STOCK PURCHASE AGREEMENT

Exhibit 10.1

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “Agreement”), which is effective as of October 1, 2007, is executed on the day last set forth below, by and among Somerset International Group, Inc., a Delaware corporation (hereinafter “Somerset” or the “Buyer”), and Vincent A. Bianco, an individual, and Opie F. Brinson, an individual, being all of the shareholders of Fire Control Electrical Systems, Inc. (hereinafter collectively “Sellers” and each individually, a “Seller” ).

RECITALS :

The Sellers are the record and beneficial owners of one hundred percent (100%) of the issued and outstanding capital stock of Fire Control Electrical Systems, Inc., a New Jersey corporation (“ FCES ”).   The outstanding capital stock of FCES owned by the Sellers shall be referred to herein as the “FCES Shares ”.

The Buyer desires to purchase from the Sellers, and the Sellers desire to sell to the Buyer, the FCES Shares on the terms and conditions set forth in this Agreement.

In consideration of the foregoing and the mutual covenants and agreements of the parties hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.   Definitions and Index of Defined Terms

(a)

Capitalized Terms . Capitalized terms used in this Agreement and not otherwise defined shall, unless expressly stated otherwise, have the meanings specified in this Section 1.1.  The single shall include the plural, and the masculine shall include the feminine and neuter, and vice versa.

(b)

Index of Defined Terms.

(i)

“ Adjusted EBITDA ” means the audited EBITDA (as defined below) adjusted upwards by the cost of any audit required by this Agreement to be conducted by FCES, plus any non-recurring transactional expenses incurred in connection with the sale of the FCES Shares pursuant to this Agreement.

(ii)

“ Affiliate ” means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person.  For purposes of this definition, “control” (including with correlative meanings, the terms “controlling”, “controlled by”, and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of that Person, whether through the ownership of voting securities, by contract, or otherwise.

(iii)

“ Assets ” means all of the assets of FCES, as of the Closing Date, including, without limitation, the following:

(1)

the business of FCES as a going concern (the “Business”), the goodwill pertaining thereto, and all right, title and interest in and to the name “ Fire Control Electrical Systems, Inc.”, and all other fictitious names, trade names, trademarks, service marks, logos, and/or other identifying names used by FCES;

(2)

all items of inventory owned by FCES including, without limitation, all raw materials, work-in-progress and finished products of FCES;

(3)

all vehicles, machinery, equipment, furniture, fixtures, computers and other office equipment, and supplies of FCES, including containers, packaging and shipping material, tools and spare parts and other similar tangible personal property owned by FCES;

(4)

all Intellectual Property Rights (as defined below);

(5)

all books and records of FCES (including corporate and tax records) including all in-house mailing lists, other customer and supplier lists, trade correspondence, production and purchase records, promotional literature, data storage tapes and computer disks, computer software, order forms, accounts payable records (including invoices, correspondence and all related documents), accounts receivable ledgers, and all documents relating to uncollected invoices;

(6)

all contracts, agreements (including, without limitation, any confidentiality and non-disclosure agreements between FCES and its employees) and purchase and sale orders for goods and services; all corporate opportunities under discussion and related to the Business, including any documentation related thereto;

(7)

all cash, cash equivalent items, deposit accounts, investments, lease security, utility and other deposits and trade receivables of FCES, and all advance payments, prepaid items, rights to offset and credits of FCES of all kinds;

(8)

all tangible personal property owned by FCES which is not specifically included in, or specifically excluded by, the foregoing subsections (1) through (7);

(9)

all real property owned or leased by FCES, together with all fixtures attached thereto;

(10)

all rights under or pursuant to all warranties, representations and guarantees made by suppliers in connection with the Assets, and all claims, causes of action, rights of recovery and rights of set-off of any kind against any person or entity relating to the Assets or the Business; and

(11)

any and all other assets, properties and rights of FCES, including those reflected as such under Assets on the Financial Statements provided to Buyer, with such additions thereto and deletions therefrom as have occurred or shall occur in the ordinary course of business between the date of the said Financial Statements and the Closing Date.

