WHO VISION SYSTEMS INC /FL, S-1, 1998-07-16

WHO VISION SYSTEMS INC /FL
S-1, 1998-07-16

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

REGISTRATION STATEMENT
ON FORM S-1
UNDER
THE SECURITIES ACT OF 1933
------------------------
WHO? VISION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 3577 65-0768968
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</TABLE>

100 NORTH POINTE DRIVE
LAKE FOREST, CA 92630
(949) 837-5353
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

------------------------

ALEXANDER G. DICKINSON, Ph.D.
CHIEF EXECUTIVE OFFICER
WHO? VISION SYSTEMS, INC.
100 NORTH POINTE DRIVE
LAKE FOREST, CA 92630
(949) 837-5353
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

------------------------

Copies of all communications to:

<TABLE>
<S> <C> <C>
JAMES A. OUNSWORTH, ESQ. N. JEFFREY KLAUDER, ESQ. ROBERT H. STROUSE, ESQ.
SAFEGUARD SCIENTIFICS, INC. MORGAN, LEWIS & BOCKIUS LLP DRINKER BIDDLE & REATH LLP
800 THE SAFEGUARD BUILDING 2000 ONE LOGAN SQUARE 1000 WESTLAKES DRIVE
435 DEVON PARK DRIVE PHILADELPHIA, PENNSYLVANIA SUITE 300
WAYNE, PENNSYLVANIA 19087 19103-6993 BERWYN, PENNSYLVANIA 19312-2409
(610) 293-0600 (215) 963-5694 (610) 993-2213
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ X ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / __________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / __________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ X ]

CALCULATION OF REGISTRATION FEE

(1) Includes 650,000 shares which the underwriter has the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(g) under the Securities Act of 1933.
(3) Evidencing the rights to subscribe for 6,500,000 of the shares of Common
Stock described above.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OR AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JULY 16, 1998

P R O S P E C T U S
6,825,000 SHARES

WHO? VISION SYSTEMS, INC.

COMMON STOCK
(AND RIGHTS TO ACQUIRE UP TO 6,500,000 OF SUCH SHARES)

------------------------

Who? Vision Systems, Inc. is granting at no cost to the holders of common
shares of Safeguard Scientifics, Inc. transferable rights to purchase shares of
our Common Stock. Safeguard stockholders will receive one right for every five
Safeguard common shares that they own as of , 1998. Each right
will entitle the holder to purchase one share of our Common Stock at an exercise
price of $5.00 per share. We will offer up to 6,500,000 shares of our Common
Stock in the rights offering. If any shares remain unsubscribed for after the
rights offering, the underwriter will purchase all such shares pursuant to a
standby underwriting agreement.

Certain of our existing stockholders will be selling an additional 325,000
shares of our Common Stock to certain persons selected by us. These persons may
have a relationship with us, Safeguard or one of Safeguard's other partnership
companies.

The exercise period for the rights will expire at 5:00 p.m., New York City
time, on , 1998. You may only exercise your rights if you
purchase at least 20 shares of our Common Stock through such exercise.

(Continued on next page)
------------------------

YOU SHOULD CAREFULLY CONSIDER THE INFORMATION REGARDING THE RISKS
ASSOCIATED WITH AN INVESTMENT IN OUR COMMON STOCK AND RIGHTS THAT ARE DISCUSSED
UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 8.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
===========================================================================================================
<S> <C> <C> <C> <C> <C>
| ASSUMED | UNDERWRITING | UNDERWRITING | |
| EXERCISE | DISCOUNT | DISCOUNT PAID BY| PROCEEDS | PROCEEDS TO
| AND | PAID BY THE | SELLING | TO THE | THE SELLING
| OFFER PRICE| COMPANY | STOCKHOLDERS | COMPANY | STOCKHOLDERS
- -----------------------------------------------------------------------------------------------------------
| | Min. $0.15 | Min. $0.15 | Max. $4.85 | Max. $4.85
Per Share............ | $5.00 | Max. $0.35 | Max. $0.35 | Min. $4.65 | Min. $4.65
- -----------------------------------------------------------------------------------------------------------
| | Min. $ 975,000 | Min. $ 48,750 | Max. $31,525,000| Max. $1,576,250
Total................ | $34,125,000| Max. $2,275,000 | Max. $ 48,750 | Min. $30,225,000| Min. $1,576,250
- -----------------------------------------------------------------------------------------------------------
Total with Over- | | Min. $ 975,000 | Min. $276,250 | Max. $31,525,000| Max. $4,598,750
Allotment.......... | $37,375,000| Max. $2,275,000 | Max. $276,250 | Min. $30,225,000| Min. $4,598,750
===========================================================================================================
</TABLE>

The minimum underwriting discount assumes that all rights granted in the
rights offering are exercised and reflects the payment of a financial advisory
fee to the underwriter equal to 3% of the exercise price on the 6,825,000 shares
sold in this offering. In such a case, the minimum underwriting discount would
yield the maximum proceeds to us. The maximum underwriting discount assumes that
none of the rights granted in the rights offering are exercised and reflects the
payment of an underwriting discount of 4% of the exercise price on the 6,500,000
shares which would then be purchased by the underwriter plus an additional 3%
financial advisory fee on all of the 6,825,000 shares offered hereby. In such a
case, the maximum underwriting discount would yield the minimum proceeds to us.

The last row of the table assumes that the underwriter has exercised its
option granted by the selling stockholders to purchase an additional 650,000
shares of our Common Stock. The exercise of the over-allotment option would
yield additional proceeds to the selling stockholders and would require the
payment by the selling stockholders of both a 4% underwriting discount and a 3%
financial advisory fee on such shares.

ROBERT W. BAIRD & CO.
INCORPORATED

THE DATE OF THIS PROSPECTUS IS , 1998

<PAGE>

[GRAPHIC APPEARS HERE]

<PAGE>

(Continued from cover page)

Once you exercise a right and we accept the exercise, you may not withdraw
the exercise. The shares of our Common Stock that are sold in the rights
offering will come from the shares being issued by us. If shares remain
unsubscribed for after the end of the rights exercise period, the first 300,000
of such shares will be offered by us to certain other persons. These persons may
have a relationship with us, Safeguard or one of Safeguard's other partnership
companies. All shares not purchased by such persons after this offer and all
unsubscribed shares in excess of 300,000 will be purchased by the underwriter
pursuant to a standby underwriting agreement.

There is no minimum number of shares that must be subscribed for in the
rights offering for it to be completed. The number of rights that will be
granted to the holders of Safeguard common shares is based upon the number of
Safeguard common shares that are outstanding on , 1998. If there
are fewer than 32,500,000 Safeguard common shares outstanding on
, 1998, we will grant fewer than 6,500,000 rights in the rights
offering. If fewer than 6,500,000 rights are granted, we will offer the shares
subject to the rights which were not granted to Safeguard stockholders to
certain persons selected by us at a purchase price of $5.00 per share. In any
event, all of the 6,500,000 shares of our Common Stock offered in the rights
offering will be sold. However, this offering may be canceled by the underwriter
if certain conditions are not satisfied. In that event, if you have made any
payments to the rights agent, ChaseMellon Shareholder Services, L.L.C., the full
amount of your payments will be promptly returned to you.

We will not receive any proceeds from the sale of shares by the selling
stockholders. After the completion of this offering, the selling stockholders
together will own approximately 34.0% of our Common Stock.

We have filed a Registration Statement with the SEC covering the rights and
the shares of Common Stock. Before this offering, our Common Stock has not been
listed on any stock exchange or The Nasdaq Stock Market. We have filed an
application to have the rights and our Common Stock approved for quotation on
the Nasdaq National Market under the symbols "WHOVR" and "WHOV," respectively,
and our Common Stock approved for quotation on the Nasdaq National Market on a
when-issued basis during the rights exercise period under the symbol "WHOVV."

The underwriter may engage in transactions involving the rights and the
Common Stock during and after the rights exercise period. As a result, the
underwriter may realize profit in addition to the underwriting compensation
received for its participation in this offering. If there are shares of Common
Stock that are not purchased pursuant to the exercise of rights before the
rights expiration date, the underwriter will be obligated to purchase all of the
remaining shares from us. We expect that we will deliver any remaining shares on
or about , 1998 at the offices of Robert W. Baird & Co.
Incorporated in Milwaukee, Wisconsin.

After this offering, we intend to send to all of our stockholders annual
reports containing financial statements that have been examined and reported
upon with an opinion expressed by the Company's independent auditors.

We have filed an application to register TactileSense(Trademark) as a
trademark with the U.S. Patent and Trademark Office. All other product names
referred to herein are the property of their respective owners.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY, INCLUDING INITIATING BIDS OR EFFECTING PURCHASES ON THE
NASDAQ NATIONAL MARKET FOR THE PURPOSE OF PREVENTING OR RETARDING A DECLINE IN
THE MARKET PRICE OF THE COMMON STOCK. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Financial Statements of the Company and the Notes thereto
included elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus (i) assumes no exercise of the underwriter's
over-allotment option, (ii) assumes an exercise price of $5.00 per share, (iii)
assumes conversion of all outstanding shares of Series A Preferred Stock and
Series B Preferred Stock (the "Preferred Stock") into shares of Common Stock and
(iv) gives effect to the increase in the number of shares of capital stock
authorized for issuance that was effected on May 21, 1998. Unless the context
otherwise indicates, Who? Vision Systems, Inc. is referred to herein as "Who?
Vision" or the "Company."

THE COMPANY

Who? Vision is a technology company focused on the development of
fingerprint identification technologies. The Company has designed and developed
TactileSense(Trademark), a proprietary fingerprint identification technology,
and intends to manufacture and distribute fingerprint identification products
based upon this technology through strategic partners for use in a wide variety
of applications in which positive identification of a specific individual is
desired. The Company's patent-pending technology, a recently-developed polymeric
sensor, generates a high resolution image of an individual's fingertip that is
converted into a digital image and compared against a previously stored
fingerprint to verify a person's identity. The Company believes that its
TactileSense technology enables it to create a highly reliable, small-sized and
cost-effective solution that, for the first time, will promote the widespread
integration of fingerprint identification devices into numerous commercial mass
market products.

The Company is focusing its initial commercialization efforts for its
TactileSense products on the computer network security market. According to an
April 1998 report by Dataquest, a technology market research firm, the worldwide
installed base of personal computers and office workstations ("PCs") totaled
more than 270 million in 1997, with new computer purchases exceeding 80 million
in 1997 and projected to increase at a compound annual growth rate of
approximately 15% from 1997 to 2002. Of the 80 million PCs shipped in 1997,
Dataquest estimates that approximately 75% were used in professional
environments. In the workplace, the shift to distributed computer networks has
led to a dramatic increase in the number of users sharing computer resources and
communicating over local and wide area networks and public networks such as the
Internet. Employers are increasingly finding that they must provide employees
with remote access to corporate networks and maintain open and direct electronic
links to outside strategic suppliers, customers and business partners, all of
which place the business' intellectual property and proprietary data at risk.
Today, personal identification numbers ("PINs") and passwords are the most
common substitute for identifying individuals in computer network applications.
PINs and passwords, however, are inherently insecure because they are either
easy to decode, or difficult to remember and consequently are often written
down, subjecting them to theft. In addition to providing only limited security,
PINs and passwords are also costly to administer. A recent industry study
commissioned by the Company estimated that the cost to maintain a password can
total several hundred dollars per PC annually, depending on the particular
characteristics of the industry. In addressing the computer network security
market, the TactileSense product is expected to be sold (i) as a separate
standalone attachment to existing PCs, (ii) as a value-added product feature
embedded into newly manufactured PC keyboards, monitors and other peripherals or
(iii) directly to PC manufacturers for inclusion as a base or optional product
feature. The Company believes that initial demand within the computer network
security market will come from the healthcare and financial services industries.
Consequently, the Company, through its strategic partners, is developing
relationships with leading companies.

3
<PAGE>

major retail outlets and PC manufacturers worldwide including Wal-Mart Stores,
Inc., CompUSA, Inc. and Gateway 2000, Inc. In addition, Who? Vision has formed a
strategic alliance with Silitek Corporation ("Silitek"), a Taiwanese
manufacturer and distributor of computer peripherals and one of the top three
keyboard manufacturers in the world, whose customers include Dell Computers,
Inc., Hewlett-Packard Company and Compaq Computer Corporation. The Company
believes that its strategy of entering into strategic alliances to secure its
manufacturing and distribution functions will (i) allow for rapid penetration of
targeted markets, (ii) provide significant cost benefits due to the
manufacturing scale and volume purchasing advantages possessed by its strategic
partners and (iii) mitigate the potential risks associated with such activities
by working with strategic partners that have proven manufacturing and
distribution capabilities.

Who? Vision believes that its patent-pending fingerprint identification
technology possesses several characteristics that collectively give it a
competitive advantage over alternative technologies and will allow its
technology to be incorporated into numerous commercial applications. These
characteristics include:

o LOW COST. The TactileSense technology's low material cost and relatively
simple manufacturing process enable it to be produced and sold at a price
point that will promote widespread commercial adoption.

o SMALL SIZE. The TactileSense device's small size will enable it to be
incorporated into numerous commercial applications, including computer
peripherals such as keyboards and monitors, and directly into laptop
computers and cellular phones.

o HIGH RELIABILITY MATCHING. The TactileSense technology effectively overcomes
fingerprint image problems caused by dry skin and extraneous ambient light
sources.

o ANTI-FRAUD CAPABILITY. The TactileSense technology is capable of
consistently distinguishing real fingers from the artificial replicas that
can fool existing optical fingerprint sensors.

o DURABILITY. The TactileSense material is coated with a protective polymer
material to ensure its durability. Additionally, TactileSense's silicon
sensor does not come into contact with the finger surface, thereby avoiding
exposure to electrostatic discharge which can cause damage to direct-contact
silicon-based sensors.

o LOW POWER CONSUMPTION. The ability to operate without an external light
source and to enter into a low power "idle" mode allows TactileSense products
to be energy efficient and therefore makes it advantageous for power
sensitive applications such as laptop computers and cellular phones.

The need for a reliable method of positive identification exists in a wide
variety of commercial and noncommercial applications. Consequently, the Company
intends to pursue several additional market opportunities for its TactileSense
product beyond the computer network security market, such as consumer electronic
security and access control applications. Potential noncomputer consumer
electronic security applications include integration into cellular phones, cable
set-top boxes, point-of-sale devices and other high-value personal or commercial
electronic systems. As a result of the small size and low power consumption of
the TactileSense device, the Company believes that it is particularly
well-positioned to pursue cellular phone applications and that such applications
will present a significant market opportunity. Potential access control
applications may range from simple applications, such as replacing standard door
locks, to more advanced applications, such as automotive and building security
systems. The Company believes these markets will be significant and intends to
devote time and resources to developing these application markets, and in
particular those that it considers to possess high-value and involve early
technology adopters.

The Company was incorporated in the State of Delaware on June 30, 1997.
From May 1, 1997 through June 29, 1997, the Company operated as a division of XL
Vision, Inc. ("XL Vision"). The Company's principal executive offices are
located at 100 North Pointe Drive, Lake Forest, California 92630 and its
telephone number is (949) 837-5353.
4

<PAGE>

THE OFFERING

Description of the Rights
Offering....................... If you hold Safeguard common shares on
, 1998, you will receive one right
to purchase our Common Stock for every five
Safeguard common shares you own. Fractional
rights will be rounded up to the next whole
number in determining the number of rights
to be issued to Safeguard stockholders. Each
right entitles you to purchase one share of
our Common Stock at a purchase price of
$5.00. You must own at least 20 rights to be
eligible to exercise your rights. In other
words, if you own fewer than 96 Safeguard
common shares, you will receive fewer than
20 rights and you will not be eligible to
exercise your rights unless you purchase
additional rights in the market. We are
offering up to 6,500,000 shares of our
Common Stock for purchase through the
exercise of rights.

The Exercise Price of the
Rights......................... If you wish to exercise your rights to
purchase our Common Stock, the purchase
price will be $5.00 per share of Common
Stock.

When You Can Exercise Your
Rights......................... The rights will only be exercisable from the
period beginning on , 1998 and
ending on , 1998 at 5:00 p.m., New
York City time.

How Your Rights Will be
Evidenced...................... You will receive certificates that represent
your transferable rights.

Offer of Unsubscribed Shares to
Other Purchasers............... We will offer the first 300,000 unsubscribed
shares in the event that not all of the
rights are exercised and any shares of
Common Stock subject to rights that were not
distributed to certain persons selected by
us. These persons may have a relationship
with us, Safeguard or one of Safeguard's
other partnership companies.

Obligations of the Underwriter... The underwriter will purchase any shares
offered in the rights offering that have not
been purchased through the exercise of
rights and have not otherwise been sold by
us by , 1998 at the exercise price,
less a 4% underwriter's discount and a 3%
financial advisory fee. The underwriter will
then offer these shares to the public.

Number of Shares of Common Stock
Offered in the Rights
Offering....................... We will be selling the 6,500,000 shares
offered in the rights offering.

<PAGE>

Offer of Direct Shares to Direct
Purchasers..................... The selling stockholders are offering up to
325,000 shares of our Common Stock to
certain persons selected by us. These
persons may have a relationship with us,
Safeguard or one of Safeguard's other
partnership companies.

Common Stock to be Outstanding
After the Offering............. After this offering, 21,281,579 shares of
Common Stock will be outstanding and 706,425
shares will be issuable upon the exercise of
stock options outstanding as of July 10,
1998 (at a weighted average exercise price
of $1.54 per share).

How We Intend to Use the
Proceeds....................... We will use approximately $4.2 million of
the money received from the sale of our
shares to repay in full our outstanding debt
to XL Vision and the remainder for working
capital, including product development and
sales and marketing, general corporate
purposes and capital expenditures. We will
not receive any proceeds from the sale of
shares by the selling stockholders.

Nasdaq National Market Symbols... During the period in which you can exercise
your rights, the rights will trade on the
Nasdaq National Market under the symbol
"WHOVR" and the Common Stock will trade
under the symbol "WHOVV" on a when-issued
basis. After the expiration of the rights
period, the Common Stock will trade under
the symbol "WHOV."

<PAGE>

SUMMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 1, 1997 JUNE 30, 1997
(INCEPTION) (INCORPORATION) THREE MONTHS
THROUGH THROUGH ENDED
JUNE 29, 1997 DECEMBER 31, 1997 MARCH 31, 1998
------------- ----------------- --------------
(DIVISIONAL (UNAUDITED)
OPERATIONS(1))
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................... $ -- $ -- $ --
Cost of revenue............................ -- -- --
Operating expenses(2)...................... 182,744 2,981,356 11,373,354
Interest expense........................... 1,216 74,499 154,793
--------- ----------- ------------
Net profit (loss).......................... $(183,960) $(3,055,855) $(11,528,147)
========= =========== ============
Net profit (loss) subsequent to
incorporation(1)........................ $(3,055,855) $(11,528,147)
=========== ============

Net profit (loss) per common share
subsequent to incorporation:(1)(3)
Basic...................................... $ (2.46) $ (2.29)
=========== ============
Diluted.................................... $ (2.46) $ (2.29)
=========== ============

Weighted average number of common shares
outstanding............................. 1,241,467 5,040,127

<CAPTION>
AS OF MARCH 31, 1998
----------------------------------
ACTUAL AS ADJUSTED(4)
----------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................................ $ 1,258 $ 23,169,292
Total assets................................................ 394,149 23,562,183
Total indebtedness(5)....................................... 6,156,966 --
Total stockholders' equity (deficit)........................ (6,206,007) 23,118,993
</TABLE>

- ------------------
(1) Prior to June 30, 1997, the Company operated as a division of XL Vision. See
Note 1 of the Notes to Financial Statements.

(2) Includes a one-time $10.0 million fee payable for the transfer of technology
from XL Vision during the three months ended March 31, 1998. See Note 10 of
the Notes to Financial Statements.

(3) See Note 2 of the Notes to Financial Statements for information concerning
the calculation of net profit (loss) per common share.

(4) Adjusted to give effect to the sale by the Company of 6.5 million shares of
Common Stock, the receipt of approximately $29.3 million in net proceeds
from this offering, after deducting the maximum total underwriting discount
with respect to such shares of approximately $2.3 million and estimated
offering expenses of approximately $900,000 (including $200,000 representing
the maximum applicable non-accountable expense allowance to the
underwriter), and the application of the proceeds as set forth in "Use of
Proceeds."

(5) Represents outstanding indebtedness owed to XL Vision as of March 31, 1998.
As of June 30, 1998, the outstanding indebtedness owed to XL Vision was
approximately $4.2 million.

<PAGE>

RISK FACTORS

An investment in the shares of Common Stock and the rights offered hereby
involves a high degree of risk. Prospective investors should carefully consider
the following risk factors, as well as the other information in this Prospectus,
before investing in the shares of Common Stock and rights offered hereby. This
Prospectus contains certain forward-looking statements that involve risks and
uncertainties. Future events and the Company's actual results could differ
materially from the results reflected in these forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the following risk factors.

DEVELOPMENT STAGE COMPANY WITH LIMITED OPERATING HISTORY

The Company is a development stage enterprise, has no commercialized
products or revenues and has a limited operating history. Since the inception of
the Company's operations in May 1997 as a division of XL Vision through June 30,
1998, the Company has incurred losses totaling approximately $17.0 million,
including a one-time $10.0 million fee related to the purchase of the
TactileSense technology from XL Vision. To date, the Company has not made any
commercial sales of its products and has never successfully marketed a product.
The Company does not anticipate that it will realize any material commercial
revenues before the first half of 1999 and, therefore, will continue to incur
losses for the foreseeable future. The Company's prospects must be considered in
light of the risks and uncertainties encountered by companies in the early
stages of development, particularly companies in new and rapidly evolving
markets. The Company's success will depend on many factors, including, but not
limited to, the timing and rate of adoption of fingerprint identification
technologies in markets targeted by the Company, the demand for the Company's
products, the degree of competition faced by the Company and the Company's
ability to enter into and maintain additional strategic relationships. To
address these risks, the Company must, among other things, successfully
introduce products and enhancements to products, respond to competitive
developments and attract and retain qualified personnel. There can be no
assurance that the Company will succeed in addressing any or all of these risks,
or that the Company will achieve profitable operations at any time in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

DEPENDENCE UPON NEW AND UNCERTAIN MARKETS; UNCERTAINTY OF MARKET ACCEPTANCE

All of the Company's revenues for the foreseeable future are anticipated to
be derived from fingerprint identification products. These products represent
new technologies, which have not gained widespread commercial acceptance. To
date, fingerprint identification products have only been used in limited
applications. The expansion of the markets for the Company's products depends on
a number of factors, including the cost and reliability of the Company's and its
competitors' products, the degree to which a percentage of the population will
not be able to use these products, the public perception of the benefits of
these products relative to their intrusiveness and customer satisfaction. Public
objections have been raised to the use of biometric identification products for
some applications on civil liberties grounds and legislation has been proposed
that would limit the use of biometric information derived from such products.
The Company's future success is dependent upon the development and expansion of
markets for biometric fingerprint identification products both domestically and
internationally. There can be no assurance that markets will develop for the
Company's products. Even if markets develop for biometric fingerprint
identification products, there can be no assurance that the Company's products
will gain wide market acceptance. A number of factors may affect the market
acceptance of the Company's products, including the performance and price of the
Company's products compared to competitive products or technologies, the
adoption of an industry standard for fingerprint identification applications
related to computer network security, the ability of the Company to develop
technological innovations and the success of marketing efforts by the Company's
partners. If the markets for the Company's products fail to develop or develop
more slowly than anticipated or if the Company's products fail to gain wide
market acceptance, the Company's business, financial condition and results of
operations will be materially adversely affected. See "Business -- Markets."

<PAGE>

DEPENDENCE ON PRODUCT INTRODUCTIONS AND TECHNOLOGICAL INNOVATIONS

The Company's future success will depend upon its ability to develop,
introduce and achieve market acceptance of its products on a timely basis that
keep pace with technological developments, emerging industry standards and
evolving customer requirements. The development of new, technologically-advanced
products and product enhancements is a complex, costly and uncertain process
requiring high levels of innovation, as well as the accurate anticipation of
technological and market trends. Any failure by the Company to anticipate or
adequately respond to technological developments or end-user requirements, or
any significant delays in product development or introduction, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The development cycle for the Company's new products may
be significantly longer than the Company's historical product development cycle
or than that anticipated by the Company, resulting in higher development costs
or a loss in market share. If the Company is unable, for technological or other
reasons, to develop, introduce and sell its products in a timely manner, the
Company's business, financial condition and results of operations will be
materially adversely affected. In addition, because a number of the Company's
fingerprint identification products will be incorporated into systems marketed
by other companies, or will be co-marketed together with other products sold by
other companies, the failure to introduce products in a timely manner may cause
such companies to seek alternative suppliers or marketing partners. From time to
time, the Company or its present or future competitors may announce new
products, capabilities or technologies that have the potential to replace the
Company's products. There can be no assurance that announcements of currently
planned or other new products will not cause customers to delay or alter their
purchasing decisions in anticipation of such products, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, new product introductions may contribute to
fluctuations in quarterly operating results or result in the early obsolescence
of the Company's products. If the Company's products have reliability or quality
problems, the Company may experience reduced orders, higher manufacturing costs,
delays in collecting accounts receivable and additional service and warranty
expense. There can be no assurance that the Company will be successful in
developing and marketing products or product enhancements on a timely basis, if
at all, that the Company will not experience difficulties that could delay or
prevent the successful development, introduction and sale of these products, or
that any of its new products and product enhancements will adequately meet the
requirements of the marketplace and achieve market acceptance.

NEED TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS

The Company does not intend to establish its own manufacturing or
distribution capabilities. Therefore, a significant business strategy of the
Company is to enter into strategic or other similar collaborative relationships
for the manufacture, marketing and distribution of its products. There can be no
assurance that the Company will be able to enter into or maintain strategic
relationships on commercially reasonable terms, if at all. If the Company is
unable to enter into strategic relationships or maintain its strategic
relationships, it will be required to devote substantially greater resources
than anticipated to the manufacture, distribution, sale and marketing of its
products. Furthermore, as a result of the Company's emphasis on these
relationships, the Company's success will depend on the ultimate success of the
other parties to such relationships, and there can be no assurance that such
parties will be able to perform their obligations to the Company's expectations.
In addition, there can be no assurance that the other parties to the Company's
manufacturing and distribution relationships will not reduce their commitments
to the Company at any time in the future. Failure of one or more of the
Company's strategic relationships could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Strategic Alliances."

In addition, the Company or its distribution partners will be required to
enter into and maintain strategic relationships with software companies for
software to be integrated with the Company's products or to develop software
packages on their own. There can be no assurance that the Company or its
distribution partners will be able to enter into or maintain strategic
relationships with companies for

<PAGE>

such software. The failure to enter into such relationships could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Strategic Alliances."

DEPENDENCE ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

The Company's commercial success will depend in part on its ability to
protect and maintain its proprietary technology and to obtain and enforce
patents on the Company's technology. The Company relies primarily on a
combination of copyright, patent and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. No assurance can be given that the Company's efforts will provide
meaningful protection for its proprietary technology against others who
independently develop or otherwise acquire substantially equivalent techniques
or gain access to, misappropriate or disclose the Company's proprietary
technology. The Company has applied for patents with the U.S. Patent and
Trademark Office regarding certain aspects of the Company's fingerprint imaging
technology and its integration into PCs. The Company has also filed foreign
patent applications that correspond to the U.S. patent applications. There can
be no assurance that any patent applications filed by the Company will result in
the issuance of patents or that any patents issued to the Company will afford
protection against competitors that develop similar technology. The failure to
obtain meaningful protection for its proprietary technology could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The computer manufacturing and software industry has experienced a
significant amount of litigation regarding patents and other proprietary rights.
Any claims of infringement by third parties, with or without merit, could be
time-consuming, resulting in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company, if at all. A determination that the Company is infringing the
proprietary rights of others could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Patents and Proprietary Technology."

COMPETITION

Although the biometric identification product industry has yet to fully
develop, the Company anticipates that it will be characterized by intense
competition. The Company will generally compete with producers of both
non-biometric and biometric methods of restricting access. Non-biometric methods
of restricting access, such as keys, tokens, PINs and passwords, will initially
compete with the Company's devices. The Company will compete more directly with
other biometric methods of restricting access, such as signature verification,
voice recognition, iris recognition, facial recognition, hand geometry
recognition and retinal scanning. Companies that develop and distribute
fingerprint identification devices, such as American Biometric Company, Digital
Persona, Inc., Harris Corporation, Identicator, Inc., Identix Incorporated,
Siemens AG, ST Microelectronics N.V., Thomson-CSF and Veridicom, Inc., will
compete directly with the Company. The Company will face additional competition
from other established and emerging companies in each market in which the
Company intends to compete. Many of the Company's present and potential
competitors have longer operating histories and significantly greater financial,
marketing and research resources than those of the Company. The Company expects
competition to increase as other companies introduce additional and more
competitive products. In order to compete effectively in this environment, the
Company must continually be able to develop and market new and enhanced products
and market those products at competitive prices. There can be no assurance that
the Company will be able to compete effectively in the markets in which it
intends to enter. See "Business -- Competition."

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

An integral part of the Company's business strategy is to form strategic
alliances for the manufacture and distribution of its products with third
parties, including foreign corporations. Two of the Company's strategic partners
are located in the Pacific Rim. See "Business -- Strategic

<PAGE>

Alliances." Several countries in this region have recently experienced currency
devaluation and/or reduced access to credit. There can be no assurance that the
effect of this economic condition on the Company's strategic partners, or the
exposure to variations in the respective value of the currency of all of the
Company's international partners with that of the U.S. dollar, will not have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company intends to market and sell its products
internationally and, therefore, the sale of its products may be regulated by
foreign governmental agencies. The Company does not know the impact of such
regulation, if any, on the Company, and there can be no assurance that foreign
regulation will not have a material adverse effect on the Company's ability to
sell its products in such countries. Additionally, the Company's products are
subject to restrictions on export to foreign countries. These restrictions
require the Company to obtain a validated export license prior to the sale of
its products to purchasers in such countries, thereby making many of the
Company's sales to foreign countries subject to the approval of the U.S.
Department of Commerce. There can be no assurance that the U.S. Department of
Commerce will not mandate more restrictions in the future towards the Company's
products or, due to the political or diplomatic climate or for human rights
reasons, impose additional restrictions on exports to one or more countries
where the Company desires to sell its products. Such a change could adversely
affect the Company's ability to sell its products in such countries, which, in
turn, could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Governmental Regulation."

RISKS ASSOCIATED WITH IMPLEMENTATION OF LARGE SCALE MANUFACTURING CAPABILITIES

The Company plans to market its products for potentially large volume
commercial applications, such as computer network security. The Company is
relying on strategic partners for the manufacture and assembly of its products.
As a result, the Company's manufacturing partners may be required to fulfill
large orders in a short period of time and to implement measures in their
manufacturing processes to decrease product costs. The Company's manufacturing
partners have not yet demonstrated the ability to manufacture the Company's
products on a large scale. There can be no assurance that the Company's
manufacturing partners will be able to establish large scale manufacturing and
assembling capacity sufficient to fulfill large orders and to decrease
manufacturing costs or that the quality of such high volume products will meet
customer requirements. Any failure by the Company's manufacturing partners to do
so could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Manufacturing" and
"Business -- Strategic Alliances."

DEPENDENCE UPON SOLE AND LIMITED SOURCES OF SUPPLY

Certain of the components included in the Company's products, including the
TactileSense material, are obtained by the Company or the Company's
manufacturing partners from a single source or a limited group of suppliers. The
partial or complete loss of certain of these sources or the delay in receiving
supplies from these sources could result in delays in manufacturing and shipping
of products to customers and require the incurrence of development, re-tooling
and other costs to establish alternative sources of supply. If the Company is
required to seek alternative suppliers, there can be no assurance that the
Company will be able to obtain such components within the time frames and cost
parameters required by the Company, if at all.

Any delays resulting from the failure of suppliers to deliver components on
a timely basis in sufficient quantities and of sufficient quality or any
significant increase in the price of components from existing or alternative
suppliers could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Technology" and
"Business -- Manufacturing."

RISKS OF PRODUCT DEFECTS AND FAILURE TO MEET PERFORMANCE CRITERIA; PRODUCT
LIABILITY RISK

Complex products such as those to be offered by the Company may contain
undetected or unresolved defects or may fail initially to meet customers'
performance criteria when first introduced or as new versions are released.
There can be no assurance that defects or performance flaws will not

<PAGE>

be found in products or versions of products following commercial release or
that performance failures will not result, causing loss of market share, delay
in or loss of market acceptance, additional warranty expense or product recall.
In addition, the failure of products to meet performance criteria could result
in delays in recognition of revenue and higher operating expenses during the
period required to correct any such defects. There is a risk that, for
unforeseen reasons, the Company may be required to repair or replace a
substantial number of products in use or to reimburse persons for products that
fail to work or meet strict performance criteria. Any such occurrence could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company does not carry, nor is it
intending to procure in the foreseeable future, product liability insurance. The
assertion of product liability claims against the Company could have a material
adverse effect on the Company's business, financial condition and results of
operations.

DEPENDENCE ON KEY PERSONNEL

The Company's success depends on the continued service of key management,
sales, operations and technical personnel, including Alexander G. Dickinson, the
Company's Chief Executive Officer, and Tzu-Chiang Hsieh, the Company's Vice
President and Chief Operating Officer, and on its continued ability to attract,
retain and motivate such personnel. The competition for qualified management,
sales, operations, and technical personnel is intense, and there can be no
assurance that the Company can retain its key personnel or attract other highly
qualified personnel in the future. The failure to attract or retain such persons
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management."

LIMITED HISTORY OF MANAGEMENT TEAM

Of the senior executives of the Company, only the Chief Executive Officer
and Chief Operating Officer of the Company have been employed by the Company
since its incorporation in June 1997. Other members of the Company's senior
management have a more limited history with the Company. As a result, the
Company's senior management has only worked together as a team for a short
period of time. There can be no assurance, therefore, that the Company's senior
management will establish an effective working relationship that will facilitate
the successful implementation of the Company's business plan. See "Management."

RISKS ASSOCIATED WITH RAPID GROWTH

To date, the Company has largely been dependent upon XL Vision for
accounting, management and administrative resources. The Company is currently in
the process of establishing its own corporate infrastructure. If the Company is
successful in implementing its business strategy, it may experience a period of
rapid growth and expansion which could place significant additional demands on
the Company's corporate infrastructure. The failure by the Company's management
team to manage this potential growth effectively could have a material adverse
effect on the Company's business, financial condition and results of operations.

RISKS RELATED TO GOVERNMENT REGULATION

Third-party software bundled with the Company's fingerprint identification
technologies could contain cryptographic technology which is subject to export
controls under U.S. law and applicable foreign government restrictions. All
cryptographic products require export licenses from either the U.S. State
Department, acting under the authority of the International Traffic in Arms
Regulation, or the U.S. Department of Commerce, acting under the authority of
the Export Administration Regulations. The U.S. government generally limits the
export of software with encryption capabilities to mass marketed software with
limited key sizes, which could affect the Company's international competitive
position or results of operations.

The Director of the U.S. Federal Bureau of Investigation has asked Congress
to enact legislation that would require manufacturers of encryption products to
incorporate key escrow and recovery

<PAGE>

capabilities into their products for both domestic and international use,
thereby allowing law enforcement officials to gain access to decryption keys for
the purposes of decoding messages relating to illegal activities, subject to
constitutional due process safeguards. There can be no assurance that this or
other similar measures will not in the future become law in the United States or
other countries, and the Company cannot predict what effect any such law would
have on its domestic or international competitive position or on its business,
financial condition and results of operations.

A bill has recently been proposed in California, which would limit any
person, business or institution from collecting or sharing biometric
information, such as fingerprint information. The bill, if enacted, will limit a
company's ability to create a database of fingerprints and therefore may
adversely affect the demand in California for certain products which incorporate
the Company's technology. In addition, other states may enact legislation which
restricts the use and dissemination of data derived from biometric products,
which could have a material adverse effect on the Company's ability to
commercialize its products in such markets. See "Business -- Governmental
Regulation."

FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FINANCING

Notwithstanding the receipt of the net proceeds from this offering, the
Company may require additional capital to finance its growth and its marketing
and research and development projects beyond the next 18 months. The Company's
capital requirements will depend on many factors including, but not limited to,
the demand for the Company's products and the timing of and extent to which such
products achieve market acceptance, the timing of and extent to which the
Company invests in new technology, the Company's general and administrative and
new product development expenses, the extent to which competitors are successful
in developing their own products and increasing their own market share and brand
awareness, the success of the Company's strategic relationships, the costs
involved in maintaining and enforcing intellectual property rights, the level
and timing of revenues, the available borrowings under line of credit
arrangements and other factors. To the extent that resources are insufficient to
fund the Company's activities, the Company may need to raise additional funds
through public or private financing (including the issuance of equity
securities), strategic relationships or other arrangements. The Company
currently does not have any such arrangements in place. There can be no
assurance that such additional funding, if needed, will be available on terms
acceptable to the Company, if at all. Strategic relationships that provide
funding to the Company may require the Company to relinquish rights to certain
of its technologies or products. The inability to obtain sufficient funds may
require the Company to delay, scale back or eliminate some or all of its
development activities or license to third parties the right to commercialize
products or technologies that the Company would otherwise seek to commercialize
itself. After this offering, the Company will not have arrangements with any
financial institution for funding. The failure of the Company to raise capital
when needed could have a material adverse effect on the Company's business,
financial condition and results of operations. If additional funds are raised
through the issuance of equity securities, the percentage ownership of the
Company by its then-current stockholders would be reduced. Furthermore, such
equity securities might have rights, preferences or privileges senior to those
of the Company's Common Stock. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

CONTROL BY PRINCIPAL STOCKHOLDERS

After the completion of this offering, XL Vision, Safeguard, Technology
Leaders I, and Technology Leaders II (collectively, the "Principal
Stockholders"), will beneficially own in the aggregate approximately 43.0% of
the Company's outstanding Common Stock. In addition, officers of the Principal
Stockholders will own an additional 8.4% of the outstanding Common Stock (before
the exercise of any rights they may receive in this offering). As a result, such
stockholders will collectively have the voting power to substantially control
the election of the Company's entire Board of Directors and all matters
requiring stockholder approval. See "Management -- Executive Officers and

<PAGE>

Directors," "Management -- Certain Relationships," "Principal and Selling
Stockholders," "Certain Transactions" and "Shares Eligible for Future Sale."

BROAD DISCRETION IN APPLICATION OF NET PROCEEDS

The Company intends to use the net proceeds from this offering to repay
certain indebtedness and for working capital, including product development and
sales and marketing, general corporate purposes and capital expenditures. Other
than the repayment of debt, the Company has not specifically allocated the
remaining net proceeds of approximately $25.1 million (as of June 30, 1998) for
any particular uses. Accordingly, the specific uses for a substantial portion of
the net proceeds will be at the complete discretion of the Board of Directors of
the Company and may be allocated from time to time based upon a variety of
circumstances. There can be no assurance that the Company will deploy such funds
in a manner that will enhance the financial condition of the Company. See "Use
of Proceeds."

BENEFITS OF OFFERING TO CURRENT STOCKHOLDERS

This offering will provide significant benefits to the current stockholders
of the Company, including the creation of a public market for the Common Stock
and the receipt of proceeds from the sale of Common Stock in this offering by
the selling stockholders. As a result, the Company's current stockholders will
generally have greater liquidity with respect to their investment in the Common
Stock and their holding of Common Stock will potentially have a greater value.
Furthermore, the Company intends to use approximately $4.2 million of the
estimated net proceeds to the Company to repay loans from XL Vision, a selling
stockholder in this offering. The Principal Stockholders and the Company's other
executive officers and directors will beneficially own approximately 10.5
million shares of Common Stock after completion of this offering. Based on the
exercise price of $5.00, such shares owned will have an aggregate market value
of approximately $52.7 million. See "Use of Proceeds," "Principal and Selling
Stockholders" and "Certain Relationships and Related Transactions."

RISKS ASSOCIATED WITH RELATED PARTY TRANSACTIONS

The Company began operations in May 1997 as a division of XL Vision.
Historically, the Company has been managed to a great extent by members of XL
Vision's management and receives services from XL Vision pursuant to an
administrative services agreement. After this offering, XL Vision will own
approximately 7.4% of the Company's outstanding capital stock. In addition, a
member of the Company's Board of Directors is also an officer and director of XL
Vision. XL Vision will therefore have the ability to influence the management of
the Company. In July 1998, the Company entered into a value-added reseller
agreement with Integrated Visions, Inc., a subsidiary of XL Vision ("Integrated
Visions"). There can be no assurance that such terms are at least as favorable
as terms that the Company may have been able to negotiate for a similar
agreement with an unrelated third party. In the future, the Company may enter
into additional agreements with Integrated Visions or other affiliates of XL
Vision. There can be no assurance that such agreements will be negotiated at
arms-length or on terms at least as favorable as if they had been negotiated
with unrelated third parties. See "Business -- Strategic Alliances" and "Certain
Transactions."

DILUTION

The average price per share paid upon the original issuance by the Company
of Common Stock as of March 31, 1998 was $0.64. Purchasers of the Common Stock
of the Company offered hereby will suffer an immediate and substantial dilution
of $3.83 as of March 31, 1998 in the net tangible book value per share of the
Common Stock from the exercise price of the rights and the offering price for
the shares of Common Stock offered hereby. See "Dilution."

<PAGE>

REQUIREMENTS FOR LISTING SECURITIES ON THE NASDAQ NATIONAL MARKET; APPLICATION
OF THE PENNY STOCK RULES

The Company has filed an application for listing of the Common Stock and
rights (the "Listed Securities") on the Nasdaq National Market. If the Company
is unable to maintain the standards for continued listing, the Listed Securities
could be subject to delisting from the Nasdaq National Market. Trading, if any,
in the Listed Securities would thereafter be conducted on the Nasdaq Small Cap
Market. If, however, the Company did not meet the requirements of the Nasdaq
Small Cap Market, trading of the Listed Securities would be conducted on an
electronic bulletin board established for securities that do not meet the Nasdaq
listing requirements or on what is commonly referred to as the "pink sheets." As
a result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's securities.

In addition, if the Company's securities were delisted, they would be
subject to the so-called penny stock rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally defined as an investor
with a net worth in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 together with a spouse). For transactions covered by this rule, the
broker-dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to sale. Consequently, delisting, if it occurred, may affect the ability of
broker-dealers to sell the Company's securities and the ability of purchasers in
this offering to sell their securities in the secondary market.

The Securities and Exchange Commission (the "SEC" or the "Commission") has
adopted regulations that define a "penny stock" to be any equity security that
has a market price (as defined in the regulations) of less than $5.00 per share
or an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. As a result, if the Common
Stock is determined to be "penny stock," an investor may find it more difficult
to dispose of the Company's Common Stock.

NO PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICES

Prior to this offering, there has been no public market for the Common
Stock or the rights, and there can be no assurance that an active public market
will develop or be sustained. The exercise price of the rights and purchase
price of the Common Stock has been determined solely by negotiations among the
Company, the selling stockholders and the underwriter and does not necessarily
reflect the price at which shares of Common Stock may be sold in the public
market during or after this offering. See "The Offering -- Why We are Selling
Shares Through a Rights Offering" for a discussion of the factors considered in
determining the exercise price. The public markets, in general, have from time
to time experienced extreme price and volume fluctuations, which have in some
cases been unrelated to the operating performance of particular companies, and
the market for biometric identification and computer network security stocks,
such as the Common Stock, can be subject to greater price volatility than the
stock market in general. In addition, factors such as announcements of
technological innovations, new products by the Company's competitors or other
third parties, potential litigation, strategic alliances of the Company's
competitors, the status of the Company's patent applications, regulatory action
and market conditions in the biometric identification and computer network
security industries may have a significant impact on the market price of the
Common Stock.

