  	
   

  
	
   

  	
            5.10       Tax
  Liability. 
  Each party shall be responsible for all its respective tax obligations
  deriving from the transactions contemplated in this Agreement.

  
	
   

  	
   

  
	
   

  	
            5.11       OCS
Grants. As of May 31, 2004, the total
  outstanding grants received by the Israeli Target Company from the OCS shall
  not exceed one hundred sixty eight thousand United States dollars ($168,000).

  
	
   

  	
   

  
	
   

  	
            5.12       D&O
  Insurance.  Following the Closing, the two (2)
  representatives appointed by the Founders to the board of directors of the
  Parent shall be covered by the same Directors and Officers insurance policy
  by which all current directors of the Parent are covered.  Following the Closing, the Founders, in
  their capacity as officers of the Target Companies, shall be covered by the
  same Directors and Officers insurance policy by which all current officers of
  the Parent are covered. 

  
	
   

  	
   

  
	
   

  	
            5.13       Non-Recourse
  Loans to Founders. To the
  extent that no Legal Requirement prohibits the Parent from the granting of a
  loan to the respective Founder at such time in which any of the Founders is
  required to immediately pay income tax to the Israeli income tax authorities
  on account of the sale of his interest in the Seller, the Parent hereby agrees
  to at such time enter into a non-recourse loan agreement in the form attached
  hereto as Exhibit B.

  
	
   

  	
   

  
	
  SECTION 6.

  	
  CONDITIONS PRECEDENT TO OBLIGATIONS
  OF PARENT.

  
	
   

  	
   

  
	
   

  	
            Subject
  to Section 6A, the obligations of Parent to consummate the transactions
  contemplated by this Agreement are subject to the satisfaction, at or prior
  to the Closing, of each of the following conditions any or all of which may
  be waived in writing by Parent:

  
	
   

  	
   

  
	
   

  	
            6.1         Accuracy
  of Representations.  Each of the representations and warranties made in Section 2 of
  this Agreement shall have been accurate in all material respects as of the
  date of this Agreement, and shall be accurate in all material respects as of
  the Closing Date as if made on the Closing Date.

  
	
   

  	
   

  
	
   

  	
            6.2         Performance
  of Covenants. 
  All of the covenants and obligations that the Company, Target
  Companies, Sellers, and Founders are required to comply with or to perform at
  or prior to the Closing shall have been complied with and performed in all
  material respects.

  

30

	
   

  	
   

  
	
   

  	
            6.3         Consents. 
All Consents required to be obtained in
  connection with the transactions contemplated by this Agreement (including
  the Consents identified in the Company Disclosure Schedule or the Parent
  Disclosure Schedule) shall have been obtained without conditions and shall be
  in full force and effect.

  
	
   

  	
   

  
	
   

  	
            6.4         Agreements
  and Documents.  Parent shall have received the following agreements and
  documents, each of which shall be in full force and effect:

  
	
   

  	
   

  
	
   

  	
                          (a)          fully
  executed escrow agreement to be entered into with the Escrow Agent setting
  forth the terms of the Trust Shares and the Escrow Shares (the “Escrow
  Agreement”) in the form attached hereto as Exhibit
  E, which shall contain, without limitation, provisions regarding
  the following: (i) the allocation of the Trust Shares to the Sellers and
  Former Option Holders in accordance with Schedule A and (ii) the release of the
  Escrow Shares on the first anniversary of the Closing Date.

  
	
   

  	
   

  
	
   

  	
                          (b)          amended
Employment Agreements and
  Nondisclosure Agreements executed by the Founders (to reflect the terms of
  the letter exchanged between the Parties on the date hereof);

  
	
   

  	
   

  
	
   

  	
                          (c)          confidential
  invention and assignment agreements, reasonably satisfactory in form and
  content to Parent, executed by all employees of the Target Companies and by
  all consultants and independent contractors to the Company and Target
  Companies who have not already signed such agreements;

  
	
   

  	
   

  
	
   

  	
                          (d)          legal
  opinion from Gross, Kleinhendler, Hodak, Halevy and Greenberg (“Company
  Israeli Counsel”), in the form attached hereto as Exhibit F, and addressed to the Parent and dated as of the
  Closing Date;

  
	
   

  	
   

  
	
   

  	
                          (e)          a
  certificate executed by: (i) two officers of the Target Companies), (ii) the
  Sellers and (iii) each Founder and on behalf of each Seller, all certifying
  that each of the representations and warranties set forth in Section 2 is
  accurate in all material respects as of the Closing Date as if made on the
  Closing Date and that the conditions set forth in Section 6 have been duly
  satisfied (the “Company Closing Certificate”); 

  
	
   

  	
   

  
	
   

  	
                          (f)          Lock-up
  agreements executed by the Sellers in the form and substance reasonably
  satisfactory to counsel for Parent which shall contain terms and conditions
  standard and customary in transactions of this nature, including a six (6)
  month restriction on the sale, pledge, assignment, transfer or disposition of
  Ordinary Shares by such Seller; 

  
	
   

  	
   

  
	
   

  	
                          (g)          written
  resignations of all directors of the Target Companies including from any
  committee thereof, effective as of the Closing Date; and

  

31

	
   

  	
   

  
	
   

  	
                          (h)          certificates
  representing all of the Target Shares accompanied by share transfer deeds
  duly executed for transfer to the Parent by the Seller.

  
	
   

  	
   

  
	
   

  	
                          (i)           written
  waivers from each of the Former Option Holders of any right to acquire shares
  of the Israeli Target Company.

  
	
   

  	
   

  
	
   

  	
            6.5         No
  Restraints. 
  No temporary restraining order, preliminary or permanent injunction or
  other order preventing the consummation of the transactions contemplated by
  this Agreement shall have been issued by any court of competent jurisdiction
  and remain in effect, and there shall not be any Legal Requirement enacted or
  applicable to the transactions contemplated by this Agreement that makes
  consummation of the transactions contemplated by this Agreement illegal,
  which Legal Requirement shall not have been removed within thirty (30) days
  of enactment.

  
	
   

  	
   

  
	
   

  	
            6.6         No
  Legal Proceedings. 
  No Person shall have commenced or taken  steps towards any Legal Proceeding challenging or seeking the
  recovery of a material amount of damages in connection with the transactions
  contemplated by this Agreement or seeking to prohibit or limit the exercise
  by Parent of any material right pertaining to its ownership of stock of the
  Company.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
            6.7         Completion
  of Exhibits. The
  exhibits to be completed by Closing shall be in form and substance
  satisfactory to Parent, which shall be completed no later than August 20,
  2004.

  
	
   

  	
   

  
	
  SECTION 6A.

  	
  PARENT OPTION.

  
	
   

  	
   

  
	
   

  	
            6A.        Option. 
  Notwithstanding anything to the contrary in this Agreement, there shall not
  be a Closing, unless Parent has provided the Seller with its written approval
  by August 31, 2004, (the “Parent Approval”) that it wishes to purchase all of
  the Shares in consideration for the Purchase Consideration. In the event,
  Parent does not provide the Parent Approval for any reason whatsoever to the
  Seller by September 1, 2004, this Agreement shall immediately terminate in its
  entirety and be of no further force and effect, without any party being
  liable for any fees, costs or expenses incurred in connection with the
  transactions contemplated by this Agreement and the negotiations leading up
  to the execution of this Agreement.

  
	
   

  	
   

  
	
  SECTION 7.

  	
  CONDITIONS PRECEDENT TO OBLIGATIONS
  OF THE FOUNDERS, SELLERS, COMPANY AND TARGET
  COMPANIES.

