10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2010
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ________________ to ________________

Commission file number: 0-26056

Image Sensing Systems, Inc.

(Exact name of registrant as specified in its charter)

Minnesota	41-1519168
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
500 Spruce Tree Centre
1600 University Avenue West
St. Paul, MN	55104
(Address of principal executive offices)	(Zip Code)

(651) 603-7700

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x     No o

          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o     No o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x
(Do not check if a smaller reporting company)

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o     No x

          Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at August 2, 2010
Common Stock, $0.01 par value per share	4,861,319 shares

IMAGE SENSING SYSTEMS, INC.

TABLE OF CONTENTS

		Page No.
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (unaudited):	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income	2
	Condensed Consolidated Statements of Cash Flows	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4T.	Controls and Procedures	16
PART II.	OTHER INFORMATION	17
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Removed and Reserved	17
Item 5.	Other Information	17
Item 6.	Exhibits	17
SIGNATURES		18
EXHIBIT INDEX		19

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited):

Image Sensing Systems, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)

	June 30, 2010			December 31, 2009
Assets
Current assets:
Cash and cash equivalents	$	13,661		$	14,084
Investments		3,421			3,935
Accounts receivable, net		6,633			5,660
Inventories		3,352			2,734
Prepaid expenses		1,095			588
Deferred income taxes		328			328
Total current assets		28,490			27,329
Property and equipment, net		1,172			998
Deferred income taxes		1,485			1,485
Goodwill and intangible assets		20,978			11,338
Total assets	$	52,125		$	41,150
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,224		$	953
Current portion of bank debt		2,315			4,000
Accrued compensation		747			858
Accrued warranty and other		1,285			643
Earn-out payable		1,010			1,541
Income taxes payable		106			234
Total current liabilities		6,687			8,229
Income taxes payable		186			208
Long-term portion of bank debt		2,280			—
Shareholders’ equity:
Common stock		49			40
Additional paid-in capital		21,774			11,994
Accumulated other comprehensive loss		(470	)		(171	)
Retained earnings		21,619			20,850
		42,972			32,713
Total liabilities and shareholders’ equity	$	52,125		$	41,150

See accompanying notes.

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Image Sensing Systems, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share data)

	Three-Month Periods Ended June 30,					Six-Month Periods Ended June 30,
	2010			2009		2010			2009
Revenue:
International sales	$	1,894		$	1,159	$	3,009		$	2,341
North American sales		1,503			1,738		3,200			3,050
Royalties		3,187			3,383		5,778			5,679
		6,584			6,280		11,987			11,070
Costs of revenue:
International sales		741			326		1,129			720
North American sales		769			585		1,313			958
		1,510			911		2,442			1,678
Gross profit		5,074			5,369		9,545			9,392
Operating expenses:
Selling, marketing and product support		2,146			1,921		4,002			3,551
General and administrative		938			803		1,976			1,778
Research and development		834			862		1,611			1,673
Acquisition related expenses		527			—		527			—
Amortization of intangible assets		216			192		408			384
		4,661			3,778		8,524			7,386
Income from operations		413			1,591		1,021			2,006
Other income (expense), net		(36	)		21		(72	)		9
Income before income taxes		377			1,612		949			2,015
Income taxes		10			442		180			584
Net income	$	367		$	1,170	$	769		$	1,431
Net income per common share:
Basic	$	0.08		$	0.29	$	0.18		$	0.36
Diluted	$	0.08		$	0.29	$	0.17		$	0.35
Weighted average number of common shares outstanding:
Basic		4,676			3,985		4,333			3,985
Diluted		4,751			4,067		4,420			4,061

See accompanying notes.

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Image Sensing Systems, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

	Six-Month Periods Ended June 30,
	2010			2009
Operating activities:
Net income	$	769		$	1,431
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		653			600
Stock option expense		164			180
Change in operating assets and liabilities, net of acquisition		(1,155	)		301
Net cash provided by operating activities		431			2,512
Investing activities:
Net purchases of property and equipment		(209	)		(340	)
Purchase of CitySync		(7,871	)		—
Repayment of CitySync seller loans		(445	)		—
Payment of EIS earn-out		(1,541	)		(1,192	)
Net sales of investments		514			33
Net cash used in investing activities		(9,552	)		(1,499	)
Financing activities:
Proceeds from exercise of stock options		80			4
Repayment of bank debt		(200	)		(3,750	)
Net proceeds from common stock offering		8,818			—
Net cash provided by (used in) financing activities		8,698			(3,746	)
Decrease in cash and cash equivalents		(423	)		(2,733	)
Cash and cash equivalents, beginning of period		14,084			10,289
Cash and cash equivalents, end of period	$	13,661		$	7,556

See accompanying notes.

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IMAGE SENSING SYSTEMS, INC.

Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2010

Note A: Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Image Sensing Systems, Inc. (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to the Quarterly Report on Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. It is the opinion of management that the unaudited condensed consolidated financial statements include all adjustments consisting of normal recurring accruals considered necessary for a fair presentation. Operating results for the three-month and six-month periods ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. For further information, refer to the consolidated financial statements and footnotes thereto in our Annual Report on Form 10-K for the year ended December 31, 2009.

Note B: Acquisitions

On June 21, 2010, we purchased all of the outstanding equity of CitySync Limited, a privately-held developer and marketer of automatic number plate recognition products. We believe the CitySync acquisition expands our addressable market, strengthens our selling presence in Europe and extends the opportunities for hybrid product developments. The purchase price was $7.9 million in cash plus 57,000 shares of our common stock, valued using the closing price on the day before the acquisition, totaling approximately $727,000. In conjunction with the purchase, we repaid seller loans, including accrued interest, of $601,000. As part of the purchase agreement, the sellers are eligible to receive an earn-out based on the performance of the business for the next 18 months. Earn-outs will be calculated as of each calendar year end and paid within 90 days thereof. The earn-out is based on achieving certain revenue and minimum gross margins from the sale of CitySync ANPR systems and it is calculated in two separate periods, each ending on December 31. In each period there are two tiers, and superior performance could lead to a total earn-out of $2 million or higher as the earn-out is not capped. We have determined the fair value of the earn-out to be $1.0 million and have recorded a liability and additional purchase price in that amount as of June 30, 2010. We determined the fair value by assigning probabilities to achieving each of the tiers in each of the periods and then discounted the total to its net present value. Following the acquisition, CitySync became a wholly-owned subsidiary of ISS/Europe.

The purchase price was allocated on the basis of estimated fair value at the date of the purchase. The purchase price allocation, which is preliminary pending further study of the fair values assigned, is as follows (in thousands):

Purchase price:
Cash	$	7,871
Fair value of common stock		727
Estimated fair value of earn-out		1,010
Total purchase price		9,608
Allocation:
Net tangible current assets		(1,769	)
Property and equipment		(242	)
Liabilities		2,450
Developed technology		(3,300	)
Trade names		(1,900	)
Other intangibles		(1,500	)
Goodwill	$	3,347

In conjunction with the acquisition, all of the shares of common stock issued in connection with the transaction were placed in escrow to secure potential indemnification obligations. Any shares remaining in escrow on December 31, 2012 will be released to the sellers.

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The results of CitySync operations, including $309,000 of revenue, are included in the accompanying financial statements since the date of the acquisition. The following pro forma summary presents the results of operations as if the acquisition had occurred on January 1, 2009. The table below includes our results for the periods as shown and for CitySync based on a January fiscal year.

The pro forma results are not necessarily indicative of the results that would have been achieved had the CitySync acquisition taken place on that date (in thousands, except per share amounts):

	Three-Months EndedJune 30,				Six-Months EndedJune 30,
	2010		2009		2010		2009
Total revenue	$	7,543	$	7,912	$	14,394	$	13,668
Net income		35		669		297		147
Net income per share:
Basic	$	0.01	$	0.17	$	0.07	$	0.04
Diluted	$	0.01	$	0.16	$	0.07	$	0.04

In 2007, we purchased certain assets of EIS Electronic Integrated Systems, Inc. (EIS), including its RTMS radar product line. As part of the purchase agreement, the sellers are eligible to receive an earn-out based on the performance of the EIS assets purchased for approximately three years after the December 2007 purchase date. Earn-outs are calculated and paid annually. Based on target achievement, the sellers would receive $2.0 million annually or a total of $6.0 million. If we are acquired or sell substantially all of our assets before December 6, 2010, we must pay EIS $6.0 million less earn-out amounts previously paid as an acceleration of potential earn-out payments under the EIS asset purchase agreement. Earn-out payments related to the EIS asset purchase are recorded as additional goodwill when earned. In 2009 and 2008, the sellers earned an earn-out of approximately $1.5 million and $1.2 million, respectively which were paid in March of the subsequent year.

Note C: Goodwill and Intangible Assets

Goodwill consists of $1.1 million related to our acquisition of Flow Traffic Ltd.; $6.6 million related to the EIS asset purchase, consisting of $3.8 million recorded at the purchase date and an additional $2.7 million recognized for earn-out consideration earned in 2009 and 2008; and $3.3 million related to our acquisition of CitySync.

Intangible assets consisted of the following (dollars in thousands):

	June 30, 2010			December 31, 2009
Developed technology (8 year life)	$	7,200		$	3,900
Trade names (5 to 9 year life)		3,100			1,200
Other intangibles (3 to 8 year life)		1,700			200
Less: Accumulated amortization		(1,994	)		(1,586	)
Total identifiable intangible assets, net	$	10,006		$	3,714

We expect to recognize amortization expense for the intangible assets in the above table in each of our years ending December 31, of $1.2 million in 2010, $1.6 million in each of 2011 and 2012, and $1.3 million in each of 2013 and 2014. Goodwill and intangible assets related to the EIS asset purchase are deductible for tax purposes over 15 years.

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We monitor on a quarterly basis our carrying value, the market capitalization of our stock and other variables to determine whether a triggering event has occurred that would require an interim impairment evaluation of our goodwill. We have concluded that no triggering events have occurred during the quarter ended June 30, 2010.

Note D: Bank Debt

Prior to the completion of our acquisition of CitySync, our term loan with Associated Bank, N.A. was callable under certain circumstances and was classified as a current liability on the balance sheet. After the acquisition was completed, the bank waived the call provision and the loan is now classified according to its three year repayment term.

Note E: Income Taxes

In the three month period ended June 30, 2010, our effective income tax rate was significantly below our historical rates due to revisions to research and development tax credit estimates.

Note F: Net Income Per Common Share and Comprehensive Income (Loss)

The following table sets forth the computations of basic and diluted net income per common share for the three-month and six-month periods ended June 30, 2010 and 2009 (in thousands, except per share data):

	Three-Month Periods Ended June 30,				Six-Month Periods Ended June 30,
	2010		2009		2010		2009
Numerator:
Net income	$	367	$	1,170	$	769	$	1,431
Denominator:
Shares used in basic net income per common share calculation		4,676		3,985		4,333		3,985
Effect of diluted securities:
Employee and director stock options		75		82		87		76
Shares used in diluted net income per common share calculations		4,751		4,067		4,420		4,061
Basic net income per common share	$	0.08	$	0.29	$	0.18	$	0.36
Diluted net income per common share	$	0.08	$	0.29	$	0.17	$	0.35

Our comprehensive income for the three-month periods ended June 30, 2010 and 2009 was $109,000 and $1.5 million, respectively, and for the six-month periods ended June 30, 2010 and 2009 was $470,000 and $1.3 million, respectively. In each period, the main difference between net income and comprehensive income arose from foreign currency translation adjustments.

Note G: Equity and Stock-based Compensation

In April 2010, we sold 798,000 shares of our common stock to investors at $12.25 per share under a registration statement on Form S-3 declared effective by the Securities and Exchange Commission in December 2009. Net of underwriting fees and other offering expenses, we received $8.8 million in cash from the stock sale.

We recorded $164,000 and $180,000 of stock-based compensation in general and administrative expense for the six-month periods ended June 30, 2010 and 2009, respectively. Options to purchase 20,000 and 64,000 shares at a weighted average exercise price of $12.50 and $8.72, and options to purchase 60,000 and 68,000 shares at a weighted average exercise price of $12.67 and $8.62, were granted during the three-month and six-month periods ended June 30, 2010 and 2009, respectively. In addition, in June 2009, under a shareholder approved plan, we exchanged options to purchase 168,500 shares with exercise prices ranging from $12.37 to $17.50 on a one-for-one basis for options at an exercise price of $9.22. As of June 30, 2010, $843,000 of total unrecognized compensation expense related to non-vested stock option awards is expected to be recognized over a weighted average period of 2.6 years.

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We used the Black-Scholes option pricing model to determine the weighted average fair value of options during the three-month and six-month periods ended June 30, 2010 and 2009, respectively.

The Company’s stock options generally vest over three to five years of service and have a contractual life of six to ten years. As of June 30, 2010, we had 194,500 shares available for grants under the 2005 Stock Incentive Plan, which includes an additional 135,000 shares added to the plan under an amendment approved by shareholders in May 2010.

The following table summarizes information about the stock options outstanding at June 30, 2010:

		Options Outstanding						Options Exercisable
Range of Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	1.30-1.99		46,000		2.0 years	$	1.36		46,000	$	1.36
	2.00-2.99		16,200		1.6 years		2.35		16,200		2.35
	3.00-3.99		38,933		2.3 years		3.15		38,933		3.15
	7.00-7.99		4,000		4.9 years		7.00		1,000		7.00
	8.00-8.99		48,000		6.4 years		8.63		13,500		8.58
	9.00-9.99		172,500		4.8 years		9.20		55,125		9.16
	12.00-12.99		105,000		5.3 years		12.58		31,500		12.51
	15.00-15.99		28,000		1.5 years		15.30		28,000		15.30
			458,633		4.3 years		8.72		230,258		7.27

Note H: Segment Information

We operate in two reportable segments: Autoscope and RTMS. Autoscope is our machine-vision product line, and revenue consists of royalties (all of which are received from Econolite Control Products, Inc.), as well as a portion of international sales. RTMS is our radar product line acquired in the EIS asset purchase in 2007, and revenue consists of all North American sales and a portion of international sales. All segment revenues are derived from external customers. We have deemed the CitySync operations to be immaterial for the period ended June 30, 2010 and thus included those results in “Other”.

The following table sets forth selected unaudited financial information for each of the Company’s reportable segments for the three-month periods ended June 30, 2010 and 2009 (in thousands):

	Autoscope				RTMS					Other				Total
	2010		2009		2010			2009		2010		2009		2010		2009
Revenue	$	4,197	$	4,164	$	2,078		$	2,116	$	309	$	—	$	6,584	$	6,280
Depreciation		91		81		34			31		—		—		125		112
Amortization of intangible assets		—		—		192			192		24		—		216		192
Income (loss) before income taxes		428		1,187		(51	)		425		—		—		377		1,612
Capital expenditures		74		161		10			30		—		—		84		191
Total assets	$	30,798	$	22,018	$	11,304		$	10,324	$	10,023	$	—	$	52,125	$	32,342

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The following table sets forth selected unaudited financial information for each of the Company’s reportable segments for the six-month periods ended June 30, 2010 and 2009 (in thousands):

	Autoscope				RTMS				Other				Total
	2010		2009		2010		2009		2010		2009		2010		2009
Revenue	$	7,206	$	7,410	$	4,472	$	3,660	$	309	$	—	$	11,987	$	11,070
Depreciation		160		147		85		59		—		—		245		206
Amortization of intangible assets		—		—		384		384		24		—		408		384
Income (loss) before income taxes		376		1,554		573		461		—		—		949		2,015
Capital expenditures		169		285		50		55		—		—		219		340
Total assets	$	30,798	$	22,018	$	11,304	$	10,324	$	10,023	$	—	$	52,125	$	32,342

Note I: Derivative Instruments

We have purchased foreign currency forward contracts with our bank to reduce the exposure and volatility arising from fluctuations in foreign currency exchange rates as it relates to payroll and inventory purchases in certain foreign locations. These contracts have been designated as effective cash flow hedges. At June 30, 2010, we had future commitments through November 2010 to purchase $1.5 million of Canadian dollars at rates ranging from approximately .9282 to ..9296.

The fair value of the Company’s derivative instruments is estimated in accordance with the framework for measuring fair value and is recorded as either an asset or liability in the balance sheet based on changes in the current spot rate as compared to the exchange rates specified in the contracts. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. The fair value measurement of the Company’s derivative instruments is estimated using Level 2 inputs which are inputs other than quoted prices that are directly or indirectly observable for the asset or liability. We did not record any unrealized gain or losses on our derivative instruments as of June 30, 2010, as the currency spot rates were materially equivalent to the contract rates.

Note J: New Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) amended Accounting Standards Codification (“ASC”) 810, Consolidation, to improve how enterprises disclose their involvement with variable interest entities (VIE), which are special-purpose entities and other entities whose equity at risk is insufficient or lacks certain characteristics. Among other things, ASC 810 changes how an entity determines whether it is the primary beneficiary of a VIE and whether that VIE should be consolidated. ASC 810 requires an entity to provide significantly more disclosures about its involvement with a VIE. Companies must comprehensively review involvements with potential VIEs, including those previously considered to be qualifying special-purpose entities, to determine the effect on their consolidated financial statements and related disclosures. ASC 810 is effective prospectively at the beginning of an entity’s first annual reporting period beginning after December 15, 2009 and for interim periods within the first annual reporting period. The adoption of this portion of ASC 810 did not have a significant effect on our consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 requires new disclosures regarding transfers in and out of Levels 1 and 2 and activity in Level 3 fair value measurements. It also clarifies existing disclosure requirements regarding the level of disaggregation in certain disclosures, inputs, and valuation techniques used in ASC 820, Fair Value Measurements and Disclosures. We adopted all of the requirements of this update on January 1, 2010, its effective date, except for the new requirement regarding activity in Level 3 fair value measurements which has a later effective date under the provisions of ASU 2010-6 and will become effective on January 1, 2011. Adoption of this pronouncement has not had, and is not expected to have, a significant effect on our consolidated financial statements disclosures.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

General. We provide software based computer enabled detection, or CED, products and solutions that use advanced signal processing software algorithms to detect and monitor objects in a designated field of view. Our technology analyzes the signal from a sophisticated sensor and passes the information along to management systems, controllers or directly to users. Our core products, the Autoscope® Video Vehicle Detection System, RTMS® Radar Detection System and CitySync Automatic Number Plate Recognition (ANPR) System, operate using our proprietary software in conjunction with video cameras or radar and commonly available electronic components. Our systems are used by traffic managers primarily to improve the flow of vehicle traffic and to enhance safety at intersections, main thoroughfares, freeways and tunnels and by parking and toll managers and law enforcement officials to read license plates for various safety, security, access and enforcement ANPR applications.

Autoscope systems are sold to distributors and end users of traffic management products in North America, the Caribbean and Latin America by Econolite Control Products, Inc., or Econolite, our exclusive licensee in these regions. We sell RTMS and CitySync systems to distributors and end users in North America. We sell all of our systems to distributors and end users in Europe and Asia through our European and Hong Kong subsidiaries, respectively. The majority of our sales are to end users that are funded by government agencies responsible for traffic management or traffic law enforcement.

CitySync Acquisition. In June 2010, we purchased all of the outstanding equity of CitySync Limited through which we own its principal product line, the CitySync ANPR system. We believe the CitySync acquisition expands our addressable market, strengthens our selling presence in Europe and extends the opportunities for hybrid product developments. In its fiscal year ended January 31, 2010, CitySync had revenue of $7.4 million, substantially all of which related to ANPR system sales.

EIS Asset Purchase. In 2007, we purchased certain assets from EIS Electronic Integrated Systems Inc., or EIS, including its principal product line, the RTMS system. In its fiscal year ended September 30, 2007, EIS had revenue of $8.7 million, substantially all of which related to RTMS sales.

Trends and Challenges in Our Business

We believe the growth in our business can be attributed primarily to the following global trends:

• worsening traffic caused by increased numbers of vehicles in metropolitan areas without corresponding expansions of road infrastructure and the need to automate safety, security and access applications for automobiles and trucks, which has increased demand for our products;

• advances in information technology, which have made our products easier to market and implement;

• the continuing rise in funding allocations for centralized traffic management services and automated enforcement schemes, which has increased the ability of our primary end users to implement our products; and

• general increases in the cost-effectiveness of electronics, which make our products more affordable for end users.

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We believe our continued growth primarily depends upon:

• continued adoption and governmental funding of intelligent transportation systems, or ITS, and other automated applications for traffic control, safety and enforcement in developed countries;

• countries in the developing world adopting above-ground detection technology, such as video or radar, instead of in-pavement loop technology to manage traffic;

• use of CED to provide solutions to security/surveillance and environmental issues associated with increasing automobile use in metropolitan areas; and

• our ability to develop new products, such as hybrid CED devices incorporating, for example, radar and video technologies, that provide increasingly accurate information and enhance the end users’ ability to cost-effectively manage traffic, security/surveillance and environmental issues.

Because the majority of our end users are governmental entities, we are faced with challenges related to potential delays in purchase decisions by those entities and changes in budgetary constraints. These contingencies could result in significant fluctuations in our revenue between periods. The current worldwide recession is further adding to the unpredictability of purchase decisions, creating more delays than usual and decreasing governmental budgets, and it is likely to continue to negatively affect our 2010 revenue. We believe we will continue to be a beneficiary of the federal stimulus bill enacted early in 2009, but it is difficult to determine the level of impact it has on our operations.

Key Financial Terms and Metrics

          Revenue. We derive revenue from two sources: (1) royalties received from Econolite for sales of the Autoscope system in North America, the Caribbean and Latin America and (2) revenue received from the direct sales of our RTMS and CitySync systems in North America, the Caribbean and Latin America and all of our systems in Europe and Asia. Royalties from Econolite historically have provided the majority of our revenue. We calculate the royalties using a profit sharing model where we split the gross profit on sales of Autoscope product made through Econolite. This royalty arrangement has the benefit of decreasing our cost of revenues and our selling, marketing and product support expenses because these costs and expenses are borne primarily by Econolite. Although this royalty model has a positive impact on our gross margin, it also negatively impacts our total revenue, which would be higher if all the sales made by Econolite were made directly by us. The royalty arrangement is exclusive under a long-term agreement.

          Cost of Revenue. There is no cost of revenue related to royalties, as virtually all manufacturing, warranty and related costs are incurred by Econolite. Cost of revenue related to direct product sales consists primarily of the amount charged by our third party contractors to manufacture hardware platforms, which is influenced mainly by the cost of electronic components. The cost of revenue also includes logistics costs and estimated expenses for product warranties and inventory reserves. The key metric that we follow is achieving certain gross margin percentages by geographic region and to a lesser extent by product line.

          Operating Expenses. Our operating expenses fall into three categories: (1) selling, marketing and product support; (2) general and administrative; and (3) research and development. Selling, marketing and product support expenses consist of various costs related to sales and support of our products, including salaries, benefits and commissions paid to our personnel; commissions paid to third parties; travel, trade show and advertising costs; second-tier technical support for Econolite; and general product support, where applicable. General and administrative expenses consist of certain corporate and administrative functions that support the development and sales of our products and provide an infrastructure to support future growth. General and administrative expenses reflect management, supervisory and staff salaries and benefits, legal and auditing fees, travel, rent and costs associated with being a public company, such as board of director fees, Sarbanes-Oxley compliance, listing fees and annual reporting expenses. Research and development expenses consist mainly of salaries and benefits for our engineers and third party costs for consulting and prototyping. We measure all operating expenses against our annually approved budget, which is developed with achieving a certain operating margin as a key focus. Also included in operating expenses are acquisition related expenses and non-cash expense for intangible asset amortization.

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          Seasonality. Our quarterly revenues and operating results have varied significantly in the past due to the seasonality of our business. Our first quarter generally is the weakest due to weather conditions that make roadway construction more difficult in North America, Europe and northern Asia. We expect such seasonality to continue for the foreseeable future. Additionally, our international revenues have a significant large project component, resulting in a varying revenue stream. Accordingly, we believe that quarter-to-quarter comparisons of our financial results should not be relied upon as an indication of our future performance. No assurance can be given that we will be able to achieve or maintain profitability on a quarterly or annual basis in the future.

          History. We were incorporated in the state of Minnesota in December 1984 and began operations by pioneering the commercial application of wide-area video vehicle detection for traffic management. The technology underlying our products was initially developed at the University of Minnesota. In 1989, the University was awarded a patent for that technology, which it exclusively licensed to us. In 1991, we sub-licensed this technology to Econolite, a leading manufacturer and seller of traffic control products in North America and the Caribbean, to manufacture and distribute products incorporating the technology.

          Segments. We currently operate in two reportable segments: Autoscope and RTMS. Autoscope is our machine-vision product line, and revenue consists of royalties (all of which are received from Econolite), as well as a portion of international sales. RTMS is our radar product line acquired in the EIS asset purchase in December 2007, and revenue consists of all North American sales and a portion of international sales. All segment revenues are derived from external customers. We have deemed the CitySync operations to be immaterial for the period ended June 30, 2010 and thus included those results in “Other”. Due to the CitySync acquisition and related changes in how we manage our business, we may reevaluate our segment definitions in the future.

The following table sets forth selected unaudited financial information for each of the Company’s reportable segments for the three-month periods ended June 30, 2010 and 2009 (in thousands):

	Autoscope				RTMS					Other				Total
	2010		2009		2010			2009		2010		2009		2010		2009
Revenue	$	4,197	$	4,164	$	2,078		$	2,116	$	309	$	—	$	6,584	$	6,280
Depreciation		91		81		34			31		—		—		125		112
Amortization of intangible assets		—		—		192			192		24		—		216		192
Income (loss) before income taxes		428		1,187		(51	)		425		—		—		377		1,612
Capital expenditures		74		161		10			30		—		—		84		191
Total assets	$	30,798	$	22,018	$	11,304		$	10,324	$	10,023	$	—	$	52,125	$	32,342

The following table sets forth selected unaudited financial information for each of the Company’s reportable segments for the six-month periods ended June 30, 2010 and 2009 (in thousands):

	Autoscope				RTMS				Other				Total
	2010		2009		2010		2009		2010		2009		2010		2009
Revenue	$	7,206	$	7,410	$	4,472	$	3,660	$	309	$	—	$	11,987	$	11,070
Depreciation		160		147		85		59		—		—		245		206
Amortization of intangible assets		—		—		384		384		24		—		408		384
Income (loss) before income taxes		376		1,554		573		461		—		—		949		2,015
Capital expenditures		169		285		50		55		—		—		219		340
Total assets	$	30,798	$	22,018	$	11,304	$	10,324	$	10,023	$	—	$	52,125	$	32,342

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Results of Operations

The following table sets forth, for the periods indicated, (1) certain statements of income data as a percent of total revenue, (2) gross profit on product sales and royalties as a percentage of product sales and royalties, respectively, and (3) period-to-period changes of items in the consolidated statements of income from 2010 to 2009:

	Three-Month Periods Ended June 30,						Quarter Over Quarter Change
	2010			2009
International sales		28.8	%		18.4	%		63.4	%
North American sales		22.8			27.7			(13.5	)
Royalties		48.4			53.9			(5.8	)
Total revenue		100.0			100.0			4.8
Gross profit – international sales		60.9			71.9			38.4
Gross profit – North American sales		48.8			66.3			(36.3	)
Gross profit – royalties		100.0			100.0			(5.8	)
Selling, marketing and product support expenses		32.6			30.6			11.7
General and administrative expenses		14.2			12.8			16.8
Research and development expenses		12.7			13.7			(3.2	)
Acquisition related expenses		8.0			—			n/m
Amortization of intangible assets		3.3			3.1			12.5
Income from operations		6.3			25.3			(74.0	)
Other income (expense), net		(0.5	)		0.3			n/m
Income taxes		0.2			7.0			(97.7	)
Net income		5.6			18.6			(68.6	)

	Six-Month Periods Ended June 30,						Period Over Period Change
	2010			2009
International sales		25.1	%		21.1	%		28.5	%
North American sales		26.7			27.6			4.9
Royalties		48.2			51.3			1.7
Total revenue		100.0			100.0			8.3
Gross profit – international sales		62.5			69.2			16.0
Gross profit – North American sales		59.0			68.6			(9.8	)
Gross profit – royalties		100.0			100.0			1.7
Selling, marketing and product support expenses		33.4			32.1			12.7
General and administrative expenses		16.5			16.1			11.1
Research and development expenses		13.4			15.1			(3.7	)
Acquisition related expenses		4.4			—			n/m
Amortization of intangible assets		3.4			3.5			6.3
Income from operations		8.5			18.1			(49.1	)
Other income (expense), net		(0.6	)		0.1			n/m
Income taxes		1.5			5.3			(69.2	)
Net income		6.4			12.9			(46.3	)

Total revenue increased to $6.6 million in the three-month period ended June 30, 2010 from $6.3 million in the same period in 2009, an increase of 4.8%, and to $12.0 million in the first half of 2010 from $11.1 million in the same period in 2009, an increase of 8.3%. Royalties decreased to $3.2 million in the second quarter of 2010 from $3.4 million in the same period of 2009, a decrease of 5.8%, and they increased to $5.8 million in the first half of 2010 from $5.7 million in the same period in 2009, an increase of 1.7%. We attribute the relative flatness in royalties to the ongoing economic recession in North America and its negative impact on state and federal spending. North American sales, which are sales of RTMS and CitySync in North America, decreased to $1.5 million in the second quarter of 2010 from $1.7 million in the same period in 2009, a decrease of 13.5%, and increased to $3.2 million in the first half of 2010 from $3.1 million in the same period in 2009, an increase of 4.9%, also reflecting the difficult economic environment in North America. International sales, which include all product line sales outside of North America, increased to $1.9 million in the second quarter of 2010 from $1.2 million in the second quarter of 2009, an increase of 63.4%, and to $3.0 million in the first half of 2010 from $2.3 million in the first half of 2009, an increase of 28.5%. The increases were due mainly to adding the CitySync product line in June 2010 and to partially recovering from weakness in the Asian market in 2009.

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On a segment basis, revenue for the Autoscope segment was flat in the second quarter of 2010 compared to the same period of 2009, and decreased to $7.2 million in the first half of 2010 from $7.4 million in the same period in 2009. The decrease reflects the variable nature of our international business, especially in our seasonally slowest quarter, our fiscal first quarter. Revenue for the RTMS segment was $2.1 million in both the second quarter of 2010 and the same period in 2009, and increased to $4.5 million in the first half of 2010 from $3.7 million in the same period in 2009. The increase resulted mainly as a result of improved sales in North America and Asia.

Gross margins for international sales decreased to 60.9% in the three months ended June 30, 2010 from 71.9% in the same period in 2009, and to 62.5% in the first half of 2010 from 69.2% in the same period in 2009. Gross margins for North American sales decreased to 48.8% in the second quarter of 2010 from 66.3% in the second quarter of 2009 and to 59.0% in the first half of 2010 from 68.6% in the first half of 2009. The decreases resulted mainly from a negative revenue mix shift in 2010 to both lower margin products and to higher third-party equipment content. Gross margins on royalty income remained consistent at 100.0% in each of the periods of 2010 and 2009.

Selling, marketing and product support expense increased to $2.1 million, or 32.6% of total revenue, in the three months ended June 30, 2010 from $1.9 million, or 30.6% of total revenue, in the second quarter of 2009, and to $4.0 million, or 33.4% of total revenue, in the first half of 2010 from $3.6 million, or 32.1% of total revenue, in the first half of 2009. The change related mostly to an investment in market expansion activities in Europe and Asia and increased product support expenses. We anticipate that for the remainder of 2010, the dollar amount of our quarterly selling, marketing and product support expense will increase from the 2010 second quarter level.