<PAGE>

CANCELLATION OF RIGHTS OFFERING

If the conditions precedent to the sale of shares of Common Stock to the
underwriter, set forth in the standby underwriting agreement entered into by the
Company, the selling stockholders and the underwriter (the "Standby Underwriting
Agreement"), are not satisfied, the underwriter may elect, on or before the
sixth business day after the Expiration Date (the "Closing Date"), to cancel the
rights offering and the Company and the selling stockholders will not have any
obligations with respect to the rights except to return, without interest, any
payment received in respect of the exercise price. See "Underwriting." The
Company has been advised by the NASD that trades in the rights and the when-
issued shares of Common Stock in the market would be canceled if the rights
offering is not consummated.

SHARES ELIGIBLE FOR FUTURE SALE

A substantial number of outstanding shares of Common Stock and shares of
Common Stock issuable upon exercise of outstanding stock options will become
eligible for future sale in the public market at various times. In addition to
the factors affecting the stock market in general and the market for the Common
Stock discussed above, sales of substantial amounts of Common Stock in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock. Upon completion of this offering,
the Company will have 21,281,579 shares of Common Stock outstanding, excluding
706,425 shares of Common Stock subject to stock options outstanding as of July
10, 1998 and any stock options granted by the Company after July 10, 1998. Of
these shares, the Common Stock sold by the Company and the selling stockholders
in this offering, except for certain shares described below, will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Act"). The remaining 14,456,579 shares of Common Stock
(the "Restricted Shares") were sold by the Company in reliance on exemptions
from the registration requirements of the Act and are "restricted securities" as
defined in Rule 144 under the Act ("Rule 144") and may not be sold in the
absence of registration under the Act unless an exemption is available,
including an exemption afforded by Rule 144 or Rule 701 ("Rule 701") under the
Act. Without considering the contractual restrictions described below, (i) 1,250
Restricted Shares will be eligible for sale ninety days after the date of this
Prospectus, subject to volume and other resale conditions imposed by Rule 144,
and (ii) 14,455,329 Restricted Shares will be eligible for future sale subject
to the holding period and other conditions imposed by Rule 144. Certain
restrictions on shares of Common Stock are applicable to (i) any shares of
Common Stock purchased in this offering by affiliates of the Company, which may
generally only be sold in compliance with the limitations of Rule 144, except
for the holding period requirements thereunder, and (ii) the shares of Common
Stock beneficially owned by the Principal Stockholders all of which, together
with the shares of Common Stock beneficially owned by the directors, executive
officers and certain other stockholders of the Company are subject to lock-up
agreements (the "Lock-Up Agreements") and pursuant to such agreements will not
be eligible for sale or other disposition until 180 days after the Expiration
Date (the "Lock-Up Expiry Date") without the prior written consent of the
underwriter. In addition, the Company has granted certain registration rights to
its shareholders whereby they may cause the Company to register shares of Common
Stock. See "Shares Eligible for Future Sale."

It is anticipated that a registration statement (the "Form S-8 Registration
Statement") covering the Common Stock that may be issued pursuant to the
exercise of options awarded by the Company will be filed and become effective
prior to the Lock-Up Expiry Date, and that shares of Common Stock that are so
acquired or offered thereafter pursuant to the Form S-8 Registration Statement
generally may be resold in the public market without restriction or limitation.
Subject to the provisions of any Lock-Up Agreement, shares of Common Stock may
be resold in the public market beginning 90 days after the date of this
Prospectus pursuant to Rule 701(i) by persons who are not affiliates of the
Company without compliance with the public information, holding period, volume
limitation or notice provisions of Rule 144 and (ii) by affiliates of the
Company without compliance with the holding period requirements of Rule 144. See
"Management -- Equity Compensation Plan," "Shares Eligible for Future Sale --
Stock Options" and "Underwriting."

<PAGE>

POSSIBLE ISSUANCES OF PREFERRED STOCK

Shares of preferred stock may be issued by the Company in the future
without stockholder approval and upon such terms as the Board of Directors may
determine. The rights of the holders of the Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding stock of the Company and potentially prevent the
payment of a premium to stockholders in an acquisition transaction. The Company
has no present plans to issue any shares of preferred stock and all shares of
the Company's preferred stock which are currently outstanding will be converted
to Common Stock prior to the consummation of this offering. See "Description of
Capital Stock -- Preferred Stock."

NO DIVIDENDS

To date, the Company has not paid any cash dividends on its Common Stock.
The Company currently intends to retain future earnings for use in its business
and, therefore, does not expect to declare or pay any cash dividends in the
foreseeable future. See "Dividend Policy."

<PAGE>

THE OFFERING

WHY WE ARE SELLING SHARES THROUGH A RIGHTS OFFERING

We have agreed with Safeguard and the selling stockholders to make a rights
offering to holders of Safeguard common shares. This rights offering represents
the Company's initial public offering of its securities, although it is
different than a traditional public offering in that securities are directed
first to Safeguard shareholders and then to the general public. We believe that
this rights offering will provide several advantages over a traditional initial
public offering. This type of offering gives us the opportunity to offer our
Common Stock to investors who, as Safeguard shareholders, already have some
knowledge of our business. Our securities will also be distributed to a broader,
more stable shareholder base and underwriting discounts and commissions will be
less than if we pursued a traditional initial public offering. In addition,
Safeguard supports this type of rights offering because it affords its
shareholders the opportunity to purchase shares before the shares are offered to
the general public.

We determined the exercise price through negotiations with the selling
stockholders and the underwriter. In making this determination, we considered
such factors as our future prospects and historical financial data, our industry
in general and our position in the industry; market valuations of the securities
of companies engaged in activities similar to ours; the quality of our
management team; and the advice of our underwriter. We will also obtain two
independent appraisals to further support the determination of the final
exercise and offering price.

YOU CAN EXERCISE OR SELL YOUR RIGHTS

Until , 1998, you may purchase one share of our Common Stock
for each right you receive, or you may sell your rights in the market. However,
you may not exercise rights for fewer than 20 shares of Common Stock in a single
account, unless you have previously exercised rights for at least 20 shares in
the same account and you provide a letter to ChaseMellon stating that you have
already exercised at least 20 rights. If you hold Safeguard common shares in
multiple accounts, you must meet the minimum purchase requirement for each
account. You may, however, consolidate your rights into one account. If you
receive fewer than 20 rights, you should consider purchasing enough additional
rights to be eligible to exercise your rights or selling your rights in the
market. You should consult with your regular investment advisor and carefully
consider your alternatives.

IF THE NUMBER OF SAFEGUARD COMMON SHARES YOU OWN IS NOT DIVISIBLE BY FIVE

If the number of Safeguard common shares you own is not evenly divisible by
five, we will round up to the next highest whole number in calculating the
number of rights that you are entitled to receive. For example, if you hold 96
Safeguard common shares, you will receive 20 rights. If you are a nominee for
beneficial holders of Safeguard common shares, we will round the number of
rights that you will receive based upon the amount held by each beneficial
holder individually.

WHEN YOU CAN EXERCISE YOUR RIGHTS

You can exercise your rights at any time during the period beginning on
, 1998 and ending at 5:00 p.m., New York City time, on ,
1998. After that date, you will not be able to exercise or transfer your rights
and they will be worthless. We do not intend to honor any rights received for
exercise by ChaseMellon after , 1998, regardless of when you sent
your rights to ChaseMellon for exercise.

HOW YOU CAN TRANSFER YOUR RIGHTS

You may transfer all or a portion of your rights by endorsing and
delivering to ChaseMellon (at the addresses set forth below) your rights
certificate. You must properly endorse the certificate for transfer, your
signature must be guaranteed by a bank or securities broker and your certificate
must be accompanied by instructions to reissue the rights you want to transfer
in the name of the person

<PAGE>

purchasing the rights. ChaseMellon will reissue certificates for the transferred
rights to the purchaser, and will reissue a certificate for the balance, if any,
to you if it is able to do so before , 1998. You will be responsible
for the payment of any commissions, fees and other expenses (including brokerage
commissions and any transfer taxes) incurred in connection with the purchase or
sale of your rights. We believe that a market for the rights may develop during
the period in which the rights may be exercised. To facilitate the market, we
have applied with the Nasdaq National Market to have the rights approved for
quotation for the period , 1998 through , 1998. We have
reserved "WHOVR" as the Nasdaq symbol under which the rights will trade. If you
have any questions regarding the transfer of rights, you should contact
ChaseMellon at P.O. Box 3301, South Hackensack, New Jersey 07606, Attention:
Reorganization Department, telephone number (800) 223-6554.

HOW YOU CAN EXERCISE YOUR RIGHTS

On , 1998, ChaseMellon transferred a significant majority of
the rights to The Depository Trust Company, which, in turn, will credit the
rights, in its normal course of handling this type of transaction, to the
accounts of the participants (including brokers and dealers, banks, trust
companies and clearing corporations) for whom it holds Safeguard common shares.
The remainder will be transferred as soon as possible thereafter. You may
exercise your rights by completing and signing the election to purchase form
that appears on the back of each rights certificate. You must send the completed
and signed form, along with payment in full of the exercise price for all shares
that you wish to purchase to ChaseMellon. ChaseMellon must receive these
documents and the payment by 5:00 p.m., New York City time, on ,
1998. We do not intend to honor any exercise of rights received by ChaseMellon
after that date.

We will, however, accept your exercise if ChaseMellon has received full
payment of the exercise price for shares to be purchased through the exercise of
rights and has received a letter or telegraphic notice from a bank, trust
company or member firm of the New York Stock Exchange or the American Stock
Exchange setting forth your name, address and taxpayer identification number,
the number of shares you wish to purchase and guaranteeing that a properly
completed and signed election to purchase form will be delivered to ChaseMellon
by 5:00 p.m., New York City time, on , 1998. If the properly
executed documents are not received by 5:00 p.m. on , 1998, we do
not intend to accept your subscription.

We suggest, for your protection, that you deliver your rights to
ChaseMellon by overnight or express mail courier. If you mail your rights, we
suggest that you use registered mail. If you wish to exercise your rights, you
should mail or deliver your rights and payment for the exercise price to
ChaseMellon as follows:

<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight:

ChaseMellon Shareholder ChaseMellon Shareholder ChaseMellon Shareholder
Services, L.L.C. Services, L.L.C. Services, L.L.C.
Reorganization Department Reorganization Department Reorganization Department
P.O. Box 3301 120 Broadway -- 13th 85 Challenger Road,
South Hackensack, NJ 07606 Floor Mail Drop Reorg.
New York, NY 10271 Ridgefield Park, NJ 07660
</TABLE>

You must pay the exercise price in U.S. dollars by cash, check or money
order payable to the "Safeguard Escrow Account." Until this offering is closed,
your payment will be held in escrow by ChaseMellon, who will serve as the escrow
agent of the Safeguard Escrow Account.

ChaseMellon will deliver certificates to you representing the Common Stock
purchased through the exercise of rights by , 1998. Until that date,
ChaseMellon will hold all funds received in payment of the exercise price in
escrow and will not deliver any funds to us or to the selling stockholders until
the shares of Common Stock have been issued.

<PAGE>

If you are a broker or depository who holds Safeguard common shares for the
account of others and you receive rights certificates for the account of more
than one beneficial owner, you should provide copies of this Prospectus to the
beneficial owners. You should also carry out their intentions as to the exercise
or transfer of their rights.

Safeguard will decide all questions as to the validity, form and
eligibility (including times of receipt, beneficial ownership and compliance
with minimum exercise provisions). The acceptance of subscription forms and the
exercise price also will be determined by Safeguard. Alternative, conditional or
contingent subscriptions will not be accepted. Safeguard reserves the absolute
right to reject any subscriptions not properly submitted. In addition, Safeguard
may reject any subscription if the acceptance of the subscription would be
unlawful. Safeguard also may waive any irregularities (or conditions) in the
subscription of shares of Common Stock, and its interpretation of the terms (and
conditions) of the rights offering shall be final and binding.

If you are given notice of a defect in your subscription, you will have
five business days after the giving of notice to correct it. You will not,
however, be allowed to cure any defect later than , 1998. We are not
obligated to give you notification of defects in your subscription. We will not
consider an exercise to be made until all defects have been cured or waived. If
your exercise is rejected, your payment of the exercise price will be promptly
returned by ChaseMellon.

HOW YOU CAN OBTAIN ADDITIONAL INFORMATION

If you wish to receive additional copies of this Prospectus or additional
information concerning this offering, you should contact Catherine Laboe at
Robert W. Baird & Co. Incorporated, telephone number (414) 298-7647.

EXPECTED EXERCISE OF RIGHTS BY SAFEGUARD CEO

Warren V. Musser, the Chairman and Chief Executive Officer of Safeguard, or
his assignees, is expected to exercise all rights distributed to him. As a
result, he (or his assignees) is expected to acquire approximately 560,000
shares of our Common Stock through the rights offering.

WHAT HAPPENS TO THE UNSUBSCRIBED SHARES

The first 300,000 shares of Common Stock that are not subscribed for at the
end of the rights exercise period will be offered at a price of $5.00 per share
to persons selected by us. These persons may have a relationship with us,
Safeguard or one of Safeguard's other partnership companies. We expect to enter
into agreements with these persons to purchase the unsubscribed shares before
the end of the rights exercise period. If there are less than 300,000
unsubscribed shares at the end of the rights exercise period, the number of
unsubscribed shares offered to each of these persons will be adjusted
accordingly.

To the extent that any unsubscribed shares remain unsold after the offer to
these persons, the underwriter will purchase these shares pursuant to the
standby underwriting agreement. The underwriter must purchase these shares no
later than , 1998.

In connection with this offering, the underwriter will receive a financial
advisory fee of 3% of the exercise price for each share of Common Stock being
offered in this offering, regardless of whether they purchase any shares in this
offering. In addition, if the underwriter purchases any shares in this offering
or through the exercise of certain rights that are purchased in the open market
under certain circumstances, it may purchase the shares at the exercise price
less an underwriting discount of 4% of the exercise price, subject to certain
limitations. The underwriter will offer shares of Common Stock purchased by it
to the public at prices which may vary from the exercise price. The selling
stockholders have granted to the underwriter an option to purchase an additional
650,000 shares of Common Stock to cover over-allotments, if any, during the
20-day period beginning on , 1998. The underwriter will be entitled
to purchase these over-allotment shares at the exercise price less the 3%

<PAGE>

financial advisory fee and the 4% underwriting discount. See "Underwriting." We
will not receive any proceeds from the sale of any shares of Common Stock by the
selling stockholders.

We intend to supplement this Prospectus after the rights exercise period is
over to set forth the results of the rights offering, the transactions by the
underwriter during the exercise period, the number of unsubscribed shares
purchased, if any, and any resale transactions.

WHAT HAPPENS IF THE RIGHTS OFFERING IS CANCELED

The underwriter has the right to cancel the rights offering if certain
conditions are not satisfied or if certain circumstances exist prior to the
closing date of this offering. If you exercise rights and the rights offering is
canceled, ChaseMellon will promptly return to you, without interest, any payment
received in respect of the exercise price and you will not receive any shares of
our Common Stock. Along with the selling stockholders, we have established an
escrow account with ChaseMellon to hold funds received prior to the closing date
of this offering. The NASD has advised us that trades in the rights and the
when-issued shares of Common Stock in the market would be canceled if this
offering is not consummated.

<PAGE>

FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the material federal income tax consequences
affecting holders of Safeguard common shares receiving rights in this offering.
In the opinion of Morgan, Lewis & Bockius LLP, the distribution of the rights by
the Company to holders of Safeguard common shares more likely than not will
constitute a taxable transaction under the Internal Revenue Code of 1986, as
amended (the "Code"), and may also be subject to state or local income taxes.
Because of the complexity of the provisions of the Code referred to below and
because tax consequences may vary depending upon the particular facts relating
to each holder of Safeguard common shares, such holders should consult their own
tax advisors concerning their individual tax situations and the tax consequences
of this offering under the Code and under any applicable state, local or foreign
tax laws.

Safeguard has been advised by Morgan, Lewis & Bockius LLP that, under
current interpretations of case law, the Code and applicable regulations
thereunder, the federal income tax consequences applicable to holders of
Safeguard common shares receiving rights in this offering generally are as
follows:

DISTRIBUTION OF RIGHTS TO HOLDERS OF SAFEGUARD SHARES

The rights, representing the right to acquire shares of Common Stock from
the Company, can be considered as constituting "property" within the meaning of
Section 317(a) of the Code. The federal income tax consequences of a
distribution of the rights by the Company to holders of Safeguard common shares,
as determined under the Code and the regulations thereunder, are as follows: (i)
each noncorporate holder of Safeguard common shares will be deemed to have
received a distribution from Safeguard, generally taxable as ordinary dividend
income, in an amount equal to the fair market value (if any) of the rights, as
of the date of distribution, (ii) each corporate holder of Safeguard common
shares (other than foreign corporations and S corporations) will be deemed to
have received a distribution from Safeguard (generally taxable as a dividend
subject to the dividends received deduction for corporations (generally 70%, but
80% under certain circumstances) in an amount equal to the fair market value (if
any) of the rights, as of the date of distribution; and (iii) the tax basis of
the rights in the hands of each holder (whether corporate or noncorporate) of
Safeguard common shares will be equal to the fair market value (if any) of the
rights as of the date of distribution. Because of the predominantly factual
nature of determining the fair market value, if any, of the rights, Morgan,
Lewis & Bockius LLP has expressed no opinion with respect to the fair market
value of the rights.

Since the fair market value of the rights will determine the amount of
taxable income deemed received by the holders of Safeguard common shares, the
determination of the fair market value of each right as of the date of
distribution is critical. The exercise price was determined through arms-length
negotiations among the Company, the selling stockholders and the underwriter.
Based on these negotiations and the two independent appraisals which have been
obtained, Safeguard's Board of Directors believes that the per share value of
Common Stock represented by the rights at the date of the commencement of this
offering approximates the exercise price and that the rights should have no
value for federal income tax purposes. However, the Internal Revenue Service is
not bound by this determination. See "The Offering -- Why We Are Selling Shares
Through a Rights Offering."

EXERCISE OF RIGHTS

Holders of rights, whether corporate or noncorporate, will recognize
neither gain nor loss upon the exercise of the rights. A holder of rights who
receives shares of Common Stock upon the exercise of the rights will acquire a
tax basis in such shares equal to the sum of the exercise price paid under this
offering and the tax basis (if any) of the holder of rights in the rights.

TRANSFER OF RIGHTS

The transferable nature of the rights will permit a holder of rights to
sell rights prior to exercise. Pursuant to Section 1234 of the Code, a rights
holder who sells rights prior to exercise will be entitled to treat the
difference between the amount received for the rights and the adjusted tax basis
(if any) of

<PAGE>

the holder of rights in the rights as a short-term capital gain or capital loss,
provided that Common Stock subject to the rights would have been a capital asset
in the hands of the holder had it been acquired by him. The gain or loss so
recognized will be short-term since the rights will have been held for less than
12 months.

NON-EXERCISE OF RIGHTS

The income tax treatment applicable to holders of rights who fail to
exercise or transfer their rights prior to the expiration date also is set forth
in Section 1234 of the Code. Holders of rights who allow their rights to lapse
are deemed under the Code to have sold their rights on the date on which the
rights expire. Since upon such lapse no consideration will be received by a
holder of rights, and since the rights will have been held for less than 12
months, a short-term capital loss equal to the tax basis (if any) in the rights
will be sustained by the holder on such lapse, provided that Common Stock
subject to the rights would have been a capital asset in the hands of the holder
had it been acquired by him.

USE OF PROCEEDS

The minimum net proceeds to the Company from the sale of the 6,500,000
shares of Common Stock offered by the Company are estimated to be approximately
$29.3 million after deducting estimated offering expenses allocable to and
payable by the Company, assuming that none of the rights granted in the rights
offering are exercised and that, as a result, 6,500,000 shares of Common Stock
are purchased by the underwriter pursuant to the standby underwriting agreement.
Estimated offering expenses include the maximum applicable non-accountable
expense allowance to the underwriter, a financial advisory fee of 3% of the
exercise price and an underwriting discount of 4% of the exercise price. In the
event any shares of Common Stock offered hereby are sold pursuant to the
exercise of rights, the Company will not be obligated to pay the underwriting
discount with respect to such shares and will, therefore, realize an amount of
net proceeds greater than approximately $29.3 million. See "The Offering -- What
Happens to the Unsubscribed Shares" and "Underwriting."

The Company intends to use a portion of the net proceeds from this offering
to repay in full amounts due to XL Vision. As of June 30, 1998, approximately
$4.2 million was due to XL Vision. The amounts due to XL Vision under a note and
a loan agreement bear interest at 7.0% and 9.5%, respectively, as of June 30,
1998 and are due in full upon the earlier of the closing of the Company's
initial public offering and September 30, 1999. The remainder of the net
proceeds will be used for working capital, including product development and
sales and marketing, general corporate purposes and capital expenditures. The
amounts and the timing of any such use may vary significantly depending upon a
number of factors, including the Company's revenue growth, asset growth, cash
flow and acquisition activities. Pending such uses, the net proceeds of this
offering will be invested in short-term, investment-grade, interest-bearing
securities. The Company currently anticipates that the net proceeds received by
the Company from this offering, together with cash generated from operations and
existing cash balances will be sufficient to satisfy its operating cash needs
for at least 18 months from receipt of the proceeds. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

DIVIDEND POLICY

To date, the Company has not paid or declared any cash dividends on its
Common Stock. The Company currently intends to retain future earnings for use in
its business and, therefore, does not anticipate paying or declaring any cash
dividends in the foreseeable future. The payment of future dividends, if any,
will depend among other things, on the Company's results of operations, cash
flows and financial condition and on such other factors as the Company's Board
of Directors may, in its discretion, consider relevant.

<PAGE>
CAPITALIZATION

The following table sets forth (i) the actual total capitalization of the
Company as of March 31, 1998, (ii) the pro forma capitalization after giving
effect to the conversion of all shares of Preferred Stock and (iii) the pro
forma as adjusted capitalization to reflect the conversion of shares of
Preferred Stock, the sale of 6,500,000 shares of Common Stock by the Company
pursuant to this offering and the application of the estimated minimum net
proceeds of approximately $29.3 million therefrom. This table should be read in
conjunction with the financial statements and related notes thereto and other
financial information included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(1) ADJUSTED(1)(2)
----------- ------------ --------------
<S> <C> <C> <C>
Total indebtedness(3)................................... $ 6,156,966 $ 6,156,966 $ --
Stockholders' equity (deficit)(4):
Preferred Stock, par value $0.01 per share; 15,000,000
shares authorized:
Series A Preferred Stock, 8,300,000 shares
designated; 8,258,881 shares issued and
outstanding actual, and no shares issued and
outstanding pro forma and pro forma as
adjusted........................................ 82,589 -- --
Series B Preferred Stock, 1,400,000 shares
designated; no shares issued and outstanding
actual, pro forma and pro forma as
adjusted(4)..................................... -- -- --
Common Stock, par value $0.01 per share; 60,000,000
shares authorized, and 5,040,698 shares issued and
outstanding actual, 13,299,579 shares issued and
outstanding pro forma and 19,799,579 shares issued
and outstanding pro forma as adjusted(5)........... 50,407 132,996 197,996
Additional paid-in capital(5)........................... 8,428,959 8,428,959 37,688,959
Accumulated deficit..................................... (14,767,962) (14,767,962) (14,767,962)
----------- ----------- -----------
Total stockholders' equity (deficit)............... (6,206,007) (6,206,007) 23,118,993
----------- ----------- -----------
Total capitalization.................................... $ (49,041) $ (49,041) $23,118,993
=========== =========== ===========
</TABLE>

- ------------------
(1) Adjusted to give pro forma effect to the automatic conversion of all shares
of Series A Preferred Stock upon consummation of this offering.
(2) Adjusted to give effect to the sale by the Company of 6,500,000 shares of
Common Stock and the receipt and application of approximately $29.3 million
in net proceeds from this offering, after deducting the maximum total
underwriting discount with respect to such shares of approximately $2.3
million and estimated offering expenses of $900,000 (including $200,000
representing the maximum applicable non-accountable expense allowance to the
underwriter).
(3) Represents amounts due to XL Vision as of March 31, 1998. As of June 30,
1998, the outstanding balance owed to XL Vision was approximately $4.2
million.
(4) In May 1998 and June 1998, the Company issued 1,400,000 shares of Series B
Preferred Stock, par value $0.01 per share (the "Series B Preferred Stock"),
from the 6,700,000 shares of Preferred Stock authorized and available for
issuance, at a purchase price of $3.00 per share. All outstanding shares of
Series B Preferred Stock will automatically be converted into an equal
number of shares of Common Stock upon consummation of this offering. As a
result of the issuance of the 1,400,000 shares, the Company is obligated to
issue 7,000 shares of Common Stock pursuant to an existing agreement with
The Phoenix Group, Inc. See Note 8 of the Notes to Financial Statements.
(5) Excludes as of March 31, 1998, 283,925 shares of Common Stock issuable upon
the exercise of options at a weighted average exercise price of $0.89 per
share (none of which were exercisable as of March 31, 1998). In May 1998 and
June 1998, an officer of the Company exercised options for 75,000 shares of
Common Stock for $85,000. As of July 10, 1998, 706,425 shares of Common
Stock were issuable upon the exercise of options at a weighted average
exercise price of $1.54 per share (15,625 of which were exercisable as of
July 10, 1998). See "Management -- Equity Compensation Plan."

24
<PAGE>

DILUTION

As of March 31, 1998, the Company had a negative net tangible book value of
approximately $6.2 million or $(0.47) per share of Common Stock, after giving
effect to the conversion of Series A Preferred Stock into Common Stock. Net
tangible book value per share of Common Stock represents the amount of the
Company's tangible assets less its total liabilities divided by the total number
of shares of Common Stock outstanding. Without taking into account any changes
in net tangible book value after March 31, 1998, other than to give effect to
the items described in Note (1) appearing immediately below the following table,
the pro forma net tangible book value of the Company as of March 31, 1998 would
have been approximately $23.1 million or $1.17 per share. This represents an
immediate increase in such pro forma net tangible book value of $1.64 per share
to existing stockholders and an immediate dilution of $3.83 per share to
investors purchasing Common Stock at the exercise price in this offering. New
stockholders that acquire Common Stock from the underwriter at a price greater
than the exercise price will experience greater dilution. The following table
illustrates this per share dilution in net tangible book value:

<TABLE>
<S> <C> <C>
Exercise price.............................................. $5.00
Net tangible book value per share as of March 31, 1998.... $(0.47)
Increase per share attributable to new stockholders(1).... 1.64
------
Pro forma net tangible book value per share as of
March 31, 1998............................................ 1.17
-----
Dilution per share to new stockholders(2)................... $3.83
=====
</TABLE>

- ------------------
(1) Reflects the automatic conversion of all outstanding shares of Preferred
Stock, the sale by the Company of 6,500,000 shares of Common Stock and the
receipt of approximately $29.3 million in net proceeds from this offering
after deducting the maximum total underwriting discount with respect to such
shares of approximately $2.3 million and estimated offering expenses of
$900,000 (including $200,000 representing the maximum applicable
non-accountable expense allowance to the underwriter).
(2) In May 1998 and June 1998, the Company issued 1,400,000 shares of Series B
Preferred Stock at a purchase price of $3.00 per share and issued 75,000
shares of Common Stock to an officer of the Company upon the exercise of
stock options. As a result of the transactions, the Company was obligated to
issue 7,000 shares of Common Stock pursuant to an existing agreement with
The Phoenix Group, Inc. See Note 8 of the Notes to Financial Statements.
Assuming that the 1,400,000 shares of Series B Preferred Stock, the 75,000
shares of Common Stock and the 7,000 shares of Common Stock issuable to The
Phoenix Group, Inc. were issued on March 31, 1998, dilution per share to new
stockholders would be $3.71.

The following table sets forth, on an adjusted basis as of March 31, 1998,
the number of shares of Common Stock issued by the Company, the total
consideration paid and the average price per share paid upon original issuance
to stockholders prior to this offering and by new investors before deducting the
underwriters' compensation and estimated offering expenses:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1)
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE(1)
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)(3).... 13,299,579 67.2% $ 8,561,955 20.9% $0.64
New stockholders............... 6,500,000 32.8 32,500,000 79.1 5.00
---------- ----- ----------- -----
Total........................ 19,799,579 100.0% $41,061,955 100.0% 2.07
========== ===== =========== =====
</TABLE>

- ------------------
(1) Reflects gross consideration from the issuance of stock, and therefore does
not reflect deductions for stock issuance costs, underwriting discounts and
offering expenses.
(2) Assuming that the 1,400,000 shares of Series B Preferred Stock and the
75,000 shares of Common Stock issued in May 1998 and June 1998 and the 7,000
shares of Common Stock issuable to The Phoenix Group, Inc. were issued on
March 31, 1998, the number of shares purchased, total consideration and
average price per share would have been (a) 14,781,579 shares, $12,860,955
and $0.87 per share, respectively, to existing stockholders, and (b)
21,281,579 shares, $45,360,955 and $2.13 per share, respectively, total. See
Note 8 of the Notes to Financial Statements.
(3) Excludes options to purchase 283,925 shares of Common Stock outstanding as
of March 31, 1998, at a weighted average exercise price of $0.89 per share.
As of July 10, 1998, 706,425 shares of Common Stock were issuable upon the
exercise of options at a weighted average exercise price of $1.54 per share,
and the Company had an additional 868,575 shares of Common Stock available
for future grants and other issues under its Equity Compensation Plan.

The foregoing tables assume no exercise of outstanding options. As of March
31, 1998, there were outstanding options to purchase an aggregate of 283,925
shares of Common Stock (none of which were exercisable at March 31, 1998) at a
weighted average exercise price of $0.89 per share, and the Company had an
additional 591,075 shares of Common Stock available for future grants and other
issuances under its Equity Compensation Plan. See "Management" and Note 6 of the
Notes to Financial Statements.

25
<PAGE>

SELECTED FINANCIAL DATA

The selected financial data set forth below for the period from May 1, 1997
(inception) through June 29, 1997 and the period from June 30, 1997
(incorporation) through December 31, 1997 are derived from the financial
statements of the Company, which financial statements have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The audited balance
sheet as of December 31, 1997 and the related statements of operations,
stockholders' equity (deficit) and cash flows and the KPMG Peat Marwick LLP
report thereon are included elsewhere in this Prospectus. The selected financial
data as of March 31, 1998 is unaudited. The following information should be read
in conjunction with the Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
PERIOD FROM JUNE 30, 1997 MAY 1, 1997
MAY 1, 1997 (INCORPORATION) THREE MONTHS (INCEPTION)
(INCEPTION) THROUGH ENDED THROUGH
THROUGH DECEMBER 31, MARCH 31, MARCH 31,
JUNE 29, 1997 1997 1998 1998
-------------- --------------- ------------ ------------
(DIVISIONAL (UNAUDITED) (UNAUDITED)
OPERATIONS(1))
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue...................................... $ -- $ -- $ -- $ --
Cost of revenue.............................. -- -- -- --
--------- ----------- ------------ ------------
Gross profit (loss).......................... -- -- -- --
Operating expenses:
Selling, general and administrative.......... 123,940 1,440,406 642,612 2,206,958
Research and development(2).................. 58,804 1,540,950 10,730,742 12,330,496
--------- ----------- ------------ ------------
Total operating expenses................... 182,744 2,981,356 11,373,354 14,537,454
Interest expense............................. 1,216 74,499 154,793 230,508
--------- ----------- ------------ ------------
Net profit (loss).......................... $(183,960) $(3,055,855) $(11,528,147) $(14,767,962)
========= =========== ============ ============
Net profit (loss) subsequent to
incorporation(1)......................... $(3,055,855) $(11,528,147)
=========== ============
Net profit (loss) per common share
subsequent to incorporation(1)(3):
Basic.................................... $ (2.46) $ (2.29)
=========== ============
Diluted.................................. $ (2.46) $ (2.29)
=========== ============
Weighted average number of common shares
outstanding................................ 1,241,467 5,040,127

</TABLE>

<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash...................................................... $ 500 $ 1,258
Total assets.............................................. 187,706 394,149
Total indebtedness(4)..................................... 2,728,448 6,156,966
Total stockholders' equity (deficit)...................... (2,937,658) (6,206,007)
</TABLE>

- ------------------
(1) Prior to June 30, 1997 the Company operated as a division of XL Vision. See
Note 1 of the Notes to Financial Statements.

(2) Includes a one-time $10.0 million fee payable for the transfer of technology
from XL Vision during the three months ended March 31, 1998. See Note 10 of
the Notes to Financial Statements.

(3) See Note 2 of the Notes to Financial Statements for information concerning
the calculation of net profit (loss) per common share.

(4) Represents outstanding indebtedness owed to XL Vision. As of June 30, 1998,
the outstanding indebtedness owed to XL Vision was approximately $4.2
million.

26
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Certain information contained herein may include "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements, other than statements of historical facts included in this
Prospectus, are forward-looking statements. Such statements are subject to
certain risks and uncertainties, which include but are not limited to those
discussed in the section entitled "Risk Factors." Should one or more of these
risks or uncertainties, among others as set forth in this Prospectus,
materialize, actual results may vary materially from those estimated,
anticipated or projected. Although the Company believes that the expectations
reflected by such forward-looking statements are reasonable based on information
currently available to the Company, no assurance can be given that such
expectations will prove to be correct. Cautionary statements identifying
important factors that could cause actual results to differ materially from the
Company's expectations are set forth in this Prospectus. All forward-looking
statements included in this Prospectus and all subsequent oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these cautionary statements.

OVERVIEW

From inception on May 1, 1997 through June 29, 1997, the Company operated
as a division of XL Vision (the "Division"). On June 30, 1997, the Company was
incorporated as a wholly-owned subsidiary of XL Vision, and XL Vision
contributed the assets and liabilities of the Division to the Company. Prior to
January 1998, all administrative personnel and services of the Company were
provided by XL Vision and the related costs were allocated to the Company.
Effective January 1, 1998, the Company entered into an administrative services
agreement with XL Vision that provides for administrative charges by XL Vision
based upon predetermined rates for actual hours of work provided to the Company.
On January 14, 1998, XL Vision transferred the TactileSense technology to the
Company in exchange for a one-time technology fee of $10.0 million. In February
1998, the Company raised approximately $8.3 million in a private placement, the
proceeds of which were used to fund the repayment of amounts due to XL Vision.
For the period from inception through December 31, 1997 and the three months
ended March 31, 1998, charges attributable to services provided by XL Vision
totaled approximately $420,000 and $171,000, respectively.

Since inception, the Company has devoted substantially all of its resources
to the development of its TactileSense technology. From inception to March 31,
1998, the Company accumulated losses totaling approximately $14.8 million. The
financial statements included in this Prospectus reflect the Company's
operations since inception as if it had been a separate entity. Until the
Company begins to realize significant revenue from operations, the Company will
be considered in the development stage.

The Company has developed a fingerprint identification technology which is
designed to be a component for integration into computer peripherals, laptops
and stand alone systems. The Company will recognize revenue as products are
shipped to its customers. The Company anticipates increasing its level of
expenditures for marketing, research and development and administrative
expenses. The Company expects to incur significant negative cash flows from
operations and additional losses for at least the next 18 months.

RESULTS OF OPERATIONS

THREE-MONTH PERIOD ENDED MARCH 31, 1998

Overview. The Company began operations on May 1, 1997 and, accordingly,
there was no comparable period in 1997.

Revenue. The Company is a development stage company and had no revenue for
the three-month period ended March 31, 1998.

27
<PAGE>

Selling, general and administrative expenses. Selling, general and
administrative expenses were $642,612 for the three-month period ended March 31,
1998. These expenses consisted primarily of salary, travel, consulting and
administrative fees associated with establishing the business of the Company.
These costs are expected to increase in the future as the Company builds the
necessary infrastructure to support its anticipated growth.

Research and development expenses. Research and development expenses were
$10.7 million for the three-month period ended March 31, 1998. These expenses
consisted of a one-time $10.0 million technology fee payable to XL Vision and
additional product development costs. The Company anticipates that product
development costs, excluding such fee to XL Vision, will increase in the future
due to costs related to product commercialization and the continuation of
advances in its TactileSense technology.

Interest expense. Interest expense was $154,793 for the three-month period
ended March 31, 1998. This expense was attributable to amounts accrued on
advances made by XL Vision to the Company to fund its operations.

PERIOD FROM MAY 1, 1997 THROUGH DECEMBER 31, 1997

Overview. The Company began operations on May 1, 1997 and, accordingly,
there was no comparable period in 1996. While the financial statements segregate
the results of operations between periods prior to and after the Company's
incorporation, for convenience, management's discussion and analysis of the
Company's results for the periods in 1997 have been combined.

Revenue. The Company is a development stage company and had no revenue for
the period ended December 31, 1997.

Selling, general and administrative expenses. Selling, general and
administrative expenses were $1.6 million for the period ended December 31,
1997. These expenses consisted primarily of salary, travel, consulting and
administrative fees associated with establishing the business of the Company.
These costs are expected to increase in the future as the Company builds the
necessary infrastructure to support its anticipated growth.

Research and development expenses. Research and development expenses were
$1.6 million for the period ended December 31, 1997. These expenses consisted of
product development costs for the development of the Company's TactileSense
technology.

Interest expense. Interest expense was $75,715 for the period ended
December 31, 1997. This expense was attributable to amounts accrued on advances
made by XL Vision to the Company to fund its operations.

LIQUIDITY AND CAPITAL RESOURCES

Prior to June 30, 1997, the Company operated as a division of, and was
funded by, XL Vision. XL Vision has continued to make advances to the Company to
fund its operations. In February 1998, the Company raised approximately $8.3
million in a private placement. All proceeds from this private placement were
paid to XL Vision as partial repayment of its advances. XL Vision has agreed to
fund the Company's operations until the earlier of September 30, 1999 and the
successful completion of the Company's initial public offering. As of March 31,
1998, the Company had $1,258 of cash and indebtedness of approximately $6.2
million to XL Vision. The amounts due to XL Vision, which was $4.2 million as of
June 30, 1998, will be repaid in full from the net proceeds of this offering.

Capital expenditures for the period from inception through December 31,
1997 and for the three-month period ended March 31, 1998 were $189,218 and
$45,569, respectively, and related primarily to the purchase of computers and
computer software for the Company's employees. Capital expenditures are expected
to be approximately $1.1 million in 1998. This expected increase in capital
expenditures is primarily attributable to leasehold improvements and office
furnishings and equipment related to the Company's move into its new facility in
Lake Forest, California in May 1998.

28
<PAGE>

The Company anticipates that the net proceeds from this offering, together
with cash generated from operations and existing cash balances, will be
sufficient to satisfy its operating cash needs for at least 18 months following
this offering. The Company intends to use the net proceeds from this offering to
repay the net cumulative advances due to XL Vision, which were approximately
$6.2 million as of March 31, 1998 and approximately $4.2 million as of June 30,
1998, and for the Company's ongoing working capital requirements. Management
expects that losses from operations and increases in working capital
requirements will produce significant negative cash flows for at least the next
18 months. To support the Company's future cash needs, it may consider
additional debt or equity financing. However, there can be no assurance that any
such financing will be available to the Company or that adequate funds for the
Company's operations will be available when needed or on terms acceptable to the
Company. If the Company is unable to obtain sufficient additional funds, the
Company may have to delay, scale back or eliminate some or all of its marketing
and development activities.

YEAR 2000 COMPLIANCE

The Company develops and purchases software for use with the TactileSense
device. In addition, purchased software is run on in-house computer networks.
The Company believes that its proprietary software and the software run on its
in-house network is Year 2000 compliant. The Company does not expect Year 2000
issues to materially impact the Company's financial position or results of
operations.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires companies to display, with the same prominence as
other financial statements, the components of other comprehensive income. SFAS
No. 130 requires that an enterprise classify items of other comprehensive income
by their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Through March 31,
1998, the Company did not have any components of other comprehensive income as
defined by SFAS No. 130.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of An Enterprise and Related Information." SFAS No.
131 requires that an enterprise disclose certain information about its operating
segments. SFAS No. 131 is effective for financial statements for periods
beginning after December 31, 1997. SFAS No. 131 is not expected to have an
impact on the Company as it expects to operate within a single segment.

29
<PAGE>

BUSINESS

OVERVIEW

Who? Vision is a technology company focused on the development of
fingerprint identification technologies. The Company has designed and developed
TactileSense, a proprietary fingerprint identification technology, and intends
to manufacture and distribute fingerprint identification products based upon
this technology through strategic partners for use in a wide variety of
applications in which positive identification of a specific individual is
desired. The Company's patent-pending technology, a recently-developed polymeric
sensor, generates a high resolution image of an individual's fingertip that is
converted into a digital image and compared against a previously stored
fingerprint to verify a person's identity. The Company believes that its
TactileSense technology enables it to create a highly reliable, small-sized and
cost-effective solution that, for the first time, will promote the widespread
integration of fingerprint identification devices into numerous commercial mass
market products.

The Company is focusing its initial commercialization efforts for its
TactileSense products on the computer network security market. According to an
April 1998 report by Dataquest, a technology market research firm, the worldwide
installed base of PCs totaled more than 270 million in 1997, with new computer
purchases exceeding 80 million in 1997 and projected to increase at a compound
annual growth rate of approximately 15% from 1997 to 2002. Of the 80 million PCs
shipped in 1997, Dataquest estimates that approximately 75% were used in
professional environments. In the workplace, the shift to distributed computer
networks has led to a dramatic increase in the number of users sharing computer
resources and communicating over local and wide area networks and public
networks such as the Internet. Employers are increasingly finding that they must
provide employees with remote access to corporate networks and maintain open and
direct electronic links to outside strategic suppliers, customers and business
partners, all of which place the business' intellectual property and proprietary
data at risk. Today, PINs and passwords are the most common substitute for
identifying individuals in computer network applications. PINs and passwords,
however, are inherently insecure because they are either easy to decode, or
difficult to remember and consequently are often written down, subjecting them
to theft. In addition to providing only limited security, PINs and passwords are
also costly to administer. A recent industry study commissioned by the Company
estimated that the cost to maintain a password can total several hundred dollars
per PC annually, depending on the particular characteristics of the industry. In
addressing the computer network security market, the TactileSense product is
expected to be sold (i) as a separate standalone attachment to existing PCs,
(ii) as a value-added product feature embedded into newly manufactured PC
keyboards, monitors and other peripherals or (iii) directly to PC manufacturers
for inclusion as a base or optional product feature. The Company believes that
initial demand within the computer network security market will come from the
healthcare and financial services industries. Consequently, the Company, through
its strategic partners, is developing relationships with leading companies.

Who? Vision has formed, and intends to form, strategic alliances with
leading manufacturers and distributors in order to maintain its focus on
advancing its core fingerprint identification technology and expedite its entry
into selected markets. Who? Vision has entered into strategic alliances with
SPOT, a subsidiary of MAG, for the high-volume manufacture and distribution of
its TactileSense fingerprint sensors. Based in Taiwan, MAG is a leading computer
monitor manufacturer, supplying products to major retail outlets and PC
manufacturers worldwide including Wal-Mart Stores, Inc., CompUSA, Inc. and
Gateway 2000, Inc. In addition, Who? Vision has formed a strategic alliance with
Silitek Corporation, a Taiwanese manufacturer and distributor of computer
peripherals and one of the top three keyboard manufacturers in the world, whose
customers include Dell Computers, Inc., Hewlett-Packard Company and Compaq
Computer Corporation. The Company believes that its strategy of entering into
strategic alliances to secure its manufacturing and distribution functions will
(i) allow for rapid penetration of targeted markets, (ii) provide significant
cost benefits due to the manufacturing scale and volume purchasing advantages
possessed by its strategic partners and (iii) mitigate the potential risks
associated with such activities by working with strategic partners that have
proven manufacturing and distribution capabilities.

