-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EbKkhulBI8VxaDbhelI7YEwgpkB5bRkLStFV/Tay9sEuOOERS0rNX/XSvIChCTRg en9jYz9ce+HHgLj9VXiaMA== 0000950120-04-000063.txt : 20040123 0000950120-04-000063.hdr.sgml : 20040123 20040123120320 ACCESSION NUMBER: 0000950120-04-000063 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20040114 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DISTINCTIVE DEVICES INC CENTRAL INDEX KEY: 0000059963 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 131999951 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02749 FILM NUMBER: 04539692 BUSINESS ADDRESS: STREET 1: ONE BRIDGE PLAZA SUITE 100 CITY: FORT LEE STATE: NJ ZIP: 07024 BUSINESS PHONE: 5612744233 MAIL ADDRESS: STREET 1: ONE BRIDGE PLAZA SUSITE 100 CITY: FORT LEE STATE: NJ ZIP: 07024 FORMER COMPANY: FORMER CONFORMED NAME: LMC DATA INC DATE OF NAME CHANGE: 19761021 8-K 1 d574839.txt CURRENT REPORT - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) - January 14, 2004 ---------------- Distinctive Devices Inc. ------------------------ (Exact name of the registrant as specified in its charter) Delaware 0-2749 13-1999951 - ---------------------------- ----------------------- -------------------- (State or other jurisdiction (Commission file number) (I.R.S Employer of incorporation) Identification No.) One Bridge Plaza, Suite 100, Fort Lee, New Jersey 07024 ------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code - (201) 363-9922 -------------- - -------------------------------------------------------------------------------- Item 2. Acquisition or Disposition of Assets ------------------------------------ On January 14, 2004, Distinctive Devices Inc., a Delaware corporation (the "Company") completed its acquisition of all of the outstanding capital stock of galaxis technology AG, a German stock corporation ("galaxis"), from Media Hill Communication Beratungs- und Vertriebs GmbH, a German corporation ("Media Hill"), the sole shareholder of galaxis, in exchange for 6,400,000 shares of the Company's Common Stock, US$0.001 par value, pursuant to a Share Purchase Agreement. In addition, the Company made a US$2,000,000 capital contribution to galaxis, including converting a prior loan to galaxis in the principal amount of US $1 million into equity, and is to make an additional capital contribution of US$1,000,000 no later than thirty (30) days after closing. Galaxis, located in Lubeck, Germany, is primarily engaged in the business of developing digital television software and set-top box technology for marketing in the European Union. Galaxis is the initiator and proprietor of the LinuxTV(TM) operating system empowering MHP (multi-media home platform), the new international DVB (digital video broadcast) standard for interactive digital television, which it licenses to other manufacturers in the EU and elsewhere. The Company's Indian subsidiary and galaxis are finalizing the production of digital set-top boxes for the Indian market. Galaxis and its 100% subsidiary, OmniScience Multimedia Lab GmbH, a German corporation, have existing credit agreements with Lloyds TSB Bank plc (the "Bank"). As security for the obligations to the Bank, the Company issued an additional 3,000,000 shares (the "Pledged Shares") of Common Stock to galaxis which galaxis has pledged to the Bank and, in addition, the Company pledged 60% of the outstanding galaxis capital stock to the Bank, pursuant to Pledge Agreements. After the Bank obligations are fully satisfied, it will release the pledges and galaxis will return the Pledged Shares to the Company. Upon closing, Mr. Winfried Klimek, Chief Executive Officer of galaxis, was added to the Board of Directors of the Company. Media Hill has obtained the right to designate three additional directors, and the Company's Board will be increased to eight members upon their designation. Upon closing, Mr. Klimek entered into an employment agreement with the Company whereby he will serve as Chief Executive Officer of galaxis for a period of three years at an annual compensation of (euro)180,000 . In addition, the Company granted options to Mr. Klimek to purchase 1,250,000 shares of the Company's Common Stock at an exercise price of US$0.70 per share, 25% of the shares vesting six (6) months after grant, and 25% of the shares to vest on each of the first here anniversary dates of the closing, exercisable for five years from the closing, with these options securing Media Hill's indemnification obligations under the Share Purchase Agreement. As of January 14, 2004, the Company sold to one investor 1,000,000 shares of Common Stock, together with warrants to purchase 2,000,000 shares of Common Stock exercisable at $1.00 per share for ten years, for $1,000,000. The Company has the right for a period of 12 months to repurchase the 1,000,000 shares of Common Stock at a price of $1.50 per share. The $1,000,000 was used as 2 part of the Company's capital contribution to galaxis on the closing of the Share Purchase Agreement. In addition, on January 13, 2004, the Company granted stock options to Sanjay Mody, President and CEO, and to Earl Anderson, Secretary of the Company, for 1,000,000 shares and 250,000 shares, respectively, of Common Stock, exercisable at $.70 per share for five years, for their past services, including their services in connection with the galaxis acquisition. For more information regarding the acquisition transaction, reference is made to the Exhibits filed with this report. Item 7. Financial Statements and Exhibits --------------------------------- (a) Financial Statements of the Business Acquired (1) Any audited financial statements required by this Item will be filed with an amendment to this Form 8-K within the specified time period. (2) Any unaudited financial statements required by this Item will be filed with an amendment to this Form 8-K within the specified time period. (a) Pro forma financial information Any pro forma financial statements required by this Item will be filed with an amendment to this Form 8-K within the specified time period. (c) Exhibits 2.1 Share Purchase Agreement, dated as of January 14, 2004, between Distinctive Devices Inc. and Media Hill Communication Beratungs- und Vertriebs GmbH. 10.1 Registration Rights Agreement, dated as of January 14, 2004, between Distinctive Devices Inc. and Media Hill Communication Beratungs- und Vertriebs GmbH. 10.2 Confidentiality and Non-Competition Agreement, dated as of January 14, 2004, among Distinctive Devices Inc., Media Hill Communication Beratungs- und Vertriebs GmbH, Winfried Klimek and Hans-Jurgen Klimek. 10.3 Pledge Agreement, dated as of January 14, 2004, between galaxis technology AG and Lloyds TSB Bank plc. 10.4 Escrow Agreement, dated as of January 14, 2004, between Distinctive Devices, Inc., Lloyds TSB Bank plc and Martin Gollasch, as notary. 10.5 Klimek Employment Agreement, dated as of January 14, 2004, between Distinctive Devices Inc. and Winfried Klimek. 10.6 Klimek Option Agreement, dated as of January 14, 2004, between Distinctive Devices Inc. and Winfried Klimek. 3 99.1 Press release dated as of January 19, 2004. 4 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DISTINCTIVE DEVICES, INC. By: /s/ Sanjay Mody --------------------------------------- Name: Sanjay Mody Title: President and CEO Dated: January 19, 2004 5 EX-2 3 e560753v8.txt EXHIBIT 2.1 SALES PURCHASE AGREEMENT Thelen Reid & Priest EXECUTION COPY January 14, 2004 SHARE PURCHASE AGREEMENT BETWEEN DISTINCTIVE DEVICES INC. AS PURCHASER AND MEDIA HILL COMMUNICATION BERATUNGS- UND VERTRIEBS GMBH AS SELLER DATED AS OF JANUARY 14, 2004 TABLE OF CONTENTS PAGE ARTICLE I SALE AND PURCHASE OF SHARES.........................................1 SECTION 1.1 SHARES TO BE SOLD AND PURCHASED....................1 SECTION 1.2 PURCHASE PRICE.....................................2 SECTION 1.3 ISSUANCE OF ADDITIONAL SHARES......................2 ARTICLE II CLOSING............................................................2 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE Seller.....................3 SECTION 3.1 CORPORATE EXISTENCE AND POWER......................3 SECTION 3.2 STOCK OWNERSHIP....................................3 SECTION 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT...............4 SECTION 3.4 NO CONFLICTS; CONSENTS.............................4 SECTION 3.5 CHARTER DOCUMENTS AND CORPORATE RECORDS............4 SECTION 3.6 LEGAL STRUCTURE OF THE COMPANY.....................5 SECTION 3.7 RELATIONS WITH AFFILIATED COMPANIES AND WITH CLOSELY ASSOCIATED PERSONS....................6 SECTION 3.8 BUSINESS OPERATIONS AND BUSINESS ASSETS............6 SECTION 3.9 FINANCIAL INFORMATION..............................7 SECTION 3.10 ABSENCE OF CERTAIN CHANGES.........................7 SECTION 3.11 INTANGIBLE PROPERTY................................9 SECTION 3.12 PROPERTIES; TITLE..................................9 SECTION 3.13 CUSTOMERS AND SUPPLIERS...........................10 SECTION 3.14 LABOR LAW STATUS OF THE COMPANIES.................10 SECTION 3.15 CONTRACTS.........................................11 SECTION 3.16 CLAIMS AND PROCEEDINGS............................12 SECTION 3.17 PERMITS...........................................12 SECTION 3.18 TAX STATUS OF THE COMPANIES.......................13 SECTION 3.19 INSURANCE.........................................13 SECTION 3.20 COMPLIANCE WITH LAWS..............................14 SECTION 3.21 POTENTIAL CONFLICTS OF INTEREST...................14 SECTION 3.22 INVESTMENT REPRESENTATION.........................15 SECTION 3.23 FINDERS' FEES.....................................15 SECTION 3.24 DISCLOSURE........................................15 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................15 SECTION 4.1 ORGANIZATION, QUALIFICATION.......................15 SECTION 4.2 SUBSIDIARIES......................................16 SECTION 4.3 CAPITALIZATION....................................16 SECTION 4.4 AUTHORITY RELATIVE TO THIS AGREEMENT..............16 SECTION 4.5 NO CONFLICTS; CONSENTS............................17 SECTION 4.6 CHARTER DOCUMENTS AND CORPORATE RECORDS...........17 SECTION 4.7 FINANCIAL INFORMATION.............................17 i SECTION 4.8 ABSENCE OF CERTAIN CHANGES........................17 SECTION 4.9 SEC REPORTS.......................................18 SECTION 4.10 TAXES.............................................18 SECTION 4.11 LITIGATION........................................19 SECTION 4.12 CONSENTS..........................................19 SECTION 4.13 COMPLIANCE........................................19 SECTION 4.14 INTELLECTUAL PROPERTY.............................19 SECTION 4.15 NO UNDISCLOSED LIABILITIES; ETC...................20 SECTION 4.16 COMPLIANCE WITH LAWS..............................20 SECTION 4.17 TITLE TO PROPERTIES; ENCUMBRANCES.................20 SECTION 4.18 FINDERS' FEES.....................................21 SECTION 4.19 DISCLOSURE........................................21 ARTICLE V COVENANTS OF THE PARTIES...........................................21 SECTION 5.1 CONDUCT OF BUSINESS...............................21 SECTION 5.2 CORPORATE EXAMINATIONS AND INVESTIGATIONS.........23 SECTION 5.3 PROPRIETARY INFORMATION; CONFIDENTIAL RECORDS, INTELLECTUAL PROPERTY RIGHTS.................24 SECTION 5.4 NOTICES OF CERTAIN EVENTS.........................25 SECTION 5.5 PUBLIC ANNOUNCEMENTS..............................25 SECTION 5.6 EXPENSES..........................................26 SECTION 5.7 FURTHER ASSURANCES................................26 SECTION 5.8 CONSENTS, FILINGS AND AUTHORIZATIONS; EFFORTS TO CONSUMMATE................................26 SECTION 5.9 DISCLOSURE SUPPLEMENTS............................26 ARTICLE VI COVENANTS OF THE PURCHASER........................................27 SECTION 6.1 BOARD OF DIRECTORS................................27 SECTION 6.2 KLIMEK EMPLOYMENT AGREEMENT.......................27 ARTICLE VII COVENANTS OF THE SELLER..........................................27 SECTION 7.1 NON-COMPETITION...................................27 SECTION 7.2 NON-SOLICITATION..................................27 ARTICLE VIII CONDITIONS TO CLOSING...........................................28 SECTION 8.1 CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES......28 SECTION 8.2 CONDITIONS TO THE OBLIGATIONS OF THE SELLER.......29 SECTION 8.3 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER....30 ARTICLE IX TERMINATION.......................................................32 SECTION 9.1 TERMINATION.......................................32 SECTION 9.2 EFFECT OF TERMINATION; RIGHT TO PROCEED...........33 ARTICLE X INDEMNIFICATION....................................................33 SECTION 10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES........33 SECTION 10.2 OBLIGATION OF THE WARRANTOR TO INDEMNIFY..........34 ---------------------------------------- SECTION 10.3 OBLIGATION OF THE PURCHASER TO INDEMNIFY..........34 ii SECTION 10.4 NOTICE AND OPPORTUNITY TO DEFEND THIRD PARTY CLAIMS.................................35 SECTION 10.5 LIMITATION ON INDEMNIFICATION; PAYMENT OF INDEMNIFICATION AMOUNTS......................35 SECTION 10.6 LIMITATION ON INDEMNIFICATION.....................36 ARTICLE XI MISCELLANEOUS.....................................................36 SECTION 11.1 NOTICES...........................................36 SECTION 11.2 WAIVERS...........................................37 SECTION 11.3 INTERPRETATION....................................38 SECTION 11.4 APPLICABLE LAW....................................38 SECTION 11.5 ASSIGNMENT........................................38 SECTION 11.6 NO THIRD PARTY BENEFICIARIES......................38 SECTION 11.7 ENFORCEMENT OF THE AGREEMENT......................38 SECTION 11.8 SEVERABILITY......................................38 SECTION 11.9 REMEDIES CUMULATIVE...............................39 SECTION 11.10 ENTIRE UNDERSTANDING..............................39 SECTION 11.11 WAIVER OF JURY TRIAL..............................39 SECTION 11.12 CONSENT TO JURISDICTION AND SERVICE OF PROCESS....39 SECTION 11.13 COUNTERPARTS......................................39 ARTICLE XII DEFINITIONS......................................................40 SECTION 12.1 DEFINITIONS.......................................40 iii EXHIBITS EXHIBIT A - Registration Rights Agreement EXHIBIT B - Non-Competition Agreement EXHIBIT C - Opinion of the Purchaser's Counsel EXHIBIT D - Statement of Seller's Counsel regarding Vogt settlement EXHIBIT E - Vogt Settlement Agreement EXHIBIT F - Opinion of the Company's Counsel EXHIBIT G - Pledge Agreement EXHIBIT H - Klimek Employment Agreement iv SCHEDULES(1) 1.3 Lloyds Indebtedness 3.2 Stock liens, options, rights, claims and restrictions 3.7 Contracts with affiliated companies 3.8(A) Fixed Assets 3.10 Changes to Balance Sheet 3.11 Intellectual Property 3.12(A) Real Property Leases 3.12(C) Tangible Personal Property 3.13 Customers and Suppliers 3.14(A) Managing Directors and Employees 3.14(D) Advisors and Freelancers 3.14(F) Pension Commitments 3.15 Contracts 3.16 Claims 3.17 Permits 3.19 Insurance Policies 4.2 Subsidiaries of Purchaser 4.3 Warrants of Purchaser 4.8 Absence of Changes 4.11 Purchaser Litigation 1 To the best Knowledge of the Seller, the Schedules are correct and complete. Further reference is made to the due diligence documentation located at the premises of the Company at Steinmetzstrasse 7, 23556 Lubeck. v This Share Purchase Agreement (the "Agreement"), dated as of January 14, 2004, is entered into between DISTINCTIVE DEVICES, INC., a Delaware corporation (the "Purchaser"), and MEDIA HILL COMMUNICATION BERATUNGS- UND VERTRIEBS GMBH, a German corporation (the "Seller"). R E C I T A L S WHEREAS, the Seller is the sole shareholder of galaxis technology ag, a German stock corporation (the "Company"), registered with the commercial register (the "Commercial Register") of the Local Court in Lubeck with the registration number HRB 4762, owning 50,000 shares of common stock with a par value of Euro 1.00, of which one global share ("Globalurkunde") (the "Company Share") of the Company, in an amount of Euro 50,000, is issued and outstanding. WHEREAS, the Company owns 100% of the outstanding equity interests in Omniscience Multimedia Lab GmbH, a limited liability company organized under the laws of Germany, and Convergence GmbH, a limited liability company organized under the laws of Germany (collectively, the "Subsidiaries"). WHEREAS, the Company is primarily engaged in the business of developing and marketing digital television software and set-top box technology (the "Business"). WHEREAS, subject to the terms and conditions herein, the Seller desires to sell and transfer the Company Share to the Purchaser, and the Purchaser desires to purchase and acquire the Company Share from the Seller, for the consideration herein. WHEREAS, in furtherance of the consummation of the acquisition (the "Acquisition"), the parties hereto desire to enter into this Agreement (certain capitalized terms used herein have the respective meanings set forth in Article XII hereof). NOW, THEREFORE, in consideration of the premises and the representations, warranties and agreements contained in this Agreement, the parties to this Agreement agree as follows: ARTICLE I SALE AND PURCHASE OF SHARES SECTION 1.1 SHARES TO BE SOLD AND PURCHASED. Subject to the provisions of this Agreement and in reliance upon the representations, warranties, covenants and agreements contained herein, at the Closing (as defined in Article II hereof), the Seller agrees to sell and deliver the Company Share to the Purchaser, and the Purchaser agrees to purchase the Company Share from the Seller, for the consideration set forth herein. SECTION 1.2 PURCHASE PRICE. (a) Share Issuance. In consideration of the sale, transfer and delivery of the Company Share, the Purchaser agrees to issue and allot to the Seller 6,400,000 shares (the "Acquisition Shares") of Common Stock, $.001 par value, of the Purchaser. (b) Company Note. Furthermore, the Purchaser shall contribute $1,000,000 to the capital of the Company through a forgiveness of the Promissory Note (the "Company Note") issued by the Company to the Purchaser in the principal amount of US$1,000,000, according to the terms and conditions of the letter of intent signed on October 7, 2003. (c) Capital Contribution. On Closing Date, the Purchaser shall contribute US$1,000,000 to the capital of the Company. No later than thirty (30) days after the Closing Date, the Purchaser shall make an additional capital contribution of US$1,000,000. SECTION 1.3 Issuance of Additional Shares. (a) Pledged Shares. The Purchaser shall issue 3,000,000 shares of its Common Stock (the "Pledged Shares") for the benefit of the Company, that the Company shall pledge to Lloyds TSB Bank plc ("Lloyds Bank") under a Pledge Agreement in the form attached hereto as Exhibit G. Pursuant to the Pledge Agreement between the Company and Lloyds Bank dated as of January 14, 2004, when the Companies' outstanding indebtedness to Lloyds Bank has been fully paid and discharged according to Section 1.3(b) of this Agreement, Lloyds Bank is to immediately release the Pledged Shares of any lien or security interest created pursuant to the Pledge Agreement and release it of all claims Lloyds Bank may have there under. The Company will immediately after the release transfer the Pledged Shares back to the Purchaser. (b) Registered Shares. The Purchaser agrees to file a registration statement with the U.S. Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"), for the sale of 3,000,000 shares or such other number of shares as the Purchaser determines would fulfill its obligation under this Section 1.3(b) (the "Registered Shares") of the Purchaser's Common Stock. The Purchaser shall file such registration statement on or before December 31, 2004 (subject to the right to extend the filing for up to six (6) months, with the prior written consent of Lloyds Bank, should the Purchaser determine, in its good faith judgment, that the then prevailing market conditions are not conducive to the offering), and use its best efforts to cause the registration statement to be declared effective. The Company shall apply the net proceeds from the sale of the Registered Shares to fully satisfy the Companies' outstanding indebtedness as set forth in Schedule 1.3 to Lloyds Bank. In the event that the net proceeds from the sale of the Registered Shares exceeds the Companies' outstanding indebtedness, the excess shall be paid to the Seller. ARTICLE II CLOSING Subject to the terms and conditions of this Agreement, the sale and purchase of the Company Share contemplated hereby, the signing of the Agreement 2 and the closing of the Acquisition (the "Closing") shall take place simultaneously at the offices of Thelen Reid & Priest LLP, 875 Third Avenue, New York, New York, USA, and the offices of Martin Gollasch, Notary (Rechtsanwalt und Notar), Hansestrasse 14, 23558 Lubeck, Germany, at 10:00 a.m. New York local time, within three (3) Business Days after all conditions precedent to Closing hereunder shall have been satisfied, or at such other time or place as the parties hereto shall agree. The date of the Closing is hereinafter called the "Closing Date." The Purchaser and the Seller hereby agree to deliver at the Closing such documents, certificates of officers and such other instruments as are specified in Article VIII hereof and as reasonably may be required to effect the sale by the Seller of the Company Share pursuant to and as contemplated by this Agreement and to consummate the Acquisition. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER As an inducement to the Purchaser to enter into this Agreement and to consummate the Acquisition, the Seller represents and warrants to the Purchaser, as of the Closing Date, that: SECTION 3.1 CORPORATE EXISTENCE AND POWER. The Company and its Subsidiaries (together, the "Companies") and the Seller each is duly organized and validly existing under the laws of the Federal Republic of Germany, and has all requisite powers and all material Companies' Permits (as defined herein) required to own, lease and operate its respective properties and to conduct its respective business as conducted. Each of the Companies is duly qualified to do business in Germany and in such other jurisdictions in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, require such qualification. SECTION 3.2 STOCK OWNERSHIP. (a) The Seller is the direct registered and beneficial owner of all of the outstanding shares of capital stock of the Company, comprised of the Company Share. Except as set forth in Schedule 3.2, the Seller's ownership of the Company Share is free and clear of all Liens, options, rights, claims and restrictions of any kind or nature. (b) As of the date hereof, the Company is the legal and beneficial owner of Omniscience Multimedia Lab GmbH, a limited liability company organized under the laws of the Federal Republic of Germany, and of Convergence GmbH, a limited liability company organized under the laws of the Federal Republic of Germany. Except as set forth on Schedule 3.2, the Company's ownership of the Subsidiaries is free and clear of all Liens, options, rights, claims and restrictions of any kind or nature. Neither the Company (except for its interest in the Subsidiaries) nor does either Subsidiary own or beneficially own any capital stock or equity interest or investment in any corporation, partnership, limited liability company, association or other business entity. 3 (c) Except as set forth on Schedule 3.2, there are no outstanding options, warrants, purchase rights, subscription rights, obligations, conversion rights, exchange rights or other contracts or commitments that could require or allow any of the Companies to sell, exchange, issue or purchase any shares of its respective capital stock, or require or allow either Subsidiary to sell, transfer or otherwise dispose any shares of its capital stock or require or allow the Seller to sell, transfer or otherwise dispose of the Company Share other than pursuant to this Agreement. SECTION 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. The Seller has full power, capacity and authority to execute and deliver this Agreement and each other Transaction Document (as defined herein) to which it is a party and to consummate the Acquisition. The execution, delivery and performance by the Seller of this Agreement and the other Transaction Documents to which it is a party and the consummation by the Seller of the Acquisition have been duly and validly authorized by the supervisory board and the shareholders of the Seller, and no other proceedings on the part of the Seller or any of the Companies (or any other Person excluding the Purchaser) are necessary to authorize the execution and delivery by the Seller of this Agreement or any other Transaction Documents to which it is a party or the consummation of the Acquisition. This Agreement and the other Transaction Documents to which the Seller is a party have been duly and validly executed and delivered by the Seller and (assuming the valid execution and delivery thereof by the other parties thereto) constitute the legal, valid and binding agreements of the Seller, enforceable against it in accordance with their respective terms, except as such obligations and their enforceability may be limited by applicable bankruptcy and other similar Laws (as defined herein) affecting the enforcement of creditors' rights generally and except that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefore may be brought (whether at law or in equity). SECTION 3.4 NO CONFLICTS; CONSENTS. Neither the execution, delivery or performance by the Seller of this Agreement and each other Transaction Document to which it is a party, nor the consummation of the Acquisition (i) violates any provisions of the charter documents of the Seller or any of the Companies; (ii) requires the Seller or any of the Companies to obtain any consent, approval, Companies' Permit (as defined herein) or action of or waiver from, or make any filing with, or give any notice to, any Governmental Body (as defined herein) or any other Person; (iii) violates, conflicts with or results in a breach or default under (after the giving of notice or the passage of time or both), or permits the termination of, any Contract (as defined herein) of the Seller or any of the Companies to which the Seller or any of the Companies is a party or by which their respective assets may be bound or subject, or results in the creation of any Lien upon any of the Company Share other than to Lloyds Bank; (iv) violates any Law or Order (as defined herein) of any Governmental Body against, or binding upon the Seller or any of the Companies; or (v) violates or results in the revocation or suspension of any Permit. SECTION 3.5 CHARTER DOCUMENTS AND CORPORATE RECORDS. The Seller and each of the Companies have heretofore delivered to the Purchaser the most recent certified copies of their respective charter documents and excerpts from the respective Commercial Register (the "Commercial Register Excerpts"). All financial, business and accounting books, minutes of shareholder and board meetings, accounts and other records relating to the Business (as defined herein) as conducted as of the date hereof and the Company Share have been 4 accurately kept and completed in all material respects, and there are no material inaccuracies or discrepancies contained or reflected therein. SECTION 3.6 LEGAL STRUCTURE OF THE COMPANY. (a) The Company is a German stock corporation ("Aktiengesellschaft") duly incorporated pursuant to the laws of the Federal Republic of Germany and validly existing under its articles of association ("Gesellschaftervertrag"). (b) The authorized share capital ("Grundkapital") of the Company amounts to Euro 50,000.00 and consists of 50,000 shares of common stock with a par value of Euro 1.00 each, of which one global share ("Globalurkunde") in the amount of Euro 50,000 is issued and outstanding. (c) No shareholders' resolutions have been passed to modify the articles of association that are registered with the commercial register, nor do ancillary agreements exist in relation to the structure and organization of the Company. (d) The information in the recitals relating to the Company and the Company Share is complete and correct. Since formation of the Company, the Company Share has been held by the Seller, as described in the Recitals of this Agreement. (e) Other than those shares set forth in Subsection (b) above, no other shares exist or are authorized in the Company. Except as listed in Schedule 3.2, the Company Share set forth in Subsection (b) is free of all and any encumbrances and other rights created in favor of any third party. When conveyed to the Purchaser at Closing in accordance with this Agreement, the Purchaser will acquire good and valid title to the Company Share, subject to a pledge to Lloyd's Bank pertaining to sixty (60%) per cent of the Company Share. (f) The Company's minute books that have been provided to the Purchaser are true and correct, and contain all the records of the proceedings of the Company's supervisory directors and sole shareholder. The books and records of the Company are being maintained in material compliance with applicable legal and accounting requirements. (g) Except as set forth in Schedule 3.6(g), neither the Seller nor the Companies ("verbundene Unternehmen") within the meaning of section 15 German Stock Corporation Act ("Aktiengesetz") nor persons closely associated with the Seller or the Companies ("nahestehende Personen") have granted security of any kind to third parties for liabilities of the Seller or the Companies. (h) To the Knowledge of the Seller, insolvency proceedings have neither ever been initiated against any of the Companies and the Seller does not have Knowledge of any circumstances that would justify or require such proceedings being initiated against any of the Companies at the date of this Agreement. To the Knowledge of the Seller, none of the Companies is "insolvent," as such term is defined in ss.ss. 17, 18, 19 InsO and is required to apply for insolvency proceedings according to ss.ss. 13 ff InsO. 5 SECTION 3.7 RELATIONS WITH AFFILIATED COMPANIES AND WITH CLOSELY ASSOCIATED PERSONS. Other than those set forth in Schedule 3.7 hereto, no agreements exist between the Companies on the one hand and the Seller within the meaning of section 15 German Stock Corporation Act ("Aktiengesetz") and/or persons closely associated with the Seller ("nahestehende Personen") on the other. No liabilities or obligations, in particular loan liabilities, to the Seller and/or persons closely related to the Seller exist under such agreements. SECTION 3.8 BUSINESS OPERATIONS AND BUSINESS ASSETS. (a) Schedule 3.8(a) hereto sets forth a correct and complete list all of material fixed assets (the "Fixed Assets") used by the Companies in their respective business operations. The Companies are the legal and beneficial owners of all the scheduled Fixed Assets, free of Liens and of other rights created in favor of any third party other than the Liens set forth on Schedule 3.8(a) or otherwise in favor of Lloyds Bank. The Fixed Assets are in good working and operating condition and repair, except for normal wear and tear, and are sufficient for operation of the Business as conducted. Since the Companies Interim Statements' Date (as defined herein), none of the Fixed Assets has been (i) materially and adversely affected in any way as a result of any casualty, whether or not covered by insurance, or (ii) operated or maintained other than in a manner consistent with