  
	
   

  	
   

  
	
   

  	
            The
  obligations of the Founders, Sellers, the Company and the Target Companies to
  consummate the transactions contemplated by this Agreement are subject to the
  satisfaction, at or prior to the Closing, of the following conditions any or
  all of which may be waived in writing by all of the Founders together:

  

32

	
   

  	
   

  
	
   

  	
            7.1         Accuracy
  of Representations.  Each of the representations and warranties made by Parent in
  this Agreement and in each of the other agreements and instruments delivered
  by Parent in connection with the transactions contemplated by this Agreement
  shall have been accurate in all material respects as of the date of this
  Agreement, and shall be accurate in all material respects as of the Closing
  Date as if made on the Closing Date.

  
	
   

  	
   

  
	
   

  	
            7.2         Performance
  of Covenants. 
  All of the covenants and obligations that Parent is required to comply
  with or to perform at or prior to the Closing shall have been complied with
  and performed in all respects.

  
	
   

  	
   

  
	
   

  	
            7.3         Consents. 
All Consents required to be obtained in
  connection with the transactions contemplated by this Agreement shall have
  been obtained without conditions and shall be in full force and effect.

  
	
   

  	
   

  
	
   

  	
            7.4         Agreements
  and Documents.  The Sellers shall have received the
  following agreements and documents, each of which shall be in full force and
  effect:

  
	
   

  	
   

  
	
   

  	
                          (a)          validly
  executed share certificates covering the Ordinary Shares, issued in the names
  of the respective Sellers and Section 102 trustee on behalf of the Former
  Option Holders as part of the Initial Shares;

  
	
   

  	
   

  
	
   

  	
                          (b)          fully
  executed Escrow Agreement (Exhibit E);

  
	
   

  	
   

  
	
   

  	
                          (c)          a
  legal opinion of Yigal Arnon & Co., in the form of Exhibit G, addressed to the Sellers and
  Founders and dated as of the Closing Date; 

  
	
   

  	
   

  
	
   

  	
                          (d)          a
  certificate executed by the Parent’s Chief Executive Officer certifying that
  each of the representations and warranties set forth in Section 3 is accurate
  in all material respects as of the Closing Date as if made on the Closing
  Date and that the conditions set forth in Section 7 have been duly satisfied
  (the “Parent Closing Certificate”); 

  
	
   

  	
   

  
	
   

  	
                          (e)          a duly
executed amendment of Shareholders
  Agreement of Parent dated March 2001 (executed together with Altro and Elbit
  Ltd.), in a form acceptable to the Founders, such that Founders will receive
  the right to together appoint up to two (2) representatives out of the nine
  (9) member board of directors of the Parent; and 

  
	
   

  	
   

  
	
   

  	
                          (f)          amended
  Employment Agreements and Nondisclosure Agreements executed by the Founders
  (to reflect the terms of the letter exchanged between the Parties on the date
  hereof).

  
	
   

  	
   

  

33

	
   

  	
            7.5         Securities
  Law Requirements.  All permits, licenses, consents and approvals necessary under
  any laws relating to the sale of securities have been issued or given, and no
  such permit, license, consent or approval shall have been revoked, canceled,
  terminated, suspended or made the subject of any stop order or proceeding
  thereof.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
            7.6         No
  Restraints. 
  No temporary restraining order, preliminary or permanent injunction or
  other order preventing the consummation of the transactions contemplated by
  this Agreement shall have been issued by any court of competent jurisdiction
  and remain in effect, and there shall not be any Legal Requirement enacted or
  applicable to the transactions contemplated by this Agreement that makes
  consummation of the transactions contemplated by this Agreement illegal,
  which Legal Requirement shall not have been removed within (30) days of
  enactment.

  
	
   

  	
   

  
	
   

  	
            7.7         No
  Legal Proceedings. No Person shall have
  commenced any Legal Proceeding challenging or seeking the recovery of a
  material amount of damages in connection with the transactions contemplated
  by this Agreement.

  
	
   

  	
   

  
	
   

  	
            7.8         Dissolution
  of Company.  The Company shall have been dissolved prior
  to Closing in a manner reasonably satisfactory to the Sellers, and the
  Company’s assets and liabilities, if any, distributed to the Sellers free and
  clear of any Liens.

  
	
   

  	
   

  
	
   

  	
            7.9         Tax
  Pre-Rulings. 
  The Founders, Sellers and Company shall have received one more or
  pre-rulings from the Israeli Tax Authorities, in form and substance
  acceptable to the Founders, which allow for (a) the deferral by the Founders,
  Sellers and Former Option Holders of taxes to be paid in connection with the
  transactions contemplated by this Agreement, including the sale of Target
  Shares and waiver of employee stock options and receipt of Parent Ordinary
  Shares, and (b) dissolution of the Company and distribution of its assets and
  liabilities, if any, to the Sellers.

  
	
   

  	
   

  
	
   

  	
            7.10       Adoption
  of ESOP.  The Parent shall have adopted the ESOP
  subject to any applicable changes included in the pre-rulings issued by the
  Israeli Tax Authorities.

  
	
   

  	
   

  
	
   

  	
            7.11       Completion
  of Exhibits. The
  exhibits to be completed by Closing shall be in form and substance
  satisfactory to Parent, which shall be completed no later than August 20,
  2004. 

  
	
   

  	
   

  
	
  SECTION 8.

  	
  TERMINATION.

  
	
   

  	
   

  
	
   

  	
            8.1         Termination
  Events. 
  This Agreement may be immediately terminated prior to the Closing upon
  the provision of written notice as provided for below:

  
	
   

  	
   

  
	
   

  	
                          (a)          By
  either the the Founders, the Sellers or by Parent if a court of competent
  jurisdiction or Governmental Body shall have issued an order, decree or
  ruling or taken any other action (which order, decree or ruling the parties
  hereto shall use their best efforts to lift) and such was not at the request
  of the party seeking termination of the Agreement, in each case permanently
  restraining, enjoining or otherwise prohibiting the transactions contemplated
  by this Agreement, and such order, decree, ruling or other action shall have
  become final and non-appealable; 

  

34

	
   

  	
   

  
	
   

  	
                          (b)          by
  Parent, if the Closing has not taken place on or before September 1, 2004
  (other than as a result of any failure on the part of Parent to comply with
  or perform any covenant or obligation of Parent set forth in this Agreement);

  
	
   

  	
   

  
	
   

  	
                          (c)          by
  the Sellers, if the Closing has not taken place on or before September 1,
  2004 (other than as a result of the failure on the part of the Founders, the
  Sellers or the Target Companies to comply with or perform any covenant or
  obligation set forth in this Agreement or in any other agreement or
  instrument delivered to Parent, provided however that the failure to receive
  the pre-rulings described in section 7.9 above shall not be considered
  failures of the Founders, Sellers or the Target Companies); 

  
	
   

  	
   

  
	
   

  	
                          (d)          by
  the mutual consent of Parent, the Sellers and the Founders; or

  
	
   

  	
   

  
	
   

  	
                          (e)          pursuant
  to Section 6A.

  
	
   

  	
   

  
	
   

  	
            8.2         Termination
  Procedures. 
  If Parent wishes to terminate this Agreement pursuant to Section
  8.1(a) or Section 8.1(b), Parent shall deliver to the Target Companies and
  the Founders a written notice stating that Parent is terminating this
  Agreement and setting forth a brief description of the basis on which Parent
  is terminating this Agreement.  If
  Sellers wish to terminate this Agreement pursuant to Section 8.1(a) or
  Section 8.1(c), the Sellers shall deliver to Parent a written notice
  signed by the Sellers stating that the Sellers are terminating this Agreement
  and setting forth a brief description of the basis on which the Sellers is
  terminating this Agreement.