30
<PAGE>

COMPUTER NETWORK SECURITY INDUSTRY

The continuing shift to an information-driven and communication-intensive
society, as evidenced by the proliferation of PCs, dramatic growth of the
Internet and burgeoning usage of electronic commerce, is placing increasing
importance upon computer network security and, specifically, the ability to
positively confirm a person's identity. In both commercial and personal
settings, the ability to identify a specific individual is critical in order to
adequately safeguard against unauthorized persons gaining access to confidential
or inappropriate data and against various kinds of fraudulent activity. A 1998
survey by the Computer Security Institute ("CSI"), an association of information
security professionals, with the participation of the Federal Bureau of
Investigation ("FBI") found that 64% of the 520 respondents surveyed reported
computer security breaches within the last 12 months representing a 16% increase
from the CSI/FBI survey conducted in 1997. Of the reporting respondents, 44%
reported unauthorized access by employees and 24% reported system penetration
from the outside. While the survey indicated that the most serious financial
losses occurred through unauthorized access by insiders, increasingly
organizations are finding that their Internet connection is a point of attack.
While 72% of respondents that reported a breach acknowledged suffering financial
losses from unauthorized intrusions, only 46%, or 241, of the respondents were
able to quantify their losses. For the 241 respondents that could quantify their
losses, an aggregate of $136.8 million in losses were incurred, representing an
average annual loss per respondent of approximately $568,000. The need for
greater computer network security is further heightened by the increasing
availability of remote access to corporate networks and direct electronic links
to outside strategic suppliers, customers and business partners, all of which
place a business' intellectual property and proprietary data at risk.

31
<PAGE>

THE THREE COMPUTER NETWORK SECURITY FACTORS

As the following diagram depicts, the Company believes that there are three
independent factors that should be analyzed when evaluating the efficacy of a
computer network security solution: privacy, portability and identity. A
security solution can be implemented using any combination of these independent
factors, depending upon the specific application or level of flexibility and
security desired.

[Diagram appears depicting three axes labeled "Identity," "Privacy" and
"Portability" on the end of each axis. The word "Biometrics" appears in the
middle of the Identity axis. The word "Encryption" appears in the middle of the
Privacy axis. The words "Smart Cards" appear in the middle of the Portability
axis.]

Privacy. "Privacy" refers to the protection of data while it is stored or
being transmitted within local and wide area networks or across the Internet.
Privacy has been widely addressed by the commercial marketplace through
sophisticated encryption and decryption technologies. With
commercially-available encryption and decryption algorithms, "private"
communication between two or more computer systems can be achieved, without
interception by an unauthorized user or "hacker."

Portability. "Portability" refers to the ability to access data from a
variety of physical locations without compromising security. Information may be
delivered to various locations through such means as a network or the Internet.
The ability to secure access to information from remote locations has been
commercially addressed through data encoded cards (or "Smart Cards") and
identification tokens.

Identity. "Identity" refers to the ability to unambiguously confirm the
specific user on either end of a digital transaction. The Company believes that,
to date, identity has not been adequately addressed in the commercial computer
network security industry. Today, it is possible to communicate securely from
one machine to another and assure the identity of the user indirectly, by using
a combination of commercially available products. However, these products
require that individuals exercise certain procedures or possess a device or
piece of information to establish and communicate their identity.

The Company does not believe that existing commercially available products
provide both a reliable and cost-effective identification solution. Such
positive identification of an individual requires the use of some measurable
physical characteristics or personal traits, referred to as biometrics. The most
widely used biometric today is a handwritten signature. However, because
signatures are difficult to utilize in computer network security systems, PINs
and passwords are commonly used as a substitute for verifying identity. People
generally have multiple PINs and passwords, many of which are changed
periodically in an attempt to improve security. PINs and passwords are either
easy to

32
<PAGE>

remember and are therefore inherently insecure because they are easy to decode,
or difficult to remember, and consequently are often written down, subjecting
them to theft. Furthermore, in addition to providing only limited security, PINs
and passwords are also costly to administer. A recent industry study
commissioned by the Company estimated that the cost to maintain a password can
total several hundred dollars per PC annually, depending on the particular
characteristics of the industry. This estimate includes costs related to
enterprise password management and associated productivity loss, but excludes
the cost of security breaches, such as unauthorized persons gaining improper
access to confidential information, which may be significant. Because of the
inherent shortcomings of PINs and passwords, the Company believes that an
effective computer network security solution can be achieved by integrating the
biometric information with existing technologies such as a Smart Card, or an
independent biometric identification device. For a biometric solution to gain
widespread commercial acceptance, however, it must not only be technologically
viable but also commercially available at a price point that is competitive with
the total cost of ownership of PINs and passwords.

OVERVIEW OF BIOMETRICS

Biometrics are unique biological characteristics or personal traits that
can be used to identify an individual. A wide variety of biometrics are
available, including fingerprints, voice, hand geometry, facial structure, iris
and retinal patterns and handwritten signatures. Although biometric systems can
provide a more accurate means of identification than traditional non-biometric
methods, until recently, their integration into commercial applications has been
limited by the cost and technological complexity of the equipment needed to
read, record and distinguish unique biological data. In order to compete with
non-biometric systems, biometric identification systems must be accurate,
cost-effective and applicable to a broad user base.

The Company believes that fingerprint identification systems possess
several important advantages over alternative biometric systems, including low
cost, small size, convenience, reliability, fraud resistance and social
acceptance, which will promote their commercial adoption. Fingerprints have a
long history of being used as a means of verifying the identity of individuals
both in the U.S. and internationally. Legal systems throughout the world accept
the validity of positive identification through fingerprints. In addition,
fingerprints are already in widespread use on documents such as drivers'
licenses, voter registration cards, bank checks and national identification
cards. In the U.S., 11 states have started programs to scan fingerprints of
welfare applicants, and five states require thumbprints on drivers' license
applications.

Fingerprints are well-suited for positive identification because each
individual's fingerprints contain unique patterns that are distinguishable from
the fingerprint patterns of the rest of the population. The process of
capturing, storing, retrieving and comparing fingerprints has become
increasingly automated as a result of advances in optics, electronics and
computing. The Company believes that these advances will enable fingerprint
identification technology to be used to confirm an individual's identity for a
large number of commercial applications. Although the Company believes that a
small percentage of the population may be unable to utilize fingerprint
technology due to the absence of readable fingerprints and although certain
other biometrics might be more appropriate for specialized applications, the
Company believes that fingerprints are the most effective biometric for
widespread commercial use. Relative to other biometric alternatives,
fingerprint-based systems are believed to have significant technological
advantages, including speed, accuracy and the relatively small size of the
reading device. Although the costs of fingerprint identification technology have
been declining in recent years, the Company believes that costs have not yet
reached a level competitive with PINs and passwords. The Company believes that
its technology will reduce costs of fingerprint identification products to
facilitate their widespread commercial adoption.

CURRENT FINGERPRINT IDENTIFICATION TECHNOLOGIES

To date, in addition to the Company's technology, two primary fingerprint
identification technologies have been developed: optical sensor technology and
direct-contact silicon-based sensor technology. The majority of fingerprint
sensors currently in use and available for purchase are optical sensors. In such
devices, light enters a conventional or holographic prism and illuminates the
image of

33
<PAGE>

a fingerprint created by the oil and moisture of a finger that has been placed
on the prism surface. The fingerprint image is then captured by imaging sensor
electronics.

Recently, several companies have demonstrated fingerprint sensor prototypes
that utilize direct-contact silicon-based technology. These sensors measure the
electric field around a fingertip placed on the silicon device surface to
generate a digital representation of the ridges and valleys of the finger. This
technology has several reported advantages over optical sensor technology, the
most important of which are its relatively small size and its applicability to a
broader segment of the population. The Company believes that current
direct-contact silicon-based systems may potentially be reduced to less than one
cubic inch. In addition, this electric field-based technology does not rely on
oil or moisture on the skin and therefore improves the fingerprint image quality
for that segment of the population who have dry skin.

Neither of these technologies, however, has achieved widespread commercial
acceptance. To date, each of these technologies possesses one or more of the
following inherent limitations: high unit cost, large size, lack of reliability,
high power requirements and susceptibility to damage.

The Company has developed a proprietary approach to fingerprint
identification that addresses many of the limitations of existing optical and
direct-contact silicon-based sensor technologies. The Company's proprietary
TactileSense technology uses a polymeric sensor to measure the electric current
modulated by the ridges and valleys that comprise a fingerprint. The finger is
placed on one side of the polymer and a high resolution image of the finger
appears on the opposite surface. This image is then directed through a low cost
plastic lens onto a small custom optical sensor where it is captured and
digitized.

THE WHO? VISION ADVANTAGE

Who? Vision believes that its patent-pending TactileSense fingerprint
identification technology possesses several positive characteristics that
collectively give it a competitive advantage over alternative technologies and
will allow its technology to be incorporated into numerous commercial
applications. These characteristics include:

Low Cost. The Company believes that lower costs are necessary to
facilitate the widespread commercialization of fingerprint identification
devices and that its proprietary TactileSense technology will enable the Company
to price its products at a level that will make widespread commercial adoption
viable. The primary factors that determine the production cost of a fingerprint
identification device are the cost of the materials utilized and the complexity
of its assembly process. Silicon represents a significant component of the
production cost of direct-contact silicon-based sensors. Although a TactileSense
product utilizes a silicon chip to ultimately capture and digitize the
fingerprint image, it uses a lens to reduce the fingerprint image size. As a
result, the silicon sensor used in a TactileSense product is approximately
twenty times smaller than that required for a direct-contact silicon-based
sensor. The fingerprint reader used in direct-contact silicon-based sensors
cannot be smaller than the size of the human fingertip. Because the Company's
technology requires much smaller quantities of costly silicon, it is expected to
have inherent cost advantages over direct-contact silicon-based technologies.
Furthermore, the Company believes that it can reduce the production costs of
TactileSense products over time by integrating more digital circuitry on the
image sensor chip itself. In addition, TactileSense devices are significantly
less complex, have fewer optical components and require a lesser degree of
precision in their assembly than existing optical fingerprint sensors, thereby
making assembly less costly.

Small Size. Size reduction is critical for the continued expansion of
commercial applications for fingerprint identification products. For example,
small fingerprint identification devices can be incorporated into computer
peripherals, such as keyboards and monitors, and directly into laptop computers
and cellular phones. TactileSense technology has enabled the development of
fingerprint identification devices of approximately two cubic inches in size,
with the potential for significantly smaller devices in the future.

High Reliability Matching. Certain conditions relating to an individual's
finger and the environment can significantly impact fingerprint image quality.
For example, optical technologies rely

34
<PAGE>

on the presence of oil and moisture on the skin and will often generate low
quality fingerprint images for individuals with dry skin. In addition, optical
technologies are susceptible to false readings caused by ambient light from
sources such as bright desk lamps. The electric-field sensing technology of
TactileSense significantly reduces dry skin and ambient light problems.

Anti-Fraud Capability. To ensure positive identification, it is essential
for fingerprint identification devices to verify that a fingerprint image has
been generated by a live finger and not by an artificial replica. The devices,
utilizing the TactileSense electric-field sensing technology, are capable of
discerning real fingers from artificial replicas. Optical technologies, however,
are often unable to differentiate such fingerprints, thereby potentially
exposing systems utilizing these technologies to fraudulent activity.

Durability. The potential for highly repetitive utilization of fingerprint
identification devices in widespread commercial applications and their potential
use in harsh environments require them to be both durable and sturdy. Optical
technologies face the challenge of protecting a transparent optical surface from
long-term damage, and these surfaces typically must undergo regular replacement.
Direct-contact silicon-based technologies, although coated with a thin layer of
hard material, may be sensitive to common environmental conditions, such as
electrostatic discharge, which could damage the device. The TactileSense
material is coated with protective polymer materials to ensure its long-term
durability. Additionally, TactileSense's silicon sensor does not come into
contact with the finger surface thereby avoiding certain harmful environmental
hazards such as electrostatic discharge.

Low Power Consumption. Due to the increasing miniaturization and
portability of computers and other electronic devices, it is essential that
commercial security devices be energy efficient. The ability to operate without
an external light source and to enter into a low power "idle" mode allows
TactileSense products to be energy efficient and therefore makes them
advantageous for power sensitive applications such as a laptop computers and
cellular phones.

BUSINESS STRATEGY

The Company seeks to leverage the inherent advantages of its TactileSense
technology and the increasing need for positive identification to introduce
highly reliable, small and durable fingerprint identification devices at price
points that will facilitate the widespread adoption of its device into numerous
markets. The Company plans to pursue this objective through the following
strategic initiatives:

Provide High Quality, Cost-Effective Products. The Company believes that
its TactileSense technology enables the commercialization of a high quality
fingerprint identification sensor that can be marketed at a price point that
will facilitate the rapid adoption of the technology into a wide variety of
markets. In addition, the Company has designed its TactileSense product to
include standard or readily available "off-the-shelf" components, which do not
require high precision alignment or complex assembly. While competitive
fingerprint identification technologies exist, the Company believes that the
characteristics of its TactileSense technology position it to overcome the
price, size, reliability and durability constraints of such competing
technologies.

Focus Initial Commercialization Efforts on the Computer Network Security
Market. According to Dataquest, there were an excess of 270 million existing
PCs worldwide in 1997, and with worldwide PC purchases expected to exceed 80
million in 1997 and projected to increase at a compound annual growth rate of
approximately 15% from 1997 to 2002. The rapid growth in and increased
dependence on information technology has created a favorable environment for the
commercial adoption of the Company's high quality, cost-effective TactileSense
fingerprint identification device. Consequently, the Company is focusing its
initial commercialization efforts on the information technology market. Within
this market, the Company will focus initially on selected applications within
the computer network security market, in particular the healthcare and financial
services industries. The Company believes the corporate network security market
will evolve from early individual and small business adopters to high volume
larger commercial entities.

Pursue Additional Application Markets. While the Company's initial
commercialization focus is the computer network security market, the Company
intends to pursue several additional application

35
<PAGE>

markets for its TactileSense product, both in the U.S. and internationally, such
as consumer electronic security and access control applications. Potential
noncomputer consumer electronic security applications include integration into
cellular phones, cable set-top boxes, point-of-sale devices and other high-value
personal or commercial electronic systems. The Company believes that it is
particularly well-positioned to pursue cellular phone applications, which it
believes will present a significant market opportunity. Potential access control
applications may range from simple applications, such as replacing standard door
locks, to more advanced applications, such as automotive and building security
systems. The Company believes these markets are significant and intends to
devote time and resources to developing these application markets, and in
particular those that it considers to possess high-value and involve early
technology adopters. See "Business -- Markets."

Utilize Strategic Alliances for Manufacturing and Distribution
Functions. The Company is focused on the design and development of fingerprint
identification technologies. Consequently, the Company is forming strategic
alliances with leading manufacturers, distributors and other third parties in
order to enable the Company to maintain its focus on advancing its core
technology. The Company believes that entering into strategic alliances for its
manufacturing and distribution functions will (i) allow for rapid penetration of
targeted markets, (ii) provide significant cost benefits due to the
manufacturing and volume purchasing scale advantages possessed by its strategic
partners and (iii) mitigate the potential risks associated with such activities
by working with strategic partners that have proven manufacturing and
distribution capabilities.

In order to address the large computer network security market, the Company
has formed strategic partnerships with leading computer peripheral manufacturers
that the Company believes possess strong distribution capabilities to sell the
Company's product into selected high volume mass markets. Additionally, the
Company is developing relationships with leading PC manufacturers.

Focus on Continued Product Development. The Company has devoted a
significant amount of its resources to the development of its TactileSense
technology. The Company intends to continue to devote significant time and
resources to enhance its current core technology to effect reductions in the
cost and size of its products and to further improve reliability and durability
of its products. In addition, the Company seeks to identify and develop the next
generation fingerprint identification technology by pursuing targeted research
and development initiatives.

Pursue Software Alliances and Conform to Emerging Software
Standards. Initially, the Company through its strategic partners intends to
enter into alliances with software companies which have products that will be
integrated into the Company's products to provide customers with turnkey
security solutions. The Company believes that it is necessary to enter into
these alliances in the absence of a standard software protocol or application
program interface ("API") for biometrics. The Company seeks to enter into
strategic alliances with leading software providers to achieve this goal.
Currently, several APIs for biometrics are being developed. The Company believes
that the adoption of a single standard API would accelerate the acceptance of
its products and has participated in software industry standard setting
committees. The Company believes that its products will be easily conformed to
the standards that may be established in the future.

MARKETS

The Company believes that its TactileSense fingerprint identification
technology is well-positioned to achieve widespread adoption in numerous
commercial mass markets because of its unique characteristics and effectiveness.
The Company is focusing its initial commercialization efforts on areas in which
it believes it can gain rapid penetration and achieve significant market share,
specifically the computer network security market. Furthermore, the Company is
targeting specific industries within this market that have an awareness of and
immediate need for the technology to control access to records and/or identify
individuals entering into electronic transactions. The healthcare and financial
services industries are examples in which such needs currently exist.
Additionally, the Company believes that its TactileSense products can be
integrated into a wide variety of other, noncomputer security applications.

36
<PAGE>

COMPUTER NETWORK SECURITY MARKET

The shift from mainframes to distributed computer networks has led to a
dramatic increase in the number of users now sharing computer resources and
communicating with each other over local and wide-area networks and public
networks such as the Internet. As open electronic communications become more
prevalent, personal and corporate information becomes increasingly vulnerable to
unauthorized or inappropriate access. Whether restricting a child's access to
private files or inappropriate Internet usage at home or safeguarding against
attempts to access, alter or steal proprietary information at the corporate
level, the cost of ineffective computer network security can be significant.

The Company believes the addressable market for its TactileSense technology
is the number of existing and new PCs. According to an April 1998 Dataquest
report, the worldwide installed base of PCs totaled more than 270 million in
1997. Additionally, the report estimated that over 80 million new PCs were
purchased worldwide in 1997, with approximately 75% and 25% of these used in
professional and private environments, respectively. Furthermore, compound
annual growth for new PC purchases was projected by Dataquest to be
approximately 15% through the year 2002. Within the PC market, the Company's
device is expected to be sold (i) as a stand alone attachment to existing PCs,
(ii) as a value-added product feature embedded into newly manufactured PC
keyboards, monitors and other peripherals and (iii) directly to PC manufacturers
for inclusion as a base or optional product feature.

The Company's primary near-term commercialization effort is to introduce
its TactileSense technology for use with PCs as a highly reliable and
cost-effective means of data and network security. The Company views this market
opportunity as evolving quickly from the early individual and small business
adopters ("Retail" segment) to the high-volume larger commercial entities
("Enterprise" segment).

In order to address both the Retail and Enterprise segments, the Company
has entered into strategic partnerships with two leading computer peripheral
manufacturer that possess significant distribution capabilities to these target
segments. Additionally, the Company has had extensive discussions with, and is
committing significant internal resources to, developing close relationships
directly with major PC manufacturers.

Retail Segment

The Company believes that the Retail segment can be divided into three
categories:

Home User Desktop Security. Applications for the Company's TactileSense
products within the Home User Desktop Security Market include data privacy for
shared home computer systems, password elimination and child Internet-control.
According to a January 1998 survey by Dataquest, 40.1% of the U.S. households
surveyed in 1997 had a PC. The Company believes that this retail category
presents a significant potential market opportunity.

Small Business Desktop Security. Applications for the Company's
TactileSense products with the Small Business Desktop Security Market include
data security for confidential accounting and human resources data and password
elimination. According to a U.S. Small Business Administration study, there were
23.3 million businesses of 500 employees or less within the U.S. in 1996. The
Company believes that this retail category presents a significant potential
market opportunity.

On-line Service Security. Use of fingerprint security for accessing
on-line accounts represents a large potential market as electronic commerce such
as home banking, stock trading and general Internet-based purchasing increases.
According to a fall 1997 CommerceNet/Nielsen Demographic study, approximately 52
million users (over the age of 16) in the U.S. had used the Internet in the
prior three-month period. Furthermore, estimates based on various
CommerceNet/Nielsen Demographic studies show worldwide usage at approximately
99.5 million users. A March 1998 International Data Corporation report estimates
that global Internet commerce revenues will grow from approximately $12.4
billion in 1997 to approximately $425.7 billion in 2002.

37
<PAGE>

The Company believes that initially these opportunities are best addressed
by the sale of standalone fingerprint peripheral devices through the mass-market
retail channels of its distribution partners and in the longer term by
incorporating the devices directly into PCs and peripherals.

Enterprise Segment

The Enterprise segment, which is comprised of large corporations and other
organizations, can be divided into multiple vertical markets, including
healthcare, financial services, government, manufacturing, technology and
utilities. Applications common to each include password elimination and data
security. Vertical markets within the Enterprise segment that have exhibited
near-term demand for TactileSense devices include the healthcare and financial
services industries.

Healthcare Industry. Within the healthcare industry, there is a high degree
of concern over the confidential treatment of patient and related medical
records. Due to the large volumes of patient data and the need to access this
information quickly and at multiple locations, electronic storage and retrieval
databases are being widely adopted as a means to enhance productivity. However,
because of the confidential nature of medical information, and recent Federal
legislation that mandates the protection of this data, hospitals and other
healthcare providers are increasingly seeking to improve the security of patient
records while providing an audit trail of the review or modification of such
records. One of the Company's distribution partners has engaged in discussions
with several leading healthcare institutions and has experienced significant
demand for the Company's product from these institutions.

Financial Services Industry. The financial services industry is
increasingly exploring ways to improve customer service, such as providing
remote access to individual accounts and allowing clients to conduct various
transactions electronically. However, the Company believes that widespread
acceptance of many of these services has been slow due to security concerns
regarding the inability to positively identify the user attempting to gain
access to an account or make a financial transaction. The Company and its
distribution partners are engaged in discussions with several leading financial
institutions in order to develop this market opportunity.

Other Market Opportunities

The need for a reliable method of positive identification exists in a wide
variety of commercial and noncommercial applications. Consequently, the Company
intends to pursue several additional market opportunities for its TactileSense
product beyond the computer network security market, such as consumer electronic
security and access control applications. Potential noncomputer consumer
electronic security applications include integration into cellular phones, cable
set-top boxes, point-of-sale devices and other high-value personal or commercial
electronic systems. Of particular interest to the Company is the rapidly growing
cellular phone market. As cellular phone manufacturers continue to integrate
added functionality such as Internet access into the handsets, the Company
believes that these devices will require biometric security to secure
communications. Additionally, thefts of cellular phone numbers cost the
telephone industry over $2 billion annually, which could be substantially
mitigated through incorporation of a fingerprint sensor which validates the
identity of the user. Potential access control applications may range from
simple applications, such as replacing standard door locks, to more advanced
applications, such as automotive and building security systems. The Company
believes these markets are significant and intends to devote time and resources
to developing these application markets, and in particular those that it
considers to possess high-value and involve early technology adopters.

SALES AND MARKETING

Critical to the successful implementation of the Company's business
strategy is a rapid penetration of each selected market. For this reason, the
Company is pursuing a two-pronged sales and marketing approach directed to
hardware manufacturers and end-users and applications developers.
Well-established PC peripheral device manufacturers are a target market for
incorporation of the TactileSense fingerprint device which will "push" the
technology into use. At the same time, by marketing to end-users, application
developers and operating system security infrastructure producers,

38
<PAGE>

the Company believes that the resulting software will have attractive features
that users will desire, thereby creating a demand or "pull" for the fingerprint
sensors. The Company believes that this "push-pull" strategy will be the most
effective method for rapid market entry and market share capture.

The Company's sales efforts will thus be directed toward a relatively small
number of large accounts. The Company intends to employ experienced channel
managers who will train the PC manufacturers' sales staff, accompany them on
sales calls and assist in the generation of support materials, including product
release notes and documentation.

The Company's marketing efforts will establish a broad consumer and user
awareness of the technology and its applications. The Company has thus adopted a
strategy that utilizes advertising, trade journal articles and reviews by panels
of "industry experts."

MANUFACTURING

The Company is planning to rapidly expand production capacity for its
products. In order to achieve this result and minimize the risks and expenditure
of its resources, the Company has entered into an agreement with two
international manufacturing partners that have the capacity to manufacture the
volumes anticipated and directly integrate the device into the end product. This
approach will significantly reduce the time to market of the Company's products.
See "-- Strategic Alliances."

TECHNOLOGY

The Company's proprietary patent-pending TactileSense technology was
invented by XL Vision. The technology was transferred to the Company, whose
staff of scientists and engineers has worked to develop a reliable, low cost,
manufacturable device. The Company expects to make considerable ongoing
investments in TactileSense technology and product development, including
working with external technical partners to combine TactileSense with other
advanced technologies to create leading edge fingerprint identification
products. In addition, the Company is focused on providing constant reductions
in product costs and size over time in order to both maximize computer industry
penetration and to address new markets for fingerprint identification
technologies.

A key component of Who? Vision's TactileSense fingerprint identification
technology is a recently developed polymer material that is used to generate a
high-resolution image of an individual's fingerprint. When the light emitting
polymer comes into contact with the electric current present within the
fingertip, a precise illuminated image is generated, revealing the fingerprint
patterns of ridges and valleys specific to the individual.

Once an image of the fingerprint has been generated, the image must be
captured and transformed into a form suitable for use in a digital system,
typically a PC. Traditionally, such digital imaging capture has been performed
using charge-coupled-devices ("CCD"), a highly specialized and expensive form of
silicon chip. In recent years, a new image capture technology has emerged that
utilizes complementary metal oxide semiconductors ("CMOS") to fabricate chips
for digital image capture. Not only are such chips far less expensive than
comparable CCDs, they have an additional advantage of enabling specialized
digital processing and interface circuits to be created on the same chip that
captures the image.

An advantage of the TactileSense fingerprint device is that it is
relatively simple, comprised of only four primary components:

o The finger contact/image generation surface which is approximately one
square inch of TactileSense material.

o An electrical circuit that controls the supply of an appropriate current
to the TactileSense material.

o A CMOS chip that combines an image capture function with a digital
interface.

o A low-cost injection-molded plastic lens that reduces the size of the
image and directs it onto the CMOS chip.

39
<PAGE>

Once an image of the fingerprint has been captured using the Company's
hardware, it must be processed to precisely locate the fingerprint "minutiae"
that uniquely identify an individual. The Company has licensed computer software
that incorporates patented algorithms from The Phoenix Group, Inc. ("Phoenix")
for this processing which can be executed on either a standard general purpose
PC or a low-cost, purpose-specific "embedded" computer of the Company's own
design. In order to facilitate communications with a broad range of computer
platforms, the Company is developing a range of standard PC interfaces including
parallel port and Universal Serial Bus.

PATENTS AND PROPRIETARY TECHNOLOGY

The Company's commercial success will depend in part on its ability to
protect and maintain its proprietary technology and to obtain and enforce
patents on its technology. The Company has applied for two patents with the U.S.
Patent and Trademark Office regarding certain aspects of the Company's
fingerprint imaging technology. The Company has also filed foreign patent
applications that correspond to its U.S. patent applications. The Company is not
aware of any patents held by others that would prevent the Company from
manufacturing and commercializing its fingerprint imaging technology in the
United States and abroad. However, the Company has not performed an exhaustive
worldwide search. There can be no assurance that any patent applications filed
by the Company will result in the issuance of patents or that any patents issued
to the Company will afford protection against competitors that develop similar
technology, or that a competitor will not reverse engineer the Company's
technology.

The Company currently relies on a combination of trade secrets, proprietary
knowledge, technological advances and non-disclosure, confidentiality and
non-competition agreements entered into with its employees and certain
consultants, customers and suppliers to protect its proprietary rights. No
assurance can be given that the Company's efforts will provide meaningful
protection for its unpatented proprietary technology against others who
independently develop or otherwise acquire substantially equivalent technologies
or gain access to, misappropriate or disclose the Company's proprietary
technology.

There can be no assurance that other parties will not in the future make
claims or threaten to take legal action against the Company alleging
infringement of patents by the Company. The computer manufacturing and software
industry has experienced a significant amount of litigation regarding patents
and other rights. Patent litigation can be costly and time consuming. If the
Company were determined to be infringing any patent, the Company could be
required to pay damages, alter its products or processes, obtain licenses and/or
cease certain activities. In addition, if patents are issued to others which
contain claims that cover subject matter made, used or sold by the Company, the
Company may be required to obtain licenses to these patents, to develop or
obtain alternative technology or to cease using such technology. If the Company
is required to obtain any licenses, there can be no assurance that the Company
will be able to do so on terms acceptable to the Company, if at all.

PRODUCT DEVELOPMENT

The Company intends to continue to devote significant time and resources to
enhance its current core technology to effect reductions in the cost and size of
its products and to improve reliability and durability of its products. As of
June 30, 1998, the Company had 27 employees dedicated to product development,
including several scientists who hold Ph.D. degrees in various disciplines,
primarily in the areas of electrical engineering, physics and mathematics. Over
50% of the Company's expenses during the period ended December 31, 1997 and over
53% of the Company's expenses for the three months ended March 31, 1998 were
related to research and development. The Company intends to continue to invest
heavily in research and development and focus on the recruitment of experienced
scientists and engineers.

40
<PAGE>

STRATEGIC ALLIANCES

In order to fulfill its manufacturing and distribution requirements, the
Company has entered into agreements with SPOT and Silitek to provide global
sales, manufacturing, service and distribution infrastructures in the Company's
target markets.

The Company has entered into a strategic alliance with SPOT, a Taiwanese
computer peripheral company, for the high-volume manufacture and distribution of
its TactileSense fingerprint identification devices. SPOT provides low-cost,
high resolution digital imaging products worldwide and is a subsidiary of MAG.
MAG is the second largest monitor manufacturer in Taiwan, supplying products to
major retail outlets and PC manufacturers worldwide including Wal-Mart Stores,
Inc., CompUSA, Inc. and Gateway 2000, Inc. The Company has entered into a
manufacturing agreement and a distribution agreement with SPOT. Pursuant to the
manufacturing agreement, SPOT will manufacture and sell TactileSense fingerprint
identification devices to the Company at cost plus a fixed mark-up. Pursuant to
the agreement, the Company is obligated to meet certain minimum purchase
requirements. The Company will then resell the devices to distribution channels,
including SPOT. The distribution agreement provides SPOT with the rights to
market fingerprint identification devices to manufacturers of monitors,
keyboards and mice and into certain retail channels. In order to retain certain
of its distribution rights, SPOT is required to purchase a minimum number of
fingerprint devices from the Company. The agreement also requires SPOT to
purchase all of its fingerprint identification devices for distribution through
certain channels set forth in the agreement from the Company.

The Company has also formed a strategic alliance with Silitek, a Taiwanese
manufacturer and distributor of computer peripherals and one of the top three
keyboard manufacturers in the world, whose customers include Dell Computer
Corporation, Hewlett-Packard Company, and Compaq Computer Corporation. The
Company granted to Silitek a license, subject to certain manufacturing rights
granted to SPOT, to be the only major keyboard manufacturer permitted to
manufacture the Company's fingerprint identification devices. In accordance with
a manufacturing agreement, Silitek will manufacture fingerprint identification
devices pursuant to the Company's purchase orders and sell them to the Company
at cost plus a fixed mark-up. Pursuant to a distribution agreement, Silitek and
the Company's other distribution partners will then purchase such devices from
the Company and incorporate them into their keyboards and stand-alone peripheral
units for resale into established PC and other markets.

In July 1998, the Company entered into a value-added reseller ("VAR")
agreement with Integrated Visions, which is engaged in the business of providing
integrated security solutions incorporating biometric identification to its
clients in vertical markets such as healthcare and financial services.
Integrated Visions is a development stage company and a subsidiary of XL Vision.
See "Management -- Certain Relationships" and "Certain Transactions." The
Company granted Integrated Visions the right to market and sell the TactileSense
fingerprint identification device on a non-exclusive basis as a component of and
in conjunction with the sale of computer hardware, software and/or systems
integration services to non-retail end users and to other third party resellers
in vertical markets, including healthcare and financial services. Integrated
Visions and its third party resellers may only resell the fingerprint device as
part of a complete business solution for its non-retail customers and are
prohibited from selling into distribution channels granted to SPOT and Silitek.
The Company has agreed to sell the fingerprint identification devices to
Integrated Visions at the lowest price for which it sells such devices to other
resellers who purchase similar volumes provided that Integrated Visions
purchases a minimum number of devices from the Company.

The Company plans to enter into arrangements with other manufacturing and
distribution partners for other product applications and/or markets.

The Company has also formed a strategic alliance with Phoenix from which
the Company licenses field-tested fingerprint matching software. In
consideration of the grant by Phoenix to the Company of this nonexclusive,
worldwide license, the Company issued 73,167 shares of its Common Stock to
Phoenix in addition to paying quarterly license fees. See Note 10 of the Notes
to Financial Statements. The License Agreement, which was originally entered
into by XL Vision on November 5, 1997 and subsequently assigned to the Company,
expires on December 31, 2002, but will automatically renew for additional one
year terms unless the Company gives Phoenix 90 days notice before the end of
each term.

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<PAGE>

COMPETITION

Although the biometric identification industry has yet to develop fully,
the Company anticipates that it will be characterized by intense competition.
The Company will generally compete with producers of both non-biometric and
biometric methods of restricting access. Non-biometric methods of restricting
access, such as keys, tokens, PINs and passwords, will initially compete with
the Company's devices. The Company will compete more directly with other
biometric methods of restricting access, such as signature verification, voice
recognition, iris recognition, facial recognition, hand geometry recognition and
retinal scanning. Companies who develop and distribute fingerprint
identification devices, such as American Biometric Company, Digital Persona,
Inc., Harris Corporation, Identicator, Inc., Identix Incorporated, Siemens AG,
ST Microelectronics N.V., Thomson-CSF and Veridicom, Inc., will compete directly
with the Company. The Company will face additional competition from other
established and emerging companies in each market in which the Company intends
to compete. The Company believes that it has developed technology that has cost
and technological advantages over the technologies employed by its competition
and that these differences will allow the Company to successfully differentiate
its products in the market.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings.

GOVERNMENTAL REGULATION

The Company's products are subject to restrictions on their export to and
reexport from many foreign countries. These restrictions require the Company to
obtain a validated export license prior to the sale of its products to
purchasers in such countries, thereby making many of the Company's sales to
foreign countries subject to the approval of the U.S. Department of Commerce.
Such requirements are not expected to have a material adverse effect on the
Company.

A bill has recently been proposed in California which would limit the
collecting or sharing of biometric information such as fingerprint information.
The bill, if enacted, will limit the creation of a database of fingerprints and
therefore adversely affect the demand in California for certain products which
incorporate the Company's technology. In addition, other states may enact
legislation which restrict the use and dissemination of data derived from
biometric products, which could have a material adverse effect on the Company's
ability to commercialize its products in such markets.

EMPLOYEES

As of June 30, 1998, the Company employed a total of 37 persons, including
27 persons in product development and engineering, three persons in marketing
and sales, and seven persons in administration. The Company is not subject to
any collective bargaining agreements and the Company believes that its
relationship with its employees is good.

FACILITIES

The Company's corporate facilities located in Lake Forest, California
occupy approximately 21,000 square feet. The lease has a five year term with
monthly base rent of approximately $20,000 and additional provisions for
allocations of direct expense charges for building upkeep, maintenance and
property taxes. This lease expires on May 17, 2003 at which time the Company has
an option to renew the lease for an additional five-year term. The Company
believes that this space is adequate to support its needs for the foreseeable
future.

<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Alexander G. Dickinson, Ph.D.(1)................ 36 Chief Executive Officer and Director

James W. Kerrigan............................... 62 Chief Financial Officer

Tzu-Chiang Hsieh, Ph.D.......................... 42 Vice President and Chief Operating Officer

John S. Scott, Ph.D.(1)......................... 47 Chairman of the Board of Directors

Edward Anderson(2)(3)........................... 51 Director

Walter W. Buckley, III(2)(3).................... 37 Director

Alex W. Hart.................................... 58 Director

James Ionson, Ph.D.(3).......................... 47 Director

Christopher Moller, Ph.D........................ 44 Director

Charles A. Root(1)(2)........................... 65 Director
</TABLE>

- ------------------
(1) Member of the Executive Committee

(2) Member of the Audit Committee

(3) Member of the Compensation Committee

Alexander G. Dickinson, Ph.D. has been Chief Executive Officer of the
Company since May 1997 and a Director of the Company since July 1997. From
February 1996 until joining the Company, Dr. Dickinson held the position of
Director of Strategy and Business Development at Lucent Technologies, Inc. where
he developed new ventures based on AT&T Bell Labs technologies, including
fingerprint sensing and single-chip cameras. From January 1988 until February
1996, Dr. Dickinson led a digital imaging research and development group within
Bell Labs. Before joining Bell Labs, Dr. Dickinson co-founded and managed two
Australian high technology start-up companies. Dr. Dickinson holds a Ph.D. in
Electrical Engineering from the University of Adelaide, Australia and an M.B.A.
from Columbia University. Dr. Dickinson holds 16 patents relating to various
aspects of chip design and imaging.

James W. Kerrigan has been Chief Financial Officer of the Company since
March 1998. From March 1997 through March 1998, Mr. Kerrigan was a self-employed
securities trader. From April 1995 to March 1997, Mr. Kerrigan was Chief
Financial Officer of Artios Corporation, a company that develops enterprise and
computer-aided design software and manufactures peripheral devices for
prototyping in the packaging industry. From October 1994 to January 1995, Mr.
Kerrigan served as Chief Financial Officer of Pinnacle Micro Inc., a computer
peripheral manufacturer. From 1988 to 1994, Mr. Kerrigan was Chief Financial
Officer of PDA Engineering Inc., a computer-aided engineering software company.
He holds a B.S. in engineering and an M.B.A. from Northwestern University.

Tzu-Chiang Hsieh, Ph.D. has been Chief Operating Officer of the Company
since December 1997. From its inception in May 1997 to December 1997, Dr. Hsieh
served as Chief Technology Officer of the Company. From May 1996 until joining
the Company, Dr. Hsieh led a Rockwell International Corp. program to
commercialize its CMOS imager and companion image processing technologies for
videoconferencing applications. From April 1994 to April 1996, Dr. Hsieh managed
a program at Polaroid Corporation to integrate image acquisition, transmission
and printing with value-added software for consumer and business use. Prior to
April 1994, he held various technical and management positions within Polaroid.
Dr. Hsieh received a Ph.D. in Experimental Solid State Physics

<PAGE>

from the University of Illinois at Urbana-Champaign in 1986. Dr. Hsieh holds
several patents in solid-state digital imaging.

John S. Scott, Ph.D. has been Chairman of the Board of the Company since
July 1997. Since May 1993, he has also been Chairman of the Board and Chief
Executive Officer of XL Vision. From 1991 until July 1993, Dr. Scott was the
President of Lenzar Electro-Optics, Inc., a manufacturer of imaging devices. Dr.
Scott has a Ph.D. in both physics (turbulence and particle acceleration,
associated space-borne instrumentation, plasma physics and electro-optical
sensor system development) and astrophysics from the University of Arizona. He
has designed and developed scanners for a wide range of media types including
intelligence imagery, microfiche, microfilm, fingerprint cards, aerial photos,
voter registration cards and medical x-rays. Dr. Scott is also Chairman of the
Board of ChromaVision Medical Systems, Inc., a Safeguard partnership company.

Edward Anderson has been a Director of the Company since November 1997. Mr.
Anderson has served since January 1994 as President and Chief Executive Officer
of CompuCom Systems, Inc., a Safeguard partnership company. CompuCom is a
leading provider of distributed desktop computer products and network
integration services with annual revenues in excess of $2 billion. Mr. Anderson
joined CompuCom in August 1993 as Chief Operating Officer and has been a
Director of CompuCom since 1993. Prior to joining CompuCom, Mr. Anderson was
President and Chief Operating Officer of ComputerLand Corp. from 1989 until
1993. Mr. Anderson is a director of Diamond Technology Partners, a Safeguard
partnership company, and M/A/R/C Inc.

Walter W. Buckley, III has been a Director of the Company since November
1997. Mr. Buckley has been the President and Chief Executive Officer of Internet
Capital Group, a Safeguard partnership company which invests primarily in
Internet companies, since March 1996. Prior to that, Mr. Buckley worked for
Safeguard since 1987, most recently as Vice President. Prior to joining
Safeguard, Mr. Buckley was President and co-founder of Centralized Management
Systems, Inc., a medical supply company, which he sold in 1987. Mr. Buckley is a
member of the Board of Directors of Internet Capital Group, Sky Alland Marketing
Inc., MultiGen, Inc., VerticalNet, Inc., and XL Vision.

Alex W. Hart has been a Director of the Company since April 1998. Mr. Hart
has served as the Chief Executive Officer of Advanta Corp. from 1996 to 1998,
and as an officer of Advanta Corp. since 1994. Prior to that time, he was
President and Chief Executive Officer of Mastercard International Inc., a
position he held since 1988. For a period of ten years prior to joining
Mastercard, Mr. Hart served as Executive Vice President of First Interstate
Bancorp, Los Angeles.

James Ionson, Ph.D. has been a Director of the Company since November 1997.
Dr. Ionson is President and Chief Executive Officer of JDC, Inc., a management
consultant firm. Previously, Dr. Ionson worked for Polaroid Corporation from
1991 to 1995 where he served as corporate vice president of ImageNow business
development from 1994 to 1995, and corporate vice president of research and
technology from 1991 to 1994. Dr. Ionson held the Harvard Smithsonian
Astrophysical Observatory Award from 1981 to 1984 and was the Maryland Academy
of Sciences Scientist of the Year in 1983.

Christopher Moller, Ph.D. has been a Director of the Company since February
1998. Dr. Moller has served as Managing Director of Technology Leaders III and
since 1994 Technology Leaders II Management L.P., and in various capacities
since 1990 with its predecessors. He holds a Ph.D. in immunology from the
University of Pennsylvania. He is a director of five biotechnology companies
including ViroPharma, Inc. Dr. Moller serves on the medical advisory board of
Lankenau Research Institute. Dr. Moller is a director of ChromaVision Medical
Systems, Inc., a Safeguard partnership company.

Charles A. Root has been a Director of the Company since November 1997.
Since 1986, Mr. Root has served as an Executive Vice President of Safeguard.
From 1988 until March 1994, Mr. Root served as Chairman and Chief Executive
Officer of Coherent Communications Systems Corporation, a Safeguard partnership
company which manufactures telecommunications equipment, where he

<PAGE>

continues to serve as Chairman. Mr. Root is Chairman of Tangram Enterprise
Solutions, Inc. and a director of ChromaVision Medical Systems Inc., a Safeguard
partnership company.

Each director is elected to hold office until the next annual meeting of
stockholders and until his respective successor is elected and qualified. The
Board of Directors has a Compensation Committee, which makes recommendations
concerning salaries and incentive compensation for employees of and consultants
to the Company; an Audit Committee, which reviews the results and scope of the
audit and other services provided by the Company's independent auditors; and an
Executive Committee. All non-employee directors are reimbursed for travel and
other expenses related to their service on the Board of Directors.

KEY EMPLOYEES

Brian D. Berger has been Vice President, Product Management of the Company
since April 1998. From May 1988 until joining the Company, Mr. Berger held
various marketing and sales positions with NMB Technologies Inc. ("NMB"), one
the world's largest computer keyboard manufacturers. Prior to joining the
Company, Mr. Berger was Product Sales Manager, Input Devices at NMB. Mr. Berger
has related technical experience in fingerprint technologies through his
marketing association with the product development process at NMB. Mr. Berger
holds a B.A. degree from California State University, Northridge.