General and administrative expense increased to $938,000, or 14.2% of total revenue, in the three months ended June 30, 2010, from $803,000, or 12.8% of total revenue, in the same period in 2009, and to $2.0 million, or 16.5% of total revenue, in the first half of 2010, from to $1.8 million, or 16.1% of total revenue, in the same period in 2009. The 2010 increase in costs resulted mainly from lower exchange gains relative to 2009. We anticipate that for the remainder of 2010, the dollar amount of our quarterly general and administrative expense will be higher than that of the second quarter of 2010.

Research and development expense decreased slightly to $834,000, or 12.7% of total revenue, in the first quarter of 2010, from $862,000, or 13.7% of total revenue, in the same period in 2009, and to $1.6 million, or 13.4% of total revenue, in the first half of 2010, from $1.7 million, or 15.1% of total revenue, in the same period in 2009. We anticipate that for the remainder of 2010, the dollar amount of our quarterly research and development expense will increase from the 2010 second quarter level.

Amortization of intangibles expense was $216,000 in the second quarter of 2010 and $408,000 in the first half of 2010, an increase of $24,000 over these same periods in 2009, and reflects the amortization of intangible assets acquired in the EIS asset purchase and a partial month amortization for the CitySync acquisition. Assuming there are no changes to our intangible assets, we anticipate amortization expense will be $1.2 million for all of 2010.

Other expense was $36,000 and $72,000 in the second quarter and first half of 2010, respectively, as compared to other income of $21,000 and $9,000, respectively, in the same periods in 2009. In 2009, bank debt was outstanding for only a portion of the first quarter.

Income before income taxes for the Autoscope segment decreased to $428,000 in the second quarter of 2010, compared to $1.2 million in the comparable quarter of 2009, and to $376,000 in the first half of 2010, compared to $1.6 million in the comparable period of 2009. The decreases were mainly due to lower gross margins, increased market expansion activities in international markets in the segment and acquisition costs incurred in 2010. Income before income taxes for the RTMS segment decreased to a loss of $51,000 in the second quarter of 2010, compared to income of $425,000 in the comparable quarter of 2009, and increased to $573,000 in the first half of 2010, compared to $461,000 in the comparable period of 2009. The increase for the six-month period was mainly due to increased sales volumes and the decrease for the quarter was due mainly to lower gross margins caused by a higher than usual mix of third party components.

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Income tax expense was $10,000, or 2.7% of pretax income, in the second quarter of 2010, compared to $442,000, or 27.4% of pretax income, in the comparable quarter of 2009, and was $180,000, or 19.0% of pretax income, in the first half of 2010, compared to $584,000, or 29.0% of pretax income, in the comparable period of 2009. The second quarter’s rate was favorably impacted by revisions to estimated tax credits. We anticipate an effective tax rate below 30% for the second half of 2010.

Liquidity and Capital Resources

At June 30, 2010, we had $13.7 million in cash and cash equivalents and $3.4 million in short-term investments, compared to $14.1 million in cash and cash equivalents and $3.9 million in short-term investments at December 31, 2009.

Net cash provided by operating activities in the six-month period ended June 30, 2010 was $431,000, compared to $2.5 million in the same period of 2009. The decrease in 2010 was due to lower net income in 2010 and a combination of a lower change in receivables in the 2010 period as compared to 2009 and a greater change in payables and accruals in the 2010 period as compared to 2009. In the six-month period ended June 30, 2010, we used $7.9 million in cash to purchase the outstanding equity of CitySync and we also repaid $445,000 in CitySync seller loans. This was offset by the proceeds from our offering of common stock which netted us $8.8 million in cash. We anticipate that average receivable collection days in 2010 will be similar to 2009 and will not have a material impact on our liquidity. Our planned additions of property and equipment are discretionary, and we do not expect them to exceed historical levels in 2010. In addition to equipment purchases, in 2010 we paid our 2009 earn-out liability of $1.5 million to the sellers of the EIS assets. Subsequent to June 30, 2010, we repaid all CitySync bank debt of $795,000.

In December 2009, we entered into a term loan agreement for $4.0 million with Associated Bank, National Association, or Associated Bank, which matures December 2012 and requires quarterly principal payments. Prior to the completion of our acquisition of CitySync, our term loan with Associated Bank was callable under certain circumstances and was classified as a current liability on the balance sheet. After the acquisition was completed, Associated Bank waived the call provision and the loan is now classified according to its three year repayment term. The interest rate for the term loan is based on a formula of LIBOR plus 3.75% (current rate is 4.0%). The term loan had $3.8 million outstanding at June 30, 2010. We previously had a separate $4.0 million term note with Associated Bank that originated in May 2008 and was fully repaid in February 2009.

We also have a revolving line of credit agreement with Associated Bank. The revolving line of credit provides for up to $5.0 million at an annual interest rate equal to the greater of 4.5% or LIBOR plus 2.75%, as reset from time to time by the bank. Advances on the line of credit cannot exceed a borrowing base determined under a formula, which is a percentage of the amounts of eligible receivables. The line of credit currently has no borrowings outstanding and matures on May 1, 2011. We believe that on an ongoing basis, we will have regular availability to draw a minimum of $3.0 million on our line of credit based on our qualifying assets.

In conjunction with our acquisition of CitySync, the sellers have an earn-out arrangement over approximately 18 months from the June 2010 date of purchase. The earn-out is based on achieving certain revenue and minimum gross margins from the sale of CitySync ANPR systems and it is calculated in two separate periods, each ending on December 31. In each period there are two tiers and superior performance could lead to a total earn-out of $2 million or higher, as the earn-out is not capped. Earn-out payments are due within three months of the end of an earn-out period.

In conjunction with our EIS asset purchase, the sellers have an earn-out arrangement over approximately three years from the December 2007 date of purchase. The earn-out is based on earnings before taxes from RTMS sales less related cost of revenue and operating expenses, excluding depreciation, amortization and interest expenses, and it is calculated annually. If the earnings are at target levels, the sellers would receive $2.0 million annually, or $6.0 million in total. Superior performance of the assets could lead to an earn-out in excess of $2 million, as the earn-out is not capped. Earn-out payments generally are due within three months of the end of an earn-out period. For the first earn-out period, the sellers of the EIS assets received a $1.2 million earn-out payment. For the second earn-out period, which was fiscal 2009, the sellers received a $1.5 million earn-out, which was paid in March 2010. If we are acquired or sell substantially all of our assets before December 6, 2010, we must pay EIS $6.0 million less earn-out amounts previously paid as an acceleration of potential earn-out payments under the EIS asset purchase agreement.

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We believe that cash and cash equivalents on hand at June 30, 2010, along with the availability of funds under our $5.0 million revolving line of credit and cash provided by operating activities, will satisfy our projected working capital needs, payments under the CitySync and EIS earn-outs, bank debt principal repayments, investing activities, and other cash requirements for the foreseeable future.

Off-Balance Sheet Arrangements

We do not participate in transactions or have relationships or other arrangements with an unconsolidated entity, including special purpose and similar entities or other off-balance sheet arrangements.

Critical Accounting Policies

Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2009. The accounting policies used in preparing our interim 2010 Condensed Consolidated Financial Statements set forth elsewhere in this Quarterly Report on Form 10-Q are the same as those described in our Annual Report on Form 10-K.

New and Recently Adopted Accounting Pronouncements

New and recently adopted pronouncements are set forth in Note J in the Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

Cautionary Statement:

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange of 1934, as amended. Forward-looking statements represent our expectations or beliefs concerning future events and can be identified by the use of forward-looking words such as “expects,” “believes,” “may,” “will,” “should,” “intends,” “plans,” “estimates,” or “anticipates” or other comparable terminology. Forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from the results described in the forward-looking statements. Factors that might cause such differences include, but are not limited to:

• historical dependence on a single product for most of our revenue;

• budget constraints by governmental entities that purchase our products, including constraints caused by declining tax revenue;

• continuing ability of our licensee to pay royalties owed;

• the mix of and margin on the products we sell;

• dependence on third parties for manufacturing and marketing our products;

• dependence on single-source suppliers to meet manufacturing needs;

• our increased international presence;

• failure to secure adequate protection for our intellectual property rights;

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• development of a competing product by another business using the underlying technology included in the patent we had licensed from the University of Minnesota, which expired in 2006;

• our inability to develop new applications and product enhancements;

• unanticipated delays, costs and expenses inherent in the development and marketing of new products, including ANPR products;

• our inability to respond to low-cost local competitors in Asia and elsewhere;

• our inability to properly manage a growth in revenue and/or production requirements;

• the influence over our voting stock by affiliates;

• our inability to hire and retain key scientific and technical personnel;

• our inability to achieve and maintain effective internal controls;

• our inability to comply with international regulatory restrictions over hazardous substances and electronic waste; and

• conditions beyond our control such as war, terrorist attacks, health epidemics and economic recession.

We caution that the forward-looking statements made in this report or in other announcements made by us are further qualified by the risk factors set forth in Item 1A. to our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our foreign sales and results of operations are subject to the impact of foreign currency fluctuations. From time to time, we enter into currency hedges to attempt to lower our exposure to translation gains and losses as well as to limit the impact of foreign currency translation upon the consolidation of our foreign subsidiaries. A 10% adverse change in foreign currency rates, if we have not hedged, could have a material effect on our results of operations or financial position. Our current greatest exposure for a negative material impact to our operations is a rising Canadian Dollar versus the U.S. Dollar.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

During the fiscal quarter covered by this report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Some of the risk factors to which we and our business are subject are described in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009. The risks and uncertainties described in our Annual Report are not the only risks we face. Additional risks and uncertainties not presently known to us or that our management currently deems immaterial also may impair our business operations. If any of the risks described were to occur, our business, financial condition, operating results and cash flows could be materially adversely affected.

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.	Defaults Upon Senior Securities
None.
Item 4.	Removed and Reserved.
Item 5.	Other Information
None.
Item 6.	Exhibits

The following exhibits are filed as part of this quarterly report on Form 10-Q for the quarterly period ended June 30, 2010:

Exhibit Number	Description
2.1	Share Purchase Agreement dated June 21, 2010 by and among Image Sensing Systems, Inc., Image Sensing Systems Europe Limited, CitySync Limited and three shareholders of CitySync Limited.
10.1	Lease dated February 1, 2010 between CitySync Limited and Nortrust Nominees Limited.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

In accordance with 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.

	Image Sensing Systems, Inc.
Dated: August 9, 2010	By:	/s/ Kenneth R. Aubrey
		Kenneth R. Aubrey
		President and Chief Executive Officer
		(principal executive officer)
Dated: August 9, 2010	By:	/s/ Gregory R.L. Smith
		Gregory R.L. Smith
		Chief Financial Officer
		(principal financial and accounting officer)

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EXHIBIT INDEX

Exhibit No.	Description
2.1	Share Purchase Agreement dated June 21, 2010 by and among Image Sensing Systems, Inc., Image Sensing Systems Europe Limited, CitySync Limited and three shareholders of CitySync Limited.
10.1	Lease dated February 1, 2010 between CitySync Limited and Nortrust Nominees Limited.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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EX-2.1

Exhibit 2.1

Share Purchase Agreement

Dated 21 June 2010

Index
1.	Definitions and interpretation		2
2.	Sale and purchase of shares		8
3.	Consideration		9
4.	Completion		10
5.	Warranties		12
6.	Earn-out and indemnities		14
7.	Escrow		19
8.	Confidentiality; non-completion		19
9.	Costs		21
10.	Notices		21
11.	Governing law and jurisdiction		22
12.	Publicity		22
13.	General		23
Schedule 1		Vendors’ Shares, Consideration and Vendors’ Loans
Schedule 2		The Company
Schedule 3		The Subsidiary
Schedule 4		The Properties
Schedule 5		Tax Deed
Schedule 6		Warranties
Schedule 7		Limitation of Vendors’ Liability
Agreed Form Documents
Annex 1		Lock-Up Agreement
Annex 2		Shareholder Representation Agreement
Annex 3		Escrow Agreement
Annex 4		Directors’ Letters of Resignation

i

THIS AGREEMENT is made on 21 June 2010

BETWEEN:

	1.	The persons whose names and addresses are set out in the first and second columns of Schedule 1 (‘the Vendors’);
	2.	CITYSYNC LIMITED (registration number 3791347) whose registered office is at City Park, Swiftfields, Welwyn Garden City, Hertfordshire, AL7 1LY, United Kingdom (the ‘Company’);
	3.	IMAGE SENSING SYSTEMS EUROPE LIMITED (registration number 5148882) whose registered office is at 54 Sun Street, Waltham Abbey, Essex, EN9 1EJ, United Kingdom (‘the Purchaser’, which expression shall, where the context so admits, include its assigns).
	4.	IMAGE SENSING SYSTEMS, INC. (incorporated under the laws of the State of Minnesota, USA) whose registered office is at 500 Spruce Tree Centre, 1600 University Avenue West, St. Paul, Minnesota 55104 USA (‘ISS’).
RECITALS
	5.	The Company (short details of which are set out in Schedule 2) is a private company and, at the date of this agreement, has an authorised share capital of £60,000.00 divided into 60,000 ordinary shares (‘Ordinary Shares’) of £1.00, of which 15,000 have been issued as fully paid (or credited as fully paid) and of which 9,000 are registered in the name of the Vendors.
	6.	The Vendors are beneficially entitled to the shares in the numbers set out in the third column of Schedule 1 and have the right to sell them free from all Incumbrances.
	7.	The Company is indebted to the Second Named Vendor in the amount of the Vendor’s Loan. The Second Named Vendor has agreed to accept the payment in the manner set out in clause 4.3.2.
	8.	The Company is the direct owner of the whole of the issued share capital in the Subsidiary. The Subsidiary is the only subsidiary of the Company.
	9.	The Vendors have agreed with the Purchaser to sell the Shares to the Purchaser on the terms and conditions contained in this agreement.

IT IS AGREED as follows:

1.	Definitions and interpretation
	1.1	In this agreement and in the schedules (unless the context otherwise requires), the following words and expressions have the following meanings:

‘the Accounting Dates’	30th November 2008 and 31st January 2010.
‘Affiliate’	means, when used to indicate a relationship with a specified person, a person that directly, or indirectly through one or more intermediaries, Controls, or is Controlled by, or is under common Control with, such specified person; and a person shall be deemed to be Controlled by another person if Controlled in any manner whatsoever that results in Control in fact by that other person (or that other person and any person or persons with whom that other person is acting jointly or in concert).
‘Agreed Form’	in relation to any document, the draft of that document which is either annexed to this agreement or which has been initialed by a party or, on their behalf, by the Vendors’ Solicitors and the Purchaser’s Solicitors, by way of identification.
‘Audited Accounts’	the audited consolidated financial statements of the Company and the Subsidiary as at and for the year ended on 31 January 2010 (copies of which have been included in the Disclosure Letter), including a balance sheet, profit and loss statement, notes, auditor’s and directors’ reports, and a statement of the source and application of funds.
‘Business’	the business of developing, marketing, distributing, selling and supporting automatic number plate recognition and automatic license plate recognition hardware and software.
‘Business Day’	a day (other than a Saturday, Sunday or public holiday) when banks in London, England are open for business.
‘CAA 2001’	the Capital Allowances Act 2001.

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‘Certified Accounts’	the abbreviated accounts filed by the Company with the Companies House for each of the years ended on the respective Accounting Dates (copies of which have been included in the Disclosure Letter).
‘Common Stock’	the common stock, $0.01 per share par value, of ISS.
‘Company Software’	Software owned by the Company or the Subsidiary.
‘Completion Date’	the date of actual completion of the matters provided for in clauses 4.1 to 4.4 and the Transactions, and ‘Completion’ shall be construed accordingly.
‘Consideration Shares’	57,000 shares of Common Stock, credited as fully paid, issued to the Vendors as a portion of the Purchase Price as provided in clause 3.
‘Control’	in relation to a body corporate, the power of a person to secure that the affairs of the body corporate are conducted in accordance with the wishes of that person:
	(a)	by means of the holding of shares, or the possession of voting power, in or in relation to that or any other body corporate; or
	(b)	by virtue of any powers conferred by the constitutional or corporate documents, or any other document, relating that or any other body corporate;
	and a ‘Change of Control’ occurs if a person who controls any body corporate ceases to do so or if another person acquires control of it, and ‘Controlled’ and ‘Controls’ shall be construed accordingly.
‘Disclosure Letter’	the letter and its annexures, dated with today’s date, delivered immediately before the execution of this agreement and addressed by the Vendors’ Solicitors to the Purchaser’s Solicitors, disclosing various matters relating to the Warranties.
‘Earn-Out Consideration’	the portion of the Purchase Price payable in accordance with clause 6.

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‘Escrow Account’	the escrow account created by the Escrow Agreement.
‘Escrow Agent’	Wells Fargo Bank, N.A.
‘Escrow Agreement’	the escrow agreement of even date herewith among the Purchaser, ISS, the Vendors and the Escrow Agent in the Agreed Form under which the Consideration Shares shall be placed in the Escrow Account.
‘Incumbrance’	any mortgage, charge (whether fixed or floating), pledge, lien, option, right of pre-emption, claims, equity, restrictions, right to acquire, assignment, hypothecation, right of retention of title or any other form of security, interest, title or security interest or any obligation (including any conditional obligation) to create any of the same.
‘Intellectual Property Rights’	all patents, patent applications, rights to inventions, copyright, trade marks, service marks, trade names, business and domain names, rights in trade dress or get-up, rights in goodwill or to sue for passing off, rights in designs, rights in computer software, database rights, moral rights, proprietary rights in confidential information (including trade secrets and know-how), rights under licences or similar agreements or arrangements, and any other intellectual property rights, in each case whether registered or unregistered and including all applications for and renewals or extensions of such rights, and all similar or equivalent rights or forms of protection in any part of the world.
‘Loan Agreements’	means the loan agreement(s) between the Second Named Vendor and the Company dated 7 February 2006, true and correct copies of which are attached to the Disclosure Schedule.
‘Loss’	means any and all loss, liability or damage and any reasonable cost or expense resulting from or arising out of any claim, including the reasonable costs, fees and expenses of any action, suit, proceeding, claim, grievance, arbitration, injunction, demand, assessment, reassessment,

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	judgement, settlement or compromise relating to the claim; and all interest, exemplary or punitive damages, fines and penalties; but ‘Loss’ does not include any decrease in the market price of the Consideration Shares.
‘Management Accounts’	the unaudited consolidated profit and loss statements of the Company and the Subsidiary for the period from and including 1 February 2010 through and including 31 May 2010 and the consolidated unaudited balance sheet of the Company and the Subsidiary as at 31 May 2010 in the Agreed Form (copies of which have been included in the Disclosure Letter).
‘Properties’	the leasehold properties, short particulars of which are contained in Schedule 4, and ‘Property’ shall mean any of them.
‘Purchaser’s Solicitors’	Crane & Staples of Longcroft House, Fretherne Road, Welwyn Garden City, Hertfordshire AL8 6TU (DX 30051 WELWYN GARDEN CITY).
‘Registered IPR’	means all Intellectual Property Rights which have been registered by the Company or which are the subject of any current application for registration (including all registered trade marks and domain names).
‘Revenue’	all fiscal authorities (national municipal or local), whether of the United Kingdom or elsewhere.
‘Second Named Vendor’	Lawson John Noble, one of the Vendors.
‘Shares’	the 9,000 Ordinary Shares of £1 each in the share capital of the Company, details of which appear in Recital (2).
‘Software’	any computer program, operating system, applications system, firmware or software code of any nature, whether operational, under development or inactive, including (i) all object code, source code, data files, rules, definitions or methodology derived from the foregoing and any derivations, updates, enhancements and customization of any of the foregoing; (ii) processes,

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	know-how, operating procedures, methods and all other Intellectual Property Rights, in each case embodied with the foregoing; and (iii) technical manuals, user manuals and other documentation thereof, whether in machine-readable form, programming language or any other language or symbols and whether stored, encoded, recorded or written on disk, tape, film, memory device, paper or other media of any nature, in each case relating to the foregoing.
‘Special Accountant’	a mutually agreeable independent registered accounting firm or, in default of mutual agreement, such firm as is nominated by the President for the time being of the Institute of Chartered Accountants in England and Wales on the written application of the Vendors or the Purchaser (whoever applies first); provided, that the party applying first shall simultaneously give notice to the other parties to this agreement of such application, which notice shall state the date the application was filed and include a copy of the application.
‘SSAP’	any Statement of Standard Accounting Practice in force at the Completion Date.
‘Subsidiary’	the company, short details of which are set out in Schedule 3.
‘Tax’ or ‘Taxation’	any form of taxation, duty, levy, charge, withholding, national insurance or other similar contribution, or rates (whether created or imposed by any governmental, state, federal, local, provincial, municipal or other body, or any statute, regulation or other law, and whether in the United Kingdom or elsewhere), including without limitation:
	(a)	any obligation to repay (in whole or part) any payment for group or consortium relief; and
	(b)	any related penalty, interest, fine, charges, costs or surcharge related thereto.
‘Tax Claim’	means a claim under the Tax Deed or for a breach of any of the Tax Warranties.

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‘Tax Deed’	the tax deed referred to in clause 4.1.6 below.
‘Tax Warranties’	means the warranties contained in paragraph 16 of Schedule 6 of the agreement.
‘Third Party Software’	all Software owned by third parties that is either licenced, offered or provided to customers of the Company as part of or in conjunction with any Company products; material to the development or provision of the Company products; or otherwise used by the Company or the Subsidiary in the conduct of its business.
‘Transactions’	means the transactions provided for in this agreement.
‘United States GAAP’	means United States generally accepted accounting principles, consistently applied.
‘Vendor’s Loan’	the loan by the Second Named Vendor to the Company evidenced by the Loan Agreements.
‘Vendors’ Solicitors’	Harbottle & Lewis LLP of 14 Hanover Square, London W1S 1HP DX 44617 MAYFAIR.
‘Warranties’	the representations and warranties given by the Vendors in clause 5 and Schedule 6.

1.2	Expressions in the singular shall include the plural and in the masculine shall include the feminine and vice versa, and references to persons shall include corporations and vice versa.
1.3	References to any statute or statutory provision shall be construed as references to that statute or statutory provision as amended, re-enacted or modified in its operation by any other statute or statutory provision (whether before or after the date of this agreement), and shall include any provisions of which they are re-enactments (whether with or without modification) and any subordinate legislation made under the relevant statute.
1.4	References to recitals, clauses and Schedules are references to recitals and clauses of, and schedules to, this agreement.
1.5	The Vendors shall be deemed to enter or undertake all obligations under this agreement jointly and severally, whether those obligations result from the execution of this agreement or from the breach of its provisions (including without limitation any of the Warranties proving to be untrue or misleading, or being breached).

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	1.6	Expressions defined in the Income and Corporation Taxes Act 1988, the Taxation of Chargeable Gains Act 1992, the CAA 2001, the Income Tax (Earnings and Pensions Act) 2003, the Income Tax (Trading and Other Income) Act 2005, the Income Tax Act 2007, the Corporation Tax Act 2009 or in the Companies Acts shall wherever used in this agreement have the meanings given to them in the relevant statute (unless the context otherwise requires) and, in the case of any inconsistency, the defined terms used in the Companies Acts shall prevail.
	1.7	The headings used in this agreement are inserted for convenience only and shall not affect its construction or interpretation.
	1.8	Unless specified otherwise, all statements of or references to dollar amounts in this agreement are to United States dollars.
	1.9	Any reference to ‘writing’ or ‘written’ includes faxes and any legible reproduction of words delivered in permanent and tangible form (but does not include email).
	1.10	The Schedules form part of this agreement.
2.	Sale and purchase of shares
	2.1	Subject to the terms of this agreement:
		2.1.1	each of the Vendors shall sell the Shares to the Purchaser with full title guarantee; and
		2.1.2	the Purchaser (relying on the representations, warranties, undertakings and indemnities by the Vendors in this agreement) shall purchase the Shares from the Vendors
	free from all Incumbrances (and with all attached or accrued rights as at the Completion Date) for the consideration detailed in clause 3.
	2.2	Each of the Vendors hereby represents to ISS and the Purchaser that no dividend payments are due and payable to him by the Company and hereby unconditionally and irrevocably waives in favour of the Company, ISS and the Purchaser any and all dividend payments due by the Company to him to the extent that they remain unpaid.
	2.3	Each of the Vendors waives any rights of pre-emption or rights of first refusal conferred by the articles of association of the Company or otherwise, over:-
		2.3.1	the Shares; and
		2.3.2	all of those 6,000 Ordinary Shares, 3,000 of which are registered in the name of Anthony Burke and 3,000 of which are registered in the name of Christopher John Stanley Cook.
	2.4	The Purchaser shall not be obliged to complete the purchase of any of the Shares unless the purchase of all of the Shares is completed simultaneously.

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3.	Consideration
	3.1	Subject to adjustment at Completion as provided in clause 3.3, the consideration payable for the Shares (‘the Purchase Price’) shall be the sum of:
		3.1.1	cash consideration of £4,455,000.00;
		3.1.2	(subject to the escrow arrangements referred to in clause 7) the Consideration Shares payable in accordance with clause 4.4 (the consideration described in clauses 3.1.1 and 3.1.2 is referred to as ‘the Initial Consideration’); and
		3.1.3	any Earn-Out Consideration payable as provided in clause 6.
	3.2	The Initial Consideration shall be apportioned among the Vendors in due proportion to the number of Shares registered in their respective names as detailed in Schedule 1.
	3.3	If, at the Completion Date, it is determined that the amount of the Company’s retained earnings (‘the 2010 Retained Earnings Amount’) as shown on the balance sheet dated as of 31 May 2010 included in the Management Accounts is less than $380,000.00, then the amount of the Initial Consideration payable in cash shall be reduced by the amount that the 2010 Retained Earnings Amount is less than $380,000.00. By way of example, if the 2010 Retained Earnings Amount is $300,000.00, the amount of the Initial Consideration payable in cash shall be reduced by $80,000.00.
	3.4	In addition to the conditions imposed by the Escrow Agreement, each Vendor covenants and agrees that he will not, for a period of 18 months from the Completion Date, sell, transfer, mortgage, or in any other way encumber or offer for sale or enter into any option in respect of the Consideration Shares. As provided in clause 4, to evidence the covenant set forth in the foregoing sentence, each Vendor shall, at Completion, deliver to the Purchaser a lock-up agreement in the Agreed Form (‘the Lock-Up Agreement’).
	3.5	Each Vendor acknowledges that the Consideration Shares issued at the Completion in accordance with clause 3.1 will not, as of the Completion Date, be registered under the United States Securities Act of 1933 (‘the 1933 Act’) and may not be resold without compliance with the 1933 Act. The stock certificates representing the Consideration Shares shall bear a legend in substantially the following form:
		THE SHARES REPRESENTED BY THIS CERTIFICATE WERE NOT ISSUED IN A TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (‘SECURITIES ACT’), OR ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR, IN THE OPINION OF QUALIFIED COUNSEL EXPERIENCED IN SECURITIES LAW MATTERS AND REASONABLY ACCEPTABLE TO THE ISSUER AND ITS TRANSFER

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		AGENT, IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.
	3.6	As a condition to receipt of the Consideration Shares at the Completion, each Vendor shall, at Completion, furnish to the Purchaser a duly executed shareholder representation agreement in the Agreed Form (the ‘Shareholder Representation Agreement’), certifying as to certain matters with respect to the Consideration Shares issued at Completion.
4.	Completion
	Completion of the sale and purchase of the Shares shall take place at the offices of the Purchaser’s Solicitors immediately after signature and exchange of this agreement (‘the Completion Date’) when and where the matters referred to in clauses 4.1 to 4.4 shall be carried out:
	4.1	The Vendors shall deliver to the Purchaser:
		4.1.1	transfers of the Shares duly executed by the registered holders in favour of the Purchaser (or as it in writing directs), accompanied by their respective share certificates, in such form as is necessary for the Purchaser to establish legal ownership in accordance with English law;
		4.1.2	the share certificate in respect of 1,500 shares of common stock, representing all of the outstanding equity shares of the Subsidiary;
		4.1.3	the certificates of incorporation, statutory books (including minute books) and all books of account and other records of the Company and the Subsidiary complete and (where appropriate) written up to date immediately prior to the Completion Date;
		4.1.4	the title deeds to the Properties and all ancillary documents, together with confirmation of the lost title deeds indemnity insurance cover in the agreed amount;
		4.1.5	the resignation of each of the existing directors and secretary of the Company and of the Subsidiary, with a written acknowledgement, waiver and release from each (executed as a deed in the Agreed Form) that he has no claim whatever against ISS, the Company, the Subsidiary or their respective Affiliates, whether in respect of compensation for loss of office, damages, pensions, loans or otherwise, and whether under any agreement to which he is a party (excluding any usual salary, other remuneration, benefits and any expenses due and payable by the Company to such directors and secretary under their current service agreements with the Company);
		4.1.6	a Tax Deed in the form set out in Schedule 5, duly executed by each of the Vendors, the Company and the Subsidiary;
		4.1.7	statements from the Company’s and the Subsidiary’s bankers as to the current and deposit account balances of the Company and of

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		the Subsidiary covering the period from 1 June 2010 through the close of business on the last Business Day preceding Completion;
	4.1.8	appropriate forms to amend the mandates given by the Company and the Subsidiary to its bankers;
	4.1.9	written confirmation from the Vendors in the Agreed Form that there are no subsisting guarantees given by the Company or the Subsidiary in their favour and that, after compliance with clause 4.3.2, there will remain no debt outstanding between the Vendors or their Affiliates and the Company;
	4.1.10	appropriate certified resolutions of the Company and the Subsidiary authorising execution of this agreement, the Tax Deed and any other ancillary documentation required to be executed by such companies in the Agreed Form;
	4.1.11	original certificates in respect of the Registered IPR;
	4.1.12	evidence (in the Agreed Form) of the release from any and all Incumbrances created by the Company or the Subsidiary, or to which any of their assets is subject, or (as appropriate) certificates of non-crystallisation;
	4.1.13	the Disclosure Letter duly executed by the Vendors;
	4.1.14	the Lock-Up Agreements duly executed by the Vendors;
	4.1.15	the Shareholder Representation Agreements duly executed by the Vendors; and
	4.1.16	the Escrow Agreement duly executed by the Vendors.
4.2	The Vendors will procure that a board meeting of the Company and of the Subsidiary shall be held at which:
	4.2.1	those persons nominated and designated by the Purchaser shall be appointed as directors, secretary and as other officers of the Company and the Subsidiary;
	4.2.2	the resignations of the directors and officers referred to in clause 4.1.5 shall be submitted and accepted;
	4.2.3	the transfers of the Shares (subject to stamping) shall be approved for registration;
	4.2.4	the existing bank mandates given by the Company and the Subsidiary shall be cancelled; and
	4.2.5	the registered offices of the Company and the Subsidiary shall be changed as the Purchaser may direct.
4.3	The Purchaser and/or ISS shall:

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		4.3.1	pay by a telegraphic transfer of funds from Purchaser’s Solicitors’ bank account to the Vendors’ Solicitors’ bank account in respect of that part of the Purchase Price as is payable in cash, to and in favour of the Vendors’ Solicitors (whose receipt shall be a full discharge to the Purchaser and ISS);
		4.3.2	procure that the Company repay to the Second Vendor the Vendor’s Loan within 10 Business Days of the Completion Date;
		4.3.3	deliver to the Vendors the Disclosure Letter duly executed by the Purchaser and ISS;
		4.3.4	deliver to the Vendors the Escrow Agreement duly executed by the Purchaser and ISS;
		4.3.5	deliver to the Vendors a certified copy of resolutions of the board of directors of the Purchaser:
			4.3.5.1	approving the Transactions; and
			4.3.5.2	authorising the directors of the Purchaser to take any and all steps necessary to complete this agreement.
	4.4	ISS shall deliver certificates evidencing the Consideration Shares to the Escrow Agent for deposit in the Escrow Account under the terms of the Escrow Agreement.
	4.5	If the provisions of clauses 4.1 through 4.3 are not complied with in any respect on the Completion Date, the Purchaser may, in its discretion, and without prejudice to any other rights it has under this agreement or otherwise:
		4.5.1	defer Completion to a date not more than 28 days after the Completion Date (in which case the provisions of clauses 4.1 through 4.5 shall apply to Completion as so deferred); or
		4.5.2	proceed to Completion so far as practicable; or
		4.5.3	terminate this agreement without incurring any liability to the Vendors or any of them.
5.	Warranties
	5.1	The Vendors warrant and represent to the Purchaser in relation to the Company and, as separate warranties and representations in relation to the Subsidiary as if its name (where the context so admits) was substituted, where appropriate, for references to ‘the Company’, that each Warranty is true and correct and not misleading on the date of this agreement except as set forth and as fairly and accurately disclosed in the Disclosure Letter (with sufficient details to identify the nature and scope of the matter disclosed).