the Companies' past practices. (b) The Companies are the legal and beneficial owners of all current assets shown on the Companies' Latest Balance Sheet (as defined herein) other than those current assets purchased or sold in the ordinary course of business since the Companies' Latest Balance Sheet Date (as defined herein). Such assets are free of Liens and of other rights created in favor of any third party, other than statutory Liens and retention of title arrangements made in the ordinary course of business in relation to liabilities reported in the Companies' Latest Balance Sheet and the Liens set forth on Schedule 3.8(a). The inventory of the Companies, in particular stock of products and merchandise, does not include any material items that are below standard quality or of the quality or a quantity not usable or saleable in the ordinary course of business. The inventory levels of the Companies have been maintained in such amounts as are required for their operation of business in the ordinary course. (c) Schedule 3.8(c) hereto sets forth a complete and correct list of the work-in-process and accounts receivable (the "Accounts Receivable") of the Companies as set forth on the Companies' Latest Balance Sheet or which have arisen subsequent to the Companies' Latest Balance Sheet Date. All Accounts Receivable, either shown on such Balance Sheet or which have arisen subsequent to such Balance Sheet Date represent sales made in the ordinary course of business, are current and are not subject to any claims, offsets, rebates, concessions, discounts, allowances or adjustments. (d) All of the accounts payable of the Companies reflect actual transactions and have been incurred by the Companies in the ordinary course of the conduct of their respective Businesses. The Company has entered into a Settlement Agreement with Vogt AG to settle a (euro)21.8 million payment dispute for approximately (euro)9.8 million, of which the Company paid (euro)1.0 million and is to pay the balance in accordance with the Settlement Agreement attached hereto as Exhibit E. 6 SECTION 3.9 FINANCIAL INFORMATION. The Seller has previously furnished to the Purchaser true and complete copies of (i) the Companies' audited consolidated financial statements at and for the years ended December 31, 2000, December 31, 2001 and December 31, 2002 (the "Companies' Annual Statements") which included the financial information for its Subsidiaries, (ii) the Companies' unaudited consolidated financial statements at and for the nine months ended September 30, 2003 (the "Companies' Interim Statements," and together with the Companies' Annual Statements, the "Companies' Financial Statements"), and (iii) all management letters, audit letters and attorney audit response letters issued in connection the Companies' Annual Statements. The Companies' Annual Statements have been prepared in accordance with GAAP and the German Commercial Code (`Handelsgesetzbuch") consistently applied as set forth in the notes thereto and were audited by the Companies' independent accountants. Each of the Companies' Financial Statements presents fairly the financial position of the Companies, as of its date, and their earnings and cash flows for the periods then ended. Each balance sheet contained in the Companies' Financial Statements fully sets forth all assets and liabilities, including all accrued liabilities and deferred revenues, of the Companies existing as of its date which, under GAAP, should be set forth therein, and each statement of earnings contained therein sets forth the items of income and expense of the Companies, as applicable, which should appear therein under GAAP. The Companies' Interim Statements, including the September 30, 2003 balance sheet (the "Companies' Latest Balance Sheet"), have been prepared in a manner consistent with the Companies' past practices (as converted to GAAP) and present fairly the financial position of the Companies as of their dates and results of operations for the respective periods then ended, subject to normal recurring year-end adjustments. SECTION 3.10 ABSENCE OF CERTAIN CHANGES. (a) Since September 30, 2003 (the "Companies' Interim Statements Date") and through the date hereof, except as set forth in or contemplated by this Agreement or disclosed on Schedule 3.10 or any other Schedule hereto, each of the Companies has conducted its respective Business in the ordinary course and consistent with past practices, and there has not been: (i) any Material Adverse Change (as defined herein) with respect to any of the Companies, or the capital stock, financial condition or the results of operations of any of the Companies taken as a whole (collectively, the "Condition of the Business"); (ii) any Material Adverse Change affecting the Condition of the Business with respect to damage, destruction or other casualty loss (whether or not covered by insurance), condemnation or other taking; (iii) any Material Adverse Change with respect to any method of accounting or accounting practice by the Companies, except as required hereunder to conform the Companies' Financial Statements to GAAP; (iv) any Material Adverse Change other than in the ordinary course of business with respect to employees of any of the Companies whose base salary is less than Euro 70,000, any increase in the rate of compensation payable or to become payable to any officer, shareholder, director, consultant, agent, sales 7 representative or full-time employee of any of the Companies, or any material alteration in the benefits payable to any thereof; (v) any Material Adverse Change in the relationships of any of the Companies with its respective Major Customers or Major Suppliers (as defined herein) which has had a Material Adverse Effect (as defined herein); (vi) except for any changes made in the ordinary course of business, any Material Adverse Change in any of the Companies' business policies, including advertising, marketing, pricing, purchasing, personnel, returns or budget policies with Material Adverse Effect; (vii) except in the ordinary course of business, any Material Adverse Change with respect to any payment, directly or indirectly, of any Liability before it became due in accordance with its terms; (viii) except in the ordinary course of business, any Material Adverse Change with respect to any modification, termination, amendment or other alteration or change in the terms or provisions of any Material Contract of the Companies; (ix) any Material Adverse Change with respect to any Liens imposed upon any of the assets, tangible or intangible, of the Companies; (x) any Material Adverse Change with respect to any capital investments in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans or acquisitions); (xi) any Material Adverse Change with respect to any note, bond or other debt security issued, incurred or assumed, or guarantee of any indebtedness for borrowed money; (xii) any Material Adverse Change with respect to any license, sublicense, sale or pledge of any rights granted under or with respect to any Intellectual Property (as defined herein); (xiii) any Material Adverse Change with respect to any newly written employment contract or collective bargaining agreement; or (xiv) any Material Adverse Change with respect to any agreement or commitment to do or perform any of the above. (b) Neither the Company nor its Subsidiaries has any liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise, which in the ordinary course of business individually or in the aggregate could be expected to have a Material Adverse Effect except (i) as set forth on or reflected in the Companies' Latest Balance Sheet or (ii) liabilities and obligations incurred since September 30, 2003 in the ordinary and usual course of its business consistent with past practice, which individually or in the aggregate, would not have a Material Adverse Effect. 8 SECTION 3.11 INTANGIBLE PROPERTY. (a) Schedule 3.11 hereto sets forth a correct and complete list of all trademarks, registered copyrights, service marks or trade names, patents (and all applications for any of the foregoing), shown by jurisdiction, and all other intangible assets, know-how, properties and rights owned or used by the Companies, and there are no other trademarks, copyrights, service marks, trade names or other intangible assets, properties or rights that are material to the Companies (the "Intellectual Property"). Except as disclosed on Schedule 3.11 hereto: (i) to the Knowledge of the Seller, the Companies own all right, title and interest in and to the Intellectual Property listed on Schedule 3.11 as owned by any of them, and there are no agreements, licenses or grants entitling any Person other than the Purchaser to any interest in the Intellectual Property; (ii) to the Knowledge of the Seller, the Intellectual Property does not infringe on or conflict with the rights or intellectual property of third parties, and the Companies have not received any notice contesting the Companies' right to use any such Intellectual Property; (iii) to the Knowledge of the Seller, the Intellectual Property is not the subject of any pending or threatening litigation or Claim of infringement; and (iv) to the Knowledge of the Seller, no license or royalty agreement to which the Companies are a party is in breach or default by any party thereto or the subject of any notice of termination given or threatened. (b) Each of the Companies has at all times taken all reasonable efforts to protect all trade secrets related to its Intellectual Property, including, but not limited to, obtaining confidentiality agreements from its employees and consultants. SECTION 3.12 PROPERTIES; TITLE. (a) Schedule 3.12(a) hereto sets forth a correct and complete list and general description of all real property and buildings and structures leased by the Companies. The Companies do not own any real property. True and correct copies of leases (the "Real Property Leases") relating to the real property used by the Companies (the "Premises") have been delivered to the Purchaser. The Real Property Leases are in full force and effect and neither the Companies as tenants nor the landlords thereof are in default there under. The Premises have no material structural or other material defects Known to the Seller that could materially affect the operation of the Business, and are suitable for the purposes for which they are currently used. No Person, other than the Companies, has any right to occupy the Premises. (b) The Companies have not subleased, and no third party is in possession of, any of the Premises. There are no contracts or agreements, granting to any third party the right of use or occupancy of any portion of the Premises set forth in Schedule 3.12(a) hereto. 9 (c) Schedule 3.12(c) hereto sets forth a correct and complete list and general description of all tangible personal property leased by the Companies. SECTION 3.13 CUSTOMERS AND SUPPLIERS. (a) Schedule 3.13 hereto lists, by Euro volume paid for the nine months ended September 30, 2003, the five (5) largest customers of the Companies (collectively, the "Major Customers") and the five (5) largest suppliers of the Companies (collectively, the "Major Suppliers"). The relationships of each of the Companies with their customers are on an arm's length basis, and (i) all amounts owing from such customers, if not in dispute, have been paid or are expected to be paid in accordance with their respective terms, (ii) none of the Major Customers within the last twelve months has threatened in writing to cancel, or otherwise terminate, the relationship of such Person with the Companies, and (iii) none of the Major Customers during the last twelve months has decreased materially or, to the Knowledge of the Seller, threatened to decrease or limit materially its relationship with the Companies to decrease or limit materially its purchases from the Companies. (b) Except as set forth in Schedule 3.13 the relationships of the Companies with the Major Suppliers are reasonable commercial working relationships and (i) all amounts owing to such suppliers, if not in dispute, have been or are expected to be paid in accordance with their respective terms, (ii) none of the Major Suppliers within the last twelve months has threatened in writing to cancel, or otherwise terminate, the relationship of such Major Supplier with the Companies, and (iii) none of the Major Suppliers during the last twelve months has decreased materially or, to the Knowledge of the Seller, threatened to decrease or limit materially its relationship with them or to decrease or limit materially its supplies to the Companies. SECTION 3.14 LABOR LAW STATUS OF THE COMPANIES. (a) Schedule 3.14(a) hereto contains a complete and correct list of all supervisory and managing directors and employees of the Companies which are paid an annual salary in excess of Euro 70,000, in each case stating (i) the remaining term or the notice period for termination of the service or employment agreement as well as the applicable dismissal protection provisions other than the Dismissal Protection Act ("Kundigungsschutzgesetz") and (ii) the total fixed annual remuneration as well as any variable compensation of whatever type, whether owed or discretionary. To the extent an employee has indicated his intention to terminate the employment agreement, this is also noted in Schedule 3.14(a) hereto. (b) None of the Companies has granted any wage or salary increases or other benefits to employees on the basis of a mere company praxis ("betriebliche Ubung") without contractual obligation to grant such increases or benefits. The employees are not entitled to any claims under the employee invention act ("Mitarbeitererfindungsgesetz"). (c) There are no labor disputes involving employees of the Companies. (d) Schedule 3.14(d) hereto contains a complete and correct list of all agreements of the Companies with consultants, advisors and freelancers, in each case stating the total annual remuneration, payment obligations, term, and notice period for termination. 10 (e) None of the Companies is a party to any agreement or framework agreement with agencies offering the services of temporary employees to the Companies, which are not directly employed by the Companies ("Leiharbeitnehmer"). (f) Except as set forth in Schedule 3.14(f) hereto, none of the Companies has made any pension commitments or taken out direct insurance policies for the benefit of any current or former supervisory or managing director or employee of the Companies. (g) The Companies have fulfilled all obligations for the payment and transmittal of social security contributions ("Sozialversicherungsbeitrage") when due. (h) At none of the business locations of the Companies has a works council ("Betriebsrat") been formed. (i) The Companies are not bound by any collective bargaining agreements ("Tarifvertrage"). SECTION 3.15 CONTRACTS. (a) Schedule 3.15 sets forth a complete and correct list of all written Contracts and an accurate and complete description of all material terms of all oral Contracts resulting in payment obligations of the Companies exceeding Euro 100,000, as of the date hereof. All such Contracts are valid, in full force and effect and binding upon the Companies and the other parties thereto in accordance with their terms. To the Knowledge of the Seller under no such Contract (i) does any condition exist that with notice or the lapse of time or both would constitute a default (or give rise to a termination right) or (ii) none of the other parties to any such Contract has given notice in writing or orally that it intends to terminate or alter the provisions thereof by reason of the Acquisition or otherwise. Since the Companies' Latest Balance Sheet Date, none of the Companies has waived any right under any such Contract, amended or extended any such Contract or failed to renew (or received notice of termination or failure to renew with respect to) any such Contract. Each of the Contracts was negotiated and entered into on an arms-length basis. The Company has heretofore delivered or made available to the Purchaser, correct and complete copies of all of such written Contracts and summaries of the material provisions of all oral Contracts resulting in payment obligations of the Companies exceeding Euro 100,000. The Contracts include: (i) All and any lease agreements regarding moveable property; (ii) All and any contracts for acquiring or disposing of Fixed Assets or intangible assets, property reported as Fixed Assets (other than real property and rights equivalent in nature to title in real property) and investment assets; (iii) All and any service agreements and maintenance agreements; (iv) All and any know-how transfer or other similar technology agreements; 11 (v) All and any loans and borrowing arrangements and credit line arrangements that the Companies have made whether as lender or borrower, other than extension of maturity dates for liabilities granted in accordance with common practice in the ordinary course of business; (vi) All and any guarantees and sureties ("Garantien" and "Burgschaften"), arrangements to join as co-debtor, and any other collateral that has been provided or for the providing of which an obligation exists; (vii) All and any factoring agreements or arrangements; (viii) All and any other contracts or commitments under which the resulting payment obligations are in excess of Euro 100,000 individually or Euro 100,000 annually; and (ix) All and any contracts that may be terminated by the respective other party or the terms and conditions of which may be unilaterally amended on the grounds of any direct or indirect change in the ownership of the Company. (b) The Companies have not entered into any nondisclosure agreement or into any agreement or arrangement restricting competition. (c) (i) The execution and delivery of this Agreement by the Seller or (ii) the sale and transfer to the Purchaser of the Company Share or (iii) the consummation by the Seller of the agreements contemplated by this Agreement will not constitute breach of, or require consent under, any contract or agreement by which any of the Companies is bound. SECTION 3.16 CLAIMS AND PROCEEDINGS. Other than listed in Schedule 3.16 hereto, there are no outstanding Orders (as defined herein) of any Governmental Body, no actions, suits, claims or counterclaims or legal, administrative or arbitral proceedings or investigations (collectively, "Claims") (whether or not the defense thereof or Liabilities in respect thereof are covered by insurance), pending or threatened in writing on the date hereof, against the Companies, the Company Share, the Business or any of their directors or officers, other than Claims that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. As of the date hereof, no fact, event or circumstance Known to the Seller that would give rise to any Claim that, if pending or threatened on the date hereof, could reasonably be expected to have a Material Adverse Effect on the Condition of the Business. There are no Claims pending or threatened in writing that would give rise to any right of indemnification on the part of the Seller or any officer, director or employee of any of the Companies or the heirs, executors or administrators of any such officer, director or employee, against the Companies. SECTION 3.17 PERMITS. The Company and its Subsidiaries hold all permits and required licenses necessary for their operations as currently conducted (the "Companies' Permits"). Schedule 3.17 hereto sets forth a complete and correct list of all Companies' Permits. To the Knowledge of the Seller, neither the revocation nor any restriction of any such Permit is impending. All Companies' Permits are in full force and effect. The Companies are in compliance in all material respects with all of the terms and conditions of the Companies' 12 Permits. To the Knowledge of the Seller, there are no material restrictions in the Companies' Permits or to the Companies' ability to renew the Companies' Permits. The execution or consummation of this Agreement or the agreements connected hereto will not conflict with or violate the terms of, or result in default under, any Companies' Permit or result in the termination or amendment of, or require third party approval or other action pursuant to, any of the Companies' Permits. SECTION 3.18 TAX STATUS OF THE COMPANIES. (a) The Companies have fully performed all duties required under the applicable tax laws of the Federal Republic of Germany (the "Tax Laws") as to keeping and maintaining records and documents. The relevant records are maintained in good order and easy to reference and are being safely kept by the tax advisors and will be delivered to the Companies upon request at any time without any right of retention. (b) The Companies have filed all and any forms, whether definitive or preliminary, for all taxes, charges and other duties, when due, completely and truthfully, including (but not limited to) all tax returns for the 2002 assessment period and all monthly preliminary returns up to the date hereof as required by the Tax Laws. (c) In the period commencing January 1, 2003 and ending at the date hereof, no director or shareholders resolutions have been made by the Companies for any advance distribution of any projected profit or bonus payment for the financial year 2003, and no director or shareholders resolution have been made for any distribution of profits from previous financial years nor has any such distribution taken or will take place. SECTION 3.19 INSURANCE. Schedule 3.19 hereto sets forth a complete and correct list of all insurance policies, fidelity and surety bonds and fiduciary liability policies (the "Insurance Policies") covering the Company Share, the Business, operations, employees, officers and managers of the Companies and complete and correct copies of all such Insurance Policies have been delivered or made available to the Purchaser. Schedule 3.19 hereto also sets forth a true and complete list of Claims made in respect of Insurance Policies during the three (3) years prior to the date hereof. There is no Claim by the Companies pending under any of such Insurance Policies as to which coverage has been questioned, denied or disputed by the underwriters of such Insurance Policies or any request by any insurer to perform work which has not been satisfied. All premiums due under all Insurance Policies have been paid or accrued on the Companies' Financial Statements and the Companies are otherwise in compliance with the terms and conditions of all such Insurance Policies. All Insurance Policies are in full force and effect. The Companies have not received a written refusal of coverage under any Insurance Policy during the three (3) years prior to the date hereof. The Seller does not have Knowledge of any threatened termination of, premium increase with respect to, or uncompleted requirements under, any Insurance Policy. No premiums are or will be payable by the Company under Insurance Policies after the Closing with respect to insurance provided for periods prior to the Closing Date. 13 SECTION 3.20 COMPLIANCE WITH LAWS. (a) None of the Companies is in violation of any order, judgment, injunction, award, citation, decree, consent decree or writ (collectively, "Orders"). (b) Neither the current business operations of the Companies nor their products nor existing agreements or services infringe any applicable Law or Orders imposed by any Governmental Body. No fact, circumstance, condition or situation exists which, after notice or lapse of time or both, would constitute noncompliance by the Companies (except where such noncompliance is inconsequential and could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Companies or their respective business operations). The Company and its Subsidiaries have not received notice of any violation of any applicable Law, or any potential liability under any applicable law, nor is the Seller aware of any such violation or potential liability. (c) To the Knowledge of the Seller, no consent is required to be obtained, satisfied or made pursuant to any applicable Law by which the Seller or the Companies are bound, in connection with (i) the execution and delivery of this Agreement by the Seller or (ii) the sale and transfer to the Purchaser of the Company Share or the consummation by the Seller of this Agreement or the other Transaction Documents. SECTION 3.21 POTENTIAL CONFLICTS OF INTEREST. Neither the Seller nor any officer or director of any of the Companies, nor any spouse or member of the immediate family of any such officer or director, nor any entity controlled by one or more of the foregoing: (a) owns, directly or indirectly, any interest in (except less than 1% stock holdings for investment purposes in securities of publicly held and traded companies), or is an officer, director, employee or consultant of, any Person that carries on business in competition with any of the Companies; (b) owns, directly or indirectly, in whole or in part, any material asset that any of the Companies uses in the conduct of its respective Business; (c) has entered into a sale and leaseback or similar transaction with any of the Companies; or (d) has any material Claim whatsoever against, or owes any amount to any of the Companies, except for claims in the ordinary course of business such as for salary, commissions, accrued vacation pay and accrued benefits under employee benefit plans. 14 SECTION 3.22 INVESTMENT REPRESENTATION. The Seller is aware that the Acquisition Shares have not been registered under the Securities Act and are being issued in reliance upon an exemption from registration there under that depends in part on the Seller's representation in this Section. The Seller is an "accredited investor," as such term is defined in Regulation D under the Securities Act, and it is acquiring the Acquisition Shares for investment for its own account, except as provided for in Section 8.1(b). It has received and reviewed the Purchaser's SEC Reports, has had the opportunity to discuss the Purchaser's operations and financial condition with executive officers of the Purchaser, and understands the limited market for the Purchaser Common Stock, the speculative nature of such securities, and the restrictions on the sale or transfer of the Acquisition Shares as imposed by the Securities Act, subject to any rights it may have in a Registration Rights Agreement, a form of which is attached hereto as Exhibit A. The Seller further acknowledges that the Purchaser may place restrictive legends on, and stop transfer orders against, the certificates representing the Acquisition Shares, which does not affect the Seller's ability to privately sell the Acquisition Shares. SECTION 3.23 FINDERS' FEES. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of the Companies who is entitled to any fee or commission from the Companies as a result of and upon consummation of the Acquisition. SECTION 3.24 DISCLOSURE. Neither this Agreement, the Schedules hereto, nor the Companies' Financial Statements and the Companies' Latest Balance Sheet, documents or certificates furnished or to be furnished pursuant to this Agreement to the Purchaser or any of its Representatives by or on behalf of the Companies pursuant to this Agreement or in connection with the Acquisition contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein or their intended purposes regarding the Companies' operation of the Business not misleading. To the Knowledge of the Seller, no material facts or circumstances are present that in the future might materially adversely affect the Company and its Subsidiaries and their Business, other than general economic or market developments. All representations and warranties made by the Seller will be deemed to have been relied on by the Purchaser notwithstanding any investigation by the Purchaser. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Seller as of the Closing Date as follows: SECTION 4.1 ORGANIZATION, QUALIFICATION. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Purchaser is duly qualified or licensed to do business as a foreign corporation in good standing in every jurisdiction where the character of its properties, owned or leased, or the nature of its activities make such qualification necessary. 15 SECTION 4.2 SUBSIDIARIES. Except for the subsidiaries listed on Schedule 4.2 hereto (each a "Purchaser Subsidiary" and collectively the "Purchaser Subsidiaries"), of which the Purchaser is the beneficial owner of at least ninety (90%) percent all of their issued and outstanding shares of voting capital stock, the Purchaser has no subsidiaries and does not own, of record or beneficially, any capital stock or equity interest or investment in any corporation, partnership, limited liability company, association or other business entity. Each of the Purchaser Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation. There is no claim or any grounds for potential claims with respect to the Purchaser's ownership of any of the Purchaser Subsidiaries. SECTION 4.3 CAPITALIZATION. The Purchaser's authorized capital stock, consists of 50,000,000 shares of Purchaser Common Stock, and 5,000,000 shares of preferred stock, $.001 par value, of which 7,904,736 shares of Purchaser Common Stock and no shares of Preferred Stock are issued and outstanding. The Purchaser has reserved 9,063,716 shares of Purchaser Common Stock for issuance upon the exercise of outstanding options, warrants and other purchase rights, as listed on Schedule 4.3. Except to the extent listed on Schedule 4.3, all of the issued and outstanding shares of Purchaser Common Stock are validly issued, fully paid and non-assessable, and are not subject to preemptive rights or rights of first refusal created by statute, the Purchaser's Charter Documents or any document or agreement to which the Purchaser is a party, and the Acquisition Shares and the Pledged Shares when issued in accordance with this Agreement will be duly authorized, validly issued, fully paid and non-assessable shares of Purchaser Common Stock, and based upon representations pursuant to Sections 3.22 and 8.1(b), the Acquisition Shares and the Pledged Shares will be issued pursuant to exemptions from registration under the Securities Act, and not subject to any Liens or restrictions imposed by the Purchaser other than restrictions under the Securities Act and under the Pledge Agreement. Except as disclosed in Schedule 4.3 annexed hereto or as otherwise provided for in this Agreement, there are no other outstanding options, warrants or rights of any kind to acquire any additional shares of capital stock of the Purchaser or securities convertible into or exchangeable for, or which otherwise confer on the holder thereof any right to acquire, any such additional shares, nor is the Purchaser committed to issue any such option, warrant, right or security. The holders of Purchaser Common Stock do not have preemptive rights. Furthermore, there are no other outstanding options, warrants or rights of any kind to acquire any additional shares of capital stock of the Purchaser Subsidiaries. The Preferred Stock issued in Real Time Systems are non-voting shares. Except to the extent set forth on Schedule 4.3, there are no agreements relating to the voting, purchase or sale of capital stock between or among the Purchaser and any of its stockholders. SECTION 4.