William E. Donahoo has been Vice President, Marketing of the Company since
July 1998. From February 1997 to February 1998, Mr. Donahoo was Vice President,
Marketing and a founder of Novonyx, Inc., a company funded by Novell, Inc. and
Netscape Communications Corporation to provide Netscape Internet solutions for
Novell NetWare software. Novonyx was acquired by Novell in February 1998. From
1990 to February 1997, Mr. Donahoo held various senior management positions in
markeing with Novell. From 1986 to 1990 he was with Sanyo/Icon, a UNIX network
server manufacturer. He holds a B.S. degree in Computer Science and an M.B.A.
from Brigham Young University.

Robert L. Miller has been Executive Vice President, Business Development of
the Company since April 1998. From January 1997 to January 1998, Mr. Miller was
Executive Vice President for Customer Care, BellSouth Business Systems Inc. From
August 1995 to January 1997, Mr. Miller was Vice President and General Manager,
Sales and Service for BellSouth Business Systems. From 1976 to 1995, Mr. Miller
held various executive and managerial sales and marketing positions with IBM.
Mr. Miller holds a B.S. degree in Commerce and Engineering from Drexel
University and an M.S. degree from MIT's Sloan School.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to December 1997, the Company did not have a Compensation Committee
or any other committee of the Board of Directors performing similar functions.
Recommendations concerning all of the Company's employees were made to the Board
of Directors by the Company's Chief Executive Officer. There are currently no
compensation committee interlocks with other entities or insider participation
on the Compensation Committee.

CERTAIN RELATIONSHIPS

Technology Leaders Management L.P., a limited partnership, is the sole
general partner of Technology Leaders L.P. and a co-general partner of
Technology Leaders Offshore C.V. Technology Leaders L.P. and Technology Leaders
Offshore C.V. are venture capital funds that are required by their governing
documents to make all investment, voting and disposition actions in tandem.
Technology Leaders L.P. and Technology Leaders Offshore C.V. are referred to
collectively in this Prospectus as "Technology Leaders I." Technology Leaders
Management L.P. has sole responsibility for all investment, voting and
disposition decisions for Technology Leaders I. The general partners of
Technology Leaders Management L.P. are (i) Technology Leaders Management, Inc.,
a privately held subsidiary of Safeguard, (ii) TL Partners I, a general
partnership among Technology Leaders

<PAGE>

Management, Inc. and the Managing Directors of Technology Leaders Management,
Inc., other than Mark J. DeNino, and (iii) four other corporations (the "TLA
Corporations") owned by individuals, one of whom serves as a director of
Safeguard, and three of whom are not currently otherwise affiliated with
Safeguard or the Company. Technology Leaders Management L.P. is managed by an
executive committee, by whose decisions the general partners have agreed to be
bound, that consists of seven voting members including (i) Warren V. Musser,
Robert E. Keith, Jr. and Gary J. Anderson, M.D., each of whom are designees of
Technology Leaders Management, Inc., and (ii) one designee of each of the TLA
Corporations. Clayton S. Rose is a non-voting member of that executive
committee. Technology Leaders Management, Inc. is the administrative manager of
Technology Leaders, subject to the control and direction of the executive
committee of Technology Leaders Management L.P. Mr. Musser is the chairman and
Mr. Keith is president and chief executive officer of Technology Leaders
Management, Inc. and Mr. Keith, Dr. Anderson, Mr. DeNino and Christopher Moller,
Ph.D., a director of the Company, are the managing directors of Technology
Leaders Management, Inc. Mr. Keith and Dr. Anderson are former officers of
Safeguard and Mr. Keith is a director of Safeguard.

Technology Leaders II Management L.P., a limited partnership, is the sole
general partner of Technology Leaders II L.P. and a co-general partner of
Technology Leaders II Offshore C.V. Technology Leaders II L.P. and Technology
Leaders II Offshore C.V. are venture capital funds that are required by their
governing documents to make all investment, voting and disposition actions in
tandem. Technology Leaders II L.P. and Technology Leaders II Offshore C.V. are
referred to in this Prospectus as "Technology Leaders II." Technology Leaders II
Management L.P. has sole authority and responsibility for all investment, voting
and disposition decisions for Technology Leaders II. The general partners of
Technology Leaders II Management, L.P. are (i) Technology Leaders Management,
Inc., a wholly-owned subsidiary of Safeguard, (ii) Robert E. Keith, Jr., Gary J.
Anderson, M.D., Mark J. DeNino and Christopher Moller, Ph.D., a director of the
Company, and (iii) four other corporations (the "TLA Corporations") owned by
natural persons, one of whom is a director of Safeguard. Technology Leaders II
Management L.P. is managed by an executive committee, by whose decisions the
general partners have agreed to be bound, which consists of nine voting members
including (i) Warren V. Musser, who is a designee of Technology Leaders
Management, Inc., (ii) Mr. Keith, Dr. Anderson, Mr. DeNino, Dr. Moller,
individually, and (iii) one designee of each of the TLA Corporations and (as a
non-voting member) Clayton S. Rose. Technology Leaders Management, Inc. is the
administrative manager of Technology Leaders II, subject to the control and
direction of the executive committee of Technology Leaders II Management L.P.
Mr. Keith is a director of Safeguard.

Safeguard Scientifics (Delaware), Inc., a privately held subsidiary of
Safeguard, is a limited partner in Technology Leaders L.P. and Technology
Leaders II, holding 3.3% of the aggregate limited partnership interest in
Technology Leaders L.P. and 4.4% of the aggregate limited partnership interest
in Technology Leaders II L.P. Technology Leaders Management, Inc. holds directly
or indirectly 31% of the general partnership interests in Technology Leaders
Management L.P. and 39% of the general partnership interests in Technology
Leaders II Management L.P.

Internet Capital Group L.L.C. ("Internet Capital") is a limited liability
company organized to invest in and provide strategic management and financial
support to Internet companies. Walter Buckley, a Director of the Company, is the
chief executive officer and a director of Internet Capital Group, Inc., the
management company for Internet Capital. Mr. Buckley is a former officer of
Safeguard. Robert Keith and Warren Musser are also members of Internet Capital's
Board. Safeguard and Technology Leaders II collectively own approximately 37% of
Internet Capital's ownership interests.

Safeguard, Technology Leaders I and Technology Leaders II collectively
beneficially own approximately 41% of the voting common stock of XL Vision and
approximately 97% of the non-voting convertible preferred stock of XL Vision and
have the right to designate two of the nine members of XL Vision's Board of
Directors. In February 1998, the Company raised its initial equity capital
through a private offering of its Series A Preferred Stock primarily to XL
Vision's stockholders. In May 1998 and June 1998, the Company sold an aggregate
of 300,000 shares of its Series B Preferred Stock to Technology Leaders I,
Technology Leaders II and Internet Capital.

<PAGE>

Integrated Visions is a privately held subsidiary of XL Vision. XL Vision
controls 100% of the voting rights of Integrated Visions and approximately 36%
of its issued and outstanding common stock. Integrated Visions is engaged in the
business of providing integrated security solutions incorporating biometric
technology to its clients in vertical markets such as healthcare and financial
services. In July 1998, the Company entered into a VAR agreement with Integrated
Visions pursuant to which Integrated Visions was granted the right to market and
sell the TactileSense fingerprint device on a non-exclusive basis as a component
of and in conjunction with the sale of computer hardware, software and/or
systems integration services to non-retail end users and to other third party
resellers in vertical markets. See -- "Strategic Alliances." Dr. Scott, a
director of the Company, owns approximately 13% of the issued and outstanding
common stock of Integrated Visions. Dr. Scott's shares of Integrated Visions are
restricted shares granted pursuant to XL Vision's Long Term Incentive Plan and
as such, the voting rights related to his shares are controlled by XL Vision.
Dr. Scott is the Chairman of the Board of Integrated Visions and the Chairman of
the Board and Chief Executive Officer of XL Vision. Dr. Dickinson and Dr. Hsieh
received from XL Vision grants of 50,000 and 25,000 shares, respectively, of
restricted stock in Integrated Visions.

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation
paid or accrued from the inception of the Company through December 31, 1997 with
respect to the Company's Chief Executive Officer and its other most highly
compensated executive officer who earned total salary and bonus in excess of
$100,000 (collectively, the "Named Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL ---------------------------
COMPENSATION(1) RESTRICTED SECURITIES
----------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(4) OPTIONS/SARS COMPENSATION
- ------------------------------- ---- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Alexander G. Dickinson,
Ph.D.(2)
Chief Executive Officer...... 1997 $98,470 $40,000 $31,875 -- $43,532

Tzu-Chiang Hsieh, Ph.D.(3)
Vice President and Chief
Operating Officer............ 1997 80,000 31,000 13,125 -- 23,350
</TABLE>

- ------------------
(1) Except as otherwise noted, the annual compensation described in this table
reflects actual salary and bonus paid to such executive officers from the
inception of the Company through December 31, 1997. In 1997, Drs. Dickinson
and Hsieh were paid based upon an annual salary of $160,000 and $130,000,
respectively. The compensation described in this table does not include
medical, group life insurance or other benefits received by the Named
Officers which are available generally to all salaried employees of the
Company and certain perquisites and other personal benefits, securities or
property received by the Named Officers which do not exceed the lesser of
$50,000 or 10% of the aggregate of any such Named Officer's salary and
bonus.

(2) Dr. Dickinson joined the Company on May 22, 1997. Included in Dr.
Dickinson's All Other Compensation is the reimbursement by the Company of
relocation expenses of $42,609 and a Company contribution of $923 to his
401(k) Plan account. Dr. Dickinson earned a bonus of $40,000 for 1997, which
was paid in 1998.

(3) Dr. Hsieh joined the Company on May 19, 1997. Included in Dr. Hsieh's All
Other Compensation is a Company contribution of $1,050 to his 401(k) Plan
account and a $22,300 buyout of XL Vision stock. Dr. Hsieh earned a bonus of
$31,000 for 1997, which was paid in 1998.

(4) In November 1997, Drs. Dickinson and Hsieh were granted restricted stock
grants in the Company of 531,250 and 218,750 shares, respectively, at a
deemed value of $0.06 per share. These amounts were reported as additional
paid compensation to these individuals.

The Named Officers do not hold any options to purchase the Company's Common
Stock and no stock options were granted by the Company to the Named Officers in
1997.

<PAGE>

EQUITY COMPENSATION PLAN

The Company has adopted the Who? Vision Systems, Inc. 1997 Equity
Compensation Plan (the "Plan") pursuant to which it has awarded, and may in the
future award, stock options, restricted stock and equity compensation awards to
its employees, non-employee directors and independent contractors.

The Plan provides for the issuance to employees, non-employee directors and
eligible independent contractors of up to 2,400,000 shares of Common Stock
pursuant to the grant of incentive stock options ("ISOs"), non-qualified stock
options ("NQSOs"), Stock Appreciation Rights ("SARs") and restricted stock
awards. The maximum aggregate number of shares of stock that shall be subject to
grants under the Plan to any recipient shall not exceed 625,000. The Plan is
administered by a committee of two or more non-employee directors appointed by
the Board of Directors (the "Committee"). Subject to the provisions of the Plan,
the Committee has the authority to determine to whom stock options and equity
compensation awards will be granted and the terms of the awards granted,
including the number of shares subject to each award, vesting and exercise
provisions and the duration of an award, to amend the terms of any outstanding
award and to generally deal with any other matters arising under the Plan.

As of July 10, 1998, options to purchase a total of 706,425 shares of
Common Stock, at a weighted average exercise price per share of $1.54 were
outstanding. Options to purchase a total of 15,625 shares were vested and
exercisable as of July 10, 1998. As of July 10, 1998, the Company had an
additional 868,575 shares of Common Stock available for future grants and other
issuances under the Plan. The Company also granted 750,000 shares of restricted
stock under the Plan. Options for 75,000 shares have been exercised.

The option price per share of stock under the Plan shall be determined by
the Committee at the time of each grant, provided, however, that the option
price per share for any ISO shall not be less than 100% of the fair market value
of the stock at the time of the grant. If a 10% stockholder receives an ISO, the
exercise price shall not be less than 110% of the fair market value at the time
of grant. The term of each stock option shall be fixed by the Committee, but
shall not exceed ten years. In the case of a 10% stockholder, the term shall not
exceed five years. Stock options shall be exercisable at such time or times as
shall be determined by the Committee. Payment for the exercise of an option
shall be made by cash, check or other instrument as the Committee may accept,
including, in the discretion of the Committee, unrestricted stock of the
Company. The Committee may also agree to allow an optionholder to elect to cash
out the excess of the fair market value over the option price of all or a
portion of a stock option. The Committee may also grant, in its sole discretion,
a "cashless exercise" feature for the exercise of stock options.

The Board of Directors may amend or revise the terms of the Plan in any
respect whatsoever, provided, that certain amendments of the Plan are subject to
shareholder approval. Unless sooner terminated, the Plan will terminate in 2007.

Under Section 162(m) of the Code, the Company may be precluded from
claiming a federal income tax deduction for total remuneration in excess of
$1,000,000 paid to the Chief Executive Officer or to any of the other four most
highly compensated officers in any one year. Total remuneration would include
amounts received upon the exercise of stock options granted under the Plan. An
exception does exist, however, for "performance-based compensation," including
amounts received upon the exercise of stock options pursuant to a plan approved
by stockholders that meets certain requirements. The Plan is intended to meet
the requirements of Treasury Regulation section 1.162-27(f), and the options
granted under the Plan are intended to meet the requirements of
"performance-based compensation."

<PAGE>

CERTAIN TRANSACTIONS

The Company's business commenced as an unincorporated business division of
XL Vision in May 1997 to develop fingerprint identification technologies. From
inception of the business through its incorporation as a separate entity on June
30, 1997, the Company incurred approximately $184,000 in operating costs. As of
1997, the assets and liabilities of the Company's business were transferred to
the Company in exchange for the assumption of a liability to XL Vision totaling
approximately $126,000. Operations of the Company subsequent to inception have
been funded by loans from XL Vision. In November 1997, 4,223,281 shares of
Common Stock were issued to XL Vision at a purchase price of $0.06 per share. As
of January 14, 1998, the Company issued a promissory note in the principal
amount of $10.0 million bearing interest at 7% in consideration for the one-time
transfer of the TactileSense technology to the Company. XL Vision has agreed to
provide funding to the Company as reasonably required for its working capital
needs until the first to occur of (i) the initial public offering of the Company
and (ii) September 30, 1999. In connection with this commitment, the Company
entered into a loan agreement with XL Vision covering all amounts loaned by XL
Vision for working capital. The loan bears interest at the prime lending rate
plus 1%. Both the note and the loan are due in full upon the earlier of the
closing of the Company's initial public offering and September 30, 1999.

In February 1998, the Company closed a private placement of 8,258,881
shares of Series A Preferred Stock to certain stockholders of XL Vision,
including Safeguard, Technology Leaders I, Technology Leaders II, Charles A.
Root and Walter W. Buckley, III. All of the shares in the private placement were
sold at a purchase price of $1.00 per share. The Company used a portion of the
proceeds from the private placement to repay a portion of the debt to XL Vision.
In connection with the purchase of shares in the private placement, the
purchasers were granted certain registration rights. See "Shares Eligible for
Future Sale -- Registration Rights." In addition, the holders of Series A
Preferred Stock are entitled to elect two members of the Company's Board of
Directors for as long as the Series A Preferred Stock remains outstanding. The
holders entered into an agreement to vote their shares of Series A Preferred
Stock to elect one designee of Safeguard and one designee of Technology Leaders
I and Technology Leaders II, together, to the Company's Board of Directors.
Also, in connection with the private placement, the Company agreed with
Safeguard to make a rights offering of its Common Stock to holders of Safeguard
Common Shares under certain circumstances. Upon consummation of this offering,
all shares of Series A Preferred Stock will automatically convert into Common
Stock.

In May and June 1998, the Company closed a private placement of 1,400,000
shares of Series B Preferred Stock, of which 300,000 shares were issued to
Safeguard affiliates, including Technology Leaders I, Technology Leaders II,
Technology Leaders I Offshore, Technology Leaders II Offshore, and Internet
Capital Group. All of the shares in the private placement were sold at a
purchase price of $3.00 per share. Upon consummation of this offering, all
shares of Series B Preferred Stock will automatically convert into Common Stock.

The Company has entered into an Administrative Services Agreement with
Safeguard and XL Vision. This agreement requires XL Vision and Safeguard to
provide certain administrative services for the Company including management
consultation, investor relations, financial management, human resources
management, legal services, insurance program administration, audit
administration, tax planning, income tax return preparation and other services.
The Administrative Services Agreement requires the Company to accrue an annual
fee payable quarterly to XL Vision and Safeguard based upon an aggregate of 1.5%
of gross revenues subject to an annual limit of $300,000 and a minimum amount of
$100,000. The fee is only payable upon achievement of positive cash flow from
operations. The Administrative Services Agreement extends through May 18, 2003
and continues thereafter unless terminated by any party.

<PAGE>

The Company also entered into a Direct Charge Administrative Services
Agreement with XL Vision. Under this agreement, XL Vision provides
administrative services to the Company at the request of the Company as needed.
The Company accrues fees payable to XL Vision monthly based on actual hours
incurred at individual rates of XL Vision employees who perform the services
plus actual costs incurred. The Direct Charge Administrative Services Agreement
is on a month-to-month basis and provides for termination by either party with
30 days written notice.

In July 1998, the Company entered into a VAR agreement with Integrated
Visions, which is engaged in the business of providing integrated security
solutions incorporating biometric identification to its clients in vertical
markets such as healthcare and financial services. Integrated Visions is a
subsidiary of XL Vision. See "Management -- Certain Relationships."

<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Common Stock as calculated pursuant to Rule 13d-3 of the
Exchange Act as of the date of this Prospectus and as adjusted to reflect the
sale of the shares offered hereby (i) by each selling stockholder, (ii) by each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (iii) by each director of the Company, (iv)
by each Named Officer and (v) by all directors and executive officers of the
Company as a group. Unless otherwise indicated below, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING(1) NUMBER OF AFTER THIS OFFERING(1)
------------------------ SHARES TO BE ----------------------
NUMBER OF SOLD IN NUMBER OF
NAME AND ADDRESS SHARES PERCENTAGE THIS OFFERING(2) SHARES PERCENTAGE
- ---------------- ---------- ----------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Safeguard Scientifics, Inc.(3)............ 5,341,989 36.1% 116,667 5,225,322 24.6%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
XL Vision, Inc.(4)........................ 1,769,031 12.0 200,000 1,569,031 7.4
10305 102nd Terrace
Sebastian, FL 32958
Technology Leaders II(4).................. 1,204,839 8.2 -- 1,204,839 5.7
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Technology Leaders I(4)................... 1,130,592 7.6 -- 1,130,592 5.3
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Citicorp Venture Capital, Ltd............. 765,000 5.2 -- 765,000 3.6
399 Park Avenue
14th Floor, Zone 4
New York, NY 10043
Alexander G. Dickinson, Ph.D.(5).......... 531,250 3.6 -- 531,250 2.5
John S. Scott, Ph.D.(6)................... 501,250 3.4 -- 501,250 2.4
Applewood Associates, L.P................. 437,472 3.0 8,333 429,139 2.0
Tzu-Chiang Hsieh, Ph.D.(7)................ 234,375 1.6 -- 234,375 1.1
James W. Kerrigan(8)...................... 75,000 * -- 75,000 *
Charles A. Root........................... 40,365 * -- 40,365 *
Walter W. Buckley, III.................... 32,812 * -- 32,182 *
Alex W. Hart.............................. -- -- -- -- --
Edward Anderson........................... -- -- -- -- --
James Ionson, Ph.D........................ -- -- -- -- --
Christopher Moller, Ph.D.(9).............. -- -- -- -- --
All executive officers and directors as a
group (10 persons)(10).................. 1,415,052 9.6 -- 1,415,052 6.6
</TABLE>

- ------------------
* Less than 1% of the outstanding Common Stock.

<PAGE>

(1) Solely for the purpose of the percentage ownership calculation for each
beneficial owner depicted herein, the number of shares of Common Stock
deemed outstanding prior to the offering (i) assumes 14,781,579 Common
Stock outstanding as of the date of this Prospectus, (ii) the conversion of
all shares of Preferred Stock outstanding as of the date of this
prospectus, (iii) includes additional shares issuable pursuant to options
held by such owner which may be exercised within 60 days after the date of
this Prospectus ("presently exercisable options"), as set forth below, (iv)
includes all restricted stock grants, as set forth below, and (v) includes
additional shares to be issued to Phoenix prior to the date of the
offering. Solely for the purpose of the percentage ownership calculation
for each beneficial owner depicted herein, the number of shares of Common
Stock deemed outstanding after the offering (i) assumes 21,281,579 shares
of Common Stock will be outstanding upon the successful completion of this
offering, (ii) includes shares of Common Stock which are subject to certain
vesting conditions, and (iii) includes additional shares to be issued to
Phoenix prior to the date of this offering. The beneficial ownership after
this offering does not account for the exercise of rights by such
stockholders in this offering.

(2) Includes an aggregate of 325,000 shares of Common Stock being sold to
certain persons selected by the Company. Assuming that the underwriter's
over allotment option is exercised in full, Safeguard, XL Vision and
Applewood Associates, L.P. will sell an additional 233,334 shares, 400,000
shares and 16,666 shares in this offering, respectively.

(3) The shares of Safeguard are held of record by Safeguard XL Capital, L.P., a
limited partnership of which the sole general partner is Safeguard
Delaware, Inc., a wholly-owned subsidiary of Safeguard. The limited
partnership interests are held by executives and employees of Safeguard,
subject to vesting. Safeguard disclaims beneficial ownership of all but its
proportionate interest in the shares held by the partnership. Excludes all
shares of Common Stock beneficially owned by Technology Leaders I,
Technology Leaders II, XL Vision and Internet Capital, in each of which
Safeguard has a beneficial interest. See "Management -- Certain
Relationships" for a description of the relationships between Safeguard,
Technology Leaders I, Technology Leaders II, XL Vision and Internet
Capital. The largest shareholder of Safeguard is Warren V. Musser, the
chairman and chief executive officer of Safeguard, who is the record holder
of approximately 9.0% of the total Safeguard Common Shares outstanding.

(4) See "Management -- Certain Relationships" for a description of the
relationships between Safeguard and Technology Leaders I, Technology
Leaders II, XL Vision and Internet Capital.

(5) Represents shares of Common Stock subject to certain vesting conditions.

(6) Includes 501,250 shares held by a family partnership, and excludes 30,000
shares held by certain family members for which Dr. Scott disclaims
beneficial ownership. Excludes shares owned by XL Vision, of which Dr.
Scott is Chairman and Chief Executive Officer.

(7) Includes 218,750 shares of Common Stock subject to certain vesting
conditions and 15,625 shares issuable pursuant to stock options exercisable
within 60 days after the date of this Prospectus.

(8) Represents 75,000 shares of Common Stock subject to certain vesting
conditions.

(9) Excludes shares owned by Technology Leaders I and Technology Leaders II,
for each of which Dr. Moller serves as an indirect general partner. Dr.
Moller disclaims beneficial ownership of such shares.

(10) Includes 1,341,875 shares of Common Stock subject to certain vesting
conditions and executive and director options exercisable within 60 days
after the date of this Prospectus.

<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 60,000,000 shares
of Common Stock, $.01 par value per share, and 15,000,000 shares of Preferred
Stock, $.01 par value per share. As of July 10, 1998, there were 5,122,698
shares of Common Stock, 8,258,881 shares of Series A Preferred Stock and
1,400,000 shares of Series B Preferred Stock issued and outstanding.

COMMON STOCK

As of July 10, 1998, there would have been 14,781,579 shares of Common
Stock outstanding, after giving effect to the conversion of the shares of
Preferred Stock. After giving effect to the issuance of the 6,500,000 shares of
Common Stock offered by the Company hereby, there will be 21,281,579 shares of
Common Stock outstanding.

Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. The election of directors is determined by a plurality
of the votes cast and, except as otherwise required by law, all other matters
are determined by a majority of the votes cast. Accordingly, holders of a
majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election. See "Risk
Factors -- Control by Principal Stockholders." Holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities. Holders of Common Stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares offered by the Company in
this offering will be, when issued and paid for, fully paid and nonassessable.
The rights, preferences and privileges of holders of Common Stock are subject
to, and may be adversely affected by, the rights of the holders of shares of any
class or series of Preferred Stock which the Company may designate and issue in
the future. See " -- Preferred Stock."

PREFERRED STOCK

The Company, by resolution of the Board of Directors and without any
further vote or action by the stockholders, has the authority, subject to
certain limitations prescribed by law, to issue from time to time up to an
aggregate of 15,000,000 shares of Preferred Stock in one or more classes or
series and to determine the designation and the number of shares of any class or
series as well as the voting rights, preferences, limitations and special
rights, if any, of the shares of any such class or series, including dividend
rights, dividend rates, conversion rights and terms, redemption rights and
terms, and liquidation preferences. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change of control of the Company.
As of the date of this Prospectus, assuming conversion of all outstanding shares
of Series A Preferred Stock and Series B Preferred Stock into Common Stock,
there will be no shares of Preferred Stock outstanding, and the Company has no
plans to issue any shares of Preferred Stock.

RIGHTS

The Company is granting on the date hereof the rights to the holders of
Safeguard common shares. The rights, subject to minimum exercise requirements,
are each exercisable for one share of Common Stock at an exercise price of $5.00
per share. Persons may not exercise rights for fewer than 20 shares of Common
Stock. For purposes of this offering, a person that holds Safeguard common
shares in multiple accounts must meet the 20 share minimum purchase requirement
in each account. Accordingly, persons holding fewer than 20 rights in an account
should consider the advisability of consolidating their rights in one account,
selling rights, or purchasing additional rights to comply with the minimum
exercise requirements of this offering. Rights may be transferred, in whole or
in part, by endorsing and delivering to ChaseMellon a rights certificate that
has been properly endorsed for

<PAGE>

transfer, with instructions to reissue the rights, in whole or in part, in the
name of the transferee. ChaseMellon will reissue certificates for the
transferred rights to the transferee, and will reissue a certificate for the
balance, if any, to the holder of the rights, in each case to the extent it is
able to do so prior to the expiration date of the rights. This offering will
terminate and the rights will expire at 5:00 p.m., New York City time, on the
expiration date, which is , 1998. After the expiration date of the
rights, unexercised rights will be null and void. For more information about the
rights and the offering process, reference should be made to "The Offering" and
to "Risk Factors -- Cancellation of Rights Offering."

LIMITATION ON LIABILITY

The Company's Certificate of Incorporation limits or eliminates the
liability of the Company's directors or officers to the Company or its
stockholders for monetary damages to the fullest extent permitted by the
Delaware General Corporation Law, as amended (the "DGCL"). The DGCL provides
that a director of the Company shall not be personally liable to the Company or
its stockholders for monetary damages for a breach of fiduciary duty as a
director, except for liability (i) for any breach of such person's duty of
loyalty, (ii) for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law, (iii) for the payment of unlawful
dividends and certain other actions prohibited by Delaware corporate law and
(iv) for any transaction resulting in receipt by such person of an improper
personal benefit.

The Company intends to apply for directors' and officers' liability
insurance to provide its directors and officers with insurance coverage for
losses arising from claims based on breaches of duty, negligence, error and
other wrongful acts to be effective contemporaneously with the closing of this
offering. See "Business -- Legal Proceedings" for a discussion of pending
litigation.

CERTAIN ANTI-TAKEOVER PROVISIONS

The ability of the Company's Board to establish the rights of, and to
issue, substantial amounts of Preferred Stock without the need for stockholder
approval, upon such terms and conditions, and having such rights, privileges and
preferences, as the Company's Board may determine in the exercise of its
business judgment, may, among other things, be used to create voting impediments
with respect to changes in control of the Company or to dilute the stock
ownership of holders of Common Stock seeking to obtain control of the Company.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in connection
with possible acquisitions, financings and other corporate transactions, may
have the effect of discouraging, delaying or preventing a change in control of
the Company. The Company has no present plans to issue any shares of Preferred
Stock. See "Risk Factors -- Possible Issuance of Preferred Stock," " -- Common
Stock" and " -- Preferred Stock."

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

Section 203 of the DGCL prohibits certain business combinations between a
Delaware corporation and an "interested stockholder," which is defined as a
person who, together with any affiliates or associates of such person,
beneficially owns, directly or indirectly, 15% or more of the outstanding voting
shares of a Delaware corporation. For purposes of Section 203, business
combinations are defined broadly to include mergers, consolidations, sales or
other dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation. Section 203 prohibits any such business combination for a period of
three years commencing on the date the interested stockholder becomes an
interested stockholder, unless (i) the business combination is approved by the
corporation's board of directors prior to the date the interested stockholder
becomes an interested stockholder, (ii) the interested stockholder acquired at
least 85% of the voting stock of the corporation (other than stock held by
directors who are also officers or by certain employee stock plans) in the
transaction in which it becomes an interested stockholder or

<PAGE>

(iii) the business combination is approved by a majority of the board of
directors and by the affirmative vote of two-thirds of the outstanding voting
stock that is not owned by the interested stockholder. See "Risk Factors --
Possible Issuances of Preferred Stock."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, LLC, 85 Challenger Road, Overpeck Centre, Ridgefield Park,
New Jersey 07660.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have 21,281,579 shares
of Common Stock outstanding, excluding 706,425 shares of Common Stock subject to
stock options outstanding as of July 10, 1998 and any stock options granted by
the Company after July 10, 1998. Of these shares, the Common Stock sold by the
Company and the selling stockholders in this offering, except for certain shares
described below, will be freely tradeable without restriction or further
registration under the Act. The remaining 14,456,579 shares of Common Stock (the
"Restricted Shares") were issued and sold by the Company in private transactions
in reliance upon exemption from the registration requirements of the Act and are
therefore deemed "restricted securities" as defined in Rule 144 and may not be
sold in the absence of registration under the Act unless an exemption is
available, including an exemption afforded by Rule 144 or Rule 701. See "Risk
Factors -- Shares Eligible for Future Sale."

In general, under Rule 144 as currently in effect, if two years have
elapsed since the date of acquisition of restricted securities from the Company
or any affiliate and the acquiror or subsequent holder is not deemed to have
been an affiliate of the Company for at least three months prior to a proposed
transaction, such person would be entitled to sell such shares under Rule 144(k)
without regard to the limitations described below. If one year has elapsed since
the date of acquisition of restricted securities from the Company or any
affiliate, the acquiror or subsequent holder thereof (including persons who may
be deemed affiliates of the Company) is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the
then-outstanding shares of Common Stock or the average weekly trading volume in
the Common Stock on the Nasdaq National Market during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain provisions
regarding the manner of sale, notice requirements and the availability of
current public information about the Company. Without considering the
contractual restrictions described below, approximately (i) 1,250 Restricted
Shares will be eligible for sale ninety days after the date of this Prospectus,
subject to manner of sale and other resale conditions imposed by Rule 144, and
(ii) 14,455,329 Restricted Shares will be eligible for future sale subject to
the holding period and other conditions imposed by Rule 144. Certain
restrictions apply to any shares of Common Stock purchased in this offering by
affiliates of the Company, which may generally only be sold in compliance with
the limitations of Rule 144, except for the holding period requirements
thereunder. See "Risk Factors -- Shares Eligible for Future Sale."

Rule 144A under the Act provides a nonexclusive safe harbor exemption from
the registration requirements of the Act of specified resales of restricted
securities to certain institutional investors. In general, Rule 144A allows
unregistered resales of restricted securities to a "qualified institutional
buyer," which generally includes an entity, acting for its own account or for
the account of other qualified institutional buyers, that in the aggregate owns
or invests on a discretionary basis at least $100 million in securities of
issuers that are not affiliated with the entity, as long as these securities
when issued were not of the same class as securities listed on a national
securities exchange or quoted on Nasdaq. The shares of Common Stock outstanding
as of the date of this Prospectus would be eligible for resale under Rule 144A
because such shares, when issued, were not of the same class as any listed or
quoted securities.

<PAGE>

STOCK OPTIONS

As of July 10, 1998, there were outstanding options to purchase an
aggregate of 706,425 shares of Common Stock (none of which were exercisable at
July 10, 1998) at a weighted average exercise price of $1.54 per share. As of
July 10, 1998, the Company had an additional 868,575 shares of Common Stock
available for future grant under the Plan. The holders of options which are
exercisable upon the offering to purchase a total of 15,625 shares are subject
to Lock-Up Agreements, which restrict, until after the Lock-Up Expiry Date
(without the prior written consent of the underwriter), the holders' ability to
sell or otherwise dispose of Common Stock acquired upon the exercise of such
options. See "Management -- Equity Compensation Plan."

The Company issued options and underlying shares of Common Stock to
employees of the Company who were not executive officers and directors of the
Company pursuant to Rule 701. Under Rule 701, employees of the Company who prior
to this offering purchased shares upon the exercise of options granted under the
Plan are entitled to sell such shares without having to comply with the public
information, holding period, volume limitation or notice provisions of Rule 144
and they may begin making such sales on the 90th day after the date of this
Prospectus. Rule 701 also permits the shares subject to unexercised options
granted under the Plan to be sold upon exercise without having to comply with
the foregoing provisions of Rule 144. As of July 10, 1998, approximately 518,925
shares of Common Stock and shares of Common Stock subject to unexercised options
will be eligible for sale under Rule 701 by Company employees (subject to
applicable vesting provisions).

It is anticipated that a Registration Statement on Form S-8 covering the
Common Stock that may be issued pursuant to the options granted under the Plan
will be filed prior to the Lock-Up Expiry Date and that shares of Common Stock
that are so acquired and offered thereafter pursuant to this Registration
Statement generally may be resold in the public market without restriction or
limitation, except in the case of affiliates of the Company, whom generally may
only resell such shares in accordance with each provision of Rule 144, other
than the holding period requirement.

LOCK-UP AGREEMENTS

The Principal Stockholders, who will beneficially own 9,129,785 shares of
Common Stock after the completion of this offering, certain other shareholders
of the Company and each executive officer and director of the Company have
agreed with the underwriter that they will not sell or otherwise dispose of any
shares of Common Stock until after the Lock-Up Expiry Date without the prior
written consent of the underwriter. In addition, Warren V. Musser has agreed
that he and/or his assignees will not sell or otherwise dispose of 280,000
shares of Common Stock until after the Lock-Up Expiry Date without the prior
written consent of the underwriter.

REGISTRATION RIGHTS

The Company has granted certain piggyback and demand registration rights to
holders of Preferred Stock. Holders of a certain number of shares of Preferred
Stock have the right to request that the Company effect the registration, under
the Act, of the Common Stock issuable upon the conversion of the Preferred
Stock, provided that the securities to be registered have a value of at least
$5,000,000. These registration rights become exercisable at any time after the
earlier of six months after the completion of this offering and January 13,
2002. In addition, the holders of Preferred Stock have the right to include
their securities in the offerings of the Company's securities under the Act. By
exercising such registration rights, subject to certain limitations, such
holders could cause a significant number of shares to be registered and sold in
the public market. Such sales may have an adverse effect on the market price for
the Common Stock and could impair the Company's ability to raise capital through
an offering of its equity securities. All holders of registration rights have
waived their respective rights to participate in this offering.

<PAGE>

UNDERWRITING

The Company, the selling stockholders and the underwriter have entered into
the Standby Underwriting Agreement on the date hereof, pursuant to which the
underwriter is required, subject to certain terms and conditions (all of which
are set forth below), to purchase the shares of Common Stock offered and not
purchased in the rights offering (the "Excess Unsubscribed Shares"). If all of
the rights are exercised, there will be no Excess Unsubscribed Shares.

The underwriter has agreed subject to the condition that the Company and
the selling stockholders comply with their obligations under the Standby
Underwriting Agreement and subject to the underwriter's right to terminate its
obligations under the Standby Underwriting Agreement (as specified below), to
purchase all of the Excess Unsubscribed Shares. The Company will pay the
underwriter the financial advisory fee equal to 3% of the exercise price for
each share of Common Stock included in this offering. The financial advisory fee
is for services and advice rendered in connection with the structuring of the
offering, valuation of the business of the Company and financial advice to the
Company before and during the offering. An additional fee of 4% of the exercise
price will be paid to the underwriter (i) for each share of Common Stock
purchased by the underwriter pursuant to the Standby Underwriting Agreement and
(ii) for each share of Common Stock purchased upon the underwriter's exercise of
rights if such rights were purchased by the underwriter at a time when the
Common Stock was trading (on a "when-issued" basis) at a per share price of less
than 120% of the exercise price or if the underwriter purchases such rights with
Safeguard's prior written acknowledgment that it would be entitled to receive
the underwriting discount for Common Stock purchased pursuant to the exercise of
such rights. In addition, the Company has agreed to pay the underwriter a
non-accountable expense allowance in the aggregate amount of $200,000, provided,
however, such non-accountable expense allowance shall be reduced to $100,000 or
zero if, on the Expiration Date, the closing price for the Common Stock traded
on a "when issued" basis is at least $7.25 per share or greater than $8.25 per
share, respectively. The selling stockholders have granted to the underwriter a
20-day option commencing on the Expiration Date to purchase a maximum of 650,000
additional shares of Common Stock at a per share price equal to the exercise
price less the financial advisory fee and the underwriting discount. The
underwriter may exercise such option in whole or in part only to cover
over-allotments made in connection with the sale of shares of Common Stock by
the underwriter.

Prior to this Expiration Date, the underwriter may offer shares of Common
Stock on a when-issued basis, including shares to be acquired through the
purchase and exercise of rights, at prices set from time to time by the
underwriter. It is not contemplated that the offering price set on any calendar
day will be increased independently by the underwriter more than once during
such day. After the Expiration Date, the underwriter may offer shares of Common
Stock, whether acquired pursuant to the Standby Underwriting Agreement, the
exercise of the rights or the purchase of Common Stock in the market, to the
public at a price or prices to be determined. The underwriter may thus realize
profits or losses independent of the underwriting discount and the financial
advisory fee. Shares of Common Stock subject to the Standby Underwriting
Agreement will be offered by the underwriter when, as and if sold to, and
accepted by, the underwriter and will be subject to its right to reject orders
in whole or in part.

Prior to this offering, there has been no public market for the Common
Stock or the rights. Consequently, the exercise price was determined by
negotiations among the Company, the selling stockholders and the underwriter. In
determining the exercise price, the underwriter, the selling stockholders and
the Board of Directors of the Company considered such factors as the future
prospects and historical growth rate in revenues and earnings of the Company;
its industry in general and the Company's position in its industry; revenues,
earnings and certain other financial and operating information of the Company in
recent periods; market valuations of the securities of companies engaged in
activities similar to those of the Company; the management of the Company; and,
with respect to the Company, the advice of the underwriter.

<PAGE>

The underwriter will be prohibited from engaging in any market making
activities with respect to the Company's when-issued Common Stock and Common
Stock until the underwriter has completed its participation in the distribution
of shares offered hereby. As a result, the underwriter may be unable to provide
a market for the Company's when-issued Common Stock and Common Stock should it
desire to do so during certain periods while the rights are exercisable.

In connection with this offering, the underwriter and certain selling group
members may engage in stabilizing, syndicate covering transactions or other
transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. A "syndicate covering transaction" is the placing of any bid
or the effecting of any purchase on the behalf of the underwriter to reduce a
short position created in connection with this offering. After the opening of
quotations for the Common Stock on the Nasdaq National Market, stabilizing bids
for the purpose of preventing or retarding a decline in the market price may be
initiated by the underwriter or selling group members in any market at a price
no higher than the last independent transaction price for the Common Stock and
then maintained, reduced or raised to follow the independent market. Such
transactions may stabilize the market price of the Common Stock at a level above
that which might otherwise prevail and, if commenced, may be discontinued at any
time.

The Company and the selling stockholders have agreed to indemnify the
underwriter against certain liabilities arising out of or based upon
misstatements or omissions in this Prospectus or the Registration Statement of
which this Prospectus is a part and certain other liabilities, including
liabilities under the Act, and to contribute to certain payments that the
underwriter may be required to make.

The underwriter may terminate its obligations under the Standby
Underwriting Agreement (i) if any calamitous domestic or international event or
act or occurrence has disrupted the general securities market in the United
States; (ii) if trading in the Common Stock (on a when-issued basis) shall have
been suspended by the SEC or Nasdaq; (iii) if trading on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market or in the
over-the-counter market shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required on the over-the-counter market by the NASD or by order
of the SEC or any other government authority having jurisdiction; (iv) if the
United States shall have become involved in a war or major hostilities which, in
the underwriter's opinion, will affect the general securities market in the
United States; (v) if a banking moratorium has been declared by a California,
New York, Pennsylvania, Wisconsin or federal authority; (vi) if a moratorium in
foreign exchange trading (with respect to a foreign exchange on which the
Company's securities are traded) has been declared; (vii) if the Company shall
have sustained a loss material to the Company by fire, flood, accident,
hurricane, earthquake, theft, sabotage or other calamity or malicious act,
whether or not such loss shall have been insured, or from any labor dispute or
any legal or governmental proceeding; (viii) if there shall be such material
adverse market conditions (whether occurring suddenly or gradually between the
date of this Prospectus and the closing of the offering) affecting markets
generally as in the underwriter's reasonable judgment would make it inadvisable
to proceed with the offering, sale or delivery of the shares of Common Stock
offered hereby; or (ix) if there shall have been such material adverse change,
or any development involving a prospective material adverse change, in the
financial condition, net worth or results of operations of the Company since
December 31, 1997 or in the business prospects or condition of the Company since
the date of this Prospectus, or that materially and adversely impacts the
Standby Underwriting Agreement.

The Company has agreed that, without the prior written consent of the
underwriter, it will not offer, sell, grant any option for the sale of or
otherwise dispose of any shares of Common Stock (or securities convertible into
shares of Common Stock) (collectively, the "Securities") acquired in this
offering or held by it as of the date hereof until after the Lock-Up Expiry
Date, other than (i) Common Stock to be sold in this offering, (ii) Company
option issuances and sales of Common Stock pursuant to the Plan and (iii)
Securities issued as consideration for an acquisition if the party being issued
the Securities agrees not to transfer, sell, offer for sale, contract or
otherwise dispose of such Securities until after the Lock-Up Expiry Date. The
Principal Stockholders, each executive officer and each

<PAGE>

director of the Company and certain other stockholders, who will in the
aggregate own approximately 11,798,351 shares of Common Stock after the
completion of the offering and will be deemed to beneficially own an additional
15,625 shares of Common Stock, have agreed with the underwriter that they will
not sell or otherwise dispose of any shares of Common Stock until after the
Lock-Up Expiry Date without the prior written consent of the underwriter. See
"Management -- Equity Compensation Plan" and "Shares Eligible for Future Sale."
In addition, Warren V. Musser has agreed that he and/or his assignees will not
sell or otherwise dispose of 280,000 shares of Common Stock without the prior
written consent of the underwriter. See "Management -- Equity Compensation Plan"
and "Shares Eligible for Future Sale."

LEGAL MATTERS

The validity of the rights and shares of Common Stock offered hereby will
be passed upon for the Company by Morgan, Lewis & Bockius LLP, Philadelphia,
Pennsylvania. Certain legal matters in connection with this offering are being
passed upon for the underwriter by Drinker Biddle & Reath LLP, Philadelphia,
Pennsylvania.