  
	
   

  	
   

  
	
   

  	
            8.3         Effect
  of Termination. 
  If this Agreement is terminated pursuant to Section 8.1, all
  further obligations of the parties under this Agreement shall terminate; provided,
  however, that the parties shall, in all events, remain bound by
  and continue to be subject to the terms of the MNDA (as defined below).  

  
	
   

  	
   

  
	
  SECTION 9.

  	
  INDEMNIFICATION, ETC.

  
	
   

  	
   

  
	
   

  	
            9.1         Survival
  of Representations, Etc.

  
	
   

  	
   

  
	
   

  	
                          (a)          The
  representations and warranties made by the Company, Sellers and the Founders
  shall survive the Closing and will survive this Agreement until the second
  anniversary of the Closing Date.

  
	
   

  	
   

  
	
   

  	
                          (b)          The
  representations, warranties, covenants and obligations of the Company,
  Sellers, and Founders and the rights and remedies that may be exercised by
  the Parent Indemnitees, shall not be limited or otherwise affected by or as a
  result of any information furnished to, or any investigation made by or
  knowledge of, any of the Parent Indemnitees or any of their Representatives.

  

35

	
   

  	
   

  
	
   

  	
                          (c)          For
  purposes of this Agreement, each statement or other item of information set
  forth in the Company Disclosure Schedule or in any update to the Company
  Disclosure Schedule shall be deemed to be a representation and warranty made
  by the Company, Sellers, and Founders in this Agreement.

  
	
   

  	
   

  
	
   

  	
                          (d)          The
  representations and warranties made by Parent shall survive the Closing and
  will survive this Agreement until the second anniversary of the Closing Date.
  

  
	
   

  	
   

  
	
   

  	
                          (e)          The
  representations, warranties, covenants and obligations of the Parent, and the
  rights and remedies that may be exercised by the Seller Indemnitees, shall
  not be limited or otherwise affected by or as a result of any information
  furnished to, or any investigation made by or knowledge of, any of the Seller
  Indemnitees or any of their Representatives.

  
	
   

  	
   

  
	
   

  	
                          (f)          For
  purposes of this Agreement, each statement or other item of information set
  forth in the Parent Disclosure Schedule or in any update to the Parent
  Disclosure Schedule shall be deemed to be a representation and warranty made
  by the Parent in this Agreement.

  
	
   

  	
   

  
	
   

  	
            9.2         Indemnification.

  
	
   

  	
   

  
	
   

  	
                          (a)          From
  and after the Closing Date (but subject to Section 9.1(a)), the Parent Indemnitees
  may seek indemnification solely from the Escrow Fund for any Damages that are
  directly or indirectly suffered or incurred by any of the Parent Indemnitees
  or to which any of the Parent Indemnitees may otherwise become subject
  (regardless of whether or not such Damages relate to any third-party claim)
  and which arise from or as a result of or are connected with:  (i)  any
  inaccuracy in or breach of any representation or warranty set forth in
  Section 2 or in the Company Closing Certificate; (ii)
  any inaccuracy in or breach of any representation or warranty set forth in
  Section 2 as if such representation and warranty had been made on and as of
  the Closing Date; (iii) any breach of any covenant or obligation of the
  Company, Target Companies, Sellers and/or Founders under this Agreement
  (including the covenants set forth in Sections 4 and 5); or (iv) any Legal Proceeding relating to any inaccuracy or
  breach of the type referred to in clause “(i)” or “(ii)” above (including any
  Legal Proceeding commenced by any Parent Indemnitee for the purpose of
  enforcing any of its rights under this Section 9).  Payment from the Escrow Fund, to the
  extent required pursuant to this Section 9.2, shall be made solely by the transfer
  of Escrow Shares which shall be valued for purposes of this section at the
  Fair Market Value of the Ordinary Shares for the thirty (30) trading days
  immediately preceding the Closing.

  
	
   

  	
   

  
	
   

  	
                          (b)          The
  Sellers and the Company acknowledge and agree that, if a Target Company
  suffer, incur or otherwise become subject to any Damages as a result of or in
  connection with any inaccuracy in or breach of any representation, warranty,
  covenant or obligation, then (without limiting any of its rights as a Parent
  Indemnitee) Parent shall also be deemed, by virtue of its ownership of the
  stock of the Target Company, to have incurred Damages as a result of and in
  connection with such inaccuracy or breach.

  

36

	
   

  	

                        (c)          From
  and after the Closing Date, any Seller Indemnitee may seek indemnification
  from Parent for any Damages that are directly or indirectly suffered or
  incurred by such Seller Indemnitee or to which such Seller Indemnitee may
  otherwise become subject (regardless of whether or not such Damages relate to
  any third-party claim) and which arise from or as a result of, or are
  directly or indirectly connected with:  (i)  any inaccuracy in or
  breach of any representation or warranty set forth in Section 3 or in the
  Parent Closing Certificate; (ii) any inaccuracy in
  or breach of any representation or warranty set forth in Section 3 as if such
  representation and warranty had been made on and as of the Closing Date; (iii) any breach of any covenant or obligation of the
  Parent under this Agreement; or (iv) any Legal Proceeding relating to any
  inaccuracy or breach of the type referred to in clause “(i)” or “(ii)” above
  (including any Legal Proceeding commenced by any Seller for the purpose of
  enforcing any of its rights under this Section 9); provided, however,
  that the amount of indemnification sought by the Seller Indemnitees shall not
  exceed an aggregate of one million two hundred and seventy five thousand
  United States dollars ($1,275,000).

  
	
   

  	
   

  
	
   

  	
            9.3         Defense
  of Third Party Claims.  In the event of the assertion or commencement by any Person of
  any claim or Legal Proceeding (whether against the Company, against Parent or
  against any other Person) with respect to which any of the Indemnitees shall
  have the right to seek indemnification pursuant to this Section 9, the
  indemnifying party shall have the right, at their election, to proceed with
  the defense of such claim or Legal Proceeding on its own.  If indemnifying party so proceeds with the
  defense of any such claim or Legal Proceeding, the indemnifying party shall
  have the right to settle, adjust or compromise such claim or Legal Proceeding
  without the consent of the Indemnitees. The Indemnitees shall give the
  indemnifying parties prompt notice of the commencement of any such Legal
  Proceeding; provided, however, that any failure on the part of an
  Indemnitee to so notify the indemnifying parties shall not limit any of the
  rights of the Indemnitees under this Section 9 (except to the extent such
  failure materially prejudices the defense of such Legal Proceeding).

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
            9.5         Minimum
  Claim.  Notwithstanding anything herein to the
  contrary, no party to this Agreement shall be obligated to indemnify,
  pursuant to the terms hereof, with respect to any Damages pursuant to this
  Section 9 unless and until the net aggregate Damages hereunder shall have
  exceeded the aggregate amount of one hundred thousand United States dollars
  ($100,000) (the “Minimum Claim”), provided however, that if and when
  the Damages so exceed the Minimum Claim, all of the Damages shall be subject
  to indemnification hereunder including the amount of Damages up to the
  Minimum Claim.

  

37

	
   

  	
   

  
	
   

  	
            9.6         Exclusive
  Remedy.  With the exception of claims based upon intentional
  misrepresentation or fraud, recourse of the Parent Indemnitees to the Escrow
  Fund pursuant to this Section 9 shall be the sole and exclusive remedy of the
  Indemnitees for any Damages that are directly or indirectly suffered or
  incurred by any of the Indemnitees or to which any of the Indemnitees may
  otherwise become subject.

  
	
   

  	
   

  
	
  SECTION 10.

  	
  MISCELLANEOUS
PROVISIONS.