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Purchaser has full power, capacity and authority to execute and deliver this Agreement and each other Transaction Document (as defined herein) to which it is a party and to consummate the Acquisition (including the issuance of the Acquisition Shares and the Pledged Shares).. The execution, delivery and performance by the Purchaser of this Agreement and the other Transaction Documents to which it is a party and the consummation by the Purchaser of the Acquisition (including the issuance of the Acquisition Shares and the Pledged Shares) have been duly and validly authorized by the board of directors of the Purchaser, and no other proceedings on the part of the Purchaser are necessary to authorize the execution and delivery by the Purchaser of this Agreement or any other Transaction Documents to which it is a party or the consummation of the 16 Acquisition (including the issuance of the Acquisition Shares and the Pledged Shares). This Agreement and the other Transaction Documents to which the Purchaser is a party have been duly and validly executed and delivered by the Purchaser, and (assuming the valid execution and delivery thereof by the other parties thereto) constitute the legal, valid and binding agreements of the Purchaser, enforceable against it in accordance with their respective terms, except as such obligations and their enforceability may be limited by applicable bankruptcy and other similar Laws (as defined herein) affecting the enforcement of creditors' rights generally and except that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefore may be brought (whether at law or in equity). SECTION 4.5 NO CONFLICTS; CONSENTS. Neither the execution, delivery and performance by the Purchaser of this Agreement and each other Transaction Document to which it is a party, nor the consummation of the Acquisition (i) violates any provisions of the charter documents of the Purchaser; (ii) requires the Purchaser to obtain any prior consent, approval, Permit or action of or waiver from, or make any filing with, or give any notice to, any Governmental Body or any other Person; (iii) violates, conflicts with or results in a breach or default under (after the giving of notice or the passage of time or both), or permits the termination of, any contract of the Purchaser to which the Purchaser is a party or by which its assets may be bound or subject; (iv) violates any Law or Order of any Governmental Body against, or binding upon the Purchaser; or (v) violates or results in the revocation or suspension of any Permit of the Purchaser. SECTION 4.6 CHARTER DOCUMENTS AND CORPORATE RECORDS. The Purchaser has heretofore delivered to the Seller a certified copy of its Certificate of Incorporation and By-Laws, as in effect on the date hereof. SECTION 4.7 FINANCIAL INFORMATION. The Purchaser's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002 together with the Purchaser's Quarterly Report on Form 10-QSB for the fiscal quarter ended September 30, 2003 (collectively, the "Purchaser's Financial Statements") present fairly the financial position and results of operations of the Purchaser at the dates and for the periods to which they relate (subject, in the case of the unaudited financial statements, to normal year-end adjustments). The audited financial statements and the unaudited financial statements contained in the Purchaser's SEC Reports have been prepared in accordance with GAAP consistently followed throughout the periods involved (except as may be otherwise indicated in the notes thereto and except with respect to unaudited statements as permitted by Form 10-QSB), and comply in all material respects with applicable accounting requirements and with published rules and regulations of the SEC with respect thereto. SECTION 4.8 ABSENCE OF CERTAIN CHANGES. Except to the extent set forth in Schedule 4.8 annexed hereto, at all times since September 30, 2003, there has not been any event or condition of any character which has adversely affected, or may be expected to adversely affect, the Purchaser `s business or prospects, as a whole, including but not limited to: (i) any Material Adverse Change with respect to the condition, assets, liabilities (existing or contingent) or business of the Purchaser from that shown on the Purchaser's Reports; 17 (ii) any Material Adverse Change with respect to any damage, destruction or loss of any of the properties or assets of the Purchaser (whether or not covered by insurance) materially adversely affecting the business or plans of the Purchaser; (iii) any Material Adverse Change with respect to any declaration, setting aside or payment or other distribution in respect of any of the Purchaser's capital stock, or any direct or indirect redemption, purchase or other acquisition of any of such stock by the Purchaser; (iv) any Material Adverse Change with respect to any actual or threatened cancellation or adverse modification of any contract, licensing agreement, manufacturing agreement, marketing agreement or strategic partnering agreement to which the Purchaser is a party; (v) any labor trouble, or any other event or condition of any character, materially adversely affecting the business or plans of the Purchaser; (vi) any Material Adverse Change with respect to any capital investment in, any loan to, or any acquisition of the securities or assets of, any Person (excluding the Acquisition); (vii) any Material Adverse Change with respect to any note, bond or other debt security issued, incurred or assumed, or guarantee of any indebtedness for borrowed money; or (viii) any Material Adverse Change with respect to any agreement or commitment to do or perform any of the above. SECTION 4.9 SEC REPORTSThe Purchaser is subject to filing requirements with the U.S. Securities and Exchange Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Purchaser has filed with the United States all forms, reports, schedules, statements and other documents required to be filed by it since January 1, 2001 (collectively, the "Purchaser SEC Documents"). The Purchaser SEC Documents (a) do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (b) comply in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC there under. No subsidiary of the Purchaser is required to make any filings with the SEC. The Purchaser's Common Stock is traded on the OTC Bulletin Board. SECTION 4.10 TAXES. The Purchaser and the Purchaser Subsidiaries have filed or will file within the time prescribed by law (including extensions of time approved by the appropriate taxing authority) all tax returns and reports required to be filed with the United States Internal Revenue Service and with the States of Delaware and New Jersey and (except to the extent that the failure to file would not have a material adverse effect on the condition or operations of the Purchaser) with all other jurisdictions where such filing is required by law and such tax returns were true, complete and correct in all material 18 respects. The Purchaser and the Purchaser Subsidiaries have paid, or made adequate provision for the payment of, all taxes, interest, penalties, assessments or deficiencies shown to be due or claimed to be due on or in respect of such tax returns and reports. The Purchaser's federal income tax returns have not, to the best of the Purchaser's Knowledge and belief, been audited by the Internal Revenue Service. SECTION 4.11 LITIGATION. Except as set forth on Schedule 4.11, There is neither pending nor, to the Purchaser's Knowledge, threatened any action, suit, proceeding or claim to which the Purchaser or any of the Purchasers Subsidiary is or may be named as a party or its property is or may be subject and in which an unfavorable outcome, ruling or finding in any such matter or for all such matters taken as a whole might have a material adverse effect on the condition, financial or otherwise, and operations or prospects of the Purchaser taken as a whole. The Purchaser has no Knowledge of any unasserted claim which, if asserted and granted might have a Material Adverse Effect on the condition, financial or otherwise, operations or prospects of the Purchaser and the Purchaser Subsidiaries, taken as a whole. SECTION 4.12 CONSENTS. No consent, approval, qualification, order or authorization of, or filing with, any governmental authority is required in connection with the Purchaser's execution, delivery or performance of this Agreement or other Transaction Documents. SECTION 4.13 COMPLIANCE. The execution, delivery and performance of this Agreement or other Transaction Documents by the Purchaser does not conflict with or cause a breach under any of the terms or conditions of (i) its Certificate of Incorporation or By-Laws or (ii) any mortgage, indenture, contract, agreement, instrument, judgment, decree, order, statute, rule or regulation to which the Purchaser is subject and a breach or violation of which might have a Material Adverse Effect on the condition, financial or otherwise, operations or prospects of the Purchaser. To the Knowledge of the Purchaser, the operations of the Purchaser and each Purchaser Subsidiary have complied and are in compliance in all material respects with all applicable federal, state and local laws, and where appropriate, foreign laws, except to the extent any failure to so comply would not have a material adverse effect on the condition, financial or otherwise, operations or prospects of the Purchaser taken as a whole. The Purchaser and the Purchaser Subsidiaries possess all permits from Governmental Bodies which are required in the operation of its business, except for those the failure of which would not have a Material Adverse Effect on the Purchaser's business and prospects taken as a whole. To the Knowledge of the Purchaser, the Purchaser and the Purchaser Subsidiaries are in compliance in all material respects with the terms and conditions of such Permits. SECTION 4.14 INTELLECTUAL PROPERTY. Each of the Purchaser and the Purchaser Subsidiaries owns or has valid, adequate and subsisting rights to use and exploit all patents, patent licenses, trade secrets, copyrights, trademarks and service marks necessary for the conduct of its business (collectively, the "Purchasers Intellectual Property") free and clear of any Lien or other encumbrance. None of the processes currently used by the Purchaser or the Purchaser Subsidiaries nor any of the properties or products currently sold or trademarks, trade names, labels or other marks or copyrights used by the Purchaser or the Purchaser Subsidiaries to the best Knowledge of the Purchaser and the Purchaser Subsidiaries, infringes the patent, industrial property, trademark, trade name, label, other mark, right or copyright of any other person or entity. The Purchaser or the Purchaser Subsidiaries have not received any 19 written notice of adverse claim with respect to any of the Intellectual Property, and, to the Purchaser's Knowledge, no basis exists for any such claim. SECTION 4.15 NO UNDISCLOSED LIABILITIES; ETC. Except as set forth on Schedule 4.8, neither the Purchaser nor any Purchaser Subsidiary has any material liabilities or obligations of any nature (absolute, accrued, contingent or otherwise) which were not fully reflected or reserved against in the balance sheet included in September 30, 2003 Form 10-QSB (the "Purchaser's Latest Balance Sheet"), except for liabilities and obligations incurred in the ordinary course of business and consistent with past practice since the date thereof, and which have not had or could not reasonably be expected to have a Material Adverse Effect on the Purchaser and the Purchaser Subsidiaries taken as a whole. The reserves reflected in the Purchaser's Latest Balance Sheet are adequate, appropriate and reasonable or otherwise disclosed on a Schedule to this Agreement. SECTION 4.16 COMPLIANCE WITH LAWS. (a) Neither the Purchaser nor the Purchaser Subsidiaries are in violation of any order, judgment, injunction, award, citation, decree, consent decree or writ (collectively, "ORDERS"). (b) Neither the current business operations of the Purchaser or the Purchaser Subsidiaries nor their products nor existing agreements or services infringe any applicable Law or Orders imposed by any Governmental Body. No fact, circumstance, condition or situation exists which, after notice or lapse of time or both, would constitute noncompliance by the Purchaser or the Purchaser Subsidiaries (except where such noncompliance is inconsequential and could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Purchaser or the Purchaser Subsidiaries or their respective business operations). The Purchaser and the Purchaser Subsidiaries have not received notice of any violation of any applicable Law, or any potential liability under any applicable law, nor is the Purchaser aware of any such violation or potential liability. (c) To the Knowledge of the Purchaser, no consent is required to be obtained, satisfied or made pursuant to any applicable Law by which the Purchaser or the Purchaser Subsidiaries are bound, in connection with (i) the execution and delivery of this Agreement by the Purchaser or (ii) the consummation by the Purchaser of this Agreement or the other Transaction Documents. SECTION 4.17 TITLE TO PROPERTIES; ENCUMBRANCES. Each of the Purchaser and the Purchaser Subsidiaries has good, valid and marketable title to all the properties and assets which it purports to own (personal and mixed, tangible and intangible), including, without limitation, all the properties and assets reflected in the Purchaser's Latest Balance Sheet (except for personal property sold since the date thereof in the ordinary course of business and consistent with past practice), and all the properties and assets purchased by the Purchaser and its Subsidiaries since the date thereof. All properties and assets reflected in the Purchaser's Latest Balance Sheet are free and clear of all title defects or objections, Liens or other encumbrances of any nature whatsoever including, without limitation leases, chattel mortgages, conditional sales contracts, collateral security arrangements and other title or interest retention arrangements. 20 SECTION 4.18 FINDERS' FEES. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of the Purchaser who is entitled to any fee or commission from the Purchaser as a result of and upon consummation of the Acquisition. SECTION 4.19 DISCLOSURE. Neither this Agreement, the Schedules hereto, nor any audited or unaudited financial statements, documents or certificates furnished or to be furnished pursuant to this Agreement to the Seller or any of its Representatives by or on behalf of the Purchaser pursuant to this Agreement or in connection with the Acquisition contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein or their intended purposes regarding the Purchaser's business not misleading. To the Knowledge of the Purchaser, no material facts or circumstances are present that in the future might materially adversely affect the Purchaser and its business, other than general economic or market developments. All representations and warranties made by the Purchaser will be deemed to have been relied on by the Seller notwithstanding any investigation by the Seller. ARTICLE V COVENANTS OF THE PARTIES SECTION 5.1 CONDUCT OF BUSINESS. (a) From the date hereof through the Closing Date, the Seller shall cause the Companies, except as otherwise agreed upon by the Purchaser giving its prior written consent with respect to clauses 5.1(a)(v)-(xiv): (i) to operate their respective businesses in a reasonable and prudent manner; (ii) to maintain in the ordinary course, and in accordance with the requirements of all Contracts, all their material structures, equipment and other tangible property in their present repair, order and condition, subject to ordinary wear and tear; (iii) to maintain the books and records relating to the Companies in the usual and ordinary manner and not to change any of their accounting principles or practices; (iv) to pay all valid account and trade payables in a timely and reasonable manner consistent with past practices; (v) not to incur any Liability (other than Liabilities incurred in the ordinary course of the Business and which are not in the aggregate material thereto); (vi) not to pay, discharge or satisfy any material Claim or Liability, other than the payment, discharge or satisfaction in the ordinary course of business of Claims or Liabilities incurred in the ordinary course; 21 (vii) not to sell, transfer, convey, assign or otherwise dispose of any of its assets, or create, incur or assume any Lien on any of the assets, except in the ordinary course; (viii) not to waive, release or cancel any material claims against third parties or debts owing to any of the Company and the Subsidiaries or any material rights which have any material value, or waive or extend the statute of limitations in respect of any Taxes (as defined herein); (ix) not to authorize for issuance, issue, sell, purchase, deliver or agree or commit to issue, sell, purchase or deliver (whether through the issuance or granting of options, warrants, convertible or exchangeable securities, commitments, subscriptions, rights to purchase or otherwise) any equity interests in the Companies or any other securities, or amend any of the terms of any such securities; (x) not to terminate, modify, amend, renew or otherwise alter or change any of the material terms or provisions of any Contract (other than in the ordinary course of business) or breach the terms of any Contract or pay any amount not required by Law or by any Contract; (xi) not to make or commit to any capital investment in, or any acquisition of the securities or assets of any Person or any merger, consolidation or other extraordinary transaction (or series of related capital investments, loans, acquisitions or other transactions); (xii) to continue to carry all Insurance Policies and use their best efforts not to allow any breach, default, termination or cancellation of such Insurance Policies to occur or exist; (xiii) not to make any loan or advance to any Person other than for travel and similar routine advances in the ordinary course of business; or (xiv) not to enter into any agreement or commitment to do or perform any of the above. (b) From the date hereof through the Closing Date, the Purchaser and the Purchaser Subsidiaries agree hereto: (i) to operate their businesses in a reasonable and prudent manner; (ii) to maintain the books and records relating to the Purchaser and the Purchaser Subsidiaries in the usual and ordinary manner and not to change any of its accounting principles or practices; (iii) except for funds to be raised for obligations as of the Closing, not to authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver any equity interest in the Purchaser or the Purchaser Subsidiaries or any other securities or amend any of the terms of any such securities other than as contemplated under this Agreement or disclosed in any Schedule to this Agreement or to undertake any other placements; 22 (iv) not to terminate, modify, amend, renew or otherwise alter or change any material terms or provisions of any of their contracts (other than in the ordinary course of business) or breach the terms of any contract or pay any amount not required by Law or by any contract; (v) not to pay any dividend or distribution (other than intra-corporate dividends or distributions); (vi) except for funds to be raised for obligations as of the Closing, not to make or commit to make any capital investment in, or any acquisition of the securities or assets of any Person or any merger, consolidation or other extraordinary transaction (or series of related capital investments, loans, acquisitions or other transactions) for which the consideration would exceed Euro 100,000; (vii) not to enter into any agreement or commitment to do or perform on any of the above. (c) From the date hereof through the Closing Date, the Seller and the Purchaser each agree to use its best efforts to cause the respective businesses of the Companies and the Purchaser to be conducted in such a manner so that their respective representations and warranties contained herein shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date. Neither the Seller nor the Purchaser will or permit or cause any of the Companies or the Purchaser Subsidiaries to (i) take or agree to take any action that would make any of its representations or warranties herein inaccurate in any material respect or (ii) omit to take or agree to omit to take any action necessary to prevent any such representation or warranty from being inaccurate in any material respect. SECTION 5.2 CORPORATE EXAMINATIONS AND INVESTIGATIONS. (a) Subject to Section 5.2(b) hereof and the terms of a Letter of Intent entered into between the parties hereto on October 7, 2003 (the "Letter of Intent"), prior to the Closing Date, the Seller and the Purchaser agree that the other party shall be entitled, through its officers, directors, stockholders, affiliates, employees, attorneys, accountants, representatives, lenders, consultants and other agents (collectively, the "Representatives"), to make such investigation of the Companies (with respect to the Purchaser) and Purchaser and the Purchaser Subsidiaries (with respect to the Seller), as applicable, and such examination of the books, records and financial condition of the other parties, as either party reasonably deems necessary. Any such investigation and examination shall be conducted at reasonable times, under reasonable circumstances and upon reasonable notice, and the Companies or the Purchaser, as applicable, shall, cooperate fully therein. In connection with such review, each of the parties shall make available to the Representatives of the other party during such period, without however causing any unreasonable interruption in the operations of the examined party, all such information and copies of such documents and records concerning the affairs of each of the examined parties, as such Representatives may reasonably request. No investigation by any party hereto shall diminish or obviate any of the representations, warranties, covenants or agreements of the other parties contained in this Agreement. 23 (b) The Seller shall cause the Companies to permit the Representatives of the Purchaser access to the Companies and all parts thereof and to information concerning their employees, customers, suppliers and others, and to cooperate fully in connection with such review and examination, and the Purchaser shall permit similar access by Representatives of the Company to the Purchaser and to information concerning its employees, customers, suppliers and others. The Purchaser shall coordinate any and all communications with customers and suppliers of the Companies through Mr. Winfried Klimek, CEO, and the Seller shall coordinate any and all communications with customers and suppliers of the Purchaser through Mr. Sanjay Mody, President and CEO. Neither the Seller nor the Purchaser shall, and the Seller shall cause the Companies and the Purchaser shall procure that the Purchaser Subsidiaries act accordingly, make or attempt to make any direct communications with any such customers and suppliers of the other without the prior knowledge and consent of one of the foregoing individuals of the other party in each instance, provided that should either party have a pre-existing relationship with any customer or supplier of the other party, the investigating party or its Representatives may directly contact such customer or supplier so long as the relationship between the other party hereto and such customer or supplier is not discussed. SECTION 5.3 PROPRIETARY INFORMATION; CONFIDENTIAL RECORDS, INTELLECTUAL PROPERTY RIGHTS. (a) The Seller, on one hand, and the Purchaser, on the other hand, and the Seller shall cause the Companies and the Purchaser shall procure that the Purchaser Subsidiaries act accordingly, each covenants to the other that it shall not at any time hereafter, directly or indirectly, use for its own purpose or for the benefit of any Person other than in connection with its review as conducted under Section 5.2, or disclose, any proprietary information received during such review to any Person. For purposes of this Agreement, the term "proprietary information" shall include, but it is not limited to: (i) the name and address of any client, identified prospect, former client, vendor or supplier of the Purchaser and the Purchaser Subsidiaries or the Companies (collectively, the "Reviewed Entities") and any information concerning the transactions or relations of any client, identified prospect, former client, vendor or affiliate of any of the Reviewed Entities or any of their shareholders, directors, officers, principals, employees, independent contractors or agents; (ii) any information concerning any product, technology, practice or procedure employed or used by a Reviewed Entity but not generally known to its clients, vendors or competitors, or under development by or being tested by a Reviewed Entity but not at the time offered generally to clients or vendors; (iii) any information relating to computer software or systems used by a Reviewed Entity or any of its pricing or marketing methods, research techniques, sales margins, capital structure, operating results, borrowing arrangements or business plans; (iv) any information which is generally regarded as confidential or proprietary; (v) any business plans, budgets, advertising or marketing plans of any of the Reviewed Entities; (vi) any information contained in any written or oral policies and procedures or employee manuals of any of the Reviewed Entities; (vii) any information belonging to clients, identified prospects, former clients, vendors or suppliers of any of the Reviewed Entities which such Entity has agreed to hold in confidence; (viii) any inventions, innovations or improvements; (ix) all written, graphic and other material relating to any of the foregoing; (x) any software and computer program relating to any of the foregoing; and (xi) any compilation or arrangements of any information relating to any of the foregoing proprietary information. Information that is not novel or copyrighted or patented may nonetheless be 24 proprietary information. Notwithstanding the foregoing, the term "proprietary information" shall not include any information generally available to and known by the public, but shall include information which becomes public as a result of a breach of an obligation of confidentiality by a Reviewed Entity. (b) The Seller, on one hand, and the Purchaser, on the other hand, and the Seller shall cause the Companies and the Purchaser shall procure that the Purchaser Subsidiaries act accordingly, acknowledge and agree that by virtue of the extraordinary value of the proprietary information and confidential records, their access to and use of such proprietary information and confidential records and their unique knowledge of and contacts relating to the respective Business, any violation by any of them of the undertakings and agreements contained in this Section 5.3 would cause the other immediate, substantial and irreparable injury for which it has no adequate remedy at law. Accordingly, the parties agree and consent to the entry of an injunction or other equitable relief by a court of competent jurisdiction restraining any violation or threatened violation of any undertaking contained in this Section 5.3. The parties waive posting of any bond otherwise or any proof of actual damages necessary to secure such injunction or other equitable relief. The rights and remedies otherwise available to the parties hereunder or under any other agreement or applicable law or otherwise. SECTION 5.4 NOTICES OF CERTAIN EVENTS. (a) Prior to the Closing Date, the Seller and the Purchaser shall promptly notify the other of: (i) any notice or other communication from any Person alleging that the consent of such person is or may be required in connection with the Acquisition; (ii) any notice or other communication from any Governmental Body in connection with the Acquisition; (iii) any event, condition or circumstance occurring from the date hereof through the Closing Date that would constitute a violation or breach of any representation or warranty, whether made as of the date hereof or as of the Closing Date, or that would constitute a violation or breach of any covenant of any party contained in this Agreement; and (iv) any notice or other communication from a Governmental Body relating to Taxes of the Companies, the Purchaser or the Purchaser Subsidiaries. SECTION 5.5 PUBLIC ANNOUNCEMENTS. Prior to the Closing Date, the Seller and the Purchaser shall consult with each other before issuing any press release or otherwise making any public statement with respect to this Agreement or the Acquisition, and shall not issue any such press release or make any such public statement (other than product announcements consistent with past practices) without the prior written approval of the other party, as the case may be, except as may be required by applicable Law in which event the other party shall have the right to review and comment upon (but not approve) any such press release or public statement prior to its issuance. 25 SECTION 5.6 EXPENSES. Except as otherwise specifically provided in this Agreement, the parties hereto shall bear their respective expenses incurred in connection with the preparation, execution and performance of this Agreement and the Acquisition, including, without limitation, all fees and expenses of their respective Representatives (the "Transaction Expenses"). SECTION 5.7 FURTHER ASSURANCES. The Seller and the Purchaser hereby agree, without further consideration, to execute and deliver at or prior to the Closing such instruments of transfer and take such other action as the other may reasonably request in order to put the Purchaser in actual possession and control of, and to vest in the Purchaser good, valid and unencumbered title to the Company Share in accordance with this Agreement, subject to any lien or encumbrance of Lloyds Bank, and to otherwise give effect to the Acquisition. Following the Closing, the Seller and the Purchaser shall execute and deliver, or cause to be executed and delivered, to the other party such instruments of conveyance and transfer as the requesting party may reasonably request. SECTION 5.8 CONSENTS, FILINGS AND AUTHORIZATIONS; EFFORTS TO CONSUMMATE. As promptly as practicable after the date hereof, the Seller and the Purchaser shall make all filings and submissions under such Laws as are applicable to them, as may be required for them to consummate the Acquisition in accordance with the terms of this Agreement and shall furnish copies thereof to each other party prior to such filing and shall not make any such filing or submission to which the Seller or the Purchaser, as the case may be, reasonably objects in writing. All such filings shall comply in form and content in all material respects with applicable Law. Subject to the terms and conditions herein, each party hereto, without payment or further consideration, shall use its good faith efforts to take or cause to be taken all action and to do or cause to be done all things necessary, proper or advisable under applicable Laws, permits and orders, to consummate and make effective, as soon as reasonably practicable, the Acquisition, including, but not limited to, the obtaining of all Companies' required consents, the Purchaser's required consents or consents of any third party, whether private or governmental, required in connection with such party's performance of such transactions and each party hereto shall cooperate with the other in all of the foregoing. SECTION 5.9 DISCLOSURE SUPPLEMENTS. From time to time prior to the Closing Date, each party hereto will promptly supplement or amend (by written notice to the other) its respective disclosure schedules delivered pursuant hereto with respect to any matter hereafter arising which, if existing, occurring or known at the date of this Agreement, would have been required to be set forth or described in such schedules or which is necessary to correct any information in such schedules which has been rendered materially inaccurate thereby. For the purpose of determining satisfaction of the conditions set forth in Article VIII, no supplement or amendment to such schedules shall correct or cure any representation, warranty or covenant which was untrue when made, but shall enable the disclosure of subsequent facts or events to maintain the truthfulness of any warranty. 