EXPERTS

The financial statements of the Company as of December 31, 1997 and for the
period from May 1, 1997 (inception) through June 29, 1997, the period from June
30, 1997 (incorporation) through December 31, 1997 and the period from May 1,
1997 (inception) through December 31, 1997 have been included in this Prospectus
and in the Registration Statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments thereto, the "Registration Statement") under the
Act with respect to the Common Stock and Rights offered hereby. As permitted by
the rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the Common Stock and Rights offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding the
contents of any agreement or other document filed as an exhibit to the
Registration Statement are not necessarily complete and in each instance
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, DC 20549, and copies of all or
any part thereof may be obtained from such office upon payment of the prescribed
fees. In addition, the Commission maintains a Web site at http://www.sec.gov
that contains reports, proxy statements, information statements and other
information regarding the Company.

<PAGE>

WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

INDEX TO FINANCIAL STATEMENTS

Independent Auditors' Report............................................. F-2

Balance Sheets as of December 31, 1997 and March 31, 1998
(unaudited)............................................................ F-3

Statements of Operations for the period from May 1, 1997
(inception) through June 29, 1997, the period from June
30, 1997 (incorporation) through December 31, 1997, the
period from May 1, 1997 (inception) through December 31,
1997, the three months ended March 31, 1998 (unaudited)
and the period from May 1, 1997 (inception) through March
31, 1998 (unaudited)................................................... F-4

Statements of Stockholders' Equity (Deficit) for the period
from May 1, 1997 (inception) through June 29, 1997, the
period from June 30, 1997 (incorporation) through December
31, 1997 and the three months ended March 31, 1998
(unaudited)............................................................ F-5

Statements of Cash Flows for the period from May 1, 1997
(inception) through June 29, 1997, the period from June
30, 1997 (incorporation) through December 31, 1997, the
period from May 1, 1997 (inception) through December 31,
1997, the three months ended March 31, 1998 (unaudited)
and the period from May 1, 1997 (inception) through March
31, 1998 (unaudited)................................................... F-6

Notes to Financial Statements............................................ F-7

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
Who? Vision Systems, Inc.:

We have audited the accompanying balance sheet of Who? Vision Systems, Inc. (a
development stage enterprise) as of December 31, 1997 and the related statements
of operations, stockholders' equity (deficit) and cash flows of Who? Vision
Systems (a development stage enterprise), a division of XL Vision, Inc., for the
period from May 1, 1997 (inception) through June 29, 1997, and Who? Vision
Systems, Inc. (a development stage enterprise) for the period from June 30, 1997
(incorporation) through December 31, 1997, and for the cumulative development
stage from May 1, 1997 (inception) through December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Who? Vision Systems, Inc. (a
development stage enterprise) at December 31, 1997 and the results of operations
and cash flows of Who? Vision Systems (a development stage enterprise), a
division of XL Vision, Inc., for the period from May 1, 1997 (inception) through
June 29, 1997, and Who? Vision Systems, Inc. (a development stage enterprise)
for the period from June 30, 1997 (incorporation) through December 31, 1997, and
for the cumulative development stage from May 1, 1997 (inception) through
December 31, 1997, in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Orlando, Florida
April 22, 1998, except for note 10, which
is as of July 16, 1998

F-2
<PAGE>

WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash.................................................... $ 500 $ 1,258
Prepaid expenses........................................ 6,734 29,189
---------- -----------
Total current assets.............................. 7,234 30,447
Property and equipment, net (note 3)...................... 170,336 202,268
Deposits and other........................................ 10,136 161,434
---------- -----------
Total assets...................................... $ 187,706 $ 394,149
========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................ $ 209,541 $ 228,917
Accrued liabilities:
Salaries and benefits................................ 167,599 204,405
Other................................................ 19,776 9,868
Due to XL Vision, Inc. (note 7)......................... 2,728,448 6,156,966
---------- -----------
Total current liabilities......................... 3,125,364 6,600,156
---------- -----------
Commitments and contingencies (notes 8 and 10)
Stockholders' equity (deficit) (notes 4, 6 and 10):
Preferred stock, $.01 par value, authorized 15,000,000
shares:
Series A preferred stock, (aggregate involuntary
liquidation preference of $-0- and $8,430,847 in
1997 and 1998, respectively), designated 8,300,000
shares, issued and outstanding -0- shares in 1997
and 8,258,881 in 1998............................. -- 82,589
Series B preferred stock, designated 1,400,000
shares, issued and outstanding -0- shares in 1997
and 1998.......................................... -- --
Common stock $.01 par value, authorized 60,000,000
shares, issued and outstanding 5,037,031 shares in
1997 and 5,040,698 shares in 1998.................... 50,370 50,407
Additional paid-in capital.............................. 251,787 8,428,959
Accumulated deficit during the development stage........ (3,239,815) (14,767,962)
---------- -----------
Total stockholders' equity (deficit).............. (2,937,658) (6,206,007)
---------- -----------
Total liabilities and stockholders' equity
(deficit)...................................... $ 187,706 $ 394,149
========== ===========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
MAY 1, 1997 JUNE 30, 1997 MAY 1, 1997 MAY 1, 1997
(INCEPTION) (INCORPORATION) (INCEPTION) THREE MONTHS (INCEPTION)
THROUGH THROUGH THROUGH ENDED THROUGH
JUNE 29, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1997 1997 1998 1998
----------- --------------- ------------ ------------ ------------
(DIVISIONAL (UNAUDITED) (UNAUDITED)
OPERATIONS
-- NOTE 1)
<S> <C> <C> <C> <C> <C>
Revenue......................... $ -- $ -- $ -- $ -- $ --
Cost of revenue................. -- -- -- -- --
--------- ----------- ----------- ------------ ------------
Gross profit (loss)..... -- -- -- -- --
--------- ----------- ----------- ------------ ------------
Operating expenses:
Selling, general and
administrative............. 123,940 1,440,406 1,564,346 642,612 2,206,958
Research and development
(notes 8 and 10)........... 58,804 1,540,950 1,599,754 10,730,742 12,330,496
--------- ----------- ----------- ------------ ------------
Total operating
expenses............. 182,744 2,981,356 3,164,100 11,373,354 14,537,454
--------- ----------- ----------- ------------ ------------
Profit (loss) from
operations........... (182,744) (2,981,356) (3,164,100) (11,373,354) (14,537,454)
--------- ----------- ----------- ------------ ------------
Interest expense (note 7)..... (1,216) (74,499) (75,715) (154,793) (230,508)
--------- ----------- ----------- ------------ ------------
Profit (loss) before
income taxes......... (183,960) (3,055,855) (3,239,815) (11,528,147) (14,767,962)
Income tax expense (benefit)
(note 5)...................... -- -- -- -- --
--------- ----------- ----------- ------------ ------------
Net profit (loss)....... $(183,960) $(3,055,855) $(3,239,815) $(11,528,147) $(14,767,962)
========= =========== =========== ============ ============
Net profit (loss) subsequent to
incorporation (notes 1 and
2)............................ $(3,055,855) $(11,528,147)
=========== ============
Net profit (loss) per common
share subsequent to
incorporation
(notes 1 and 2):
Basic...................... $ (2.46) $ (2.29)
=========== ============
Diluted.................... $ (2.46) $ (2.29)
=========== ============
Weighted average number of
common shares outstanding..... 1,241,467 5,040,127
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ACCUMULATED
PREFERRED STOCK PREFERRED STOCK DEFICIT
SERIES A SERIES B COMMON STOCK ADDITIONAL DURING THE
-------------------- -------------------- -------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
---------- ------- ---------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at May 1, 1997
(inception).......... -- $ -- -- $ -- -- $ -- $ -- $ --
Net profit (loss)...... -- -- -- -- -- -- -- (183,960)
---------- ------- ---------- ------- ---------- ------- ---------- ------------
Balances at June 29,
1997................. -- -- -- -- -- -- -- (183,960)
Issuance of common
stock to XL Vision
upon incorporation... -- -- -- -- 1,250 10 -- --
Issuance of common
stock to XL Vision
for cash (note 7).... -- -- -- -- 4,223,281 33,786 219,611 --
Grant of common stock
to officers as
compensation
(note 6)............. -- -- -- -- 750,000 6,000 39,000 --
Grant of common stock
to The Phoenix Group,
Inc. (note 8)........ -- -- -- -- 62,500 625 3,125 --
Five for four common
stock split (note
9)................... -- -- -- -- -- 9,949 (9,949) --
Net profit (loss)...... -- -- -- -- -- -- -- (3,055,855)
---------- ------- ---------- ------- ---------- ------- ---------- ------------
Balances at December
31, 1997............. -- -- -- -- 5,037,031 50,370 251,787 (3,239,815)
Sale of Series A
preferred stock for
cash (notes 4 and 10)
(unaudited).......... 8,258,881 82,589 -- -- -- -- 8,176,292 --
Grant of common stock
to The Phoenix Group,
Inc. (note 8)
(unaudited).......... -- -- -- -- 3,667 37 880 --
Net profit (loss)
(unaudited).......... -- -- -- -- -- -- -- (11,528,147)
---------- ------- ---------- ------- ---------- ------- ---------- ------------
Balances at March 31,
1998 (unaudited)..... 8,258,881 $82,589 -- $ -- 5,040,698 $50,407 $8,428,959 $(14,767,962)
========== ======= ========== ======= ========== ======= ========== ============

TOTAL
------------
<S> <C>
Balances at May 1, 1997
(inception).......... $ --
Net profit (loss)...... (183,960)
------------
Balances at June 29,
1997................. (183,960)
Issuance of common
stock to XL Vision
upon incorporation... 10
Issuance of common
stock to XL Vision
for cash............. 253,397
Grant of common stock
to officers as
compensation......... 45,000
Grant of common stock
to The Phoenix Group,
Inc. (note 8)........ 3,750
Five for four common
stock split (note
9)................... --
Net profit (loss)...... (3,055,855)
------------
Balances at December
31, 1997............. (2,937,658)
Sale of Series A
preferred stock for
cash (note 4)
(unaudited).......... 8,258,881
Grant of common stock
to The Phoenix Group,
Inc. (note 8)
(unaudited).......... 917
Net profit (loss)
(unaudited).......... (11,528,147)
------------
Balances at March 31,
1998 (unaudited)..... $ (6,206,007)
============
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD
FROM PERIOD FROM PERIOD FROM PERIOD FROM
MAY 1, 1997 JUNE 30, 1997 MAY 1, 1997 MAY 1, 1997
(INCEPTION) (INCORPORATION) (INCEPTION) THREE MONTHS (INCEPTION)
THROUGH THROUGH THROUGH ENDED THROUGH
JUNE 29, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1997 1997 1998 1998
----------- --------------- ------------ ------------ ------------
(DIVISIONAL (UNAUDITED) (UNAUDITED)
OPERATIONS
-- NOTE 1)
<S> <C> <C> <C> <C> <C>
Cash flows from development stage activities:
Net profit (loss)............................ $(183,960) $(3,055,855) $(3,239,815) $(11,528,147) $(14,767,962)
Adjustments to reconcile net profit (loss) to
net cash used in operating activities:
Depreciation and amortization............ 105 18,777 18,882 13,637 32,519
Non-cash compensation -- issuance of
common stock.......................... -- 45,000 45,000 -- 45,000
Non-cash consideration for software
license -- issuance of common stock... -- 3,750 3,750 917 4,667
Changes in operating assets and
liabilities:
Prepaid expenses...................... -- (6,734) (6,734) (22,455) (29,189)
Deposits.............................. -- (10,136) (10,136) (151,298) (161,434)
Accounts payable...................... 71,102 138,439 209,541 19,376 228,917
Accrued liabilities................... 38,391 148,984 187,375 26,898 214,273
--------- ----------- ----------- ----------- ------------
Net cash used in operating
activities.......................... (74,362) (2,717,775) (2,792,137) (11,641,072) (14,433,209)
--------- ----------- ----------- ----------- ------------
Cash flows from investing activities:
Purchases of property and equipment.......... (51,336) (137,882) (189,218) (45,569) (234,787)
--------- ----------- ----------- ----------- ------------
Cash flows from financing activities:
Net borrowings from XL Vision, Inc........... 125,698 2,602,750 2,728,448 3,428,518 6,156,966
Sale of common stock......................... -- 253,407 253,407 -- 253,407
Sale of preferred stock...................... -- -- -- 8,258,881 8,258,881
--------- ----------- ----------- ----------- ------------
Net cash provided by financing
activities.......................... 125,698 2,856,157 2,981,855 11,687,399 14,669,254
--------- ----------- ----------- ----------- ------------
Net increase in cash.................. -- 500 500 758 1,258
Cash -- beginning of period.................... -- -- -- 500 --
--------- ----------- ----------- ----------- ------------
Cash -- end of period.......................... $ -- $ 500 $ 500 $ 1,258 $ 1,258
========= =========== =========== =========== ============
Supplemental cash flows disclosure:
Cash paid for interest....................... $ -- $ -- $ -- $ -- $ --
========= =========== =========== =========== ============
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED

(1) ORGANIZATION

Who? Vision Systems, Inc. (a development stage enterprise) ("Who? Vision"
or the "Company") is a Delaware corporation. Prior to the incorporation of the
Company on June 30, 1997, the Company's business was conducted as the Who?
Vision Systems Division (the "Division") of XL Vision, Inc. ("XL Vision").

On June 30, 1997, the assets and liabilities of the Division were
contributed to the Company, which was a wholly-owned subsidiary of XL Vision.
This transaction was accounted for as a reorganization of entities under common
control and, accordingly, the assets and liabilities were recorded at their
historical book value. As of the date of incorporation, the Division had assets
of $51,231, assumed liabilities of $235,191 and had an accumulated deficit of
$183,960. The Company assumed a liability to XL Vision totaling $125,688 after
$10 in consideration for the issuance of 1,250 shares of common stock.
Operations of the Company subsequent to incorporation have been funded by loans
from XL Vision (see note 7).

On January 14, 1998, the Company entered into an agreement with XL Vision
for the transfer of certain technology that will be used by the Company in the
sale of its products for $10,000,000 (see note 10). In February 1998, the
Company raised $8,258,881 from a private equity placement. The proceeds were
used to fund the repayment of amounts due to XL Vision.

The accompanying financial statements for the period from May 1, 1997
(inception) through June 29, 1997 reflect operations within XL Vision.
Significant management assumptions were made in allocating indirect costs from
XL Vision in order to present the balance sheet and statement of operations for
that period. The Company was allocated all incremental costs and certain
indirect or common costs based upon the proportional value of all expenses
incurred by XL Vision. Management of the Company believes the allocated costs
reasonably reflect the costs of the entity as if it were on a stand alone basis.

From inception on May 1, 1997, the Company has devoted substantially all of
its resources to developing its TactileSense(Trademark) fingerprint
identification technology which it intends to manufacture and distribute to
various markets through strategic partners. In order to fulfill its
manufacturing and distribution requirements, the Company has selected original
equipment manufacturing partners which provide existing global sales,
manufacturing and distribution infrastructures in the Company's target markets.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) DEVELOPMENT STAGE

From the inception of the Company on May 1, 1997, the Company was
considered to be in the development stage as defined by the Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by
Development Stage Enterprises." Until the Company begins to realize significant
revenue associated with its planned operations, the Company will be considered
in the development stage.

(B) MANAGEMENT'S PLANS

At March 31, 1998, the Company had a working capital deficiency of
$6,569,709 and a stockholders' deficit of $6,206,007. Management expects
additional working capital requirements as the Company continues its marketing
and development efforts leading to initial revenues from its products. The
Company's business plans anticipate reliance on manufacturing and distribution
of its products through two or more companies. In addition, to support the
Company's future cash needs, it may consider additional debt or equity
financing. XL Vision has agreed to fund the Company's operations for at least
eighteen months from March 31, 1998 or until the successful completion of the

F-7
<PAGE>

WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Company's initial public offering ("IPO"). Although management believes that its
IPO will be successful, there can be no assurances that it will be achieved or
that the Company will be successful in raising other financing. The Company
anticipates that net proceeds from its planned IPO of common stock (see note 10)
will be sufficient to satisfy its operating cash needs for at least eighteen
months following the IPO. If the Company is unable to obtain sufficient
additional funds, the Company may have to delay, scale back or eliminate some or
all of its marketing and development activities.

The financial statements for the period ended March 31, 1998 are unaudited
but reflect adjustments which are, in the opinion of management, necessary for
the fair presentation of financial position and results of operations. Operating
results for the three months ended March 31, 1998 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1998.

(D) REVENUE RECOGNITION

The Company will recognize revenue in accordance with the terms of the
sale, generally as products are shipped by the Company to its customers.

(E) DEPRECIATION AND AMORTIZATION

Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets which are generally 5 years for engineering and
manufacturing equipment and 3-7 years for all other assets.

(F) RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred. Research and
development costs in 1998 includes a one-time technology fee payable to XL
Vision in the amount of $10,000,000 (see note 10).

(G) INCOME TAXES

The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

Prior to June 30, 1997, the Company operated as a division of XL Vision.

(H) STOCK-BASED COMPENSATION

SFAS No. 123, "Accounting for Stock-Based Compensation," permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No.
25") and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.

F-8
<PAGE>

WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

(I) USE OF ESTIMATES

The preparation of the Company's financial statements, in conformity with
generally accepted accounting principles, requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses. Actual results could differ from those estimates. In
particular, as further described in note 1, significant assumptions were made to
allocate indirect costs from XL Vision to Who? Vision for the period prior to
incorporation.

(J) NET PROFIT (LOSS) PER SHARE

Net profit (loss) per share is computed in accordance with SFAS No. 128,
"Earnings Per Share," by dividing the net profit (loss) allocable to common
stockholders by the weighted average number of shares of common stock
outstanding. As of December 31, 1997 and March 31, 1998, the Company has certain
options and convertible preferred stock (see notes 4 and 6), which have not been
used in the calculation of diluted net profit (loss) per share because to do so
would be anti-dilutive. As such, the numerator and the denominator used in
computing both basic and diluted net profit (loss) per share allocable to common
stockholders are equal. Calculation of net profit (loss) per share is based upon
operations subsequent to the initial capitalization (incorporation) of the
Company on June 30, 1997.

Pursuant to Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 98 and SEC staff policy, all common stock issued for nominal
consideration during the periods presented herein and through the filing of the
registration statement for the IPO are to be reflected in a manner similar to a
stock split or stock dividend for which retroactive treatment is required in the
calculation of net profit (loss) per share; the Company did not have any such
issuances.

(K) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash, accounts payable and accrued liabilities
reflected in the financial statements approximates fair value due to the
short-term maturity of these instruments.

(3) PROPERTY AND EQUIPMENT

The following is a summary of property and equipment:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Office and computer equipment........................ $119,732 $143,752
Furniture and fixtures............................... 12,169 12,644
Engineering and manufacturing equipment.............. 57,317 61,732
Leasehold improvements............................... -- 16,659
-------- --------
189,218 234,787
Less: accumulated depreciation and amortization...... (18,882) (32,519)
-------- --------
Total property and equipment, net.................... $170,336 $202,268
======== ========
</TABLE>

F-9
<PAGE>

WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED

(4) PREFERRED STOCK

As of December 31, 1997, the Company had authorized the issuance of
10,000,000 shares of preferred stock and had designated 8,300,000 as Series A
shares (see note 10).

SERIES A -- Each share of Series A preferred stock is convertible into one
share of common stock at the option of the holder or upon the vote of holders of
two-thirds of the Series A preferred stock outstanding. The Series A preferred
stock is automatically converted into common stock upon a qualified initial
public offering of at least $10,000,000 with a Company valuation of at least
$35,000,000 or upon a public rights offering of the Company to shareholders of
Safeguard Scientifics, Inc. ("Safeguard") (see note 10). The holders of Series A
preferred stock are entitled to vote as a separate class to elect two directors
to the Board of Directors of the Company. The Series A shares are entitled to a
liquidation preference before any distribution to common stockholders equal to
the greater of (a) $1.00 per share plus an additional $.10 per year (pro rated
for partial year) from January 14, 1998 or until the date of distribution of
available assets or (b) the amount which would be distributed if all of the
preferred stock of the Company were converted to common stock prior to
liquidation.

SERIES B -- Each share of Series B preferred stock is convertible into one
share of common stock at the option of the holder or upon the vote of holders of
two-thirds of the Series B preferred stock outstanding. The Series B preferred
stock is required to be converted upon a qualified initial public offering of at
least $10,000,000 with a Company valuation of at least $35,000,000 or a public
rights offering of the Company to shareholders of Safeguard (see note 10). The
Series B shares are entitled to a liquidation preference before any distribution
to common stockholders equal to the greater of (a) $3.00 per share plus an
additional $.30 for each year per year from May 31, 1998 or until the date of
distribution of available assets or (b) the amount which would be distributed if
all of the preferred stock of the Company were converted to common stock prior
to liquidation. Series B shares are on parity with Series A shares.

(5) INCOME TAXES

Prior to June 30, 1997 (incorporation), the Company operated as a division
of XL Vision and as such was not directly subject to income taxes. The results
of the Company's operations are included in the consolidated income tax return
of XL Vision for the period from May 1, 1997 through June 30, 1997. The
Company's net operating loss carryforward of approximately $2,824,000 was
generated for losses incurred only during the period from June 30, 1997
(incorporation) through December 31, 1997. This tax carryforward is available to
offset future taxable income through 2012. Because the Company is a development
stage enterprise, deferred tax benefits generated by deferred tax assets are
offset by a corresponding valuation allowance.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.

F-10
<PAGE>

WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED

(5) INCOME TAXES -- (CONTINUED)
Significant components of the Company's deferred income tax assets and
liability are as follows:

DECEMBER 31,
1997
------------
Deferred tax assets:
Net operating loss carryforward...................... $ 960,161
Intangible assets.................................... 69,275
Accrued liabilities.................................. 12,889
----------
Deferred tax assets............................... 1,042,325
Deferred tax liability:
Depreciation......................................... (5,950)
----------
Total............................................. 1,036,375
Less valuation allowance for deferred tax assets....... (1,036,375)
----------
Deferred tax asset (liability), net.............. $ --
==========

The difference between the "expected" tax benefit (computed by applying the
federal corporate income rate of 34% to the loss before income taxes) and the
actual tax benefit is primarily due to the effect of the valuation allowance.

(6) STOCK PLAN

In September 1997, the Company adopted an equity compensation plan (the
"Plan") pursuant to which the Company's Board of Directors may grant shares of
common stock or options to acquire common stock to certain directors, advisors
and employees. The Plan authorizes grants of shares or options to purchase up to
1,625,000 shares of authorized but unissued common stock. Stock options granted
have a maximum of ten year terms and have vesting schedules which are at the
discretion of the Company and determined on the effective date of the grant.

A total of 750,000 shares were granted to officers as compensation out of
the Plan in 1997.

A summary of option transactions follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF WEIGHTED REMAINING
EXERCISE AVERAGE CONTRACTUAL
PRICES EXERCISE LIFE
SHARES PER SHARE PRICE (IN YEARS)
-------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Balance outstanding June 30, 1997
(incorporation)............................. -- $ -- $ --
Granted..................................... 286,250 .80 .80
--------
Balance outstanding December 31, 1997......... 286,250 $ .80 $ .80 9.92
======== ========== ===== ====
Granted..................................... 122,675 $ 1.00 $1.00
Canceled.................................... (125,000) .80 .80
--------
Balance outstanding March 31, 1998............ 283,925 $ .80-1.00 $ .89 9.77
======== ========== ===== ====
</TABLE>

At December 31, 1997 and March 31, 1998, no shares were exercisable.

At December 31, 1997 and March 31, 1998, 588,750 and 591,075 shares were
available for grant under the Plan, respectively.

F-11
<PAGE>

WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED

(6) STOCK PLAN -- (CONTINUED)
The per share weighted-average fair value of stock options granted during
1997 was $-0- on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: expected dividend yield 0%,
risk-free interest rate of 5.94%, and an expected life of 6.75 years. No
volatility was assumed due to the use of the Minimum Value Method of computation
for options issued by the Company prior to becoming a public entity as
prescribed by SFAS No. 123.

All stock options granted through December 31, 1997 have been granted to
directors or employees. The Company applies APB Opinion No. 25 for issuances to
directors and employees in accounting for its Plan and, accordingly, no
compensation cost has been recognized for its stock options in the financial
statements. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, the Company's net
loss would not have increased since the exercise price of the options was
significantly greater than the fair market values on the dates of the grants.

(7) RELATED PARTY TRANSACTIONS

Prior to January 1998, personnel and other administrative services were
provided by XL Vision and allocated to Who? Vision. Effective January 1, 1998,
the Company entered into an administrative services agreement with XL Vision
which allows for administrative charges based upon predetermined rates and
actual hours incurred. Administrative service fees incurred between May 1, 1997
(inception) and December 31, 1997 and for the three months ended March 31, 1998
were approximately $420,000 and $171,000, respectively.

As of December 31, 1997 and March 31, 1998, the Company owed XL Vision
$2,728,448 and $6,156,966, respectively. The advances from XL Vision as of
December 31, 1997 were made pursuant to a loan agreement entered into in
November 1997 and as of March 31, 1998 were made pursuant to such loan agreement
and a note payable issued on January 14, 1998. The loan agreement bears interest
at prime plus 1% (9.5% at December 31, 1997 and March 1998). The note payable
bears interest at 7%. Intercompany interest charges for the period from May 1,
1997 (inception) through June 29, 1997, the period from June 30, 1997
(incorporation) through December 31, 1997 and the three months ended March 31,
1998 were $1,216, $74,499 and $154,793, respectively.

The average outstanding balance due to XL Vision for the period from May 1,
1997 (inception) through June 29, 1997, the period from June 30, 1997
(incorporation) to December 31, 1997 and the three months ended March 31, 1998
was $51,980, $1,563,845 and $8,110,304, respectively. An analysis of amounts
due to XL Vision is summarized as follows:

Amounts due to XL Vision at May 1, 1997..................... $ --
Allocation of costs and funding of working capital to the
Company................................................ 125,698
Consideration for 1,250 shares of common stock at June 30,
1997................................................... (10)
-----------
Amount due to XL Vision at June 30, 1997 (incorporation).... 125,688
Allocation of costs and funding of working capital to the
Company................................................ 2,856,157
Consideration for 4,223,281 shares of common stock issued
to XL Vision........................................... (253,397)
-----------
Amounts due to XL Vision at December 31, 1997............... 2,728,448
Allocation of costs and funding of working capital to the
Company................................................ 1,687,399
Transfer of technology (note 10).......................... 10,000,000
Cash transferred to XL Vision............................. (8,258,881)
-----------
Amounts due to XL Vision at March 31, 1998.................. $ 6,156,966
===========

F-12
<PAGE>

WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED

(8) COMMITMENTS AND CONTINGENCIES

Agreement with The Phoenix Group, Inc. On November 5, 1997, the Company
entered into a software license agreement with The Phoenix Group, Inc. The
agreement provides for the Company to buy up to a total of 55.1 million licenses
through December 31, 2002 with one year renewal terms thereafter. The agreement
includes an upfront payment of $200,000 and issuance of 62,500 shares (at $.06
per common share) of the Company's common stock. As a result of this agreement,
the Company recognized $203,750 of research and development expenses for the
period from June 30, 1997 (incorporation) through December 31, 1997.

The agreement also contains a provision which requires the Company to issue
additional common stock to The Phoenix Group, Inc. equal to one-half of one
percent (0.5%) of the number of issued and outstanding shares of the Company's
common and preferred stock that exceeds 12,500,000 shares. During the three
months ended March 31, 1998, there were 3,667 additional shares issuable to The
Phoenix Group, Inc. based upon this provision. The Company recognized expense of
$917 related to the issuance of these shares as additional research and
development expense.

Voluntary Employee Savings 401(k) Plan. The Company established a
voluntary employee savings 401(k) plan in 1997 which is available to all
full-time employees 21 years or older. The plan provides for a matching by the
Company of the employee's contribution to the plan for 50% of the first 6% of
the employee's annual compensation. The Company's matching contributions were
approximately $14,000 for the period from May 1, 1997 (inception) through
December 31, 1997.

(9) STOCK SPLIT

On January 14, 1998, the Company authorized a five-for-four common stock
split. Stock options outstanding and common shares outstanding have been
adjusted to retroactively reflect the effect of this stock split.

(10) SUBSEQUENT EVENTS

Lease Commitment. On January 8, 1998, the Company entered into a five year
lease for office space beginning May 18, 1998. The lease provides for a monthly
base rent of approximately $20,000 and for allocations of direct expense charges
for building upkeep, maintenance and property taxes.

Technology Fee. On January 14, 1998, the Company entered into an agreement
with XL Vision for the transfer of certain technology that will be used by the
Company in the sale of its products for $10,000,000. The Company expensed the
cost of this technology as research and development expense during the three
months ended March 31, 1998.

Initial Public Offering. On April 21, 1998, the Company's Board of
Directors authorized the filing of a registration statement on Form S-1. The IPO
will be conducted as a rights offering primarily to Safeguard's stockholders and
will result in the expected sale of 6,500,000 new shares of common stock.

Equity. The Company sold 8,258,881 shares of convertible Series A
preferred stock in an offering based upon a private placement memorandum dated
January 14, 1998 for $1.00 per share.

On May 21, 1998, the Company authorized an additional 5,000,000 shares of
preferred stock which were not designated, an additional 20,000,000 shares of
common stock and an increase of 300,000 shares in the Company's equity
compensation plan to 1,925,000 shares in the aggregate (note 6).

F-13
<PAGE>

WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED

(10) SUBSEQUENT EVENTS -- (CONTINUED)

In May 1998, the Compensation Committee of the board of directors of the
Company approved the exercise of outstanding stock options for certain
executives of the Company prior to their scheduled vesting date. Any shares
issued pursuant to an exercise prior to the scheduled vesting date is subject to
restrictions on transfer until such shares are vested, and in the event the
executive ceases to be employed by the Company prior to vesting of the shares
obtained upon exercise, the Company may repurchase any unvested shares at the
lesser of the exercise price and the then fair value of the common shares.

Between May 21 and June 3, 1998, the Company designated 1,400,000 shares of
preferred stock as Series B and sold those shares for $3.00 per share.

On June 16, 1998, the Company authorized an additional increase in the Plan
of 475,000 shares to 2,400,000 shares in the aggregate.

Management Services Fee. Effective May 18, 1998, the Company entered into
an agreement which requires accrual of a management services fee based upon a
percentage of gross revenues. The fee for administrative support services,
including management consultation, investor relations, legal services and tax
planning, is payable monthly to XL Vision and Safeguard Scientifics, Inc., the
majority shareholder of XL Vision, based upon an aggregate of 1.5% of gross
revenues subject to an annual minimum of $100,000 and an annual limit of
$300,000. The fee is only payable in months during which the Company has
achieved positive cash flow from operations. The agreement extends through May
18, 2003 and continues thereafter unless terminated by any party.

Major Suppliers and Distributors. On July 1, 1998 and July 16, 1998, the
Company finalized agreements with two Taiwanese companies, Silitek Corporation
and SPOT Technology, Inc., respectively, to serve as contract manufacturers of
the Company's products.

On July 1, 1998, July 16, 1998 and July 9, 1998, respectively, the Company
finalized separate agreements with two Taiwanese companies, Silitek Corporation
and SPOT, Inc., a subsidiary of Mag Technology Co., Ltd., and a related party,
Integrated Visions, Inc. Pursuant to these agreements, these companies will
purchase products from the Company and integrate them into other products to be
sold through various channels.

F-14

<PAGE>

[GRAPHIC APPEARS HERE]

<PAGE>

================================================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITY OTHER THAN THE SECURITIES COVERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH AN OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS FURNISHED OR
THE DATE HEREOF.
------------------------------

TABLE OF CONTENTS

PAGE
----

Prospectus Summary................... 3
Risk Factors......................... 8
The Offering......................... 18
Federal Income Tax Consequences...... 22
Use of Proceeds...................... 23
Dividend Policy...................... 23
Capitalization....................... 24
Dilution............................. 25
Selected Financial Data.............. 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 27
Business............................. 30
Management........................... 43
Certain Transactions................. 49
Principal and Selling Stockholders... 51
Description of Capital Stock......... 53
Shares Eligible for Future Sale...... 55
Underwriting......................... 57
Legal Matters........................ 59
Experts.............................. 59
Additional Information............... 59
Index to Financial Statements........ F-1

------------------------------

UNTIL , 1998 (25 DAYS AFTER THE EXPIRATION DATE), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

6,825,000 SHARES

(AND RIGHTS TO ACQUIRE
UP TO 6,500,000 OF SUCH SHARES)

WHO? VISION
SYSTEMS, INC.

COMMON STOCK

---------------------
PROSPECTUS
---------------------

ROBERT W. BAIRD & CO.
INCORPORATED

, 1998

================================================================================

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses of Issuance and Distribution

The expenses (other than underwriting discounts and commissions and the
underwriter's non-accountable expense allowance) payable in connection with this
offering of the rights and the sale of the Common Stock offered hereby are as
follows:

Securities and Exchange Commission registration fee......... $11,026.00
NASD filing fee............................................. 4,237.50
Nasdaq filing fee........................................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses (including legal fees)........... *
Transfer agent and rights agent and registrar fees and
expenses.................................................. *
Miscellaneous............................................... *
----------
Total............................................... $ *

- ------------------
* To be filed by amendment

All expenses are estimated except for the SEC fee and the NASD fee.

ITEM 14. Indemnification of Directors and Officers

The Registrant's Certificate of Incorporation permits indemnification to
the fullest extent permitted by Delaware law. The Registrant's By-laws require
the Registrant to indemnify any person who was or is an authorized
representative of the Registrant, and who was or is a party or is threatened to
be made a party to any corporate proceeding, by reason of the fact that such
person was or is an authorized representative of the Registrant, against
expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such third party
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
Registrant and, with respect to any criminal third party proceeding (including
any action or investigation which could or does lead to a criminal third party
proceeding) had no reasonable cause to believe such conduct was unlawful. The
Registrant shall also indemnify any person who was or is an authorized
representative of the Registrant and who was or is a party or is threatened to
be made a party to any corporate proceeding by reason of the fact that such
person was or is an authorized representative of the Registrant, against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of such corporate action if such person acted in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the Registrant, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Registrant unless and only to the extent that the
Delaware Court of Chancery or the court in which such corporate proceeding was
pending shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such authorized
representative is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper. Such
indemnification is mandatory under the Registrant's By-laws as to expenses
actually and reasonably incurred to the extent that an authorized representative
of the Registrant has been successful on the merits or otherwise in defense of
any third party or corporate proceeding or in defense of any claim, issue or
matter therein. The determination of whether an individual is entitled to
indemnification may be made by a majority of disinterested directors,
independent legal counsel in a written legal opinion or the stockholders.
Delaware law also permits indemnification in connection with a proceeding
brought by or in the right of the Registrant to procure a judgment in its favor.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons

II-1

<PAGE>

controlling the Registrant pursuant to the foregoing provisions, the Registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in that Act and is
therefore unenforceable. The Registrant expects to obtain a directors and
officers liability insurance policy prior to the effective date of this
Registration Statement.

The Standby Underwriting Agreement provides that the underwriter is
obligated, under certain circumstances, to indemnify directors, officers and
controlling persons of the Registrant against certain liabilities, including
liabilities under the Act. Reference is made to Section 8 of the form of Standby
Underwriting Agreement which will be filed by amendment as Exhibit 1.1 hereto.

ITEM 15. Recent Sales of Unregistered Securities

In the preceding three years, the Registrant has issued the following
securities that were not registered under the Act:

Since its inception, the Company has issued to employees and certain other
persons (i) an aggregate of 5,122,698, shares of Common Stock, including 825,000
shares issued pursuant to the Company's 1997 Equity Compensation Plan, (ii) an
aggregate of 8,258,881 shares of Series A Preferred Stock, at a price of $1.00
per share and (iii) an aggregate of 1,400,000 shares of Series B Preferred
Stock, at a price of $3.00 per share. All of such sales were made under the
exemption from registration provided under Section 4(2) of the Act.

Pursuant to the Company's 1997 Equity Compensation Plan, the Company has
granted since inception (i) options to purchase a total of 706,425 shares of
Common Stock at a weighted average exercise price of $1.50 per share and (ii)
750,000 shares of restricted Common Stock to its employees and certain other
persons. Options for 75,000 shares have been exercised. For a more detailed
description of the Company's Equity Compensation Plan, see "Management -- Equity
Compensation Plan" in this registration statement. In granting the options and
selling the underlying securities upon exercise of the options, the Company is
relying upon exemptions from registration set forth in Rule 701 and Section 4(2)
of the Act.

II-2

<PAGE>

ITEM 16. Exhibits and Financial Statement Schedules

(a) EXHIBITS:

EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
1.1 Form of Standby Underwriting Agreement.#
3.1 Amended and Restated Certificate of Incorporation of the
Company.*
3.2 Amended and Restated By-laws of the Company.*
5.1 Opinion of Morgan, Lewis & Bockius LLP.#
8.1 Opinion of Morgan, Lewis & Bockius LLP regarding tax
matters.#
10.1 1997 Equity Compensation Plan of the Company.*
10.2 Lease Agreement, dated as of January 8, 1998, between the
Company and Olen Properties Corp.*
10.3 Manufacturing Agreement, dated as of July 16, 1998, between
the Company and SPOT Technology, Inc.+
10.4 Distribution Agreement, dated as of July 16, 1998, between
the Company and SPOT, Inc.+
10.5 Manufacturing Agreement, dated as of July 1, 1998, between
the Company and Silitek Corporation.+
10.6 Distribution Agreement, dated as of July 1, 1998, between
the Company and Silitek Corporation.+
10.7 Administrative Services Agreement, dated as of May 21, 1998,
among the Company, XL Vision, and Safeguard.*
10.8 Direct Charge Administrative Services Agreement, dated as of
December 9, 1997, between the Company and XL Vision.*
10.9 Value Added Reseller Agreement, dated as of July 9, 1998,
between the Company and Integrated Visions.+
21.1 Subsidiaries of the Registrant.*
23.1 Consent of KPMG Peat Marwick LLP*
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in
Exhibit 5.1).#
23.3 Consent of Morgan, Lewis & Bockius LLP (to be included in
Exhibit 8.1).#
24.1 Power of Attorney (included on signature page).#
27.1 Financial Data Schedule.*

- ------------------
* Filed herewith.

# To be filed by amendment.

+ Confidential Treatment Requested. The entire agreement will be filed by
amendment and separately with the Securities and Exchange Commission.

II-3

<PAGE>

(b) FINANCIAL STATEMENT SCHEDULES

All information for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission is either included in the
financial statements or is not required under the related instructions or are
inapplicable, and therefore have been omitted.

ITEM 17. Undertakings.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in "Calculation of
Registration Fee" table in the effective registration statement; and

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes (1) to provide to the
underwriter at the closing specified in the standby underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (3) that for the purpose of determining any liability under the
Act, each post-effective amendment that

II-4

<PAGE>

contains a form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriter during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriter, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriter is to be made on terms differing from those set
forth on the cover page of the prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.

II-5

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Lake Forest, California on July 16,
1998.

WHO? VISION SYSTEMS, INC.

By: /s/ ALEXANDER G. DICKINSON
----------------------------------
Alexander G. Dickinson, Ph.D.
Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Alexander G. Dickinson and James W. Kerrigan or
either of them acting alone, his or her true and lawful attorney-in-fact and
agent, with full power of substitution and revocation, for him or her and in his
or her name, place and stead, in any and all capacities, to sign (i) any and all
amendments (including post-effective amendments) to this Registration Statement
and to file the same with all exhibits thereto, and other documents in
connection therewith and (ii) any registration statement and any and all
amendments thereto, relating to the offer covered hereby filed pursuant to Rule
462(b) under the Securities Act of 1933, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ALEXANDER G. DICKINSON Chief Executive Officer and Director July 16, 1998
- ----------------------------- (Principal Executive Officer)
Alexander G. Dickinson, Ph.D.

/s/ JAMES W. KERRIGAN Chief Financial Officer (Principal July 16, 1998
- ----------------------------- Financial and Accounting Officer)
James W. Kerrigan

/s/ JOHN S. SCOTT Chairman of the Board July 16, 1998
- -----------------------------
John S. Scott, Ph.D.

/s/ EDWARD ANDERSON Director July 16, 1998
- -----------------------------
Edward Anderson

/s/ CHARLES A. ROOT Director July 16, 1998
- -----------------------------
Charles A. Root

/s/ WALTER W. BUCKLEY, III Director July 16, 1998
- -----------------------------
Walter W. Buckley, III

/s/ JAMES IONSON Director July 16, 1998
- -----------------------------
James Ionson

/s/ ALEX W. HART Director July 16, 1998
- -----------------------------
Alex W. Hart

/s/ CHRISTOPHER MOLLER Director July 16, 1998
- -----------------------------
Christopher Moller
</TABLE>

II-6

<PAGE>

EXHIBIT INDEX

EXHIBIT NUMBER DESCRIPTION PAGE NO.
- -------------- ----------- --------
<C> <S> <C>
1.1 Form of Standby Underwriting Agreement.#

3.1 Amended and Restated Certificate of Incorporation of the
Company.*

3.2 Amended and Restated By-laws of the Company.*

5.1 Opinion of Morgan, Lewis & Bockius LLP.#

8.1 Opinion of Morgan, Lewis & Bockius LLP regarding tax
matters.#

10.1 1997 Equity Compensation Plan of the Company.*

10.2 Lease Agreement, dated as of January 8, 1998, between the
Company and Olen Properties Corp.*

10.3 Manufacturing Agreement, dated as of July 16, 1998, between
the Company and SPOT Technology, Inc.+

10.4 Distribution Agreement, dated as of July 16, 1998, between
the Company and SPOT, Inc.+

10.5 Manufacturing Agreement, dated as of July 1, 1998, between
the Company and Silitek Corporation.+

10.6 Distribution Agreement, dated as of July 1, 1998, between
the Company and Silitek Corporation.+

10.7 Administrative Services Agreement, dated as of May 21, 1998,
among the Company, XL Vision, and Safeguard.*

10.8 Direct Charge Administrative Services Agreement, dated as of
December 9, 1997, between the Company and XL Vision.*

10.9 Value Added Reseller Agreement, dated as of July 9, 1998,
between the Company and Integrated Visions.+

21.1 Subsidiaries of the Registrant.*

23.1 Consent of KPMG Peat Marwick LLP*

23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in
Exhibit 5.1).#

23.3 Consent of Morgan, Lewis & Bockius LLP (to be included in
Exhibit 8.1).#

24.1 Power of Attorney (included on signature page).#

27.1 Financial Data Schedule.*
</TABLE>

- ------------------

* Filed herewith.

# To be filed by amendment.

+ Confidential treatment requested. The entire agreement will be filed
separately with the Securities and Exchange Commission.

RESTATED CERTIFICATE OF INCORPORATION
OF
WHO? VISION SYSTEMS, INC.

Who? Vision Systems, Inc., a Delaware corporation, hereby certifies as
follows:

FIRST. The name of the corporation is Who? Vision Systems, Inc. The
date of filing of its original Certificate of Incorporation with the Secretary
of State was June 30, 1997.

SECOND. This Restated Certificate of Incorporation amends, restates and
integrates the provisions of the Certificate of Incorporation of said
corporation and has been duly adopted Delaware by majority vote of the holders
of all of the outstanding stock entitled to vote thereon in accordance with the
provisions of Section 242 and 245 and all other applicable provisions of the
General Corporation Law of the State of Delaware.

THIRD. The text of the Certificate of Incorporation is hereby amended
and restated to read herein as set forth in full:

1. The name of the Corporation is Who? Vision Systems, Inc.

2. The address of the Corporation's registered office is 1013 Centre
Road in the City of Wilmington, County of New Castle. The name of its registered
agent at such address is Corporation Service Company.

3. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.

4. The aggregate number of shares that the corporation shall have
authority to issue is Seventy Five Million shares (75,000,000), of which Sixty
Million shares (60,000,000) will be Common Stock, par value One Cent ($.01) per
share and Fifteen Million shares (15,000,000) will be Preferred Stock, par value
One Cent ($.01) per share. The Board of Directors shall have the full authority
permitted by law to divide the authorized and unissued shares into classes or
series, or both, and to determine for any such class or series its designation
and the number of shares of the class or series and the voting rights,
preferences, limitations and special rights if any, of the shares of the class
or series.