(iv)

“ Closing ” has the meaning set forth in Section 3 of this Agreement.

(v)

“ Closing Date ” has the meaning set forth in Section 3 of this Agreement.

(vi)

“ Commitments ” shall mean all agreements, indentures, mortgages, plans, policies, arrangements, and other instruments, including all amendments thereto (or, where they are verbal, written summaries of the material terms thereof), fixed or contingent, required to be disclosed on Schedule 5(q) .

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(vii)

“Convertible Notes” shall mean the promissory notes made by Somerset that shall be convertible, either wholly or partially, at the option of each holder thereof, into shares of Somerset common stock at a conversion price of $0.40 per share.  The Convertible Notes shall be in substantially the same form as Exhibit A attached hereto and made a part hereof.  Each Convertible Note shall be secured by a pledge by Somerset of ten (10%) percent of the common stock of FCES.

(viii)

“ Employee Benefit Plans ” has the meaning set forth in Section 5(y) of this Agreement.

(ix)

“ Environmental Claim ” shall mean any written demand, claim, governmental notice or threat of litigation, or the actual institution of any action, suit or proceeding, which asserts that an Environmental Condition constitutes a violation of any statute, ordinance, regulation, or other governmental requirement relating to the emission, discharge, or release of any Hazardous Substance into the environment or the generation, treatment, storage, transportation, or disposal of any Hazardous Substance, prior to the Closing Date, in each case in contravention of any applicable laws or regulations.

(x)

“ Environmental Condition ” shall mean the presence on any real property, during the period from the date that such real property was first owned, leased or used by FCES to the Closing Date, in surface water, ground water, drinking water supply, land surface, subsurface strata or ambient air, of any Hazardous Substance arising out of or otherwise related to the operations or other activities of FCES, conducted or undertaken prior to the Closing Date, and in each case in contravention of any applicable laws or regulations.

(xi)

“ Equipment ” has the meaning set forth in Section 5(o) of this Agreement.

(xii)

“EBITDA ” shall mean FCES’ combined annualized earnings before interest, income taxes, depreciation, and amortization for the period specified by the paragraph in which such term is used.

(xiii)

“EBITDA Closing Deviation ” has the meaning set forth in Section 4(b)(i) of this Agreement.

(xiv)

“Excluded Liabilities” has the meaning set forth in Section 2(c) of this Agreement.

(xv)

“ Financial Statements ” has the meaning set forth in Section 5(j) of this Agreement.

(xvi)

“ GAAP ” shall mean generally accepted accounting principles as used in the United States and applied on a consistent basis both as to classification of items and amounts.

(xvii)

“Hazardous Substance” shall mean any substance defined in the manner set forth in Section 101(14) of the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), as amended, as applicable on the Closing Date, and shall include any additional substances designated under Section 102(a) thereof prior to the Closing Date.

(xviii)

“ Intellectual Property Rights ” means all of FCES’ right, title and interest in and to the United States and foreign rights with respect to any copyrights, licenses, patents, trademarks, trademark rights, trade names, service marks, service right marks, trade secrets, shop rights, know-how, technical information (including, without limitation, all software owned or utilized by FCES in connection with the Business), techniques, discoveries, designs, proprietary rights and non-public information and registrations, reissues and extensions thereof and applications and licenses therefor, owned or used, or proposed to be used, in the Business.

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(xix)

“ Knowledge of the Sellers ” in a representation or warranty of the Sellers means the actual knowledge of the Sellers with respect to which such representation or warranty is made, but does not include, except as specifically provided hereafter, constructive knowledge. Notwithstanding the foregoing, such phrase requires that the Sellers: (A) undertake a reasonable examination of their and FCES’ files and the assets relating to the Business to ascertain whether such files or asset examination reveal facts that are relevant to the representation or warranty in question, and (B) make a reasonable inquiry of the other employees or agents of FCES who they reasonably believe may have knowledge relating to the facts that are relevant to such representation or warranty.