26 ARTICLE VI COVENANTS OF THE PURCHASER SECTION 6.1 BOARD OF DIRECTORS. As of the Closing, Mr. Winfried Klimek will be added to the Board of Directors of the Purchaser then consisting of six (6) persons. The Seller will have the right to designate three additional directors and the Board of Directors will be increased to eight (8) persons members, four (4) of whom shall be current directors or persons chosen by the current directors, and four (4) of whom shall be designated by the Seller. The Seller's designees as directors shall be persons reasonably acceptable to the Purchaser. At least ten (10) days prior to the Closing Date, the Seller shall provide to the Purchaser background information regarding its designees as may be reasonably requested by the Purchaser, including the completion of questionnaires for each designee. In addition, the Seller shall have the right to designate one person to serve as a director of the Purchaser's Subsidiaries Distinctive Devices, Inc. (India) PLC and Realtime Systems Ltd. SECTION 6.2 KLIMEK EMPLOYMENT AGREEMENT(a) Employment Terms. The Purchaser shall cause the Company to execute an employment agreement with Winfried M. Klimek as Managing Director, in the form attached hereto as Exhibit H (the "Employment Agreement"), effective immediately after the Closing. (b) Stock Options. In addition, the Purchaser shall grant to Winfried M. Klimek options (the "Options") to purchase 1,250,000 shares of Purchaser Common Stock at an exercise price of the lower of (i) the average market price of Purchaser Common Stock for the ten trading days immediately preceding the Closing Date or (ii) $0.70 per Share, vesting as to 25% of the shares six (6) months after grant, and 25% per year on the first three anniversary dates of the Closing, exercisable for five years from the Closing. (c) Indemnification Obligations. For the express purpose of securing the Seller's indemnification obligations pursuant to Article X hereof, the Purchaser reserves the right to credit the Option rights to be granted to Mr. Klimek under Section 6.3(b) against any Losses suffered or incurred by the Purchaser arising under Article X hereof. The Option will be valued at US$0.50 per Share solely for the particular purpose of any reduction by reason of the indemnification obligation. ARTICLE VII COVENANTS OF THE SELLER SECTION 7.1 NON-COMPETITION. The Seller agrees that for a period of three (3) years after the Closing Date, the Seller shall not, directly or indirectly, engage in any business similar to the Business, as set forth in the Non-Competition Agreement attached hereto as Exhibit B. SECTION 7.2 NON-SOLICITATION. Unless and until this Agreement shall have been terminated pursuant to and in compliance with Subsections (a) through 27 (e) of Section 9.1, the Seller shall not and shall cause the Companies not (collectively, the "Restricted Parties") (whether directly or indirectly through its respective Representatives), nor shall any Restricted Party authorize or permit any of its respective Representatives to (i) solicit, initiate, encourage (including by way of furnishing information) or take any action to facilitate the submission of any inquiries, proposals or offers (whether or not in writing) from any person relating to (A) any acquisition or purchase of any of the assets of the Company or any Subsidiary or of any class of equity securities of the Company or any Subsidiary, (B) any tender offer (including a self tender offer) or exchange offer, (C) any merger, consolidation, business combination, sale of substantially all assets, recapitalization, liquidation, dissolution or similar transaction involving the Company or any Subsidiary, or (D) any other transaction the consummation of which would or would reasonably be expected to impede, interfere with, prevent or materially delay the Acquisition or which would or would reasonably be expected to materially dilute the benefits to the Purchaser of the transactions contemplated by this Agreement (collectively, "Acquisition Proposals"), or agree to, recommend or endorse any Acquisition Proposal, (ii) enter into or execute any agreement or letter of intent with respect to any of the foregoing or (iii) enter into or participate in any discussions or negotiations regarding any of the foregoing, or furnish to any other Person any information with respect to a Restricted Party's business, properties or assets in connection with the foregoing, or otherwise cooperate in any way with, or participate in or assist, facilitate, or encourage, any effort or attempt by any other Person (other than the Purchaser) to do or seek any of the foregoing. The Restricted Parties represent that since the effectiveness of the Letter of Intent none of them has had any discussions or negotiations with any Persons other than the Purchaser with respect to any Acquisition Proposal and agree to disclose any such discussions or negotiations immediately. ARTICLE VIII CONDITIONS TO CLOSING SECTION 8.1 CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES. The obligations of the Seller and the Purchaser to consummate the Acquisition are subject to the satisfaction (or waiver) of the following conditions on or prior to the Closing Date: (a) Further Investment. The Purchaser shall contribute US$1,000,000 to the capital of the Company at Closing. Furthermore, the Purchaser shall make a capital contribution in the amount of US$1,000,000 to the Company by forgiving and returning the Company Note marked as paid. (b) Transfer of Acquisition Shares. The Seller shall deliver to the Purchaser a schedule of its shareholders with an allocation of the 6,400,000 shares issued by the Purchaser among those holders. After Closing, the Seller shall furnish the allocation schedule to the Purchaser. The Purchaser at the option of the Seller will either (i) deliver the respective stock certificates allocated to the holders or (ii) provide a confirmation letter that such stock certificated are held by Clifford Chance US LLP, 200 Park Avenue, New York, NY 10166-0153, are marketable ("verkehrsfahig") subject to US securities laws and exchangeable ("Ubergabe Zug um Zug") to Martin Gollasch, Notary ("Rechtsanwalt und Notar"), Hansestrasse 14, 23558 Lubeck, Germany. As a condition to transfer of any Acquisition Shares to a holder, the holder shall execute and deliver 28 investment representations with respect to his portion of the Acquisition Shares, which representations shall contain the representations in Section 3.22. (c) Internal Statements. The Company shall have delivered to the Purchaser the Companies internal statements date dated as of November 30, 2003 showing any changes in the Companies since the Companies Interim Statement Date. (d) No Injunction. No provision of any applicable Law and no Order shall prohibit the consummation of the Acquisition. (e) No Proceeding or Litigation. No Claim instituted by any Person shall have been commenced or pending against the Companies or the Purchaser or any of their respective Affiliates, officers or directors which Claim seeks to restrain, prevent, change or delay in any material respect the Acquisition or seeks to challenge any of the material terms or provisions of this Agreement or seeks material damages in connection with any of such transactions, and, in the opinion of counsel to the Companies or counsel to the Purchaser, is not a specious Claim and represents a serious risk for its client to proceed with the Acquisition. (f) Pledge Agreement. The Pledge Agreement shall have been entered into. (g) Non-Competition Agreement. The Non-Competition Agreement shall have been entered into. (h) Employment Agreement. The Employment Agreement with Mr. Klimek referred to in Section 6.2 shall have been entered into. (i) Registration Agreement. The Registration Rights Agreement shall have been entered into. SECTION 8.2 CONDITIONS TO THE OBLIGATIONS OF THE SELLER. All obligations of the Seller to consummate the Acquisition hereunder are subject to the fulfillment (or waiver by the Seller) of each of the following further conditions on or prior to the Closing: (a) Performance. The Purchaser shall have performed and complied with all agreements, obligations and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date. (b) Representations and Warranties. The representations and warranties of the Purchaser contained in this Agreement and in any certificate or other writing delivered by the Purchaser pursuant hereto shall be true in all material respects at and as of the Closing Date as if made at and as of such time. (c) No Adverse Change. During the period from September 30, 2003 to the Closing Date, except to the extent contemplated in the Agreement or any Schedule hereto, there shall not have been (i) any material adverse change in the condition of the business of the Purchaser, (ii) any damage, destruction, casualty, determination or other event to or affecting the Purchaser which has a Material Adverse Effect or (iii) any Claims or Liens filed or threatened in 29 writing, against or affecting the Purchaser which, if adversely determined, would be reasonably likely to have a Material Adverse Effect on the Purchaser. (d) Purchase Price. The Purchase Price shall have been paid by the Purchaser in accordance with Section 1.2 hereto on the Closing Date to the Seller, including delivery of the Pledged Shares in accordance with the Pledge Agreement. (e) Purchaser's required consents. All consents required of the Purchaser shall have been obtained prior to the Closing. (f) Documentation. There shall have been delivered to the Seller the following: (i) If the Closing Date is other than the date of this Agreement, a certificate, dated the Closing Date, of an officer of the Purchaser confirming the matters set forth in Sections 8.2(a), (b) and (c) hereof; (ii) A certificate, dated the Closing Date, of the Secretary of the Purchaser certifying, among other things, that attached or appended to such certificate (A) is a true and correct copy of its Certificate of Incorporation and all amendments if any thereto as of the date thereof; (B) is a true and correct copy of its By-laws and all amendments if any thereto as of the date thereof; (C) is a true copy of all actions taken by it, including resolutions of its Board of Directors authorizing the consummation of the Acquisition and the execution, delivery and performance of this Agreement and each other Transaction Document to be delivered by the Purchaser pursuant hereto; and (D) are the names and signatures of its duly elected or appointed officers who are authorized to execute and deliver this Agreement, the other Transaction Documents to which the Purchaser is a party and any certificate, document or other instrument in connection herewith; (iii) Good standing certificates for the Purchaser from the Secretary of State of the State of Delaware and each of the jurisdictions in which the Purchaser is qualified to do business as a foreign corporation; (iv) A signed opinion of the Purchaser's counsel, dated the Closing Date, addressed to the Seller, substantially in the form of the opinion attached hereto as Exhibit C; (v) Such other documents as the Seller may reasonably request. SECTION 8.3 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. All obligations of the Purchaser to consummate the Acquisition hereunder are subject to the fulfillment (or waiver by the Purchaser) of each of the following further conditions on or prior to the Closing: (a) Performance. Each of the Seller and Companies shall have performed and complied with all agreements, obligations and covenants required by this Agreement to be performed or complied with by it or them on or prior to the Closing Date. 30 (b) Representations and Warranties. The representations and warranties of the Seller contained in this Agreement and in any certificate or other writing delivered by the Seller pursuant hereto shall be true in all material respects at and as of the Closing Date as if made at and as of such time. (c) No Adverse Change. During the period from September 30, 2003 to the Closing Date, there shall not have been (i) any material adverse change in the condition of the Business or in the Companies' relationships with their major clients, (ii) any damage, destruction, casualty, determination or other event to or affecting the Shares of any of the Companies which has a Material Adverse Effect or (iii) any Claims or Liens filed or threatened in writing, against or affecting any of the Companies or the Company Share which, if adversely determined, would be reasonably likely to have a Material Adverse Effect on the Condition of the Business. (d) Companies' required consents. All consents required of the Seller or the Company shall have been obtained prior to the Closing. (e) Documentation. There shall have been delivered to the Purchaser the following: (i) If the Closing Date is other than the date of this Agreement, a certificate, dated the Closing Date, of an officer of each of the Companies confirming the matters set forth in Sections 8.3 (a), (b) and (c) hereto. (ii) A certificate, dated the Closing Date, of the Secretary or Assistant Secretary of each of the Companies certifying, among other things, that attached or appended to such certificate (A) are the names of the officers of each of the Companies; (B) is a true copy of all actions taken by the Companies' Shareholders and directors of each of the Companies (which actions shall have been taken prior to the date of entering into this Agreement) to authorize the Acquisition; and (C) are the names and signatures of the duly elected or appointed officers of each of the Companies who are authorized to execute and deliver this Agreement, the Transaction Documents to which each of the Companies is a party and any certificate, document or other instrument in connection herewith; (iii) Commercial Register Excerpts of the Companies; (iv) Form of consent of Lloyds Bank to the Acquisition acceptable to the Purchaser. (v) A written statement of Martin Kieslich, Kieslich & Partner, Langenstucken 34, 22393 Hamburg, Germany with respect to the validity of the Vogt settlement agreement attached hereto as Exhibit D. (vi) A signed opinion of the Company's Counsel, dated the Closing Date, addressed to the Purchaser, substantially in the form of the opinion attached hereto as Exhibit F; and (vii) Such other documents as the Purchaser may reasonably request. 31 ARTICLE IX TERMINATION SECTION 9.1 TERMINATION. In the event this Agreement is not simultaneously executed and closed, this Agreement may be terminated and the Acquisition may be abandoned at any time after execution and prior to the Closing by the party desiring to terminate this Agreement pursuant to this Section giving written notice of termination to the other party hereto specifying the reasons for the termination: (a) By mutual written consent of the parties hereto. (b) By the Purchaser or by the Seller at any time after December 31, 2003, unless the Closing has not occurred by that date (or such later date as to which the parties agree) and if the failure to close is not the result of a breach of this Agreement by the party seeking termination. (c) By the Seller (provided that it is not in material breach of any of its obligations in this Agreement) if (i) there has been a material misrepresentation or breach of warranty on the part of the Purchaser in its representations and warranties contained herein and such material misrepresentation or breach of warranty, if curable, is not cured within five (5) days after written notice thereof from the Seller, (ii) the Purchaser has committed a material breach of any covenant imposed upon it and has failed to cure such breach within five (5) days after written notice thereof from the Seller or (iii) any condition to any of the Seller's obligations hereunder becomes incapable of fulfillment through no fault of the Seller and is not waived by any of the Companies. (d) By the Purchaser (provided that it is not in material breach of any of its obligations in this Agreement) if (i) there has been a material misrepresentation or breach of warranty on the part of the Seller in its representations and warranties contained herein and such material misrepresentation or breach of warranty, if curable, is not cured within five (5) days after written notice thereof from the Purchaser, (ii) the Seller has committed a material breach of any covenant imposed upon it hereunder and fails to cure such breach within five (5) days after written notice thereof from the Purchaser, or (iii) any condition to the Purchaser's obligations hereunder becomes incapable of fulfillment through no fault of the Purchaser and is not waived by the Purchaser. (e) By the Purchaser, on the one hand, or by the Seller, on the other hand, if there shall be any Law that makes consummation of the Acquisition illegal or otherwise prohibited, or if any Order enjoining the Purchaser, on the one hand, or the Seller or any of the Companies, on the other hand, from consummating the Acquisition is entered and such Order shall have become final and non-appeal able. (f) By the Purchaser if the Seller or any of the other Restrictive Parties breaches the covenants in Section 7.2. 32 SECTION 9.2 EFFECT OF TERMINATION; RIGHT TO PROCEED. (a) In the event that this Agreement shall be terminated pursuant to Section 9.1 (a), (b) or (e) hereof, all further obligations of the parties under the Agreement shall terminate without further liability of any party hereunder. Notwithstanding any other provision in this Agreement to the contrary, (i) upon termination of this Agreement pursuant to Section 9.1(c) hereof, the Purchaser shall remain liable to the Seller for any misrepresentation or breach of warranty or non-fulfillment of or failure to perform any covenant or agreement of the Purchaser existing at the time of such termination; and in any such event the terminating party may seek such remedies, including, without limitation, Losses against the other party with respect to any such breach as are provided in this Agreement or are otherwise available in law or equity, (ii) upon termination of this Agreement pursuant to Section 9.1(d) hereof, the Warrantor shall remain liable jointly and severally to the Purchaser for any misrepresentation or breach of warranty or non-fulfillment of or failure to perform any covenant or agreement of the Seller or the Companies existing at the time of such termination, and in any such event the terminating party may seek such remedies, including without limitation, Losses (as defined herein) against the other party with respect to any such breach as are provided in this Agreement or as are otherwise available at Law or in equity; (iii) upon termination of this Agreement pursuant to Section 9.1(f) hereof, the Seller shall immediately pay US $175,000 to the Purchaser, and any late payment shall bear interest at the rate of twelve (12%) percent per annum from the termination date until the amount is paid in full, together with costs of collection, including reasonable attorneys' fees. Without limiting the generality of the foregoing sentence, in the event that this Agreement shall be terminated by the Seller pursuant to Section 9.1(c) hereof or by the Purchaser pursuant to Section 9.1(d) hereof, the party in breach of its covenants, agreements or obligations hereunder shall reimburse the non-breaching party for all costs and expenses resulting from any such breach. (b) Except to the extent specifically provided for in this Section 9.2, the agreements contained in Section 5.3, 11.4, 11.11 and 11.12 hereof and the Letter of Intent shall survive the termination hereof. In the event that a condition precedent to its obligation is not met, nothing herein shall require any party to terminate this Agreement, but will give any party the right to waive such condition precedent and proceed with the Acquisition. Notwithstanding the reason for the termination of this Agreement, upon such termination the Company Note shall become due and payable, and the Purchaser shall be entitled to enforce its rights there under and under any related guaranties. (c) In the event that a condition precedent to its obligations is not met, nothing contained herein shall be deemed to require any party to terminate this Agreement, rather than to waive such condition precedent and proceed with the Acquisition. ARTICLE X INDEMNIFICATION SECTION 10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All covenants, representations and warranties and agreements of the parties hereto and in the schedules and closing certificates shall survive the execution and delivery of 33 this Agreement and the Closing hereunder for a period of six (6) months from the Closing Date. The right to indemnification, payment of Losses (as defined herein) or other remedy based on such representations, warranties, covenants and obligations will not be affected by any investigation conducted with respect to, or any Knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, shall not affect the right to indemnification, payment of Losses or other remedy based on such representations, warranties, covenants and obligations. SECTION 10.2 OBLIGATION OF THE WARRANTOR TO INDEMNIFY. Subject to the limitations set forth in Section 10.5 hereof, in the event the Closing is held, the Seller hereby agrees (and in the event this Agreement is terminated prior to the Closing, the Seller agrees) to indemnify, defend and hold harmless the Purchaser (and its directors, stockholders, officers, employees, affiliates, successors, assigns and Representatives) from and against all Claims, losses, liabilities, damages, deficiencies, judgments, settlements, costs of investigation or other expenses (including interest, penalties and reasonable attorneys' fees and disbursements and expenses incurred in enforcing this indemnification or in any litigation between the parties or with third parties) (collectively, the "Losses") suffered or incurred by the Purchaser or any of the foregoing persons arising out of (i) any breach of the representations, warranties, covenants and agreements of the Seller contained in this Agreement, in the Schedules hereto or in its closing certificates, or (ii) any third party Claim, whether made before or after the date of this Agreement, or any litigation, proceeding or governmental investigation, whether commenced before or after the date of this Agreement, arising out of the operation of the Business, or otherwise relating to any of the Companies, prior to the Closing, or otherwise arising out of any act or occurrence prior to, or any state or facts existing as of the Closing; except that the Seller shall not have any obligation under this Section to the Purchaser with respect to Losses arising from the gross negligence or willful misconduct of the Purchaser, its officers, directors, employees or Representatives. SECTION 10.3 OBLIGATION OF THE PURCHASER TO INDEMNIFY. Subject to the limitations set forth in Section 10.5 hereof, the Purchaser hereby agrees to indemnify, defend and hold harmless the Seller (and its shareholders, directors, officers, employees, affiliates, successors, assigns and Representatives) (and, in the event this Agreement is terminated prior to the Closing, also the Company and its directors, officers, employees, affiliates and Representatives) from and against any Losses suffered or incurred by the Seller or any of the foregoing persons arising out of (i) any breach of the representations and warranties of the Purchaser or of the covenants and agreements of the Purchaser contained in this Agreement or in the Schedules hereto or any Transaction Documents, or (ii) the operation or ownership of the Business from and after the Closing; except that the Purchaser shall have no obligation under this Section to the Seller (and the Company if applicable) with respect to Losses arising from the gross negligence or willful misconduct of the Seller or the Companies and their respective officers, directors, employees or Representatives. 34 SECTION 10.4 NOTICE AND OPPORTUNITY TO DEFEND THIRD PARTY CLAIMS. (a) Promptly after receipt by any party hereto (the "Indemnitee") of notice of any demand, Claim, circumstance or Tax Audit which would or might give rise to a Claim or the commencement (or threatened commencement) of any action, proceeding or investigation (the "Asserted Liability") that may result in a Loss, the Indemnitee shall give prompt written notice thereof (the "Claims Notice") to the party obligated to provide indemnification pursuant to Section 10.2 or 10.3 hereof (the "Indemnifying Party"), but the failure to notify the Indemnifying Party shall not relieve the Indemnifying Party of any liability it may have to the Indemnified Party except to the extent that the Indemnifying Party demonstrates that the defense of such action is prejudiced by the Indemnifying Party's failure to give such notice. The Claims Notice shall describe the Asserted Liability in reasonable detail and shall indicate the amount (estimated, if necessary, and to the extent feasible) of the Loss that has been or may be suffered by the Indemnitee. (b) The Indemnifying Party may elect to defend, at its own expense and with its own counsel reasonably satisfactory to the Indemnitee, any Asserted Liability, unless (i) the Asserted Liability seeks an Order, injunction or other equitable or declaratory relief against the Indemnitee, or (ii) the Indemnitee shall have reasonably concluded that (x) there is a conflict of interest between the Indemnitee and the Indemnifying Party in the conduct of such defense, or (y) the Indemnitee shall have one or more defenses not available to the Indemnifying Party. If the Indemnifying Party elects to defend such Asserted Liability, it shall within thirty (30) days (or sooner, if the nature of the Asserted Liability so requires) notify the Indemnitee of its intent to do so, and the Indemnitee shall cooperate, at the expense of the Indemnifying Party, in the defense of such Asserted Liability. If the Indemnifying Party elects not to defend the Asserted Liability, is not permitted to defend the Asserted Liability by reason of the first sentence of this Section 10.4(b) or fails to notify the Indemnitee of its election as herein provided or contests its obligation to indemnify under this Agreement with respect to such Asserted Liability, the Indemnitee may pay, compromise or defend such Asserted Liability at the sole cost and expense of the Indemnifying Party, provided that such settlement shall be upon commercially reasonable terms and circumstances. Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnitee may settle or compromise any claim over the reasonable written objection of the other, provided that the Indemnitee may settle or compromise any claim as to which the Indemnifying Party is contesting its indemnification obligations hereunder so long as such settlement shall be upon commercially reasonable terms and circumstances. In any event, the Indemnitee and the Indemnifying Party may participate, at their own expense, in the defense of such Asserted Liability. If the Indemnifying Party chooses to defend any Asserted Liability, the Indemnitee shall make available to the Indemnifying Party any books, records or other documents within its control that are necessary or appropriate for such defense. Any out-of-pocket expenses of any Indemnitee for which indemnification is available hereunder shall be included in the Losses for which the Indemnifying Party is responsible. SECTION 10.5 LIMITATION ON INDEMNIFICATION; PAYMENT OF INDEMNIFICATION AMOUNTS. The Sellers' and the Purchaser's liability for indemnifiable damages pursuant to this Article X shall accrue but shall not be payable until the total amount of Losses suffered or incurred by the Purchaser or the Seller (and the Company, if applicable), and their respective Indemnitees, as applicable, exceeds in the aggregate US$50,000, and then the Seller (and the Company, if 35 applicable), or the Purchaser, as applicable, shall be responsible for the payment of all indemnifiable damages which may be payable by such party pursuant to this Article X; provided that the aggregate of the sums of any party under this Article X shall be limited to US$625,000. The obligation of the Seller under this Article X shall be satisfied solely from the Options granted to Winfried Klimek under Section 6.2. The obligation of the Purchaser under this Article X may, at the Purchaser's discretion, be satisfied in shares of Purchaser Common Stock, with the shares valued at the average closing market price for the ten (10) days immediately preceding the date that payment is made. SECTION 10.6 LIMITATION ON INDEMNIFICATION. The Seller and the Purchaser agree that neither of them shall indemnify, or hold each other harmless (including their shareholders, directors, officers, employees, affiliates, successors, assigns and Representatives) from and against any Losses suffered or incurred by any of the foregoing parties arising out of or based upon information disclosed, regardless of whether provided in writing or via email (i) during the course of the due diligence procedure or (ii) any information provided to the party affected by such Losses during the negotiations of the Acquisition, which to the Knowledge of the Seller or the Purchaser has been complete, correct and was diligently collected at the date thereof. In the event this Agreement is terminated prior to the Closing, the Company, its directors, officers, employees, affiliates and Representatives shall become third party beneficiaries of this Section 10.6. ARTICLE XI MISCELLANEOUS SECTION 11.1 NOTICES. (a) Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally by hand, with an acknowledgment of receipt, or by recognized overnight courier, telecopied or mailed (by registered or certified mail, postage prepaid) as follows: (i) If to Purchaser, to: DISTINCTIVE DEVICES, INC. One Bridge Plaza, Suite 100 Fort Lee, New Jersey 07024 USA Attention: Mr. Sanjay Mody, President & CEO Facsimile: (201) 363-9921 36 with a simultaneous copy to: THELEN REID & PRIEST LLP 875 Third Avenue New York, NY 10022 USA Attention: Bruce A. Rich, Esq. Facsimile: (212) 603-2001 (ii) If to the Seller or the Company, one copy to: the Seller: MEDIA HILL COMMUNICATION BERATUNGS- UND VERTRIEBS GMBH Andreaestrasse 3 30159 Hannover Germany Attention: Hans-Jurgen Klimek, CEO Facsimile: the Company: GALAXIS TECHNOLOGY AG Steinmetzstrasse 7 23556 Lubeck Germany Attention: Winfried M. Klimek, CEO Facsimile: (b) Each such notice or other communication shall be effective (i) if given by facsimile, when such facsimile is transmitted to the facsimile number specified in Section 11.1(a) (with confirmation of transmission), or (ii) if given by any other means, when delivered at the address specified in Section 11.1(a). Any party by notice given in accordance with this Section 11.1 to the other party may designate another address (or facsimile number) or person for receipt of notices hereunder. SECTION 11.2 WAIVERS. The failure or delay of a party hereto at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same. No waiver by a party of any condition or of any breach of any term, representation or warranty contained in this Agreement shall be effective unless in writing, and no waiver in any one or more instances shall be deemed to be a further or continuing waiver of any such condition or breach in other instances or a waiver of any other condition or breach of any other term, representation or warranty. 