THE SERIES A PREFERRED STOCK DESIGNATION
IS HEREBY AMENDED AND RESTATED AS FOLLOWS:

Amended and Restated
Description and Designation of Series A Preferred Stock

A1. Designation. A total of 8,300,000 shares of the Company's Preferred
Stock shall be designated the "Series A Preferred Stock." As used herein, the
term "Preferred Stock" used without reference to the Series A Preferred Stock
means the shares of Preferred Stock, without distinction as to series, except as
otherwise expressly provided for herein, or as the context otherwise requires.

<PAGE>

A2. Restrictions on Distributions. Except to the extent in any instance
approval is provided in writing by the holders of two-thirds of the outstanding
shares of Series A Preferred Stock and any other series of Preferred Stock
senior to or on parity with the Series A Preferred Stock with respect to
liquidation preference (all voting together as a single class), the Corporation
shall not declare or pay any dividends, or purchase, redeem, retire, or
otherwise acquire for value any shares of its capital stock junior to the Series
A Preferred Stock (or rights, options or warrants to purchase such shares) now
or hereafter outstanding, return any capital to its stockholders as such, or
make any distribution of assets to its stockholders as such, or permit any
Subsidiary to do any of the foregoing. "Subsidiary" or "Subsidiaries" means any
corporation, partnership or joint venture of which the Company and/or any of its
other Subsidiaries (as herein defined) directly or indirectly owns at the time
at least fifty percent (50%) of the outstanding voting shares or similar
interests other than directors' qualifying shares.

Notwithstanding the foregoing, Subsidiaries may declare and make
payment of cash and stock dividends, return capital and make distributions of
assets to the Corporation, and nothing contained in the foregoing shall prevent
the Corporation from: (i) effecting a stock split or declaring or paying any
dividend consisting of shares of any class of capital stock paid to the holders
of shares of such class of capital stock; (ii) complying with any specific
provision of the terms of any subsequently designated series of Preferred Stock
in accordance with its terms; (iii) redeeming or repurchasing any stock of a
deceased stockholder out of proceeds of insurance held by the Corporation on
that stockholder's life; or (iv) redeeming or repurchasing any stock of any
director, officer, employee, advisor, consultant or other person or entity,
pursuant to a stock repurchase agreement or stock restriction agreement under
which the Corporation has the right or obligation to repurchase such shares in
the event of death, termination of employment or of the consulting arrangement,
or other similar discontinuation of a business relationship.

A3. Liquidation, Dissolution or Winding Up.

3.1 Treatment at Liquidation, Dissolution or Winding Up. Any class or
series of Preferred Stock designated in the future to be on a parity with the
Series A Preferred Stock with respect to liquidation preference are collectively
referred to herein as "Parity Stock". In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
or in the event of its insolvency, before any distribution or payment is made to
any holders of Common Stock or any other class or series of capital stock of the
Corporation designated to be junior to the Series A Preferred Stock in
liquidation preference (collectively, "Junior Stock"), and subject to the
liquidation rights and preferences of any class or series of Preferred Stock
designated in the future to be senior to the Series A Preferred Stock with
respect to liquidation preference ("Senior Stock"), the holders of each share of
Series A Preferred Stock shall be entitled to be paid first out of the assets of
the Corporation available for distribution to holders of the Corporation's
capital stock of all classes, whether such assets are capital, surplus or
earnings ("Available Assets"), the greater of (i) an amount per share of Series
A Preferred Stock equal to $1.00, plus $.10 for each year (pro rated for partial
years) from July 16, 1997 until the date of distribution of Available Assets,
(subject to equitable adjustment for any stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or

-2-

<PAGE>

other similar event involving a change in the capital structure of the Preferred
Stock), or (ii) such amount per share of Series A Preferred Stock as would have
been payable had each share of Preferred Stock which is convertible into Common
Stock been so converted immediately prior to such liquidation, dissolution or
winding up.

If, upon liquidation, dissolution or winding up of the Corporation, the
Available Assets shall be insufficient to pay the holders of Series A Preferred
Stock and of any Parity Stock the full amounts to which they otherwise would be
entitled, the holders of Series A Preferred Stock and Parity Stock shall share
ratably in any distribution of Available Assets pro rata in proportion to the
respective liquidation preference amounts which would otherwise be payable upon
liquidation with respect to the outstanding shares of the Series A Preferred
Stock and Parity Stock if all liquidation preference dollar amounts with respect
to such shares were paid in full.

3.2 Treatment of Reorganization, Consolidation, Merger, or Sale of
Assets. Any merger, consolidation or other corporate reorganization or
combination to which the Corporation is a non-surviving party, and any sale of
all or substantially all of the assets of the Corporation, shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section A3; provided, however that, in the case of any such
transaction to which the provisions of Section 5.6 also apply, the holders of
the outstanding shares of Series A Preferred Stock and Parity Stock (voting
together as a single class) shall have the right by majority vote to elect the
benefits of the provisions of Section 5.6 hereof for all of the Series A
Preferred Stock and Parity Stock in lieu of receiving payment in liquidation,
dissolution or winding up of the Corporation pursuant to this Section A3.

The provisions of this Section 3.2 shall not apply to (i) any
reorganization, merger or consolidation involving only a change in the state of
incorporation of the Corporation, (ii) a merger of the Corporation with or into
a wholly-owned Subsidiary of the Corporation that is incorporated in the United
States of America, or (iii) a merger, reorganization, consolidation or other
combination, of which the Corporation is substantively the surviving corporation
and operates as a going concern, with another corporation incorporated in the
United States of America and which does not involve a recapitalization,
reorganization, reclassification or other similar change in the capital
structure of the Corporation.

3.3 Distributions Other than Cash Whenever the distribution provided
for in this Section A3 shall be payable in whole or in part in property other
than cash, the value of any property distributed shall be the fair market value
of such property as reasonably determined in good faith by the Board of
Directors of the Corporation. All distributions of property other than cash made
hereunder shall be made, to the maximum extent possible, pro rata with respect
to each Series and class of Preferred Stock and Common Stock in accordance with
the liquidation amounts payable with respect to each such Series and class.

-3-

<PAGE>

A4. Voting Power.

4.1 General. For each vote in which holders of Series A Preferred Stock
are entitled to participate, each share of Series A Preferred Stock shall be
entitled to that number of votes equal to the largest number of whole shares of
Common Stock into which such holder's shares of Series A Preferred Stock could
be converted. Except as otherwise required by applicable law or as otherwise
provided herein, each holder of Series A Preferred Stock shall be entitled to
vote together with the Common Stock and all other series and classes of stock
entitled to vote together with the Common Stock on all matters submitted to a
vote of the stockholders of the Corporation (including election of directors
other than the Series A Directors, as hereinafter defined). Each holder of
Series A Preferred Stock shall be entitled to notice of any stockholders'
meeting in accordance with the by-laws of this Corporation at the same time and
in the same manner as notice is given to all other stockholders entitled to vote
at such meetings.

4.2 Limitations During First Three Years. Notwithstanding paragraph
4.1, for a period of three years from the date of the initial filing of this
Certificate of Designation, the holders of Series A Preferred Stock shall not
have any voting rights, other than as required by law and as provided in
paragraph 4.3 and Section A6 below.

4.3 Director Election Rights. So long as any shares of Series A
Preferred Stock remain outstanding, the holders of the Series A Preferred Stock,
voting as a separate class, shall have the right to elect two directors of the
Corporation (the "Series A Directors"). At any annual or special meeting of the
Corporation held for the purpose of electing directors, the presence in person
or by proxy (or by written consent) of the holders of a majority of the
outstanding shares of Series A Preferred Stock shall constitute a quorum for the
election of the Series A Directors.

A5. Conversion Rights. The holders of the Series A Preferred Stock
shall have the following rights and be subject to the following obligations with
respect to the conversion of such shares into shares of Common Stock:

5.1 Voluntary Conversion. Subject to and in compliance with the
provisions of this Section A5, any shares of the Series A Preferred Stock may,
at the option of the holder thereof, be converted at any time and from time to
time into fully-paid and non-assessable shares of Common Stock. The number of
shares of Common Stock which a holder of Series A Preferred Stock shall be
entitled to receive upon conversion shall be the product obtained by multiplying
(i) the number of shares of Series A Preferred Stock being converted at any
time, by (ii) the rate (the "Series A Conversion Rate") equal to the quotient
obtained by dividing $1.00 by the "Series A Conversion Value." The Series A
Conversion Value in effect from time to time, except as adjusted in accordance
with this Section A5, shall be $1.00.

5.2 Automatic Conversion.

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5.2.1 Events Causing Conversion. Immediately (A) prior to the
effectiveness of a registration statement filed by the Company pursuant to the
Securities Act of 1933, as amended, (other than on Form S-4 or S-8 on any
successor forms thereto) covering the offer and sale of Common Stock in an
underwritten public offering on a firm commitment basis in which the gross
proceeds of the offering will equal or exceed $10,000,000 (calculated before
deducting underwriters' discounts and commissions and other offering expenses),
and in which the public offering price per share of Common Stock (calculated
before deducting underwriters' discounts and commissions) results in a valuation
of the total number of outstanding shares of capital stock of the Company
immediately prior to the closing of the public offering of at least $35,000,000,
but subject to the closing of such public offering, (B) prior to the
effectiveness of a registration statement filed by the Company pursuant to the
Securities Act of 1933 covering the offer and sale of Common Stock in a rights
offering to shareholders of Safeguard Scientifics, Inc., in which the gross
proceeds of the offering will equal or exceed $10,000,000 (calculated before
deducting underwriters' discounts and commissions and other offering expenses),
and in which the public offering price per share of Common Stock (calculated
before deducting underwriters' discounts and commissions) results in a valuation
of the total number of outstanding shares of capital stock of the Company
immediately prior to the closing of the public offering of at least $35,000,000,
but subject to the closing of such rights offering, or (C) upon the election,
set forth in a written notice to the Corporation, of holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock and Parity
Stock (counted as a single class) to convert their Series A Preferred Stock and
Parity Stock to Common Stock; all outstanding shares of Series A Preferred Stock
and Parity Stock shall be converted automatically into the number of fully paid,
non-assessable shares of Common Stock into which such shares of Series A
Preferred Stock and Parity Stock are convertible pursuant to this Section A5 or
the designation of such Parity Stock as of the closing and consummation of such
underwritten public offering or the date of such approval, without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent.

5.2.2 Surrender of Certificates Upon Mandatory Conversion. Upon the
occurrence of the conversion event specified in paragraph 5.2.1, the holders of
the Series A Preferred Stock shall, upon notice from the Corporation, surrender
the certificates representing such shares at the office of the Corporation or
its transfer agent for the Common Stock. Thereupon, there shall be issued and
delivered to such holder a certificate or certificates for the number of shares
of Common Stock into which the shares of Series A Preferred Stock so surrendered
were convertible on the date on which the conversion occurred. The Corporation
shall not be obligated to issue such certificates unless certificates evidencing
such shares of Series A Preferred Stock being converted are either delivered to
the Corporation or any such transfer agent, or the holder notifies the
Corporation that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection therewith.

5.3 Anti-Dilution Adjustments.

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5.3.1 Upon Dilutive Issuances. If the Corporation shall, while there
are any shares of Series A Preferred Stock outstanding, issue or sell shares of
its Common Stock or "Common Stock Equivalents" (as defined in Section 5.3.2.1
below) without consideration or at a price per share or "Net Consideration Per
Share" (as defined in Section 5.3.3 below) less than the Series A Conversion
Value in effect immediately prior to such issuance or sale, then in each such
case the Series A Conversion Value, except as hereinafter provided, shall be
lowered so as to be equal to an amount determined by multiplying such Series A
Conversion Value by the following fraction:

N0 + N1
-----------------
N0 + N2

Where:

N0 = the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares of Common
Stock or Common Stock Equivalents (calculated on a fully-diluted basis
assuming the exercise or conversion of all then exercisable or
convertible options, warrants, purchase rights and convertible
securities).

N1 = the number of shares of Common Stock which the aggregate
consideration, if any, (including the Net Consideration Per Share with
respect to the issuance of Common Stock Equivalents) received or
receivable by the Corporation for the total number of such additional
shares of Common Stock so issued or deemed to be issued would purchase
at the Series A Conversion Value in effect immediately prior to such
issuance.

N2 = the number of such additional shares of Common Stock so
issued or deemed to be issued.

Example:

<TABLE>
<S> <C> <C> <C>
initial capital $1,000,000
initial conversion price $1.00

new shares issued 1,000,000 total new consideration $500,000
new issue price $0.50 new shares which would be
issued at initial conversion price 500,000
new conversion price $0.75
</TABLE>

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<PAGE>

The provisions of this Section 5.3.1 may be waived as to all shares of
Series A Preferred Stock in any instance (without the necessity of convening any
meeting of stockholders of the Corporation) upon the written agreement of the
holders of two-thirds of the outstanding shares of Series A Preferred Stock.

5.3.2 Common Stock Equivalents.

5.3.2.1 General. For the purposes of this Section 5.3, the issuance of
any warrants, options, subscription or purchase rights with respect to shares of
Common Stock and the issuance of any securities convertible into or exchangeable
for shares of Common Stock and the issuance of any warrants, options,
subscription or purchase rights with respect to such convertible or exchangeable
securities (collectively, "Common Stock Equivalents"), shall be deemed an
issuance of Common Stock. Any obligation, agreement or undertaking to issue
Common Stock Equivalents at any time in the future shall be deemed to be an
issuance at the time such obligation, agreement or undertaking is made or
arises. No adjustment of the Series A Conversion Value shall be made under this
Section 5.3 upon the issuance of any shares of Common Stock which are issued
pursuant to the exercise, conversion or exchange of any Common Stock
Equivalents.

5.3.2.2 Adjustments for Adjustment, Cancellation or Expiration of
Common Stock Equivalents. Should the Net Consideration Per Share of any such
Common Stock Equivalents be decreased from time to time other than as a result
of the application of anti-dilution provisions substantially similar to the
provisions of this Section 5.3, then, upon the effectiveness of each such
change, the Series A Conversion Value will be that which would have been
obtained (1) had the adjustments made pursuant to Section 5.3.2.1 upon the
issuance of such Common Stock Equivalents been made upon the basis of the new
Net Consideration Per Share of such securities, and (2) had the adjustments made
to the Series A Conversion Value since the date of issuance of such Common Stock
Equivalents been made to such Series A Conversion Value as adjusted pursuant to
clause (1) above. Any adjustment of the Series A Conversion Value which relates
to any Common Stock Equivalent shall be disregarded if, as, and when such Common
Stock Equivalent expires or is canceled without being exercised, or is
repurchased by the Company at a price per share at or less than the original
purchase price, so that the Series A Conversion Value effective immediately upon
such cancellation or expiration shall be equal to the Series A Conversion Value
that would have been in effect (1) had the expired or canceled Common Stock
Equivalent not been issued, and (2) had the adjustments made to the Series A
Conversion Value since the date of issuance of such Common Stock Equivalents
been made to the Series A Conversion Value which would have been in effect had
the expired or canceled Common Stock Equivalent not been issued.

5.3.3 Net Consideration Per Share. For purposes of this Section 5.3,
the "Net Consideration Per Share" which shall be receivable by the Corporation
for any Common Stock issued upon the exercise or conversion of any Common Stock
Equivalents shall be determined as follows:

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<PAGE>

5.3.3.1 The "Net Consideration Per Share" shall mean the amount equal
to the total amount of consideration, if any, received by the Corporation for
the issuance of such Common Stock Equivalents, plus the minimum amount of
consideration, if any, payable to the Corporation upon exercise, or conversion
or exchange thereof, divided by the aggregate number of shares of Common Stock
that would be issued if all such Common Stock Equivalents were exercised,
exchanged or converted.

5.3.3.2 The "Net Consideration Per Share" which shall be receivable by
the Corporation shall be determined in each instance as of the date of issuance
of Common Stock Equivalents without giving effect to any possible future upward
price adjustments or rate adjustments which may be applicable with respect to
such Common Stock Equivalents.

5.3.4 Stock Dividends for Holders of Capital Stock Other Than Common
Stock. In the event that the Corporation shall make or issue (otherwise than to
holders of Common Stock), or shall fix a record date for the determination of
holders of any capital stock of the Corporation other than holders of Common
Stock entitled to receive, a dividend or other distribution payable in Common
Stock or securities of the Corporation convertible into or otherwise
exchangeable for shares of Common Stock of the Corporation, then such Common
Stock or other securities issued in payment of such dividend shall be deemed to
have been issued for a consideration of $.01, except for dividends payable to
the holders of Series A Preferred Stock.

5.3.5 Consideration Other than Cash. For purposes of this Section 5.3,
if a part or all of the consideration received by the Corporation in connection
with the issuance of shares of the Common Stock or the issuance of any of the
securities described in this Section 5.3 consists of property other than cash,
such consideration shall be deemed to have a fair market value as is reasonably
determined in good faith by the Board of Directors of the Corporation.

5.3.6 Exceptions to Anti-dilution Adjustments. This Section 5.3 shall
not apply (A) under any of the circumstances which would constitute an
Extraordinary Common Stock Event (as described below), (B) to any additional
shares of Common Stock which become issuable upon conversion of any other
outstanding series or class of preferred stock or convertible security of the
Company as a result of any anti-dilution adjustment to the conversion ratio of
such series or class, or (C) to any issuance or sale of shares of Common Stock
and/or Common Stock Equivalents in an underwritten public offering not requiring
conversion of the Series A Preferred Stock. Further, this Section 5.3 shall not
apply with respect to the issuance or sale of shares of Common Stock, or the
grant or options exercisable therefor, to directors, officers, employees and
consultants of the Corporation or any subsidiary pursuant to any qualified or
non-qualified stock option plan or agreement, stock purchase plan or agreement,
stock restriction agreement, employee stock ownership plan (ESOP), consulting
agreement, or such other options, issuances, arrangements, agreements or plans
intended principally as a means of providing compensation for employment or
services or of providing additional compensation to a financial institution in
connection with the Corporation obtaining equipment lease/financing, provided
that in each such case such plan, agreement, or other arrangement or issuance is

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<PAGE>

approved by the vote or consent of two-thirds of the Board of Directors or by
the written consent of the holders of two-thirds of the outstanding shares of
Series A Preferred Stock.

5.4 Adjustment Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Series A Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the Series A
Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Series A Conversion
Value, which, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive Extraordinary Common Stock Event or Events.

An "Extraordinary Common Stock Event" shall mean (i) the issue of
additional shares of Common Stock as a dividend or other distribution on
outstanding shares of Common Stock, (ii) a subdivision of outstanding shares of
Common Stock into a greater number of shares of Common Stock, or (iii) a
combination or reverse stock split of outstanding shares of Common Stock into a
smaller number of shares of the Common Stock.

5.5 Adjustment Upon Certain Dividends. In the event the Corporation
shall make or issue, or shall fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution (other
than a distribution in liquidation or other distribution otherwise provided for
herein) with respect to the Common Stock payable in (i) securities of the
Corporation other than shares of Common Stock, or (ii) other assets (excluding
cash dividends or distributions), then and in each such event provision shall be
made so that the holders of the Series A Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the number of securities or such other assets of the
Corporation which they would have received had their Series A Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities or such other assets receivable by
them, giving application to all other adjustments called for during such period
under this Section A5.

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shares of Series A Preferred Stock could have been converted immediately prior
to such reorganization, recapitalization, reclassification or change, all
subject to further adjustment as provided herein. The provision for such
conversion right shall be a condition precedent to the consummation by the
Corporation of any such transaction unless the election described below is made.

In the case of a transaction to which both this Section 5.6 and Section
3.2 apply, the holders of the outstanding shares of Series A Preferred Stock and
Parity Stock (voting together as a single class) shall have the option by
majority vote to elect treatment for the Series A Preferred Stock and Parity
Stock under this Section 5.6, notice of which election shall be submitted in
writing to the Corporation at its principal office no later than five (5)
business days before the effective date of such event. If no such election shall
be made, the provisions of Section 3.2, and not this Section 5.6, shall apply.

5.7 Certificate as to Adjustments; Notice by Corporation. In each case
of an adjustment or readjustment of the Series A Applicable Conversion Rate, the
Corporation at its expense will furnish each holder of Series A Preferred Stock
so affected with a certificate prepared by the Treasurer or Chief Financial
Officer of the Corporation, showing such adjustment or readjustment, and stating
in detail the facts upon which such adjustment or readjustment is based.

5.8 Exercise of Conversion. To exercise its conversion privilege, a
holder of Series A Preferred Stock shall surrender the certificate or
certificates representing the shares being converted to the Corporation at its
principal office, and shall give written notice to the Corporation at that
office that such holder elects to convert such shares. Such notice shall also
state the name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Series A Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. The date when such written notice is received by
the Corporation, together with the certificate or certificates representing the
shares of Series A Preferred Stock being converted, shall be the "Conversion
Date". As promptly as practicable after the Conversion Date, the Corporation
shall issue and deliver to the holder of the shares of Series A Preferred Stock
being converted, or on its written order, such certificate or certificates as it
may request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series A Preferred Stock in accordance with the
provisions of this Section A5, and cash, as provided in Section 5.9, in respect
of any fraction of a share of Common Stock issuable upon such conversion. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the Conversion Date, and at such time the rights of the holder as
holder of the converted shares of Series A Preferred Stock shall cease and the
person(s) in whose name(s) any certificate(s) for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Common Stock represented thereby.

5.9 Cash in Lieu of Fractional Shares. No fractional shares of Common
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Preferred Stock.

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Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of Series A Preferred Stock, the Corporation shall pay
to the holder of the shares of Series A Preferred Stock which were converted a
cash adjustment in respect of such fractional shares in an amount equal to the
same fraction of the market price per share of the Common Stock (as determined
in a reasonable manner prescribed by the Board of Directors) at the close of
business on the Conversion Date. The determination as to whether or not any
fractional shares are issuable shall be based upon the aggregate number of
shares of Series A Preferred Stock being converted at any one time by any holder
thereof, not upon each share of Series A Preferred Stock being converted.

5.10 Partial Conversion. In the event some but not all of the shares of
Series A Preferred Stock represented by a certificate(s) surrendered by a holder
are converted, the Corporation shall execute and deliver to or on the order of
the holder, at the expense of the Corporation, a new certificate representing
the number of shares of Series A Preferred Stock which were not converted.

5.11 Reservation of Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series A Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series A Preferred Stock (including any shares of Series A
Preferred Stock represented by any warrants, options, subscription or purchase
rights for Series A Preferred Stock), and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series A Preferred Stock
(including any shares of Series A Preferred Stock represented by any warrants,
options, subscriptions or purchase rights for such Series A Preferred Stock),
the Corporation shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.

A6. Restrictions and Limitations on Corporate Action.

6.1 The Corporation shall not take any corporate action or amend this
Certificate of Designation (except to reduce the number of shares designated as
Series A Preferred Stock to the number of such shares which are then issued and
outstanding) without the approval by majority vote or written consent of the
holders of outstanding shares of Series A Preferred Stock, voting as a single
class, if such corporate action or amendment would change any of the rights,
preferences, privileges of or limitations provided for herein for the benefit of
any shares of Series A Preferred Stock without similarly changing the rights,
preferences, privileges of or limitations on all other classes or series of
Parity Stock. Without limiting the generality of the preceding sentence, the
Corporation will not amend this Certificate of Designation or take any other
corporate action without the approval of the holders of outstanding shares of
Series A Preferred Stock if such amendment or corporate action would:

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(a) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, additional shares of Series
A Preferred Stock; or

(b) reduce the amount payable to the holders of
Series A Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or

(c) adversely affect the liquidation preferences,
dividend rights or voting rights of the holders of Series A Preferred
Stock; or

(d) cancel or modify the conversion rights of the
holders of Series A Preferred Stock provided for in Section A5 herein.

6.2 The Corporation shall not take any corporate action or amend its
Certificate of Incorporation without the approval by majority vote or written
consent of the holders of outstanding shares of Series A Preferred Stock and
Parity Stock, voting together as a single class, if such corporate action or
amendment would similarly change the rights, preferences, privileges of or
limitations on the Series A Preferred Stock and all classes or series of Parity
Stock. Without limiting the generality of the preceding sentence, the
Corporation will not amend its Certificate of Incorporation or take any other
corporate action without the approval of the holders of the outstanding shares
of Series A Preferred Stock and Parity Stock, voting together as a single class,
if such amendment or corporate action would:

(a) cause or authorize the Corporation to redeem,
purchase or otherwise acquire for value (or pay into or set aside for a
sinking fund for such purpose), any share or shares of equity
securities of the Corporation other than as provided for in Section A2
hereof; or

(b) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, shares of any class of stock
ranking senior to the Series A Preferred Stock and Parity Stock with
respect to liquidation preferences or dividend rights, or containing
redemption rights; or

(c) similarly reduce the amount payable to the
holders of Series A Preferred Stock and Parity Stock upon the voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation; or

(d) similarly adversely affect the liquidation
preferences, dividend rights or voting rights of the holders of Series
A Preferred Stock and Parity Stock; or

(e) similarly cancel or modify the conversion rights
of the holders of Series A Preferred Stock and Parity Stock; or

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(f) provide for the voluntary liquidation,
dissolution, recapitalization, reorganization or winding up of the
Corporation; or

(g) authorize, approve or cause any merger,
consolidation, sale of all or substantially all of the assets of the
Corporation, corporate reorganization, recapitalization or other
business combinations which could be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to Section 3.2
hereof.

A7. No Dilution or Impairment. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series A Preferred Stock set forth
herein, but will at all times in good faith assist in the carrying out of all
such terms. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of stock receivable on the
conversion of the Series A Preferred Stock above the amount payable therefor on
such conversion, and (b) will take such action as may be necessary or
appropriate in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of stock on the conversion of all Series A
Preferred Stock from time to time outstanding.

A8. Notices of Record Date. In the event of

(a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividends or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of capital stock of any class or
any other securities or property, or to receive any other
right, or

(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the
Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any
other entity or person, or

then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series A Preferred Stock a notice specifying (i) the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization,

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reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed by
first class mail, postage prepaid, at least 15 days prior to the date specified
in such notice on which action is being taken.

A9. Status of Converted or Repurchased Series A Preferred Stock. Any
share or shares of Series A Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be returned to the
status of authorized but unissued shares of undesignated Preferred Stock. Upon
the cancellation of all outstanding shares of Series A Preferred Stock, the
provisions of this Certificate of Designation of Series A Preferred Stock shall
terminate and have no further force and effect.

THE SERIES B PREFERRED STOCK
DESIGNATION IS AS FOLLOWS:

Description and Designation of Series B Preferred Stock

B1. Designation. A total of 1,400,000 shares of the Company's Preferred
Stock shall be designated the "Series B Preferred Stock." As used herein, the
term "Preferred Stock" used without reference to the Series B Preferred Stock
means the shares of Preferred Stock, without distinction as to series, except as
otherwise expressly provided for herein, or as the context otherwise requires.

B2. Restrictions on Distributions. Except to the extent in any instance
approval is provided in writing by the holders of two-thirds of the outstanding
shares of Series B Preferred Stock, Series A Preferred Stock and any other
series of Preferred Stock senior to or on parity with the Series B Preferred
Stock with respect to liquidation preference (all voting together as a single
class), the Corporation shall not declare or pay any dividends, or purchase,
redeem, retire, or otherwise acquire for value any shares of its capital stock
junior to the Series B Preferred Stock (or rights, options or warrants to
purchase such shares) now or hereafter outstanding, return any capital to its
stockholders as such, or make any distribution of assets to its stockholders as
such, or permit any Subsidiary to do any of the foregoing. "Subsidiary" or
"Subsidiaries" means any corporation, partnership or joint venture of which the
Company and/or any of its other Subsidiaries (as herein defined) directly or
indirectly owns at the time at least fifty percent (50%) of the outstanding
voting shares or similar interests other than directors' qualifying shares.

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agreement or stock restriction agreement under which the Corporation has the
right or obligation to repurchase such shares in the event of death, termination
of employment or of the consulting arrangement, or other similar discontinuation
of a business relationship.

B3. Liquidation, Dissolution or Winding Up.

3.1 Treatment at Liquidation, Dissolution or Winding Up. The Series B
Preferred Stock shall be on a parity with the Series A Preferred Stock with
respect to liquidation preference. The Series A Preferred Stock and any class or
series of Preferred Stock designated in the future to be on a parity with the
Series B Preferred Stock with respect to liquidation preference are collectively
referred to herein as "Parity Stock". In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
or in the event of its insolvency, before any distribution or payment is made to
any holders of Common Stock or any other class or series of capital stock of the
Corporation designated to be junior to the Series B Preferred Stock in
liquidation preference (collectively, "Junior Stock"), and subject to the
liquidation rights and preferences of any class or series of Preferred Stock
designated in the future to be senior to the Series B Preferred Stock with
respect to liquidation preference ("Senior Stock"), the holders of each share of
Series B Preferred Stock shall be entitled to be paid first out of the assets of
the Corporation available for distribution to holders of the Corporation's
capital stock of all classes, whether such assets are capital, surplus or
earnings ("Available Assets"), the greater of (i) an amount per share of Series
B Preferred Stock equal to $3.00, plus $.30 for each year (pro rated for partial
years) from May 31, 1998 until the date of distribution of Available Assets,
(subject to equitable adjustment for any stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event involving a change in the capital structure of the Preferred Stock), or
(ii) such amount per share of Series B Preferred Stock as would have been
payable had each share of Preferred Stock which is convertible into Common Stock
been so converted immediately prior to such liquidation, dissolution or winding
up.

If, upon liquidation, dissolution or winding up of the Corporation, the
Available Assets shall be insufficient to pay the holders of Series B Preferred
Stock and of any Parity Stock the full amounts to which they otherwise would be
entitled, the holders of Series B Preferred Stock and Parity Stock shall share
ratably in any distribution of Available Assets pro rata in proportion to the
respective liquidation preference amounts which would otherwise be payable upon
liquidation with respect to the outstanding shares of the Series B Preferred
Stock and Parity Stock if all liquidation preference dollar amounts with respect
to such shares were paid in full.

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<PAGE>

class) shall have the right by majority vote to elect the benefits of the
provisions of Section 5.6 hereof for all of the Series B Preferred Stock and
Parity Stock in lieu of receiving payment in liquidation, dissolution or winding
up of the Corporation pursuant to this Section B3.

3.3 Distributions Other than Cash. Whenever the distribution provided
for in this Section B3 shall be payable in whole or in part in property other
than cash, the value of any property distributed shall be the fair market value
of such property as reasonably determined in good faith by the Board of
Directors of the Corporation. All distributions of property other than cash made
hereunder shall be made, to the maximum extent possible, pro rata with respect
to each Series and class of Preferred Stock and Common Stock in accordance with
the liquidation amounts payable with respect to each such Series and class.

B4. Voting Power.

4.1 General. For each vote in which holders of Series B Preferred Stock
are entitled to participate, each share of Series B Preferred Stock shall be
entitled to that number of votes equal to the largest number of whole shares of
Common Stock into which such holder's shares of Series B Preferred Stock could
be converted. Except as otherwise required by applicable law or as otherwise
provided herein, each holder of Series B Preferred Stock shall be entitled to
vote together with the Common Stock and all other series and classes of stock
permitted to vote with the Common Stock on all matters submitted to a vote of
the stockholders of the Corporation (including election of directors generally,
but excluding election of the "Series A Directors", as defined in the
Certificate of Designation of the Series A Preferred Stock of the Company). Each
holder of Series B Preferred Stock shall be entitled to notice of any
stockholders' meeting in accordance with the by-laws of this Corporation at the
same time and in the same manner as notice is given to all other stockholders
entitled to vote at such meetings.

4.2 Limitations During First Three Years. Notwithstanding paragraph
4.1, for a period of three years from the date of the initial filing of this
Certificate of Designation, the holders of Series B Preferred Stock shall not
have any voting rights, other than as required by law and as provided in Section
B6 below.

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<PAGE>

B5. Conversion Rights. The holders of the Series B Preferred Stock
shall have the following rights and be subject to the following obligations with
respect to the conversion of such shares into shares of Common Stock:

5.1 Voluntary Conversion. Subject to and in compliance with the
provisions of this Section B5, any shares of the Series B Preferred Stock may,
at the option of the holder thereof, be converted at any time and from time to
time into fully-paid and non-assessable shares of Common Stock. The number of
shares of Common Stock which a holder of Series B Preferred Stock shall be
entitled to receive upon conversion shall be the product obtained by multiplying
(i) the number of shares of Series B Preferred Stock being converted at any
time, by (ii) the rate (the "Series B Conversion Rate") equal to the quotient
obtained by dividing $3.00 by the "Series B Conversion Value." The Series B
Conversion Value in effect from time to time, except as adjusted in accordance
with this Section B5, shall be $3.00.

5.2 Automatic Conversion.

5.2.1 Events Causing Conversion. Immediately (A) prior to the
effectiveness of a registration statement filed by the Company pursuant to the
Securities Act of 1933, as amended, (other than on Form S-4 or S-8 on any
successor forms thereto) covering the offer and sale of Common Stock in an
underwritten public offering on a firm commitment basis in which the gross
proceeds of the offering will equal or exceed $10,000,000 (calculated before
deducting underwriters' discounts and commissions and other offering expenses),
and in which the public offering price per share of Common Stock (calculated
before deducting underwriters' discounts and commissions) results in a valuation
of the total number of outstanding shares of capital stock of the Company
immediately prior to the closing of the public offering of at least $35,000,000,
but subject to the closing of such public offering, (B) prior to the
effectiveness of a registration statement filed by the Company pursuant to the
Securities Act of 1933 covering the offer and sale of Common Stock in a rights
offering to shareholders of Safeguard Scientifics, Inc., in which the gross
proceeds of the offering will equal or exceed $10,000,000 (calculated before
deducting underwriters' discounts and commissions and other offering expenses),
and in which the public offering price per share of Common Stock (calculated
before deducting underwriters' discounts and commissions) results in a valuation
of the total number of outstanding shares of capital stock of the Company
immediately prior to the closing of the public offering of at least $35,000,000,
but subject to the closing of such rights offering, or (C) upon the election,
set forth in a written notice to the Corporation, of holders of at least
two-thirds of the outstanding shares of Series B Preferred Stock and Parity
Stock (counted as a single class) to convert their Series B Preferred Stock and
Parity Stock to Common Stock; all outstanding shares of Series B Preferred Stock
and Parity Stock shall be converted automatically into the number of fully paid,
non-assessable shares of Common Stock into which such shares of Series B
Preferred Stock and Parity Stock are convertible pursuant to this Section B5 or
the designation of such Parity Stock as of the closing and consummation of such
underwritten public offering or the date of such approval, without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent.

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<PAGE>

5.2.2 Surrender of Certificates Upon Mandatory Conversion. Upon the
occurrence of the conversion event specified in paragraph 5.2.1, the holders of
the Series B Preferred Stock shall, upon notice from the Corporation, surrender
the certificates representing such shares at the office of the Corporation or
its transfer agent for the Common Stock. Thereupon, there shall be issued and
delivered to such holder a certificate or certificates for the number of shares
of Common Stock into which the shares of Series B Preferred Stock so surrendered
were convertible on the date on which the conversion occurred. The Corporation
shall not be obligated to issue such certificates unless certificates evidencing
such shares of Series B Preferred Stock being converted are either delivered to
the Corporation or any such transfer agent, or the holder notifies the
Corporation that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection therewith.

5.3 Anti-Dilution Adjustments.

5.3.1 Upon Dilutive Issuances. If the Corporation shall, while there
are any shares of Series B Preferred Stock outstanding, issue or sell shares of
its Common Stock or "Common Stock Equivalents" (as defined in Section 5.3.2.1
below) without consideration or at a price per share or "Net Consideration Per
Share" (as defined in Section 5.3.3 below) less than the Series B Conversion
Value in effect immediately prior to such issuance or sale, then in each such
case the Series B Conversion Value, except as hereinafter provided, shall be
lowered so as to be equal to an amount determined by multiplying such Series B
Conversion Value by the following fraction:

N0 + N1
-----------------
N0 + N2

Where:

N1 = the number of shares of Common Stock which the aggregate
consideration, if any, (including the Net Consideration Per Share with
respect to the issuance of Common Stock Equivalents) received or
receivable by the Corporation for the total number of such additional
shares of Common Stock so issued or deemed to be issued would purchase
at the Series B Conversion Value in effect immediately prior to such
issuance.

N2 = the number of such additional shares of Common Stock so
issued or deemed to be issued.

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<PAGE>

Example:

<TABLE>
<S> <C> <C> <C>
initial capital $1,000,000
initial conversion price $1.00

new shares issued 1,000,000 total new consideration $500,000
new issue price $0.50 new shares which would be
issued at initial conversion price 500,000
new conversion price $0.75
</TABLE>

The provisions of this Section 5.3.1 may be waived as to all shares of
Series B Preferred Stock in any instance (without the necessity of convening any
meeting of stockholders of the Corporation) upon the written agreement of the
holders of two-thirds of the outstanding shares of Series B Preferred Stock.

5.3.2 Common Stock Equivalents.

5.3.2.1 General. For the purposes of this Section 5.3, the issuance of
any warrants, options, subscription or purchase rights with respect to shares of
Common Stock and the issuance of any securities convertible into or exchangeable
for shares of Common Stock and the issuance of any warrants, options,
subscription or purchase rights with respect to such convertible or exchangeable
securities (collectively, "Common Stock Equivalents"), shall be deemed an
issuance of Common Stock. Any obligation, agreement or undertaking to issue
Common Stock Equivalents at any time in the future shall be deemed to be an
issuance at the time such obligation, agreement or undertaking is made or
arises. No adjustment of the Series B Conversion Value shall be made under this
Section 5.3 upon the issuance of any shares of Common Stock which are issued
pursuant to the exercise, conversion or exchange of any Common Stock
Equivalents.

5.3.2.2 Adjustments for Adjustment, Cancellation or Expiration of
Common Stock Equivalents. Should the Net Consideration Per Share of any such
Common Stock Equivalents be decreased from time to time other than as a result
of the application of anti-dilution provisions substantially similar to the
provisions of this Section 5.3, then, upon the effectiveness of each such
change, the Series B Conversion Value will be that which would have been
obtained (1) had the adjustments made pursuant to Section 5.3.2.1 upon the
issuance of such Common Stock Equivalents been made upon the basis of the new
Net Consideration Per Share of such securities, and (2) had the adjustments made
to the Series B Conversion Value since the date of issuance of such Common Stock
Equivalents been made to such Series B Conversion Value as adjusted pursuant to
clause (1) above. Any adjustment of the Series B Conversion Value which relates
to any Common Stock Equivalent shall be disregarded if, as, and when such Common
Stock Equivalent expires or is canceled without being exercised, or is
repurchased by the Company at a price per share at or less than the original
purchase price, so that the Series B Conversion Value effective immediately

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upon such cancellation or expiration shall be equal to the Series B Conversion
Value that would have been in effect (1) had the expired or canceled Common
Stock Equivalent not been issued, and (2) had the adjustments made to the Series
B Conversion Value since the date of issuance of such Common Stock Equivalents
been made to the Series B Conversion Value which would have been in effect had
the expired or canceled Common Stock Equivalent not been issued.

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<PAGE>

dilution adjustment to the conversion ratio of such series or class, or (C) to
any issuance or sale of shares of Common Stock and/or Common Stock Equivalents
in an underwritten public offering not requiring conversion of the Series B
Preferred Stock. Further, this Section 5.3 shall not apply with respect to the
issuance or sale of shares of Common Stock, or the grant or options exercisable
therefor, to directors, officers, employees and consultants of the Corporation
or any subsidiary pursuant to any qualified or non-qualified stock option plan
or agreement, stock purchase plan or agreement, stock restriction agreement,
employee stock ownership plan (ESOP), consulting agreement, or such other
options, issuances, arrangements, agreements or plans intended principally as a
means of providing compensation for employment or services or of providing
additional compensation to a financial institution in connection with the
Corporation obtaining equipment lease/financing, provided that in each such case
such plan, agreement, or other arrangement or issuance is approved by the vote
or consent of two-thirds of the Board of Directors or by the written consent of
the holders of two-thirds of the outstanding shares of Series B Preferred Stock.

5.4 Adjustment Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Series B Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the Series B
Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Series B Conversion
Value, which, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive Extraordinary Common Stock Event or Events.

5.5 Adjustment Upon Certain Dividends. In the event the Corporation
shall make or issue, or shall fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution (other
than a distribution in liquidation or other distribution otherwise provided for
herein) with respect to the Common Stock payable in (i) securities of the
Corporation other than shares of Common Stock, or (ii) other assets (excluding
cash dividends or distributions), then and in each such event provision shall be
made so that the holders of the Series B Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the number of securities or such other assets of the
Corporation which they would have received had their Series B Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities or such other assets

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<PAGE>

receivable by them, giving application to all other adjustments called for
during such period under this Section B5.

5.6 Adjustment Upon Capital Reorganization or Reclassification. If the
Common Stock shall be changed into the same or different number of shares of any
other class or classes of capital stock, whether by capital reorganization,
recapitalization, reclassification or otherwise (other than an Extraordinary
Common Stock Event), then and in each such event the holder of each share of
Series B Preferred Stock shall have the right thereafter to convert such share
into, in lieu of the number of shares of Common Stock which the holder would
otherwise have been entitled to receive, the kind and amount of shares of
capital stock and other securities and property receivable upon such
reorganization, recapitalization, reclassification or other change by the
holders of the number of shares of Common Stock into which such shares of Series
B Preferred Stock could have been converted immediately prior to such
reorganization, recapitalization, reclassification or change, all subject to
further adjustment as provided herein. The provision for such conversion right
shall be a condition precedent to the consummation by the Corporation of any
such transaction unless the election described below is made.

In the case of a transaction to which both this Section 5.6 and Section
3.2 apply, the holders of the outstanding shares of Series B Preferred Stock and
Parity Stock (voting together as a single class) shall have the option by
majority vote to elect treatment for the Series B Preferred Stock and Parity
Stock under this Section 5.6, notice of which election shall be submitted in
writing to the Corporation at its principal office no later than five (5)
business days before the effective date of such event. If no such election shall
be made, the provisions of Section 3.2, and not this Section 5.6, shall apply.

5.7 Certificate as to Adjustments; Notice by Corporation. In each case
of an adjustment or readjustment of the Series B Applicable Conversion Rate, the
Corporation at its expense will furnish each holder of Series B Preferred Stock
so affected with a certificate prepared by the Treasurer or Chief Financial
Officer of the Corporation, showing such adjustment or readjustment, and stating
in detail the facts upon which such adjustment or readjustment is based.

5.8 Exercise of Conversion Privilege. To exercise its conversion
privilege, a holder of Series B Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Corporation at
its principal office, and shall give written notice to the Corporation at that
office that such holder elects to convert such shares. Such notice shall also
state the name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Series B Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. The date when such written notice is received by
the Corporation, together with the certificate or certificates representing the
shares of Series B Preferred Stock being converted, shall be the "Conversion
Date". As promptly as practicable after the Conversion Date, the Corporation
shall issue and deliver to the holder of the shares of Series B Preferred Stock
being converted, or on its written order, such certificate or certificates as it
may request for the number

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<PAGE>

of whole shares of Common Stock issuable upon the conversion of such shares of
Series B Preferred Stock in accordance with the provisions of this Section B5,
and cash, as provided in Section 5.9, in respect of any fraction of a share of
Common Stock issuable upon such conversion. Such conversion shall be deemed to
have been effected immediately prior to the close of business on the Conversion
Date, and at such time the rights of the holder as holder of the converted
shares of Series B Preferred Stock shall cease and the person(s) in whose
name(s) any certificate(s) for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby.