(xx)

“ Leases ” has the meaning set forth in Section 5(n) of this Agreement.

(xxi)

“ Lien ” means any security interest, mortgage, pledge, lien, claim, encumbrance or other third party claim.

(xxii)

“NCA Note ” the meaning set forth in Section 4(b)(iii) of this Agreement.

(xxiii)

“ Net Current Assets ” shall mean current assets, minus total liabilities, plus the investment as set forth in Section 4(a)(iv) hereof, as shown on FCES’ balance sheet, provided however, that, for such purposes, no more than thirty (30%) percent of FCES’ current assets shall be comprised of inventory, and the cost of any audit conducted to comply with SEC requirements shall not be included in FCES’ total liabilities.

(xxiv)

“ Person ” shall mean a corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, government or a department or agency thereof, or any other entity, and, where the context permits, an individual.

(xxv)

“ Personal Property Leases ” has the meaning set forth in Section 5(n) of this Agreement.

(xxvi)

“ Premises ” has the meaning set forth in Section 5(n) of this Agreement.

(xxvii)

“ Purchase Price ” has the meaning set forth in Section 4(a) of this Agreement.

(xxviii)

“SEC ” means the United States Securities and Exchange Commission.

2.

Sale of Stock .

(a)

Purchase and Sale of Stock .  In exchange for the consideration specified herein, including, without limitation, the payment of the Purchase Price herein, and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase, acquire and assume from the Sellers, and the Sellers agree to sell, assign, transfer, convey and deliver to the Buyer, all right, title and interest in and to the FCES Shares.

(b)

Delivery of Possession and Instruments of Transfer .  At the Closing, the Sellers shall each deliver to the Buyer possession of all certificates representing the FCES Shares, duly endorsed in blank or accompanied by duly executed stock powers with signatures notarized, and such other instruments of transfer reasonably requested by and satisfactory to the Buyer and its counsel for consummation of the transactions contemplated under this Agreement and as are necessary to vest in the Buyer, all right, title and interest in and to the FCES Shares, free and clear of any lien, encumbrance, security agreement, equity, option, claim, charge or restriction, other than restrictions imposed by federal or state securities laws.

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(c)

Satisfaction of Certain Liabilities. Notwithstanding anything to the contrary contained herein, Sellers acknowledge that although Buyer is acquiring all of the outstanding capital stock of FCES, Sellers have agreed that, upon the Closing Date, FCES shall have no liabilities other than the liabilities set forth on the Financial Statements or arising thereafter in the ordinary course of business, except for the Excluded Liabilities (as defined below) (collectively, the “Assumed Liabilities”).

“ Excluded Liabilities ” shall mean any outstanding loans or indebtedness, other than trade payables incurred in the ordinary course of business, owed by FCES to Sellers or to any third parties.  From and after the Closing Date, Sellers shall be liable and responsible for the Excluded Liabilities, and Buyer shall be liable and responsible for the Assumed Liabilities.

3.

Closing .    The closing (the “ Closing ”) of the purchase and sale provided for in this Agreement shall take place at the offices of Picinich & McClure, 139 Harristown Road, Suite 101, Glen Rock, New Jersey, or such other place as the parties may agree, on November 14, 2007 (the Closing Date”) .

4.

Purchase Price and Payment/Adjustments .

(a)

Purchase Price

The purchase price for the FCES Shares is One Million and 00/100 Dollars ($1,000,000), subject to adjustment pursuant to Section 4(b) below (the “ Purchase Price ”).  The Purchase Price will be paid as indicated below:

(i)

A total of Three Hundred Fifty Thousand and 00/100 Dollars ($350,000), payable by bank checks or wire transfer of immediately available funds at the Closing to the Sellers; and

(ii)

A total of One Hundred Fifty Thousand and 00/100 Dollars ($150,000), as adjusted pursuant to paragraph (b) of this Section, memorialized by the Convertible Notes made by Somerset in favor of the Sellers.  