  
	
   

  	
   

  
	
   

  	
            10.1       Further
  Assurances. 
  Each party hereto shall execute and cause to be delivered to each
  other party hereto such instruments and other documents, and shall take such
  other actions, as such other party may reasonably request (prior to, at or
  after the Closing) for the purpose of carrying out or evidencing any of the
  transactions contemplated by this Agreement. 
  Without limiting the foregoing, all parties agree to amend this
  Agreement to reflect changes required in order to comply with the terms of
  any pre-ruling obtained in accordance with Section 7.8 above.

  
	
   

  	
   

  
	
   

  	
            10.2       Fees
  and Expenses. 
  Each party to this Agreement shall bear and pay all of its own fees,
  costs and expenses (including legal fees and accounting fees) that have been
  incurred or that are incurred by such party in connection with the
  transactions contemplated by this Agreement and the negotiations leading up
  to the execution of this Agreement, with the exception of stamp tax on the
  issuance of Ordinary Shares, if applicable, which shall be borne by the
  Parent alone.

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

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

  

38

	
   

  	
   

  
	
   

  	
                          if
  to Parent:

  
	
   

  	
   

  
	
   

  	
                              Elbit
  Vision Systems Ltd.

  
	
   

  	
                              New
  Industrial Park

  
	
   

  	
                              P.O.B.
  140

  
	
   

  	
                              Yoquneam
  20692

  
	
   

  	
                              Israel

  
	
   

  	
                              Fax: 
(972) (4) – 989-4733

  
	
   

  	
                              Attention: 
Chief Executive Officer

  

39

	
   

  	
   

  
	
   

  	
                              with
a
  copy to:

  
	
   

  	
   

  
	
   

  	
                              Yigal
  Arnon & Co.

  
	
   

  	
                              One
  Azrieli Center (Round Tower)

  
	
   

  	
                              46th
  Floor

  
	
   

  	
                              Tel
  Aviv 67021

  
	
   

  	
                              Israel

  
	
   

  	
                              Fax: 
(972) (3) – 608-7714

  
	
   

  	
                              Attention: 
David Schapiro, Adv. 

  
	
   

  	
   

  
	
   

  	
                          if
  to the Founders, Sellers, Company or any of Target Companies:

  
	
   

  	
   

  
	
   

  	
                              c/o
  ScanMaster Systems (IRT) Ltd.

  
	
   

  	
                              5B
  Ha’Nagar Street

  
	
   

  	
                              Neve
  Ne’eman B

  
	
   

  	
                              Hod
  Hasharon 45800

  
	
   

  	
                              Israel

  
	
   

  	
                              Fax:
   (972) (9) – 746-4648

  
	
   

  	
                              Attention: 
Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
                              with
a
  copy to:

  
	
   

  	
   

  
	
   

  	
                              Gross,
  Kleinhendler, Hodak, Halevy and Greenberg

  
	
   

  	
                              One
  Azrieli Center (Round Tower)

  
	
   

  	
                              40th
  Floor 

  
	
   

  	
                              Tel
  Aviv 64731

  
	
   

  	
                              Israel
  

  
	
   

  	
                              Fax:
  (972-3) 607-4422

  
	
   

  	
                              Attention:
  Richard J. Mann, Adv.

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
            10.6       Counterparts. 
This Agreement may be executed in several
  counterparts, each of which shall constitute an original and all of which,
  when taken together, shall constitute one agreement.

  
	
   

  	
   

  
	
   

  	
            10.7       Governing
  Law.  This Agreement shall be construed in
  accordance with, and governed in all respects by, the internal laws of the
  State of Israel (without giving effect to principles of conflicts of
  laws).  Each party to this Agreement
  consents to the exclusive jurisdiction and venue of the courts of District of
  Tel Aviv-Jaffa in the State of Israel. 

  

40

	
   

  	
   

  
	
   

  	
            10.8       Successors
  and Assigns. 
  This Agreement shall be binding upon: the Company and its successors
  and assigns (if any); Parent and its successors and assigns (if any).  This Agreement shall inure to the benefit
  of:  the Company; the Target Companies,
  the Founders and the Sellers; the other Indemnitees; and the respective
  successors and assigns (if any) of the foregoing.  Neither party may assign any of its rights under this Agreement
  to any other Person without obtaining the consent or approval of the other
  parties hereto.

  
	
   

  	
   

  
	
   

  	
            10.9       Waiver.

  
	
   

  	
   

  
	
   

  	
                          (a)          No
  failure on the part of any Person to exercise any power, right, privilege or
  remedy under this Agreement, and no delay on the part of any Person in
  exercising any power, right, privilege or remedy under this Agreement, shall
  operate as a waiver of such power, right, privilege or remedy; and no single
  or partial exercise of any such power, right, privilege or remedy shall
  preclude any other or further exercise thereof or of any other power, right,
  privilege or remedy.

  
	
   

  	
   

  
	
   

  	
                          (b)          No
  Person shall be deemed to have waived any claim arising out of this
  Agreement, or any power, right, privilege or remedy under this Agreement,
  unless the waiver of such claim, power, right, privilege or remedy is
  expressly set forth in a written instrument duly executed and delivered on
  behalf of such Person; and any such waiver shall not be applicable or have any
  effect except in the specific instance in which it is given.

  
	
   

  	
   

  
	
   

  	
            10.10     Amendments. 
This Agreement may not be amended,
  modified, altered or supplemented other than by means of a written instrument
  duly executed and delivered on behalf of all of the parties hereto, provided
  however the parties shall execute the appropriate written instruments
  required in accordance with last sentence of Section 7.8 above.

  
	
   

  	
   

  
	
   

  	
            10.11     Severability. 
In the event that any provision of this
  Agreement, or the application of any such provision to any Person or set of
  circumstances, shall be determined to be invalid, unlawful, void or
  unenforceable to any extent, the remainder of this Agreement, and the
  application of such provision to Persons or circumstances other than those as
  to which it is determined to be invalid, unlawful, void or unenforceable,
  shall not be impaired or otherwise affected and shall continue to be valid
  and enforceable to the fullest extent permitted by law.

  
	
   

  	
   

  
	
   

  	
            10.12     Parties
  in Interest. 
  Except for the provisions of Section 9, none of the provisions of this
  Agreement are intended to provide any rights or remedies to any Person other
  than the parties hereto and their respective successors and assigns (if any).

  
	
   

  	
   

  
	
   

  	
            10.13     Entire
  Agreement. 
  This Agreement and the other agreements referred to herein set forth
  the entire understanding of the parties hereto relating to the subject matter
  hereof and thereof and supersede all prior agreements and understandings
  among or between any of the parties relating to the subject matter hereof and
  thereof including but not limited to a certain term sheet entered into by the
  parties on April 25, 2004; provided, however, that the Mutual
  Non-Disclosure Agreement executed on behalf of Parent and the Company dated
  April 29, 2004 (the “MNDA”), shall not be superseded by this Agreement and
  shall remain in effect in accordance with its terms until the date on which
  such MNDA is terminated in accordance with its terms.

  

41

	
   

  	
   

  
	
   

  	
            10.14     Construction.

  
	
   

  	
   

  
	
   

  	
                          (a)          For
  purposes of this Agreement, whenever the context requires: the singular
  number shall include the plural, and vice versa; the masculine gender shall
  include the feminine and neuter genders; the feminine gender shall include
  the masculine and neuter genders; and the neuter gender shall include the
  masculine and feminine genders.

  
	
   

  	
   

  
	
   

  	
                          (b)          The
  parties hereto agree that any rule of construction to the effect that
  ambiguities are to be resolved against the drafting party shall not be
  applied in the construction or interpretation of this Agreement.

  
	
   

  	
   

  
	
   

  	
                          (c)          As
  used in this Agreement, the words “include” and “including,” and variations
  thereof, shall not be deemed to be terms of limitation, but rather shall be
  deemed to be followed by the words “without limitation.”