5.9 Cash in Lieu of Fractional Shares. No fractional shares of Common
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series B Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series B Preferred Stock, the Corporation shall pay to the holder of the shares
of Series B Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the aggregate number of shares of Series B Preferred Stock
being converted at any one time by any holder thereof, not upon each share of
Series B Preferred Stock being converted.

5.10 Partial Conversion. In the event some but not all of the shares of
Series B Preferred Stock represented by a certificate(s) surrendered by a holder
are converted, the Corporation shall execute and deliver to or on the order of
the holder, at the expense of the Corporation, a new certificate representing
the number of shares of Series B Preferred Stock which were not converted.

5.11 Reservation of Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series B Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series B Preferred Stock (including any shares of Series B
Preferred Stock represented by any warrants, options, subscription or purchase
rights for Series B Preferred Stock), and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series B Preferred Stock
(including any shares of Series B Preferred Stock represented by any warrants,
options, subscriptions or purchase rights for such Series B Preferred Stock),
the Corporation shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.

B6. Restrictions and Limitations on Corporate Action.

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<PAGE>

6.1 The Corporation shall not take any corporate action or amend this
Certificate of Designation (except to reduce the number of shares designated as
Series B Preferred Stock to the number of such shares which are then issued and
outstanding) without the approval by majority vote or written consent of the
holders of outstanding shares of Series B Preferred Stock, voting as a single
class, if such corporate action or amendment would change any of the rights,
preferences, privileges of or limitations provided for herein for the benefit of
any shares of Series B Preferred Stock without similarly changing the rights,
preferences, privileges of or limitations on all other classes or series of
Parity Stock. Without limiting the generality of the preceding sentence, the
Corporation will not amend this Certificate of Designation or take any other
corporate action without the approval of the holders of outstanding shares of
Series B Preferred Stock if such amendment or corporate action would:

(a) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, additional shares of Series
B Preferred Stock; or

(b) reduce the amount payable to the holders of
Series B Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or

(c) adversely affect the liquidation preferences,
dividend rights or voting rights of the holders of Series B Preferred
Stock; or

(d) cancel or modify the conversion rights of the
holders of Series B Preferred Stock provided for in Section B5 herein.

6.2 The Corporation shall not take any corporate action or amend its
Certificate of Incorporation without the approval by majority vote or written
consent of the holders of outstanding shares of Series B Preferred Stock and
Parity Stock, voting together as a single class, if such corporate action or
amendment would similarly change the rights, preferences, privileges of or
limitations on the Series B Preferred Stock and all classes or series of Parity
Stock. Without limiting the generality of the preceding sentence, the
Corporation will not amend its Certificate of Incorporation or take any other
corporate action without the approval of the holders of the outstanding shares
of Series B Preferred Stock and Parity Stock, voting together as a single class,
if such amendment or corporate action would:

(b) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, shares of any class of stock
ranking senior to the Series B Preferred Stock and Parity Stock with
respect to liquidation preferences or dividend rights, or containing
redemption rights; or

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<PAGE>

(c) similarly reduce the amount payable to the
holders of Series B Preferred Stock and Parity Stock upon the voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation; or

(d) similarly adversely affect the liquidation
preferences, dividend rights or voting rights of the holders of Series
B Preferred Stock and Parity Stock; or

(e) similarly cancel or modify the conversion rights
of the holders of Series B Preferred Stock and Parity Stock; or

(f) provide for the voluntary liquidation,
dissolution, recapitalization, reorganization or winding up of the
Corporation; or

B7. No Dilution or Impairment. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series B Preferred Stock set forth
herein, but will at all times in good faith assist in the carrying out of all
such terms. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of stock receivable on the
conversion of the Series B Preferred Stock above the amount payable therefor on
such conversion, and (b) will take such action as may be necessary or
appropriate in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of stock on the conversion of all Series B
Preferred Stock from time to time outstanding.

B8. Notices of Record Date. In the event of

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<PAGE>

then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series B Preferred Stock a notice specifying (i) the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed by
first class mail, postage prepaid, at least 15 days prior to the date specified
in such notice on which action is being taken.

B9. Status of Converted or Repurchased Series B Preferred Stock. Any
share or shares of Series B Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be returned to the
status of authorized but unissued shares of undesignated Preferred Stock. Upon
the cancellation of all outstanding shares of Series B Preferred Stock, the
provisions of this Certificate of Designation of Series B Preferred Stock shall
terminate and have no further force and effect.

4. The corporation is to have perpetual existence.

5. In furtherance of and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the bylaws of the corporation.

6. The directors of the corporation shall be entitled to the benefits
of all limitations on the liability of directors generally that are now or
hereafter become available under the General Corporation Law of Delaware.
Without limiting the generality of the foregoing, no director of the corporation
shall be personally liable to the corporation or to any stockholder of the
corporation for monetary damages for breach of fiduciary duty as a director,
provided that this provision shall not limit the liability of a director (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.

7. Elections of directors need not be by written ballot except and to
the extent provided in the bylaws of the Corporation.

8. Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide.

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9. The books of the corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the board of directors or in the
bylaws of the corporation.

10. The Corporation shall, to the maximum extent permitted from time to
time under the laws of the State of Delaware, indemnify and upon request shall
advance expenses to any person who is or was a party or is threatened to be made
a party to any threatened, pending or completed action, suit, proceeding or
claim, whether civil, criminal, administrative or investigative, by reason of
the fact that he is or was or has agreed to be a director or officer of the
Corporation or while a director or officer is or was serving at the request of
the Corporation as a director, officer, employer or agent of any corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, against any and all expenses (including
attorney's fees and expenses), judgments, fines, penalties and amounts paid in
settlement or incurred in connection with the investigation, preparation to
defend or defense of such action, suit, proceeding or claim; provided, however,
that the foregoing shall not require the Corporation to indemnify or advance
expenses to any person in connection with any action, suit, proceeding, claim or
counterclaim initiated by or on behalf of such person. Such rights arising under
any bylaw, agreement, vote of directors or stockholders or otherwise and shall
inure to the benefit of the heirs and legal representatives of such person. Any
repeal or modification of the foregoing provisions of this Article 10 shall not
adversely affect any right or protection of a director or officer of this
Corporation existing at the time of such repeal or modification.

11. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.

IN WITNESS WHEREOF, Who? Vision Systems, Inc. has caused this
certificate to be signed by Alexander G. Dickinson, its Chief Executive Officer
on the 26th day of May, 1998.

WHO? VISION SYSTEMS, INC.

By: /s/ Alexander G. Dickinson
--------------------------------------
Alexander G. Dickinson, President

-27-

BYLAWS
OF
Who? Vision Systems, Inc.
(a Delaware corporation)

ARTICLE I
Offices and Fiscal Year

SECTION 1.01. Registered Office. The registered office of the
corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware until otherwise established by a vote of a majority of the board of
directors in office, and a statement of such change is filed in the manner
provided by statute.

SECTION 1.02. Other Offices. The corporation may also have offices at
such other places within or without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation
requires.

SECTION 1.03. Fiscal Year. The fiscal year of the corporation shall end
on the 31st of December in each year.

ARTICLE II
Meetings of Stockholders

SECTION 2.01. Place of Meeting. All meetings of the stockholders of the
corporation shall be held at the registered office of the corporation, or at
such other place within or without the State of Delaware as shall be designated
by the board of directors in the notice of such meeting.

SECTION 2.02. Annual Meeting. The board of directors may fix the date
and time of the annual meeting of the stockholders, but if no such date and time
is fixed by the board, the meeting for any calendar year shall be held on the
third Tuesday of May in such year, if not a legal holiday, and if a legal
holiday then on the next succeeding business day at 10:00 o'clock A.M., and at
said meeting the stockholders then entitled to vote shall elect directors and
shall transact such other business as may properly be brought before the
meeting.

SECTION 2.03. Special Meetings. Special meetings of the stockholders of
the corporation for any purpose or purposes for which meetings may lawfully be
called, may be called at any time by the chairman of the board, a majority of
the board of directors, the president, or at the request, in writing, of
stockholders owning individually or together ten percent or more of the entire
capital stock of the corporation issued and outstanding and entitled to vote. At
any time, upon written request of any person or persons who have duly called a
special meeting, which written request shall state the purpose or purposes of
the meeting, it shall be the duty of the secretary to fix the date of the
meeting to be held at such date and time as the secretary may fix, not less than
ten nor more than sixty days after the receipt of the request, and to give due
notice thereof. If the secretary shall neglect or refuse to fix the time and
date of such meeting and give notice thereof, the person or persons calling the
meeting may do so.

1
<PAGE>

SECTION 2.04. Notice of Meetings. Written notice of the place, date and
hour of every meeting of the stockholders, whether annual or special, shall be
given to each stockholder of record entitled to vote at the meeting not less
than ten nor more than sixty days before the date of the meeting.
Every notice of a special meeting shall state the purpose or purposes thereof.

SECTION 2.05. Quorum, Manner of Acting and Adjournment. The holders of
a majority of the stock issued and outstanding (not including treasury stock)
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute, by the certificate of
incorporation or by these bylaws. If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At any such
adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. When a quorum is present at any meeting, the
vote of the holders of the majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of the
applicable statute, the certificate of incorporation or these bylaws, a
different vote is required in which case such express provision shall govern and
control the decision of such question. Except upon those questions governed by
the aforesaid express provisions, the stockholders present in person or by proxy
at a duly organized meeting can continue to do business until adjournment,
notwithstanding withdrawal of enough stockholders to leave less than a quorum.

SECTION 2.06. Organization. At every meeting of the stockholders, the
chairman of the board, if there be one, or in the case of a vacancy in the
office or absence of the chairman of the board, one of the following persons
present in the order stated: the vice chairman, if one has been appointed, the
president, the vice presidents in their order or rank, a chairman designated by
the board of directors or a chairman chosen by the stockholders entitled to cast
a majority of the votes which all stockholders present in person or by proxy are
entitled to cast, shall act as chairman, and the secretary, or, in his absence,
an assistant secretary, or in the absence of the secretary and the assistant
secretaries, a person appointed by the chairman, shall act as secretary.

SECTION 2.07. Voting. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
capital stock having voting power held by such stockholder. No proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period. Every proxy shall be executed in writing by the stockholder
or by his duly authorized attorney-in-fact and filed with the secretary of the
corporation. A proxy, unless coupled with an interest, shall be revocable at
will, notwithstanding any other agreement or any provision in the proxy to the
contrary, but the revocation of a proxy shall not be effective until notice
thereof has been given to the secretary of the corporation. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. A proxy shall not be

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revoked by the death or incapacity of the maker unless, before the vote is
counted or the authority is exercised, written notice of such death or
incapacity is given to the secretary of the corporation.

SECTION 2.08. Consent of Stockholders in Lieu of Meeting. Any action
required to be taken at any annual or special meeting of stockholders of the
corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required above to the
corporation, written consent, signed by a sufficient number of holders or
members to take action are delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.

SECTION 2.09. Voting Lists. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting. The list shall be arranged in alphabetical order showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.

SECTION 2.10. Judges of Election. All elections of directors shall be
by written ballot, unless otherwise provided in the certificate of
incorporation; the vote upon any other matter need not be by ballot. In advance
of any meeting of stockholders, the board of directors may appoint judges of
election, who need not be stockholders, to act at such meeting or any
adjournment thereof. If judges of election are not so appointed, the chairman of
any such meeting may, and upon the demand of any stockholder or his proxy at the
meeting and before voting begins shall, appoint judges of election. The number
of judges shall be either one or three, as determined, in the case of judges
appointed upon demand of a stockholder, by stockholders present entitled to cast
a majority of the votes which all stockholders present are entitled to cast
thereon. No person who is a candidate for office shall act as a judge. In case
any person appointed as judge fails to appear or fails or refuses to act, the
vacancy may be filled by appointment made by the board of directors in advance
of the convening of the meeting, or at the meeting by the chairman of the
meeting.

If judges of election are appointed as aforesaid, they shall determine
the number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes or ballots, hear and determine all

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challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result, and do such acts as
may be proper to conduct the election or vote with fairness to all stockholders.
If there be three judges of election, the decision, act or certificate of a
majority shall be effective in all respects as the decision, act or certificate
of all.

On request of the chairman of the meeting or of any stockholder or his
proxy, the judges shall make a report in writing of any challenge or question or
matter determined by them, and execute a certificate of any fact found by them.

ARTICLE III
Board of Directors

SECTION 3.01. Powers. The board of directors shall have full power to
manage the business and affairs of the corporation; and all powers of the
corporation, except those specifically reserved or granted to the stockholders
by statute, the certificate of incorporation or these bylaws, are hereby granted
to and vested in the board of directors.

SECTION 3.02. Number and Term of Office. The board of directors shall
consist of one or more members as determined from time to time by resolution of
the board of directors. Each director shall serve until the next annual meeting
of the stockholders and until his successor shall have been elected and
qualified, except in the event of his death, resignation or removal. All
directors of the corporation shall be natural persons, but need not be residents
of Delaware or stockholders of the corporation.

SECTION 3.03. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. Whenever
the holders of any class or classes of stock or series thereof are entitled to
elect one or more directors by the provisions of the certificate of
incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected.

If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.

SECTION 3.04. Resignations. Any director of the corporation may resign
at any time by giving written notice to the president or the secretary of the
corporation. Such resignation shall take effect at the date of the receipt of
such notice or at any later time specified therein and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.

SECTION 3.05. Organization. At every meeting of the board of directors,
the chairman of the board, if there be one, or, in the case of a vacancy in the
office or absence of the chairman of the board, one of the following officers
present in the order stated: the vice chairman of the board, if there be one,

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the chief executive officer, the president, the vice presidents in their order
of rank and seniority, or a chairman chosen by a majority of the directors
present, shall preside, and the secretary, or, in his absence, an assistant
secretary, or in the absence of the secretary and the assistant secretaries, any
person appointed by the chairman of the meeting, shall act as secretary.

SECTION 3.06. Place of Meeting. The board of directors may hold its
meeting, both regular and special, at such place or places within or without the
State of Delaware as the board of directors may from time to time appoint, or as
may be designated in the notice calling the meeting.

SECTION 3.07. Organization Meeting. The first meeting of each newly
elected board of directors shall be held at such time and place as shall be
fixed by the vote of the stockholders at the annual meeting and no notice of
such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present. In the event of
the failure of the stockholders to fix the time or place of such first meeting
of the newly elected board of directors, or in the event such meeting is not
held at the time and place so fixed by the stockholders, the meeting may be held
at such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.

SECTION 3.08. Regular Meetings. Regular meetings of the board of
directors may be held without notice at such time and place as shall be
designated from time to time by resolution of the board of directors. If the
date fixed for any such regular meeting be a legal holiday under the laws of the
State where such meeting is to be held, then the same shall be held on the next
succeeding business day, not a Saturday, or at such other time as may be
determined by resolution of the board of directors. At such meetings, the
directors shall transact such business as may properly be brought before the
meeting.

SECTION 3.09. Special Meetings. Special meetings of the board of
directors shall be held whenever called by the president or by two or more of
the directors. Notice of each such meeting shall be given to each director by
telephone or in writing at least 24 hours (in the case of notice by telephone)
or 48 hours (in the case of notice by telegram) or five days (in the case of
notice by mail) before the time at which the meeting is to be held. Each such
notice shall state the time and place of the meeting to be so held.

SECTION 3.10. Quorum, Manner of Acting and Adjournment. At all meetings
of the board a majority of the directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the board of
directors, except as may be otherwise specifically provided by statute or by the
certificate of incorporation. If a quorum shall not be present at any meeting of
the board of directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.

Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of the
board of directors or of any committee thereof may be taken without a meeting,
if all members of the board consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board.

SECTION 3.11. Executive and Other Committees. The board of directors
may, by resolution adopted by a majority of the whole board, designate an
executive committee and one or more other committees, each committee to consist
of two or more directors. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at

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any meeting of the committee. In the absence of disqualification of a member,
and the alternate or alternates, if any, designated for such member, of any
committee the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another director to act at the meeting in the place of any
such absent or disqualified member.

Any such committee to the extent provided in the resolution
establishing such committee shall have and may exercise all the power and
authority of the board of directors in the management of the business and
affairs of the corporation, including the power or authority to declare a
dividend or to authorize the issuance of stock, and may authorize the seal of
the corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the board of directors as provided in Section 151 (a) of the
Delaware General Corporation Law ("DGCL"), fix any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any distribution
of assets of the corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the corporation), adopting an
agreement of merger or consolidation under Section 251 or 252 of the DGCL,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation; and, unless the resolution expressly
so provides, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the DGCL. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the board of directors. Each committee so formed shall
keep regular minutes of its meetings and report the same to the board of
directors when required.

SECTION 3.12. Compensation of Directors. Unless otherwise restricted by
the certificate of incorporation, the board of directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the board of directors and
may be paid a fixed sum for attendance at each meeting of the board of directors
or a stated salary as director. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.

ARTICLE IV
Notice - Waivers - Meetings

SECTION 4.01. Notice, What Constitutes. Whenever, under the provisions
of the statutes of Delaware or the certificate of incorporation or of these
bylaws, notice is required to be given to any director or stockholder, it shall
not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given in
accordance with Section 3.09 of Article III hereof.

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SECTION 4.02. Waivers of Notice. Whenever any written notice is
required to be given under the provisions of the certificate of incorporation,
these bylaws, or by statute, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Except in the
case of a special meeting of stockholders, neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice of such meeting.

Attendance of a person, either in person or by proxy, at any meeting,
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.

SECTION 4.03. Conference Telephone Meetings. One or more directors may
participate in a meeting of the board, or of a committee of the board, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this section shall constitute presence in
person at such meeting.

ARTICLE V
Officers

SECTION 5.01. Number, Qualifications and Designation. The officers of
the corporation shall be chosen by the board of directors and shall be a chief
executive officer and/or a president, one or more vice presidents, if any, a
secretary, a treasurer, and such officers as may be elected in accordance with
the provisions of Section 5.03 of this Article. One person may hold more than
one office. Officers may be, but need not be, directors or stockholders of the
corporation. The board of directors may elect from among the members of the
board a chairman of the board and a vice chairman of the board who shall be
officers of the corporation.

SECTION 5.02. Election and Term of Office. The officers of the
corporation, except those elected by delegated authority pursuant to Section
5.03 of this Article, shall be elected annually by the board of directors, and
such other officer shall hold his office until his successor shall have been
elected and qualified, or until his earlier resignation or removal. Any officer
may resign at any time upon written notice to the corporation.

SECTION 5.03. Subordinate Officers, Committees and Agents. The board of
directors may from time to time elect such other officers and appoint such
committees, employees or other agents as it deems necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as are provided in these bylaws, or as the board of directors may from
time to time determine. The board of directors may delegate to any officer or
committee the power to elect subordinate officers and to retain or appoint
employees or other agents, or committees thereof, and to prescribe the authority
and duties of such subordinate officers, committees, employees or other agents.

SECTION 5.04. The Chairman, Vice Chairman of the Board and Chief
Executive Officer. The chairman of the board or in his absence, the vice
chairman of the board, shall preside at all meetings of the stockholders and of
the board of directors, and shall perform such other duties as may from time to
time be assigned to them by the board of directors. The chairman shall have the
power to sign

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documents and instruments on behalf of the corporation in the same manner that
such power is conferred upon the president. The chief executive officer shall
have all of the same powers as the president.

SECTION 5.05. The President. The president shall perform such duties
and shall have such rights and responsibilities as may from time to time be
assigned to him by the board of directors.

SECTION 5.06. The Vice Presidents. The vice presidents, if any, shall
perform the duties of the president in his absence and such other duties as may
from time to time be assigned to them by the board of directors or by the
president.

SECTION 5.07. The Secretary. The secretary, or an assistant secretary,
shall attend all meetings of the stockholders and of the board of directors and
shall record the proceedings of the stockholders and of the directors and of
committees of the board in a book or books to be kept for that purpose; see that
notices are given and records and reports properly kept and filed by the
corporation as required by law; be the custodian of the seal of the corporation
and see that it is affixed to all documents to be executed on behalf of the
corporation under its seal; and, in general, perform all duties incident to the
office of the secretary, and such other duties as may from time to time be
assigned to him by the board of directors or the president.

SECTION 5.08. The Treasurer. The treasurer or an assistant treasurer
shall have or provide for the custody of the funds or other property of the
corporation and shall keep a separate book account of the same to his credit as
treasurer; collect and receive or provide for the collection and receipt of
moneys earned by or in any manner due to or received by the corporation; deposit
all funds in his custody as treasurer in such banks or other places of deposit
as the board of directors may from time to time designate; whenever so required
by the board of directors, render an account showing his transactions as
treasurer and the financial condition of the corporation; and, in general,
discharge such other duties as may from time to time be assigned to him by the
board of directors of the president.

SECTION 5.09. Officers' Bonds. No officer of the corporation need
provide a bond to guarantee the faithful discharge of his duties unless the
board of directors shall by resolution so require a bond in which event such
officer shall give the corporation a bond (which shall be renewed if and as
required) in such sum and with such surety or sureties as shall be satisfactory
to the board of directors for the faithful performance of the duties of his
office.

SECTION 5.10. Salaries. The salaries of the officers and agents of the
corporation elected by the board of directors shall be fixed from time to time
by the board of directors.

ARTICLE VI
Certificates of Stock, Transfer, Etc.

SECTION 6.01. Issuance. Each stockholder shall be entitled to a
certificate or certificate for shares of stock of the corporation owned by him
upon his request therefor. The stock certificates of the corporation shall be
numbered and registered in the stock ledger and transfer books of the
corporation as they are issued. They shall be signed by the president or a vice
president and by the secretary or an assistant secretary or the treasurer or an
assistant treasurer, and shall bear the corporate seal, which may be a
facsimile, engraved or printed. Any of or all the signatures upon such
certificate may be a facsimile, engraved or printed. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, any share certificate shall have ceased to be such officer,
transfer agent

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or registrar, before the certificate is issued, it may be issued with the same
effect as if he were such officer, transfer agent or registrar at the date of
its issue.

SECTION 6.02. Transfer. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. No transfer shall be made which would be
inconsistent with the provisions of Article 8, Title 6 of the Delaware Uniform
Commercial Code-Investment Securities.

SECTION 6.03. Stock Certificates. Stock certificates of the corporation
shall be in such form as provided by statute and approved by the board of
directors. The stock record books and the blank stock certificates books shall
be kept by the secretary or by any agency designated by the board of directors
for that purpose.

SECTION 6.04. Lost, Stolen, Destroyed or Mutilated Certificates. The
board of directors may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.

SECTION 6.05. Record Holder of Shares. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.

SECTION 6.06. Determination of Stockholders of Record. In order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty or less than ten
days before the date of such meeting. If no record date is fixed by the board of
directors, the record date for determining stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting.

In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the board of
directors may fix a record date, which record date shall not be more than ten
days after the date upon which the resolution fixing the record date is adopted
by the board of directors. If no record has been fixed by the board of
directors, the record date for

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determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
the DGCL, shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the corporation
by delivery to its registered office in Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
a corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the board of
directors and prior action by the board of directors is required by the DGCL,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the day
on which the board of directors adopts the resolution taking such prior action.

In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights of the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the board of directors may fix a record date, which record date shall
not precede the date upon the resolution fixing the record date is adopted, and
which record date shall not be more than sixty days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of the business on the day on which the board of
directors adopts the resolution relating thereto.

ARTICLE VII
Indemnification of Directors, Officers and
Other Authorized Representatives

SECTION 7.01. Indemnification of Authorized Representatives in Third
Party Proceedings. The corporation shall indemnify any person who was or is an
authorized representative of the corporation, and who was or is a party or is
threatened to be made a party to any corporation proceeding, by reason of the
fact that such person was or is an authorized representative of the corporation,
against expenses judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such third
party proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal third party proceeding (including
any action or investigation which could or does lead to a criminal third party
proceeding) had no reasonable cause to believe such conduct was unlawful. The
termination of any third party proceeding by judgment, order, settlement,
indictment, conviction or upon a plea of nolo contendere or its equivalent,
shall not of itself create a presumption that the authorized representative did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to, the best interests of the corporation, and, with
respect to any criminal third party proceeding, had reasonable cause to believe
that such conduct was unlawful.

SECTION 7.02. Indemnification of Authorized Representatives in
Corporate Proceedings. The corporation shall indemnify any person who was or is
an authorized representative of the corporation and who was or is a party or is
threatened to be made a party to any corporate proceeding by reason of the fact
that such person was or is an authorized representative of the corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such corporate action if such person acted in
good faith and in a manner reasonably believed to be in, or not opposed to,

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the best interests of the corporation, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such corporate proceeding was
pending shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such authorized
representative is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.

SECTION 7.03. Mandatory Indemnification of Authorized Representatives.
To the extent that an authorized representative of the corporation has been
successful on the merits or otherwise in defense of any third party or corporate
proceeding or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses actually and reasonably incurred by such
person in connection therewith.

SECTION 7.04. Determination of Entitlement to Indemnification. Any
indemnification under Section 7.01, 7.02 or 7.03 of this Article (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the authorized representative
is proper in the circumstances because such person has either met the applicable
standard of conduct set forth in Section 7.01 or 7.02 or has been successful on
the merits or otherwise as set forth in Section 7.03 and that the amount
requested has been actually and reasonably incurred. Such determination shall be
made:

(1) By the board of directors by a majority of a quorum
consisting of directors who were not parties to such third party or corporate
proceeding, or

(2) If such a quorum is not obtainable, or, even if
obtainable, a majority vote of such quorum so directs, by independent legal
counsel in a written opinion, or

(3) By the stockholders.

SECTION 7.05. Advancing Expenses. Expenses actually and reasonably
incurred in defending a third party or corporate proceeding shall be paid on
behalf of a director by the corporation in advance of the final disposition of
such third party or corporate proceeding upon receipt of an undertaking by or on
behalf of the director to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the corporation as
authorized in this Article.

Expenses actually and reasonably incurred in defending a third party or
corporate proceeding shall be paid on behalf of an authorized representative
other than a director by the corporation in advance of the final disposition of
such third party or corporate proceeding as authorized by the board of directors
upon receipt of an undertaking by or on behalf of such authorized representative
to repay if it shall ultimately be determined that such person is not entitled
to be indemnified by the corporation as authorized in this Article.

The financial ability of any authorized representative to make a
repayment contemplated by this Section shall not be a prerequisite to the making
of an advance.

SECTION 7.06. Definitions. For purposes of this Article:

(1) "authorized representative" shall mean a director or
officer of the corporation, or a person serving at the
request of the corporation as a director, officer, or
trustee, of another corporation, partnership, joint
venture, trust or other enterprise;

(2) "corporation" shall include in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation
or merger which, if its separate existence had continued,
would have had power and

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authority to indemnify its directors, officers, employees
or agents, so that any person who is or was a director,
officer, employee or agent of such constituent
corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the
same position under the provisions of this Article with
respect to the resulting or surviving corporation as such
person would have with respect to such constituent
corporation if its separate existence had continued.

(3) "corporate proceeding" shall mean any threatened, pending
or completed action or suit by or in the right of the
corporation to procure a judgment in its favor or
investigative proceeding by the corporation;

(4) "criminal third party proceedings" shall include any
action or investigation which could or does lead to a
criminal third party proceeding;

(5) "expenses" shall include attorney's fees and
disbursements;

(6) "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan;

(7) "not opposed to the best interests of the corporation"
shall include such actions taken in good faith and in a
manner the authorized representative reasonably believed
to be in the interest of the participants and
beneficiaries of a benefit plan;

(8) "other enterprises" shall include employee benefit plans;

(9) "party" shall include the giving of testimony or similar
involvement;

(10) "serving at the request of the corporation" shall include
any service as a director, officer or employee of the
corporation which imposes duties on, or involves service
by, such director, officer or employee with respect to an
employee benefit plan, its participants, or
beneficiaries; and

(11) "third party proceeding" shall mean any threatened,
pending or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative, other
than an action by or in the right of the corporation.

SECTION 7.07. Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in such a capacity, or arising out of his status as
such, whether or not the corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article.

SECTION 7.08. Scope of Article. The indemnification of authorized
representatives and advancement of expenses, as authorized by the preceding
provisions of this Article, shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any statute, agreement, vote of stockholders or disinterested directors or
otherwise, both as to the action in an official capacity and as to action in
another capacity. The indemnification and advancement of expenses provided by or
granted pursuant to this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be an
authorized representative and shall inure to the benefit of the heirs, executors
and administrators of such a person.

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SECTION 7.09. Reliance on Provisions. Each person who shall act as an
authorized representative of the corporation shall be deemed to be doing so in
reliance upon rights of indemnification provided by this Article.

ARTICLE VIII
General Provisions

SECTION 8.01. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock of the corporation, subject to the provisions of the
certificate of incorporation. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.

SECTION 8.02. Annual Statements. The board of directors shall present
at each annual meeting, and at any special meeting of the stockholders when
called for by vote of the stockholders, a full and clear statement of the
business and condition of the corporation.

SECTION 8.03. Contracts. Except as otherwise provided in these bylaws,
the board of directors may authorize any officer or officers including the
chairman and vice chairman of the board of directors, or any agent or agents, to
enter into any contract or to execute or deliver any instrument on behalf of the
corporation and such authority may be general or confined to specific instances.

SECTION 8.04. Checks. All checks, notes, bills of exchange or other
orders in writing shall be signed by such person or persons as the board of
directors may from time to time designate.

SECTION 8.05. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced.

SECTION 8.06. Deposits. All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies, or other depositories as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees as the board of directors shall from time to
time determine.

SECTION 8.07. Corporate Records. At least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of and number
of shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.

Every stockholder shall, upon written demand, under oath stating the
purpose thereof, have a right to examine, in person or by agent or attorney,
during the usual hours for business, for any proper

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<PAGE>

purpose, the stock ledger, books or records of account, and records of the
proceedings of the stockholders and directors, and make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in Delaware or at its principal place of business. Where the stockholder
seeks to inspect the books and records of the corporation, other than its stock
ledger or list of stockholders, the stockholder shall first establish (1)
compliance with the provisions of this section respecting the form and manner of
making demand for inspection of such document; and (2) that the inspection
sought is for a proper purpose. Where the stockholder seeks to inspect the stock
ledger or list of stockholders of the corporation and has complied with the
provisions of this section respecting the form and manner of making demand for
inspection of such documents, the burden of proof shall be upon the corporation
to establish the inspection sought is for an improper purpose.

Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his position as a director. The Court of Chancery is
hereby vested with the exclusive jurisdiction to determine whether a director is
entitled to the inspection sought. The court may summarily order the corporation
to permit the director to inspect any and all books and records, the stock
ledger and the stock list and to make copies or extracts therefrom. The court
may, in its discretion, prescribe any limitations or conditions with reference
to the inspection, or award such other and further relief as the court may deem
just and proper.

SECTION 8.08. Amendment of Bylaws. These bylaws may be altered, amended
or repealed or new bylaws may be adopted by the vote of more than fifty percent
of the stockholders or by a majority of the whole board of directors, when such
power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting.

WHO? VISION SYSTEMS, INC.
AMENDED 1997 EQUITY COMPENSATION PLAN

The purpose of the Who? Vision Systems, Inc. 1997 Equity Compensation Plan
(the "Plan") is to provide (i) designated employees of Who? Vision Systems, Inc.
(the "Company") and its subsidiaries, (ii) certain Key Advisors and advisors who
perform services for the Company or its subsidiaries and (iii) non-employee
members of the Board of Directors of the Company (the "Board") with the
opportunity to receive grants of incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock and performance units. The
Company believes that the Plan will encourage the participants to contribute
materially to the growth of the Company, thereby benefiting the Company's
shareholders, and will align the economic interests of the participants with
those of the shareholders.

1. Administration

(a) Committee. The Plan shall be administered and interpreted by a
committee appointed by the Board (the "Committee"). Prior to the Company
becoming a "Reporting Company" as described in Section 22(b), the Board may
exercise any power or authority of the Committee under the Plan and, in such
case, references to the Committee hereunder, as they relate to Plan
administration, shall be deemed to include the Board as a whole. After the
company becomes a Reporting Company, the Committee shall consist of two or
more persons appointed by the Board, all of whom may be "outside directors"
as defined under section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code") and related Treasury regulations and may be
"non-employee directors" as defined under Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). However,
notwithstanding anything in the Plan to the contrary, the Board must ratify
or approve any grants made to Non-Employee Directors. References in the Plan
to the "Committee" shall be deemed to include the Board, with respect to
ratification or approval of grants made to Non-Employee Directors.

(b) Committee Authority. The Committee shall have the sole authority to
(i) determine the individuals to whom grants shall be made under the Plan,
(ii) determine the type, size and terms of the grants to be made to each
such individual, (iii) determine the time when the grants will be made and
the duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability and (iv)
deal with any other matters arising under the Plan.

(c) Committee Determinations. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and
instruments for implementing the Plan and for the conduct of its business as
it deems necessary or advisable, in its sole discretion. The Committee's
interpretations of the Plan and all determinations made by the Committee
pursuant to the powers vested in it hereunder shall be conclusive and
binding on all persons having any interest in the Plan or in any awards
granted hereunder. All powers of the Committee shall be executed in its sole
discretion, in the best interest of the Company, not as a fiduciary, and in
keeping with the objectives of the Plan and need not be uniform as to
similarly situated individuals.

<PAGE>

2. Grants

Awards under the Plan may consist of grants of incentive stock options
as described in Section 5 ("Incentive Stock Options"), nonqualified stock
options as described in Section 5 ("Nonqualified Stock Options")(Incentive
Stock Options and Nonqualified Stock Options are collectively referred to as
"Options"), restricted stock as described in Section 6 (Restricted Stock"),
stock appreciation rights as described in Section 7 ("SARs"), and
performance units as described in Section 8 ("Performance Units")
(hereinafter collectively referred to as "Grants"). All Grants shall be
subject to the terms and conditions set forth herein and to such other terms
and conditions consistent with this Plan as the Committee deems appropriate
and as are specified in writing by the Committee to the individual in a
grant instrument (the "Grant Instrument") or an amendment to the Grant
Instrument. The Committee shall approve the form and provisions of each
Grant Instrument. Grants under a particular Section of the Plan need not be
uniform as among the grantees.

3. Shares Subject to the Plan

(a) Shares Authorized. Subject to the adjustment specified below, the
aggregate number of shares of common stock of the Company ("Company Stock")
that may be issued or transferred under the Plan is 1,925,000 shares. After
the Company becomes a Reporting Company, the maximum aggregate number of
shares of Company Stock that shall be subject to Grants made under the Plan
to any individual during any calendar year shall be 625,000 shares. The
shares may be authorized but unissued shares of Company Stock or reacquired
shares of Company Stock, including shares purchased by the Company on the
open market for purposes of the Plan. If and to the extent Options or SARs
granted under the Plan terminate, expire, or are canceled, forfeited,
exchanged or surrendered without having been exercised, or if any shares of
Restricted Stock or Performance Units are forfeited, the shares subject to
such Grants shall again be available for purposes of the Plan.

(b) Adjustments. If there is any change in the number or kind of shares
of Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is
the surviving corporation, (iii) by reason of a reclassification or change
in par value, or (iv) by reason of any other extraordinary or unusual event
affecting the outstanding Company Stock as a class without the Company's
receipt of consideration, or if the value of outstanding shares of Company
Stock is substantially reduced as a result of a spinoff or the Company's
payment of an extraordinary dividend or distribution, the maximum number of
shares of Company Stock available for Grants, the maximum number of shares
of Company Stock that any individual participating in the Plan may be
granted in any year, the number of shares covered by outstanding Grants, the
kind of shares issued under the Plan, and the price per share or the
applicable market value of such Grants shall be appropriately adjusted by
the Committee to reflect any increase or decrease in the number of, or
change in the kind or value of, issued shares of Company Stock to preclude,
to the extent practicable, the

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enlargement or dilution of rights and benefits under such Grants;
provided, however, that any fractional shares resulting from such adjustment
shall be eliminated. Any adjustments determined by the Committee shall be
final, binding and conclusive.

4. Eligibility for Participation

(a) Eligible Persons. All employees of the Company and its subsidiaries
("Employees"), including Employees who are officers or members of the Board,
and members of the Board who are not Employees ("Non-Employee Directors")
shall be eligible to participate in the Plan. Key Advisors and advisors who
perform services to the Company or any of its subsidiaries ("Key Advisors")
shall be eligible to participate in the Plan if the Key Advisors render bona
fide services and such services are not in connection with the offer or sale
of securities in a capital-raising transaction.

(b) Selection of Grantees. The Committee shall select the Employees,
Non-Employee Directors and Key Advisors to receive Grants and shall
determine the number of shares of Company Stock subject to a particular
Grant in such manner as the Committee determines. Employees, Key Advisors
and Non-Employee Directors who receive Grants under this Plan shall
hereinafter be referred to as "Grantees".

5. Granting of Options

(a) Number of Shares. The Committee shall determine the number of
shares of Company Stock that will be subject to each Grant of Options to
Employees, Non-Employee Directors and Key Advisors.

(b) Type of Option and Price.

(i) The Committee may grant Incentive Stock Option s that are
intended to qualify as "incentive stock options" within the meaning of
section 422 of the Code or Nonqualified Stock Options that are not intended
so to qualify or any combination of Incentive Stock Options and Nonqualified
Stock Options, all in accordance with the terms and conditions set forth
herein. Incentive Stock Options may be granted only to Employees.
Nonqualified Stock Options may be granted to Employees, Non-Employee
Directors and Key Advisors.

(ii) The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Committee and may be
equal to, greater than, or less than the Fair Market Value (as defined
below) of a share of Company Stock on the date the Option is granted;
provided, however, that (x) the Exercise Price of an Incentive Stock Option
shall be equal to, or greater than, the Fair Market Value of a share of
Company Stock on the date the Incentive Stock Option is granted and (y) an
Incentive Stock Option may not be granted to an Employee who, at the time of
grant, owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company or any parent or
subsidiary of the

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<PAGE>

Company, unless the Exercise Price per share is not less than 110% of
the Fair Market Value of Company Stock on the date of grant.

(iii) If the Company Stock is publicly traded, then the Fair Market
Value per share shall be determined as follows: (x) if the principal trading
market for the Company Stock is a national securities exchange or the Nasdaq
National Market, the last reported sale price thereof on the relevant date
or (if there were no trades on that date) the latest preceding date upon
which a sale was reported, or (y) if the Company Stock is not principally
traded on such exchange or market, the mean between the last reported "bid"
and "asked" prices of Company Stock on the relevant date, as reported on
Nasdaq or, if not so reported, as reported by the National Daily Quotation
Bureau, Inc. or as reported in a customary financial reporting service, as
applicable and as the Committee determines. If the Company Stock is not
publicly traded or, if publicly traded, is not subject to reported
transactions or "bid" or "asked" quotations as set forth above, the Fair
Market Value per share shall be as determined by the Committee.

(c) Option Term. The Committee shall determine the term of each
Option. The term of any Option shall not exceed ten years from the date
of grant. However, an Incentive Stock Option that is granted to an Employee
who, at the time of grant, owns stock possessing more than 10 percent of the
total combined voting power of all classes of stock of the Company, or any
parent or subsidiary of the Company, may not have a term that exceeds five
years from the date of grant.

(d) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may
be determined by the Committee and specified in the Grant Instrument or an
amendment to the Grant Instrument. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any reason.

(e) Termination of Employment, Disability or Death.

(i) Except as provided below, an Option may only be exercised
while the Grantee is employed by the Company as an Employee, Key
Advisor or member of the Board. In the event that a Grantee ceases to be
employed by the Company for any reason other than a "disability", death or
"termination for cause", any Option which is otherwise exercisable by the
Grantee shall terminate unless exercised within 90 days after the date on
which the Grantee ceases to be employed by the Company (or within such other
period of time as may be specified by the Committee), but in any event no
later than the date of expiration of the Option term. Any of the Grantee's
Options that are not otherwise exercisable as of the date on which the
Grantee ceases to be employed by the Company shall terminate as of such
date.

(ii) In the event the Grantee ceases to be employed by the Company
on account of a "termination for cause" by the Company, any Option held
by the Grantee shall terminate as of the date the Grantee ceases to be
employed by the Company.

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<PAGE>

(iii) In the event the Grantee ceases to be employed by the
Company because the Grantee is "disabled", any Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one
year after the date on which the Grantee ceases to be employed by the
Company (or within such other period of time as may be specified by the
Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options which are not otherwise
exercisable as of the date on which the Grantee ceases to be employed by the
Company shall terminate as of such date.

(iv) If the Grantee dies while employed by the Company or within 90
days after the date on which the Grantee ceases to be employed on account of
a termination of employment specified in Section 5(e)(i) above (or within
such other period of time as may be specified by the Committee), any Option
that is otherwise exercisable by the Grantee shall terminate unless
exercised within one year after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be
specified by the Committee), but in any event no later than the date of
expiration of the Option term. Any of the Grantee's Options that are not
otherwise exercisable as of the date on which the Grantee ceases to be
employed by the Company shall terminate as of such date.

(v) For purposes of Sections 5(e), 6, 7, 8 and 13:

(A) "Company," when used in the phrase "employed by the Company,"
shall mean the Company and its parent and subsidiary corporations.

(B) "Employed by the Company" shall mean employment or service as
an Employee, Key Advisor or member of the Board (so that, for purposes
of exercising Options and SARs and satisfying conditions with respect
to Restricted Stock and Performance Units, a Grantee shall not be
considered to have terminated employment or service until the Grantee
ceases to be an Employee, Key Advisor and member of the Board), unless
the Committee determines otherwise.

(D) "Termination for cause" shall mean, except to the extent
specified otherwise by the Committee, a finding by the Committee that
the Grantee has breached his or her employment, service,
noncompetition, nonsolicitation or other similar contract with the
Company, or has been engaged in disloyalty to the Company, including,
without limitation, fraud, embezzlement, theft, commission of a felony
or dishonesty in the course of his or her employment or service, or has
disclosed trade secrets or confidential information of the Company to
persons not entitled to receive such information.

(vi) In the event a Grantee's employment is terminated for cause,
in addition to the immediate termination of all Grants, the Grantee
shall automatically forfeit all shares underlying any exercised portion of
an Option for which the Company has not yet

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<PAGE>

delivered the share certificates, upon refund by the Company of the
Exercise Price paid by the Grantee for such shares.

(f) Exercise of Options. A Grantee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise
to the Company with payment of the Exercise Price. The Grantee shall pay the
Exercise Price for an Option as specified by the Committee (x) in cash, (y)
by delivering shares of Company Stock owned by the Grantee for the period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes (including Company Stock acquired in connection with the
exercise of an Option, subject to such restrictions as the Committee deems
appropriate) and having a Fair Market Value on the date of exercise equal to
the Exercise Price or (z) by such other method as the Committee may approve,
including after the Company becomes a Reporting Company payment through a
broker in accordance with procedures permitted by Regulation T of the
Federal Reserve Board. Shares of Company Stock used to exercise an Option
shall have been held by the Grantee for the requisite period of time to
avoid adverse accounting consequences to the Company with respect to the
Option. The Grantee shall pay the Exercise Price and the amount of any
withholding tax due (pursuant to Section 10) at the time of exercise.

(g) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that if the aggregate Fair Market Value of the stock on the
date of the grant with respect to which Incentive Stock Options are
exercisable for the first time by a Grantee during any calendar year, under
the Plan or any other stock option plan of the Company or a parent or
subsidiary, exceeds $100,000, then the option, as to the excess, shall be
treated as a Nonqualified Stock Option. An Incentive Stock Option shall not
be granted to any person who is not an Employee of the Company or a parent
or subsidiary (within the meaning of section 424(f) of the Code).