(iii)

Unregistered shares of Somerset common stock representing One Hundred Fifty Thousand and 00/100 Dollars ($150,000) of consideration, valued at the average “bid” and “ask” prices per share for registered and free-trading Somerset common stock during the five (5) business days preceding the Closing, or $0.30 per share, whichever is greater.

(iv)

Simultaneous with the Closing, Somerset will make an investment of up to Three Hundred Fifty Thousand and 00/100 Dollars ($350,000) in FCES, which shall be used for the payment of certain outstanding bank debt and the removal of certain personal guarantees made by the Sellers, as instructed by the Sellers.

(b)

Purchase Price Adjustments .

(i)

If the Adjusted EBITDA, for the twelve month period ended June 30, 2007, as of the close of business on the Closing Date, is less than One Hundred Twenty Five Thousand and 00/100 Dollars ($125,000) (the “ EBITDA Closing Deviation ”), there shall be an adjustment to the Purchase Price made by subtracting $6.00 for each $1.00 of  EBITDA Closing Deviation.

(ii)

If FCES’ Net Current Assets, as disclosed on the unaudited October 31, 2007 balance sheet, which shall be for the one month period subsequent to an audited balance sheet covering the period ended September 30, 2007, to be received pursuant to Section 4(c)(i), are more or less than Two Hundred Fifty Thousand and 00/100 Dollars ($250,000) (the “ Net Current Asset Deviation ”), there shall be an adjustment to the Purchase Price which shall be made by adding or subtracting (as appropriate) one dollar for every dollar of Net Current Asset Deviation.

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(iii)

A Purchase Price credit for a positive Net Current Asset Deviation, if any, shall be evidenced by two equal promissory notes (the “ NCA Notes ”) made by Somerset, one in favor of each of the Sellers.  Each NCA Note shall be payable in full, without interest, on or before the one hundred eightieth (180 ^th ) day following the Closing Date.  The form of the NCA Note is attached hereto and made a part hereof as Exhibit B.  Each NCA Note shall be secured by a pledge by Somerset at the Closing, of ten (10%) percent of the common stock of FCES.  A Purchase Price adjustment for a negative Net Current Asset Deviation shall be treated as a corresponding reduction in then outstanding principal balances of the Convertible Notes.

(iv)

Any Purchase Price adjustment for a negative EBITDA Closing Deviation shall be treated as a corresponding reduction in the then outstanding principal balance of the Convertible Notes.

(c)

Purchase Price Reconciliation.  

(i)

Within sixty (60) days after the Closing Date, the Buyer shall provide to the Sellers a written reconciliation showing the Net Current Asset Deviation and EBIDTA Closing Deviation, which shall disclose the manner of calculation of same.

(ii)

Unless the Sellers shall serve the Buyer with an objection as to the calculation of either the Net Current Asset Deviation and/or EBIDTA Closing Deviation within ten (10) business days after receipt of the reconciliation, then the Purchase Price adjustments shall be considered effective and binding on the parties.

(iii)

In the event that Sellers serve Buyer with a written objection per subparagraph (ii) above, the Sellers, Buyer and their respective accountants shall attempt in good faith to resolve such matters within thirty (30) days after receipt of such objection by Buyer, and if unable to do so, within ten (10) business days thereafter, Buyer and the Sellers shall instruct their respective accountants to select a third certified public accountant (the “ Independent Accounting Firm ”).  All three accountants shall then meet to resolve the remaining dispute concerning the Purchase Price adjustment not more than forty five (45) days after service of the written objection upon the Buyer per subparagraph (ii) above. The agreement of two of the three accountants shall be final and binding on the parties.  The fees and expenses of the Independent Accounting Firm associated with resolving disputes concerning the Purchase Price adjustments shall be borne by the party (the Sellers, on the one hand, or the Buyer, on the other hand) against which the Independent Accounting Firm shall rule, or allocated as deemed appropriate by such Independent Accounting Firm.