  
	
   

  	
   

  
	
   

  	
                          (d)          Except
  as otherwise indicated, all references in this Agreement to “Sections,”
  “Schedules” and “Exhibits” are intended to refer to Sections of this
  Agreement and Schedules and Exhibits to this Agreement.

  
	
   

  	
   

  

[THE REMAINDER OF THIS PAGE
INTENTIONALLY LEFT BLANK ]

          The
parties hereto have caused this Share Purchase Agreement to be executed and
delivered as of the date first above written.

	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ELBIT VISION SYSTEMS LTD.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  IRT SCANMASTER HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SCANMASTER SYSTEMS (IRT) LTD. 

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  IRT SCANMASTER SYSTEMS, INC. 

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  

CONTINUATION OF SHARE PURCHASE AGREEMENT
SIGNATURE PAGE 

	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MENASHE SHOCHAT

  
	
   

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  
	
   

  	
  SILVIU RABINOVICH

  
	
   

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  
	
   

  	
  ROBERT DALFEN

  
	
   

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  
	
   

  	
  M.S. MASTER INVESTMENTS (2002) LTD.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  S.R. MASTER
  INVESTMENTS (2002) LTD.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  R.D. MASTER INVESTMENTS (2002) LTD.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title: 

  	
   

  	
   

  
	
   

  	
  

  	
   

  

CONTINUATION OF SHARE PURCHASE AGREEMENT
SIGNATURE PAGE 

	
   

  	
   

  
	
   

  	
  EXHIBIT  A

  
	
   

  	
   

  
	
   

  	
  CERTAIN DEFINITIONS

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
            Acquisition
  Transaction. 
  “Acquisition Transaction” shall mean any transaction involving:

  
	
   

  	
   

  
	
   

  	
                      (a) the
  sale, license, disposition or acquisition of all or a material portion of the
  Company’s or of any of its Target Companies’ business or assets;

  
	
   

  	
   

  
	
   

  	
                      (b) the
  issuance, disposition or acquisition of (i) any capital stock or other
  equity security of the Company, (ii) any option, call, warrant or right
  (whether or not immediately exercisable) to acquire any capital stock or
  other equity security of the Company, or (iii) any security, instrument
  or obligation that is or may become convertible into or exchangeable for any
  capital stock or other equity security of the Company; or

  
	
   

  	
   

  
	
   

  	
                      (c) any
  merger, consolidation, business combination, reorganization or similar
  transaction involving the Company or any of its Target Companies.

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
            Certificate
  of Incorporation. “Certificate of Incorporation” shall
  mean the Certificate of Incorporation and By-laws of the Company and/or of
  the US Target Company and the Memorandum and Articles of Association in the
  case of the Israeli Target Company and the Parent, as applicable. 

  
	
   

  	
   

  
	
   

  	
            Company
  Disclosure Schedule.  “Company Disclosure Schedule” shall mean the schedule (dated as
  of the date of Closing) delivered to Parent on behalf of the Sellers,
  Company, Target Companies, and Founders.

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
            Contract.  “Contract” shall mean
any written, oral or
  other agreement, contract, subcontract, lease, understanding, instrument,
  note, warranty, insurance policy, benefit plan or legally binding commitment
  or undertaking of any nature.

  
	
   

  	
   

  
	
   

  	
            Damages.  “Damages” shall include
any loss, damage,
  injury, liability, claim, demand, settlement, judgment, award, fine, penalty,
  Tax, fee (including reasonable attorneys’ fees), charge, cost (including
  costs of investigation) or expense of any nature.

  

i

	
   

  	
   

  
	
   

  	
            Encumbrance.  “Encumbrance” shall
mean any lien, pledge,
  hypothecation, charge, mortgage, security interest, encumbrance, claim,
  infringement, interference, option, right of first refusal, preemptive right,
  community property interest or restriction of any nature (including any
  restriction on the voting of any security, any restriction on the transfer of
  any security or other asset, any restriction on the receipt of any income
  derived from any asset, any restriction on the use of any asset and any
  restriction on the possession, exercise or transfer of any other attribute of
  ownership of any asset).

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
            Exchange
  Act. 
  “Exchange Act” shall mean the Securities Exchange Act of 1934, as
  amended.

  
	
   

  	
   

  
	
   

  	
            Escrow
  Fund.  “Escrow
  Fund” shall have the meaning ascribed to it in the Escrow Agreement.

  
	
   

  	
   

  
	
   

  	
            ESOP.  “ESOP” shall mean the 2003
Share Option
  Plan of the Israeli Target Company.

  
	
   

  	
   

  
	
   

  	
            Fair
  Market Value.  “Fair
  Market Value” shall mean as of any date, the value of Parent’s Ordinary
  Shares as determined by the closing sales price of the Parent’s Ordinary
  Shares as reported by either the NASDAQ Small Cap Market or the Over the
  Counter Bulletin Board upon which the Company’s securities are listed or
  traded as of such date.  In the event
  that for whatever reason the Fair Market Value of the Parent’s Ordinary
  Shares cannot be determined in the manner set forth above, the Fair Market
  Value of the Ordinary Shares shall be determined by the parties hereto in
  good faith. 

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
            Governmental
  Body. 
  “Governmental Body” shall mean any: 
  (a) nation, state, commonwealth,
  province, territory, county, municipality, district or other jurisdiction of
  any nature; (b) federal, state, local,
  municipal, foreign or other government; or (c) governmental
  or quasi-governmental authority of any nature (including any governmental
  division, department, agency, commission, instrumentality, official,
  organization, unit, body or Entity and any court or other tribunal).

  

ii

	
   

  	
   

  
	
   

  	
            Indemnitees.  “Indemnitees” shall
mean, with respect to
  representations and warranties made by the Target Companies, Company,
  Sellers  or Founders (the “Parent
  Indemnitees”) the following Persons:  (a) Parent; (b) Parent’s current and future affiliates
  (including the Target Companies); (c) the
  respective Representatives of the Persons referred to in clauses “(a)” and
  “(b)” above; and (d) the respective
  successors and assigns of the Persons referred to in clauses “(a)”, “(b)” and
  “(c)” above; provided, however, that the Sellers and Founders shall not
  be deemed to be “Indemnitees,” with respect to these representations and
  warranties. “Indemnitees” shall mean, with respect to representations and
  warranties made by the Parent, (the “Seller Indemnitees”) the following
  Persons:  (a) Sellers
  and Founders (b) any of their current and
  future affiliates; (c) the respective
  Representatives of the Persons referred to in clauses “(a)” and “(b)” above;
  and (d) the respective successors and assigns
  of the Persons referred to in clauses “(a)”, “(b)” and “(c)” above.

  
	
   

  	
   

  
	
   

  	
            Liens.  “Liens” shall mean all
mortgages, pledges,
  liens, security interests, conditional and installment sale agreements,
  encumbrances, charges or other claims of third parties of any kind.

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
            Legal
  Requirement. 
  “Legal Requirement” shall mean any federal, state, local, municipal,
  foreign or other law, statute, constitution, principle of common law,
  resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement
  issued, enacted, adopted, promulgated, implemented or otherwise put into
  effect by or under the authority of any Governmental Body.

  
	
   

  	
   

  
	
   

  	
            Material
  Adverse Effect. 
  A violation or other matter will be deemed to have a “Material Adverse
  Effect” on the Company and the Target Companies, taken as a whole, for
  purposes of Section 2, or on the Parent and its subsidiaries, taken as a
  whole, for purposes of Section 3, as the case may be if such violation or
  other matter (considered together with all other matters that would constitute
  exceptions to the representations and warranties set forth in the Agreement
  or in the applicable Closing Certificate but for the presence of “Material
  Adverse Effect” or other materiality qualifications, or any similar
  qualifications, in such representations and warranties) would have a material
  adverse effect on the business, condition, assets, liabilities, operations or
  financial performance or prospects of the Company and the Target Companies
  (taken as a whole), or Parent and its subsidiaries (taken as a whole), as the
  case may be.