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5.2	For the avoidance of doubt, each of the Warranties shall be separate and independent and (save as expressly provided) shall not be limited by reference to any other Warranty, clause, or anything in this agreement.
5.3	Each of the Purchaser and ISS confirms to the Vendors that (having made reasonable inquiry of its professional advisers), save as disclosed in the Disclosure Letter, it is not aware of any matter, fact or circumstance existing as at the date of this agreement which constitutes a breach of Warranty or which otherwise makes any Warranty misleading.
5.4	The rights and remedies of the Purchaser in respect of the Warranties shall not be affected by:
	5.4.1	Completion;
	5.4.2	any investigation made by it, or on its behalf, into the affairs of the Company or the Subsidiary;
	5.4.3	the Purchaser’s knowledge of any information which it may have received, or been given, or have actual, implied or constructive notice of, prior to the signing of this agreement, except to the extent that such information is set forth and is fairly and accurately disclosed in the Disclosure Letter (with sufficient details to identify the nature and scope of the matter disclosed);
	5.4.4	its failing to exercise, or delaying the exercise of, any right or remedy; or
	5.4.5	any event or matter whatever, except a specific and duly authorised written waiver or release.
5.5	In relation to any information supplied prior to the date of this agreement by the Company or the Subsidiary (or their professional advisers) to the Vendors or to their employees, agents, representatives or advisers in connection with the Warranties and the contents of the Disclosure Letter or otherwise in relation to the business or affairs of the Company or the Subsidiary:
	5.5.1	the Company or the Subsidiary makes no representation, warranty, or guarantee of the accuracy of that information (or any part of it) to the Vendors; and
	5.5.2	each of the Vendors waives any claims against the Company, the Subsidiary, their officers, directors, employees, agents, representatives, or advisers, which they might otherwise have in respect of that information (or any part of it),
	other than in respect of fraud or willful misconduct.
5.6	Any of the Warranties which are qualified by the expression ‘so far as the Vendors are aware’, or any similar expression, shall be deemed to include an additional statement that they have been made after due and careful inquiry.

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	5.7	The Vendors’ liability in respect of any claim under this agreement shall be limited as provided in Schedule 7.
	5.8	ISS and the Purchaser hereby represent and warrant to the Vendors as follows:
		5.8.1	Each of ISS and the Purchaser is entitled and has all requisite corporate power, authority and capacity to enter into, execute, deliver and perform this agreement in accordance with its terms and to consummate the Transactions.
		5.8.2	Each of ISS and the Purchaser has taken all actions necessary for it to enter into, execute and deliver this agreement and to perform the Transactions and has secured all approvals and consents (governmental or otherwise) required for the performance of this agreement.
		5.8.3	Neither the execution or delivery of this agreement by ISS or the Purchaser, nor Completion of the Transactions, is prohibited by, or violates, any provision of, and will not result in a breach of, or constitute a default under: (i) any applicable law, rule, regulation, judgement, decree, order or other requirements of the United Kingdom or of any court, authority, department, commission, board, bureau or agency; (ii) the memorandum or articles of association of the Purchaser or the articles of incorporation or the bylaws of ISS; (iii) any agreement or instrument to which it is bound or affected; or (iv) any order, judgement, decree or other restriction applicable to ISS or the Purchaser.
		5.8.4	This agreement constitutes and imposes valid legal and binding obligations on ISS and the Purchaser, enforceable in accordance with their terms.
		5.8.5	Completion of the Transactions by ISS and the Purchaser will not (i) conflict with, result in the breach of or constitute a default under, or accelerate the performance provided by, the terms of any contract, agreement or deed to which ISS or the Purchaser may be bound or affected; or (ii) constitute a default or an event which, with the lapse of time or action by a third party (other than the Vendors or by a third party with respect to a Vendor’s property), could result in the creation of any Incumbrance on any of the Consideration Shares.
6.	Earn-out and indemnities
	6.1	As used in this agreement, the following terms have the following meanings:
		6.1.1	‘Actual Eligible Revenue’ means the revenue from products in respect of the Business earned by ISS, on a consolidated basis, as determined in accordance with United States GAAP;
		6.1.2	‘Earn-Out Periods’ means EOP1 and EOP2, where EOP1 is the period from the Completion Date through 31 December 2010 (inclusive)

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		and EOP2 is the period from 1 January 2011 through 31 December 2011 (inclusive);
	6.1.3	‘AER1’ means the Actual Eligible Revenue for EOP1, determined in accordance with United States GAAP;
	6.1.4	‘AER2’ means the Actual Eligible Revenue for EOP2, determined in accordance with United States GAAP; and
	6.1.5	‘GM’ means the average associated gross margin earned by ISS on the Actual Eligible Revenue, as determined in accordance with United States GAAP.
6.2	The Earn-Out Consideration consists of two potential earn-out payments (‘the Earn-Out Payments’). The amount of each Earn-Out Payment shall be calculated based on the Actual Eligible Revenue and GM as described below. Any Earn-Out Payment due with respect to an Earn-Out Period shall be paid by the Purchaser to the Vendors in Pounds Sterling by wire transfer within 90 days after the 31 December occurring at the end of the Earn-Out Period for which the Earn-Out Payment is due to the Vendors’ Solicitors bank accounts or otherwise as directed by Solicitors’ Vendors or the Vendors, as applicable, by notice given pursuant to clause 10. Each of the Earn-Out Payments is discrete, shall be calculated separately, and does not depend on the achievement of the goals in the other Earn-Out Payment.
6.3	The amount of the Earn-Out Payment for each Earn-Out Period shall be calculated as follows:

EOP1 (Completion Date to 31 December 2010)	EOP2 (1 January 2011 to 31 December 2011)	The amount of the Earn-Out Payment shall be:
If AER1 is equal to or less than $5,260,000.00 AND the GM is equal to or less than 51%	If AER2 is equal to or less than $13,000,000.00 AND the GM is equal to or less than 51%	$0 for each of EOP1 and EOP2.
If AER1 is greater than $3,682,000.00 but less than $5,260,000.00 AND the GM is greater than 51%	If AER2 is greater than $7,000,000.00 but less than $13,000,000.00 AND the GM is greater than 51%	For EOP1, $360,000.00; and for EOP2, $550,000.00.
If AER1 is equal to or greater than $5,260,000.00 AND	If AER2 is equal to or greater than $13,000,000.00 AND
If GM is greater than 54%	If GM is greater than 54%	For EOP1, $767,000.00 plus an amount equal to 10% of (AER1 minus $5,260,000.00); for EOP2, $1,229,000.00 plus an amount equal to 10% of (AER2 minus $13,000,000.00)

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EOP1 (Completion Date to 31 December 2010)	EOP2 (1 January 2011 to 31 December 2011)	The amount of the Earn-Out Payment shall be:
If GM is greater than 51% but equal to or less than 54%	If GM is greater than 51% but equal to or less than 54%	For EOP1, $690,000.00 plus an amount equal to 8% of (AER1 minus $5,260,000.00); for EOP2, $1,120,000.00 plus an amount equal to 8% of (AER2 minus $13,000,000.00).
If GM is greater than 48% but equal to or less than 51%	If GM is greater than 48% but equal to or less than 51%	For EOP1, $620,000.00 plus an amount equal to 5% of (AER1 minus $5,260,000.00); for EOP2, $1,020,000.00 plus an amount equal to 5% of (AER2 minus $13,000,000.00).
If GM is greater than 45% but equal to or less than 48%	If GM is greater than 45% but equal to or less than 48%	For EOP1, $530,000.00 plus an amount equal to 2% of (AER1 minus $5,260,000.00); for EOP2, $900,000.00 plus an amount equal to 2% of (AER2 minus $13,000,000.00).
If GM is equal to or less than 45%	If GM is equal to or less than 45%	$0 for each of EOP1 and EOP2.

	For purposes of the Earn-Out Payment, United States Dollars figures shown above will be converted into Pounds Sterling at a rate of $1.60 to £1.00.
6.4	For purposes of illustration; Example I: in EOP2, if AER2 is $7,500,000.00 and GM is 55%, the Earn-Out Payment would be $550,000.00 or £343,750.00. If in the same example the GM were 50%, the Earn-Out Payment would be $0. Example II: in EOP 1, if AER1 is $6,000,000.00 and GM is 55%, the Earn-Out Payment would be $841,000.00 (which is $767,000.00 plus 10% x $6,000,000.00 - $5,260,000.00) or £525,625.00. If in the same example the GM were 46%, the Earn-Out Payment would be $534,800.00 (which is $530,000.00 plus 2% x $6,000,000.00 - $5,260,000.00) or £340,500.00.
6.5	For avoidance of doubt, GM is an average and does not pertain to any individual revenue transaction. In each Earn-Out Period, the Vendors may elect to disregard certain revenue transactions so as to improve GM. In that case, the Actual Eligible Revenue and its related costs would be decreased accordingly in the calculations. Additionally, the Chief Executive Officer or the Chief Financial Officer of the Purchaser may ‘sanction’ certain transactions that would otherwise be considered unusual or not in the ordinary course. In the case of such a sanctioned transaction, the parties would agree before completion of the sale that the sale would be initially disregarded in the

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	calculations and an agreed-upon amount for revenue and its related costs would be added back to the calculations.
6.6	AER1 and AER2 shall be determined promptly after the close of each fiscal year of the Purchaser in which the applicable Earn-Out Period ended in conjunction with ISS’ annual audit. The Purchaser shall deliver a copy of the report setting forth the computation of AER1 or AER2 to the Vendors within 60 days of the close of the applicable Earn-Out Period and, unless the Vendors notify the Purchaser within 30 days after receipt of such report that they object to the computation of AER1 or AER2 set forth in such report, the report shall be binding and conclusive for the purposes of this agreement. The Vendors shall have access to the records of the Company and the Purchaser during the regular business hours of the Company or the Purchaser, as applicable, and upon prior notice to verify the computation of AER1 and AER2.
6.7	If the Vendors notify the Purchaser in writing within 30 days after the receipt of the report described in clause 6.6 that they object to the computation of AER1 or AER2 set forth in such report, the amount of AER1 or AER2, as applicable, shall be determined by negotiation between the Vendors and the Purchaser acting in good faith. If the Vendors and the Purchaser are unable to reach agreement within 30 Business Days after such notification, the determination of the amount of AER1 or AER2, as applicable, shall be submitted to the Special Accountant for determination, whose determination shall be made in accordance with United States GAAP.
6.8	In making its determination, the Special Accountant shall (i) act as an expert and not as an arbitrator and neither the Arbitration Act 1996 nor any earlier or later enactments on arbitration shall apply, and (ii) set its own procedure as it deems appropriate, subject to the requirement to make its determinations of AER1 or AER2, as applicable, in accordance with United States GAAP, but it shall be instructed to (a) seek to receive and consider written representations from the Purchaser and the Vendors and (b) ensure that the process is straightforward and concluded within 30 days of being instructed, and its determination is to be in writing and state reasons for its decisions. The Special Accountant’s decision shall (in the absence of manifest error) be final, binding and conclusive on the parties for all the purposes of this agreement.
6.9	If the Special Accountants determine that AER1 or AER2, as applicable, has been understated, then the Purchaser shall pay the Special Accountants’ fees, costs and expenses. If the Special Accountants determine that AER1 or AER2, as applicable, has not been understated, then the Vendors shall pay the Special Accountants’ fees, costs and expenses. Each party shall be responsible for its own costs of presenting its case to the Special Accountant.
6.10	It is agreed by the Parties that from the date of this agreement until the end of the Earn-out Periods:
	6.10.1	the Purchaser and its Affiliates will use reasonable commercial efforts to promote the Company’s and Subsidiary’s business with the intention of enhancing the Actual Eligible Revenue;

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	6.10.2	the Purchaser will disclose to the Vendors, and consult with the Vendors in relation to, any discounting for the Business;
	6.10.3	except as it shall not affect AER1 or AER2, the Purchaser will not and shall procure that none of its Affiliates (other than the Company and/or the Subsidiary) will seek to solicit away from the Company or the Subsidiary for the benefit of the Purchaser or any of its Affiliates or any other third party any Business or potential Business which would otherwise be offered to the Company or the Subsidiary; and
	6.10.4	the Purchaser shall insofar as it is reasonable to do so, or save where the Vendors have agreed to the contrary, procure that:
		6.10.4.1	the Business shall be conducted and managed in the normal and usual course, save that the Purchaser or its Affiliates may dissolve the Subsidiary, merge it into the Purchaser or another Affiliate of ISS, or otherwise cause it to no longer exist as a separate corporation;
		6.10.4.2	no changes shall be made in the Business that have a material adverse effect on AER1 or AER2;
		6.10.4.3	no significant Business asset or rights in Registered IPR are transferred outside the Company or the Subsidiary;
		6.10.4.4	the Company is provided with sufficient working capital to operate in the normal and usual course; and
		6.10.4.5	no steps are taken for the Company to undergo any kind of formal insolvency procedure save where such procedure is necessary for the protection of creditors of the Company.
6.11	Indemnities
	6.11.1	Without prejudice to any other right of the Purchaser, ISS, the Company, the Subsidiary or any of their respective Affiliates, each of the Vendors undertakes to indemnify, and to keep indemnified, the Purchaser, ISS, the Company, the Subsidiary and their respective Affiliates against any and all Losses which may be suffered or incurred by any of them and which arise directly or indirectly in connection with the following disputes or matters:
		6.11.1.1	the proceedings with Claim Number HC05C00443 issued against the Company on 25 February 2005 in the Chancery Division of the High Court of Justice;
		6.11.1.2	the lawsuit filed by John B. Adrain against the Company in the United States District Court for the Eastern District of Texas, Marshall Division, 2:09-CV-326;

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			6.11.1.3	any breach of the confidentiality obligations to the Purchaser and ISS of the Vendors, the Company, or their respective Affiliates, whether under this agreement or under any previous agreement or arrangement;
			6.11.1.4	the failure of the Company or the Subsidiary to qualify as a foreign corporation authorized to do business in any state of the United States or any other jurisdiction in which it conducts business; and
			6.11.1.5	Losses of greater than £25,000.00 as of the Completion Date related to dilapidations with respect to the Property located at Turpin Court, 124/124A Great North Road, Hatfield, Hertfordshire AL9 5JN, United Kingdom;
			including, without limitation, with respect to the matters identified in clauses 6.11.1.1 and 6.11.1.2, any agreements or arrangements entered into in connection with such matters.
		6.11.2	Any payment made in respect of a claim under this clause 6.11 shall include any amount necessary to ensure that, after any Taxation of the payment, the Purchaser is left with the same amount it would have had if the payment was not subject to Taxation, save for where such liability to Taxation arises as a result of the Purchaser assigning the benefit of this agreement.
7.	Escrow
	7.1	The Consideration Shares shall be held in the Escrow Account under the Escrow Agreement and subject to the provisions of clause 7.2 and shall not be released to the Vendors until as provided in the Escrow Agreement.
	7.2	Without prejudice to any other rights of the Purchaser, and in the event (other than by agreement between the parties) that the Purchaser has a judgement in respect of any claim made under any of the Warranties, covenants and indemnifications given by the Vendors in this agreement, the Purchaser shall be entitled to offset the amount of any such judgement against any sums due and outstanding by the Purchaser to the Vendors (including the Consideration Shares being held in the Escrow Account and the Earn-Out Consideration).
8.	Confidentiality; non-competition
	8.1	For the purpose of this clause 8:
		8.1.1	‘Confidential Information’ means (i) the negotiations relating to, and the subject matter and/or provisions of, this agreement; and (ii) any financial or other confidential information or other know-how relating to the business carried on at the date of this agreement by, or the affairs of, a party, including, but not limited to, in the case of the Company or the Subsidiary, any information relating to their current or future affairs or plans, or customers or other persons with whom the Company, the Subsidiary or the Vendors have or

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		have had dealing, or who are or have been concerned in the above business;
	8.1.2	‘Relevant Employee’ means any director, manager, employee, consultant or representative who is current employed or engaged by the Company or the Subsidiary at the time of Completion (including any person who has given notice to terminate his employment, whether or not in accordance with the terms of his employment, and any person who has left that employment but would have been currently employed at the time of Completion had he given the prescribed period of notice in accordance with the terms of his employment) and any such person who may be so employed or engaged at the end of the Earn-Out Period.
8.2	Each of the Vendors covenants with the Purchaser and ISS that, except as otherwise agreed in writing with the Purchaser, the Vendor will (and will procure that every Affiliate of the Vendor will);
	8.2.1	except as required by applicable law, keep confidential, and not disclose or make use of, any Confidential Information; and
	8.2.2	observe the other covenants set out in clause 8.3 below.
8.3	The other covenants referred to in clause 8.2.2 above are as follows:
	8.3.1	no Vendor shall carry on, or be engaged, concerned or interested (directly or indirectly) in, the Business, within the United Kingdom, Europe, North America and Asia, for the period from the date of this agreement and ending on 31 March 2013 (‘the Non-Compete Period’), either solely, or jointly with, or as employee, manager, officer, agent, consultant, or other representative of any other person (corporate or unincorporated);
	8.3.2	during the Non-Compete Period, no Vendor shall solicit (either on his own account, or as the employee, manager, officer, agent, consultant, or other representative of any other person) any person who (i) is, or was within a period of 15 months prior to Completion, a customer of the Company or the Subsidiary, or (ii) is, during the Earn-Out Periods, a customer of the Company, the Subsidiary or ISS or any of their respective Affiliates, in relation to their respective businesses, or have any dealings with the customers identified in this clause 8.3.2, in respect of goods or services of the nature presently provided in the Business;
	8.3.3	during the Non-Compete Period, no Vendor shall induce or seek to induce any Relevant Employee from leaving his employment with the Company, ISS, the Subsidiary, or any of their respective Affiliates, with a view to engaging them in the Business; and
	8.3.4	subject to clause 8.4 below, during the Non-Compete Period, no Vendor shall own (beneficially or otherwise), or be interested in, the equity or share capital of any company or other entity engaged in providing services of the nature presently provided by the Business.

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	8.4	Nothing in clause 8.3 above shall prevent any of the Vendors from at any time holding, for investment purposes only, any class of securities for the time being listed or dealt in on any class of securities for the time being listed or dealt in on any stock exchange, where his interest does not exceed 5% of all the issued securities of that class.
	8.5	The price for the undertakings contained in clauses 8.2 and 8.3 is included in the Purchase Price.
	8.6	Except as required by applicable law, the Purchaser and ISS covenant with the Vendors to keep confidential, and not disclose or make use of, any Confidential Information so far as it relates to the Vendors.
	8.7	The covenants contained in this clause 8 are considered by the parties hereto to be reasonable and fair, independent legal advice having been taken, but if any such covenant shall be found to be void but would be valid if some part thereof were deleted, or the period or area of application reduced, such covenants shall apply with such modifications as may be necessary to make them valid and effective.
9.	Costs
	All costs and expenses incurred by, or on behalf of, the parties to this agreement in connection with its negotiation, preparation and execution (including all fees of representatives, solicitors, attorneys and accountants employed by any of the parties) shall be borne solely by the party incurring them, and the other parties have no liability in respect of those costs and expenses. For the avoidance of doubt, the costs and fees of the Vendors’ Solicitors; the non-audit related fees of Raffingers Stuart; and the costs and fees of Livingstone Partners LLP shall be paid by the Vendors.
10.	Notices
	10.1	Any notice to be given for the purposes of this agreement shall either be delivered personally (and delivery by courier shall be regarded as such) or sent by first class, pre-paid, recorded delivery post or facsimile transmission.
	10.2	The address for service of the Vendors shall be the address (or principal address, if more than one) of the Vendors’ Solicitors, or such other firm:
		10.2.1	with which it may merge or which a majority of its partners may join; or
		10.2.2	as the Vendors who own the majority in number of Shares may require by notice in writing to the Purchaser.
		If, at any time, it shall not be evident which firm of solicitors is appointed for the purposes of this clause, the Purchaser may, by notice to the Vendors at their addresses in this agreement, nominate one of their number for the purposes of receiving and giving notices.

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	10.3	The address for service of the Company and the Purchaser shall be their respective registered offices, or such other address as the Company or the Purchaser notifies the Vendors in accordance with this clause 10.
	10.4	A notice shall be deemed to have been served as follows:
		10.4.1	if personally delivered, at the time of delivery;
		10.4.2	if sent by pre-paid recorded delivery post, at the expiration of 48 hours after the notice was delivered into the custody of the postal authorities; and
		10.4.3	if sent by facsimile transmission, at the expiration of 12 hours after despatch.
	10.5	In proving such service, it shall be sufficient to prove that personal delivery was made, or that the envelope containing such notice was properly addressed and delivered into the custody of the postal authorities as a pre-paid recorded delivery letter or that the facsimile transmission was properly addressed and despatched.
	10.6	Notice given to the Vendors pursuant to clauses 10.1 and 10.2 above shall be deemed to be notice to all the Vendors, and any notice by the Vendors (other than a notice changing their solicitors pursuant to this clause 10) shall only be given by their solicitors, or the Vendor nominated by the Purchaser pursuant to this clause 10.
11.	Governing law and jurisdiction
	11.1	Any contractual or non-contractual obligations arising from or under this agreement shall be governed by, and this agreement shall be construed in all respects in accordance with, English law.
	11.2	The parties irrevocably agree that the courts of England and Wales shall have exclusive jurisdiction in respect of any dispute, suit, action, arbitration or proceedings (‘Proceedings’) which may arise out of, or in connection with, this agreement (whether arising out of or in connection with contractual or non-contractual obligations), although nothing in this agreement shall be taken to limit the right of the Purchaser to bring Proceedings to obtain injunctive relief in any other jurisdiction or jurisdictions (whether concurrently or not).
	11.3	The Vendors expressly and specifically agree and accept that the terms of this clause are fair and reasonable, and appoint the Vendors’ Solicitors (or such other firm as is mentioned in clause 10.2 for the time being) to accept service on their behalf of any Proceedings which may be commenced in England and Wales.
12.	Publicity
	No announcement, press release or other disclosure concerning this agreement, the sale and purchase of the Shares, or any ancillary matter shall be made before or after Completion by the Vendors (whether to the press, employees, customers or

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	suppliers) except in a form agreed by the Purchaser and the Vendors or otherwise as required by law.
13.	General
	13.1	This agreement shall (except for any obligation fully performed prior to, or at, the Completion Date) continue in full force and effect after the Completion Date notwithstanding Completion.
	13.2	All of the parties to this agreement will before, upon and after the Completion Date, do all acts and things, and sign and execute all documents and deeds, reasonably necessary for the purpose of implementing the terms of this agreement.
	13.3	Notwithstanding any rule of law or equity to the contrary, any release, waiver or compromise, or any other arrangement of any kind whatever, which the Purchaser may agree to, or effect, in connection with this agreement in relation to one Vendor (particularly affecting the Warranties) shall not affect the Purchaser’s rights and remedies as regards any other Vendor.
	13.4	The Purchaser is permitted to assign the benefit of, and all of its rights under, this agreement (including under the Warranties) to its successor in title or to any of its Affiliates (as the case may be), provided that the liability of the Vendors shall not be increased by any such assignment.
	13.5	Except as set out in clause 13.4, none of the rights or obligations under or pursuant to this agreement may be assigned or transferred to any other person without the written consent of all the parties.
	13.6	This agreement contains the whole agreement between the parties relating to the transactions provided for in this agreement and supersedes any and all previous agreements, understandings or arrangements between such parties in respect of such matters, and each of the parties to this agreement acknowledges that, in agreeing to enter into this agreement, it has not relied on any representations or warranties except those contained in this agreement. Nothing in this clause 13.6 operates to limit or exclude any liability for fraud.
	13.7	Nothing in this agreement is intended to confer on any person any right to enforce any term of this agreement which that person would not have had but for the Contracts (Rights of Third Parties) Act 1999.
	13.8	No failure or delay by the Purchaser in exercising any claim, remedy, right, power or privilege under this agreement shall operate as a waiver, nor shall any single or partial exercise of any claim, remedy, right, power or privilege preclude any further exercise of it, or the exercise of any other claim, right, power or privilege.
	13.9	Any variation of this agreement shall be in writing and signed by or on behalf of all parties.
	13.10	Any waiver of any right under this agreement is effective only if it is in writing, and it applies only to the party to whom the waiver is addressed and

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	the circumstances for which it is given and shall not prevent the party who has given the waiver from subsequently relying on the provision it has waived.
13.11	Unless specifically provided otherwise, rights arising under this agreement are cumulative and do not exclude rights provided by law.
13.12	This agreement may be executed in any number of counterparts, each of which is an original and which together have the same effect as if each party had signed the same document.
13.13	If any provision of this agreement (or part of a provision) is found by any court or administrative body of competent jurisdiction to be invalid, unenforceable or illegal, the other provisions shall remain in force.
13.14	If any invalid, unenforceable or illegal provision of this agreement would be valid, enforceable or legal if some part of it were deleted, the provision shall apply with whatever modification is necessary to give effect to the commercial intention of the parties.
13.15	Each of the parties represents to the others that their respective rights to terminate or agree to any amendment, variation, waiver or settlement under this agreement are not subject to the consent of any person that is not a party to the agreement.

(The remainder of this page was left blank intentionally.)

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SCHEDULE 1

		Initial Consideration
Name and Address	Number of Shares	Cash1	Number of Consideration Shares	Earn-Out Consideration
Nicolaas Bekooy2	3,000 Ordinary Shares	£1,443,000.00	19,000	One-third of any Earn-Out Payments due.
Lawson John Noble2	3,000 Ordinary Shares	£1,443,000.00	19,000	One-third of any Earn-Out Payments due.
Frank Thomson2	3,000 Ordinary Shares	£1,443,000.00	19,000	One-third of any Earn-Out Payments due.

1	After taking into account the impact of an adjustment pursuant to clause 3.3 of the agreement.
2	Addresses are set forth in the Disclosure Letter.

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SCHEDULE 2
The Company

Registered Number: 3791347

Registered Office: City Park, Swiftfields, Welwyn Garden City, Hertfordshire AL7 1LY, United Kingdom

Date of Incorporation: 17th June 1999

Directors: Nicolaas Bekooy, Lawson John Noble and Frank Thomson

Secretary: Lawson John Noble

Accounting Reference Date: 31st January

Auditors: Raffingers Stuart

Authorised Share Capital: 60,000 Ordinary Shares

Issued Share Capital: 15,000 Ordinary Shares

Mortgages/Charges

Mortgagee – Four Circle Properties Limited

Date Created – 7th February 2001

Date Registered – 22nd February 2001

Amount Secured – All monies due or to become due from the Company to the Mortgagee under the terms of a Lease made between the Company and the Chargee

Rent Deposit - £2,528.00 plus interest

Mortgages/Charges

Chargee – RBS IF Limited

Date Created – 31st October 2007

Date Registered – 1st November 2007

Amount Secured – All monies due or to become due from the Company to the Mortgagee under the terms of the Charge

Property Charged – All property and assets present and future including goodwill, uncalled capital, buildings, fixtures, fixed plant and machinery and further in accordance with the charge.

Guarantees: None

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SCHEDULE 3
The Subsidiary

State of Incorporation: Delaware, United States.

Registered Agent and Office: Agents and Corporations, Inc., 1201 Orange Street, Suite 600, Wilmington, Delaware 19801.

Date of Incorporation: 5th June 2006.

Director: Frank Thomson.

Officer and Titles: Lawson Noble, President; Natalie Papadronicou, Secretary; and Frank Thomson, Treasurer.

Authorized Capital: 1,500 shares of no par value common stock.

Issued Shares: 1,500 shares of no par value common stock.

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SCHEDULE 4
The Properties

Falcon House, Unit J, City Park, Watchmead, Welwyn Garden City, Hertfordshire held under the terms of a Lease dated 1st February 2010 and made between Nortrust Nominees Limited (1) The Company (2) and as the same is registered at the Land Registry under Title Number HD501020

124/124A, Great North Road, Hatfield, Hertfordshire and three car parking spaces held under the terms of a Lease dated 7th February 2001 and made between Four Circle Properties Limited (1) and the Company (2)

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SCHEDULE 5
Tax Deed

THIS TAX DEED is made on

BETWEEN:

1.	The persons whose names and addresses are set out in Part I of the Schedule (‘the Covenantors’);
2.	The companies whose names and registered offices are set out in Part II of the Schedule (‘the Companies’);
3.	IMAGE SENSING SYSTEMS EUROPE LIMITED (registration number 5148882) whose registered office is at 54 Sun Street, Waltham Abbey, Essex EN9 1EJ (‘the Purchaser’, which expression shall where the context so admits include its successors and assigns)

RECITAL

The Purchaser has today completed the purchase from the Covenantors of the issued share capital of CITYSYNC LIMITED under a share purchase agreement (‘the Agreement’) dated [__] June 2010 in reliance (inter alia) upon the indemnities contained in this deed.

1.	Definitions
	1.1	In this deed (unless the context otherwise requires), the following expressions shall have the following meanings:

‘Accounting Date’	31 January 2010.
‘Business Day’	a day (other than a Saturday) when banks are open for the transaction of normal banking business in London.
‘Claim’	any notice, demand, assessment, letter, direction or order, or other document issued, or action taken, by or on behalf of any fiscal, revenue or other authority or official anywhere in the world, whereby the Company is liable, or is sought to be made liable, to make any payment of Taxation to the authority, official or other person (whether that payment is primarily payable by the Company, and whether or not the Company shall or may have any right of reimbursement against any other person), or is denied, or sought to be denied, any Relief.
‘the Company’	any or all of the Companies as the case may be.
‘Event’	any event, act, transaction, omission or occurrence of whatever nature and (without limitation) completion, the receipt or accrual of

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	any income, or any distribution, failure to distribute, acquisition, disposal, transfer, payment, loan or advance including the death of any person.
‘ICTA 1988’	the Income and Corporation Taxes Act 1988.
‘Pre-Completion Tax Affairs’	means the tax affairs of the Company for which the Vendor is responsible under clause 9.1.
‘Relief’	relief, loss, allowance, credit, deduction, exemption, set-off or right to repayment, claimed or available in relation to Taxation pursuant to any legislation or otherwise or any repayment of or saving of Taxation.
‘Taxation’	includes without limitation any form of taxation, duty, levy, charge, national insurance or other similar contribution, or rates (whether created or imposed by any government, state, federal, local, municipal or other body, and whether in the United Kingdom or elsewhere), including, but not limited to, any obligation to repay (in whole or part) any payment for group relief, any payment which the Company may be, or become, bound to make or obliged to account for to any person in respect of Taxation, and any related penalty, interest, fine or surcharge.
‘Tax Warranties’	means the warranties contained in clause 17 of Schedule 6 of the Agreement.
‘Tax Authority’	any taxing or other authority competent to impose a liability to Taxation.
‘Tax Documents’	means the tax returns, claims and other documents which the Vendor is required to prepare on behalf of the Company under clause 9.1(a) and (b).