5.

Representations and Warranties of the Sellers .    As an inducement for Buyer to enter into this Agreement and perform its obligations hereunder, each Seller hereby represents and warrants, jointly and severally, to the Buyer as set forth below.  Each of such representations and warranties are, to the Sellers’ Knowledge, correct and complete as of the date hereof and shall be correct and complete as of the Closing Date, with the same effect as if said representations and warranties had been made at and as of the Closing Date.  Notwithstanding anything set forth elsewhere in this Agreement, the following representations and warranties are individually and collectively made to the Sellers’ Knowledge:

(a)

Organization, Good Standing, Power, Etc .  FCES is a corporation duly organized, validly existing, and in good standing under the laws of the State of New Jersey.    FCES is authorized or licensed to do business as a foreign corporation and is in good standing in each jurisdiction in which the conduct of the Business requires such qualification, except where the failure to so qualify would not have a material adverse effect on the Business.

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(b)

Capital Stock .

FCES has authorized capital stock consisting solely of one thousand (1,000)  shares of common stock, no par value, of which forty (40)  are issued and outstanding, and all of which are duly authorized, validly issued, fully paid, non-assessable, and free of preemptive rights.   The Sellers own the FCES Shares free and clear of all liens, charges, encumbrances or claims of any kind whatsoever, except for restrictions imposed by federal or applicable state securities laws.

(c)

Warrants, Options, Etc. There are no outstanding offers, options, warrants, rights, calls, commitments, obligations (verbal or written), conversion rights, plans or other agreements (conditional or unconditional) of any character that provide for, require or permit the sale, purchase or issuance of any shares of capital stock or any other securities of FCES that are reserved for issuance or are outstanding. There are no agreements, restrictions or encumbrances (including, without limitation, rights of first refusal, rights of first offer, proxies or voting agreements) with respect to any shares of capital stock of FCES (whether outstanding or issuable upon conversion or exercise of outstanding securities).

(d)

Subsidiaries, Divisions and Affiliates . FCES has no subsidiaries or divisions, and the Business has been conducted solely by FCES and not through any Affiliate, joint venture, or other entity, Person or under any other name.

(e)

Equity Investments .  FCES does not own or have any rights to any equity interest, directly or indirectly, in any other corporation, partnership, joint venture, firm or entity.

(f)

Authorization .  FCES has full power and authority and has taken all action necessary to own, lease and operate the Assets, to carry on the Business and to carry out the transactions contemplated hereby.  The Sellers and FCES have taken all action required by law, by FCES’ Articles of Incorporation and By-laws, or otherwise to be taken by them to authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.  This Agreement has been duly executed and delivered by the Sellers and is a legal, valid and binding obligation of the Sellers, enforceable against each Seller in accordance with its terms except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors’ rights; and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of a Court before which any proceeding therefore may be brought.

(g)

Effect of Agreement .  The performance of this Agreement by FCES and the Sellers and the consummation by FCES and the Sellers of the transactions contemplated hereby, will not, with or without the giving of notice and the lapse of time, or both, (i) violate any provision of law, statute, rule, regulation or executive order to which FCES, the Sellers or the Business are subject; (ii) violate any judgment, order, writ or decree of any court applicable to FCES, the Sellers or the Business; or (iii) result in the breach of or conflict with any covenant, condition or provision of, or, constitute a default under, or result in the creation or imposition of any lien, security interest, charge or encumbrance upon any of the Assets or the FCES Shares pursuant to any corporate charter, by-law, commitment, contract or other agreement or instrument, including any of the Commitments, to which FCES or the Sellers are a party or by which any of the Assets or the FCES Shares are or may be bound or affected or from which the Business derives benefits.