  
	
   

  	
   

  
	
   

  	
            Options.  “Options” shall
  mean options to purchase equity of the Israeli Target Company under the ESOP.

  
	
   

  	
   

  
	
   

  	
            Parent
  Disclosure Schedule.  “Parent Disclosure Schedule” shall mean the schedule (dated as
  of the date of Closing) delivered to the Company, Target Companies, Founders
  and Sellers on behalf of the Parent.

  

iii

	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
            SEC.  “SEC” shall mean the United
States
  Securities and Exchange Commission.

  
	
   

  	
   

  
	
   

  	
            Securities
  Act. 
  “Securities Act” shall mean the Securities Act of 1933, as amended.

  
	
   

  	
   

  
	
   

  	
            Tax.  “Tax” shall mean any tax
(including any
  income tax, franchise tax, capital gains tax, gross receipts tax, value-added
  tax, surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax,
  use tax, property tax, business tax, withholding tax or payroll tax), levy,
  assessment, tariff, duty (including any customs duty), deficiency or fee, and
  any related charge or amount (including any fine, penalty or interest),
  imposed, assessed or collected by or under the authority of any Governmental
  Body.

  
	
   

  	
   

  
	
   

  	
            Tax
  Returns.  “Tax
  Returns” shall mean returns, reports and information statements with respect
  to Tax required to be filed by or on behalf of the Company with the Israel
  Income Tax Commission, the Israel Value Added Tax Authority and any other
  taxing authority domestic or foreign.

  

iv

	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SCHEDULES AND EXHIBITS 

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Schedules

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Schedule A

  	
  -

  	
  Sellers and
  Allocation of Consideration [to be finalized by August 20, 2004]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Company Disclosure Schedule  

  	
  [to be
  finalized by August 20, 2004]

  
	
   

  	
   

  	
   

  
	
   

  	
  Parent Disclosure Schedule  

  	
  [to be
  finalized by August 20, 2004]

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Exhibits

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Exhibit A

  	
  -

  	
  Certain
  definitions

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Exhibit B

  	
  -

  	
  Form Non
  Recourse Loan Agreement [to be finalized by two (2) days before Closing]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Exhibit C

  	
  -

  	
  Employees of
  Company to be included in EVS Plan and the Basic Conditions of the EVS Plan
  [to be finalized by two (2) days before Closing]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Exhibit D

  	
  -

  	
  Plan for
  Operation of Target Companies [Hebrew]

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Exhibit E

  	
  -

  	
  Escrow
  Agreement [to be finalized by two (2) days before Closing]

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Exhibit F

  	
  -

  	
  Company
  Israeli Legal Opinion [to be finalized by two (2) days before Closing]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Exhibit G

  	
  -

  	
  Parent Legal
  Opinion [to be finalized by two (2) days before Closing]20-F

Exhibit 4.24  

AMENDMENT TO SHARE
PURCHASE AGREEMENT 

THIS AMENDMENT TO SHARE PURCHASE
AGREEMENT (the “Amendment”), is entered into and made effective as of September
1, 2004 by and between Elbit Vision Systems Ltd., an Israeli company (the
“Parent”); M.S. Master Investments (2002) Ltd., S.R. Master Investments (2002)
Ltd. and R.D. Master Investments (2002) Ltd. (each a “Seller” and together the
“Sellers”); Menashe Shochat, Silviu Rabinovich and Robert Dalfen (each a
“Founder” and together the “Founders”); ScanMaster Systems (IRT) Ltd.,
a company registered in the State of Israel (the “Israeli Target Company”), IRT
ScanMaster Systems, Inc., a New Hampshire corporation (the “US Target Company”)
(Israeli Target Company and US Target Company shall together be referred to herein as the
“Target Companies”) and Avner Shacham (“Avner”). 

W I T N E S S E T H : 

WHEREAS, IRT ScanMaster
Holdings, Inc., a Delaware corporation (the “Company”) and former parent company
to the Target Companies was liquidated by the Sellers effective as of August 27, 2004 and
all of its assets were distributed to the Sellers; 

WHEREAS, the Escrow Agent (as defined
below) has already received three million United States dollars ($3,000,000) from Cornell
Capital Partners, LLC, to be used by Parent as the Cash Payment (as defined below); 

WHEREAS, the Company, Parent,
Sellers, Founders and the Target Companies entered into a share purchase agreement on
August 6, 2004 (the “SPA”); 

WHEREAS, the price per share of the
Company’s Ordinary Shares for the purposes of the SPA has been determined by the
parties to equal $0.7418184 (the “PPS”); and 

WHEREAS, the parties desire to amend
the SPA on the terms and conditions hereinafter set forth. 

NOW, THEREFORE, the parties hereby
agree as follows: 

     1.    
          This amendment constitutes an integral part of the SPA and sets forth the
          amendments agreed upon by the parties thereto. Any capitalized term not defined
          herein shall have the same meaning ascribed to it in the SPA. 

     2.    
          Sections 1.4, 6.7, 6A, 7.9, 7.11 and 8.1(e) of the SPA are hereby deleted
          in their entirety. 

     3.    
          For the purposes of the SPA, the term “Escrow Shares” shall mean one
          million seven hundred eighteen thousand seven hundred forty nine (1,718,749)
          Ordinary Shares. The Escrow Shares shall be held by the Escrow Agent until the
          expiration of the Extended Escrow Period (as defined below) pursuant to the
          terms and conditions of Section 9 below and the Escrow Agreement. 

     4.    
          Section 1.1 of the SPA is hereby amended and restated in its entirety as
          follows: 

“1.1 Purchase and
Sale. Subject to the terms and conditions of this Agreement, the Sellers, Avner and
the Former Option Holders shall transfer, assign, convey and deliver to Parent, and Parent
shall purchase from the Sellers, Avner and the Former Option Holders, the Target Shares,
free and clear of all Liens. The closing of the purchase and sale (the
“Closing”) shall take place on such date, time and place as the parties may
mutually agree (the “Closing Date”). At the Closing, the Founders shall cause
the Sellers, Avner and the Former Option Holders to deliver to Yigal Arnon & Co.
– Trust Company Ltd. (the “Escrow Agent”), subject to the terms and
conditions of the Escrow Agreement (as defined below), one or more instruments
transferring the Target Shares to Parent, and Parent shall deliver to the Escrow Agent,
subject to the terms and conditions of the Escrow Agreement (as defined below) the
Ordinary Shares (as defined below) and the Cash Payment (as defined below).” 