1.2	Other expressions used in this deed shall, where the context so admits, have the meanings ascribed to them in the Agreement.
1.3	Reference to the result of any Event on, or before, Completion shall include:
	1.3.1	the combined result of two or more Events, the first of which takes place on or before Completion outside the ordinary course of business of the Company and all Events occurring after Completion are inside the ordinary course of business of the Company; and
	1.3.2	any Event which is deemed for Taxation purposes to have occurred on or before Completion.

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	1.4	Any reference to a statute or statutory provision shall be construed as a reference to that statute or provision (including any subordinate legislation made under it) as modified or re-enacted from time to time.
	1.5	Headings in this deed are for ease of reference only and shall not affect its construction.
2.	The Covenant to pay
	2.1	Subject to clauses 2.8 and 2.9, the Covenantors jointly and severally covenant with the Purchaser to pay to the Purchaser an amount equivalent to any liability of the Company:
		2.1.1	for Taxation arising as a result of, or by reference to, any Event on or before completion;
		2.1.2	for Taxation which would have been saved but for the loss, reduction, modification or cancellation of some Relief in consequence of an Event occurring on or before completion;
		2.1.3	for Taxation which arises in consequence of an Event occurring on or before completion, and which would have been payable but for the utilisation or set-off of some Relief which arises in respect of an Event occurring after completion; and
		2.1.4	for Taxation arising in consequence of an Event occurring after completion, and for which the Company is liable as a result of having been a member of any group for Taxation purposes or having being controlled by, or being otherwise connected with, the Covenantors at any time before completion.
	2.2	Without limiting clause 2.1, the Covenantors jointly and severally covenant with the Company and the Purchaser to indemnify them, and hold them harmless against, any liability in respect of any inheritance tax which:
		2.2.1	is at completion a charge on, or gives rise to a power to sell, mortgage or charge, any of the shares or assets of the Company; or
		2.2.2	after completion, becomes a charge on, or gives rise to a power to sell, mortgage or charge, any of the shares or assets of the Company and which is a liability in respect of inheritance tax payable as a consequence of the death of any person (whenever occurring) within 7 years after a transfer of value occurring on or before completion; or
		2.2.3	arises as a consequence of a transfer of value occurring on or before completion (whether or not in conjunction with the death of any person whenever occurring) made by, or to, the Company.
	2.3	For the avoidance of doubt, any payment made by the Company or the Purchaser to discharge or remove any power to sell, mortgage, or charge, shall give rise to a liability and, notwithstanding any provision of this deed,

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	the Company or the Purchaser may disregard any right to pay any Taxation in instalments in discharging or removing a charge or power.
2.4	The Inheritance Tax Act 1984 Section 213 shall not apply in relation to any payments to be made by the Covenantors under this deed.
2.5	Any Taxation which would have been repaid to the Company but for the loss, reduction, set-off or cancellation of any right to repayment of Taxation in consequence of an Event occurring on or before completion, shall for the purposes of clause 2.1.1 be deemed to be Taxation for which the Company is liable, and which arises in consequence of the Event.
2.6	There shall be treated as an amount of Taxation which would, for the purposes of clause 2.1.2, have been saved but for the loss, reduction, modification or cancellation of some Relief, the amount by which the liability to Taxation would have been reduced by the Relief lost, reduced, modified or cancelled, applying the relevant rates of Taxation in force in the period or periods in respect of which the Relief would have applied or (where the rate has at the relevant time not been fixed) at the last known rate, and assuming that the Company had sufficient profits against which Relief might be set off or given.
2.7	The Covenantors jointly and severally covenant with the Company and the Purchaser, and each of them, to indemnify the Company and the Purchaser on a full indemnity basis in respect of, and to hold them harmless against, any reasonable costs or expenses properly incurred or payable by the Company or the Purchaser in connection with any Claim for which a successful claim is made under this Agreement or the Tax Warranties by the Purchaser.
2.8	The covenant to pay in clause 2.1 or a claim under the Tax Warranties shall not apply to any liability to the extent that:
	2.8.1	a provision is made in the Audited Accounts in respect of that liability or the liability was taken into account in the preparation of the Audited Accounts;
	2.8.2	such a provision is insufficient by reason of an increase in the rates of Taxation announced after completion but with retrospective effect;
	2.8.3	the loss occasioned has been recovered as a result of any claim under the warranties in the Agreement.
	2.8.4	the liability was paid or discharged before the Accounting Date, or such payment or discharge was taken into account in the preparation of the Audited Accounts;
	2.8.5	the liability arises as a result of any change in law (or a change in interpretation on the basis of case law), regulation, directive or requirement, or the published practice of any Tax Authority, occurring after Completion in each case with retrospective effect;

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	2.8.6	the liability would not have arisen but for a voluntary transaction, action or omission carried out or effected by the Purchaser or the Company at any time after Completion, except that this exclusion shall not apply where any such transaction, action or omission:
		(i)	is carried out or effected by the Purchaser or the Company pursuant to a legally binding commitment created on or before Completion or at the direction of the Covenantors; or
		(ii)	is carried out or effected by the Company in the ordinary course of business of the Company;
		(iii)	is carried out in circumstances where the Purchaser did not know and (on the basis of the information actually supplied in writing by the Covenantors to the Purchaser prior to Completion) could not be expected to know it would or might give rise to the liability for Taxation in question
	2.8.7	the liability comprises interest or penalties arising by virtue of an underpayment of tax prior to Completion, insofar as such underpayment would not have been an underpayment but for a bona fide estimate made prior to Completion of the amount of income, profits or gains to be earned, accrued or received after Completion proving to be incorrect, or but for any other event or events occurring after Completion;
	2.8.8	the liability arises as a result of a change after Completion in the length of any accounting period for tax purposes of the Company or (other than a change which is necessary in order to comply with the law or generally accepted accounting principles applicable to the Company at Completion) a change after Completion in any accounting policy or tax reporting practice of the Company;
	2.8.9	the liability is a liability to tax comprising interest, penalties, charges or costs in so far as attributable to the unreasonable delay or default of the Purchaser or the Company after Completion; or
2.9	The covenant in clause 2.1 shall not apply to any liability to the extent that it arises in consequence of an Event which has occurred since the Accounting Date in the ordinary course of the trading activities of the Company, and (to the intent that this list is to be deemed non-exhaustive) none of the following shall be regarded as carried out in the ordinary course of the trading activities of the Company namely:
	2.9.1	any disposal of an asset other than stock in trade;
	2.9.2	any Event giving rise to a liability to Taxation primarily payable by some other person;
	2.9.3	any Event giving rise to a liability under ICTA 1988 Sections 703–787 in relation to tax avoidance; or

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		2.9.4	any Event which involves a distribution within the meaning of ICTA 1988 Section 418 or a loan within ICTA 1988 Section 419.
	2.10	The provisions of Schedule 9 of the Agreement shall apply to limit the Covenantors’ liability for claims under the tax deed or for breach of the tax warranties where expressly provided for in Schedule 9.
3.	Conduct of claims and appeals
	3.1	In the event of the Company or the Purchaser becoming aware of any Claim under this Tax Deed or the Tax Warranties, the Company or the Purchaser (as the case may be) shall give written notice of the Claim to the Covenantors as soon as reasonably practicable, but such notice shall not be a condition precedent to the liability of the Covenantors.
	3.2	The Purchaser and the Company shall take any such action as the Covenantors may reasonably request to avoid, dispute, resist, appeal, compromise or defend the Claim, subject to:
		3.2.1	the Covenantors first having indemnified the Company and the Purchaser to their reasonable satisfaction against any Taxation being the subject of, or likely to be incurred in connection with, the Claim and against any amounts likely to be payable pursuant to clause 2.8; and
		3.2.2	the following provisions of this clause 3.
	3.3	All communications (written or otherwise) relating to the Claim received from the Taxation authority shall be immediately copied (if in writing) or otherwise communicated to the Purchaser, and all communications intended to be made to the relevant Taxation authority shall first be submitted to the Company or the Purchaser for approval (giving sufficient time for comments), and shall only be transmitted if such approval is given (such approval not to be unreasonably withheld or delayed). The Covenantors shall make no settlement or compromise of the Claim, or agree any matter in the conduct of the dispute, which the Purchaser reasonably considers likely to prejudice the future liability of the Company or the Purchaser in respect of Taxation, without the prior written approval of the Company or the Purchaser as appropriate.
	3.4	Neither the Company nor the Purchaser shall be obliged to contest a Claim beyond the first appellate body (including the Special or General Commissioners or a VAT and duties tribunal or equivalent body) in the jurisdiction concerned unless the Covenantors and Purchaser have appointed by agreement independent tax counsel of at least 10 years standing in whose reasonable opinion the Claim would on the balance of probabilities be likely to succeed.
	3.5	If, in the Purchaser’s reasonable opinion:
		3.5.1	the Covenantors or the Company have committed any acts or omissions which constitute fraudulent or negligent conduct, or any

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			Taxation return or computation the subject of a Claim is not true and accurate in all material respects; or
		3.5.2	the Covenantors delay in complying with clause 3.2.1.
	the Company or the Purchaser may (without further reference to the Covenantors) admit, compromise, settle, discharge or otherwise deal with, any outstanding or future Claims.
	3.6	Nothing in this clause 3 shall require the Purchaser to prevent the Company from making a payment of Taxation at the time necessary to avoid incurring a fine, penalty or interest in respect of unpaid Taxation.
4.	Taxes
	4.1	Subject to clause 4.2, all sums shall be paid free and clear of all deductions or withholdings, unless the deduction or withholding is required by law.
	4.2	If any such deduction or withholding is required by law to be made from any sum payable by the Covenantors under this deed (other than in respect of interest payable to the Purchaser), the Covenantors shall pay such additional amount as shall be required to ensure that the net amount received by the Purchaser or the Company will equal the full amount which would have been received by it, or them, had no such deduction or withholding been made.
	4.3	If any payment by the Covenantors under this deed is, or in the Purchaser’s reasonable opinion will be, chargeable to Taxation (other than a reduction in the base cost to the Purchaser of the shares of the Company), then the amount so payable shall be grossed up by such amount as will ensure that, after deduction of the Taxation chargeable, there shall be left in the hands of the Company or the Purchaser a sum equal to the amount that would otherwise have been payable save to the extent that such charge to Taxation arises solely as a result of the Purchaser having assigned the benefit of this Agreement.
5.	Date for payment and interest
	5.1	The Covenantors shall pay to the Company (or the Purchaser as the case may be) any amount required to be paid by them pursuant to clause 2.1 in cleared funds on or before the (number) 5 Business Day prior to the date set out in the relevant clause out of clauses 5.2 to 5.4.
	5.2	Where the Claim involves an actual payment of Taxation, the date referred to in clause 5.1 is the date on which that Taxation becomes due and payable to the authority, official or person demanding the same.
	5.3	Where the Claim involves no actual payment of Taxation, the date referred to in clause 5.1 is:
		5.3.1	to the extent that the liability involves the denial, loss or set-off (in whole or in part) of any right to repayment of Taxation, the date on which such Taxation would otherwise have been repaid; and

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		5.3.2	to the extent that the liability involves the denial, loss or set-off (in whole or in part) of any Relief other than a right to repayment of Taxation, the date on which the Taxation which would have been saved but for such denial, loss or set-off becomes (or on the assumption in clause 2.6 would become) due and payable.
	5.4	Where the Claim involves a liability under clause 2.1.3, the date referred to in clause 5.1 is the date which would have been the due date in clause 5.2 but for the availability of the Relief.
	5.5	The Covenantors shall pay to the Company (or to the Purchaser as the case may be) any amount required to be paid by them pursuant to clause 2.7, on the date on which the Company or the Purchaser incurs or suffers such costs or expenses.
	5.6	The Company (or the Purchaser as the case may be) shall give notice in writing of the amount of any payment required to be made by the Covenantors under clause 2, and the due date for payment.
	5.7	Any sum not paid by the Covenantors on the due date for payment shall bear interest from that date until and including the date of actual payment (or the next Business Day if the date of actual payment is not a Business Day), and any interest under this clause 5.7 shall be charged at the annual rate of 2% over the base rate for the time being of Barclays Bank plc (or, if such a rate cannot be ascertained for any reason, at such similar rate as the Purchaser shall reasonably select).
6.	Credit for recoveries
	Where the Covenantors have paid to the Purchaser an amount in respect of a Claim under this Tax Deed and, after this payment is made, the Purchaser or the Company receives from a third party a sum referable to the sum paid to the Purchaser, the Purchaser shall immediately make (or procure) repayment to the Covenantors of so much of the amount paid by the Covenantors to the Purchaser as shall represent double recovery by the Purchaser, but after deduction of any relevant Taxation on, and all reasonable costs and expenses properly incurred of, recovery.
7.	Waiver
	7.1	The rights and remedies conferred upon the Company or the Purchaser under this deed are cumulative, and in no way limit any rights and remedies which the Company or Purchaser may have by law.
	7.2	No failure or delay by the Purchaser in exercising any claim, remedy, right, power or privilege under this deed shall operate as a waiver, nor shall any single or partial exercise of any claim, remedy, right, power or privilege preclude any further exercise of it, or the exercise of any other claim, right, power or privilege.
8.	Assignment

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	8.1	The Purchaser is permitted to assign the benefit of, and all of its rights under, this deed (including under the Warranties) to its successor in title or to any of its Affiliates (as the case may be) provided that the benefit of this deed and the beneficial ownership of the Shares shall at all times be vested in the same person and provided further that the liability of the Vendors shall not be increased by any such assignment.
	8.2	Except as set out in paragraph 8.1, none of the rights or obligations under or pursuant to this deed may be assigned or transferred to any other person without the written consent of all the parties.
9.	Conduct of Tax Affairs
	9.1	The Covenantors or their duly authorised agents shall, in respect of all accounting periods ending on or before Completion, and at the Company’s cost:
		9.1.1	prepare the corporation tax returns of the Company;
		9.1.2	prepare on behalf of the Company all claims, elections, surrenders, disclaimers, notices and consents for the purposes of corporation tax; and
		9.1.3	(subject to clause 3) deal with all matters relating to corporation tax which concern or affect the Company, including the conduct of all negotiations and correspondence and the reaching of all agreements relating thereto or to any Tax Documents, but excluding payment of tax.
	9.2	The Covenantors or their duly authorised agents shall deliver all Tax Documents which are required to be signed by or on behalf of the Company to the Purchaser for authorisation, signing and submission to the relevant Tax Authority. If a time limit applies in relation to any Tax Document, the Vendor shall ensure that the Purchaser receives the Tax Document no later than 15 Business Days before the expiry of the time limit.
	9.3	The Covenantors shall procure that:
		9.3.1	the Purchaser receives copies of all written correspondence with any Tax Authority insofar as it is relevant to The Pre-Completion Tax Affairs;
		9.3.2	the Purchaser is afforded the opportunity to comment within a reasonable period of time on any Tax Document or other non-routine correspondence prior to its submission to the relevant Tax Authority and that its reasonable comments are taken into account; and
		9.3.3	no Tax Document is submitted to any Tax Authority which is not, so far as the Covenantors are aware, true and accurate in all respects, and not misleading.

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9.4	The Purchaser shall procure that:
	9.4.1	the Covenantors and their duly authorised agents are afforded such access (including the taking of copies) to the books, accounts and records of the Company and such other assistance as it or they reasonably require to enable the Covenantors to discharge their obligations under clause 9.1 and to enable the Covenantors to comply with their own tax obligations or facilitate the management or settlement of its own tax affairs;
	9.4.2	the Covenantors are promptly sent a copy of any communication from any Tax Authority insofar as it relates to the Pre-Completion Tax Affairs;
	9.4.3	there is given to such person or persons as may for the time being be nominated by the Vendor authority to conduct Pre-Completion Tax Affairs, and that such authority is confirmed to any relevant Tax Authority.
9.5	The Purchaser shall (subject to clause 9.6 below) be obliged to procure that the Company shall cause any Tax Document delivered to it under clause 9.2 to be authorised and signed without delay and without amendment, and submitted to the appropriate Tax Authority without delay (and in any event within any relevant time limit).
9.6	The Purchaser shall be under no obligation to procure the authorisation, signing or submission to a Tax Authority of any Tax Document delivered to it under clause 9.2 which it considers in its reasonable opinion to be false or misleading in a material respect, but for the avoidance of doubt shall be under no obligation to make any enquiry as to the completeness or accuracy thereof and shall be entitled to rely entirely on the Covenantors and their agents.
9.7	The Purchaser or its duly authorised agents shall have sole conduct of all tax affairs of the Company which are not Pre-Completion Tax Affairs and shall be entitled to deal with such tax affairs in any way in which it, in its absolute discretion, considers fit provided that the Purchaser shall ensure that all such tax affairs relating to periods prior to Completion are dealt with in an expeditious manner.
9.8	In respect of any accounting period for corporation tax purposes commencing prior to Completion and ending after Completion (the Straddle Period) and in respect of any accounting period commencing prior to Completion for the purposes of any other tax the Purchaser shall procure that the tax returns of the Company shall be prepared on a basis which is consistent with the manner in which the tax returns of the Company were prepared for all accounting periods ending prior to Completion.
9.9	The Purchaser shall procure that the Company provide to the Covenantors all tax returns relating to the Straddle Period no later than 20 Business Days before the date on which such tax returns are required to be filed with the appropriate Tax Authority without incurring interest or penalties. The

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		Purchaser shall further procure that the Company shall take the Covenantors’ reasonable comments into account before the tax returns are submitted to the appropriate Tax Authority.
	9.10	The Covenantors shall provide such assistance as the Purchaser shall reasonably request in preparing all tax returns relating to the Straddle Period.
10.	Notices
	10.1	Any notice given under this deed shall either be delivered personally (and delivery by courier shall be regarded as such) or sent by recorded delivery post or facsimile transfer.
	10.2	The address for service of the Covenantors shall be the address (or principal address if more than one) of the Vendors’ Solicitors, or such other firm with which it may merge, or which a majority of its partners may join, or as the beneficial owners of the majority in number of shares may require by notice in writing to the Purchaser. If at any time it shall not be evident which firm of solicitors is appointed for the purposes of this clause, the Purchaser may nominate one of the Covenantors for the purposes of receiving and giving notices, by giving notice to the Covenantors at their addresses in the Agreement.
	10.3	The addresses for service of the Company and the Purchaser shall be their respective registered offices for the time being.
	10.4	A notice shall be deemed to have been served as follows:
		10.4.1	if personally delivered, at the time of delivery;
		10.4.2	if sent by recorded delivery post, on the expiry of 48 hours after the notice was delivered into the custody of the postal authorities; and
		10.4.3	if sent by facsimile transfer, on the expiry of 12 hours after the notice was despatched.
	10.5	In proving service under clause 9.4, it shall be sufficient to prove that personal delivery was made, or that the envelope containing the notice was properly addressed and delivered into the custody of the postal authorities as a prepaid recorded delivery letter or that the facsimile transfer was properly addressed and despatched to the appropriate number.
	10.6	Notice given to the Covenantors pursuant to clause 9.2 shall be deemed to be notice to all the Covenantors, and any notice by the Covenantors (other than a notice changing solicitors pursuant to clause 9.2) shall only be given by the Vendors’ Solicitors, or the Covenantor nominated by the Purchaser pursuant to clause 9.2.
11.	Governing law and jurisdiction
	11.1	Any contractual or non-contractual obligations arising from or under this deed shall be governed by, and this deed shall be construed in all respects in accordance with, English law.

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	11.2	The parties irrevocably agree that the courts of England and Wales shall have exclusive jurisdiction in respect of any dispute, suit, action, arbitration or proceedings (‘Proceedings’) which may arise out of, or in connection with, this deed (whether arising out of or in connection with contractual or non-contractual obligations), although nothing in this deed shall be taken to limit the right of the Purchaser to bring Proceedings to obtain injunctive relief in any other jurisdiction or jurisdictions (whether concurrently or not).
	11.3	The Vendors expressly and specifically agree and accept that the terms of this clause are fair and reasonable, and appoint Harbottle & Lewis LLP of Hanover House, 14 Hanover Square, London W1S 1HP (or such other firm as is mentioned in paragraph 11.2 for the time being) to accept service on their behalf of any Proceedings which may be commenced in England and Wales.
12.	Counterparts
	This deed may be executed in any number of counterparts, each of which is an original and which together have the same effect as if each party had signed the same document.
	IN WITNESS etc

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SCHEDULE 6
Warranties

The Warranties and undertakings referred to in clause 5 are as follows, except as fairly and accurately disclosed in the Disclosure Letter (with sufficient details to identify the nature and scope of the matter disclosed):

1.	Corporate matters
	1.1	The information contained in the recitals to this agreement and in Schedules 2, 3 and 4 is true and accurate in all respects and not misleading.
	1.2	The Company has complied with all material applicable provisions of the Companies Acts and the European Communities Act 1972.
	1.3	Since 1 December 2006 and to the Completion Date, the register of members and all other statutory books and minute books of the Company:
		1.3.1	have been properly kept;
		1.3.2	are up to date; and
		1.3.3	contain true and accurate records of all matters required to be dealt with in them.
	1.4	The Company has not received any notice of any application, or intended application, for the rectification of the register of members under the provisions of the Companies Acts for the time being in force.
	1.5	The Purchaser has been supplied with a copy of the memorandum and articles of association of the Company as currently in effect (with copies attached of all resolutions as are required to be attached by law) and copies of all resolutions setting out the rights attached to, or the conditions of issue of, any of the share capital of the Company. Those copies are true, complete and up-to-date, and set out in full the rights and restrictions attaching to the share capital of the Company.
	1.6	The Company is not a public limited company within the meaning of the Companies Act 1985 Section 1(3).
	1.7	No allotment of share capital in the Company has been made in contravention of the provisions of the Companies Acts.
	1.8	The Company has not at any time acquired, or taken a charge over, any of its own shares.
	1.9	The Company has not at any time made any unlawful distribution.
	1.10	The Company has not entered into any arrangement involving the acquisition from, or disposal to, its directors (or connected persons) of non-cash assets.

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	1.11	The Company has not done any of the following in relation to any of its directors (or any person connected with any of its directors) in contravention of the provisions of the Companies Acts:
		1.11.1	granted any loan or quasi-loan, or entered into any guarantee or credit transaction; or
		1.11.2	provided any security in connection with any such loan, quasi-loan, guarantee or credit transaction.
	1.12	For the last three financial years, the Company has properly made and filed all returns, particulars, resolutions and documents required to be filed with the Registrar of Companies or any other governmental or local authority by the Companies Acts (or any other legislation), and all such filings were, and are, correct. In particular, all charges created by, or in favour of, the Company have (if appropriate) been registered in accordance with the provisions of the Companies Acts.
	1.13	The Company has maintained, and continues to maintain, readily available for inspection by members of the public all documents required to be made so available by the Companies Acts or other legislation.
2.	The Shares and share capital
	2.1	There are no agreements or other arrangements in force which provide for the present or future issue, allotment or transfer of; or accord to any person the right (absolute or conditional) to call for the issue, allotment or transfer of any share or loan capital of the Company (including any option or rights of pre-emption, first refusal or conversion).
	2.2	Since 31 January 2010:
		2.2.1	no share or loan capital of the Company has been issued or allotted, or agreed to be issued or allotted (whether conditionally or absolutely);
		2.2.2	the Company has not undergone any capital reorganisation or change in its capital structure;
		2.2.3	the Company has passed no resolutions; and
		2.2.4	only 15,000 Ordinary Shares of the Company’s share capital have been issued.
	2.3	The Company has not at any time reduced its share capital, redeemed any share capital, or purchased any of its shares.
	2.4	No share capital shown in the Audited Accounts, the Certified Accounts, the Management Accounts or in the statutory books of the Company has been forfeited.
	2.5	No shares in the capital of the Company have at any time been issued, and no transfers of shares in the capital of the Company have been registered,

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	otherwise than in accordance with the articles of association of the Company then in force and the Companies Acts, and any necessary consents have been obtained for each issue and transfer of shares in the capital of the Company.
2.6	The authorised and issued Ordinary Shares constitute the whole of the issued and allotted share capital of the Company. The Shares are beneficially owned by the Vendors free of all Incumbrances.
2.7	No dividends or other distributions of profits have been declared, made or paid since 31 January 2010.
2.8	Any and all dividends or other distributions declared, made or paid by the Company or the Subsidiary since the date of incorporation of the Company or the Subsidiary, as applicable, have been declared, made and paid in accordance with law and its articles of association (or equivalent documents) and any agreements or arrangements made with any third party regulating the payment of dividends and distributions.
2.9	The Company is the sole legal and beneficial owner of the whole allotted and issued share capital of the Subsidiary.
2.10	The issued shares of the Subsidiary are fully paid up.
2.11	The shares of the Subsidiary are free from all Incumbrances.
2.12	There is no right to require the Subsidiary to issue any share capital, and no Incumbrance has been created in favour of any person affecting any unissued shares or debentures or other unissued securities of the Subsidiary.
2.13	No commitment has been given to create an Incumbrance affecting the Shares (or any unissued shares or debentures or other unissued securities) of the Company or the shares of the Subsidiary or for them to issue any share capital, and no person has claimed any rights in connection with any of those matters.
2.14	Other than as described in the Disclosure Letter, neither the Company nor the Subsidiary:
	2.14.1	holds or beneficially owns, or has agreed to acquire, any securities of any corporation; or
	2.14.2	is or has agreed to become a member of any partnership or other unincorporated association, joint venture or consortium;
	2.14.3	has outside its country of incorporation any branch or permanent establishment; or
	2.14.4	has allotted or issued any securities that are convertible into shares.
2.15	The Vendors have obtained and delivered (or will at Completion deliver) to the Purchaser any and all waivers, consents and other documents as may be required to give the Purchaser good title to the Shares, without any

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		Incumbrances (except any Incumbrances that may be created by the Purchaser or ISS or with respect to the property of the Purchaser or ISS) and, subject to stamping, to enable the Purchaser to become the registered holder of the Shares.
3.	Capacity of Vendors
	3.1	The Vendors are entitled and have all requisite power, authority and personal capacity to sell, or procure the sale of, the full legal and beneficial interest in the Shares to the Purchaser on the terms set out in this agreement and to perform this agreement in accordance with its terms.
	3.2	Each Vendor has taken all actions necessary to enable him to enter into and perform this agreement, and has secured all approvals and consents (governmental or otherwise) required for the performance of the Transactions.
	3.3	Neither the execution or delivery of this agreement by the Vendors, nor Completion of the Transactions, is prohibited by, or violates, any provision, and will not result in a breach of, or constitute a default under:
		3.3.1	any applicable law, rule, regulation, judgement, decree, order or other requirements of the United Kingdom or of any court, authority, department, commission, board, bureau or agency;
		3.3.2	the memorandum or articles of association of the Company or the Subsidiary;
		3.3.3	any agreement or instrument to which the Company or the Subsidiary is a party or by which it is bound or affected; or
		3.3.4	any order, judgement, decree or other restriction applicable to the Company, the Subsidiary or the Vendor.
	3.4	This agreement constitutes and imposes valid legal and binding obligations on each Vendor, fully enforceable in accordance with their terms.
	3.5	Other than as contemplated to be waived and released as provided in clause 4.1.5 of the agreement, Completion of the Transactions by the Vendors will not:
		3.5.1	conflict with, result in the breach of or constitute a default under, or accelerate the performance provided by, the terms of any contract, agreement or deed to which any Vendor may be bound or affected; or
		3.5.2	constitute a default or an event which, with the lapse of time or action by a third party, could result in the creation of any Incumbrance on any of the Shares.

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4.	Accounts
	4.1	The accounting reference date of the Company for the purposes of the Companies Acts is 31st January and has not at any time been any other date.
	4.2	The Purchaser has been supplied with a true and complete copy of the Audited Accounts, the Certified Accounts and the Management Accounts (collectively, ‘the Accounts’) and a true and complete list of the Company’s inventory and fixed and intangible assets as of 31 March 2010.
	4.3	As set forth below:
		4.3.1	the Certified Accounts comply with the requirements of the Companies Acts;
		4.3.2	the Accounts have been prepared in accordance with good accounting practice, and, as applicable, comply with all current SSAPs and financial reporting standards applicable to a United Kingdom company;
		4.3.3	the Accounts are accurate in all material respects;
		4.3.4	the Certified Accounts and the Audited Accounts show a true and fair view, in all material respects, of the profits or losses and the assets and liabilities of the Company and the Subsidiary for the financial periods covered by the Certified Accounts and the Audited Accounts;
		4.3.5	the Accounts, as at the respective dates of the balance sheets included in the Accounts (‘the Balance Sheet Dates’), are not materially affected by any unusual or non-recurring items;
		4.3.6	the Accounts make due provision for depreciation of the fixed assets of the Company and the Subsidiary having regard to their original cost and estimated life;
		4.3.7	the Accounts make due provision for any bad or doubtful debts of the Company and the Subsidiary;
		4.3.8	the Accounts disclose all material assets of the Company and the Subsidiary as at the Balance Sheet Dates; and
		4.3.9	since 31 May 2010 to the Completion Date, none of the inventories or receivables set forth in the Management Accounts have become materially impaired.
	4.4	The Accounts set out correctly all such reserves or provisions for Taxation as are necessary, on the basis of the rates of tax now in force, to cover all Taxation (present and future) in respect of any transaction occurring prior to the Balance Sheet Dates which is liable to be assessed on the Company or the Subsidiary (or for which the Company or the Subsidiary is accountable) up to that date.