(h)

Restrictions . Neither FCES nor the Sellers are a party to any contract, commitment or agreement, nor are any of them or the Assets or the FCES Shares subject to, or bound or affected by, any provision of the charter documents of FCES, or any order, judgment, decree, law, statute, ordinance, rule, regulation or other restriction of any kind or character, which would, individually or in the aggregate, materially adversely affect the Business, the FCES Shares, or any of the Assets.

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(i)

Governmental and Other Consents .  (i) No notice to, consent, authorization or approval of, or exemption by, any governmental or public body or authority is required in connection with the execution, delivery and performance by FCES or the Sellers of this Agreement or any of the instruments or agreements herein referred to, or the taking of any action herein contemplated; and (ii) no notice to, consent, authorization or approval of, any Person under any agreement, arrangement or commitment of any nature to which FCES or the Sellers are a party or by which the FCES Shares or the Assets are bound or subject to, or from which FCES or the Sellers receive or are entitled to receive a benefit, is required in connection with the execution, delivery and performance by FCES or the Sellers of this Agreement or any of the instruments or agreements herein referred to, or the taking of any action herein contemplated.

(j)

Financial Statements . The financial statements for the twelve (12) months ended June 30, 2007 that have been provided to the Buyer (the “ Financial Statements ”) fairly and accurately present the results of operations of FCES for the periods covered thereby and the financial condition of FCES as of the dates thereof, and comply with the books and records of FCES.  All items that could reasonably have a material adverse effect on the willingness of a prospective buyer to acquire the FCES Shares have been disclosed in the Financial Statements or in the Schedules to this Agreement.  There are no liabilities, obligations or claims of any nature of or against the Sellers or FCES (whether, to the Sellers’ Knowledge, threatened, accrued, contingent, absolute, unliquidated, asserted or otherwise, whether due or to become due) as of the respective dates of the Financial Statements which were not disclosed or reflected fully on the balance sheets included in the Financial Statements, and there are no such liabilities, obligations or claims of or against the Sellers or FCES, other than those disclosed or reflected in the Financial Statements and other than those incurred in the ordinary course of business since such date.  Since the date of the most recent Financial Statement supplied to the Buyer, the Sellers and FCES have operated in the ordinary course of business, and through the Closing Date, the Sellers and FCES will continue to operate only in the ordinary course of business on the same basis as heretofore.  Since the date of the most recent Financial Statement supplied to the Buyer, there has been no materially adverse change in the financial condition of the Sellers or FCES, and the Sellers know of no such pending change.

(k)

No Undisclosed Liabilities . As of the date of the most recent Financial Statement supplied to the Buyer, there are no liabilities, obligations or claims of any nature of or against FCES (whether, to the Sellers’ Knowledge, threatened, accrued, contingent, absolute, unliquidated, asserted or otherwise, whether due or to become due) which were not disclosed or reflected fully on the said Financial Statement (“ Undisclosed Liabilities ”).  As of the date hereof, FCES has no liabilities of any nature other than those disclosed in the Financial Statements or which arose since such date in the ordinary course of business consistent with past practice.

(l)