     5.    
          Section 1.3 of the SPA is hereby amended and restated in its entirety as
          follows: 

“1.3 Purchase Price.
The aggregate consideration paid to the Sellers, Avner and the Former Option Holders
for the Target Shares (the “Purchase Consideration”), shall be cash in an
aggregate amount equal to three million United States dollars ($3,000,000) (the “Cash
Payment”) and seven million four hundred fourteen thousand two hundred thirteen
(7,414,213) Ordinary Shares of Parent, nominal value NIS 1.00 per share (the
“Ordinary Shares”), as follows: (a) on the Closing Date, Parent shall instruct
the Escrow Agent to withhold cash as required by any Legal Requirement or pursuant to the
terms of a ruling of the Israeli Tax Authorities from the aggregate amount of two million
seven hundred thousand US dollars ($2,700,000) of the Cash Payment (the “Initial
Cash”) and release the remainder of the Initial Cash to the Sellers and Avner and to
the Israeli Target Company for transfer to the Former Option Holders (net of any
withholding required by any Legal Requirement), all in the proportions set forth in
Schedule A; (b) on the Closing Date, Parent shall provide the Escrow Agent with an
irrevocable letter of instruction, attached as Annex A (the “Instruction
Letter”), to the Parent’s stock transfer agent for the issuance and delivery
of the Ordinary Shares to the Escrow Agent to be held in accordance with the Escrow
Agreement, representing three million seven hundred seven thousand one hundred seven
(3,707,107) Ordinary Shares (the “Initial Shares”); (c) on the Closing Date,
Parent shall authorize and instruct the Escrow Agent to hold an aggregate amount of cash
equal to three hundred thousand United States dollars ($300,000) plus any interest accrued
on such amount since the Closing Date (the “Trust Cash”), subject to the terms
and conditions of Section 9 below and the Escrow Agreement; and (d) on the Closing Date,
Parent shall provide the Escrow Agent with an Instruction Letter for the issuance and
delivery of three million seven hundred seven thousand one hundred six (3,707,106)
Ordinary Shares (the “Trust Shares”) to the Escrow Agent, to be held subject to
the terms and conditions of the Escrow Agreement and Section 9 below. Any banking fees
arising from the transfer of Cash Payment pursuant to this SPA shall be borne equally by
the Founders and Parent.” 

     6.    
          For the purposes of the SPA, Avner shall be considered a Founder with the
          exception of Sections 1.5, 5.4, 6.4(b), 6.4(e) and 7.4(f). 

     7.    
          The following new Section 5.14 shall be added to the SPA: 

“5.14 Tax
Pre-Rulings. Following the Closing, the Founders, the Sellers and the Parent shall
together use their best efforts to receive one or more pre-rulings from the Israeli Tax
Authorities (the “Ruling”) which allow for (a) the deferral by the Founders,
Sellers and Former Option Holders of taxes to be paid in connection with the transactions
contemplated by this Agreement, including the sale of Target Shares and exercise of
employee stock options and receipt of Parent Ordinary Shares, and (b) dissolution of the
Company and distribution of its assets and liabilities, if any, to the Sellers.” 

     8.    
          The phrase “Subject to Section 6A,” is hereby deleted in its entirety
          from the first sentence of Section 6. 

     9.    
          Section 6.4(a) of the SPA is hereby amended and restated in its entirety
          as follows: 

2

     “(a)    
          fully executed escrow agreement to be entered into with the Escrow Agent setting
          forth the terms of the Purchase Consideration (the “Escrow Agreement”)
          in the form attached hereto as Exhibit E.” 

     10.    
          Section 7.4(a) of the SPA is hereby amended and restated in its entirety
          as follows: 

“(a)    Instruction
Letter for the issuance and delivery of the Ordinary Shares to the
                    Escrow Agent to be held in accordance with the Escrow Agreement;" 

     11.    
          Section 7.10 of the SPA is hereby amended and restated in its entirety as
          follows: 

“7.10
Adoption of Plan. The Parent shall have adopted the Section 102 option plan of the
Israeli Target Company with respect to the Former Option Holders.” 

     12.    
          The following subsections (v), (vi) and (vii) shall be added to Section 9.2(a)
          of the SPA: 

     “(v)
          any claim related to commission(s) owed to Dr. Anbar, if any, pursuant to that
          certain Principles of Agreement between the Israeli Target Company and Dr. A. I.
          Anbar dated October 31, 2002 or any other agreement with Dr. Anbar; (vi) any
          claim related to commission(s) owed to O.D.B. Marketing (1993) Ltd.
          (“ODB”), if any, pursuant to that certain Principles of Cooperation
          Agreement between the Israeli Target Company and ODB dated September 19, 2003 or
          any other agreement with ODB; or (vii) any claim related to an Excluded Claim
          (as defined below).” 

     13.    
          The last sentence of Section 9.2(a) is hereby amended and restated in its
          entirety as follows: 

“Payment from the Escrow Fund,
to the extent required pursuant to this Section 9.2, shall be made solely by the transfer
of Escrow Shares and where the number of Escrow Shares to be transferred is calculated
based on the PPS.” 

     14.    
          Section 9.6 of the SPA is hereby amended and restated in its entirety as
          follows: 

“9.6 Exclusive
Remedy. Notwithstanding anything to the contrary in this Agreement including Section
9.2(a), with the sole exceptions of: (i) claims based upon intentional misrepresentation
or fraud; and (ii) claims related to Part 2.14(c) of the Company Disclosure Schedule (the
“Excluded Claim”), recourse of the Parent Indemnitees to the Escrow Fund
pursuant to this Section 9 shall be the sole and exclusive remedy of the Parent
Indemnitees for any Damages that are directly or indirectly suffered or incurred by any of
the Parent Indemnitees or to which any of the Parent Indemnitees may otherwise become
subject. In the event of an Excluded Claim, the Sellers and Avner, severally and not
jointly (and in the event that any Seller is liquidated and/or its assets are distributed
following the Closing such Seller shall be replaced by the applicable Founder for the
purposes of this Section 9.6), in accordance with their respective proportions set forth
in Schedule A, shall be obligated to indemnify the Parent Indemnitees for any Damage
resulting from such claim (i) if such claim does not exceed five hundred thousand United
States dollars ($500,000), for the amount in excess of one hundred fifty thousand United
States dollars ($150,000) and (ii) if such claim is greater than five hundred thousand
United States dollars ($500,000), for the amount in excess of two hundred twenty five
thousand United States dollars ($225,000), but in each case only to the extent that the
Escrow Shares do not cover all the Damages incurred in connection with the Excluded Claim.
Notwithstanding Section 9.1(a), the right to make a claim related to the Excluded Claim
shall survive the second anniversary of this Agreement, but shall expire if the Israeli
Tax Authorities have not made a written demand to the Israeli Target Company relating to
the Excluded Claim (a “Demand”) by March 15, 2007 (the “Extended Escrow
Period”). Upon the conclusion of the Extended Escrow Period, in the event the Israeli
Target Company has not received a Demand and in the event that there is not an EVS Escrow
Notice (as defined in the Escrow Agreement) outstanding, the Escrow Agent shall release
the remaining Escrow Shares to the Sellers and Avner in the proportions set forth in
Schedule A. 

3

     15.    
          The following shall be added following Section 9.6 of the SPA: 

“9.7 Remedy for
Failure to Meet Sales Expectations. 

        Notwithstanding
anything to the contrary in this Agreement (including but not limited to Section 9.2(a)
and 9.5 above): 

             (a)       
          In the event that on or before June 1, 2005, the shipments and installations of
          the Target Companies for the seven-month period commencing as of September 1,
          2004 and ending on March 31, 2005 (the “7 Month Sales Period”), as
          confirmed in writing by the Chief Executive Officer of the Israeli Target
          Company (the “7 Month Sales Report”) based on the gross sales price of
          the Target Companies’ aggregate shipments and installations for products
          and services for such period and where an engineer of the Israeli Target Company
          (an “Engineer”) shall confirm in writing each such installation (the
          “7 Month Sale Proceeds”), are equal to or greater than six million one
          hundred forty eight thousand US dollars ($6,148,000) (the “7 Month Sales
          Target”), the Escrow Agent, upon receipt of the 7 Month Sales Report
          evidencing the above, shall release one million nine hundred eighty eight
          thousand three hundred fifty seven (1,988,357) of the Trust Shares (the
          “Remedy Shares”) to the Sellers and Avner, in the proportions set
          forth in Schedule A. In the event the 7 Month Sales Proceeds, based
          on the 7 Month Sales Report are less than the 7 Month Sales Target, the number
          of Remedy Shares to be released by the Escrow Agent to the Sellers (in the
          proportions set forth in Schedule A) shall be adjusted downwards one and
          one quarter percent (1.25%) for every one percent (1%) that the 7 Month Sales
          Proceeds is less than the 7 Month Sales Target, all as further illustrated in
          Annex B attached hereto. Notwithstanding anything herein to the contrary,
          the calculation of the 7 Month Sales Proceeds shall not include any shipments or
          installations made in connection with any contract or purchase order with the
          Government of India, Ministry of Railways Research Designs and Standards
          Organization (“RDSO”) or DB Rail, provided however, that shipments or
          installations made in connection with any contract or purchase order with RDSO
          during the 7 Month Sales Period shall be counted towards the calculation of the
          7 Month Sales Proceeds to the extent that such shipments or installations
          replace other shipments or installations which were to have been completed
          during the 7 Month Sales Period and which the relevant customer notified one of
          the Target Companies, in writing, that such shipments or installations are to be
          deferred to a later date. 