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4.5	In the Accounts:
	4.5.1	any slow moving stock has been written down appropriately, and redundant, obsolete or unsaleable stock, and irrecoverable work-in-progress costs, have been wholly written off;
	4.5.2	the value attributed to the remaining stock, new materials and work-in-progress, does not exceed the lowest of cost (on a first in first out valuation), net realisable value or replacement price, calculated as at the Balance Sheet Dates; and
	4.5.3	in the Certified Accounts and the Audited Accounts, the same basis was adopted for the valuation of stock and work-in-progress as had been adopted in the preparation of all consolidated audited accounts of the Company laid before the Company in general meeting for the three financial periods ending prior to the date of this agreement.
4.6	All material liabilities or outstanding capital commitments of the Company as at the Balance Sheet Dates have been included in the Accounts by way of:
	4.6.1	full provision or reserve; or
	4.6.2	in the case of any liability which was contingent, unquantified or disputed, by way of a note stating the maximum amount which has been or could be claimed, and the best estimate of the directors (after taking all relevant professional advice) of the likelihood of such a claim materialising or being successful.
4.7	No asset of the Company has been acquired for any consideration in excess of its market value at the date of its acquisition, or otherwise than by way of bargain at arm’s length.
4.8	Each of the book debts shown in the Audited Accounts and the Management Accounts, and any other book debts relating to the period up to and including the Completion Date, will realise within six months of that date their nominal value less the value attributed to any reserve for bad or doubtful debts included in the Audited Accounts and the Management Accounts, as applicable, and none of the book debts is subject to any counter-claim or set-off.
4.9	Neither the whole, nor any part, of the amounts included as owing by any debtors in the Audited Accounts or the Management Accounts (or subsequently recorded in the books of the Company or the Subsidiary):
	4.9.1	except as described in the Disclosure Letter, is overdue by more than 90 days; or
	4.9.2	has been realised on terms that any debtor pays less than the full book value of his debt; or
	4.9.3	has been written off or has proved to any extent to be irrecoverable; or

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		4.9.4	is now regarded by the Company as irrecoverable.
	4.10	No event has occurred during the periods covered by the Accounts that has resulted in the profits of the Company being abnormally high or low in respect of that period.
	4.11	The accounting and other books, ledgers, financial and other records of the Company and the Subsidiary:
		4.11.1	are in the Company’s possession; and
		4.11.2	have at all times been accurately maintained.
5.	Borrowings and lending
	5.1	The total amount borrowed by the Company or the Subsidiary from its bankers does not exceed:
		5.1.1	the limit of its facilities as set out in the Disclosure Letter; or
		5.1.2	any limitation on borrowing powers contained in its articles of association or equivalent charter documents, or in any debenture or other agreement binding on it.
	5.2	Except as disclosed in the Accounts, the Company or the Subsidiary does not have outstanding (whether made by, or incurred by, the Company or the Subsidiary):
		5.2.1	any borrowing or indebtedness in the nature of borrowing, including any bank overdrafts, liability under acceptances (otherwise than in respect of normal trade bills), or any acceptance credit (including any amounts due to any present or former directors, or to members of the Company or the Subsidiary, other than remuneration accrued due or for reimbursement of business expenses); or
		5.2.2	any Incumbrance, guarantee or similar obligation or agreement to create an Incumbrance, guarantee or similar obligation;
		5.2.3	any arrangements of a type covered by the Companies Act 2006 Sections 190 or 197, or any agreements for such arrangements, or any other transaction in which a director of, or a person connected with, the Company or the Subsidiary has a material interest.
	5.3	The Company or the Subsidiary:
		5.3.1	has not lent any money which has not been repaid to it;
		5.3.2	does not own the benefit of any debt (whether present or future) or the right to receive any money, other than debts accrued to it in the ordinary course of its business.
	5.4	The statements of the bank accounts of the Company and the Subsidiary and of their credit or debit balances to be delivered at Completion (and any such

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	statements delivered prior to such date) are correct, and neither the Company nor the Subsidiary has any other bank or deposit accounts (whether in credit or overdrawn) not included in such statements.
5.5	In relation to such Incumbrances or guarantees (if any) detailed in the Disclosure Letter, and in relation to any bank overdraft, borrowings or other financial facilities available to, or financial obligations (other than in the ordinary course of trading) incurred by, the Company or the Subsidiary:
	5.5.1	the Vendors have supplied to the Purchaser full details, and true and correct copies, of all relevant documents;
	5.5.2	there has been no contravention of, or non-compliance with, any provision of any relevant document by the Company or the Subsidiary;
	5.5.3	so far as the Vendors are aware, no steps for the enforcement of any Incumbrances have been taken or threatened;
	5.5.4	there has not been any alteration in the terms and conditions of any of the arrangements or facilities, all of which are in full force and effect;
	5.5.5	none of the Vendors nor the Company or the Subsidiary has done anything whereby the continuance of the arrangements and facilities might be materially affected or prejudiced; and
	5.5.6	none of the arrangements is dependent on the guarantee of or on any security provided by a third party.
5.6	Save as provided for under this agreement, the Company or the Subsidiary has not:
	5.6.1	except as described in the Disclosure Letter, factored or discounted any of its debts, or engaged in financing of a type which would not require to be shown, or reflected, in the Accounts;
	5.6.2	since 31 January 2010, repaid or prepaid, or become liable to repay or prepay, any loan, loan capital or indebtedness in advance of its date of maturity;
	5.6.3	received notice from any lenders of money to it, requiring repayment or intimating enforcement of any Incumbrance, and there are no circumstances likely to give rise to any such notice; or
	5.6.4	waived any right of set-off it may have against a third party.
5.7	The Company or the Subsidiary has not applied for or received any grant, award, subsidy or financial assistance from any governmental department or agency.
5.8	Except as described in the Disclosure Letter, neither a Change of Control of the Company nor Completion of the Transactions will result in:

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		5.8.1	the termination of, or material adverse effect on any contractual provision of, any financial agreement or arrangement to which the Company or the Subsidiary is a party or subject; or
		5.8.2	any indebtedness of the Company or its Subsidiary becoming due, or capable of being declared due and payable, prior to its stated maturity.
6.	Assets
	6.1	Except for assets disposed of by the Company in the ordinary course of trading, the Company is the owner of, and has good marketable title to, all assets included in the Audited Accounts (excluding the Properties), and all material assets acquired since the 31 January 2010 and not subsequently disposed of, and all such assets are in the Company’s possession or under its control.
	6.2	The fixed and loose plant and machinery, fixtures and fittings, vehicles and office equipment used in connection with the business of the Company:
		6.2.1	are in satisfactory repair and condition;
		6.2.2	are capable of being properly used in connection with the business of the Company;
		6.2.3	so far as the Vendors are aware, are all capable, and will remain capable throughout the respective periods of time during which they are each written down to a nil value in the accounts of the Company (in accordance with existing accounting policies consistently applied), of doing the work for which they were designed or purchased.
	6.3	The Company has not agreed to acquire any asset (including stock), on terms that the property in such asset does not pass until full payment is made or all indebtedness incurred in connection with that acquisition discharged.
	6.4	The stock-in-trade of the Company is in good condition and is capable of being sold by the Company in the ordinary course of its business.
	6.5	Maintenance contracts are in full force and effect in respect of all assets of the Company, which a prudent owner would normally have maintained by independent or specialist contractors.
	6.6	Details of all contracts entered into by the Company for the maintenance of any of the Company’s assets are included in the Disclosure Letter.
	6.7	All assets used in connection with the business of the Company are owned by it absolutely, or are under its Control, and are held free from any lease, hire purchase or conditional sale agreement, bill of sale, or other agreement for payment on deferred terms.
	6.8	No circumstance has arisen, or is likely to arise, in relation to any asset held by the Company under a lease or similar agreement, whereby the rental

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		payable has been, or is likely to be, increased, and, in particular, all such assets have at all relevant times been used for a qualifying purpose within the meaning of the CAA 2001 Sections 122–125.
	6.9	The assets owned by the Company (together with assets held under the hire purchase, lease or rental agreements listed in the Disclosure Letter) comprise all assets necessary for the business of the Company to continue as it is carried on at present.
	6.10	The Subsidiary is the only subsidiary of the Company and the particulars regarding it set out in Schedule 3 are true and complete. The shares in the Subsidiary are held and owned as shown in Schedule 3, free from all Incumbrances and with all attached rights, and the Company has no other interest in any other company and has never owned, held or been the beneficial owner of any other shares, and has not agreed to acquire, any class of any shares or other securities of any other corporation (whether incorporated in England and Wales or elsewhere).
7.	Insurances
	7.1	The existing policies of insurance maintained by or on behalf of the Company and its Subsidiary provide for full indemnity and replacement values against all liabilities, risks and losses (including but not limited to the losses caused by any unlawful act and liabilities, including business interruption and other risks on the part of any person), against which it is normal or prudent to insure, in respect of all property owned by, and in the business carried on by, the Company and its Subsidiary.
	7.2	All premiums due in respect of the Company’s insurance policies have been paid in full.
	7.3	The Vendors are not aware of any claims outstanding, or circumstances which would or might entitle the Company to make a claim, under any of its insurance policies, or which would or might be required to be notified to the insurers under any of its insurance policies.
	7.4	All the insurance polices maintained by or on behalf of the Company and the Subsidiary are in full force and effect and are not void or voidable; the Vendors have not and, so far as the Vendors are aware, the Company and the Subsidiary have not, done or omitted to do anything, and no act is contemplated (including the Completion of the Transactions), which could make any of them void or voidable; and completion will not terminate, or entitle any insurer to terminate, any such policy.
8.	Disputes/litigation
	8.1	Neither the Company nor the Subsidiary is engaged (whether as claimant or defendant or otherwise) in any litigation, administrative, mediation or criminal or arbitration or other proceedings or hearings, before any court, tribunal, statutory or governmental body, department, board or agency; no notice has been received by the Vendors, the Company or the Subsidiary that any litigation, criminal or arbitration proceedings are pending or, so far as the Vendors are aware, threatened, by, or against, the Company or the

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	Subsidiary; and the Vendors are not aware of any facts which are likely to give rise to the same, or which are likely to give rise to proceedings, in respect of which the Company or the Subsidiary would be liable to indemnify any person concerned.
8.2	Neither the Company nor the Subsidiary is subject to any order or judgement given by any court or governmental agency; and neither the Company nor the Subsidiary has been a party to any undertaking or assurance given to any court or governmental agency which is still in force. So far as the Vendors are aware, there are no facts or circumstances which (with or without the giving of notice or lapse of time) would be likely to result in the Company or the Subsidiary becoming subject to such an order or judgement, or being required to be a party to any such undertaking or assurance.
8.3	None of the Vendors, the Company, the Subsidiary, the directors of the Company or the Subsidiary, or, so far as the Vendors are aware, any employees of the Company or Subsidiary, has received notice that (i) it is/they are the subject of any investigation, inquiry, process or request for information in respect of any aspect of the activities of the Company or the Subsidiary by any governmental or European Communities body, department, board or agency, or by any organisation charged with the supervision of any activities from time to time engaged in by the Company or the Subsidiary; and (ii) no such procedures are pending or, so far as the Vendors are aware, threatened, and there are no facts which are likely to give rise to any such procedure.
8.4	There is no dispute with any revenue or other official department in the United Kingdom or the United States in relation to the affairs of the Company or the Subsidiary, and there are no facts which may give rise to such dispute.
8.5	So far as the Vendors are aware, there are no claims (other than claims fully covered by insurance) pending or threatened, or capable of arising, against the Company or the Subsidiary by any employee, workman or third party, in respect of any accident or injury.
8.6	Save as described in the Disclosure Letter, neither the Company nor the Subsidiary has manufactured or sold products which have been, are, or will become, in any material respect, faulty or defective, or which do not comply in any material respect with any warranties given, or representations made, by the Company or the Subsidiary, expressly or impliedly (whether by statute or otherwise).
8.7	Except as described in the Disclosure Letter, neither the Company nor the Subsidiary has accepted any liability or obligation to service, repair, maintain, take back or otherwise do anything in respect of, any articles or stock where that liability or obligation would apply after any such article or stock has been delivered by it.
8.8	Except as described in the Disclosure Letter, there has been no default by the Company or the Subsidiary under any agreement, trust deed, instrument or arrangement to which the Company or the Subsidiary is a party, and no threat or claim of default has been made and is outstanding, and there is

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	nothing (including without limitation the Completion of the Transactions) which could cause:
	8.8.1	any such agreement or arrangement to be terminated or rescinded by any other party; or
	8.8.2	their terms to be worsened or the Company or the Subsidiary prejudiced,
	as a result of anything done, or omitted or permitted to be done, by the Vendors, the Company or the Subsidiary.
8.9	No Vendor has been involved in any type of event described in Item 401(f) of Regulation S-K of the United States Securities and Exchange Commission.
8.10	Each Vendor represents and warrants to the Purchaser that the Company and the Subsidiary and their respective directors and, so far as the Vendors are aware, employees, agents, consultants, sales representatives or others acting on behalf of the Company or the Subsidiary or for their benefit, have not been engaged at any time in:
	8.10.1	any bribes or kickbacks to government officials or their relatives, or any other payments to such persons, whether or not legal, to obtain or retain business or to receive favorable treatment with regard to business;
	8.10.2	any bribes or kickbacks to persons other than government officials, or to relatives of such persons, or any other payments (whether or not legal) to such persons or their relatives to obtain or retain business or to receive favorable treatment with regard to business;
	8.10.3	any contributions, whether or not legal, made to any political party, political candidate or holder of governmental office;
	8.10.4	opening, continuing, maintaining or depositing or withdrawing funds from any bank accounts, funds or pools of funds created or maintained without being accurately recorded or identified in the books and records of the Company or the Subsidiary, or as to which the receipts and disbursements from these accounts have not been accurately recorded or identified in such books and records;
	8.10.5	the receipt or disbursement of payments or contributions, the actual nature of which has been disguised, hidden or otherwise not fully documented in the books and records of the Company or the Subsidiary;
	8.10.6	the payment of any fees consultants or commercial agents that exceeded the reasonable value of the services purported to have been rendered; or
	8.10.7	the payment or reimbursement made to personnel for the purposes of enabling them to do anything referred to in clauses 8.10.1 through 8.10.6 of this Schedule.

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		As used in clauses 8.10.1 through 8.10.7 of this Schedule, the terms ‘payments’ and ‘contributions’ and similar words include cash, hard goods, services, use of property and anything else of value; and the acts described include acts done through intermediaries, such as payments to sales agents or representatives that are passed on in whole or in part to purchasers, or compensation or reimbursement to persons in consideration for their acts.
9.	Compliance with statutes and licences
	9.1	Except with respect to the Company’s Intellectual Property Rights (which are covered by clause 12), each of the Company and the Subsidiary has obtained all material licences, consents, approvals, permissions, permits, test and other certificates, and authorities (public or private), necessary for the carrying on of its business in the places and in the manner in which such business is now carried on.
	9.2	All of the licences, consents, approvals, permissions, permits, certificates and authorities referred to in clause 9.1 of this Schedule are valid and subsisting, and, so far as the Vendors are aware, there are no facts or circumstances (including, without limitation, the Completion of the Transactions), which (with or without the giving of notice or lapse of time) would be likely to give rise to any reason why any of them should be suspended, cancelled, revoked or not renewed.
	9.3	The Company has established procedures under, and has complied with all material requirements from time to time in force under, the Health and Safety at Work etc Act 1974 and all regulations made under that Act.
	9.4	The Company has conducted, and is conducting, its business in accordance with all material applicable laws and regulations in the United Kingdom, and, so far as the Vendors are aware, the Company has not breached any material applicable law or regulation outside of the United Kingdom.
	9.5	The Company has complied in all respects with the provisions of the Data Protection Act 1998 and all regulations made under that Act, and has established procedures to ensure continued compliance with all such legislation.
	9.6	The Company has not received any notice from the Data Protection Registrar, the Information Commissioner or a Data Subject, alleging non-compliance with the data protection principles or prohibiting the transfer of data, nor has any individual claimed, or will have the right to claim, compensation from the Company under the Data Protection Act 1998 for loss or unauthorised disclosure of data.
	9.7	The Company is not a ‘public authority’ within the meaning of the Freedom of Information Act and has not been approached by any body which is a public authority as so defined, for the purpose of giving its consent to the disclosure by that authority of any information held by it relating to the Company, its business or affairs.
	9.8	No consumer credit agreement or consumer hire agreement made by the Company as creditor or owner, or in respect of which it is the supplier under a

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		debtor-creditor-supplier agreement or linked transaction, has been made in breach of the Consumer Credit Act 1974 or the regulations made under that Act.
10.	Trading position
	10.1	Except as described in the Disclosure Letter, since 31 January 2010:
		10.1.1	there has been no material adverse change in the position or prospects of the Company, or in the value or state of the assets, or amount or nature of the liabilities, of the Company as compared with the position disclosed in the Audited Accounts;
		10.1.2	the Company has not disposed of any material assets, or assumed or incurred any outstanding capital commitment, or any material liabilities (whether actual or contingent), otherwise than in the ordinary course of carrying on its business (and, for this purpose, disposals of fixed assets, fixed and loose plant and machinery, fixtures and fittings, vehicles and office equipment, shall be deemed to be not in the ordinary course of business);
		10.1.3	the business of the Company has been carried on in the normal and usual course of business without material interruption.
	10.2	The Company’s business has not been materially and adversely affected by the loss of any important customer or source of supply.
	10.3	The Company is entitled to carry on the business now carried on by it, and carried on by it during the three years prior to the date of this agreement, without any conflict with any valid right of any other person, firm or company.
	10.4	No substantial part of the business of the Company is carried on, or is required to be carried on, with the agreement or consent of a third party, nor is there any agreement which significantly restricts the field in which the Company carries on business.
	10.5	The Company has not committed or omitted to do any act or thing which could reasonably be expected to give rise to any fine or penalty, nor is the Company party to any agreement, practice or arrangement which, in whole or in part:
		10.5.1	contravenes the provisions of the Trade Descriptions Acts 1968 and 1972;
		10.5.2	would or might constitute a domestic or a Community infringement within the meaning of Part 8 of the Enterprise Act 2002;
		10.5.3	contravenes any provisions of the EC Treaty, or any regulation or other enactment made under that Treaty; or
		10.5.4	contravenes any other anti-trust anti-monopoly or anti-cartel legislation or regulations.

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	10.6	So far as the Vendors are aware, the Company has not engaged in any course of conduct which is unlawful under the Competition Act 1998.
	10.7	So far as the vendors are aware, no agreement, arrangement or other practice of the Company is, or has been, the subject of an investigation, report or decision by the Office of Fair Trading, the Monopolies and Mergers Commission, Competition Commission or the Commission of the European Communities or has been the subject of a judgement from the Competition Appeals Tribunal, nor has the Company received any process, notice, communication or request for information by, or on behalf of, the Office of Fair Trading, the Monopolies and Mergers Commission, the Competition Commission, the Secretary of State for Trade and Industry or the Commission of the European Communities, relating to any aspect of the business of the Company.
11.	Contracts and arrangements
	11.1	Except as described in the Disclosure Letter, there is not now outstanding with respect to the Company or the Subsidiary, or to which the Company or the Subsidiary is a party:
		11.1.1	any long-term or onerous contract, or any contract not made in the ordinary course of business;
		11.1.2	any joint venture, consortium or other partnership arrangement or agreement;
		11.1.3	any contract between the Company or the Subsidiary and any third party, which will, or may, in accordance with its terms, be terminated as a result of any Change of Control;
		11.1.4	any arrangement (contractual or otherwise) which constitutes or involves a material breach or violation of, or a material default with respect to, the requirements or conditions of any statute, treaty, regulation or bye-law or other obligation of the United Kingdom, or any foreign country in which the Company or the Subsidiary has done or is doing business, relating to the Company or the Subsidiary or the carrying on of its business;
		11.1.5	any contract for services (other than contracts for the supply of electricity, gas, water, telecommunications or normal office services);
		11.1.6	any power of attorney, contract of agency or distributorship, or subsisting licence;
		11.1.7	any guarantee, warranty, undertaking or contract for indemnity, or for suretyship, under which the Company or the Subsidiary is under a prospective or contingent liability (other than guarantees or warranties implied by law with respect to goods supplied, or services performed, by the Company or the Subsidiary in the ordinary course of business);

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	11.1.8	any contract entered into by the Company or the Subsidiary otherwise than by way of bargain at arm’s length (or on arm’s length terms) and in the ordinary course of its business;
	11.1.9	any contract (of whatever nature) binding on the Company or the Subsidiary, which it cannot terminate, without any liability on its part, by giving three months’ notice or less;
	11.1.10	any contract which cannot readily be fulfilled or performed by the Company or the Subsidiary in accordance with its terms, and without material expenditure, or without making a material loss;
	11.1.11	any contract containing covenants limiting or excluding its right to do business or compete (or both) in any area, or any field, or with any person, firm or company; or
	11.1.12	any agreement or arrangement which the Vendors or the Company know or believe to be invalid, or in respect of which there are grounds for its termination, rescission, avoidance or repudiation (whether by the Company, the Subsidiary or any other party).
11.2	Except as disclosed in the Disclosure Letter:
	11.2.1	the contracts, licenses, leases, commitments, entitlements and engagements (collectively, the ‘Contracts’) identified in the Disclosure Letter are the only Contracts material to the Business; all of them have been authorised by the Company or the Subsidiary (as applicable); all are all in good standing and in full force and effect with no amendments; and all are valid and binding obligations of the parties thereto enforceable in accordance with their respective terms;
	11.2.2	the Company or the Subsidiary, as applicable, has complied with all material terms of the Contracts, has paid all amounts due thereunder, and has not waived any rights thereunder, and no default or breach exists in respect thereof on the part of any of the parties thereto and no event has occurred which, after the giving of notice or the lapse of time or both, would constitute such a default or breach; and
	11.2.3	all amounts payable to the Company or the Subsidiary, as applicable, under the Contracts are still due and owing to it without any right of set-off (other than any set-off right which exists at law) or counterclaim.
11.3	The Vendors have not received notice that, since 31 January 2010, or after Completion, or as a result of the proposed acquisition of the Company by the Purchaser:
	11.3.1	any supplier of the Company or the Subsidiary has ceased, or will cease, supplying the Company or the Subsidiary, or may substantially reduce its supplies to the Company or the Subsidiary; or

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		11.3.2	any customer of the Company or the Subsidiary has terminated, or will terminate, any contract with the Company or the Subsidiary, or cease, or materially reduce, its business with it.
	11.4	So far as the Vendors are aware, there do not exist any special facts or circumstances which might lead to a restriction, impediment or cessation of the manufacture or distribution of any products presently manufactured or distributed, or planned to be manufactured or distributed, by the Company or the Subsidiary.
	11.5	Except as described in the Disclosure Letter, no offer, tender or the like, given or made by the Company or the Subsidiary on or before the date of this agreement and still outstanding, is capable of giving rise to a contract.
12.	Intellectual property rights
	12.1	Except as described in the Disclosure Letter, the Intellectual Property Rights used or required by the Company or the Subsidiary are legally and beneficially owned by, or otherwise licensed to, the Company or the Subsidiary, as applicable. Where any Intellectual Property Rights are owned by the Company or the Subsidiary, they are owned free from Incumbrances.
	12.2	The Disclosure Letter lists complete and accurate particulars of:
		12.2.1	the Registered IPR owned by the Company or the Subsidiary as of the date of this agreement;
		12.2.2	material unregistered Intellectual Property Rights owned, used or held for use by the Company or the Subsidiary; and
		12.2.3	all Company Software and all material Third Party Software, including a name, product description, version level, language in which it is written (only for Company Software), and manner in which the Company Software or material Third Party Software is used by the Company or the Subsidiary, including whether it is used internally by the Company or the Subsidiary or in conjunction with the Company’s products.
	12.3	So far as the Vendors are aware:
		12.3.1	none of the Intellectual Property Rights owned by the Company or the Subsidiary are used by any other person or entity other than under a licence from the Company or are otherwise subject to any claim, opposition or other proceeding that challenges the use, validity, enforceability or ownership of the Intellectual Property Rights by any other person or entity; and
		12.3.2	the use by the Company or the Subsidiary of such Intellectual Property Rights (or any part of them) does not infringe the Intellectual Property Rights owned, or enjoyed, by any third party.
	12.4	Except as described in the Disclosure Letter, the Company has not received notice that the Intellectual Property Rights owned or used by the Company or

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	the Subsidiary is the subject of any pending or outstanding claim, opposition, attack, assertion or other arrangement of whatever nature, brought, made or issued against the Company, which impinges their use or their validity, enforceability or ownership by the Company or the Subsidiary of such Intellectual Property Rights, and, so far as the Vendors are aware, there are no grounds or other circumstances which may give rise to the same.
12.5	Valid third party licences have been obtained to the extent necessary to enable the Company to utilise the Intellectual Property Rights described in the Disclosure Letter in respect of the Company’s activities and products.
12.6	So far as the Vendors are aware, neither the Company nor the Subsidiary is using any process which gives rise to a liability to pay compensation under Section 40 of the Patents Act 1977.
12.7	Save for licences granted by the Company to its customers in the ordinary course of business, no licences, or registered user or other rights, have been granted, or agreed to be granted, to any third party by the Company in respect of the Intellectual Property Rights owned or used by the Company or the Subsidiary.
12.8	So far as the Vendors are aware, no disclosure has been made to any person other than the Purchaser or ISS of any of the industrial know-how, or the financial or trade secrets of the Company or the Subsidiary, except properly and in the ordinary course of business, and on the footing that such disclosure is to be treated as being of a confidential nature.
12.9	So far as the Vendors are aware, no act has been done, or has been omitted to be done, to entitle any authority or person to cancel, forfeit or modify any Intellectual Property Rights owned or used by the Company or the Subsidiary.
12.10	Neither the Company nor the Subsidiary carries on business under any name other than the name under which it has been incorporated.
12.11	The Company has complied in all material respects with the requirements of the Companies Acts with regard to company names and business names, and, so far as the Vendors are aware, such names do not infringe the rights of any third party.
12.12	The Company and the Subsidiary do not require any material Intellectual Property Rights other than those set out in the Disclosure Letter in order to carry on their respective activities, as such activities are carried on as at the Completion Date.
12.13	All application and renewal fees payable by the Company and other steps required for the maintenance of the Intellectual Property Rights described in the Disclosure Letter have been taken. All application and renewal fees payable by the Company in respect of the Registered IPR prior to the date of this agreement have been paid on time. No such application or renewal of the Registered IPR shall become due for payment within 30 days of Completion.

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	12.14	So far as the Vendors are aware, there has been no infringement by any third party of any of the Intellectual Property Rights owned by the Company or the Subsidiary and set out in the Disclosure Letter nor any third party breach of confidence in relation to the business or assets of the Company or the Subsidiary, and so far as the Vendors are aware, no such infringement, breach of confidence or actionable act of unfair competition is current or anticipated.
	12.15	The agreements and licences relating to Intellectual Property Rights described in the Disclosure Letter:
		12.15.1	so far as the Vendors are aware, have not been the subject of any breach or default by any party or of any event which, with the giving of notice or lapse of time, would constitute a default; and
		12.15.2	have, where required by any applicable law, been duly recorded or registered.
	12.16	Except as described in the Disclosure Letter, and so far as the Vendors are aware, the activities of the Company and the Subsidiary:
		12.16.1	have not infringed the Intellectual Property Rights of any third party;
		12.16.2	have not constituted any breach of confidence, passing off or actionable act of unfair competition by the Company; and
		12.16.3	have not given rise to any obligation to pay any royalty, fee, compensation or any other sum whatsoever.
13.	Employees
	13.1	The Disclosure Letter describes all individuals employed by the Company or the Subsidiary as of the Completion Date and the full and accurate particulars of the names and addresses, dates of birth, dates of commencement of employment or appointment to office, salaries, key terms and conditions of employment, the country in which the individual is employed, and the relevant local law expressly governing the contract of employment, of all of the employees and officers of the Company and the Subsidiary, including:
		13.1.1	all remuneration payable (including accrued holiday pay);
		13.1.2	participation in benefit schemes (such as medical expenses, permanent health insurance, pension, company car etc);
		13.1.3	any profit sharing, commission, incentive or discretionary bonus arrangements to which the Company is a party; and
		13.1.4	all other benefits which the Company is legally bound to provide (whether now or in the future) to each officer and employee of the Company.

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13.2	The Disclosure Letter lists all individuals who are providing services to the Company or the Subsidiary under an agreement which is not a contract of employment with the Company or the Subsidiary as of the Completion Date (including, in particular, where the individual acts as a consultant or is on secondment) and the particulars of the key terms on which the individual provides services, including:
	13.2.1	the individual’s name;
	13.2.2	the country in which the individual provides services;
	13.2.3	where determined, the law governing the agreement;
	13.2.4	the remuneration of the individual (including any benefits provided);
	13.2.5	the length of notice necessary to terminate the agreement; and
	13.2.6	the term of the agreement.
13.3	There are not now outstanding:
	13.3.1	any service agreement or contract between the Company and any of its directors, officers, executives or employees which the Company cannot terminate by giving 12 weeks’ notice or less without giving rise to any claim for damages or compensation (other than a statutory redundancy payment or compensation for unfair dismissal or discrimination);
	13.3.2	any recognition or other agreement or arrangement (whether or not legally binding) between the Company and any trade union, or other body representing its employees; or
	13.3.3	any liabilities of the Company for industrial training levy or for any other statutory or governmental levy or charge.
13.4	The Vendors are not aware of any outstanding claim against the Company or the Subsidiary by any person who is now, or has been, an officer or employee of the Company or the Subsidiary and:
	13.4.1	no disputes have arisen between the Company or the Subsidiary and any material number or category of employees during the preceding three years; or
	13.4.2	so far as the Vendors are aware, there are no present circumstances which are reasonably likely to give rise to any such dispute.
13.5	The Company has at all times complied in all material respects with the Employment Rights Act 1996 (as amended) in respect of all its employees; is not under any present, future or contingent liability to pay compensation for loss of office or employment to any ex-officer or ex-employee; and is not due to make any payments under the Employment Rights Act 1996.

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13.6	Except as described in the Disclosure Letter, since 31 January 2010, no material change has been made in respect of the rate of remuneration, or the endowment or pension benefits, of any director or employee, or the terms of employment of any officer or senior executive. So far as the Vendors are aware, no negotiations for any increase in the remuneration or benefits of any officer or employee of the Company or the Subsidiary are current.
13.7	None of the following (nor any proposals in relation to them) are in existence or proposed:
	13.7.1	profit-sharing schemes;
	13.7.2	share option schemes;
	13.7.3	‘phantom’ share option schemes;
	13.7.4	profit-related pay schemes;
	13.7.5	employee share incentive plans under the Finance Act 2000 or the Income Tax (Earnings and Pensions) Act 2003;
	13.7.6	employee benefit trusts.
13.8	There is no notice outstanding that terminates the contract of employment of any employee of the Company or the Subsidiary (whether given by the employer or employee).
13.9	No offer of a contract of employment has been made by the Company or by the Subsidiary to any individual which has not yet been accepted or which has been accepted but where the individual’s employment has not yet started.
13.10	The acquisition of the Shares by the Purchaser or the compliance with the terms of this agreement will not, so far as the Vendors are aware, entitle any directors, officers or senior employees of the Company or the Subsidiary to terminate their employment.
13.11	Except as provided or allowed for in the Accounts, since 1 December 2006 and to the Completion Date, neither the Company nor the Subsidiary has incurred any liability in connection with any termination of employment of its employees (including redundancy payments), or for failure to comply with any order for the reinstatement or re-engagement of any employee.
13.12	Except as provided or allowed for in the Accounts, since 1 December 2006 and to the Completion Date, neither the Company nor the Subsidiary has made or agreed to make a payment, or provided or agreed to provide a benefit to a present or former director, other officer or employee, or to the dependants of any of those people, in connection with the actual or proposed termination or suspension of employment or variation of an employment contract.
13.13	So far as the Vendors are aware, the Company and the Subsidiary have maintained in all material respects current, adequate and suitable records regarding the service of each of their employees.