Absence of Certain Changes or Events . Since the date of the most recent Financial Statement provided to the Buyer, FCES has not: (i) suffered any material adverse change in, or the occurrence of any events which, individually or in the aggregate, has or have had, or might reasonably be expected to have, a material adverse effect on the financial condition or results of operations of FCES; (ii) incurred damage to or   destruction of any material Asset or Assets individually or in the aggregate having a replacement cost in excess of Twenty Five Thousand and 00/100 Dollars ($25,000), whether or not covered by insurance; (iii) incurred any obligation or liability (fixed or contingent) not in the ordinary course of business; (iv) made or entered into contracts or commitments to make any capital expenditures in excess of Twenty Five Thousand and 00/100 Dollars ($25,000); (v) mortgaged, pledged or subjected to lien or any other encumbrance any of the Assets; (vi) sold, transferred or leased any material Asset or Assets individually or in the aggregate having a replacement cost in excess of Twenty Five Thousand and 00/100 Dollars ($25,000), or canceled or compromised any debt or material claims, except, in each case, in the ordinary course of business; (vii) sold, assigned, transferred or granted any rights under or with respect to any licenses , agreements, patents, software, inventions, trademarks, trade names, copyrights or formulae or with respect to know-how or any other intangible asset, including, but not limited to, the Intellectual Property Rights; (viii) amended or terminated any contracts, agreements, leases or arrangements which would have a material adverse financial impact on FCES; (ix) waived or released any other rights of material value; (x) declared or paid any dividend on its capital stock, or set apart any money for distribution to or for its shareholders; (xi) redeemed any portion of its capital stock; (xii) entered into, or amended the terms of, any employment or consulting agreement that is not terminable on no more than thirty (30) days’ notice without liability to FCES or the Business; (xiii) incurred any indebtedness for borrowed money or guaranteed any such indebtedness of another entity or individual, or entered into any other arrangement having the economic effect of any of the foregoing; or (xiv) entered into any transactions not in the ordinary course of business.

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(m)

Title to Assets; Absence of Liens and Encumbrances .  FCES has good title to, and owns, leases or licenses, as applicable, the Assets, free and clear of all mortgages, claims, liens, charges, encumbrances, security interests, restrictions on use or transfer, or other defects as to title, other than those disclosed in the most recent balance sheets of FCES that were included in the Financial Statements provided to the Buyer.  The leases and other agreements or instruments under which FCES holds, leases, or is entitled to the use of any real or personal property included in the Assets are in full force and effect, and all rentals, royalties or other payments due and payable thereunder prior to the date hereof have been duly paid.  FCES enjoys peaceful and undisturbed possession under all such leases, and the changes in ownership of the capital stock of FCES will not adversely affect such leases, other agreements and instruments.  No notice of violation of any law, ordinance, rule or regulation thereunder has been received by FCES or the Sellers.

(n)

Property .

FCES does not own any real property.  Schedule 5(n) contains a complete and correct list and description of all of FCES’ leases (whether oral or written) with respect to real property (the “ Leases ”), including a description of all buildings, structures, improvements (collectively, the “ Premises ”), and all licensing arrangements and leases of personal property relating to the Business (“ Personal Property Leases ”), to which FCES is a party (either as lessor, lessee, licensor or licensee).  The Sellers have heretofore furnished to the Buyer true and complete copies of all Leases and Personal Property Leases.  All of such Leases, Personal Property Leases and licensing agreements are valid and effective in accordance with their respective terms and, to Sellers’ Knowledge, there are no existing defaults or events of default or events which, with notice or lapse of time or both, would constitute defaults or which would interfere with the enjoyment by FCES or any assignee of the benefits of such instrument or their use and enjoyment of the real or personal property.  No consents are required in order to transfer any of the Leases, Personal Property Leases or licenses to the Buyer, except for the consent of the landlord of the Premises, which consent has been previously delivered to Buyer.

All activities and operations conducted by FCES on the Premises, and all structures, improvements and fixtures of FCES on the Premises, conform to any and all applicable federal, state and local laws, ordinances and regulations, including, without limitation, zoning and building ordinances and health, environmental and safety laws, ordinances and regulations, and the Premises are zoned for the various purposes for which the Premises are currently being used.

There is no condition resulting from the activities of the Business which would adversely affect or impair the use of the Premises for the purposes for which FCES is currently using the same, or which could result in the imposition of liability on the Buyer or FCES.

There are no existing, pending or threatened condemnations or violations of governmental regulations giving rise to pending or threatened governmental or administrative actions that will materially adversely affect or impair the use of the Premises.