             (b)       
          Notwithstanding the above, in the event that the 7 Month Sales Proceeds are less
          than the 7 Month Sales Target as a direct result of Force Majeure (as defined
          below), all of such Remedy Shares lost to the Sellers pursuant to Section 9.7(a)
          above which can be attributed as a direct result of such Force Majeure shall be
          released by the Escrow Agent to the Sellers and Avner (in the proportions set
          forth in Schedule A). For the purposes of this Agreement, “Force
          Majeure” shall mean: (i) extraordinary and disastrous circumstances beyond
          the reasonable control of the Israeli Target Company that could not have been
          foreseen or prevented, which has a Material Adverse Effect on the Target
          Companies, or the industry of ultrasound inspection, including without
          limitation, war, strikes or labor disputes other than of the Israeli Target
          Company, embargos, boycotts, or shipping interruptions; or (ii) a
          customer’s not being prepared to receive such shipment or installation. 

4

             (c)       
          In the event that on or before March 1, 2005, the shipments and installations of
          the Target Companies for the four month period commencing as of September 1,
          2004 and ending on December 31, 2004 (the “4 Month Sales Period”), as
          confirmed in writing by the Chief Executive Officer of the Israeli Target
          Company (the “4 Month Sales Report”), based on the gross sales price
          of the Target Companies’ aggregate shipments and installations for products
          and services for such period and where an Engineer shall confirm in writing each
          such installation (the “4 Month Sales Proceeds”), is equal to or
          greater than three million six hundred eighty six thousand four hundred US
          dollars ($3,686,400) (the “4 Month Sales Target”), the Escrow Agent,
          upon receipt of the 4 Month Sales Report evidencing the above, shall release the
          Trust Cash to the Sellers and Avner, in the proportions set forth in
          Schedule A. In the event the 4 Month Sales Proceeds, based on the 4
          Month Sales Report is less than the 4 Month Sales Target, the amount of Trust
          Cash to be released by the Escrow Agent to the Sellers and Avner (in the
          proportions set forth in Schedule A) shall be adjusted downwards in the
          same ratio as the 4 Month Sales Proceeds is to the 4 Month Sales Target, all as
          further illustrated in Annex B attached hereto. Notwithstanding anything
          herein to the contrary, the calculation of the 4 Month Sales Proceeds shall not
          include any shipments or installations made in connection with any contract or
          purchase order with RDSO or DB Rail, provided however, that shipments or
          installations made in connection with any contract or purchase order with RDSO
          during the 4 Month Sales Period shall be counted towards the calculation of the
          4 Month Sales Proceeds to the extent that such shipments or installations
          replace other shipments or installations which were to have been completed
          during the 4 Month Sales Period and which the relevant customer notified one of
          the Target Companies, in writing, that such shipments or installations are to be
          deferred to a later date. 

             (d)       
          Notwithstanding the above, in the event that the 4 Month Sales Proceeds are less
          than the 4 Month Sales Target as a direct result of Force Majeure, all of the
          Trust Cash lost to the Sellers and Avner pursuant to Section 9.7(c) above which
          can be attributed as a direct result of such Force Majeure shall be released by
          the Escrow Agent to the Sellers and Avner (in the proportions set forth in
          Schedule A). 

             (e)       
          In the event, following the release by the Escrow Agent of Remedy Shares and/or
          Trust Cash pursuant to Section 9.7(a) and (c), as applicable, an amount of
          Remedy Shares and/or Trust Cash remains with the Escrow Agent (the
          “Remaining Proceeds”), such Remaining Proceeds, will be immediately
          released by the Escrow Agent to the Parent. At such time the Sellers shall
          immediately lose all right, title and interest to the Remaining Proceeds and the
          Purchase Consideration set forth in this Agreement shall automatically be
          decreased proportionately, all as further set forth and described in the Escrow
          Agreement.” 

     16.    
          Notwithstanding the provisions of Exhibit D to the SPA and for the sake of
          clarity: (i) for as long as at least two of the Founders remain employed with
          the Israeli Target Company, the Founders shall be entitled to designate two
          representatives to the board of directors of the Israeli Target Company, (ii) in
          the event that only one Founder remains employed with the Israeli Target
          Company, the Founders shall be entitled to designate one representative to the
          board of directors of the Israeli Target Company and (iii) in the event that
          none of the Founders are employed with the Israeli Target Company, the Founders
          shall have no right to designate any representative to the board of directors of
          the Israeli Target Company. 

     17.    
          With respect to Sections 6.3 and 7.3 the consents of Bank Hapoalim B.M and the
          Investment Center shall not be required to be received as of the Closing.
          Following the Closing, the Founders, the Sellers and the Parent shall together
          use their best efforts to receive such consents and approvals. 

5

     18.    
          In the event of any inconsistency or conflict between the provisions of the SPA,
          the provisions of this Amendment and related annexes or any other document
          between the parties, this Amendment and its related annexes shall prevail and
          govern. Except as specifically amended herein, all terms, definitions and
          conditions of the SPA and related exhibits and schedules remain in full force
          and effect. 

     19.    
          This Amendment shall be construed in accordance with, and governed in all
          respects by, the internal laws of the State of Israel (without giving effect to
          principles of conflicts of laws). Each party to this Amendment consents to the
          exclusive jurisdiction and venue of the courts of District of Tel Aviv-Jaffa in
          the State of Israel. 

20.            The address for notices to
Avner Shacham is: 

	 	
48
Hagefen Street      
                     Mazkeret Batya 76804 

[Remainder of page intentionally left blank.] 

6

IN WITNESS WHEREOF, the parties
hereto have entered into and signed this Amendment to be effective as of the date first
written above. 

	 	ELBIT VISION SYSTEMS LTD.

By: ______________________

Name: ____________________

Title: _____________________

SCANMASTER SYSTEMS (IRT) LTD.

By: ______________________

Name: ____________________

Title: _____________________

IRT SCANMASTER SYSTEMS, INC.

By: ______________________

Name: ____________________

Title: _____________________

[SIGNATURE
PAGE TO AMENDMENT TO SHARE PURCHASE AGREEMENT]

7

	 	MENASHE SHOCHAT

______________________

SILVIU RABINOVICH

______________________

ROBERT DALFEN

______________________

M.S. MASTER INVESTMENTS (2002) LTD.

By: ______________________

Name: ____________________

Title: _____________________

S.R. MASTER INVESTMENTS (2002) LTD.

By: ______________________

Name: ____________________

Title: _____________________

R.D. MASTER INVESTMENTS (2002) LTD.

By: ______________________

Name: ____________________

Title: _____________________

AVNER SHACHAM

______________________ 

[CONTINUATION OF SIGNATURE PAGE TO AMENDMENT TO SHARE PURCHASE AGREEMENT] 

8

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