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	13.14	So far as the Vendors are aware, insofar as they apply to their employees, the Company and the Subsidiary have complied in all material respects with any:
		13.14.1	legal obligations;
		13.14.2	legally binding codes of conduct or practice; and
		13.14.3	collective agreements.
	13.15	Neither the Company nor the Subsidiary is involved in any material industrial or trade dispute or negotiation regarding a claim with any trade union or other group or organisation representing employees and, so far as the Vendors are aware, no such dispute or negotiation is threatened or expected.
	13.16	There are no collective bargaining or procedural or other agreements or arrangements with any trade union, group or organisation representing employees that relate to any employees of the Company or the Subsidiary.
14.	Pensions
	The Company operates a basic stakeholder pension scheme to which no contributions have been made. Each of the Vendors has a private pension plan to which the Company has made contributions prior to the Completion Date.
15.	The Properties
	15.1	The Properties comprise all the freehold and leasehold properties owned by the Company or the Subsidiary, or used or occupied by it under licence, or in which the Company or the Subsidiary has any other interest.
	15.2	The Company has a good and marketable title to, and has vacant possession of, each of the Properties.
	15.3	The Company or the Subsidiary, as applicable, is the legal and beneficial owner of each of the Properties.
	15.4	The Company has in its possession and control and has disclosed:
		15.4.1	copies of all the title deeds and documents necessary to prove good and marketable title to the Properties; and
		15.4.2	evidence of the current annual rent payable under the leases of the Properties.
	15.5	The information contained in Schedule 4 as to the tenure of each of the Properties is true and accurate in all respects.
	15.6	Each of the Properties and their title deeds is free from any mortgage, charge, rentcharge, lien, or other right in the nature of security.
	15.7	There is no option or agreement for sale, mortgage, charge (whether specific or floating), lien, lease, agreement for lease, condition, restrictive covenant or

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	any other Incumbrance in respect of the Properties, or any part of them (except as set out in Schedule 4), and the Properties are not subject to the payment of any outgoings (except the usual rents, insurance premiums, service charges, rates, utility, water, sewerage charges and taxes), nor are there any persons in unlawful possession or occupation of, or who have or claim any rights or easements of any kind in respect of, the Properties, or any part of them, adverse to the estate, interest, right or title of the Company.
15.8	So far as the Vendors are aware, there are not in respect of the Properties or any part of them:
	15.8.1	any outstanding notices or orders issued by, or agreement with, any local or other authority;
	15.8.2	any proceedings in respect of any infringement of the building bye-laws, or any monetary claim or liability (contingent or otherwise), under Town and Country Planning legislation or regulations, or otherwise;
	15.8.3	no notice of enforcement or stop notice under the Town and Country Planning legislation or relevant regulations has been received by the Company; or
	15.8.4	no order or resolution for the compulsory acquisition of the Properties, or any part of them, by any authority, nor any notice for closing, demolition, clearance or requisition of the Properties, has been received by the Company;
	and the Vendors are not aware of circumstances which might result in any such order, notice or proceedings being made or served.
15.9	The Company in whom title is vested has not received notice of any alleged breach of any covenants, conditions, agreements, statutory requirements, orders and regulations affecting the Properties, and requiring observance or performance by it.
15.10	In respect of all buildings comprised in the Properties, to which any enactment, regulation or order relating to protection against, or means of escape from, fire applies, so far as the Vendors are aware:
	15.10.1	all requirements of that enactment, regulation or order, and of any notice or order, have been complied with to the satisfaction of the district surveyor and other appropriate officer; and
	15.10.2	no order prohibiting the occupation of a building (or part of it) has been received by the Company under such enactment, regulation or order.
15.11	Except as described in the Disclosure Letter, since 31 January 2010, the Company has not acquired or disposed of any land or buildings, or any estate, interest, right or title in any land or buildings.

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	15.12	So far as the Vendors are aware, the Company has not received any notice of its breach or alleged breach of the Factories Act 1961, the Public Health Acts 1875 to 1961, the Offices Shops and Railway Premises Act 1963, the Control of Pollution Act 1974, the Health and Safety at Work etc Act 1974, and the Clean Air Act 1993.
	15.13	The Company has not at any time assigned, or otherwise disposed of, any leasehold property of which it was first or subsequent lessee.
	15.14	All capital allowances, rating reliefs and other benefits received by the Company in respect of the Properties were granted pursuant to a proper and valid claim, and leave no scope for demand for recovery from the Company.
16.	Taxation
	16.1	General
		16.1.1	All returns, computations and payments, which should be, or should have been, made by the Company for any tax purpose, have been prepared on a proper basis and submitted within the prescribed time limits, and are up to date and correct.
		16.1.2	None of the returns, computations and payments referred to in clause 16.1.1 is now, or so far as the Vendors are aware is recently likely to be, the subject of any dispute with HM Revenue and Customs or will give rise to any disallowance of relief, allowance, deduction or credit, or any assessment (including any claim by HM Revenue and Customs for any penalty, interest, surcharge or fine).
		16.1.3	All rents, interest, annual payments and other sums of an income nature, paid during, or in respect of, the three years ended on 31 January 2010, or payable by the Company, or which the Company is under an obligation to pay in the future, are wholly allowable as deductions or charges in computing profits for the purposes of corporation tax.
		16.1.4	The Company has not, during the three years ended on 31 January 2010, made any payment to, or provided any benefit for, any officer or employee, which is not allowable as a deduction in calculating the profits of the Company for Taxation purposes in the accounting period in which it was paid.
		16.1.5	Since 31 January 2010, the Company has not been involved in any transaction which has given, or may give, rise to a liability to Taxation on the Company (or would have given, or might give, rise to such a liability but for the availability of any relief, allowance, deduction or credit), other than corporation tax on normal trading income of the Company (as opposed to chargeable gains or deemed income) arising from transactions entered into in the ordinary course of business.
	16.2	PAYE and other withholding tax

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	16.2.1	All income tax under the PAYE system, and payments due in respect of employees’ national insurance contributions, have been deducted from all payments made, or treated as made, by the Company, and duly paid by the Company to HM Revenue and Customs (together with any employer’s contribution) in the appropriate manner; and the Company has complied with all its reporting obligations in connection with the benefits provided for employees and directors of the Company.
16.3	Groups
	16.3.1	The Disclosure Letter contains particulars of all arrangements and agreements relating to group relief (as defined by the Income and Corporation Taxes Act 1988 Section 402) (‘Group Relief’) to which the Company is, or has been, a party, or becomes a party before Completion.
16.4	Close company provisions
	16.4.1	The Company is not, and never has been, a close investment-holding company as defined in the Income and Corporation Taxes Act 1988 Section 13A.
	16.4.2	The Company has never made any loan or advance within the Income and Corporation Taxes Act 1988 Section 419 nor has it released or written off, or agreed to release or write off, the whole or any part of any such loan or advance.
	16.4.3	The Company does not have any interest (whether direct or indirect) in any company, on the disposal of the assets of which a liability could arise under the Taxation of Chargeable Gains Act 1992 Section 13 (non-resident company which would be close if resident).
16.5	Capital gains tax
	16.5.1	If each of the capital assets of the Company were disposed of for a consideration equal to the book value of that asset in, or adopted for the purpose of, the Audited Accounts, no liability to corporation tax on chargeable gains would arise by reason of any such disposal.
16.6	Capital allowances
	16.6.1	The book value of each of the assets of the Company in, or adopted for the purpose of, the Audited Accounts, does not exceed the written down value of such asset for the purposes of the CAA 2001.
16.7	VAT
	16.7.1	For the purposes of this paragraph, ‘the VAT legislation’ means the Value Added Tax Act 1994 and all regulations made or imposed under it, and any other statutes or other provisions relating to VAT.

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	16.7.2	The Company is registered as a taxable person for the purposes of the VAT legislation.
	16.7.3	The Company has complied in all respects with the VAT legislation and has made and maintained full, complete, correct and up-to-date records, invoices and other documents appropriate, or requisite, for the purposes of such legislation.
	16.7.4	The Company is not in arrears with any payment or returns due under the VAT legislation and has not, in the past three years, been in default in respect of any prescribed accounting period, as the terms ‘default’ and ‘prescribed accounting period’ are used in the Value Added Tax Act 1994 Section 59(1) (the default surcharge), nor has it received any surcharge liability notice within the Value Added Tax Act 1994 Section 59(2).
	16.7.5	The Company is not treated as a member of a group of companies for VAT purposes.
	16.7.6	The Company has not been partially exempt for any VAT accounting period at any time in the five years before Completion and will not, in respect of supplies invoiced to it prior to Completion be denied credit for any input tax.
	16.7.7	Neither the Company, nor any company of which the Company is a relevant associate within the meaning of the Value Added Tax Act 1994 Schedule 10 Paragraph 3(7) (election to waive exemption), has elected to waive exemption under Paragraph 2 of that Schedule in relation to any land.
	16.7.8	The Company owns no assets which are treated as capital items and, in relation to which, the input tax may be subject to adjustment in accordance with the VAT capital goods scheme.
16.8	Stamp duty and stamp duty land tax
	16.8.1	All documents in the possession, or under the control, of the Company, to which it has been a party and are required to establish title to an asset and which attract stamp duty, or stamp duty reserve tax, have been properly stamped. No documents are presently subject to adjudication of claims for exemption or relief, and there are no circumstances which may result in the Company becoming liable for any interest or penalties.
	16.8.2	So far as the Vendor is aware there is no stamp duty land tax outstanding from the Company in relation to any transactions entered into by it in relation to the Properties on or before the date of this agreement, and no notice of any dispute in relation to the stamp duty land tax to be paid in relation to any such transactions has been received by the Company nor are the Vendors aware of any facts which might give rise to such a dispute.
16.9	Inheritance tax

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		16.9.1	The Company has made no transfer of value within the Inheritance Tax Act 1984 Section 94 or 99.
		16.9.2	No person has the power under the Inheritance Tax Act 1984 Section 212 to raise any inheritance tax by the sale of, or charge over, any of the Company’s assets.
		16.9.3	There is no unsatisfied liability to inheritance tax attached, or attributable, to the assets of the Company or the shares of the Company, and neither the assets, nor the Shares, are subject to any HM Revenue and Customs charge as is mentioned in the Inheritance Tax Act 1984 Section 237.
17.	Vendors’ interests
	17.1	No Vendor, Affiliate of a Vendor or person connected with any Vendor has any interest (direct or indirect) in any other company or business which competes with the Business.
	17.2	Except as described in the Disclosure Letter, no indebtedness (actual or contingent), contract or arrangement is outstanding between the Company and any Vendor or director of the Company, or any person connected with any Vendor or such director, or any company or business in which any Vendor or director or persons connected with them is or may be interested (directly or indirectly).
	17.3	No person is entitled to receive from the Company any finder’s fees, brokerage or other commission, in connection with the sale and purchase of the Shares under this agreement.
	17.4	Save in respect of remuneration and the receipt of expenses, there is not now outstanding, any contract or arrangement to which the Company is a party and in which any Vendor, or any director of the Company, is or has been interested (whether directly or indirectly).
	17.5	The Company and the Vendors are not party to any contract or arrangement which was not of an arm’s length nature, nor has such a contract or arrangement affected its profits or financial position during the past three years.
18.	Good standing
	18.1	No receiver, administrative receiver or administrator has been appointed, nor any notice given, petition presented, or order made, for the appointment of any such person over the whole, or any part, of the assets or undertaking of the Company, or any of the Vendors.
	18.2	No petition has been presented, no order has been made and no resolution has been passed, for the winding up of the Company, or for the appointment of a liquidator or provisional liquidator of the Company.
	18.3	No voluntary arrangement has been proposed, or is in force, under the Insolvency Act 1986 Section 1 in respect of the Company.

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	18.4	The Company has not stopped payment, nor is it insolvent or unable to pay its debts as and when they fall due.
	18.5	No unsatisfied judgement is outstanding against the Company.
	18.6	No distress, execution or other process has been levied in respect of the Company which remains undischarged, nor is there any unfulfilled or unsatisfied judgement or court order outstanding against the Company.
	18.7	The Company has not received notice that there are pending, or in existence, any investigations or inquiries by, or on behalf of, any governmental or other body, in respect of the affairs of the Company.
	18.8	The Company has at all times carried on business, and conducted its affairs, in all respects in accordance with its memorandum and articles of association for the time being in force, and any other documents to which it is, or has been, a party.
	18.9	So far as the Vendors are aware, the Company is empowered and duly qualified to carry on business in all jurisdictions in which it now carries on business.
20.	The Subsidiary
	The Subsidiary is a trading company.
21.	Miscellaneous
	21.1	Except as described in the Disclosure Letter, the Company does not carry on or have a place of business at any branch or other location (whether in the United Kingdom or elsewhere) other than at, and from, the Properties.
	21.2	All title deeds and agreements to which the Company is a party, and any other documents in the enforcement of which the Company is interested, have been duly stamped, and all such deeds and documents owned by, or which ought to be in the possession of, the Company are in the possession of the Company.
	21.3	Since 31 May 2010, there has not occurred any material adverse change in the business, operations, assets or financial or trading position of the Company or the Subsidiary or, so far as the Vendors are aware, any event or circumstance specifically affecting the Company or the Subsidiary that may result in such material adverse change.

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Schedule 7
Limitation of Vendors’ Liability

1.	SCOPE
	Save as otherwise expressly provided in this Schedule, the provisions of this Schedule shall operate to limit the liability of the Vendors in respect of any claim under this agreement and references in this Schedule to ‘claim’ and ‘claims’ shall be construed accordingly.
2.	LIMITATIONS OF QUANTUM
	2.1	The maximum aggregate liability of the Vendors in respect of all and any claims (other than a Tax Claim) shall not exceed the amount of the Purchase Price actually received by the Vendors at the time the relevant claim or claims are made.
	2.2	The maximum aggregate liability of each Vendor in respect of all and any claims and any other claims of any nature under the terms of this agreement (other than a Tax Claim) shall not exceed the amount of the Purchase Price actually received by that Vendor at the time the relevant claim or claims are made, together with the amount of the Vendor’s Loan.
	2.3	No liability shall attach to the Vendors in respect of any claim (other than a Tax Claim):
		2.3.1	unless the Loss sustained which is the subject matter of the claim shall exceed £2,500.00; and
		2.3.2	unless and until the aggregate amount of all claims for which they would, in the absence of this clause 2.3.2, be liable shall exceed £100,000.00 and in such event Vendors shall be liable for the whole of such amount and not merely the excess over £100,000.00.
3.	TIME LIMITS
	3.1	The Vendors shall be under no liability in respect of any claim (other than a Tax Claim) unless notice of such claim giving reasonable details of the relevant facts, matters or circumstances giving rise to the claim (including an estimate of the amount of such claim) shall have been served upon the Vendors by the Purchaser:
		3.1.1	in the case of any claim the subject matter of which relates to Taxation, on the seventh anniversary of Completion; and
		3.1.2	in respect of any other claim, by no later than the second anniversary of Completion.
	3.2	Any claim notified in accordance with clause 3.1 of this Schedule and not satisfied, settled or withdrawn shall be unenforceable against the Vendors on the expiry of the period of 12 months starting on the date of notification of the claim unless proceedings in respect of such claim have been issued and served on the Vendors in accordance with the terms of this agreement.

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4.	DISCLOSURE AGAINST WARRANTIES
The Purchaser shall not be entitled to make any claim under the Warranties in respect of any facts, matters or circumstances if such facts, matters or circumstances have been fairly and accurately disclosed in the Disclosure Letter (with sufficient details to identify the nature and scope of the matter disclosed).
5.	GENERAL
	The Vendors shall not be liable in respect of any claim (other than a Tax Claim) (or any increase in the amount of a claim):
	5.1	if and to the extent that such claim arises from any act, omission, transaction or arrangement after Completion by the Company, the Subsidiary, the Purchaser, ISS, or any Affiliate of the Purchaser or ISS or any of their directors, officers, employees or agents;
	5.2	if and to the extent that the claim arises from any act, omission, transaction or arrangement authorised by or carried out at the express direction of the Purchaser, ISS, or any Affiliate of the Purchaser or ISS or any of their directors, officers, employees or agents;
	5.3	if the subject of the claim is specifically provided for in the Accounts or has been included in calculating creditors or deducted in calculating debtors in the Accounts and (in the case of creditors or debtors) is identified in the records of the Company and/or the Subsidiary;
	5.4	as a result of an act or omission required by applicable law;
	5.5	to the extent that the Purchaser ISS, or any Affiliate of the Purchaser or ISS has recovered under an indemnity against any Loss arising out of such breach or claim under the terms of any insurance policy; and
	5.6	to the extent that such claim would not have arisen but for any change in the accounting practices or policies of the Company or the Subsidiary introduced or having effect after Completion.
6.	CONDUCT OF CLAIMS
	6.1	If the Purchaser becomes aware that any claim (other than a Tax Claim) has been made against the Company or the Subsidiary by a third party after Completion which is likely to result in the Purchaser being entitled to make a claim against the Vendors, the Purchaser shall, and shall procure that any relevant Affiliate of the Purchaser shall:
		6.1.1	give notice of such claim to the Vendors as soon as reasonably practicable;
		6.1.2	not make any admission of liability, agreement or compromise with any person, body or authority in relation thereto without the prior written agreement of the Vendors (not to be unreasonably withheld or delayed);

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	6.1.3	subject to the Vendors becoming parties to any confidentiality agreement as reasonably requested by the Purchaser, give the Vendors and their professional advisers reasonable access to the premises and personnel of the Purchaser, the Company and the Subsidiary and to any relevant chattels, documents and records within the power, permissions or control of the Purchaser, the Company and the Subsidiary to enable the Vendors and their professional advisers to examine such chattels, accounts, documents and records and take copies or photocopies of them at their own expense;
	6.1.4	take such action as the Vendors shall reasonably request to avoid, dispute, resist, compromise, defend or mitigate any such claim (other than any claim the defence of which would be likely to materially adversely affect the goodwill of the business of the relevant Affiliate of the Purchaser or any claim which seeks or in respect of which there has been granted injunctive relief), subject to the relevant Affiliate of the Purchaser being entitled to employ its own legal advisers and provided that the Vendors shall indemnify and hold harmless all Affiliates of the Purchaser against all Losses incurred by any of them arising from any action taken by any Affiliate of the Purchaser at the request of the Vendors pursuant to this paragraph; and
	6.1.5	consult as is reasonably practicable with the Vendors as regards the conduct of any proceedings arising out of such claim.
6.2	Notwithstanding the preceding provisions of this Schedule, if at any time any of the Vendors pays to the Purchaser an amount in respect of any claim (other than a Tax Claim) and the Purchaser, the Company and/or any Affiliate of the Purchaser subsequently becomes entitled to recover from any third party any sum in respect of the facts, matters or circumstances giving rise to the claim, then the Purchaser shall or shall procure that the Company and/or any Affiliate of the Purchaser shall take all commercially reasonable steps to enforce such recovery. If the Purchaser, the Company and/or any Affiliate of the Purchaser shall at any time recover any sum from a third party which is referable to the facts, matters or circumstances giving rise to any claim in respect of which any of the Vendors have paid any sum to the Purchaser, then:
	6.2.1	if the amount paid by the Vendors in respect of the claim is more than the Sum Recovered, the Purchaser shall immediately pay to the Vendors the Sum Recovered; and
	6.2.2	if the amount paid by the Vendors in respect of the claim is less than or equal to the Sum Recovered, the Purchaser shall immediately pay to the Vendors an amount equal to the amount paid by the Vendors.
	For the purpose of this clause, ‘Sum Recovered’ means an amount equal to the total of the amount recovered from the relevant third party plus any repayment, supplement or interest in respect of the amount recovered from the person under Section 825 or 826 of ICTA less any tax computed by

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reference to the amount recovered from the person payable by the Purchaser or the Vendors in recovering the amount from the third party or reasonable costs payable by the Purchaser, the Company and/or any Affiliate of the Purchaser in making any such recovery.

7.	CHANGE IN LEGISLATION
	No liability shall attach to any of the Vendors in respect of any claim (other than a Tax Claim) to the extent that such claim would not have arisen (or the amount of the claim would not have been increased) but for the passing or coming into force of, or any change in, any enactment, law, regulation, directive, requirement or any published practice of any government, government department or agency or regulatory body (including extra-statutory concessions of HM Revenue and Customs) made after the date of this agreement or a change in the interpretation of the law after the date of this agreement (whether or not such change purports to be effective retrospectively in whole or in part) or if such claim would not have arisen (or the amount of the claim would not have been increased) but for any judgement delivered after the date of this agreement.
8.	CONTINGENT AND UNQUANTIFIABLE LIABILITIES
	No liability shall attach to any of the Vendors in respect of any claim (other than a Tax Claim) to the extent that the claim is based upon a liability which is contingent only or is otherwise not capable of being quantified unless and until such liability ceases to be contingent and becomes an actual liability or becomes capable of being quantified, as the case may be, provided that this clause shall not operate to avoid a claim made in respect of a contingent or unquantifiable liability within the applicable time limits specified in clause 3 of this Schedule, if the notice of such claim has been served before the expiry of the relevant period (even if such liability does not become an actual or quantifiable liability, as the case may be, until after the expiry of such period).
9.	NO DOUBLE RECOVERY
	The Purchaser shall not be entitled to recover damages from the Vendors or obtain payment, reimbursement, restitution or indemnity from the Vendors more than once for the same Loss.
10.	PAYMENT OF CLAIM TO BE IN REDUCTION OF CONSIDERATION
	If any of the Vendors pays any sum to the Purchaser pursuant to a claim, that part of the Purchase Price received by such Vendor for the sale of his Shares shall be deemed to be reduced by the amount of such payment.
11.	REMEDIES
	The Purchaser acknowledges that damages will be its sole remedy for any claim for misrepresentation, negligent misstatement, breach of any Warranty or any other breach of this agreement.

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12.	SURVIVAL OF THESE PROVISIONS
	The provisions of this Schedule shall apply notwithstanding any other provision of this agreement and will not be discharged or cease to have effect in consequence of any termination or rescission of any other provisions of this agreement.
13.	MITIGATION NOT AFFECTED
	Nothing in this agreement shall affect the application of the common law rules on mitigation in respect of any claim or any matter giving rise to a claim.
14.	FRAUD
	None of the limitations on the liability of the Vendors set out in this Schedule (whether as to the quantum of the claim, the time limit for notification of the claim, the procedures or requirements for making a claim or otherwise) shall apply to any claim against a Vendor to the extent that the liability of any of that Vendor in respect of that claim arises from fraud on the part of that Vendor.

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SIGNED BY: /s/ Nicolaas Bekooy

NICOLAAS BEKOOY
In the
presence of:	/s/ Ian Smith

Name: Ian Smith

Address:	MESSRS. CRANE & STAPLES
	LONGCROFT HOUSE
	FRETHERNE ROAD
	WELWYN GARDEN CITY
	HERTS AL8 6TU

Occupation: Solicitor

SIGNED BY:	/s/ Lawson John Noble
LAWSON JOHN NOBLE
In the

presence of:  /s/ Ian Smith

Name: Ian Smith

Address:	MESSRS. CRANE & STAPLES
	LONGCROFT HOUSE
	FRETHERNE ROAD
	WELWYN GARDEN CITY
	HERTS AL8 6TU

Occupation: Solicitor

SIGNED BY:	/s/ Frank Thomson
FRANK THOMSON

In the
presence of:	/s/ Ian Smith

Name: Ian Smith

Address:	MESSRS. CRANE & STAPLES
	LONGCROFT HOUSE
	FRETHERNE ROAD
	WELWYN GARDEN CITY
	HERTS AL8 6TU

Occupation: Solicitor

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SIGNED for and on behalf of
IMAGE SENSING SYSTEMS EUROPE LIMITED

BY:	/s/ Kenneth R. Aubrey
KENNETH R. AUBREY, a director,

in the

Presence of:

Witness: /s/ Ian Smith

Name: Ian Smith

Address:	MESSRS. CRANE & STAPLES
	LONGCROFT HOUSE
	FRETHERNE ROAD
	WELWYN GARDEN CITY
	HERTS AL8 6TU

Occupation: Solicitor

SIGNED for and on behalf of
IMAGE SENSING SYSTEMS, INC.

BY:	/s/ Kenneth R. Aubrey
KENNETH R. AUBREY, President,
Chief Executive Officer and a director,

in the

Presence of:

Witness: /s/ Ian Smith

Name: Ian Smith

Address:	MESSRS. CRANE & STAPLES
	LONGCROFT HOUSE
	FRETHERNE ROAD
	WELWYN GARDEN CITY
	HERTS AL8 6TU

Occupation: Solicitor

75

SIGNED for and on behalf of
CITYSYNC LIMITED

BY:	/s/ Frank Thomson
___________________________________, a director,

in the

Presence of: 

Witness: /s/ Ian Smith

Name: Ian Smith

Address:	MESSRS. CRANE & STAPLES
	LONGCROFT HOUSE
	FRETHERNE ROAD
	WELWYN GARDEN CITY
	HERTS AL8 6TU

Occupation: Solicitor

76

EX-10.1

Exhibit 10.1

DATED 1 February 2010

(1)	NORTRUST NOMINEES LIMITED
(2)	CITYSYNC LIMITED
LEASE
of Falcon House Unit J City Park Watchmead Welwyn Garden City Hertfordshire

From:	2010
Term:	10 years
Expires:	2020
Initial rent:	£50,000 per annum

B O O D L E

H A T F I E L D

89 New Bond Street • London W1S 1DA
Telephone: 020 7629 7411 • Fax: 020 7629 2621
DX 53 Chancery Lane

LAND REGISTRY PRESCRIBED CLAUSES

LR1. Date of lease	1 February 2010
LR2. Title number(s)	LR2.1 Landlord’s title number(s)
	HD243902
	LR2.2 Other title numbers
	None.
LR3. Parties to this lease	Landlord:
	NORTRUST NOMINEES LIMITED (Company Registration Number 955951) whose registered office is at 50 Bank Street Canary Wharf London E14 5NT
	Tenant:
	CITYSYNC LIMITED (Company Registration Number 3791347) whose registered office is at 124a Great North Road Hatfield Hertfordshire AL9 5JN
	Other parties:
	None.
LR4. Property	As defined as the “Premises” in Schedule 1 to this lease.
	In the case of a conflict between this clause and the remainder of this lease then, for the purposes of registration, this clause shall prevail.
LR5. Prescribed statements etc.	None.
LR6. Term for which the Property is leased	The term as specified in this lease at Clause 2.
LR7. Premium	None.
LR8. Prohibitions or restrictions on disposing of this lease	This lease contains a provision that prohibits or restricts dispositions.

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LR9. Rights of acquisition etc.	LR9.1 Tenant’s contractual rights to renew this lease, to acquire the reversion or another lease of the Property, or to acquire an interest in other land.
	None.
	LR9.2 Tenant’s covenants to (or offer to) surrender this lease.
	None.
	LR9.3 Landlord’s contractual rights to acquire this lease.
	None.
LR10. Restrictive covenants given in this lease by the Landlord in respect of land other than the Property	None.
LR11. Easements	LR11.1 Easements granted by this lease for the benefit of the Property.
	The easements described in Schedule 2 to this lease.
	LR11.2 Easements granted or reserved by this lease over the Property for the benefit of other property.
	The easements described in Schedule 3 to this lease.
LR12. Estate rentcharge burdening the Property	None.
LR13. Application for standard form of restriction	None.
LR14. Declaration of trust where there is more than one person comprising the Tenant	Not applicable.

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THIS LEASE made the 1st day of February 2010

BETWEEN:

(1)	NORTRUST NOMINEES LIMITED (Company Number 955951) whose registered office is at 50 Bank Street Canary Wharf London E14 5NT (“the Landlord”) and
(2)	CITYSYNC LIMITED (Company Registration Number 3791347) whose registered office is at Turpin Court 124a Great North Road Hatfield Hertfordshire AL9 5JN (“the Tenant”)

WITNESSES as follows:

1.	INTERPRETATION
	In This Lease the headings and table of contents shall be ignored in its construction and unless the context otherwise requires:
	Defined terms
	1.1	The following expressions have the meanings set against them:
		“Basic Rent”	the rent payable under Clause 2.1
		“Common Parts”	those parts of the Estate which are not from time to time let or intended to be let to any occupational tenants and any other areas or facilities used in common or in connection with or serving the occupiers of the Estate
		“Conduits”	pipes sewers drains cisterns ducts gutters watercourses wires cables channels flues and other conducting media and any other ancillary apparatus
		“Contractual Expiry Date”	the date on which the contractual term created by Clause 2 will expire if the Term does not end earlier

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“Estate”	the whole and each part of the land and premises edged green on the attached plan being the land registered at H M Land Registry under title number HD243902 TOGETHER WITH (where the context so admits) any additional property in which during the Term the Landlord has a freehold or leasehold interest and which has been constructed or acquired to form part of the Estate
“Full Cost of Reinstatement”	such amount as the Landlord from time to time determines as the cost of rebuilding the relevant part or parts of the Estate after destruction, by an Insured Risk (including the cost of shoring-up demolition site clearance any works that may be required by statute fees payable on any applications for planning permission or other consents professional fees and other incidental expenses) when the rebuilding occurs including any increases in building costs up to the time of completion
“Insurance Rent”	such sums as shall be a fair proportion (as determined from time to time by the Landlord save in the case of Loss of Rent when the proportion shall be 100%) of the amount which the Landlord pays by way of gross premium (or if the Premises or the Estate are insured with other property where applicable a fair proportion of such sums payable under the relevant insurance policy determined from time to time by the Landlord):
	for effecting insurance under Clause 5.1 and

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	in respect of the Landlord’s Liability Insurance
	TOGETHER WITH the said proportion of:
	all expenses incurred by the Landlord in connection with assessing the Full Cost of Reinstatement of the Estate and
	any excesses under any policy of insurance effected by the Landlord under Clause 5.1 in respect of any Insured Damage that occurs
“Insured Damage”	damage or destruction to any part of the Estate which is caused by a risk against which and to the extent that at the time of the damage or destruction the Landlord has or should have effected insurance of that part of the Estate under Clause 5.1
“Insured Risks”	fire lightning storm explosion impact aircraft and other aerial devices and articles dropped therefrom riot malicious damage civil commotion earthquake (fire and shock) bursting or overflowing of water tanks apparatus or pipes (including any of the foregoing where caused by acts of terrorism) for so long as each such risk either:
	remains insurable with insurers of repute at reasonable commercial rates or
	is actually insured by the Landlord in its discretion for the purposes of this Lease
	such other risks of damage or destruction against which the Landlord from time to time decides to effect insurance for the purposes of

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	this Lease (if any)
“Landlord’s Liability Insurance”	insurance against all liability of the Landlord to third parties arising out of or in connection with the Estate or any matter relating to the Estate on such terms and in such amount as the Landlord from time to time determines
“Loss of Rent”	the amount of the Basic Rent and Service Charge for the time being payable during a period of three years (or for so long as the Landlord so elects during such longer period as the Landlord from time to time determines necessary in order to rebuild the Estate) including:
	(1)	any increase in the Basic Rent during such period which the Landlord estimates will occur as a result of any review due under Clause 8 and
	(2)	in respect any part of the period after Contractual Expiry Date the Landlord’s estimate of the open market rent for the Premises (as defined in Clause 8) as at the Contractual Expiry Date
“Order”	the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003
“Outgoings”	(in relation to the Estate the Common Parts the Premises or other property as the context requires) all present and future rates charges taxes assessments impositions and outgoings of any kind (including without limiting the foregoing any which are of a capital or non-

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	recurring nature or wholly novel) assessed charged imposed or payable by or on any owner or occupier of or on or in respect of the Estate the Common Parts the Premises or other property respectively excluding (save for Value Added Tax) any payable by the Landlord or any superior landlord occasioned by receipt of the Rents or the rents payable under a superior lease or by any dealing with any interest in the Premises of the Landlord or any superior landlord
“the Phase”	that part of the Estate for the purposes of identification only shown edged brown on the plan
“Planning Acts”	the Town and Country Planning Act 1990 the Planning (Listed Buildings and Conservation Areas) Act 1990 and the Planning (Hazardous Substances) Act 1990 and any other statutes relating to town and country planning
“Plant”	all plant and machinery now or hereafter in or serving the Estate including (but without limiting the foregoing) any lifts and lift machinery boilers public address system internal telephones air conditioning heating and ventilation plant and machinery sprinklers and associated Conduits electrical systems fire detection and fire prevention systems central or monitoring systems and installations and any plant and machinery from time to time installed to replace any of the foregoing
“Premises”	the whole and each part of the part of the Estate