37 SECTION 11.3 INTERPRETATION. (a) Unless the context otherwise requires, the terms defined in Section 12.1 hereof shall have the meanings herein specified for all purposes of this Agreement. The language of this Agreement is English, and shall be the language of both parties hereto and shall in all cases be construed according to its fair meaning and not for or against either party. Any notice or other document to be given by reason of this Agreement shall be in the English language. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." (b) The Purchaser and the Seller acknowledge that they have been advised and represented by counsel in the negotiation, execution and delivery of this Agreement and the other Transaction Documents and accordingly agrees that if an ambiguity exists with respect to any provision of this Agreement or any Transaction Document, such provision shall not be construed against any party because such party or its Representatives were the drafters of any such provision. SECTION 11.4 APPLICABLE LAW. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without giving effect to the principles of conflicts of law thereof. SECTION 11.5 ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that no assignment of any rights or obligations shall be made by any party without the prior written consent of all the other parties hereto; except that the Purchaser shall have the right to assign all or any portion of its rights and obligations under this Agreement to one or more wholly-owned subsidiaries of the Purchaser. SECTION 11.6 NO THIRD PARTY BENEFICIARIES. Except for Section 10.6, this Agreement is solely for the benefit of the parties hereto and, to the extent provided herein, and their respective directors, officers, employees, agents and representatives, and no provision of this Agreement shall be deemed to confer upon other third parties any remedy, claim, liability, reimbursement, cause of action or other right. Notwithstanding the foregoing, Lloyds Bank shall be deemed a third party beneficiary entitled to enforce this Agreement as if it were a party hereto with respect to Section 1.3 or any claims arising out of the Pledge Agreement. SECTION 11.7 ENFORCEMENT OF THE AGREEMENT. The parties hereto agree that irreparable damage would result in the event that any provision of this Agreement is not performed in accordance with specific terms or is otherwise breached. It is accordingly agreed that the parties hereto will be entitled to equitable relief including an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof. SECTION 11.8 SEVERABILITY. If any provision of this Agreement shall be held invalid, illegal or unenforceable, the validity, legality or enforceability 38 of the other provisions hereof shall not be affected thereby, and there shall be deemed substituted for the provision at issue a valid, legal and enforceable provision as similar as possible to the provision at issue. SECTION 11.9 REMEDIES CUMULATIVE. The remedies provided in this Agreement shall be cumulative and shall not preclude the assertion or exercise of any other rights or remedies available by law, in equity or otherwise. SECTION 11.10 ENTIRE UNDERSTANDING. This Agreement (including the Schedules hereto), and the other agreements and certificates entered into in connection with this Agreement, sets forth the entire agreement and understanding of the parties hereto, with respect to the subject matter herein, and supersede all prior agreements, arrangements and understandings (written or oral) among the parties hereto, including the Letter of Intent. This Agreement cannot be amended, modified or terminated except by a writing executed by the parties hereto. SECTION 11.11 WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY DISPUTE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND AGREES TO TAKE ANY AND ALL ACTION NECESSARY OR APPROPRIATE TO EFFECT SUCH WAIVER. SECTION 11.12 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THE PARTIES HERETO IRREVOCABLY: (I) AGREE THAT ANY SUIT, ACTION OR OTHER LEGAL PROCEEDING ARISING OUT OF THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF DELAWARE OR THE COURTS OF THE UNITED STATES LOCATED IN THE STATE OF DELAWARE, CITY OF WILMINGTON, (II) CONSENT TO THE JURISDICTION OF EACH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING, (III) WAIVE ANY OBJECTION WHICH THEY, OR ANY OF THEM, MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY OF SUCH COURTS, AND (IV) WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR OTHER LEGAL PROCEEDING. THE PARTIES HEREBY APPOINT CORPORATION SERVICE COMPANY, 2711 CENTERVILLE ROAD, SUITE 400, WILMINGTON, DELAWARE 19808 AS THEIR AGENT FOR SERVICE IN THE STATE OF DELAWARE FOR SERVICE OF PROCESS RELATING TO ANY DISPUTE IF SUCH PARTY DOES NOT OTHERWISE MAINTAIN AN OFFICE IN THE STATE. SECTION 11.13 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 39 ARTICLE XII DEFINITIONS SECTION 12.1 DEFINITIONS. (a) The following terms, as used herein, have the following meanings: "Agreement" or "this Agreement" means, and the words "herein," "hereof" and "hereunder" and words of similar import refers to, this Agreement and all Schedules hereto as they from time to time may be amended. The term "audit" or "audited" when used in regard to financial statements means an examination of the financial statements by a firm of independent certified public accountants in accordance with generally accepted auditing standards for the purpose of expressing an opinion thereon. "Business Day" means a day that is not a Saturday, Sunday or a day on which banks are required or permitted to be closed in the State of New York. "Contract" means any contract, agreement, indenture, note, bond, lease for personal or real property, conditional sale contract, mortgage, license, franchise, instrument, commitment or other binding arrangement resulting in payment obligations of the Companies in excess of Euro 100,000, whether written or oral. "Code" means the Internal Revenue Code of 1986, as amended. The term "control", with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, by or through stock ownership, agency or otherwise, or pursuant to or in connection with an agreement, arrangement or understanding (written or oral) with one or more other persons by or through stock ownership, agency or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "GAAP" means generally accepted accounting principles in effect on the date hereof as set forth in the opinions and pronouncements of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States. "Knowledge" with respect to (a) any individual means actual knowledge, and (b) any corporation means the actual knowledge of the directors or the executive officers of such corporation; and "Known" and "Knows" has a correlative meaning. "Liability" means any direct or indirect indebtedness, liability, assessment, claim, loss, damage, deficiency, obligation or responsibility, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, actual or potential, contingent or otherwise 40 (including any liability under any guaranties, letters of credit, performance credits or with respect to insurance loss accruals). "Lien" means, with respect to any Asset, any mortgage, lien (including mechanics, warehousemen, laborers and landlords liens), claim, pledge, charge, security interest, preemptive right, right of first refusal, option, judgment, title defect or encumbrance of any kind in respect of or affecting such Asset. "Material Adverse Change" means any major change in the business, properties, assets, prospects, condition (financial or otherwise), liabilities or operations of a Person and its Subsidiaries, taken as a whole, which does not occur in the ordinary course of business conducted by the Company on a daily basis. "Material Adverse Effect" means a material adverse effect on the business, properties, assets, prospects, condition (financial or otherwise), liabilities or operations of a Person and its Subsidiaries, taken as a whole, or on the ability of such Person to perform its obligations under this Agreement. "Person" means an individual, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity, including a government or political subdivision or an agency or instrumentality thereof. "Receivables" means as of any date any trade accounts receivable, notes receivable, sales representative advances and other miscellaneous receivables of any of the Companies arising in the ordinary course. "SEC" means the U.S. Securities and Exchange Commission. "Subsidiary" of a person means any entity of which securities or other ownership interests having ordinary Voting Power to elect a majority of the board of directors, board of managers or other persons performing similar functions are owned directly or indirectly through one or more intermediaries, or both, by the person. "Tax Return" means any return or report (including elections, declarations, disclosures, schedules, attachments, estimates and information returns) relating to Taxes required to be supplied to any Tax Authority, and including any amendment thereof. "Transaction Documents" means, collectively, this Agreement, and each of the other agreements and instruments to be executed and delivered by all or some of the parties hereto in connection with the consummation of the transactions contemplated hereby. (b) The following additional terms are defined in the following sections of this Agreement: 41 TERM SECTION ---- ------- Account Receivable 3.8(c) Asserted Liability 10.4 Acquisition Recitals Acquisition Shares 1.2 Business Recitals Claims 3.16 Claims Notice 10.4 Closing Article II Closing Date Article II Commercial Register Excerpts 3.5 Companies 3.1 Companies' Annual Statements 3.9 Companies' Financial Statements 3.9 Companies' Interim Statements 3.9 Companies' Interim Statements Date 3.10(a) Companies' Latest Balance Sheet 3.9 Companies' Latest Balance Sheet Date [3.8(b)] Companies' Permits 3.17 Company Recitals Company Note 1.2 Company Share Recitals Condition of the Business 3.10(a)(i) Exchange Act 4.9 Fixed Assets 3.8(a) Governmental Bodies [3.4] Indemnifying Party 10.4 Indemnitee 10.4 Insurance Policies 3.19 Laws [4.4] Letter of Intent 5.2(a) Lloyds Bank 1.3(a) Losses 10.2 Major Customers 3.13(a) Major Suppliers 3.13(a) Orders 3.20(a) Pledged Shares 1.3(a) Premises 3.12(a) Purchase Price 1.2 Purchaser Introduction Purchaser Subsidiary 4.2 Purchaser Subsidiaries 4.2 Purchaser Common Stock 4.3 Purchaser's Financial Statements 4.7 Purchaser's Intellectual Property 4.14 Purchaser's Latest Balance Sheet 4.15 Purchaser's SEC Reports 4.9 Real Property Leases 3.12(a) 42 Representatives 5.2(a) Restricted Parties 7.2 Reviewed Entities 5.3(a) Securities Act 1.3(b) Seller Introduction Subsidiaries Recitals Tax Laws 3.18(a) Transaction Expenses 5.6 (c) Terms used with initial capital letters will have the meanings specified, applicable to both singular and plural forms, for all purposes of this Agreement. All pronouns (and any variations) will be deemed to refer to the masculine, feminine or neuter, as the identity of the Person may require. The singular or plural includes the other, as the context requires or permits. The word include (and any variation) is used in an illustrative sense rather than a limiting sense. The word day means a calendar day. All accounting terms not otherwise defined in this Agreement will have the meanings ascribed to them under GAAP. 43 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth above. MEDIA HILL COMMUNICATION BERATUNGS- UND VERTRIEBS GMBH By: /s/ Hans-Jurgen Klimek ------------------------- Name: Hans-Jurgen Klimek Title: Chief Executive Officer DISTINCTIVE DEVICES, INC: By: /s/ Sanjay Mody ------------------------- Name: Sanjay Mody Title: Chief Executive Officer THE UNDERSIGNED AGREES TO BE BOUND BY THIS AGREEMENT TO THE EXTENT OF HIS OBLIGATIONS IN SECTION 6.2 (C) OF THIS AGREEMENT. By: /s/ Winfried M. Klimek ------------------------- Name: Winfried M. Klimek EX-10 4 e571379.txt EXHIBIT 10.1 REGISTRATION RIGHTS AGREEMENT Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 REGISTRATION RIGHTS AGREEMENT AGREEMENT, dated as of this 14 day of January, 2004, among DISTINCTIVE DEVICES INC., a Delaware corporation (the "Company"), and those holders of the common stock of the Company listed on Schedule A attached hereto (individually, a "Stockholder" and collectively, the "Stockholders"). W I T N E S S E T H: WHEREAS, the Company acquired the outstanding capital stock of galaxis technology ag from Media Hill Communication Beratungs-und Vertriebs GmbH (the "Seller"), pursuant to a Share Purchase Agreement, dated the date hereof, in exchange, in part, for shares of the Company's Common Stock; WHEREAS, the Stockholders are shareholders of the Seller and upon distribution from the Seller they received shares of the Company's Common Stock listed on Schedule A; and WHEREAS, the Company and the Stockholders agree that this Agreement shall govern the rights of the Stockholders to cause the Company to register the shares of the Company's Common Stock they received from the Seller. 1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "Commission" means the Securities and Exchange Commission. "Common Stock" means the Common Stock, $.001 par value, of the Company, or any other class into which such Common Stock may be changed. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. "Person" means an individual, a corporation, a partnership, a trust, an unincorporated organization, and a government or any department, agency, or political subdivision thereof. "Prospectus" means the prospectus included in the Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Shares covered by the Registration Statement, and all other amendments or supplements to the prospectus, including post-effective amendments. "Registrable Shares" means (i) shares of Common Stock held by each Stockholder, as set forth on Schedule A attached hereto, and (ii) any other shares of Common Stock of the Company issued in respect of such shares (because of stock splits, stock dividends, reclassifications, recapitalizations, or similar events); provided, however, that shares of Common Stock which are Registrable Shares shall cease to be Registrable Shares upon any sale pursuant to a Registration Statement, Section 4(1) of the Securities Act or Rule 144 under the Securities Act. Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 "Registration Expenses" means the expenses described in Section 5 hereof. "Registration Statement" means a registration statement filed by the Company with the Commission for a public offering and sale of Common Stock of the Company (other than a registration statement for an employee benefit plan on Form S-8 or on any other form or in connection with a merger exchange or other extraordinary transaction on Form S-4 or any other form). "Securities Act" means the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. "Selling Stockholder" means a Stockholder who has Registrable Shares included in a Registration Statement by reason of this Agreement or any permitted transferee of a Stockholder. 2. Demand Registration. 2.1 Demand. A Stockholder or Stockholders may request the Company in writing to effect the registration of their Registrable Shares under the Securities Act. Upon receipt of any such request, the Company shall promptly give written notice of such proposed registration to all other Stockholders. Such Stockholders shall have the right (the "Demand Registration Right"), by giving written notice to the Company within thirty (30) days after the Company provides its notice, to elect to have included in such registration such of their Registrable Shares as such Stockholders may request in such notice of election; provided that the registration cover at least fifty-one percent (51%) of the aggregate number of shares of Common Stock initially received by the Stockholders from the Seller (subject to any adjustments by reason of stock splits, stock dividends, reclassification, recapitalization or similar events.) Thereupon, the Company shall, as expeditiously as possible, use its best efforts to effect the registration all Registrable Shares which the Company has been requested to register in accordance with Section 4. 2.2 Demand Period Notice. A notice requesting registration pursuant to Section 2.1 above may be given by the Stockholders at any time subsequent to January 31, 2005 and prior to the second anniversary of the date thereof. Such notice will describe the proposed plan of sale or distribution, including the underwriters or brokers to be used (if any); provided, however, that if the registration is to be underwritten, the Company will have the right to approve the managing underwriter designated by the Stockholder or Stockholders requesting such registration, which approval will not be unreasonably withheld. 2.3 Filing Obligation. The Company will not be required to file more than one (1) Registration Statement pursuant to this Section 2 that is declared effective by the Commission. In addition, the Company will not be required to file any Registration Statement hereunder within six (6) months after the effective date of any other Registration Statement for the offer and sale of equity securities by the Company. The Company will use its best efforts to maintain the effectiveness of a Registration Statement filed under this Section 2 for a period of not less than ninety (90) days from the effective date thereof. 2 Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 2.4 Delay. If at the time of any request to register Registrable Shares pursuant to this Section 2 or a Registration Statement has been filed but has not yet been declared effective, the Company is engaged or has fixed plans to engage in any financing, acquisition or other material transaction which would be adversely affected by the filing or the maintenance of a Registration Statement otherwise required to be filed or maintained pursuant to this Section 2, or that the Company is in the possession of material nonpublic information required to be disclosed in the Registration Statement, the disclosure of which in such Registration Statement would be materially disadvantageous to the Company (a "Disadvantageous Condition"), then the Company may at its option direct that such request be delayed or, if such Registration Statement has already been filed, may request the Registration Statement be withdrawn, for the shortest period of time but not in excess of six (6) months from the date of determination, and shall promptly give the Selling Stockholders notice of such determination, containing a general statement of the reasons for such delay and an approximation of the anticipated delay. If the Company shall so delay the filing or effect the withdrawal of the Registration Statement, the Selling Stockholders shall have the right to withdraw the request for registration by giving notice to the Company within thirty (30) days after receipt of the notice of delay. 3. Piggy-Back Registration. 3.1 Notice. Whenever the Company proposes to file a Registration Statement (other than pursuant to Section 2 hereof) covering shares of Common Stock at any time and from time to time commencing on October 1, 2004 and terminating on the second anniversary of the date of this Agreement, it will, prior to such filing, give written notice to the Stockholders of its intention to do so and, upon the written request of a Stockholder or Stockholders given within twenty (20) days after the Company provides such notice (which request shall state the intended method of disposition of such Registrable Shares), the Company shall use its best efforts to cause all Registrable Shares which the Company has been requested by such Stockholder or Stockholders to register to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of the Stockholders (the "Piggy-Back Registration Right"); provided that the Company shall have the right to postpone or withdraw any registration effected pursuant to this Section 3 without obligation to the Stockholders; and provided further, however, that the Company shall not be required to include in a Registration Statement covering the offer and sale by the Company of Common Stock in compliance with its obligations under Section 1.3(b) of the Share Purchase Agreement. A Stockholder shall have the right to have his Registrable Shares included in two (2) Registration Statements that are declared effective by the Commission. 3.2 Expiration. After the expiration of two (2) years from the date of this Agreement, the Company shall have no obligation under this Section 3 to effect any registration of the Registrable Shares of any Stockholder or to give notice to any Stockholder of any registration by the Company. 3.3 Underwritten Offering. In connection with any offering under this Section 3 involving an underwriting, the Company shall not be required to include any Registrable Shares in such underwriting unless the Selling Stockholders accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as 3 Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 will not, in the judgment of the underwriters, jeopardize the success of the offering by the Company. If in the opinion of the managing underwriter the registration of all, or part of, the Registrable Shares which the Selling Stockholders have requested to be included would materially and adversely affect such public offering, then (i) the Company shall be required to include in the underwriting only that number of Registrable Shares, if any, which the managing underwriter believes may be sold without causing such adverse effect, and the number of Registrable Shares that may be included in such registration shall be allocated among all Selling Stockholders requesting to participate in such registration in proportion (as nearly as practicable) to the amount of Registrable Shares owned by each Selling Stockholder, or (ii) the Company may require the Selling Stockholders to delay any offering of the Registrable Shares for a period of up to ninety (90) days. 4. Registration Procedures. 4.1 Filing. If and whenever the Company is required by the provisions of this Agreement to use its best efforts to effect the registration of any of the Registrable Shares under the Securities Act, the Company shall: (i) file with the Commission a Registration Statement with respect to such Registrable Shares and use its best efforts to cause that Registration Statement to become and remain effective; (ii) as expeditiously as possible prepare and file with the Commission any amendments and supplements to the Registration Statement and the prospectus included in the Registration as may be necessary to keep the Registration Statement effective for a period of not less than ninety (90) days from the effective date thereof; (iii) as expeditiously as possible furnish to each Selling Stockholder such reasonable numbers of copies of the Prospectus, including a preliminary Prospectus, in conformity with the requirements of the Securities Act, and such other documents as the Selling Stockholder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Shares owned by the Selling Stockholders; (iv) as expeditiously as possible use its best efforts to register or qualify the Registrable Shares covered by the Registration Statement under applicable state securities or Blue Sky laws to the extent necessary to permit the sale or other disposition of such Registrable Shares to the public in such states as the Selling Stockholders may reasonably request, and do any and all other acts and things that may be necessary or desirable to enable the Selling Stockholders to consummate the public sale or other disposition in such states of the Registrable Shares owned by the Selling Stockholders; provided, however, that the Company shall not be required to qualify as a foreign corporation or execute a general consent to service of process in any jurisdiction; (v) cause all Registrable Shares relating to such Registration Statement to be listed on any natural securities exchange or automated quotation system or to be quoted on the over-the-counter bulletin board where the Common Stock is then listed or quoted; and 4 Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 (vi) notify each Selling Stockholder of Registrable Shares covered by such Registration Statement, at any time when a Prospectus relating thereto covered by such Registration Statement is required to be delivered under the Act, of the happening of any event as a result of which the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein when necessary to make the statements therein contained not misleading in the light of the circumstances then existing. 4.2 Updating. If the Company has delivered preliminary or final Prospectuses to the Selling Stockholders and after having done so the Prospectus is amended to comply with the requirements of the Securities Act, the Company shall promptly notify the Selling Stockholders and, if requested, the Selling Stockholders shall immediately cease making offers of Registrable Shares and return all Prospectuses to the Company. The Company shall promptly provide the Selling Stockholders with revised Prospectuses and, following receipt of the revised Prospectuses, the Selling Stockholders shall be free to resume making offers of the Registrable Shares. 5. Allocation of Expenses. The Company will pay all Registration Expenses of all registrations under this Agreement; provided, however, that if a registration is withdrawn at the request of the Selling Stockholders requesting such registration (other than as a result of information concerning the business or financial condition of the Company which is made known to the Selling Stockholders after the date on which such registration was requested) and if the requesting Selling Stockholders elect not to have such registration counted as a registration requested under Section 2 hereof, then the requesting Selling Stockholders shall pay the Registration Expenses of such registration pro rata in accordance with the number of their Registrable Shares included in such registration. For purposes of this Section 5, the term "Registration Expenses" shall mean all expenses incurred by the Company in complying with this Agreement, including, without limitation, all registration and filing fees, exchange listing fees, printing expenses, fees and disbursements of counsel for the Company, state Blue Sky fees and expenses, and the expense of any special accounting services incident to or required by any such registration, but excluding underwriting discounts, selling commissions and the fees and expenses of each Selling Stockholders' own counsel. 6. Indemnification. 6.1 By the Company. In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, to the extent permitted by law, the Company will indemnify and hold harmless each Selling Stockholder who participates in such Registration Statement, each underwriter of such Registrable Shares, and each other person, if any, who controls such Selling Stockholder or underwriter within the meaning of the Securities Act or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such Selling Stockholder, underwriter or controlling person may become subject under the Securities Act, the Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary Prospectus or final 5 Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 Prospectus contained in such Registration Statement, or any amendment or supplement to such Registration Statement, or arise out of or are based upon the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and the Company will reimburse such Selling Stockholder, underwriter and each such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 6.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company nor shall the Company be liable for any loss, claim, damage, liability or action to the extent that (i) it arises out of or is based upon a violation which occurs in reliance upon any conformity with written information furnished expressly for use in connection with such registration by any such Selling Stockholder, underwriter, or controlling person, or (ii) it arises out of or is based upon any material misstatement or material omission in any such registration statement, preliminary Prospectus or final Prospectus if (X) such misstatement or omission is corrected by the Company in an amendment or supplement thereto provided to the Selling Stockholders by the Company in sufficient time prior to the sale of such securities to permit the dissemination thereof to the purchases of securities and (Y) such amendment or supplement (containing such correction) shall not have been given or sent by the Selling Stockholders to the purchaser of the securities. 6.2 By the Selling Stockholders. In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, each Selling Stockholder participating in such registration, severally and not jointly, will indemnify and hold harmless the Company, each of its directors and officers and each underwriter (if any) and each Person, if any, who controls the Company or any such underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities, joint or several, to which the Company, such directors and officers, underwriter or controlling person may become subject under the Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary Prospectus or final Prospectus contained in such Registration Statement, or any amendment or supplement to such Registration Statement, or arise out of or are based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, if the statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of such Selling Stockholder, specifically for use in connection with the preparation of such Registration Statement, prospectus, amendment or supplement; and each such Selling Stockholder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter and Person in connection with, investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 6.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Selling Stockholder nor shall such Selling Stockholder be liable for any loss, claim, damage, liability or action to the extent that it arises out of or is based upon information not furnished expressly for use in connection with such registration by such Selling Stockholder. 6 Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 6.3 Procedure. Promptly after receipt by the party entitled to indemnification under this Section 6 (the "Indemnified Party") of notice of the commencement of any action (including any governmental action), such Indemnified Party will, if a claim in respect thereof is to be made against any party required to provide indemnification under this Section 6 (the "Indemnifying Party"), deliver to the Indemnifying Party a written notice of the commencement thereof and the Indemnifying Party shall have the right to participate in, and, to the extent the Indemnifying Party so desires, jointly with any other Indemnifying Party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an Indemnified Party shall have the right to retain its own counsel (limited to one counsel for all Indemnified Parties), with the fees and expenses of such counsel to be paid by the Indemnifying Party, if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between such Indemnified Party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the Indemnifying Party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such Indemnifying Party of any liability to the Indemnified Party under this Section 6, but the omission so to deliver written notice to the Indemnifying Party will not relieve it of any liability that it may have to any Indemnified Party otherwise under this Section 6. 