(o)

Equipment .  Set forth on Schedule 5(o ) is a correct and complete list as of the date of this Agreement of all items of equipment used in the Business having a cost basis in excess of One Thousand and 00/100 Dollars ($1,000.00) (the “ Equipment ”), indicating for each piece of Equipment whether it is owned or leased. Except as set forth on Schedule 5(o) , none of the Equipment has been disposed of since the date of the most recent Financial Statements.

(p)

Insurance . There is now and there will be as of the Closing, in full force and effect with a reputable insurance company, fire and extended insurance coverage with respect to all material tangible Assets in reasonable commercial amounts.  On Schedule 5(p ) is set forth a correct and complete list of (i) all currently effective insurance policies and bonds covering the Assets or the Business, and their respective annual premiums (as of the last renewal or purchase of new insurance), and (ii) since the inception of the Business, (A) all accidents, casualties or damage occurring on or to the Assets or relating to the Business which resulted in claims individually in excess of Ten Thousand and 00/100 Dollars ($10,000), and (B) claims for product liability, damages, contribution or indemnification and settlements (including pending settlement negotiations) resulting therefrom which individually are in excess of Ten Thousand and 00/100 Dollars ($10,000).  Except as set forth on Schedule 5(p) , as of the date hereof, there are no disputes with underwriters of any such policies or bonds, and all premiums due and payable have been paid.  There are no pending or threatened terminations or premium increases with respect to any of such policies or bonds, and there is no condition or circumstance known to the Sellers applicable to the Business, other than the sale of the FCES Shares pursuant to this Agreement, which may result in such termination or increase.  

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FCES is in compliance with all material conditions contained in such policies or bonds, except for noncompliance which, individually or in the aggregate, would not have a material adverse effect on the Business, the FCES Shares, or the Assets.

(q)

Agreements, Arrangements, Etc.

(i)

Except as set forth on Schedule 5(q), FCES is not a party to, nor are FCES, the Assets, or the FCES Shares subject to or bound by, any:

(A)

lease agreement (whether as lessor or lessee), where the obligation of FCES exceeds Five Thousand and 00/100 Dollars ($5,000);

(B)

license agreement, assignment or contract (whether as licensor or licensee, assignor or assignee) relating to software (other than “off-the-shelf’ licenses), trademarks, trade names, patents, or copyrights (or applications therefor), unpatented designs or processes, formulae, know-how or technical assistance, or other proprietary rights;

(C)

employment or other contract or agreement with an employee or independent contractor which (1) may not be terminated without liability to FCES upon notice to the employee or independent contractor of not more than thirty (30) days, or (2) provides payments (contingent or otherwise) of more than Fifty Thousand and 00/100 Dollars ($50,000) per year (including all salary, bonuses and commissions);

(D)

agreement, contract or order with any buying agent, supplier or other individual or entity who assists, provides or is otherwise involved in the acquisition, supplying or providing of the Assets or other goods to the Business;

(E)

non-competition, secrecy or confidentiality agreements;

(F)

agreement or other arrangement for the sale of goods or services to any third party (including the government or any other governmental authority);

(G)

agreement with any labor union;

(H)

agreement or contract with any distributor, dealer, leasing company, sales agent or representative, other than contracts or orders for the purchase, sale or license of goods that are made in the usual and ordinary course of business at an aggregate price per contract of not more than Twenty Five Thousand and 00/100 Dollars ($25,000) and for a term of no more than six (6) months, and which agreements, in all cases, can be terminated within thirty (30) days after the Closing Date without payment of any premium or penalty by the Buyer;

(I)

agreement, contract or order with any manufacturer, leasing company, supplier or customer (including those agreements which allow discounts or allowances or extended payment terms), of more than Five Thousand and 00/100 Dollars ($5,000);

(J)

joint venture or partnership agreement