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		known as Unit J more particularly described in Schedule 1
	“Prescribed Rate”	4 per cent per annum above the base rate of HSBC Bank plc or above such other rate of interest as the Landlord from time to time reasonably determines
	“Quarter Days”	25 March 24 June 29 September and 25 December in each year
	“Rents”	the Basic Rent the Insurance Rent and the Service Charge
	‘‘Service Charge”	the sums payable by the Tenant at the times and in the manner set out in Schedule 5
	“Services”	the services set out in Part 3 of Schedule 5
	“Term”	the term of years granted by Clause 2 with any period of holding-over extension or continuance by statute or common law
	“Visitor”	the Tenant any undertenant (however remote) of the whole or any part of the Premises and any person at or near the Estate expressly or by implication with the authority of the Tenant or any such undertenant
	“1954 Act”	the Landlord and Tenant Act 1954
End of the Term
1.2	“The last year of the Term” and “the end of the Term” mean the last twelve months of and the end of the Term however it ends (including by expiry notice forfeiture or surrender)

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Landlord and Tenant (Covenants) Act
1.3	The expressions “excluded assignment” “authorised guarantee agreement” and “collateral agreement” have in relation to this Lease the meanings specified in Sections 11(1) 16 and 28(1) of the Landlord and Tenant (Covenants) Act 1995
Construction of obligations
1.4	Obligations by the Tenant:
	1.4.1	not to do or omit to do anything in relation to the Premises or the Estate include an obligation to ensure that it is not done or omitted by (in relation to the Premises) any other person and (in relation to other parts of the Estate) any Visitor
	1.4.2	to do anything in relation to the Premises or the Estate include an obligation to ensure that (in the case of the Premises) all other persons and (in the case of other parts of the Estate) all Visitors comply with them
1.5	References to obligations of the Tenant in this Lease include obligations of the Tenant in any document entered into pursuant to this Lease and in any collateral agreement
Statutes
1.6	References to a statute or a statutory instrument include any extension amendment or re-enactment for the time being in force and any regulations instruments permissions directions orders or notices for the time being made or issued under them
Value Added Tax
1.7	References to Value Added Tax include any similar tax substituted for or levied in addition to it

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Indemnities
1.8	Obligations to indemnify the Landlord against a matter are obligations to indemnify the Landlord against liabilities actions proceedings damages penalties costs expenses claims and demands of whatsoever nature and any fees and expenditure incurred arising directly or indirectly from or in connection with that matter
Superior interests
1.9	References to the Landlord include any superior landlord and any chargee of the Landlord or of any superior landlord where:
	1.9.1	the relevant superior lease or charge requires the approval of the superior landlord or chargee to a matter and the Landlord’s approval to that matter is required under this Lease (although nothing in this Lease shall prevent the superior landlord or chargee from withholding its approval if it is entitled to do so under the relevant superior lease or charge)
	1.9.2	there is provision for repayment to the Landlord of any expenses incurred and
	1.9.3	there is an indemnity in favour of the Landlord
Approvals
1.10	References to the approval or consent of or to a matter being approved by a person are to its prior written approval or consent
Vitiation of insurance
1.11	References to insurance being vitiated are to the insurance effected under Clause 5.1 (and if relevant any other insurance effected by the Landlord against damage or destruction to neighbouring property or Landlord’s Liability Insurance or other similar insurance) being vitiated and/or payment of the insurance monies under such insurance being refused in whole or part by reason of any act or omission by any Visitor (whether or not also resulting from an act or omission by any other person)

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	Parties and joint and several obligations
	1.12	References to “the Landlord” and “the Tenant” include the immediate landlord and tenant for the time being under this Lease and (if respectively more than one person) their obligations are joint and several
	Cross-references
	1.13	Without further designation references to:
		1.13.1	numbered Clauses and Schedules are to clauses of and schedules to this Lease
		1.13.2	a numbered paragraph is to that paragraph of the Schedule (or Part of the Schedule) in which the reference appears and
		1.13.3	a numbered Part is to that Part of the Schedule in which the reference appears
2.	TERM RIGHTS & RENTS
	The Landlord LEASES the Premises to the Tenant
	TOGETHER WITH (in common with the Landlord those authorised by it and others with similar rights) the rights specified in Schedule 2
	RESERVING to the Landlord and those authorised by it the rights specified in Schedule 3
	SUBJECT to all rights and obligations affecting the Premises including (insofar as they are subsisting and affect the Premises) the matters specified in Schedule 4
	TO HOLD to the Tenant from and including the 1st day of February 2010 for a term of ten years
	PAYING to the Landlord:
	2.1	Yearly during the Term (and proportionately for any shorter period):

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		2.1.1	from and including the 1 May 2010 up to and including 31 January 2011 the annual rent of £50,000 (Fifty thousand pounds) per annum plus VAT
		2.1.2	from and including 1 February 2011 to and including 31 January 2012 the annual rent of £75,000 (Seventy-five thousand pounds) per annum
		2.1.3	from and including 1 February 2012 to and including 31 January 2013 the annual rent of £90,000 (Ninety thousand pounds) per annum
		2.1.4	from and including 1 February 2013 to and including 31 January 2014 the annual rent of £105,000 (One hundred and five thousand pounds) per annum
		2.1.5	from and including 1 February 2014 for the remainder of the Term the annual rent of £120,000 (One hundred and twenty thousand pounds) plus VAT (subject to increase in accordance with Clause 8)
		by equal quarterly payments in advance on the Quarter Days the first payment (being a proportionate sum) to be made on the date three months from the date hereof in respect of the period commencing 1 May 2010 and continuing up to and including 24 June 2010.
	2.2	By way of further rent the Insurance Rent within 14 days of demand
	2.3	By way of further rent the Service Charge
3.	TENANT’S COVENANTS
	The Tenant COVENANTS with the Landlord during the Term and thereafter as specified as follows:
	Rent
	3.1	To pay the Rents:

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	3.1.1	in accordance with Clause 2 without any deduction and not to exercise any right or claim to withhold rent or legal or equitable set-off
	3.1.2	(if so requested by the Landlord in writing) by banker’s standing order or credit transfer to a bank account in the United Kingdom nominated by the Landlord and
	3.1.3	(together with the other sums due under this Lease) from an account in the name of the Tenant maintained with an institution falling within Regulation 8(4) of the Money Laundering Regulations 1993 (no longer in force) which means an account held with:
		3.1.3.1	an institution which is for the time being authorised by the Bank of England under the Banking Act 1987 or by the Building Societies Commission under the Building Societies Act 1986
		3.1.3.2	a European authorised institution within the meaning of the Banking Coordination (Second Council Directive) Regulations 1992 or
		3.1.3.3	any other institution when it is an authorised credit institution (as defined in the said Money Laundering Regulations)
Interest on arrears
3.2	To pay the Landlord interest at the Prescribed Rate from when the rent or other sum was due or incurred until actual payment or reimbursement (whether formally demanded or not and before and after judgment) on:
	3.2.1	any part of the Rents unpaid 14 days after the due date
	3.2.2	any other sum due under this Lease unpaid 14 days after it is due and

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	3.2.3	any sum reasonably incurred by the Landlord as a result of a failure by the Tenant to comply with its obligations in this Lease and not paid within 14 days of demand
	PROVIDED THAT this sub-clause is without prejudice to any other right of the Landlord and Rents and other sums shall be deemed unpaid if the Landlord has refused to accept a payment so as not to waive a right to forfeit this Lease
Outgoings
3.3	To pay and indemnify the Landlord against:
	3.3.1	all Outgoings which relate to the Premises and
	3.3.2	the costs incurred by the Landlord in maintaining repairing and renewing all Conduits and Plant which solely serve and are outside the Premises
Common outgoings
3.4	To pay to the Landlord on demand a fair proportion (to be determined from time to time by the Landlord) of any Outgoings which relate to the Estate as a whole on its own or with other property or the Premises and other property
Value Added Tax
3.5	To pay the Landlord as additional rent any Value Added Tax chargeable on any payments or other consideration (including the Rents) made or given by the Tenant under or in connection with this Lease such Value Added Tax to be payable in addition to such payments or other consideration
3.6	Where under this Lease the Tenant agrees to pay the Landlord or any other person (including without limitation by way of service charge indemnity or reimbursement) a sum calculated by reference to an amount expended by the Landlord or another person to pay in addition a sum equal to any Value Added Tax on such amount save to the extent (if any) that it will be recoverable by the Landlord or other person respectively without (if respectively it has not done so) exercising any election to waive exemption from Value Added Tax

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Gas electricity and other services
3.7	To pay to the suppliers all charges for gas electricity and other services consumed or used at or in connection with the Premises and all charges for meters and telephones and to comply with all regulations and requirements of the supplying authorities insofar as they relate to the Premises
Repair
3.8	To keep the Premises (including the tiles carpeting and other furnishing of the floors) in good and substantial repair and condition (including decorative condition) and (when necessary) to renew and rebuild the Premises except (subject to the first proviso to Clause 5.3) Insured Damage save where the insurance against such Insured Damage is vitiated and excepting damage or destruction caused by inherent defects PROVIDED THAT the Tenant shall not be required to keep the Premises in any better state and condition than they are in (save for fair wear and tear) at the commencement of the Term as evidenced by the Schedule of Condition annexed hereto
3.9	To carry out as soon as possible and complete as soon as practicable any works requested by the Landlord under that proviso
3.10	To keep the Premises in a clean and tidy condition and clear of all rubbish
3.11	To replace any landlord’s fixtures in the Premises which are or become beyond repair with other good quality fixtures
3.12	To give written notice to the Landlord of any defect or item requiring repair in the Premises or the Estate which might give rise to a common law or statutory duty on the Landlord in favour of the Tenant or any other person as soon as it comes to the attention of the Tenant or those deriving title under it
3.13	To indemnify the Landlord against any breach of any such duty
To clean windows
3.14	To clean all windows of the Premises as often as necessary and at least once in every two months

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Internal decoration
3.15	In the fifth year of the Term and in the last six months of the last year of the Term (but not so that these works are required twice in any one period of twelve consecutive months) to prepare and paint with at least two coats of high quality paint all parts of the inside of the Premises as shall have been previously painted
External decoration
3.16	In the fifth year of the Term and in the last six months of the last year of the Term (but not so that these works are required twice in any one period of twelve consecutive months) to prepare and paint with at least two coats of high quality paint all parts of the exterior of the Premises as shall have been previously painted and as often as is in the opinion of the Landlord necessary to clean and re-point the external brickwork plasterwork and stonework of the Premises PROVIDED THAT the Tenant shall not paint the whole or any part of any external brickwork or stonework of the Premises unless such has usually been painted before the date of this Lease
3.17	As often as is in the opinion of the Landlord necessary to clean and treat in a proper manner and in accordance with any instructions issued by the Landlord all other surfaces and fixtures in the Premises not required to be painted
No change to colours
3.18	Not to change any colours and patterns of the decorations of the Premises
Standard of works
3.19	To carry out the repairs decorations and other works required under this Lease in a good and workmanlike manner and to the reasonable satisfaction of the Landlord
Reinstatement and delivery at end of Term
3.20	Before the end of the Term:

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	3.20.1	(save to the extent that the Landlord otherwise directs in writing) to remove any additions or alterations made to the Premises during the Term
	3.20.2	to remove any advertisements or signs erected on or near the Premises
	3.20.3	to make good any damage caused by such removal and the removal of tenant’s fixtures and chattels
3.21	At the end of the Term to deliver the Premises up in repair and in accordance with the Tenant’s obligations in this Lease and promptly to apply to the Land Registry to remove any notice of this Lease from the Landlord’s title
Alienation
3.22	Not to assign charge underlet hold on trust for another or otherwise part with or share possession or occupation of or suffer any other person to occupy or have an interest in the whole or any part of the Premises save by way of an assignment charge or underletting of the whole of the Premises satisfying the relevant requirements of Schedule 6
Enforcement of underlease terms
3.23	In relation to any underlease however remote of the whole or any part of the Premises:
	3.23.1	not to waive or vary its terms
	3.23.2	to procure that the tenant for the time being complies with the covenants given or which it should have given to the Landlord pursuant to Part 2 of Schedule 6 and in any document entered into by the Tenant pursuant to this Lease
	3.23.3	to operate properly any provisions for the review of rent thereby reserved so as to increase such rent to the maximum extent in accordance with its terms

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	3.23.4	not without the approval of the Landlord (such approval not to be unreasonably withheld) to agree the yearly rent payable under it at any rent review or renewal nor to agree upon the appointment of a person to act as a third party determining the rent in default of agreement
	3.23.5	to submit to any court expert or arbitrator determining such rent any representations that the Landlord requests and
	3.23.6	within 14 days to give notice to the Landlord of the details of the determination of every rent review
Registration of dealings
3.24	Within 21 days after any assignment charge underlease or transmission or other disposition or devolution relating to the whole or any part of the Premises or any derivative interest in them to give notice of such to the Landlord and to produce to the Landlord a certified copy of the relevant document (and in the case of an underlease in respect of which the provisions of Sections 24 to 28 (inclusive) of the 1954 Act have been excluded a certified copy of both the notice served by the landlord thereunder and the tenant’s declaration or statutory declaration in response pursuant to Section 38A of that Act) and to pay the Landlord’s solicitors’ reasonable and proper charges for the registration of every such document
Alterations
3.25	Not to erect any new buildings on the Premises nor to annex the Premises to other premises nor to make any alterations or additions which will alter the height elevation or architectural appearance of the Premises and not to make any other external or any structural alterations or additions to the Premises
3.26	Subject to Clause 3.25 not to make any other alterations or additions to the Premises without the Landlord’s approval (such approval not to be unreasonably withheld) nor without having entered into such obligations as the Landlord shall require as to their execution and reinstatement PROVIDED THAT no approval shall be required for the erection of internal demountable

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	partitioning but the Tenant shall submit full details to the Landlord before doing so
3.27	Before starting any works of a substantial nature to provide if the Landlord so requests adequate security in the form of a deposit of money or the provision of a bond as assurance to the Landlord that they will be fully and properly completed and that any covenants entered into by the Tenant with the Landlord pursuant to Clause 3.26 will be complied with
Permitted user
3.28	To use the Premises only for a use within Class B1 and/or B2 and/or B8 of the Schedule to the Town and Country Planning (Use Classes) Order 1987
No nuisance
3.29	Not to do on the Premises or the Estate anything which in the opinion of the Landlord may become or cause a nuisance disturbance damage annoyance or inconvenience to the Landlord or its lessees or to the owners or occupiers of neighbouring property
No overloading
3.30	Not to do or bring in or on the Premises or the Estate anything which may put any weight or impose a strain in excess of that which the Premises or the Estate are designed to bear with due margin for safety and not to fix any machinery to the walls ceilings or roof of the Premises or the Estate
Other restrictions
3.31	Not to change the name of the Premises without the approval of the Landlord
3.32	To keep the entrance ways of and exits from the Premises and the buildings on the Premises clear and unobstructed at all times and not to park load or unload save in those parts of the Estate from time to time designated for such purpose by the Landlord and not to cause an obstruction in any part of the Estate
3.33	Not to hold any sale by auction on the Premises

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3.34	Not to permit any person to sleep in the Premises nor to use the Premises or the Estate for any residential illegal or immoral purpose
3.35	Not to allow to pass into the sewers drains or watercourses serving the Premises or the Estate any noxious or deleterious effluent or other substance which may obstruct or damage them and to make good any such obstruction or damage caused thereto by any Visitor
Contamination
3.36	Not to allow any noxious or deleterious effluent or any form of contaminant or pollutant or other substance to seep into or otherwise enter the buildings or other structures on the Premises or the ground below them
Skips
3.37	Not to bring any skips onto the Premises or the Estate except with the approval of the Landlord and to screen from view to the satisfaction of the Landlord any skips to which the Landlord gives approval and not to allow rubbish to be blown out of the skips
Waste and refuse
3.38	Not to discharge trade effluent or waste without the approval of the Landlord
3.39	To make proper and adequate arrangements for the frequent removal from the Premises of all trade and other waste in accordance with the requirements of any competent authority and any regulations from time to time made by the Landlord
Plant and machinery
3.40	Not without the approval of the Landlord to erect or install in the Premises or the Estate any engine or machinery or other appliance or apparatus of any description (other than usual office machinery in the Premises which is not a fixture nor audible outside the Premises) and to ensure that any such erected or installed is properly installed and safely maintained and not liable to leak or cause a fire or explosion

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3.41	Not to overload the electrical wiring or drainage installations and apparatus in or serving the Premises or the Estate and to ensure that any in or solely serving the Premises comply with the terms conditions and regulations of the relevant authorities
3.42	Not without the approval of the Landlord to dismantle adjust alter or otherwise interfere with the Plant in the Premises or the Estate other than (in the case of Plant in the Premises only) to operate the external switches or controls intended for the personal use of the occupant which it serves and not to do anything in the Premises or the Estate whereby the working of any part of the Plant may be impaired or adversely affected
3.43	To keep all Plant within and exclusively serving the Premises in working order and to enter into and maintain comprehensive maintenance contracts in forms and with reputable contractors approved by the Landlord (such approval not to be unreasonably withheld) for the maintenance and repair of all Plant within and exclusively serving the Premises and to produce on demand to the Landlord the receipt for the current year’s premium and a copy of the relevant contract and of any reports made by the contractors and to comply with the recommendations of the contractors
Aerials
3.44	Not without the Landlord’s consent (not to be unreasonably withheld or delayed) to erect on the exterior of the Premises or the Estate any mast wire or aerial radio or television mast aerial or dish or any CCTV equipment or any erection of any kind whatsoever
Signs
3.45	Not to fix or exhibit on the exterior of or (if visible from the exterior) the interior of the Premises nor anywhere on the Estate any sign placard notice fascia board or advertisement other than with the approval of the Landlord (such approval not to be unreasonably withheld) signs on the Premises giving the name of the Tenant and occupiers of the Premises

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Preservation of rights and boundaries
3.46	Not to obstruct any window or light enjoyed by the Premises and to use best endeavours to prevent the loss of any right belonging to the Premises
3.47	To prevent any encroachment on the Premises and the acquisition of any right over the Premises and to notify the Landlord immediately if an encroachment or the acquisition of a right is attempted or made
Reletting and for sale notices
3.48	To permit the Landlord at any time after the date six months before the Contractual Expiry Date in the case of re-letting and at any time in the case of sale to fix and retain on any suitable part of the Premises a notice for re-letting the Premises or stating that the Premises or the Estate are for sale and not to remove or obscure such notice and to permit all persons with the authority of the Landlord to view the Premises at reasonable hours on prior appointment
Rights of entry
3.49	To permit the Landlord and those authorised by it to enter the Premises to:
	3.49.1	ascertain whether the Tenant has complied with its obligations in this Lease
	3.49.2	assess the Full Cost of Reinstatement
	3.49.3	take schedules of fixtures and chattels to be yielded up at the end of the Term
	3.49.4	provide the Services and carry out the other matters referred to in Schedule 6
	3.49.5	carry out repairs decorations alterations or other works to neighbouring property
	3.49.6	inspect repair renew connect to cleanse move relay or construct existing or new Conduits or Plant in over or under the Premises serving or to serve any neighbouring property

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	3.49.7	comply with the obligations in any superior lease
	3.49.8	comply with its obligations (if any) under any statute affecting the Premises or the Estate
	3.49.9	do anything else reasonable which cannot otherwise be conveniently done
	AND anyone exercising the right of entry shall:
	3.49.10	(except in an emergency) do so only at reasonable times and on reasonable notice
	3.49.11	cause as little damage and inconvenience as reasonably practicable and
	3.49.12	make good any resulting damage to the Premises
To permit Landlord to remedy breach
3.50	To permit the Landlord and all those authorised by it to enter the Premises without liability to the Tenant for any damage or inconvenience thereby created to remedy any breach of the Tenant’s obligations in this Lease specified by the Landlord by notice to the Tenant if:
	3.50.1	one month thereafter the Tenant has not started or is not continuing diligently to remedy the breach
	3.50.2	two months thereafter the Tenant has not completed remedying the breach or
	3.50.3	in the Landlord’s opinion the Tenant is unlikely to have completed remedying the breach within two months thereafter or such shorter period as the Landlord reasonably considers necessary in the circumstances
	AND the costs so incurred by the Landlord (including solicitors’ and surveyors’ fees) shall be a liquidated debt and paid by the Tenant to the Landlord on demand

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Statutory obligations
3.51	To comply with the present and future requirements of any statute government department local or other public or competent authority or court relating to the Premises or their use whether imposed on any owner or occupier of them
3.52	To execute all works and provide and maintain all arrangements on or in respect of the Premises or their use that are thereby required
3.53	Not to do or omit to do in the Premises or the Estate anything as a result of which the Landlord may under any statute have imposed upon it or become liable to pay any penalty damages compensation costs charges or expenses
Copies of notices
3.54	Immediately after receipt to give to the Landlord full particulars of any notice order proposal or recommendation given to or served on the Tenant or any owner or occupier of the Premises affecting the Premises or neighbouring property whether advertised or served directly on the Tenant or any such owner or occupier or the original (or a copy) is received by any of them from any other person
3.55	If so requested by the Landlord to produce any such notice order proposal or recommendation and at the request of the Landlord to make or join in making such objections or representations in respect of it as the Landlord requests
To pay charges under Planning Acts
3.56	To pay any charge or levy imposed under the Planning Acts during or after the Term in respect of the carrying out or maintenance of any operations at the Premises or the commencement or continuance of any use of the Premises during the Term
No planning applications etc without consent
3.57	Not to serve any notice on nor to enter into any agreement with the planning authority nor without the approval of the Landlord make any application for permission under the Planning Acts

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Copies of permissions
3.58	Immediately on receipt to give to the Landlord a copy of the grant refusal or modification of any permission or other decision under the Planning Acts
To obtain approval of permissions
3.59	Notwithstanding any consent or approval granted by the Landlord not to make any alteration or addition to the Premises or any change of use until the Landlord has approved every necessary permission such approval not to be unreasonably withheld PROVIDED THAT the Landlord may refuse approval inter alia on the grounds that any condition contained in it or anything omitted from it or any other thing referred to in it would in the opinion of the Landlord be (or be likely to be) prejudicial to the Landlord’s interest in the Premises during or after the end of the Term
To complete works before end of Term
3.60	To carry out and complete before the end of the Term:
	3.60.1	any works to be carried out to the Premises by a date after the end of the Term by a condition of any planning permission granted for any development begun before the end of the Term and
	3.60.2	any development begun upon the Premises in respect of which the Landlord shall or may be liable for any charge or levy under the Planning Acts
Landlord’s costs
3.61	To pay to the Landlord on demand and indemnify the Landlord against all reasonable costs fees damages charges and expenses (including without limitation those of agents bailiffs and professional advisers) incurred by the Landlord in connection with or incidental to:
	3.61.1	any application by the Tenant or any person deriving title under the Tenant in connection with the Premises or any term of this Lease whether it proceeds or is granted refused or granted subject to conditions including (without limitation) of any advisers instructed

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		by the Landlord to consider whether an assignee satisfies the requirements of Part 1 of Schedule 6 and in connection with making representations to any independent expert appointed under that Part and the costs of such expert and his appointment
	3.61.2	the preparation and service of a notice under Section 146 of the Law of Property Act 1925 or any steps taken in or in contemplation of proceedings under Section 146 or 147 of that Act or otherwise requiring the Tenant to remedy any breach of the Tenant’s obligations in this Lease (notwithstanding that forfeiture is avoided otherwise than by relief granted by the court and whether or not any right of forfeiture is waived by the Landlord or a notice served under the said Section 146 is complied with by the Tenant)
	3.61.3	any steps taken in or towards preparing or serving a schedule of dilapidations whether during or after the end of the Term and the negotiation and agreement of the amount payable by the Tenant in respect of any items of disrepair or other breaches of covenant which it has not remedied at the end of the Term
	3.61.4	the recovery or attempted recovery of arrears of the Rents or other sums due from the Tenant under this Lease or any other breach by the Tenant of its obligations in this Lease
Indemnities
3.62	To indemnify the Landlord against any act omission or negligence of any Visitor and any breach of the Tenant’s obligations in this Lease by any Visitor
Regulations
3.63	To comply with any written regulations from time to time made by the Landlord relating to the management security or occupation of the Estate
Registration
3.64	To apply to the Land Registry to register this Lease

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4.	LANDLORD’S COVENANTS
	The Landlord COVENANTS with the Tenant as follows:
	Quiet enjoyment
	4.1	That the Tenant shall peaceably hold and enjoy the Premises during the Term without interruption or disturbance from or by the Landlord or any person lawfully claiming under or in trust for the Landlord
	Services
	4.2	(Subject to payment by the Tenant of the Service Charge) throughout the Term to use its reasonable endeavours to carry out the Services in accordance with the principles of good estate management PROVIDED THAT:
		4.2.1	notwithstanding any implied or express obligation the Landlord shall not be liable to the Tenant for any failure or interruption in any of the Services by reason of any breakdown maintenance or repair works renewals or any cause beyond its control
		4.2.2	the Landlord may from time to time add to vary or discontinue the Services so long as the addition variation or discontinuation complies with the principles of good estate management
5.	INSURANCE OBLIGATIONS
	The Landlord and the Tenant AGREE with each other as follows:
	Landlord to effect insurance
	5.1	(Unless the insurance is vitiated and subject to such reasonable or usual exclusions qualifications and excesses as the insurers require or as the Landlord may reasonably agree) the Landlord shall insure and keep insured the Estate (including all additions and alterations thereto) (excluding tenant’s fixtures and any items which the Tenant covenants to insure) against risk of loss or damage by the Insured Risks in the Full Cost of Reinstatement and for Loss of Rent

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Landlord to obtain consents for rebuilding
5.2	If the Estate suffers Insured Damage the Landlord shall use its reasonable endeavours to obtain all planning permissions or other permits and consents required under the Planning Acts or other statutes (if any) (“the Permissions”) to enable it to rebuild the parts of the Estate which have suffered the Insured Damage so as to make good the Insured Damage PROVIDED THAT:
	5.2.1	if the insurance against any Insured Damage (or any damage or destruction which would be Insured Damage but for such vitiation) is vitiated the Landlord’s obligations in Clauses 5.2 and 5.3 shall not apply in relation to that damage or destruction unless and until the Tenant has within six months of the occurrence of the damage or destruction paid to the Landlord in full any sums due under Clause 5.5.2 as a result of the vitiation
	5.2.2	all sums received in respect of such insurance shall belong beneficially solely to the Landlord
Landlord to reinstate (other than minor damage)
5.3	If the Estate suffers Insured Damage the Landlord shall as soon as reasonably practicable (or where required as soon as reasonably practicable after the Permissions have been obtained) rebuild the parts of the Estate which have suffered the Insured Damage so as to make good the Insured Damage PROVIDED THAT if in the opinion of the Landlord only minor damage has been so caused to the Premises the Landlord may by notice to the Tenant require the Tenant to attend to the rebuilding of the Premises and after receipt of the notice the Tenant shall proceed with and complete the rebuilding of the Premises as soon as reasonably practicable and the Landlord shall direct all insurance monies received for such Insured Damage (except sums for Loss of Rent) to be paid to the Tenant towards carrying out such work and PROVIDED FURTHER that the Landlord shall not be liable to rebuild under this sub-clause if and for so long as such rebuilding is prevented because:
	5.3.1	the Landlord has failed despite using its reasonable endeavours to obtain all the Permissions

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	5.3.2	any of the Permissions is granted subject to a lawful condition which it is unreasonable to expect or impossible for the Landlord to comply with
	5.3.3	some defect or deficiency in the site on which it is to take place makes rebuilding impossible or incapable of being undertaken at a reasonable cost
	5.3.4	the Landlord is unable to obtain access to or is prevented from rebuilding the Estate by other private rights
	5.3.5	of war act of God governmental action strike lockout or
	5.3.6	of any other circumstances beyond the control of the Landlord
Cesser of rent
5.4	If the Premises (which expression in Clause 5.4 includes any essential means of access thereto across the Estate) suffer Insured Damage so as to render the whole or any part of the Premises unfit for occupation or use and the insurance against such Insured Damage has not been vitiated THEN the whole or (according to the nature and extent of the Insured Damage) a fair proportion of the Basic Rent and Service Charge shall be immediately suspended until:
	5.4.1	the parts of the Premises which have suffered the Insured Damage have been rebuilt so that they are no longer unfit for occupation or use as a result of the Insured Damage or
	5.4.2	the end of three years (or if longer of the period for which insurance for Loss of Rent against the Insured Damage has been effected under Clause 5.1) from the Insured Damage
	whichever is the earlier

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Tenant’s insurance obligations
5.5	The Tenant shall:
	Notice of damage
	5.5.1	give notice to the Landlord immediately if the Premises are destroyed or damaged by any of the Insured Risks or if any event occurs which might affect any insurance policy relating to the Premises
	Payment after vitiation
	5.5.2	pay to the Landlord on demand the insurance monies (other than for Loss of Rent) which would have been payable but for such insurance being vitiated if Landlord’s Liability Insurance or similar insurance for neighbouring property of the Landlord is vitiated or if the Premises or the Estate or any neighbouring property of the Landlord are damaged or destroyed by any of the Insured Risks and the insurance against such damage or destruction is vitiated
	Tenant’s insurance monies
	5.5.3	apply all monies to which the Tenant is entitled by virtue of any insurance of the Premises in making good the loss or damage in respect of which they are payable
	No dangerous substances
	5.5.4	not without the consent of the Landlord bring or do on the Premises or the Estate anything of a dangerous combustible inflammable or explosive nature
	Not to vitiate
	5.5.5	not do or omit to do on the Premises or the Estate anything which may result in an increase in the premium for the insurance of the Premises or the Estate or any neighbouring property of the Landlord (unless the Tenant (with the approval of the Landlord such approval not to be unreasonably withheld) has paid such increased premium)

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	or which may vitiate any insurance of the Premises the Estate or any neighbouring property of the Landlord
Insurer’s requirements
5.5.6	comply with the requirements and recommendations from time to time of the insurers of the Premises and the Estate
Insurance of Plant
5.5.7	effect and maintain such insurance policies as the Landlord from time to time requests for the Plant within and exclusively serving the Premises in respect of breakdown bursting and third party claims
Plate glass
5.5.8	insure and keep insured the plate glass in the Premises against breakage and third party risks and such other risks as the Landlord from time to time reasonably requests in its full value and replace any such plate glass which is broken or damaged with all practicable speed
Tenant’s third party liabilities
5.5.9	insure and keep insured the Premises against the Tenant’s third party public and occupiers’ liability risks in a sum approved by the Landlord such approval not to be unreasonably withheld
Terms etc of Tenant’s insurance
5.5.10	effect all such insurances through the agency nominated by and in an office previously approved (such approval not to be unreasonably withheld) by the Landlord in the joint names of the Tenant and the Landlord and of other parties notified to the Tenant by the Landlord and on demand produce to them particulars of any such policy or policies and the receipt for every premium for the then current year PROVIDED THAT if the Tenant fails to comply with its obligations to effect and maintain insurance the Landlord may do so and the Tenant shall repay all monies paid by the Landlord for that purpose on demand