7. Indemnification with Respect to Underwritten Offering. In the event that Registrable Shares are sold pursuant to a Registration Statement in an underwritten offering pursuant to Section 2 or 3 hereof, the Company agrees to enter into an underwriting agreement containing customary representations and warranties with respect to the business and operations of an issuer of the securities being registered and customary covenants and agreements to be performed by such issuer, including, without limitation, customary provisions with respect to indemnification by the Company of the underwriters of such offering. 8. Information by the Stockholder. If Registrable Shares are included in any Registration Statement pursuant to this Agreement, each Selling Stockholder shall furnish to the Company such information regarding the Selling Stockholder and the distribution proposed by the Selling Stockholder and such other information as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. 9. Transfers of Certain Rights. 9.1 Permitted Transfers The rights granted to each Stockholder pursuant to the terms of this Agreement may be transferred by such Stockholder to another Stockholder, to any affiliate of such Stockholder; provided, however, that the Company is given written notice by the transferee at the time of such transfer stating the name and address of the transferee and identifying the securities with respect to which such rights are being assigned. 9.2 Transferees. Any transferee (other than a Stockholder) to whom rights hereunder are transferred shall, as a condition to such transfer, deliver to the Company a written instrument by which such transferee agrees to be bound by the obligations imposed upon the Stockholders to the same extent as if such transferee were a Stockholder hereunder. 7 Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 9.3 Subsequent Transferees. A transferee to whom rights are transferred pursuant to this Section 9 may not again transfer such rights to any other person or entity other than as provided in Section 9.1 or 9.2 above. 10. No Assignment. Except as provided in Section 9 hereof, the registration rights granted pursuant to this Agreement may not be transferred or assigned by any Selling Stockholder except to Lloyds TSB Bank plc with respect to any registerable shares as to which Lloyds Bank has the right to sell or to acquire under a pledge agreement with either galaxis technology AG or Media Hill Communication Beratungs- und Vertriebs GmbH. This Agreement is intended for the benefit of the parties hereto and their permitted transferees pursuant to Section 9, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. 11. Entire Agreement; Amendments. This Agreement embodies the entire agreement and understanding between the parties, and supersedes all prior agreements and understandings relating to the subject matter hereof. The provisions of this Agreement may be modified or amended at any time and from time to time only by an agreement or consent in writing executed by the Company and the holders of a majority of the Registrable Shares then outstanding; provided, however, that the rights granted under this Agreement may be amended only in a manner which affects all Registrable Shares in the same fashion. 12. Notices. All notices, requests, consents and other communications required to be given pursuant to this Agreement shall be in writing and shall be given by personal delivery, recognized overnight courier or by certified or registered mail, return receipt requested. Notices shall be deemed given when delivered personally or by courier or three (3) days after being so mailed, as the case may be, to the address set forth herein, or to such other address as any party hereto may duly give to the other parties. Notice to the Stockholders shall be to the addresses set forth opposite each Stockholder's name on Schedule A attached hereto, and notice to the Company shall be to: Distinctive Devices Inc. One Bridge Plaza Suite 100 Fort Lee, New Jersey 07024 USA Attn: Sanjay Mody, President & Chief Executive Officer 13. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without giving effect to the principles of conflicts of law. Each party herein irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the City of Wilmington, State of Delaware, (the "Delaware Courts"), for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such Delaware Court, or that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such 8 Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. 14. Headings. The headings of the sections, subsections, and paragraphs of this Agreement have been added for convenience only and shall not be deemed to be a part hereof. 15. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9 Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. DISTINCTIVE DEVICES, INC. By: /s/ Sanjay Mody ----------------------------------- Name: Sanjay Mody Title: President & Chief Executive Officer STOCKHOLDERS LISTED ON SCHEDULE A ATTACHED HERETO: By: /s/ Hans Jurgen Klimek ----------------------------------- Name: Title: 10 Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 SCHEDULE A ---------- Name and Address Number of Shares - ---------------- ---------------- MEDIA HILL COMMUNICATION BERATUNGS-UND 6,400,000 VERTRIEBS GMBH 11 EX-10 5 e571616.txt EXHIBIT 10.2 CONFID. & NON-COMPET. AGMT Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 CONFIDENTIALITY AND NON-COMPETITION AGREEMENT AGREEMENT, dated as of January 14, 2004, by and among DISTINCTIVE DEVICES INC., a Delaware corporation ("DDI"), galaxis technology ag, a German corporation (the "Company"), MEDIA HILL COMMUNICATION BERATUNGS-UND VERTRIEBS GMBH, a German limited liability company ("Media Hill"), WINFRIED M. KLIMEK ("W. Klimek") and HANS-JURGEN KLIMEK ("H. Klimek", together with Media Hill and W. Klimek sometimes each individually a "Covenantor" and collectively, the "Covenantors"). WHEREAS, concurrently with the execution and delivery of this Agreement, DDI is purchasing the outstanding capital stock of the Company from Media Hill pursuant to a Share Purchase Agreement between DDI and Media Hill; WHEREAS, the business of the Company involves the development of certain technology relating to digital television software and set-top box technology which it markets in the European Union, and which technology is proprietary to the Company, and a primary reason for DDI's interest in the Company; WHEREAS, H. Klimek is the principal shareholder and CEO of Media Hill and W. Klimek is CEO of the Company, and in such positions each of them has knowledge of and access to confidential and proprietary information of the Company; WHEREAS, to induce DDI to enter into and close the Share Purchase Agreement, each of the Covenanters agrees to the restrictions set forth herein; NOW, THEREFORE, in consideration for the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Covenantors agree as follows: 1. Definitions. As used herein, the following words have the meanings specified: 1.1 "Confidential Information" means: 1.1.1 trade secrets concerning the business and affairs of the Companies, product specifications, data, know-how, formulae, compositions, processes, software programs and applications, samples, inventions and ideas, past, current, and planned research and development, customer lists, current and anticipated customer requirements, price lists, market studies, and any other information, however documented, that is a trade secret within the meaning of German law; 1.1.2 information concerning the business and affairs of the Companies (which includes historical financial statements, financial projections and budgets, historical and projected sales, spending budgets and plans, the names and backgrounds of key personnel, personnel training and techniques and materials, however documented); and Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 1.1.3 notes, analysis, compilations, studies, summaries, and other material prepared by or for the Company or for the Companies or based, in whole or in part, on any information included in the foregoing. However, Confidential Information does not include any information that may be in the public domain or come into the public domain not as a result of a breach by the Covenantors of any of the terms or provisions of this Agreement. 1.2 "Companies" means the Company and its subsidiaries, whether presently owned or hereafter created or acquired. 1.3 "Creations" means any and all manuscripts, writings, pictorial materials and other creations. 1.4 "Inventions" means 1.4.1 any idea, invention, technique, modification, process or improvement (whether patentable or not); 1.4.2 any industrial design (whether registerable or not); and 1.4.3 any work of authorship created, conceived, or developed by any of the Companies, either solely or in conjunction with others, that relates in any way to the business then being conducted or proposed to be conducted by the Companies and any such item created by the Companies, either solely or in conjunction with others, that is based upon or uses Confidential Information. 1.5 "Non-Compete Period" means the period of time commencing on, and ending three (3) years from, the date hereof. 1.6 "Territory" means the economic area of the European Union. 2. Confidential Information. 2.1 Non-Disclosure. Each Covenantor agrees that he or it will hold in confidence the Confidential Information and will not disclose (in writing or orally) such Confidential Information to any unauthorized persons except with the specific prior written consent of the Company or DDI, or except as otherwise expressly permitted by the terms of this Agreement or except as to W. Klimek in connection with his employment with the Company. 2.2 Trade Secrets. Any trade secrets of the Companies shall be entitled to all of the protections and benefits under German law and any other applicable law. If any information that the Company deems to be a trade secret is found by a court of competent jurisdiction not to be a trade secret for purposes of this Agreement, such information will, nevertheless, be considered Confidential Information for purposes of this Agreement. The Covenantors hereby waive any requirement that the Company or DDI submit proof of the economic value of any trade secret or post a bond or other security. 2 Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 3. Non-Competition and Non-Interference Agreement. 3.1 Restriction. As an inducement for DDI to enter into and close the Share Purchase Agreement and as additional consideration thereunder, each Covenantor (except as to W. Klimek in the course of his employment with the Company) agrees that he or it will not, directly or indirectly: 3.1.1 During the Non-Compete Period, engage or invest in, own, manage, operate, finance, control or participate in the ownership, management, operation, financing, or control of, be employed, be associated with, or in any manner connected with, lend such Covenantor's name or any similar name to, lend such Covenantor's credit to or render services or advice to, any business in the Territory whose products or activities compete in whole or in part with the products or activities of the Companies; provided, however, that any Covenantor may purchase or otherwise acquire up to (but not more than) one percent (1%) of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are publicly traded on any securities exchange or automated quotation system; 3.1.2 Whether for the Covenantor's own account or for the account of any other person, at any time during the Non-Compete Period, solicit business in the Territory of the same or similar type being carried on by the Companies from any person known by such Covenantor to be a customer of the Companies whether or not such Covenantor had personal contact with such person; 3.1.3 Whether for such Covenantor's own account or the account of any other person (i) at any time during the Restricted Period, solicit, employ, or otherwise engage as an employee or independent contractor any person who is or was an employee of or independent contractor to the Companies at any time during the Non-Compete Period or in any manner induce or attempt to induce any employee of the Companies to terminate his employment with the Company, or (ii) at any time during the Non-Compete Period, interfere with the Company's relationship with any person, including any person who at any time during the Non-Compete Period was an employee, contractor, supplier or customer of the Company; or 3.1.4 At any time during or after the Non-Compete Period, disparage the Company, its shareholders, directors, officers, employees or agents. 3.2 Reformation. If any covenant in this Section 3 is held to be unreasonable, arbitrary, or against public policy, such covenant will be considered to be divisible with respect to scope, time, and geographic area, and such lesser scope, time, or geographic area or all of them, as a court of competent jurisdiction may determine to be reasonable, not arbitrary, and not against public policy, will be effective, binding, and enforceable against the Covenantors. 3.3 Extension. The period of time applicable to any covenant in this Section 3 with respect to each Covenantor will be extended by the duration of any violation by that Covenantor of such covenant. 4. Remedies. In the event of any breach or threatened breach by any Covenantor of the covenants in this Agreement, the Covenantor specifically recognizes that 3 Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 the remedies of DDI and the Company at law may be inadequate and that DDI and /or the Company shall be entitled to all equitable and such other relief, including injunctions, as may be appropriate. Such relief shall not be exclusive of any other rights that DDI or the Company may have at law or in equity. All rights and remedies of DDI and the Company hereunder shall be cumulative and not alternative. In the event DDI or the Company commences any action to enforce its rights under this Agreement, the Covenantor against which any such action is commenced shall bear the expenses (including reasonable attorneys' fees) of DDI or the Company, except to the extent otherwise determined by the tribunal where the action is commenced. 5. Severability. If any term or provision of this Agreement shall be determined to be invalid or unenforceable to any extent or in any application or in any jurisdiction, then the remainder of this Agreement, and of such terms or provision except to such extent or in such application or such jurisdiction, shall not be affected thereby, and each and every term and provision of this Agreement shall be enforced to the fullest extent and in the broadest application which a court of competent jurisdiction would deem valid and enforceable. 6. Representations and Warranties. Each of the parties hereto represents and warrants to the other parties hereto that the statements in the recitals concerning such party are true and correct and that this Agreement constitutes a valid and legally binding obligation of such party enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith, and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). 7. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and if delivered by hand, sent by recognized overnight courier or mailed (postage prepaid) to the parties to this Agreement, to the addresses set forth below or such other address as any party hereto may hereafter duly give to the other parties: If to DDI: Distinctive Devices Inc. One Bridge Plaza Suite 100 Fort Lee, New Jersey 07024 Attn: Sanjay Mody, President & CEO If to Media Hill: Media Hill Communication Beratungs- und Vertriebs GmbH Andreastrasse 3 30159 Hannover Germany Attn: Hans-Jurgen Klimek If to H. Klimek: Hans-Jurgen Klimek Manteufelstrasse 3 30163 Hannover Germany If to W. Klimek 4 Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 Winfried M. Klimek Berliner Strasse 6 23611 Bad Schwartau Germany 8. Waivers. The waiver by any party hereto of any breach or requirement of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent breach or requirement by such party, whether similar or different. 9. Assignment. The rights and obligations of the Covenantors under this Agreement shall be binding upon them and their respective successors, heirs, administrators and assigns, and shall inure to the benefit of the Company and DDI and their respective successors and assigns. The Company and DDI may assign their rights hereunder to (i) an entity resulting or surviving any merger, consolidation or other reorganization to which the Company or DDI is a party, (ii) to any affiliate of DDI or (iii) any entity to which the Company may transfer or sell all or substantially all of the assets and business of the Company existing at such time. 10. Entire Understanding. This Agreement sets forth the entire agreement and understanding of the parties with respect to the subject matter hereof, and all prior and other agreements, oral or written, concerning the same subject matter, including without limitation all businessmen's discussion, correspondence, and other writings, are not a part of and are superseded by this Agreement. In the event of any conflict between the terms and conditions of this Agreement and those in any other agreement (such as the Share Purchase Agreement or an employment agreement with W. Klimek) between or among the parties hereto as to the subject matter herein, the terms and conditions of this Agreement shall govern. 11. Amendments. This Agreement may not be amended or modified except by a writing executed by each of the parties hereto, which writing specifically refers to this Agreement and expressly states that it is intended to amend or modify this Agreement. 12. Headings. The descriptive headings of this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. 13. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of Germany, without regard to conflict of laws principles. 14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be considered an original instrument (whether in original or facsimile form), but all of which taken together shall be considered one and the same instrument, and shall become binding when one or more counterparts shall have been signed by each of the parties. 5 Thelen Reid & Priest LLP EXECUTION COPY January 14, 2004 IN WITNESS WHEREOF, the parties have caused this agreement to be executed on the day first written above. DISTINCTIVE DEVICES INC. By: /s/ Sanjay Mody ---------------------------- Name: Sanjay Mody Title: President & Chief Executive Officer MEDIA HILL COMMUNICATION BERATUNGS- UND VERTRIEBS GMBH By: /s/ Hans-Jurgen Klimek ---------------------------- Name: Hans-Jurgen Klimek Title: Chief Executive Officer WINFRIED KLIMEK By: /s/ Winfried Klimek ---------------------------- HANS JURGEN KLIMEK By: /s/ Hans Jurgen Klimek ---------------------------- GALAXIS TECHNOLOGY AG By: /s/ Winfried Klimek ---------------------------- Name: Winfried Klimek Title: Chief Executive Officer 6 EX-10 6 e575735.txt EXHIBIT 10.3 PLEDGE AGREEMENT CLIFFORD LIMITED LIABILITY PARTNERSHIP CHANCE EXECUTION COPY GALAXIS TECHNOLOGY AG AS PLEDGOR AND LLOYDS TSB BANK PLC AS SECURED PARTY - -------------------------------------------------------------------------------- PLEDGE AGREEMENT - -------------------------------------------------------------------------------- CONTENTS CLAUSE PAGE 1. Definitions...........................................................1 2. Pledge................................................................3 3. Representations and Warranties Of Pledgor.............................5 4. Covenants of Pledgor..................................................7 5. Voting Rights and Certain Payments Prior to Event of Default..........8 6. All Payments in Trust.................................................9 7. Expenses..............................................................9 8. Remedies.............................................................10 9. Suretyship Waivers by Pledgor; Obligations Absolute..................14 10. Marshalling..........................................................15 11. Proceeds Of Dispositions.............................................15 12. Reinstatement........................................................16 13. Miscellaneous........................................................16 SCHEDULE 1 To Pledge Agreement PLEDGE AGREEMENT (this "PLEDGE AGREEMENT"), dated as of January 2004 BETWEEN (1) GALAXIS TECHNOLOGY AG, a German stock corporation (Aktiengesellschaft), having its business address at Steinmetzstrasse 7, 23556, Lubeck, Germany, registered in the commercial register of the local court of Lubeck under HE6 4762 ("PLEDGOR"); (2) LLOYDS TSB BANK PLC a company incorporated in England and Wales (Company number: 00002065) acting though a branch at Gatwickstraat 17-19, 1001 AH Amsterdam, The Netherlands ("SECURED PARTY"); (A) WHEREAS, Secured Party has made loans to Pledgor and Omniscience Multimedia Lab GmbH; and (B) WHEREAS, in order to secure all Secured Obligations (as defined below), Pledgor has agreed to execute and deliver to Secured Party a pledge agreement in substantially the form hereof over certain shares in Distinctive Devices, Inc, a company incorporated under the laws of the State of Delaware. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS 1.1 DEFINITION OF TERMS USED HEREIN GENERALLY All terms used herein and defined in the NYUCC (as defined below) shall have the same definitions herein as specified therein; PROVIDED, HOWEVER, THAT if a term is defined in Article 9 of the NYUCC differently than in another Article of the NYUCC, the term has the meaning specified in Article 9 of the NYUCC. 1.2 DEFINITION OF CERTAIN TERMS USED HEREIN AB used herein, the following terms shall have the following meanings: "ACQUISITION AGREEMENt" means the share purchase agreement dated of the same date hereof for the purchase of stock of galaxis technology ag from Media Hill Beratungsund Vertriebs GmbH, as seller, by Distinctive Devices, Inc, as purchaser. "EVENTS" shall have the meaning assigned to such term in sub-clause 8.3.1 of Clause 8.3 (Secured Party's Duties of Reasonable Care). "EXTRAORDINARY PAYMENTS" shall have the meaning assigned to such term in subclause 5.1.2 of Clause 5.1 (Voting Rights and Ordinary Payments Prior to an Event of Default). "FINANCE PARTIES" shall mean Pledgor and Omniscience Multimedia Lab GmbH. 1 "FINANCE DOCUMENTS" shall mean: (a) a revolving facility letter dated 28 November 2001 between galaxis technology ag, as Borrower, Media Hill Beratungs- und Vertriebs GmbH, as Guarantor and Lloyds TSB Bank plc, as Lender, as subsequently amended from time to time; (b) a loan agreement dated 26 March 2003 between OmniScience Multimedia Lab GmbH, as Borrower, galaxis technology ag and Convergence GmbH, as. Guarantors and Lloyds TSB Bank plc, as Lender as subsequently amended from time to time; and (c) the Acquisition Agreement. "INDEMNIFIED PARTY" shall have the meaning assigned to such term in Clause 8.4 (Indemnification). "LIEN" shall mean any security interest, mortgage, lien, encumbrance or adverse claim, and any financing statement or similar document filed in respect of same. "PLEDGED COLLATERAL" shall have the meaning assigned to such term in Clause 2.1 (Grant of Security Interest). "PLEDGED SECURITIES" shall have the meaning assigned to such term in sub-clause 2.2.2 of Clause 2.2 (Description of Pledged Collateral). "NYUCC" shall mean the UCC as in effect in the State of New York from time to time. "SECURED OBLIGATIONS" means (a) the due and punctual payment by the Finance Parties of (i) the principal of and premium, if any, and interest (including interest accruing under the terms of the Finance Documents during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on any amounts outstanding under the Finance Documents, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Finance Parties to the Secured Party under the Finance Documents, (b) the due and punctual performance of all covenants, agreements, obligations and .liabilities of the Finance Parties under or pursuant to the Finance Documents, (c) the due and punctual payment and performance of all the covenants, agreements, obligations and liabilities of each Finance Party under or pursuant to this Pledge Agreement and the other Finance Documents and (d) all damages (whether provided for in the Finance Documents or otherwise permitted by law) in respect of a failure or refusal by Galaxis to payor perform as required under the Finance Documents. 2 "SECURITIES ACT" shall have the meaning assigned to such term in sub-clause 8.1.4 of Clause 8.1 (Disposition upon Default and Related Provisions). "SECURITY INTEREST" means the security interest granted pursuant to Clause 2.1 (Grant of Security Interest), as well as any other security interests created or assigned as additional security for the Secured Obligations pursuant to the provisions of this Pledge Agreement. "UCC" means the Uniform Commercial Code as in effect in any jurisdiction. References to particular sections of Article 9 of the UCC shall be, unless otherwise indicated, references to Revised Article 9 of the UCC adopted and effective in certain jurisdictions on or after July 1,2001. 1.3 RULES OF INTERPRETATION References to "CLAUSES", "EXHIBITS" and "SCHEDULES" shall be to Clauses, Exhibits and Schedules, respectively, of this Pledge Agreement unless otherwise specifically provided. Any of the terms defined in this Pledge Agreement may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. All references to statutes and related regulations shall include (unless otherwise specifically provided herein) any amendments of same and any successor statutes and regulations. 2. PLEDGE 2.1 GRANT OF SECURITY INTEREST To secure the payment or performance, as the case may be, in full of the Secured Obligations, whether at stated maturity, by acceleration or otherwise Pledgor hereby pledges to Secured Party, and grants to Secured Party a first priority Security Interest in, the collateral described in Clause 2.2 (Description of Pledged Collateral) (collectively, the "PLEDGED COLLATERAL"). 2.2 DESCRIPTION OF PLEDGED COLLATERAL 2.2.1 The Pledged Collateral is described as follows and on any separate schedules at any time furnished by Pledgor to Secured Party (which schedules are hereby deemed part of this Pledge Agreement): (a) all right, title and interest of Pledgor as holder (whether now or in the future) in (i) shares or other equity interests in Distinctive Devices, Inc., or any warrants to purchase or depositary shares or other rights in respect of any such interests, and (ii) all shares of stock, certificates, instruments or other documents evidencing or representing the same; (b) all right, title and interest of Pledgor in and to all present and future payments, proceeds, dividends, distributions, instruments, compensation, property, assets, interests and rights in connection with or related to the collateral listed in sub-clause 2.2.1(a) above, and all monies due or to become due and payable to Pledgor in connection with or related to such collateral or otherwise paid, issued or distributed from time to time in respect of or in exchange therefor, and any certificate, instrument or other 3 document evidencing or representing the same (including, without limitation, all proceeds of dissolution or liquidation); and (c) all proceeds of all of the foregoing, of every kind, and all proceeds of such proceeds. 2.2.2 The shares of stock, certificates, instruments or other documents evidencing or representing the foregoing shall be collectively referred to herein as the "PLEDGED SECURITIES". 2.2.3 Notwithstanding the foregoing, the terms "PLEDGED COLLATERAL" and "PLEDGED SECURITIES" shall not include any Margin Stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System of the United States, as the same is from time to time in effect), and the Security Interest granted hereunder shall not be effective in respect of any collateral until such time as such collateral no longer constitutes Margin Stock. 2.3 DELIVERY OF CERTIFICATES, INSTRUMENTS, ETC. 2.3.1 Pledgor shall deliver to Secured Party: (a) all original shares of stock, certificates, instruments and other documents evidencing or representing the Pledged Collateral concurrently with the execution and delivery of this Pledge Agreement; and (b) the original shares of stock, certificates, instruments or other documents evidencing or representing all Pledged Collateral (other than Pledged Collateral that this Pledge Agreement specifically permits Pledgor to retain) within ten (10) days after Pledgor's receipt thereof. 2.3.2 All Pledged Securities that are certificated securities shall be in bearer form or, if in registered form, shall be issued in the name of Secured Party or endorsed to Secured Party or in blank. 2.4 REGISTRATION At any time and from time to time, Secured Party may cause all or any of the Pledged Securities to be transferred to or registered in its name or the name of its nominee or nominees. 2.5 AUTHORIZATION TO FILE FINANCING STATEMENTS Pledgor hereby irrevocably authorizes Secured Party at any time and from time to time to file in any jurisdiction in which the UCC has been adopted any initial financing statements and amendments thereto that (a) describe the Pledged Collateral, and (b) contain any other information required by part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any initial financing statement or amendment, including (i) whether Pledgor is an organization, the type of organization and any organization identification number issued to Pledgor. Pledgor agrees to furnish any such information to Secured Party promptly upon request. Pledgor also ratifies its authorization for Secured Party to have filed in any UCC 4 jurisdiction any like initial financing statements or amendments thereto if filed prior to the date hereof. 2.6 RELEASE The parties hereto acknowledge that the Pledged Collateral of Galaxis will be released upon discharge of all Secured Obligations. 3. REPRESENTATIONS AND WARRANTIES OF PLEDGOR Pledgor hereby represents and warrants to Secured Party that: 3.1 PLEDGOR'S LEGAL STATUS 3.1.1 Pledgor is an organization, as set forth in Schedule 1 hereto; 3.1.2 Pledgor's. organization is of the type, and is organized in the jurisdiction, set forth in Schedule I hereto; and 3.1.3 Schedule 1 hereto sets forth Pledgor's organizational identification number or states that Pledgor has none. 3.2 PLEDGOR'S LEGAL NAME Pledgor's exact legal name is that set forth in Schedule I hereto and on the signature page hereof. 3.3 PLEDGOR'S LOCATIONS Pledgor's state of organization and Pledgor's place of business or (if it has more than one place of business) its chief executive office, as well as its mailing address if different. 3.4 AUTHORITY; BINDING OBLIGATION; NO CONFLICT Pledgor has full power and authority to execute, deliver and perform its obligations in accordance with the terms of this Pledge Agreement and to grant to Secured Party the Security Interest in the Pledged Collateral pursuant hereto, without the consent or approval of any other person or entity other than any consent or approval which has been obtained and is in full force and effect (and a written of which has been delivered to Secured Party). This Pledge Agreement has been duly authorized, executed and delivered by Pledgor and is the legally valid and binding obligation of Pledgor, enforceable against Pledgor in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws or equitable principles relating to or limiting creditor's rights generally. The granting to Secured Party of the Security Interest in the Pledged Collateral hereunder, the, execution by Pledgor of this Pledge Agreement and the performance by Pledgor of its obligations hereunder do not and will not (a) result in the existence or imposition of any Lien nor obligate Pledgor to create any Lien (other than such Security Interest) in favor of any person or entity over all or any of its assets; (b) conflict with any agreement, mortgage, bond or other instrument to which Pledgor is a party or which is binding upon Pledgor or any of its assets; (c) conflict with Pledgor's certificate of incorporation, by-laws, or other organizational or charter documents; or (d) conflict with any law, regulation or judicial order binding on Pledgor or any of the Pledged Collateral. 5 3.5 TITLE TO PLEDGED COLLATERAL The Pledged Collateral is owned by Pledgor (as set out in Schedule 1 hereto) free and clear of any Lien, except for Liens expressly permitted by the Finance Documents. No Pledgor has filed or consented to the filing of (a) any financing statement or analogous document under the UCC or any other applicable laws covering any Pledged Collaterals, (b) any assignment in which Pledgor assigns any Pledged Collateral or any security agreement or similar instrument covering any Pledged Collateral with any foreign governmental, municipal or other office, which financing statement or analogous document, assignment, security agreement or similar instrument is still in effect, except, in each case, for Liens expressly permitted pursuant to the Finance Documents. 3.6 PLEDGED COLLATERAL Set forth on Schedule I hereto is a complete and accurate list and description of all the Pledged Collateral. 3.7 PERCENTAGE OWNERSHIP The Pledged Securities of each issuer specifically identified on Schedule 1 hereto constitute, and until this Pledge Agreement terminates shall continue to constitute, the percentage of the outstanding equity of each such issuer as indicated on Schedule 1 hereto. 3.8 DUE AUTHORIZATION, ETC, OF STOCK; NOT MARGIN STOCK The Pledged Securities listed on Schedule 1 hereto have been duly authorized and validly issued and are fully paid and non-assessable and are not subject to any options to purchase or similar rights of any person, and none of the Pledged Securities constitutes Margin Stock. 3.9 REQUIRED CONSENTS Except as may be required in connection with any disposition of any portion of the Pledged Securities by laws affecting the offering and sale of securities generally, no consent of any person (including, without limitation, partners, shareholders or creditors of either Pledgor or of any subsidiary of Pledgor) and no license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental instrumentality is required in connection with (a) the execution, delivery, performance, validity or enforceability of this Pledge Agreement, (b) the perfection or maintenance of the Security Interest created hereby (including the first priority nature of such Security Interest), or ( c) the exercise by Secured Party of the . rights provided for in this Pledge Agreement. 3.10 NATURE OF SECURITY INTEREST Upon the delivery of the Pledged Securities to Secured Party, the pledge of the Pledged Collateral pursuant to this Pledge Agreement creates a valid and perfected first priority Security Interest in the Pledged Collateral, securing the prompt and complete payment, performance and observance of the Secured Obligations. 6 4. COVENANTS OF PLEDGOR 4.1 PLEDGOR'S LEGAL STATUS No Pledgor shall change its type of organization, jurisdiction of organization or other legal structure (without the consent of the Secured Party). 4.2 PLEDGOR'S NAME Without providing at least 30 days prior written notice to Secured Party, no Pledgor shall change its name. 4.3 PLEDGOR'S ORGANIZATIONAL NUMBER Without providing at least 30 days prior written notice to Secured Party, no Pledgor shall change its organizational identification number if it has one. If Pledgor does not have an organizational identification number and later obtains one, Pledgor shall forthwith notify Secured Party of such organizational identification number. 4.4 LOCATIONS Without providing at least 30 days prior written notice to Secured Party, no Pledgor shall change its principal residence, its place of business or (if it has more than one place of business) its chief executive office or its mailing address. 4.5 TITLE TO PLEDGED COLLATERAL 4.5.1 Except for the Security Interest herein granted, Pledgor shall be the owner of the Pledged Collateral free from any Lien, and Pledgor, at its sole cost and expense, shall defend the same against all claims and demands of all persons at any time claiming the same or any interests therein adverse to Secured Party; and 4.5.2 No Pledgor shall sell or otherwise dispose of, or pledge, mortgage or create, or suffer to exist a Lien on, the Pledged Collateral in favor of any person other than Secured Party and the inclusion of "PROCEEDS" of the Pledged Collateral under the Security Interest granted herein shall not be deemed a consent by Secured Party to any sale or other disposition of any Pledged Collateral. 4.6 TAXES Pledgor shall pay promptly when due all taxes, assessments, governmental charges and levies upon the Pledged Collateral or incurred in connection with the Pledged Collateral or incurred in connection with this Pledge Agreement. 4.7 FURTHER ASSURANCES Pledgor will, from time to time, at its expense, promptly execute and deliver all further instruments and documents and take all further action that may be necessary, or that Secured Party may reasonably request, in order to perfect and protect any Security Interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. 7 5. VOTING RIGHTS AND CERTAIN PAYMENTS PRIOR TO EVENT OF DEFAULT 5.1 VOTING RIGHTS AND ORDINARY PAYMENTS PRIOR TO AN EVENT OF DEFAULT So long as no Event of Default shall have occurred in any of the Finance Documents, Pledgor shall be entitled: 5.1.1 to exercise, as it shall think fit, but in a manner not inconsistent with the terms hereof, the voting power with respect to the Pledged Collateral of Pledgor, and for that purpose Secured Party shall (if any Pledged Securities shall be registered in the name of Secured Party or its nominee) execute or cause to be executed from time to time, at the expense of Pledgor, such proxies or other instruments in favor of Pledgor or its nominee, in such form and for such purposes as shall be reasonably required by Pledgor and shall be specified in a written request therefor, to enable it to exercise such voting power with respect to the Pledged Securities; and 5.1.2 except as otherwise provided in Clause 5.2 (Extraordinary Payments and Distributions) and Clause 5.3 (Voting Rights and Ordinary Payments after an Event of Default), to receive and retain for its own account any and all payments, proceeds, dividends, distributions, monies, compensation, property, assets, instruments or rights to the extent such are permitted pursuant to the terms of the Finance Documents, other than (a) stock or liquidating dividends or (b) extraordinary dividends and dividends or other amounts payable under or in connection with any recapitalization, restructuring, or other non-ordinary course event (the dividends and amounts in this sub-clause (b) being "EXTRAORDINARY PAYMENTS"), paid, issued or distributed from time to time in respect of the Pledged Collateral. 5.2 EXTRAORDINARY PAYMENTS AND DISTRIBUTIONS 5.2.1 In case, upon the dissolution or liquidation (in whole or in part) of any issuer of any Pledged Collateral, any sum shall be paid or payable as a liquidating dividend or otherwise upon or with respect to any of the Pledged Securities or, in the event any other Extraordinary Payment is paid or payable, then and in any such event, such sum shall be paid by Pledgor to Secured Party promptly, and in any event within ten (10) days after receipt thereof, to be held by Secured Party as additional collateral hereunder and all of the same shall constitute Pledged Collateral for all purposes hereof. 5.2.2 In case any stock dividend shall be declared with respect to any of the Pledged Collateral, or any shares of stock or fractions thereof shall be issued pursuant to any stock split involving any of the Pledged Collateral, or any distribution of capital shall be made on any of the Pledged Collateral, or any shares, obligations or other property shall be distributed upon, or with respect to, the Pledged Collateral, in each case pursuant to a recapitalization or reclassification of the capital of the issuer thereof, or pursuant to the dissolution, liquidation (in whole or in part), bankruptcy or reorganization of such issuer, or to 8 the merger or consolidation of such issuer with or into another corporation, the shares, obligations or other property so distributed shall be delivered by Pledgor to Secured Party promptly, and in any event within ten (10) days after receipt thereof, to be held by Secured Party as additional collateral hereunder subject to the terms of this Pledge Agreement, and all of the same shall constitute Pledged Collateral for all purposes hereof. 5.3 VOTING RIGHTS AND ORDINARY PAYMENTS AFTER AN EVENT OF DEFAULT Upon the occurrence and during the continuance of any Event of Default in any of the Finance Documents, all rights of Pledgor to exercise or refrain from exercising the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to sub-clause 5.1.1 of Clause 5.1 (Voting Rights and Ordinary Payments Prior to an Event of Default) hereof and to receive the payments, proceeds, dividends, distributions, monies, compensation, property, assets, instruments or rights that Pledgor would otherwise be authorized to receive and retain pursuant to sub-clause 5.1.2 of Clause 5.1 (Voting Rights and Ordinary Payments Prior to an Event of Default) hereof shall cease, and thereupon Secured Party shall be entitled to exercise all voting power with respect to the Pledged Securities and to receive and retain, as additional collateral hereunder, which shall constitute Pledged Collateral for all purposes hereof, any and all payments, proceeds, dividends, distributions, monies, compensation, property, assets, instruments or rights at any time declared or paid upon any of the Pledged Collateral during such an Event of Default and otherwise to act with respect to the Pledged Collateral as outright owner thereof. 6. ALL PAYMENTS IN TRUST All payments, proceeds, dividends, distributions, monies, compensation, property, assets, instruments or rights that are received by Pledgor contrary to the provisions of Clause 5 (Voting Rights and Certain Payments Prior to Event of Default), shall be received and held in trust for the benefit of Secured Party, shall be segregated by Pledgor from other funds of Pledgor and shall be forthwith paid over to Secured Party as Pledged Collateral in the same form as so received (with any necessary endorsement). 7. EXPENSES Pledgor shall pay all reasonable expenses incurred by Secured Party in connection with the negotiation, execution, delivery, amendment, waiver, renegotiation, enforcement or collection of this Pledge Agreement or the exercise of remedies hereunder, including, without limitation, reasonable attorney's fees, advertising costs, fees and expenses of advisors and investment bankers and other experts. If either Pledgor fails promptly to pay any portion of the above expenses when due or to perform any other obligation of Pledgor under this Pledge Agreement, Secured Party may, at its option, but shall not be required to, payor perform the same and charge Pledgor for all costs and expenses incurred therefor, and Pledgor agrees to reimburse Secured Party therefor on demand. All sums so paid or incurred by Secured Party for any of the foregoing, any and all other sums for which Pledgor may become liable hereunder and all such costs and expenses incurred by Secured Party in enforcing or protecting the 9 Security Interests or any of its rights or remedies under this Pledge Agreement shall be payable by Pledgor on demand, shall constitute Secured Obligations, shall bear interest until paid at a rate of 1 per cent per annum. 8. REMEDIES 8.1 DISPOSITION UPON DEFAULT AND RELATED PROVISIONS 8.1.1 Upon the occurrence and during the continuance of any Event of Default under any Finance Document, Secured Party may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all rights of voting, exercise and conversion with respect to the Pledged Collateral and all of the rights and remedies of a secured party on default under the NYUCC at that time (whether or not applicable to the affected Pledged Collateral) and may also, without obligation to resort to other security, at any time and from time to time sell, resell, assign and deliver, in its sole discretion, all or any of the Pledged Collateral in one or more parcels at the same or different times, and all right, title and interest, claim and demand therein and right of redemption thereof, on any securities exchange on which any Pledged Collateral may be listed, or at public or private sale, for cash, upon credit or for future delivery, and in connection therewith Secured Party may grant options. 8.1.2 If any of the Pledged Collateral is sold by Secured Party upon credit or for future delivery, Secured Party shall not be liable for the failure of the purchaser to purchase or pay for the same and, in the event of any such failure, Secured Party may resell such Pledged Collateral. In no event shall any Pledgor be credited with any part of the proceeds of sale of any Pledged Collateral until cash payment therefor has actually been received by Secured Party. 8.1.3 Secured Party may purchase any Pledged Collateral at any public sale and, if any Pledged Collateral is of a type customarily sold in a recognized market or is of the type that is the subject of widely distributed standard price quotations, Secured Party may purchase such Pledged Collateral at private sale, and in each case may make payment therefor by any means, including, without limitation, by release or discharge of Secured Obligations in lieu of cash payment. 8.1.4 Pledgor recognizes that Secured Party may be unable to effect a public sale of all or part of the Pledged Collateral consisting of securities by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "SECURITIES ACT"), or in applicable Blue Sky or other state securities laws, as now or hereafter in effect, but may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor agrees that any such Pledged Collateral sold at any such private sale may be sold at a price and upon other terms less favorable to the seller than if sold at public sale and that each such private sale shall be deemed to have been made in a commercially 10 reasonable manner. Secured Party shall have no obligation to delay the sale of any such securities for the period of time necessary to permit the issuer of such securities, even if such issuer would agree, to register such securities for public sale under the Securities Act. Pledgor agrees that private sales made under the foregoing circumstances shall be deemed to have been made in a commercially reasonable manner. 8.1.5 No demand, advertisement or notice, all of which are hereby expressly waived, shall be required in connection with any sale or other disposition of any part of the Pledged Collateral that threatens to decline speedily in value or that is of a type customarily sold on a recognized market; otherwise Secured Party shall give Pledgor at least ten days' prior notice of the time and place of any public sale and of the time after which any private sale or other disposition is to be made, which notice Pledgor agrees is commercially reasonable. 8.1.6 Secured Party shall not be obligated to make any sale of Pledged Collateral if it shall determine not to do so, regardless of the fact that notice of sale may have been given. Secured Party may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. 8.1.7 The remedies provided herein in favor of Secured Party shall not be deemed exclusive, but shall be cumulative, and shall be in addition to all other remedies in favor of Secured Party existing at law or in equity. 8.1.8 To the extent that applicable law imposes duties on Secured Party to exercise remedies in a commercially reasonable manner, Pledgor acknowledges and agrees that it is not commercially unreasonable for Secured Party (a) to advertise dispositions of Pledged Collateral through publications or media of general circulation; (b) to contact other persons, whether or not in the same business as Pledgor, for expressions of interest in acquiring all or any portion of the Pledged Collateral; (c) to hire one or more professional auctioneers to assist in the disposition of Pledged Collateral; (d) to dispose of Pledged Collateral by utilizing Internet sites that provide for the auction of assets of the types included in the Pledged Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets; (e) to disclaim disposition warranties; or (f) to the extent deemed appropriate by Secured Party, to obtain the services of brokers, investment bankers, consultants and other professionals to assist Secured Party in the disposition of any of the Pledged Collateral. Pledgor acknowledges that the purpose of this sub-clause 8.1.8 is to provide nonexhaustive indications of what actions or omissions by Secured Party would not be commercially unreasonable in Secured Party's exercise of remedies against the Pledged Collateral and that other actions or omissions by Secured Party shall not be deemed commercially unreasonable solely on account of not being indicated in this sub-clause 8.1.8. Without limiting 11 the foregoing, nothing contained in this sub-clause 8.1.8 shall be construed to grant any rights to Pledgor or to impose any duties on Secured Party that would not have been granted or imposed by this Pledge Agreement or by applicable law in the absence of this sub-clause 8.1.8. 8.2 SECURED PARTY APPOINTED ATTORNEY-IN-FACT 8.2.1 To effectuate the terms and provisions hereof, Pledgor hereby appoints Secured Party as Pledgor's attorney-in-fact for the purpose, from and after the occurrence and during the continuance of an Event of Default under any Finance Document, of carrying out the provisions of this Pledge Agreement and taking any action and executing any instrument that Secured Party from time to time, in Secured Party's reasonable discretion, may deem necessary or advisable to accomplish the purposes of this Pledge Agreement. Without limiting the generality of the foregoing, Secured Party shall, from and after the occurrence and during the continuance of an Event of Default, have the right and power to: (a) receive, endorse and collect all checks and other orders for the payment of money made payable to Pledgor representing any interest or dividend or other distribution or amount payable in respect of the Pledged Collateral or any part thereof and to give full discharge for the same; (b) execute endorsements, assignments or other instruments of conveyance or transfer with respect to all or any of the Pledged Collateral; (c) exercise all rights of Pledgor as owner of the Pledged Collateral including, without limitation, the right to sign any and all amendments, instruments, certificates, proxies, and other writings necessary or advisable to exercise all rights and privileges of (or on behalf of) the owner of the Pledged Collateral, including, without limitation, all voting rights with respect to the Pledged Securities; (d) ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral; (e) file any claims or take any action or institute any proceedings that Secured Party may deem necessary or desirable for the collection of any of the Pledged Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Pledged Collateral; and (f) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Pledged Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Pledgor's expense, at any time or from time to time, all acts and things that Secured Party deems reasonably necessary to protect, preserve or realize upon the Pledged Collateral. 12 8.2.2 Pledgor hereby ratifies and approves all acts of Secured Party made or taken pursuant to this Clause 8.2 (provided, that Pledgor does not, by virtue of such ratification, release any claim that Pledgor may otherwise have against Secured Party for any such acts made or taken by Secured Party through gross negligence or willful misconduct). Neither Secured Party nor any person designated by Secured Party shall be liable for any acts or omissions or for any error of judgment or mistake of fact or law, except such as may result from Secured Party's gross negligence or willful misconduct. This power, being coupled with an interest, is irrevocable so long as this Pledge Agreement shall remain in force. 8.3 SECURED PARTY'S DUTIES OF REASONABLE CARE 8.3.1 Secured Party shall have the duty to exercise reasonable care in the custody and preservation of any Pledged Collateral in its possession, which duty shall be fully satisfied if such Pledged Collateral is accorded treatment substantially equal to that which Secured Party accords its own property and, with respect to any calls, conversions, exchanges, redemptions, offers, tenders or similar matters relating to any such Pledged Collateral (herein called "EVENTS"): (a) Secured Party exercises reasonable care to ascertain the occurrence and to give reasonable notice to Pledgor of any events applicable to any Pledged Securities that are registered and held in the name of Secured Party or its nominee; (b) Secured Party gives Pledgor reasonable notice of the occurrence of any events of which Secured Party has received actual knowledge, which events are applicable to any securities that are in bearer form or are not registered and held in the name of Secured Party or its nominee (Pledgor agreeing to give Secured Party reasonable notice of the occurrence of any events of which Pledgor has knowledge, which events are applicable to any securities in the possession of Secured Party); and (c) Secured Party endeavors to take such action with respect to any of the events as Pledgor may reasonably and specifically request in writing in sufficient time for such action to be evaluated and taken or, if Secured Party reasonably believes that the action requested would adversely affect the value of the Pledged Collateral as collateral or the collection of the Secured Obligations, or would otherwise prejudice the interests of Secured Party, Secured Party gives reasonable notice to Pledgor that any such requested action will not be taken and, if Secured Party makes such determination or if Pledgor fails to make such timely request, Secured Party takes such other action as it deems advisable in the circumstances. 8.3.2 Except as hereinabove specifically set forth, Secured Party shall have no further obligation to ascertain the occurrence of, or to notify either Pledgor with respect to, any events and shall not be deemed to assume any such further obligation as a result of the establishment by Secured Party of any internal procedures with respect to any securities in 13 its possession, nor shall Secured Party be deemed to assume any other responsibility for, or obligation or duty with respect to, any Pledged Collateral or its use of any nature or kind, or any matter or proceedings arising out of or relating thereto, including, without limitation, any obligation or duty to take any action to collect, preserve or protect its or Pledgor's rights in the Pledged Collateral or against any prior parties thereto, but the same shall be at Pledgor's sole risk and responsibility at all times. 8.3.3 Pledgor waives any restriction or obligation imposed on Secured Party under Sections 9-207(c)(1) and 9-207(c)(2) of the NYUCC. 8.4 INDEMNIFICATION Pledgor hereby releases Secured Party and the respective officers, shareholders, directors, employees and agents of the Secured Party (each, an "INDEMNIFIED PARTY") from any claims, causes of action and demands at any time arising out of or with respect to this Pledge Agreement, the Secured Obligations, the Pledged Collateral and its use and/or any actions taken or omitted to be taken by such Indemnified Party with respect thereto (except such claims, causes of action and demands arising from the bad faith, gross negligence or willful misconduct of such Indemnified Party) and Pledgor hereby agrees to hold each Indemnified Party harmless from and with respect to any and all such claims, causes of action and demands (except such claims, causes of action and demands arising from the gross negligence or willful misconduct of such Indemnified Party). 8.5 PRIOR RECOURSE Secured Party's prior recourse to any Pledged Collateral shall not constitute a condition of any demand, suit or proceeding for payment or collection of the Secured Obligations. 8.6 SECURED PARTY MAY PERFORM If either Pledgor fails to perform any agreement contained herein, Secured Party may itself perform or cause performance of such agreement, and the expenses of Secured Party incurred in connection therewith shall be treated as provided in Clause 7 (Expenses). 9. SURETYSHIP WAIVERS BY PLEDGOR; OBLIGATIONS ABSOLUTE 9.1.1 Pledgor waives demand, notice, protest, notice of acceptance of this Pledge Agreement, notice of loans made, credit extended, Pledged Collateral received or delivered or other action taken in reliance hereon and all other demands and notices of any description thereof, all in such manner and at such time or times as Secured Party may deem advisable. Secured Party shall have no duty as to the collection or protection of the Pledged Collateral or any income thereon, nor as to the preservation of rights against prior parties, nor as to the preservation of any rights pertaining thereto beyond the safe custody thereof as set forth in Clause 8.3 (Secured Party's Duties of Reasonable Care). 9.1.2 All rights of Secured Party hereunder, the Security Interests and all obligations of either Pledgor hereunder shall be absolute and unconditional irrespective of (a) any 14 lack of validity or enforceability of the Finance Documents, any agreement with respect to any of the Secured Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of, or any consent to any departure from, the Finance Documents, or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of, or consent under, or departure from, or any acceptance of partial payment thereon, or settlement, compromise or adjustment of any Secured Obligation or of any guarantee, securing or guaranteeing all or any of the Secured Obligations, or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, Pledgor in respect of the Secured Obligations or this Pledge Agreement. 10. MARSHALLING Secured Party shall not be required to marshal any present or future collateral security (including but not limited to this Pledge Agreement and the Pledged Collateral) for, or other assurances of payment of, the Secured Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of its rights hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising. To the extent that it lawfully may, Pledgor hereby agrees that it shall not invoke any law relating to the marshalling of collateral which might cause delay in or impede the enforcement of Secured Party's rights under this Pledge Agreement or under any other instrument creating or evidencing any of the Secured Obligations or under which any of the Secured Obligations is outstanding or by which any of the Secured Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, Pledgor hereby irrevocably waives the benefits of all such laws. 11. PROCEEDS OF DISPOSITIONS After deducting all expenses payable to Secured Party, including, without limitation, pursuant to Clause 7 (Expenses), the residue of any proceeds of collection or sale of the Secured Obligations or Pledged Collateral shall, to the extent actually received in cash, be applied to the payment of the remaining Secured Obligations in such order or preference as Secured Party may elect, proper allowance and provision being made for any Secured Obligations not then due or held as additional Pledged Collateral. Upon the final payment and satisfaction in full of all of the Secured Obligations and the termination of all. commitments under Finance Documents and after making any payments required by Sections 9-608(a)(l)(C) or 9-6l5(a)(3) of the NYUCC, any excess shall be returned to Pledgor, and in any event Pledgor shall remain liable for any deficiency in the payment of the Secured Obligations. 15 12. REINSTATEMENT The obligations of Pledgor pursuant to this Pledge Agreement shall continue to be effective or automatically be reinstated, as the case may be, if at any time payment of any of the Secured Obligations is rescinded or otherwise must be restored or returned by Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of Pledgor or any other obligor or otherwise, all as though such payment had not been made. 13. MISCELLANEOUS 13.1 NOTICES Except as otherwise provided herein, all notices and other communications provided for hereunder shall be in writing (including telecopier) and, mailed, telecopied, couriered or delivered to either Pledgor or to Secured Party, as the case may be, in each case addressed to it at its address set forth below the name of such party on the signature pages hereof, or, as to any party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Clause 13.1. All such notices and other communications shall, when mailed, telecopied, or couriered, respectively, be effective when deposited in the mails, telecopied, or delivered to the courier, respectively, addressed as aforesaid; except that notices and other communications to Secured Party shall not be effective until received by Secured Party. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Pledge Agreement or any Schedule shall be effective as delivery of an original executed counterpart thereof. 13.2 GOVERNING LAW; CONSENT TO JURISDICTION. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Pledgor agrees that any suit for the enforcement of this Pledge Agreement may be brought in the courts of the State of New York or any federal court sitting therein and consents to the non-exclusive jurisdiction of such court and to service of process in any such suit being made upon Pledgor by mail at the address specified set forth below its name on the signature pages hereof. Pledgor hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit is brought in an inconvenient court. 13.3 WAIVER OF JURY TRIAL, ETC. PLEDGOR WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY LITIGATION OR DISPUTE DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS PLEDGE AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY SUCH RIGHTS OR OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW, PLEDGOR WAIVES ANY RIGHT WHICH IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION OR DISPUTE REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, 16 ACTUAL DAMAGES. Pledgor certifies that neither Secured Party nor any representative, agent or attorney of Secured Party has represented, expressly or otherwise, that Secured Party would not, in the event of litigation, seek to enforce the foregoing waivers and acknowledges that, in entering into the Finance Documents to which Secured Party is a party, Secured Party is relying upon, among other things, the waivers and certifications contained in this Clause 13.3. 13.4 COUNTERPARTS This Pledge Agreement may be executed in two or more separate counterparts, each of which shall constitute an original and all of which shall collectively and separately constitute one and the same agreement. 13.5 HEADINGS The headings of each clause of this Pledge Agreement are for convenience only and shall not define or limit the provisions thereof. 13.6 NO STRICT CONSTRUCTION The parties hereto have participated jointly in the negotiation and drafting of this Pledge Agreement. In the event an ambiguity or question of intent or interpretation arises, this Pledge Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Pledge Agreement. 13.7 SEVERABILITY In the event anyone or more of the provisions contained in this Pledge Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). 13.8 SURVIVAL OF AGREEMENT All covenants, agreements, representations and warranties made by Pledgor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Pledge Agreement shall be considered to have been relied upon by Secured Party and shall survive the execution and delivery of the Finance Documents and the advance of all extensions of credit contemplated thereby, regardless of any investigation made by Secured Party, and shall continue in full force and effect until this Pledge Agreement shall terminate (or thereafter to the extent provided herein). 13.9 BINDING EFFECT; SEVERAL AGREEMENT This Pledge Agreement is binding upon Pledgor and such Secured Party and their respective successors and assigns, and shall inure to the benefit of Pledgor, Secured Party and their respective successors and assigns, except that Pledgor shall have no right to assign or transfer its rights or obligations hereunder or any interest herein (and any such assignment or transfer shall be void) except as expressly contemplated by this Pledge Agreement. 17 13.10 CONTINUING AGREEMENT This Agreement shall create a continuing Security Interest, independent from any other security or guarantee which may have been or will be given to the Secured Party. None of such other security or guarantee shall prejudice, or shall be prejudiced or affected by, or shall be merged in any way with this Agreement and, for the avoidance of doubt, none of such other security or guarantee shall in any way be prejudiced or. affected in the case of any invalidity of this Agreement or of the security created hereunder. 13.11 WAIVERS; AMENDMENT 13.11.1 No failure or delay of Secured Party in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of Secured Party hereunder and of Secured Party under the Finance Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provisions of this Pledge Agreement or consent to any departure by either Pledgor therefrom shall in any event be effective unless the same shall be permitted by sub-clause 13.11.2 below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on either Pledgor in any case shall entitle Pledgor to any other or further notice or demand in similar or other' circumstances. 13.11.2 Neither this Pledge Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by Secured Party and Pledgor. IN WITNESS WHEREOF, intending to be legally bound, Pledgor has caused this Pledge Agreement to be duly executed as of the date first above written. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 18 GALAXIS TECHNOLOGY AG By: /s/ Winfried Klimek -------------------- Name: Winfried Klimek Title: Chief Executive Officer Address: Steinmetzstrasse 7 23556 Lubeck Germany Attention: Facsimile No.: ACCEPTED AND AGREED: LLOYDS TSB BANK PLC as Secured :Party By: /s/ Mr. de Schepper By: /s/ James A. Riddall -------------------- -------------------- Name: Mr. de Schepper Name: James A. Riddall Title: Principal Manager Title: Senior Manager, Credit Risk Address: Gatwickstraat 17-19 1001 AH Amsterdam The Netherlands Attention: Facsimile No.: 19 SCHEDULE 1 TO PLEDGE AGREEMENT Attached to and forming part of that certain Pledge Agreement dated as of 14 January 2004 by galaxis technology ag To Lloyds TSB Bank Plc, as Secured Party LIST AND DESCRIPTION OF PLEDGED SECURITIES Description of Pledged Securities:
PLEDGOR ISSUER OF STOCK CLASS CERTIFICATE NUMBER OF PERCENTAGE OF STOCK NUMBERS SHARES OF TOTAL SHARES - ------------------------------------------------------------------------------------------------------------------- galaxis technology Distinctive Common D0274 3,000,000 17.3% ag Devices, Inc
Exact Name of Pledgor: Pledgor is (i) an individual ____ or (ii) an organization X (insert "x" as appropriate) If Pledgor is an organization: Pledgor is a limited liability company (GmbH) (describe type of organization) Pledgor is organized under the laws of Germany Pledgor's organizational identification number: HRB 4762 Amtsgericht Lubeck Mailing address of Pledgor: Steinmetzstrasse 7, 23556, Lubeck, Germany For a Pledgor that is an organization: If different from the mailing address, Pledgor's place of business, or if it has more than one place of business, Pledgor's chief executive office: 20 EX-10 7 e574413.txt EXHIBIT 10.4 ESCROW AGREEMENT HINTERLEGUNGSANWEISUNG ESCROW AGREEMENT DISTINCTIVE DEVICES INC. DISTINCTIVE DEVICES INC. ONE BRIDGE PLAZA NORTH, SUITE 100, ONE BRIDGE PLAZA NORTH, SUITE 100, FORT LEE NJ 07024 FORT LEE NJ 07024 USA USA (nachfolgend "DDI") ("DDI") wird unter der aufschiebenden Subject to the consent of Lloyds Bedingung der Zustimmung der Lloyds TSB Bank plc ("Lloyds Bank") as TSB Bank plc ("Lloyds Bank") condition precedent, DDI will Inhaber von 50.000 nennwertlosen become the owner of 50.000 shares auf den Inhaber, die Benyw Zehnte of galaxis technology AG (the Vermogensverwaltungs AG, die Ihre "Company"), which changed its Firma in galaxis technology AG corporate name from Benyw Zehnte geandert hat, lautenden Stuckaktien Vermogensverwaltungs AG to galaxis der galaxis technology AG technology AG. The shares will have (nachfolgend "Gesellschaft"). no par value. Die Gesellschaft ist eingetragen im The Company is registered with the Handelsregister des Amtsgerichts commercial register at the local Lubeck unter HRB 4762. Das court in Lubeck under HRB 4762. The Stammkapital der Gesellschaft nominal capital of the Company is betragt Euro 50.000,00 und ist Euro 50,000.00 and split into eingeteilt in 50.000 Aktien, die 50,000 shares, consolidated in one samtlich in einer Globalurkunde vom global share dated as of October 18. Oktober 1999 verbrieft sind. 18, 1999. DDI respektiert, da(beta) 60% der DDI honors that 60% of the shares durch die vorgenannte Globalurkunde consolidated in the global share verbrieften Aktien an die Lloyds are pledged to Lloyds Bank. Bank verpfandet sind. Die Globalurkunde wurde mit The global share is held in escrow Hinterlegungsanweisung vom 28. Marz by Martin Gollasch, notary (the 2003, bestatigt durch Lloyds Bank "Notary"), according to an escrow am 5. Mai 2003 in die Verwahrung agreement dated as of March 28, des Notars Martin Gollasch (der 2003, affirmed by Lloyds Bank on "Notar"), Lubeck, gegeben mit der May 5, 2003 with the requirement to Ma(beta)gabe, die Urkunde nur mit only transfer the certificate with vorheriger Zustimmung der Lloyds the prior consent of Lloyds Bank to Bank an wen auch immer whomever. Furthermore, any change herauszugeben. Ferner bedarf jede in the intention of the Notary to Anderung des Besitzmittlungswillens possess the shares for Lloyds Bank des verwahrenden Notars der is subject to the consent of Lloyds Zustimmung der Lloyds Bank. Bank. Hievon ausgenommen ist ein An exception hereto is the exchange Zug-um-Zug Austausch der of the global share for individual Globalurkunde bei shares if it is secured that 30,000 Einzelverbriefung, wenn shares or a global share covering sichergestellt ist, dass 30.000 30,000 shares will remain with the Aktien oder eine 30.000 Aktien Notary. In this case, the consent verkorpernde Globalurkunde beim requirement of Lloyds Bank allude verwahrenden Notar verbleiben. In to the remaining 30,000 shares. diesem Fall beziehen sich die vorstehenden Zustimmungserfordernisse der Lloyds Bank auf die verbleibenden 30.000 Aktien Der Notar ist ermachtigt, The Notary is entitled to issue Hinterlegungs-bescheinigungen confirmations about the escrow gem.ss.123 Abs. 3 AktG zu ("Hinterlegungsbescheini-gungen") erstellen. according to section 123 of the AktG. Diese Vereinbarung unterliegt dem This agreement is subject to German deutschen Recht. law. Der Text dieser Vereinbarung ist in This agreement is in the German der deutschen Sprache. Die language. The English translation englische Ubersetzung dient serves for information purposes ausschliesslich zu only. Informationszwecken. 2 Lubeck, January 14, 2004 DISTINCTIVE DEVICES INC. By: /s/ Sanjay Mody ---------------------------------- Name: Sanjay Mody Title: President & CEO By: /s/ Martin Gollasch ---------------------------------- Name: Martin Gollasch Title: Rechtsanwalt und Notar 3 EX-10 8 e574496v2.txt EXHIBIT 10.5 EMPLOYMENT WORKING TRANSLATION ------------------- IN THE CASE OF ANY DISCREPANCY, THE GERMAN LANGUAGE VERSION SHALL BE BINDING. EMPLOYMENT CONTRACT between DISTINCTIVE DEVICES INC. ONE BRIDGE PLAZA NORTH, SUITE 100 FORT LEE, NJ 07024 USA and MR. WINFRIED MICHAEL KLIMEK, BERLINERSTRASSE 6 23611 BAD SCHWARTAU GERMANY WORKING TRANSLATION ------------------- Mr. Winfried Michael Klimek and Distinctive Devices Inc. (the "Company"), a US stock corporation under Delaware law, represented by its President & Chief Executive Officer, Mr. Sanjay Mody, have agreed upon an employment contract as follows: SS. 1 AREA OF RESPONSIBILITY/RESPONSIBILITIES (1) By the supervisory board's decision with effect from January 1, 2004, Mr. Klimek has been appointed member of the board of directors of the company. The appointment is valid for three years, that is, until December 31, 2006. (2) Mr. Klimek represents the Company together with another board member or holder of a general power of attorney ("Prokurist"). Mr. Klimek's rights and responsibilities are based upon the law, the bylaws of the Company, the standing orders of the board and this employment contract. Mr. Klimek's area of responsibility is based upon the current business distribution plan of the board. It is incumbent upon Mr. Klimek to responsibly manage the business portfolio strategy, marketing and sales. SS. 2 SALARY (1) As payment for his work activities, Mr. Klimek receives a fixed yearly base salary in the amount of (EURO) 180 000.00 (GROSS) (in words: one hundred eighty thousand euros). The salary will be paid in twelve equal installments at the end of each calendar month. The Company agrees to pay the part of the pension plan fee specified by law in the case of compulsory insurance contribution. The Company also makes a corresponding contribution if Mr. Klimek produces proof of a replacement life insurance. Apart from that, the Company makes the employer's contribution, as specified by law, to a public or private health insurance plan. (2) The base salary will be reexamined every two years. A legal entitlement to increase does not result from this reexamination. 2 WORKING TRANSLATION ------------------- (3) In addition, Mr. Klimek receives 1,250,000 stock options in accordance with Section 6.3 (a) - (c) of the Share Purchase Agreement between Media-Hill Communication Beratungs- und Vertriebs GmbH and the Company, which was closed on the basis of the October 3, 2003 Term Sheet, and which, in this respect, regulates the following: "KLIMEK EMPLOYMENT AGREEMENTEmployment Terms. The Purchaser shall cause the Company to execute an employment agreement with Winfried M. Klimek as Managing Director, in the form attached hereto as Exhibit H (the "Employment Agreement"), effective immediately after the Closing. Stock Options. In addition, the Purchaser shall grant to Winfried M. Klimek options (the "Options") to purchase 1,250,000 shares of Purchaser Common Stock at an exercise price of the lower of (i) the average market price of Purchaser Common Stock for the ten trading days immediately preceding the Closing Date or (ii) $0.70 per Share, vesting as to 25% of the shares six (6) months after grant, and 25% per year on the first three anniversary dates of the Closing, exercisable for five years from the Closing. Indemnification Obligations. For the express purpose of securing the Seller's indemnification obligations pursuant to Article X hereof, the Purchaser reserves the right to credit the Option rights to be granted to Mr. Klimek under Section 6.3(b) against any Losses suffered or incurred by the Purchaser arising under Article X hereof. The Option will be valued at US$0.50 per Share solely for the particular purpose of any reduction by reason of the indemnification obligation." SS. 3 CONTINUATION OF SALARY PAYMENT IN THE CASE OF SICKNESS OR DEATH (1) Should Mr. Klimek become handicapped during the execution of his duties as a result of sickness or another reason not his own fault, he will continue to receive his base salary in accordance with ss. 2 paragraph 1 for a period of twelve months at the most, or through the end of this contract. At the same time, the rights in accordance with ss. 2 paragraph 3 remains unchanged; it decreases in proportion to the length of time if the inability to work is uninterrupted for longer than a six month period. (2) In the case of his death, his surviving dependents (widow and children entitled to maintenance) would continue to receive the base salary in accordance with ss. 2 paragraph 1 for a period of six months beginning with the passing of the month of his death. During this time, payments to the surviving dependents on the basis of an existing company pension in Mr. Klimek's name will not be made. SS. 4 FRINGE BENEFITS (1) For reimbursement of expenses for business trips, representation and entertainment of business partners, in so far as they arise in the interests of the Company, the guidelines of the Company, which inasmuch as become part of this contract, apply. Expenses exceeding the estimate 3 WORKING TRANSLATION ------------------- amount permissible under tax regulations are to be covered individually. (2) The Company makes available to Mr. Klimek for the duration of the employment contract an adequate company car, also for private use. Maintenance and running costs will be covered by the Company. Taxation of this payment in kind for the private use is chargeable to Mr. Klimek. (3) The Company takes out an accident insurance policy in Mr. Klimek's name for the duration of the employment contract, which also covers private risks and which has the following amounts of coverage: in case of death: DM 500.000,- in case of disability: DM 1.000.000,-. Mr. Klimek or his heirs are directly entitled to any claims on the insurance. Mr. Klimek bears the cost of incurred taxation on the premium payment. (4) For telephone calls on his private telephone line given rise to in carrying out his business duties, the Company will reimburse Mr. Klimek 50% of his private telephone fees upon production of the monthly telephone bill. SS. 5 VACATION Mr. Klimek is entitled to a paid vacation of thirty (30) workdays. The vacation is to be restricted so as not to impair the interests of the Company. SS. 6 BUSINESS INVENTIONS Mr. Klimek's business inventions will be handled according to the requirements of the law on employee inventions of July 25, 1957, namely the "Guidelines for the Payment of Employee Inventions in Private Business" enacted on July 20, 1957 with respect thereto. SS. 7 SECRECY (1) Mr. Klimek is obliged to maintain secrecy regarding all business and operational matters learned of within the framework of his work activities, especially business and company secrets. The obligation to maintain secrecy continues even after the end of the employment relationship. 4 WORKING TRANSLATION ------------------- (2) He is obliged, upon leaving, to return all documents in his possession which are related to his work activities. SS. 8 LENGTH OF CONTRACT AND TERMINATION (1) This employment contract is agreed to for the duration of Mr. Klimek's appointment, which begins on January 1, 2004 and ends on December 31, 2004. (2) The contract is renewed for the duration of each renewed appointment. The Company will inform Mr. Klimek whether his period in office is renewed no later than eight (8) months before expiration of the contract. Should the renewal not be expressly arranged otherwise, the contract regulations established here will apply. (3) In the event of premature conclusion of this employment contract for an important reason,ss. 626 BGB applies. The termination must be drawn up in writing to be effective. (4) Unless otherwise agreed upon, Mr. Klimek's employment contract will not be renewed beyond the calendar year in which he attains the age of sixty-five (65). SS. 11 CLOSING PROVISIONS (1) Agreements outside of this contract were not made. Changes and amendments to the contract must be drawn up in writing. A verbal exemption from the requirement to put changes in writing is null and void. (2) Should individual provisions of the contract be or become void, the legal force of the remaining provisions is not affected. A fair arrangement nearest that which the parties intended according to their economic goals takes the place of the void provision or shall be used for the revision of eventual gaps in the contract. German law applies. 5 WORKING TRANSLATION ------------------- THIS 15TH DAY OF JANUARY 2004 DISTINCTIVE DEVICES INC. By: /s/ Sanjay Mody --------------- Name: Sanjay Mody Title: President & Chief Executive Officer WINFRIED MICHAEL KLIMEK By: /s/ Winfried Michael Klimek --------------------------- Title: Chief Executive Officer EX-10 9 e574673.txt EXHIBIT 10.6 STOCK OPTION GRANT AGMT STOCK OPTION GRANT AGREEMENT ---------------------------- AGREEMENT dated as of January 14, 2004, by and between Distinctive Devices, Inc., a Delaware corporation (the "Company"), and Winfried Klimek (the "Optionee"). W I T N E S S E T H ------------------- WHEREAS, in consideration of the services provided to the Company by the Optionee in connection with the Company's acquisition of galaxis technology ag and pursuant to an Employment Contract between the Optionee and the Company (the "Employment Contract"), the Company desires to provide the Optionee with an opportunity to acquire shares of the Company's Common Stock, par value $.001 per share (the "Common Stock"), and thereby obtain a proprietary interest in the progress and success of the business of the Company, and the Optionee desires to obtain a proprietary interest in the Company, subject to the terms and conditions herein; NOW, THEREFORE, in consideration of the premises, the mutual covenants herein set forth and other good and valuable consideration, the Company and the Optionee hereby agree as follows; 1. Grant of Option. The Company hereby grants to the Optionee an option (the "Option") to purchase an aggregate of one million two hundred fifty thousand (1,250,000) shares (each individually an "Option Share" and collectively the "Option Shares") of Common Stock, vesting over time in accordance with the terms of this Agreement, at an exercise price of $0.70 per Share (the "Exercise Price"), and the Optionee accepts the grant of the Option, subject to adjustment as provided in Section 5 herein. 2. Vesting of Option. The Option shall vest as to 312,500 Option Shares in six months from the date hereof, and as to 312,500 Option Shares on the first, second and third anniversary of the date hereof, subject to Sections 5 and 9 hereof. 3. Exercise of Option. The Option may be exercised at any time, or from time to time, subject to vesting pursuant to Section 2 hereof, and terminating on the fifth anniversary of the date hereof (the "Expiration Date"). The Option may be exercised, as provided in this Section 3, by notice and payment to the Company as provided in Section 7 hereof. 4. Non-Transferability. The Option shall not be transferable in whole or in part by the Optionee, except by will or the laws of descent or distribution, and shall be exercised during the lifetime of the Optionee only by him. Any transfer or attempted transfer of all or part of the Option in violation of this Agreement shall be null and void, and, at the discretion of the Company, the Option shall then be terminated. 5. Adjustments. In the event of a stock dividend, stock split-up, share combination, exchange of shares, recapitalization, merger, consolidation, reorganization, liquidation or other similar changes or transactions, of or by the Company, the Board of Directors of the Company shall make (or shall undertake to have the Board of Directors of any corporation which merges with, or acquires the stock or assets of, the Company make) such adjustment of the number and class of shares then covered by the Option, or of the Exercise Price, or both. To the extent practicable, the Company shall give the Optionee prior written notice of any such event, provided that the failure by the Company to give such notice shall not subject the Company to any liability herein. After an event which results in an adjustment in the Option, the Company shall give written notice to the Optionee specifying the adjusted number or type of Option Shares or other security and/or the Exercise Price, together with a calculation 2 of the adjustment. The determination of the adjustment by the Company shall be final and binding on the Optionee. 6. Reservation of Shares. The Company shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock or such other class of stock then subject to the Option as shall be sufficient to satisfy the requirements of this Agreement. 7. Methods of Exercise of Option. 7.1 The Exercise Notice. Subject to the terms and conditions of this Agreement, the Option shall be exercisable by notice (the "Exercise Notice") and payment to the Company. Each Exercise Notice shall: (i) state the election to exercise the Option and the number of Option Shares (such number being the "Purchased Shares") in respect of which it is being exercised; (ii) contain a representation and agreement as to investment intent with respect to the Purchased Shares, and an acknowledgement as to restrictions on resale or transfer of such Shares by reason of the Securities Act of 1933, as amended (the "Securities Act"), if the Purchased Shares are not subject to an effective registration statement under the Securities Act; and (iii) be signed by the Optionee or other person entitled to exercise the Option and, if the Option is being exercised by any person other than the Optionee, be accompanied by proof, satisfactory to counsel for the Company, of the right of such person to exercise the Option. 3 7.2 Payment. Accompanying the Exercise Notice shall be a certified check or wire transfer payable to the order of the Company in the full amount of the purchase price for the Purchased Shares. 7.3 Stock Certificate. Within five days after its receipt of the documents to be provided for in Sections 7.1 and 7.2 hereof in proper form, the Company shall deliver to the Optionee or other person exercising the Option certificates for the Purchased Shares. In the event the Purchased Shares are not then subject to an effective registration statement under the Securities Act, each certificate shall bear the following legend. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT IF 1933, AS AMENDED. THEY MAY NOT PUBLICLY BE OFFERED FOR SALE, SOLD OR DELIVERED AFTER SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SUCH ACT EXCEPT AS AUTHORIZED UNDER SAID ACT, AND UNLESS HEREAFTER REGISTERED WILL NOT BE TRANSFERRED UPON THE RECORDS OF THE CORPORATION IN THE ABSENCE OF AN OPINION OF COUNSEL TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. 8. Rights of Holder. 8.1 As Stockholder. The Optionee shall not have any rights to voting, dividends or any other rights of a stockholder with respect to any Option Shares until the certificates for such Option Shares shall have been issued to him as evidenced by the appropriate entry on the stock record books of the Company upon purchase of such Option Shares upon exercise of the Option. 8.2 As Employee. Nothing in this Agreement shall constitute an employment agreement or arrangement between the Optionee and the Company, nor shall anything in this Agreement give the Optionee any rights as an employee, 4 other than pursuant to the Employment Contract. 9. Rights to Reclaim Option Shares. The Optionee hereby acknowledges that the Company and Media Hill Communication Beratungs-und Vertriebs GmbH entered into a Share Purchase Agreement, dated January 14, 2004 (the "Purchase Agreement"), pursuant to which the Company acquired galaxis technology ag. As part of the Purchase Agreement, the Optionee agreed to be bound under Section 6.2(c) thereof whereby the Optionee granted the right to the Company to satisfy any of its indemnification claims arising under Article X of the Purchase Agreement by reclaiming all or any part of the Option Shares at a rate of fifty cents ($0.50) per Option Share, subject to any adjustment pursuant to Section 5 of this Agreement. In the event that the Company has the right to reclaim any Option Shares, it shall have the discretion to choose which Option Shares are first reclaimed. 10. Notices. Any notice relating to this Agreement shall be in writing and delivered in person, by certified mail, hand, express courier or fax as follows to the following address: If to the Company: Distinctive Devices, Inc. One Bridge Plaza, Suite 100 Fort Lee, New Jersey 07024 USA Attn: Sanjay Mody, CEO Fax: (201) 363-9926 If to the Optionee: Winfried Klimek Berlinerstrasse 6 23611 Bad Schwartau Germany 5 Fax: or to such other address as either party hereto may hereafter duly give to the other. 11. Miscellaneous. 11.1 Benefits of Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors, assigns, heirs and administrators. 11.2 Governing Law. This Agreement shall be construed by and governed in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. 11.3 Severability. In the event that any one or more provisions of this Agreement shall be deemed to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall not affect the legality, validity and enforceability of the remaining legal, valid and enforceable provisions hereof, which shall be construed as if such illegal, invalid or unenforceable provision or provisions had not been inserted. 11.4 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto as to the subject matter herein, and cannot be amended, modified or terminated except by a writing executed by the parties hereto. 11.5 Counterparts. This agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute a single instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. 6 /s/ Winfried Klimek ------------------- Winfried Klimek DISTINCTIVE DEVICES, INC. By: /s/Sanjay Mody ------------------ Sanjay Mody, CEO EX-99 10 e575394.txt EXHIBIT 99.1 DDI ACQUISITION Wirtschaft/Medien Luebeck, Germany/Fort Lee, NJ USA/ New Delhi, India, January 19, 2004 US-India Company targets growing digital TV markets in Asia, US and Europe DISTINCTIVE DEVICES CLOSES ACQUISITION OF GERMAN DIGITAL TV SPECIALIST GALAXIS o Strengthened capitalization for galaxis technology ag o Expansion into the Indian and Asian markets o LinuxTX(TM)and Multimedia Home Platform (MHP) deployed globally Distinctive Devices Inc. ("DDI") (OTCBB:DDVS - News) today announced its acquisition of galaxis technology ag located in Luebeck, Germany, and its two R&D subsidiaries. galaxis is a leading provider of digital television software and set-top-box technology. Over the past months, both companies have closely cooperated to secure expansions into the rapidly emerging markets for digital TV in US, Europe and Asia. With DDI's low cost R&D and manufacturing facilities located in India, the acquisition of galaxis' know-how, exclusive software developments and partnerships, will provide speedy and timely growth for sale in Europe, US and India. DDI and galaxis are in the midst of finalizing the expansion of state of the art R&D facilities and expanded production facilities and manufacturing set-up of digital set-top-boxes for the Indian market and sale in Europe to the existing customers cost efficiently. India is one of the world's fastest growing markets for digital television. With its Indian subsidiary Real Time Systems, DDI will deploy hardware and software for digital home entertainment to the largest Indian cable network Siti Cable with more than 12 million subscribers and Siti cable has also introduced India's first direct-to-home (DTH) satellite offering. DDI and galaxis are also planning to export competitively priced set-top boxes for cable, satellite and IP platform to Asian, Central as well as Eastern European and US markets. DDI acquired the outstanding galaxis capital stock in exchange for 6,400,000 shares of DDI Common Stock. Further, DDI issued 3,000,000 shares of its Common Stock to galaxis that galaxis pledged to its principal lending bank for operational financing. Galaxis is the initiator and proprietor of the Linux TV(TM) operating system empowering MHP (multi-media home platform), the new international DVB (digital video broadcast) standard for interactive digital television. Galaxis currently licenses several of its software technologies and applications to major companies such as Toshiba, for the production of digital appliances. For the 2003 fiscal year, galaxis had revenues of approximately US$40 million. The joint Company will register significant growth over the next 12 months as it completes its operation integration and production expansion with its low cost operation facilities in India. Sanjay Mody, President and CEO of Distinctive Devices Inc. at Fort Lee, New Jersey, said: "We are happy to announce the acquisition of one of the most innovative drivers in digital TV technology. With this investment, DDI is entering into the most dynamic markets for digital TV world-wide. In uniting galaxis German facilities with our low cost R&D, software development and production facilities based in India, we should obtain substantial cost advantages and faster time to market. At the same time, galaxis will be able to perform for its existing European markets even faster and more aggressively than ever." Galaxis' CEO Winfried M. Klimek added: "We are looking forward to quickly integrate the operations for optimum benefits. The acquisition by Distinctive Devices will turn the galaxis technology into an even more competitive supplier of state-of-the-art digital entertainment solutions such as Linux TV(TM) on a global scale. Our new combination should ensure long-lasting and continued developments backed by our technological core competences." This release contains forward-looking statements based upon current expectations that involve a number of business risks and uncertainties. The factors that could cause results to differ materially include the following: risks in product and technology development and rapid technological change, risks in changing government standards and timetables for installation of new cable systems, risks in obtaining sufficient working capital, risks of customer acceptance, risks of competitive products and pricing, risks in production and marketing, risks of product defects, risk of currency fluctuations, risk of dependence on key personnel, and changing economic and political conditions. For a more detailed discussion of these and other risks, see DDI's Quarterly Reports on Form 10-QSB and Annual Report on Form 10-KSB filed with the SEC. Contact: Distinctive Devices, Inc., Fort Lee Sanjay Mody, 201-363-9922 sanmody@ddev.net - ---------------- or Earl Anderson, 561-416-9804 www.ddev.net - ------------ or galaxis technology ag Stefan Susbauer, + 49-221-120-123 s.susbauer@susbauer.de - ---------------------- www.galaxis.com www.rtsindia.com 2 -----END PRIVACY-ENHANCED MESSAGE-----