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	Payment of monies to Landlord
	5.6	The Tenant hereby irrevocably authorises the insurers of the Estate and the Premises to pay any insurance monies in respect of the Estate and the Premises to the Landlord without the necessity of consent of the Tenant who shall issue such further separate authorities of this nature to the insurers whenever so requested by the Landlord
6.	PROVISOS
	IT IS FURTHER AGREED as follows:
	Forfeiture
	6.1	Whenever:
		6.1.1	the Rents are in whole or part unpaid 21 days after becoming payable whether formally demanded or not
		6.1.2	there is a breach of any of the Tenant’s obligations in this Lease
		6.1.3	the Tenant (which expression includes in Clauses 6.1.3 to 6.1.7 any person in whom this Lease is then vested) becomes bankrupt or is the subject of an interim order under the Insolvency Act 1986
		6.1.4	the Tenant goes into voluntary or compulsory liquidation (except solely for the purpose of a bona fide solvent amalgamation or reconstruction) or is the subject of a winding- up order or a petition for an administration order or is otherwise dissolved wound up or ceases to exist
		6.1.5	a receiver or a receiver and manager or an administrative receiver is appointed in respect of the whole or any part of the Tenant’s undertaking or assets
		6.1.6	the Tenant enters into any arrangement or composition for the benefit of or with its creditors or
		6.1.7	the Tenant has any distress or execution levied on its goods

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6.1.7.1	THEN the Landlord may re-enter the Premises or any part of them in the name of the whole and the Term will determine absolutely but without prejudice to the rights of the Landlord in respect of any prior breach of the Tenant’s obligations in this Lease or any guarantor for them PROVIDED THAT in the event that the Landlord can exercise its right re-entry under this Clause then the Landlord hereby agrees that any mortgagee or chargee of this Lease will have 28 days (from the date the Landlord can re-enter the Premises) to serve notice on the Landlord (in respect of which time shall be of the essence) confirming unreservedly that:
	(a)	it will take a new lease (“the New Lease”) of the Premises for the residue of the Term (for the avoidance of doubt the New Lease to be on the same terms as this Lease including the Rents payable and the Review Date); and
	(b)	it will execute and deliver a counterpart of the New Lease to the Landlord within 14 days of the Landlord providing the same and further that it will pay all reasonable costs incurred by the Landlord in relation to the New Lease; and
	(c)	it will pay the arrears of all rent due and owed by the Tenant under this Lease up to and including the date the New Lease is completed
	If the Landlord has not received the above-mentioned notice from any mortgagee or chargee within 28 days of the date it would have been entitled to re-enter the

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		Premises then the Landlord is entitled to exercise its rights of re-entry absolutely
No implied rights
6.2	Save for the rights expressly set out in Schedule 2 the Tenant is not and shall not be entitled by implication of law or otherwise to any right or privilege over or against the remainder of the Estate or any neighbouring property which belongs to the Landlord now or in the future
No restrictions on adjoining property
6.3	Nothing contained or implied in this Lease shall impose or be deemed to impose any restriction on the use of any land or building (other than the Premises) or give the Tenant the benefit of or prevent the release or modification of any obligation entered into by any purchaser lessee or occupier of any neighbouring property
Exclusion of liability
6.4	Except insofar as liability may be covered by insurance effected by the Landlord in force when the liability is incurred the Landlord shall not be responsible to the Tenant or anyone at the Premises or the Estate for any accident happening or injury suffered or for any damage to or loss of any chattel sustained in the Premises or the Estate whether caused by negligence or otherwise
Release of Landlord
6.5	Each of the Tenant and its successors in title hereby releases each person now or hereafter included in or comprising the Landlord from liability for any breach of the landlord’s obligations in this Lease or any collateral agreement occurring while that person is not the Tenant’s immediate landlord
Compensation
6.6	Save to the extent prohibited by any rule of law neither the Tenant nor any undertenant shall be entitled on quitting the whole or any part of the Premises to claim any compensation from the Landlord under the 1954 Act or any other

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	present or future statute and the Tenant shall indemnify the Landlord against any claim for such compensation
Service of notices
6.7	Any notice served under this Lease:
	6.7.1	shall be in writing
	6.7.2	may be addressed to “the Landlord” or “the Tenant” by that designation without naming the person who is the Landlord or the Tenant
	6.7.3	shall be validly served if left at the addressee’s last known place of abode or business in the United Kingdom
	6.7.4	shall (in the case of the Tenant) be validly served if attached to or left at the Premises and
	6.7.5	shall be validly served on the third day (excluding Saturdays Sundays and statutory bank holidays) after being posted if it is posted to the addressee’s last known place of abode or business in the United Kingdom in a registered letter or by recorded delivery service unless returned through the post office undelivered
Representations
6.8	The Tenant acknowledges that it has not entered into this Lease in reliance wholly or partly on any written oral or implied representation by or on behalf of the Landlord other than the Landlord’s solicitor’s replies to the Tenant’s solicitor’s written enquiries and all liability of the Landlord and remedies of the Tenant for any other non-fraudulent misrepresentation are excluded
6.9	Clause 6.8 only excludes or restricts any liability or remedy for misrepresentation to the extent that (notwithstanding the exclusion or restriction) it would be a fair and reasonable term to include in this Lease having regard to the circumstances which at the date of this Lease were or ought reasonably to have been known to or in the contemplation of the parties hereto

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	Disputes
	6.10	All cases of dispute between the Tenant or any undertenant of the Premises and the occupiers of any neighbouring property or the tenants or occupiers of any other part of the Estate in connection with the use or occupation of the Premises shall be submitted to the decision of a surveyor appointed by the Landlord acting as expert and not arbitrator whose decision shall be final and binding on matters of fact on all the parties to the dispute
	Exclusion of third party rights
	6.11	It is not intended that any term of this Lease is enforceable by a third party under Section 1 of the Contracts (Rights of Third Parties) Act 1999
	Sums due to Landlord treated as rent
	6.12	Any sum due from the Tenant to the Landlord under this Lease shall be additional rent hereby reserved and paid by the Tenant (save where otherwise provided) on demand and shall be recoverable by action or distress and the word “Rents” shall be construed accordingly
7.	TENANT’S OPTION TO DETERMINE
	In this Clause “Termination Date” means 31st January 2015
	7.1	Subject to the pre-conditions in Clause 7.2 being satisfied on the Termination Date and subject to Clause7.3 the Tenant may determine the Term on the Termination Date by giving the Landlord not less than six month’s written notice The Term will then determine on the Termination Date but without prejudice to any rights of either party against the other for any antecedent breach of its obligations under this Lease
	7.2	The pre-conditions are that:
		7.2.1	vacant possession of the whole of the Premises is given to the Landlord and
		7.2.2	the Basic Rent and the Insurance Rent due under this Lease up to the Termination Date have been paid in full

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	7.3	The Landlord may waive any of the pre-conditions set out in Clause 7.2 at any time before the Termination Date by written notice to the Tenant
	7.4	The Tenant will cancel any registration it has made in connection with this Clause within five Working Days of the Termination Date
	7.5	Time will be of the essence for the purposes of this Clause
8.	RENT REVIEW
	The Basic Rent for the time being payable under this Lease shall be reviewed as follows:
	Frequency of review
	8.1	For the purposes of this Clause “the Review Date” means
	Upwards only reviews
	8.2	From and including the Review Date the Basic Rent shall be whichever is the greater of the amount of the Basic Rent payable during the twelve months immediately preceding the Review Date (ignoring for this purpose but without prejudice to any suspension under Clause 5) and the open market rent for the Premises at the Review Date
	Basis of valuation
	8.3	(Subject to Clause 8.4) the open market rent for the Premises at the Review Date shall be the amount agreed by the Landlord and the Tenant (or if they fail to agree determined in accordance with Clause 8.5) to be the best rent per year at which the Premises might reasonably be expected to be let in the open market on the Review Date:
		8.3.1	as a whole
		8.3.2	by a willing lessor to a willing lessee
		8.3.3	with vacant possession
		8.3.4	without taking any fine or premium

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8.3.5	for a term of ten years starting on the Review Date
8.3.6	on the terms of this Lease including this Clause other than as to the amount of the Basic Rent and the rent-free period (if any) applicable at the start of the Term
ON THE ASSUMPTIONS that at the Review Date:
8.3.7	the Landlord and the Tenant have fully complied with their obligations in this Lease
8.3.8	the Premises and the Estate and all other necessary services and facilities are in good and substantial repair and condition and fit and available for immediate beneficial occupation and use
8.3.9	no work has been carried out and nothing has occurred on or directly relating to the Premises or the Estate which has diminished the rental value of the Premises
8.3.10	if the Premises or the Estate have been damaged or destroyed they have been fully rebuilt
8.3.11	the Premises may be lawfully used for any of the purposes permitted by this Lease as varied or extended by any licence pursuant to this Lease
BUT DISREGARDING:
8.3.12	the fact that the Tenant any undertenants or their respective predecessors in title shall have been in occupation of the Premises
8.3.13	any goodwill that shall have become attached to the Premises from the carrying on of the business of the Tenant or any undertenants or their respective predecessors in such business
8.3.14	any effect on rent of the Premises attributable to the existence at such Review Date of any alterations additions or improvement to the Premises lawfully carried out by the Tenant any undertenants or

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		their respective predecessors in title with the consent of the Landlord (where necessary) under the terms of this Lease otherwise than in pursuance of any obligation to the Landlord and/or their immediate landlord
	8.3.15	the fact that the Premises or the Estate or any necessary facilities or services shall be defective in any way
Treatment of rent free periods
8.4	The open market rent for the Premises shall be ascertained without making any discount reduction or allowance to reflect (or compensate the Tenant or the hypothetical tenant for the absence of) any rent-free period or concessionary rent period during which fitting-out works would be carried out which it might then be the practice in open market lettings for a landlord to make so that the open market rent for the Premises shall be that which would be payable after the expiry of any such rent-free or concessionary rent period
Method of determination
8.5	If the Landlord and the Tenant fail to agree the open market rent for the Premises by a date three months before any Review Date then:
	8.5.1	the determination of the open market rent for the Premises at that Review Date may be referred to an independent chartered surveyor (“the Surveyor”) with experience in the letting of commercial premises in Greater London and the home counties
	8.5.2	the Surveyor shall be appointed by the Landlord and the Tenant jointly and (if they fail to agree) shall be nominated at the request of the Landlord or the Tenant by or on behalf of the President (or Senior Officer) (“the President”) for the time being of The Royal Institution of Chartered Surveyors
	8.5.3	if the Surveyor dies delays or becomes unwilling unfit or incapable of acting or if for any other reason the President thinks fit he may on the application of the Landlord or the Tenant by writing discharge the Surveyor and appoint another in his place

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	8.5.4	the costs and expenses of the Surveyor (including the costs of his appointment) shall be borne as he shall direct or in default of direction by the Tenant
	8.5.5	the Surveyor shall act as an arbitrator or (at the option of the Landlord) independent expert
	8.5.6	if the Surveyor is an arbitrator (subject to Clause 8.5.3) the arbitration shall be conducted in accordance with the Arbitration Act 1996
	8.5.7	if the Surveyor is an independent expert:
		8.5.7.1	his decision shall be final and binding and
		8.5.7.2	he shall afford the Landlord and the Tenant an opportunity to make representations to him and to comment to him on the other’s representations
Interim arrangements
8.6	If the open market rent for the Premises payable from any Review Date has not been ascertained in accordance with this Clause before that Review Date then:
	8.6.1	the Tenant shall until the first Quarter Day after the date on which it is ascertained continue to pay the Basic Rent at the rate applicable but for the review due at that Review Date
	8.6.2	within seven days after the date on which it is ascertained the Tenant shall pay to the Landlord as additional Basic Rent:
		8.6.2.1	the amount (if any) of the shortfall between (a) the amount of the Basic Rent so payable by the Tenant down to such Quarter Day and (b) the amount which would have been payable if it had been ascertained before that Review Date and

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			8.6.2.2	interest at 4% below the Prescribed Rate on each further payment of Basic Rent which would have been payable if it had been ascertained before that Review Date for the period from when such payment would have been payable until due for payment under this sub-clause
	Time not of the essence
	8.7	In respect of the time limits mentioned in this Clause time shall not be or be deemed to be of the essence
	Statutory restrictions
	8.8	If at any Review Date there is in force a statute or other instrument which prevents restricts or modifies the Landlord’s rights to review the Basic Rent in accordance with this Lease and/or to recover any increase in the Basic Rent then (if such prevention restriction or modification is removed relaxed or modified but without prejudice to its rights (if any) to recover any Basic Rent the payment of which has only been deferred by law) the Landlord may by giving not less than one month’s nor more than three months’ notice in writing to the Tenant at any time within six months of it being removed relaxed or modified proceed with any review of the Basic Rent which was prevented or further review the Basic Rent in respect of any review where the Landlord’s right was restricted or modified and the date of expiry of such notice shall be deemed to be a Review Date (provided that nothing in this sub-clause shall vary any subsequent Review Dates) and to recover any increase in Basic Rent thereby resulting with effect from the earliest date permitted by law
	Memoranda
	8.9	Whenever the Basic Rent has been agreed or determined in accordance with this Clause memoranda of it shall be signed by or on behalf of the Landlord and the Tenant and attached to this Lease and its counterpart and the Tenant shall bear the costs relating to the memoranda
IN WITNESS whereof this Lease has been duly executed by the parties hereto and is delivered as a Deed the day and year first before written

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SCHEDULE 1

(Definition of the Premises)

The whole and each part of the building on the Estate edged red on the attached plan and known as Unit J City Park Watchmead Welwyn Garden City Hertfordshire INCLUDING all structural and external parts and any Conduits and Plant within the Premises which does exclusively serve the Premises and subject thereto including:

1.	All additions and alterations to the Premises
2.	All fixtures from time to time annexed to the Premises
3.	Any interior screeding plaster work wall and ceiling finishes (including any false ceilings and the airspace above the false ceilings) and all ornamental or architectural features
4.	All internal staircases non-structural walls and partitioning and where such walls and or partitioning abut any other part of the Estate which is suitable for letting by the Landlord for independent occupation one half (severed vertically) of each of such walls or partitioning
5.	The boards and screeds of floors and any floor coverings in the Premises now or in the future provided by or at the cost of the Landlord
6.	All windows window frames doors and door frames
7.	All Conduits within and exclusively serving the Premises
8.	All Plant within and exclusively serving the Premises

SCHEDULE 2

(Rights granted)

Conduits
1.	(So far as the Landlord can grant them and subject to temporary interruption for repair alteration or replacement) the passage of water soil gas electricity and other services

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	to and from the Premises in and through the Conduits which now serve the Premises and are in or over other parts of the Estate
Common Parts
2.	(Subject to any regulations from time to time made by the Landlord) to use the Common Parts for all proper purposes in connection with the use and enjoyment of the Premises
Car parking
3.	(Subject to compliance with any security arrangements made from time to time by the Landlord) to park up to 42 private motor cars within the spaces coloured orange the attached plan or within such alternative spaces as the Landlord from time to time determines with all necessary rights of access to and egress from them
Support
4.	Support shelter and protection for the Premises from other parts of the buildings on the Estate
Roads
5.	To pass to and from the Premises at all times for all purposes connected with the proper use and enjoyment of the Premises with or without vehicles along the roads within the Estate and (but on foot only) the footpaths and corridors giving access to the Premises from the public highway
Access
6.	(After giving reasonable notice at reasonable times) to enter other parts of the Estate or any adjoining property belonging to the Landlord so far as may be necessary for the purposes of carrying out any repairs and decorations for which the Tenant is responsible under this Lease SUBJECT TO the Tenant making good immediately all damage occasioned thereby to the satisfaction of the Landlord and its tenants and complying with the reasonable requirements of and causing the minimum of inconvenience (whether by week-end working or otherwise) to the occupiers of the adjoining property

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Loading
7.	The right to load and unload vehicles on any part of the Phase to the extent that the use of the Phase shall be necessary for such purposes PROVIDED THAT any loading or unloading of vehicles shall at all times be carried out in a proper manner and without avoidable inconvenience or disturbance to any other tenants occupiers or users of any adjoining or neighbouring land
Skips
8.	The right to install (subject to the Tenant complying with its covenants in relation thereto) one skip in a position near the Premises first approved by the Landlord and of a colour first approved by the Landlord
SCHEDULE 3
(Exceptions and reservations)
Conduits
1.	The passage of water soil gas electricity and other services to and from all neighbouring property whether belonging to the Landlord or not in and through the Conduits which are now or hereafter in or over the Premises
Easements
2.	All other easements or other rights in the nature of easements or quasi-easements now enjoyed by any neighbouring property of the Landlord over the Premises
Support
3.	Support shelter and protection from the Premises for adjoining buildings or structures now or hereafter erected against or over the Premises
Emergency access
4.	In case of emergency to pass through the Premises in accordance with the requirements of any competent authority
Entry
5.	To enter the Premises for the purposes mentioned in this Lease

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To build
6.	To build or rebuild or alter any buildings on any neighbouring land in any manner whatsoever notwithstanding that as a result there is a diminution in the present or future access of light or air to the Premises which it is hereby agreed is and shall be enjoyed with the consent of the Landlord or other the owner or occupier of such land and not as of right

SCHEDULE 4

(Documents which affect or relate to the Premises)

All those documents referred to in the title to HD243902

SCHEDULE 5

(the Service Charge)

PART 1

(Definitions)

In this Schedule the following expressions have the meanings set against them:

“Accountant”	any person or firm appointed by or acting for the Landlord (including an employee of the Landlord or a company which is a member of the same group of companies as the Landlord
“Account Day”	the 31st day of December in each year of the Term (or such other day as the Landlord from time to time determines)
“Accounting Period”	the periods:
	(1)	from and including the start of the Term (or if earlier the date when the Tenant first had or was entitled to have access to the Premises) to and including the first Account Day
	(2)	from and including the day after each Account Day in the Term (except the last one) until and including the next

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		Account Day
	(3)	from but excluding the last Account Day in the Term to the end of the Term
“the Retained Parts”	means in Part 3 of this Schedule the parts of the Phase consisting of buildings which for the time being are neither let to nor intended to be let to occupational tenants and in Part 4 of this Schedule the parts of the Estate not consisting of such buildings
“the Service Charge Expenditure”	means the total cost of provision of the Services and of the expenses set out in Part 3 and Part 4 respectively of this Schedule as calculated in Part 2 of this Schedule
“the Service Charge Percentage”	means the proportion from time to time determined by the Accountant as a fair proportion for the Premises to bear of the Service Charge Expenditure and in making such determination the Accountant shall be entitled to have regard to the extent of the Estate from time to time developed and benefitting from the Services and matters mentioned in Part 4 of this Schedule and the extent of the Estate in respect of which the Landlord is providing such services and may also take into account the extent to which any particular Services or matters mentioned in Part 4 of this Schedule benefit or are used by particular tenants of the Estate
“the Service Charge”	means the sum from time to time calculated by the Accountant and payable by the Tenant in the manner set out in Part 2 of this Schedule

PART 2

(Calculation and Payment of Service Charge)

1. The Service Charge shall in relation to any Accounting Period during the Term be the Service Charge Percentage of the Service Charge Expenditure in respect of such Accounting Period

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2.	Save in respect of the first Accounting Period the Accountant shall before or as soon as is practicable after each Account Day prepare a certificate estimating the Service Charge Expenditure for the Accounting Period commencing immediately after such Account Day and stating the sum which shall be the provisional service Charge payable by the Tenant for that Accounting Period
3.	The Tenant shall pay the provisional Service Charge sum pursuant to paragraph 2 above by equal quarterly payments in advance on the usual quarter days
4.	The Tenant shall pay on the date hereof and on each of the following quarter days within the first Accounting Period such amount as the Landlord shall reasonably require which amount shall be the provisional Service Charge sum in respect of that Accounting Period
5.	If the Tenant shall not have been given notice of the Accountant’s estimate of the provisional Service Charge for an Accounting Period the Tenant shall on the relevant quarter days pay an amount equal to the last quarterly payment of Service Charge in the preceding Accounting Period and any requisite adjustment shall be made to the first quarterly payment after such notice is given
6.	As soon as practicable after each Accounting Period the Landlord will furnish the Tenant with a statement certified by the Accountant (which save for the correction of any manifest error therein shall be conclusive and binding on the Tenant) of the Service Charge Expenditure and the Service Charge payable by the Tenant for the preceding Accounting Period
7.	If the Service Charge for any Accounting Period shall exceed the provisional sum estimated pursuant to paragraph 2 or paid under paragraph 4 for that Accounting Period the excess shall be due to the Landlord on demand or if it shall be less than such provisional sum the overpayment shall be credited to the Tenant against the next quarterly payment of the Service Charge
8.	The provisions of this Schedule shall continue to apply notwithstanding the expiration of the Term but only in respect of the period to such expiration and any overpayment made by the Tenant in relation to the last Accounting Period shall be repaid to the

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Tenant within 21 days of the Accountant sending a certificate of the Service Charge and Service Charge Expenditure in respect of the final Accounting Period

PART 3

(The Services)

1.	Maintaining cleansing repairing resurfacing renewing (insofar as consistent with the Landlord’s obligation to repair) and insuring the Retained Parts
2.	Inspecting servicing maintaining repairing amending overhauling replacing and insuring all apparatus plant machinery and equipment within the Retained Parts from time to time
3.
3.1	Maintaining repairing cleansing emptying and draining all tanks gas pipes sewers drains ducts conduits telephone cables electricity wires flues flexes and other conducting media in or serving the Phase except those that are within and solely serve the Premises or any other part of the Phase other than the Retained Parts
3.2	Maintaining repairing and renewing (where reasonably necessary) all tanks gas pipes telephone cables electricity wires flexes and other conducting media and boundary walls and fences in or serving the Phase except those that are within and solely serve the Premises or any other part of the Phase other than the Retained Parts
4.	Providing and maintaining any plants shrubs trees or garden or grassed areas in the Retained Parts and keeping the same planted and free from weeds and the grass cut

PART 4

(Expenditure)

1. The costs of the provision of services of the kind referred to in Part 3 of this Schedule but in relation to the Estate other than the Phase with references to “the Retained Parts” being treated as a reference to that expression as defined for the purposes of this Part

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2.	The cost of supplying providing purchasing hiring maintaining renewing replacing repairing servicing overhauling and keeping in good and serviceable order and condition all appurtenances fixtures fittings bins receptacles tools appliances materials equipment and other things which are necessary for the maintenance appearance upkeep or cleanliness of the Estate or any part of it
3.	The cost of collection compaction and disposal of refuse from the Estate insofar as the same is not carried out by the local authority and the maintenance of such other services as would normally be maintained by statutory undertakers insofar as the same are not maintained by the appropriate authority
4.	The cost of provision for notice boards for the purpose of showing the names of the tenants and other occupiers occupying the Estate and the updating of such notice boards as appropriate
5.	The cost of controlling traffic on the roads on the Estate and providing safety controls and security on the Estate
6.	The fees and disbursements of the Accountant and any other individual firm or company properly employed by the Landlord or by the Accountant for or in connection with the provision of the Services and the collection of the rents (other than the rent first hereinbefore reserved and the Insurance Rent) hereby reserved
7.	The cost of employing such staff as are necessary for the performance of the Services and the Services referred to in this Part including but without prejudice to the generality of the foregoing:
	7.1	insurance pension and welfare contributions
	7.2	transport facilities and benefits in kind
	7.3	the provision of uniforms and working clothing
	7.4	the provision of vehicles tools appliances cleaning and other materials fixtures fittings and other equipment for the performance of their duties and
	7.5	the cost of entering into contracts for the carrying out of all or any of such services

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8.	All existing and future rates water rates charges duties assessments impositions and other like outgoings payable by the Landlord in respect of the Estate or any part of it (excluding the Premises and any other part of the Estate other than the Retained Parts other than those payable or levied in respect of the trade or other activities or profits of the Landlord and any superior landlord or in respect of any disposal or deemed disposal (in either case whether a part disposal or not) of all or any part of any interest or estate in the Demised Premises or any part thereof by any person other than the Tenant or any person deriving title or interest through or under the Tenant
9.	The cost of the supply of electricity gas oil or other fuel for the provisions of the Services and the Services mentioned in this Part and for all purposes in connection with the Retained Parts
10.	The costs charges and expenses of preparing and supplying to the Tenant copies of any Regulations made by the Landlord relating to the Estate or the use of it
11.	The cost of complying with the provisions of any regulation bye-law notice legislation order or statutory requirements concerning town planning public health highways streets drainage or other matters relating or alleged to relate to the Retained Parts
12.	The costs to the Landlord of abating a nuisance in respect of the Estate or any part of it insofar as the same is not the liability of any individual tenant
13.	The costs of leasing any item required for the purpose of providing any of the services referred to in this Schedule
14.	Any interest and fees in respect of money borrowed to finance the provision of any of the services referred to in this Schedule
15.	Such provision (if any) that the Landlord shall determine for a sinking fund and reserve fund with a view to meeting future costs and to secure so far as is reasonably possible that the Service Charge shall be progressive and cumulative
16.	Value Added Tax payable by the Landlord in respect of the supply to by or on behalf of the Landlord of any of the services referred to in this Schedule

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17.	Any other costs reasonably and properly incurred by the Landlord in providing the services referred to in this Schedule
18.	Any other services relating to the Estate or any part of it reasonably provided by the Landlord from time to time during the Term in the interests of good estate management in the interest and not expressly referred to in this Schedule

SCHEDULE 6

(Alienation conditions)

PART 1

(Requirements for an assignment)

Application

1. This Part applies for the purposes of Section 19(1A) of the Landlord and Tenant Act 1927

Principal test

2.	The Tenant shall not assign the Premises other than to a person who has audited accounts (and to the extent to which the assignee has or ought to have prepared such accounts for such period audited consolidated accounts for itself and its subsidiaries) copies of which have been produced to the Landlord for each of the three consecutive years before a date not earlier than nine months before the date of the assignment showing annual profits (before tax and extraordinary and exceptional profits or income and excluding profits from operations discontinued before the date of the assignment):
	2.1	higher (other than in the first year) than the amount thereof in the immediately preceding year and
	2.2	of an amount equal to (in the case of profits) three times one year’s Basic Rent at the rate payable in respect of the date of the assignment (including the Landlord’s reasonable estimate of any increase therein then due under Clause 7 but not finally ascertained) and the Insurance Rent and Service

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Charge payable in the year immediately before the date of the assignment (ignoring any suspension thereof under Clause 5)

Authorised guarantee agreement

3.	Before any assignment of the Premises the assignor shall give a guarantee to the Landlord of the performance by that Assignee of the Tenant’s obligations in this Lease in such form as the Landlord reasonably requires but in any event containing provisions preventing the guarantee from being vitiated by:
	3.1	any neglect or forbearance of the Landlord
	3.2	any time or indulgence given by the Landlord
	3.3	any variation of this Lease or the variation of or entry into any other contract by the Landlord and the Tenant and
	3.4	the release of any security or guarantee held in relation to such obligations
Parallel guarantees
4.	Before any assignment of the Premises the Tenant shall procure that any person who is then a guarantor of the Tenant’s obligations in this Lease (other than a person who shall have previously been the Tenant and its guarantor) gives a guarantee to the Landlord of the assignor’s obligations in the guarantee given in relation to that assignment pursuant to paragraph 3 on the same terms as that guarantee with such amendments as the Landlord reasonably requires to adapt them to use as a guarantee of the assignor’s obligations as guarantor
Further guarantors
5.	Paragraphs 3 and 4 are without prejudice to the Landlord’s right (if acting reasonably) to require such other persons as are acceptable to the Landlord in its reasonable discretion to give a guarantee of the performance by the assignee of the Tenant’s obligation in this Lease on the terms set out in paragraph 3
No arrears
6.	The Tenant shall not assign the Premises unless it has paid all Rents and other sums which have fallen due under this Lease before the date of the assignment

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PART 2

(General requirements)

Prior approval to permitted dealings

1.	(Subject to the other provisions of this Schedule and Clause 3.22) the Tenant shall not without the approval of the Landlord (such approval not to be unreasonably withheld) assign charge or underlet the whole of the Premises
Group sharing
2.	(Notwithstanding the foregoing or any covenant entered into by an undertenant pursuant to this Lease) the Tenant or any undertenant may share occupation of the whole or any part of the Premises with a person who is a member of the same group as the Tenant or the undertenant as the case may be (within the meaning of Section 42 of the 1954 Act) for so long as both the Tenant or undertenant and the other person remain members of that group subject to:
	2.1	no landlord and tenant relationship or other interest in the Premises at law or in equity being thereby created and
	2.2	the Tenant notifying the Landlord immediately of the identity of the other person
No underlettings of part
3.	There shall be no underletting of any part of the Premises (as distinct from the whole)
No premiums for underleases
4.	No underlease shall be granted at a fine or premium nor other than at the then full open market rent for the premises underlet or (if higher) the Basic Rent then payable under this Lease such rent to be payable and to be subject to review on the same days and in the same manner as under this Lease
Undertenants’ direct covenants
5.	Before the grant or assignment of any underlease the undertenant or assignee shall covenant with the Landlord:

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	5.1	to comply with the Tenant’s obligations in this Lease (save as to payment of rent) until the underlease is assigned by an assignment which is not an excluded assignment and
	5.2	not to assign charge underlet hold on trust for another or otherwise part with or share possession or occupation of or suffer any other person to occupy the whole or any part of the premises underlet save with the approval of the Landlord (such approval not to be unreasonably withheld) by way of an assignment or an underletting of the whole thereof complying with the provisions of this Schedule mutatis mutandis to a person who has entered into the covenants required by this paragraph 5
Terms of underleases
6.	Any underlease of the Premises shall be granted on the same terms as this Lease (including the reservation of rents equivalent to the Insurance Rent and Service Charge) modified to the same effect as the alienation covenants to be given to the Landlord pursuant to paragraph 5
Exclusion of security of tenure
7.	Before completion of any underlease (or if earlier before the undertenant becomes contractually bound to take any such underlease) of the Premises and before the occupation by any proposed undertenant of the premises to be demised thereby any such underlease shall be validly excluded from the operation of Sections 24 to 28 (inclusive) of the 1954 Act in accordance with the provisions of Section 38A of that Act and the relevant Schedules to the Order and the Tenant shall produce to the Landlord adequate evidence of such valid exclusion as referred to in Clause 3.24

	(THE COMMON SEAL of NORTRUST
	(NOMINEES LIMITED was hereunto
	(affixed in the presence of:
		(Sealing Officer duly authorised
		(by the Board of Directors

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EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

          I, Kenneth R. Aubrey, certify that:

          1. I have reviewed this quarterly report on Form 10-Q of Image Sensing Systems, Inc.;

          2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

          3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

          4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

          (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

          (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

          5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

          (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2010

/s/ Kenneth R. Aubrey

Name: Kenneth R. Aubrey

Title: President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

          I, Gregory R.L. Smith, certify that:

          1. I have reviewed this quarterly report on Form 10-Q of Image Sensing Systems, Inc.;

          2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

          3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

          4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

          (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

          (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

          5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

          (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2010
	/s/ Gregory R.L. Smith
	Name: Gregory R.L. Smith
	Title: Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Image Sensing Systems, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2010, as filed with the Securities and Exchange Commission (the “Report”), I, Kenneth R. Aubrey, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Kenneth R. Aubrey

Kenneth R. Aubrey

President and Chief Executive Officer

August 9, 2010

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Image Sensing Systems, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2010, as filed with the Securities and Exchange Commission (the “Report”), I, Gregory R.L. Smith, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Gregory R. L. Smith

Gregory R. L. Smith

Chief Financial Officer

August 9, 2010