6. Restricted Stock Grants

The Committee may issue or transfer shares of Company Stock to an
Employee, Key Advisor, or Non-Employee Director under a Grant of Restricted
Stock, upon such terms as the Committee deems appropriate. The following
provisions are applicable to Restricted Stock:

(a) General Requirements. Shares of Company Stock issued or
transferred pursuant to Restricted Stock Grants may be issued or
transferred for consideration or for no consideration, as determined by the
Committee. The Committee may establish conditions under which restrictions
on shares of Restricted Stock shall lapse over a period of time or according
to such other criteria as the Committee deems appropriate. The period of
time during which the Restricted Stock will remain subject to restrictions
will be designated in the Grant Instrument as the "Restriction Period."

(b) Number of Shares. The Committee shall determine the number of
shares of Company Stock to be issued or transferred pursuant to a Restricted
Stock Grant and the restrictions applicable to such shares.

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<PAGE>

(c) Requirement of Employment. If the Grantee ceases to be employed by
the Company (as defined in Section 5(e)) during a period designated in the
Grant Instrument as the Restriction Period, or if other specified conditions
are not met, the Restricted Stock Grant shall terminate as to all shares
covered by the Grant as to which the restrictions have not lapsed, and those
shares of Company Stock must be immediately returned to the Company. The
Committee may, however, provide for complete or partial exceptions to this
requirement as it deems appropriate.

(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except as permitted
under Section 11. Each certificate for a share of Restricted Stock shall
contain a legend giving appropriate notice of the restrictions in the Grant.
The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all
restrictions on such shares have lapsed. The Committee may determine that
the Company will not issue certificates for shares of Restricted Stock until
all restrictions on such shares have lapsed, or that the Company will retain
possession of certificates for shares of Restricted Stock until all
restrictions on such shares have lapsed.

(e) Right to Vote and to Receive Dividends. Unless the Committee
determines otherwise, during the Restriction Period, the Grantee shall have
the right to vote shares of Restricted Stock and to receive any dividends or
other distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.

(f) Lapse of Restrictions. All restrictions imposed on Restricted Stock
shall lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Restricted Stock Grants, that the restrictions
shall lapse without regard to any Restriction Period.

7. Stock Appreciation Rights

(a) General Requirements. The Committee may grant stock appreciation
rights ("SARs") to an Employee, Key Advisor, or Non-Employee Director
separately or in tandem with any Option (for all or a portion of the
applicable Option). Tandem SARs may be granted either at the time the Option
is granted or at any time thereafter while the Option remains outstanding;
provided, however, that, in the case of an Incentive Stock Option, SARs may
be granted only at the time of the Grant of the Incentive Stock Option. The
Committee shall establish the base amount of the SAR at the time the SAR is
granted. Unless the Committee determines otherwise, the base amount of each
SAR shall be equal to the per share Exercise Price of the related Option or,
if there is no related Option, the Fair Market Value of a share of Company
Stock as of the date of Grant of the SAR.

(b) Tandem SARs. In the case of tandem SARs, the number of SARs granted
to a Grantee that shall be exercisable during a specified period shall not
exceed the number of

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<PAGE>

shares of Company Stock that the Grantee may purchase upon the exercise
of the related Option during such period. Upon the exercise of an Option,
the SARs relating to the Company Stock covered by such Option shall
terminate. Upon the exercise of SARs, the related Option shall terminate to
the extent of an equal number of shares of Company Stock.

(c) Exercisability. An SAR shall be exercisable during the period
specified by the Committee in the Grant Instrument and shall be subject to
such vesting and other restrictions as may be specified in the Grant
Instrument. The Committee may accelerate the exercisability of any or all
outstanding SARs at any time for any reason. SARs may only be exercised
while the Grantee is employed by the Company or during the applicable period
after termination of employment as described in Section 5(e). A tandem SAR
shall be exercisable only during the period when the Option to which it is
related is also exercisable. No SAR may be exercised for cash by an officer
or director of the Company or any of its subsidiaries who is subject to
section 16 of the Exchange Act, except in accordance with Rule 16b-3 under
the Exchange Act.

(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
receive in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in cash, Company
Stock or a combination thereof. The stock appreciation for an SAR is the
amount by which the Fair Market Value of the underlying Company Stock on the
date of exercise of the SAR exceeds the base amount of the SAR as described
in Subsection (a).

(e) Form of Payment. The Committee shall determine whether the
appreciation in an SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee
deems appropriate. For purposes of calculating the number of shares of
Company Stock to be received, shares of Company Stock shall be valued at
their Fair Market Value on the date of exercise of the SAR. If shares of
Company Stock are to be received upon exercise of an SAR, cash shall be
delivered in lieu of any fractional share.

8. Performance Units

(a) General Requirements. The Committee may grant performance units
("Performance Units") to an Employee or Key Advisor. Each Performance Unit
shall represent the right of the Grantee to receive an amount based on the
value of the Performance Unit, if performance goals established by the
Committee are met. A Performance Unit shall be based on the Fair Market
Value of a share of Company Stock or on such other measurement base as the
Committee deems appropriate. The Committee shall determine the number of
Performance Units to be granted and the requirements applicable to such
Units.

(b) Performance Period and Performance Goals. When Performance Units
are granted, the Committee shall establish the performance period during
which performance shall be measured (the "Performance Period"), performance
goals applicable to the Units

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<PAGE>

("Performance Goals") and such other conditions of the Grant as the
Committee deems appropriate. Performance Goals may relate to the financial
performance of the Company or its operating units, the performance of
Company Stock, individual performance, or such other criteria as the
Committee deems appropriate.

(c) Payment with respect to Performance Units. At the end of each
Performance Period, the Committee shall determine to what extent the
Performance Goals and other conditions of the Performance Units are met and
the amount, if any, to be paid with respect to the Performance Units.
Payments with respect to Performance Units shall be made in cash, in Company
Stock, or in a combination of the two, as determined by the Committee.

(d) Requirement of Employment. If the Grantee ceases to be employed by
the Company (as defined in Section 5(e)) during a Performance Period, or if
other conditions established by the Committee are not met, the Grantee's
Performance Units shall be forfeited. The Committee may, however, provide
for complete or partial exceptions to this requirement as it deems
appropriate.

9. Qualified Performance-Based Compensation.

(a) Designation as Qualified Performance-Based Compensation. The
Committee may determine that Performance Units or Restricted Stock granted
to an Employee shall be considered "qualified performance-based compensation"
under section 162(m) of the Code. The provisions of this Section 9 shall apply
to Grants of Performance Units and Restricted Stock that are to be considered
"qualified performance-based compensation" under section 162(m) of the Code.

(b) Performance Goals. When Performance Units or Restricted Stock that
are to be considered "qualified performance-based compensation" are granted,
the Committee shall establish in writing (i) the objective performance goals
that must be met in order for restrictions on the Restricted Stock to lapse
or amounts to be paid under the Performance Units, (ii) the Performance
Period during which the performance goals must be met, (iii) the threshold,
target and maximum amounts that may be paid if the performance goals are
met, and (iv) any other conditions, including without limitation provisions
relating to death, disability, other termination of employment or
Reorganization, that the Committee deems appropriate and consistent with the
Plan and section 162(m) of the Code. The performance goals may relate to the
Employee's business unit or the performance of the Company and its
subsidiaries as a whole, or any combination of the foregoing. The Committee
shall use objectively determinable performance goals based on one or more of
the following criteria: stock price, earnings per share, net earnings,
operating earnings, return on assets, shareholder return, return on equity,
growth in assets, unit volume, sales, market share, or strategic business
criteria consisting of one or more objectives based on meeting specific
revenue goals, market penetration goals, geographic business expansion
goals, cost targets or goals relating to acquisitions or divestitures.

-9-
<PAGE>

(c) Establishment of Goals. The Committee shall establish the
performance goals in writing either before the beginning of the Performance
Period or during a period ending no later than the earlier of (i) 90 days
after the beginning of the Performance Period or (ii) the date on which 25%
of the Performance Period has been completed , or such other date as may be
required or permitted under applicable regulations under Section 162(m) of
the Code. The performance goals shall satisfy the requirements for
"qualified performance-based compensation," including the requirement that
the achievement of the goals be substantially uncertain at the time they are
established and that the goals be established in such a way that a third
party with knowledge of the relevant facts could determine whether and to
what extent the performance goals have been met. The Committee shall not
have discretion to increase the amount of compensation tat is payable upon
achievement of the designated performance goals.

(d) Maximum Payment. If Restricted Stock, or Performance Units measured
with respect to the fair market value of the Company Stock, are granted, not
more than 500,000 shares of the Company Stock may be granted to an Employee
under the Performance Units or Restricted Stock for any Performance Period.
If Performance Units are measured with respect to other criteria, the
maximum amount that may be paid to an Employee with respect to a Performance
Period is $2,000,000.

(e) Announcement of Grants. The Committee shall certify and announce
the results for each Performance Period to all Grantees immediately
following the announcement of the Company's financial results for the
Performance Period. If and to the extent that the Committee does not certify
that the performance goals have been met, the grants of Restricted Stock or
Performance Units for the Performance Period shall be forfeited.

10. Withholding of Taxes

(a) Required Withholding. All Grants under the Plan shall be subject to
applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants
paid in cash, or from other wages paid to the Grantee, any federal, state or
local taxes required by law to be withheld with respect to such Grants. In
the case of Options and other Grants paid in Company Stock, the Company may
require the Grantee or other person receiving such shares to pay to the
Company the amount of any such taxes that the Company is required to
withhold with respect to such Grants, or the Company may deduct from other
wages paid by the Company the amount of any withholding taxes due with
respect to such Grants.

(b) Election to Withhold Shares. If the Committee so permits, a Grantee
may elect to satisfy the Company's income tax withholding obligation with
respect to an Option, SAR, Restricted Stock or Performance Units paid in
Company Stock by having shares withheld up to an amount that does not exceed
the Grantee's maximum marginal tax rate for federal (including FICA), state
and local tax liabilities. The election must be in a form and manner
prescribed by the Committee and shall be subject to the prior approval of
the Committee.

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<PAGE>

11. Transferability of Grants. Except as provided below, only the
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of
descent and distribution or, with respect to Grants other than Incentive
Stock Options, if permitted in any specific case by the Committee, pursuant
to a domestic relations order (as defined under the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the
regulations thereunder). When a Grantee dies, the personal representative or
other person entitled to succeed to the rights of the Grantee ("Successor
Grantee") may exercise such rights. A Successor Grantee must furnish proof
satisfactory to the Company of his or her right to receive the Grant under
the Grantee's will or under the applicable laws of descent and distribution.
Notwithstanding the foregoing, the Committee may provide, in a Grant
Instrument, that a Grantee may transfer Nonqualified Stock Options, SARs, or
Restricted Stock to family members or other persons or entities according to
such terms as the Committee may determine; provided that the Grantee
receives no consideration for such transfer and the transferred Option, SAR,
or Restricted Stock shall continue to be subject to the same terms and
conditions as were applicable immediately before the transfer.

12. Right of First Refusal

Prior to a Public Offering (as defined in Section 22(c)), if at any
time an individual desires to sell, encumber, or otherwise dispose of shares
of Company Stock distributed to him under this Plan, the individual shall
first offer the shares to the Company by giving the Company written notice
disclosing: (a) the name of the proposed transferee of the Company Stock;
(b) the certificate number and number of shares of Company Stock proposed to
be transferred or encumbered; (c) the proposed price; (d) all other terms of
the proposed transfer; and (e) a written copy of the proposed offer. Within
30 days after receipt of such notice, the Company shall have the option to
purchase all or part of such Company Stock at the same price and on the same
terms as contained in such notice.

In the event the Company (or a shareholder, as described below) does
not exercise the option to purchase Company Stock, as provided above, the
individual shall have the right to sell, encumber or otherwise dispose of
his shares of Company Stock on the terms of the transfer set forth in the
written notice to the Company, provided such transfer is effected within 30
days after the expiration of the option period. If the transfer is not
effected within such period, the Company must again be given an option to
purchase, as provided above.

The Board, in its sole discretion, may waive the Company's right of
first refusal pursuant to this Section 12 and the Company's repurchase right
pursuant to Section 13 below. If the Company's right of first refusal or
repurchase right is so waived, the Board may, in its sole discretion, pass
through such right to the remaining shareholders of the Company in the same
proportion that each shareholder's stock ownership bears to the stock
ownership of all the shareholders of the Company, as determined by the
Board. To the extent that a shareholder has been given such right and does
not purchase his or her allotment, the other shareholders shall have the
right to purchase such allotment on the same basis.

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<PAGE>

On and after a Public Offering, the Company shall have no further right
to purchase shares of Company Stock under this Section 12 and Section 13
below, and its limitations shall be null and void.

Notwithstanding the foregoing, the Committee may require that a Grantee
execute a shareholder's agreement, with such terms as the Committee deems
appropriate, with respect to any Company Stock distributed pursuant to this
Plan. Such agreement may provide that the provisions of this Section 12 and
Section 13 below shall not apply to such Company Stock.

13. Purchase by the Company

Prior to a Public Offering, if a Grantee ceases to be employed by the
Company, the Company shall have the right for one year after such
termination to purchase all or part of any Company Stock distributed to him
under this Plan at its then current Fair Market Value (as defined in Section
5(b)); provided, however, that such repurchase shall be made in accordance
with applicable accounting rules to avoid adverse accounting treatment.

14. Reorganization of the Company.

(a) Reorganization. As used herein, a "Reorganization" shall be deemed
to have occurred if the shareholders of the Company approve (or, if
shareholder approval is not required, the Board approves) an agreement
providing for (i) the merger or consolidation of the Company with another
corporation where the shareholders of the Company, immediately prior to the
merger or consolidation, will not beneficially own, immediately after the
merger or consolidation, shares entitling such shareholders to more than 50%
of all votes to which all shareholders of the surviving corporation would be
entitled in the election of directors (without consideration of the rights
of any class of stock to elect directors by a separate class vote), (ii) the
sale or other disposition of all or substantially all of the assets of the
Company, or (iii) a liquidation or dissolution of the Company.

(b) Assumption of Grants. Upon a Reorganization where the Company is
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding
Options and SARs that are not exercised shall be assumed by, or replaced
with comparable options or rights by, the surviving corporation.

(c) Other Alternatives. Notwithstanding the foregoing, in the event of
a Reorganization, the Committee may take one or both of the following
actions: the Committee may (i) require that Grantees surrender their
outstanding Options and SARs in exchange for a payment by the Company, in
cash or Company Stock as determined by the Committee, in an amount equal to
the amount by which the then Fair Market Value of the shares of Company
Stock subject to the Grantee's unexercised Options and SARs exceeds the
Exercise Price of the Options or the base amount of the SARs, as applicable,
or (ii) after giving Grantees an opportunity to exercise their outstanding
Options and SARs, terminate any or all unexercised Options and SARs at such
time as the Committee deems appropriate. Such surrender or

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<PAGE>

termination shall take place as of the date of the Reorganization or
such other date as the Committee may specify.

(d) Committee. The Committee making the determinations under this
Section 14 following a Reorganization must be comprised of the same members
as those on the Committee immediately before the Reorganization. If the
Committee members do not meet this requirement, the automatic provisions of
Subsection (b) of Section 14 shall apply in the case of such a
Reorganization, and the Committee shall not have discretion to vary them.

(e) Limitations. Notwithstanding anything in the Plan to the contrary,
in the event of a Reorganization, the Committee shall not have the right to
take any actions described in the Plan (including without limitation actions
described in Subsection (b) above) that would make the Reorganization
ineligible for pooling of interests accounting treatment or that would make
the Reorganization ineligible for desired tax treatment if, in the absence
of such right, the Reorganization would qualify for such treatment and the
Company intends to use such treatment with respect to the Reorganization.

15. Change of Control of the Company

(a) As used herein, a "Change of Control" shall be deemed to have
occurred if:

(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) other than Safeguard Scientifics, Inc. or
any of its subsidiaries or affiliates, including affiliated venture funds,
becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing a
majority or more of the voting power of the then outstanding securities of
the Company except where the acquisition is approved by the Board;

(ii) Any person has commenced a tender offer or exchange offer
for a majority or more of the voting power of the then outstanding
shares of the Company; or

(iii) At least a majority of the Board does not consist of
individuals who were elected, or nominated for election, by the
directors in office at the time of such election or nomination.

(b) Notice and Acceleration. Upon a Change of Control, unless the
Committee determines otherwise, (i) the Company shall provide each Grantee
with outstanding Grants written notice of such Change of Control, (ii) all
outstanding Options and SARs shall automatically accelerate and become fully
exercisable, (iii) the restrictions and conditions on all outstanding
Restricted Stock shall immediately lapse, and (iv) Grantees holding
Performance Units shall receive a payment in settlement of such Performance
Units, in an amount determined by the Committee, based on the Grantee's
target payment for the Performance Period and the portion of the Performance
Period that precedes the Change of Control.

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<PAGE>

(c) Other Alternatives. Notwithstanding the foregoing, subject to
Subsection (d) below, in the event of a Change of Control, the Committee may
take one or both of the following actions: the Committee may (i) require
that Grantees surrender their outstanding Options and SARs in exchange for a
payment by the Company, in cash or Company Stock as determined by the
Committee, in an amount equal to the amount by which the then Fair Market
Value of the shares of Company Stock subject to the Grantee's unexercised
Options and SARs exceeds the Exercise Price of the Options or the base
amount of the SARs, as applicable, or (ii) after giving Grantees an
opportunity to exercise their outstanding Options and SARs, terminate any or
all unexercised Options and SARs at such time as the Committee deems
appropriate. Such surrender or termination shall take place as of the date
of the Change of Control or such other date as the Committee may specify.

(d) Committee. The Committee making the determinations under this
Section 15 following a Change of Control must be comprised of the same
members as those on the Committee immediately before the Change of Control.
If the Committee members do not meet this requirement, the automatic
provisions of Subsection (b) of this Section shall apply in the case of such
a Change of Control, and the Committee shall not have discretion to vary
them.

(e) Limitations. Notwithstanding anything in the Plan to the contrary,
in the event of a Change of Control, the Committee shall not have the right
to take any actions described in the Plan (including without limitation
actions described in Subsection (c) above) that would make the Change of
Control ineligible for pooling of interests accounting treatment or that
would make the Change of Control ineligible for desired tax treatment if, in
the absence of such right, the Change of Control would qualify for such
treatment and the Company intends to use such treatment with respect to the
Change of Control.

16. Requirements for Issuance or Transfer of Shares

(a) Shareholder's Agreement. The Committee may require that a Grantee
execute a shareholder's agreement, with such terms as the Committee deems
appropriate, with respect to any Company Stock distributed pursuant to this
Plan.

(b) Limitations on Issuance or Transfer of Shares. No Company Stock
shall be issued or transferred in connection with any Grant hereunder unless
and until all legal requirements applicable to the issuance or transfer of
such Company Stock have been complied with to the satisfaction of the
Committee. The Committee shall have the right to condition any Grant made to
any Grantee hereunder on such Grantee's undertaking in writing to comply
with such restrictions on his or her subsequent disposition of such shares
of Company Stock as the Committee shall deem necessary or advisable as a
result of any applicable law, regulation or official interpretation thereof,
and certificates representing such shares may be legended to reflect any
such restrictions. Certificates representing shares of Company Stock issued
or transferred under the Plan will be subject to such stop-transfer orders
and other restrictions as may be

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<PAGE>

required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.

17. Amendment and Termination of the Plan

(a) Amendment. The Board may amend or terminate the Plan at any time.

(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date, unless
the Plan is terminated earlier by the Board or is extended by the Board with
the approval of the shareholders.

(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents. The termination
of the Plan shall not impair the power and authority of the Committee with
respect to an outstanding Grant. Whether or not the Plan has terminated, an
outstanding Grant may be terminated or amended in accordance with the Plan
or, may be amended by agreement of the Company and the Grantee consistent
with the Plan.

(d) Governing Document. The Plan shall be the controlling document. No
other statements, representations, explanatory materials or examples, oral
or written, may amend the Plan in any manner. The Plan shall be binding upon
and enforceable against the Company and its successors and assigns.

18. Funding of the Plan

This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event
shall interest be paid or accrued on any Grant, including unpaid
installments of Grants.

19. Rights of Participants

Nothing in this Plan shall entitle any Employee, Key Advisor or other
person to any claim or right to be granted a Grant under this Plan. Neither
this Plan nor any action taken hereunder shall be construed as giving any
individual any rights to be retained by or in the employ of the Company or
any other employment rights.

20. No Fractional Shares

No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Grant. The Committee shall determine whether
cash, other awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.

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<PAGE>

21. Headings

Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section
shall control.

22. Effective Date of the Plan; Definition of Terms.

(a) Effective Date. Subject to the approval of the Company's
shareholders, the Plan shall be effective on September 24, 1997.

(b) Reporting Company. The provisions of the Plan that refer to the
Company becoming a Reporting Company, or that refer to, or are applicable to
persons subject to, section 16 of the Exchange Act or section 162(m) of the
Code, shall be effective, if at all, upon the initial registration of the
Company Stock under section 12(g) of the Exchange Act, and shall remain
effective thereafter for so long as such stock is so registered.

(c) Public Offering. All references in the Plan to a Public Offering
shall refer to the consummation of the first registered public offering of
common stock of the Company in a firm commitment underwriting.

23. Miscellaneous

(a) Grants in Connection with Corporate Transactions and Otherwise.

Nothing contained in this Plan shall be construed to (i) limit the right of
the Committee to make Grants under this Plan in connection with the acquisition,
by purchase, lease, merger, consolidation or otherwise, of the business or
assets of any corporation, firm or association, including Grants to employees
thereof who become Employees of the Company, or for other proper corporate
purposes, or (ii) limit the right of the Company to grant stock options or make
other awards outside of this Plan. Without limiting the foregoing, the Committee
may make a Grant to an employee of another corporation who becomes an Employee
by reason of a corporate merger, consolidation, acquisition of stock or
property, reorganization or liquidation involving the Company or any of its
subsidiaries in substitution for a stock option or restricted stock grant made
by such corporation. The terms and conditions of the substitute grants may vary
from the terms and conditions required by the Plan and from those of the
substituted stock incentives. The Committee shall prescribe the provisions of
the substitute grants.

(b) Compliance with Law. The Plan, the exercise of Options and SARs and
the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee
may revoke any Grant if it is contrary to law or modify a Grant to bring it into
compliance with any valid and mandatory government regulation. The Committee may
also adopt rules regarding

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<PAGE>

the withholding of taxes on payments to Grantees. The Committee may, in its
sole discretion, agree to limit its authority under this Section.

(c) Governing Law. The validity, construction, interpretation and
effect of the Plan and Grant Instruments issued under the Plan shall
exclusively be governed by and determined in accordance with the law of the
State of Delaware.

- ------------------
The Plan was amended by resolution of the Board of Directors adopted on May __,
1998, and approved by the stockholders at a special meeting held on May 21,
1998.

-17-

AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
[GRAPHIC OMITTED]

1. Basic Provisions ("Basic Provisions")

1.1 Parties: This Lease ("Lease"), dated for reference purposes only, January 8,
1998 is made by and between OLEN PROPERTIES CORP., A FLORIDA CORPORATION
("Lessor") and WHO? VISION SYSTEMS, INC., A DELAWARE CORPORATION, A SUBSIDIARY
OF XL VISION, INC., A DELAWARE CORPORATION ("Lessee"), (collectively the
"Parties," or individually a "Party").

1.2 Premises: That certain real property, including all improvements therein or
to be provided by Lessor under the terms of this Lease, and commonly known by
the street address of 100 North Pointe Drive, Lake Forest, CA 92630 located in
the County of Orange, State of California,and generally described as (describe
briefly the nature of the property) ("Premises"). (See Paragraph 2 for further
provisions.)

1.3 Term: Five (5) years and -0- months ("Original Term") commencing three (3)
days after substantial completion of Tenant Improvements and final inspection by
City of Lake Forest* ("Commencement Date") and ending Five (5) years after the
Commencement Date* ("Expiration Date). (See Paragraph 3 for further provisions.)
*(See Addendum A, Item F for Start Date Amendment.)

1.4 Early Possession: N/A ("Early Possession Date"). (See Paragraphs 3.2 and 3.3
for further provisions.)

1.5 Base Rent: $19,950.00 per month ("Base Rent"), plus $3,022.82 Direct Expense
Charges (see Addendum A, Item C herein) payable on the first day of each month
commencing three (3) days after substantial completion of Tenant Improvements
and final inspection by City of Lake Forest (see Addendum A, Item F for Start
Date Amendment) (See Paragraph 4 for further provisions.)

X If this is checked, there are provisions in this Lease for the Base Rent to
be adjusted.

1.6 Base Rent Paid Upon Execution: $45,945.64; $22,972.82 as rent for the first
month and $22,972.82 as Security Deposit equal to one month's rent pursuant to
Article 5 herein.

1.7 Security Deposit: $22,972.82 ("Security Deposit"). (See Paragraph 5 for
further provisions.)

1.8 Permitted Use: Manufacturing, distribution and warehousing and general
office attendant thereto for medical imaging products company as approved by the
City of Lake Forest (See Paragraph 6 for further provisions.)

1.9 Insuring Party: Lessee is the "Insuring Party" unless otherwise stated
herein. (See Paragraph 8 for further provisions.)

1.10 Real Estate Brokers: The following real estate brokers (collectively, the
"Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):

Jim Menconi/Jon Marchiorlatti, CB Commercial represents Lessor exclusively
("Lessor's Broker"); N/A both Lessor and Lessee, and N/A represents Lessee
exclusively ("Lessee's Broker"); Jeff Carr, CB Commercial both Lessee and
Lessor. (See Paragraph 15 for further provisions.)

1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by XL VISION, INC., A DELAWARE CORPORATION ("Guarantor"). (See
Paragraph 37 for further provisions.)

<PAGE>

1.12 Addenda. Attached hereto is an Addendum or Addenda A, B, C, D and E and
Exhibits A and B and Guaranty of Lease all of which constitute a part of this
Lease.

2. Premises

2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.

2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free of
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such noncompliance, rectify same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within thirty (30)
days after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.

2.3 Compliance with Covenants, Restrictions and Building Code. Lessor warrants
to Lessee that the improvements on the Premises comply with all applicable
covenants or restrictions of record and applicable Building codes, regulations
and ordinances in effect on the Commencement Date. Said warranty does not apply
to the use to which Lessee will put the Premises or to any Alterations or
Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by
Lessee. If the Premises do not comply with said warranty, Lessor shall, except
as otherwise provided in this Lease, promptly after receipt of written notice
from Lessee setting forth with specificity the nature and extent of such
noncompliance, rectify the same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date date of discovery of such non-compliance.

2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.

2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this Paragraph
2 shall be of no force or effect if immediately prior to the date set forth in
Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such event,
Lessee shall, at Lessee's sole cost and expense, correct any noncompliance of
the Premises with said warranties.

3. Term.

3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease
are as specified in Paragraph 1.3.

3.2 Early Possession. If Lessee totally or partially occupies the Premises prior
to the Commencement Date, the obligation to pay Base Rent shall be abated for
the period of such early possession. All other terms of this Lease, however,
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.

3.3 Delay In Possession. If for any reason Lessor cannot deliver Possession of
the Premises to Lessee as agreed herein by the Early Possession Date, if one is

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specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
Possession of the Premises to Lessee. If Possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date April 1,
1998, providing Lessor has received working drawings signed by Lessee no later
than January 30, 1998, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences, if Possession is not tendered to Lessee when required
by this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of Possession and continue for
a period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts, changes or omissions of
Lessee.

4. Rent

4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.

5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as Security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
Lease, Lessee shall, upon written request from Lessor, deposit additional moneys
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease. NOTE: Security Deposit shall not be applied toward the
last month's rent. In no event shall the Security Deposit on hand be less than
an amount equal to the then current month's rent.

6. Use.

6.1 Use. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessee's assignees or subtenants, and by prospective
assignees and subtenants of the Lessee, its assignees and subtenants, for a
modification of said permitted purpose for which the premises may be used or
occupied, so long as the same will not impair the structural integrity of the
improvements on the Premises, the mechanical or electrical systems therein, is
not significantly more burdensome to the Premises and the improvements thereon,
and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to
withhold such consent, Lessor shall within five (5) business days give a written

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notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use.

6.2 Hazardous Substances.

(a) Reportable Uses Require Consent. The term "Hazardous Substances" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.

(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.

(c) lndemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultants fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.

6.3 Lessee's Compliance with Law. Except as otherwise provided in this Lease,
Lessee, shall, at Lessee's sole cost and expense, fully, diligently and in a
timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any Applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)

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industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.

6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.

7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.

7.1 Lessee's Obligations.

(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc), 7.2
(Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repairs, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior), foundations, ceilings, roofs, floors, windows, doors, plate
glass, skylights, landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or and legally required, for the cleanup of any contamination
of, and for the maintenance, security and/or monitoring of the Premises, the
elements surrounding same, or neighboring properties, that was caused or as
determined by applicable regulatory agencies, to the extent materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7)years or more,
Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7) years.

(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation

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systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance. Lessor agrees to pass along any and all warranties for the
Building and its systems to Lessee.

7.2 Lessor's Obligations. Except for the warranties and agreements of Lessor
contained in Paragraphs 2.2 (relating to condition of the Premises),
2.3(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of any
needed repairs.

7.3 Utility Installations; Trade Fixtures, Alternations.

(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.

(b) Consent. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $10,000 or more upon Lessee's providing Lessor with a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.

(c) Indemnification. Lessee shall pay, when due, all ciaims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfaciory to Lessor in an amount equal to one and one-half
times the amount of such contested lien ciaim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of

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such lien or claim. In addition, Lessor may require Lessee to pay Lessor's
attorney's fees and costs in participating in such action if Lessor shall decide
it is to its best interest to do so.

7.4 Ownership; Removal; Surrender; and Restoration.

(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.

(b) Removal. Unless made with the consent of Lessor pursuant to the
Lease or otherwise agreed in writing, Lessor may require that any or all Lessee
Owned Alterations or Utility Installations or other improvements to the Premises
be removed by the expiration or earlier termination of this Lease,
notwithstanding their installation may have been consented to by Lessor. Lessor
may require the removal at any time of all or any part of any Lessee Owned
Alterations or Utility Installations made without the required consent of
Lessor.

(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.

8. Insurance; Indemnity.

8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is the
Insuring Party, Lessee shall pay for all insurance required under this Paragraph
8 except to the extent of the cost attributable to liability insurance carried
by Lessor in excess of $1,000,000 per occurrence. Premiums for policy periods
commencing prior to or extending beyond the Lease term shall be prorated to
correspond to the Lease term. Payment shall be made by Lessee to Lessor within
ten (10) days following receipt of an invoice for any amount due.
Notwithstanding anything in Paragraph 8 of this Lease to the contrary, Lessee
shall not be obligated to provide earthquake insurance required by a Lender
unless such insurance is available at reasonable cost.

8.2 Liability Insurance.

(a) Carried by Lessee. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee and Lessor (as an additional insured) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" Endorsement and contain
the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or
fumes from a hostile fire. The policy shall not contain any intra-insured
exclusions as between insured persons or organizations, but shall include
coverage for liability assumed under this Lease as an "insured contract" for the
performance of Lessee's indemnity obligations under this Lease. The limits of
said insurance required by this Lease or as carried by Lessee shall not,
however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.

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(b) Carried By Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.

8.3 Property Insurance - Building, Improvements and Rental Value.

(a) Building and Improvements. The Insuring Party shall obtain and keep
in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises ($1,236.632.00 at time of Lease Commencement),
as the same shall exist from time to time, or the amount required by Lenders,
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. If Lessor is
the Insuring Party, however, Lessee Owned Alterations and Utility Installations
shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the
coverage is available and commercially appropriate, such policy or policies
shall insure against all risks of direct physical loss or damage (except the
perils of flood and/or earthquake unless required by a Lender), including
coverage for any additional costs resulting from debris removal and reasonable
amounts of coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered cause of loss. Said
policy or policies shall also contain an agreed valuation provision in lieu of
any coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, the deductible amount shall not
exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount in the event of an Insured Loss, as defined in Paragraph 9.1(c).

(b) Rental Value. The Insuring Party shall, in addition, obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the
full rental and other charges payable by Lessee to Lessor under this Lease for
one (1) year (including all real estate taxes, insurance costs, and any
scheduled rental increases). Said insurance shall provide that in the event the
Lease is terminated by reason of an insured loss, the period of indemnity for
such coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.

(c) Adjacent Premises. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.

(d) Tenant's Improvements. If the Lessor is the Insuring Party,
the Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.

8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph 8.5,
Lessee at its cost shall either by separate policy or, at Lessor's option, by
endorsement to a policy already carried, maintain insurance coverage on all of
Lessee's personal property, Lessee Owned Alterations and Utility Installations
in, on, or about the Premises similar in coverage to that carried by the
Insuring Party under Paragraph 8.3. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property or the restoration of Lessee Owned Alterations and Utility
Installations. Lessee shall be the Insuring Party with respect to the insurance
required by this Paragraph 8.4 and shall provide Lessor with written evidence
that such insurance is in force.

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8.5 Insurance Policy. Insurance required hereunder shall be in companies duly
licensed to transact business in the state where the Premises are located, and
maintaining during the policy term a "General Policyholders Rating" of at least
B +, V, or such other rating as may be required by a Lender having a lien on the
Premises, as set forth in the most current issue of "Best's Insurance Guide."
Lessee shall not do or permit to be done anything which shall invalidate the
insurance policies referred to in this Paragraph 8. If Lessee is the Insuring
Party, Lessee shall cause to be delivered to Lessor certified copies of policies
of such insurance or certificates evidencing the existence and amounts of such
insurance with the insureds and loss payable clauses as required by this Lease.
No such policy shall be cancelable or subject to modification except after
thirty (30) days prior written notice to Lessor. Lessee shall at least thirty
(30) days prior to the expiration of such policies, furnish Lessor with evidence
of renewals or "insurance binders" evidencing renewal thereby, or Lessor may
order such insurance and charge the cost thereof to Lessee, which amount shall
be payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to
procure and maintain the insurance required to be carried by the Insuring Party
under this Paragraph 8, the other Party may, but shall not be required to,
procure and maintain the same, but at Lessee's expense.

8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.

8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damage,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claims or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claims in order to be so indemnified.

8.8 Exemption of Lessor from Liability. Lessor shall not be liable for injury or
damage to the person or goods, wares, merchandise or other property of Lessee,
Lessee's employees, contractors, invitees, customers, or any other person in or
about the Premises, whether such damage or injury is caused by or results from
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.

9. Damage or Destruction.

9.1 Definitions.

(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.

(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then

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Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.

(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.

(d) "Replacernent Cost" shall mean the cost to repair or rebuild the
improvernents owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.

(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a Condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.

9.2 Partial Damage - Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, In the event Lessor does not elect to
repair the partial damage or destruction, and Lessee has paid Lessor funds for
the sole purpose of such repair, then Lessee shall in no event have the any
right to reimbursement from Lessor for any such funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.

9.3 Partial Damage - Uninsured Loss. If a Premises Partial Damage that is not an
Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in
which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following Lessee's said commitment. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.

9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises
Total Destruction occurs (including any destruction required by any authorized
public authority), this Lease shall terminate sixty (60) days following the date

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of such Premises Total Destruction, whether or not the damage or destruction is
an Insured Loss or was caused by a negligent or willful act of Lessee. In the
event, however, that the damage or destruction was caused by Lessee, Lessor
shall have the right to recover Lessor's damages from Lessee except as released
and waived in Paragraph 8.6.

9.5 Damage Near End of Term. If at any time during the last six (6) months of
the term of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee falls to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.

9.6 Abatement of Rent; Lessee's Remedies

(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.

(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.

9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition occurs,
unless Lessee is legally responsible therefor (in which case Lessee shall make
the investigation and remediation thereof required by Applicable Law and this
Lease shall continue in full force and effect, but subject to Lessor's rights
under Paragraph 13), Lessor may at Lessor's option either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to investigate and remediate
such condition exceeds twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater, give written notice to Lessee within thirty (30) days
after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition of Lessor's desire to terminate this Lease as of the date
sixty (60) days following the giving of such notice. In the event Lessor elects
to give such notice of Lessor's intention to terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the investigation and
remediation of such Hazardous Substance Condition totally at Lessee's expense
and without reimbursement from Lessor except to the extent of an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment. In
such event this Lease shall

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continue in full force and effect, and Lessor shall proceed to make such
investigation and remediation as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the
required funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination. If a
Hazardous Substance Condition occurs for which Lessee is not legally
responsible, there shall be abatement of Lessee's obligations under this Lease
to the same extent as provided in Paragraph 9.6(a) for a period of not to exceed
twelve (12) months. Lessor represents and warrants to Lessee that, to the best
of Lessor's knowledge upon the Commencement Date of this Lease, there does not
exist on or about the Premises any hazardous substances other than ordinary and
customary materials typically found on similar premises which do not constitute
a violation of any Applicable Law, do not constitute a Reportable Use and are
not subject to the requirement of any governmental agency or the right of any
private party to have them removed or remediated. Lessor will indemnify Lessee
against and hold it harmless from any and all loss, cost, liability, obligation
or expense (including court costs and reasonably attorneys' and consultants'
fees) which Lessee incurs as a result of the existence of any Hazardous
Substances on or about the Premises prior to the Commencement Date of this
Lease. For purposes of Paragraph 9.7 of Lease, Lessee shall be deemed to be
"legally responsible" for a Hazardous Substance Condition only if such Condition
arises out of or involves Hazardous Substances or a storage tank brought onto
the Premises by or for Lessee under Lessee's control. Without limiting the
generallity of the foregoing, Lessee shall not be deemed "legally responsible"
for a Hazardous Substance Condition merely because of its status as a Lessee.

9.8 Termination-Advance Payments. Upon Termination of this Lease pursuant to
this Paragraph 9, an equitable adjustment shall be made concerning advance Base
Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's Security Deposit as has not been,
or is not then required to be, used by Lessor under the terms of this Lease.

9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall
govern the effect of any damage to or destruction of the Premises with respect
to the termination of this Lease and hereby waive the provisions of any present
or future statute to the extent inconsistent herewith.

10. Real Property Taxes.

10.1(a) Payment of Taxes. Lessee shall pay the Real Property Taxes, as defined
in Paragraph 10.2, applicable to the Premises during the term of this Lease.
Subject to Paragraph 10.1(b), all such payments shall be made at least ten (10)
days prior to the delinquency date of the applicable installment. Lessee shall
promptly furnish Lessor with satisfactory evidence that such taxes have been
paid. If any such taxes to be paid by Lessee shall cover any period of time
prior to or after the expiration or eariier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand. In no event shall Lessee be responsible for an increase in
assessment for taxes due to sale or transfer of the property.

(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.

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10.2 Definition of "Real Property Tax." As used herein, the term "Real Property
Taxes" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed upon the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Premises or in the real property of which the Premises are a part, Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "Real Property Taxes" shall also include any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in applicable law taking effect, during the term of this
Lease, including but not limited to a change in the ownership of the Premises or
in the improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.

10.3 Joint Assessment. If the Premises are not separately assessed, Lessee's
liability shall be an equitable proportion of the Real Property Taxes for all of
the land and improvements included within the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuations assigned in
the assessor's work sheets or such other information as may be reasonably
available. Lessor's reasonable determination thereof, in good faith, shall be
conclusive.

10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all taxes
assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).

11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.

12. AssIgnment and Subletting.

12.1 Lessor's Consent Required.

(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.

(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.

(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.

(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty

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(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.

(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.

12.2 Terms and CondItions Applicable to Assignment and Sublettlng.

(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liabllity of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.

(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estopeel of Lessor's right to exercise its remedles for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.

(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.

(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.

(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibllity and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater; as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.

(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.

(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then

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monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.

(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.

12.3 Additional Terms and Conditions Applicable to Subletting. The following
terms and Conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:

(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.

(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.

(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.

(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.

(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.

12.4. Notwithstanding anything in Paragraphs 12.1, 12.2 or 12.3 to the contrary,
Lessee will have the right to assign the Lease without the prior written consent
of Lessor only in connection with any transfer of its business substantially as
a whole, whether by merger or sale of assets or otherwise, and Lessee shall be
obligated to notify Lessor of any such transaction. No such transfer shall,
however, release Lessee of any obligations under the Lease or Guarantor of any
obligations under the Guaranty.

13. Defauft; Breach; Remedies.

13.1 Default; Breach. Lessor and Lessee agree that if an attorney is consulted
by Lessor in connection with a Lessee Default or Breach (as hereinafter
defined), $350.00 is a reasonable minimum sum per such occurrence for legal
services and costs in the preparation and service of a notice of Default, and
that Lessor may include the cost of such services and costs in said notice as
rent due and payable to cure said Default. A "Default" is defined as a failure
by the Lessee to observe, comply with or perform any of the terms, covenants,
conditions or rules applicable to Lessee under this Lease. A "Breach" is defined
as the occurrence of any one or more of the following Defaults, and, where a
grace period for cure

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after notice is specified herein, the failure by Lessee to cure such Default
prior to the expiration of the applicable grace period, shall entitle Lessor to
pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:

(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.

(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.

(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recision of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.

(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.

(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. ss.101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.

(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.

(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.

13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation of
Lessee under this Lease, within ten (10) days after written notice to Lessee (or
in case of an emergency, without notice), Lessor may at its option (but without
obligation to do so), perform such duty or obligation on Lessee's behalf,
including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of

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any such performance by Lessor shall be due and payable by Lessee to Lessor upon
invoice therefor. If any check given to Lessor by Lessee shall not be honored by
the bank upon which it is drawn, Lessor, at its option, may require all future
payments to be made under this Lease by Lessee to be made only by cashier's
check. In the event of a Breach of this Lease by Lessee, as defined in Paragraph
13.1, with or without further notice or demand, and without limiting Lessor in
the exercise of any right or remedy which Lessor may have by reason of such
Breach, Lessor may:

(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve therein the right to recover all or
any part thereof in a separate suit for such rent and/or damages. If a notice
and grace period required under subparagraphs 13.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.

(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.

(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.

(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3
Inducement Recapture in Event of Breach. Any agreement by Lessor for free or
abated rent or other charges applicable to the Premises, or for the giving or
paying by Lessor to or for Lessee of any cash or other bonus, inducement or
consideration for Lessee's entering into this Lease, all of which concessions
are hereinafter referred to as "Inducement Provisions," shall be deemed
conditioned upon Lessee's full and faithful performance of all of the terms,
covenants and conditions of this Lease to be performed or observed by Lessee
during the term hereof as the same may be extended. Upon the occurrence of a
Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the

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Breach which initiated the operation of this Paragraph shall not be deemed a
waiver by Lessor of the provisions of this Paragraph unless specifically so
stated in writing by Lessor at the time of such acceptance.

13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.

13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease unless
Lessor fails within a reasonable time to perform an obligation required to be
performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time
shall in no event be less than thirty (30) days after receipt by Lessor, and by
the holders of any ground lease, mortgage or deed of trust covering the Premises
whose name and address shall have been furnished Lessee in writing for such
purpose, of written notice specifying wherein such obligation of Lessor has not
been performed; provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days after such notice are reasonably required
for its performance, then Lessor shall not be in breach of this Lease if
performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion. Nothing in Paragraph 13.5 of the Lease shall
apply to the obligation of Lessor to complete the Tenant Improvements referred
to in Addendum E to the Lease. Paragraph 13.5 shall not apply to any covenant in
the Lease for which a specific time for performance is given.

14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.

15. Broker's Fee.

15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this Lease.

15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and

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said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $ per agreement for brokerage services
rendered by said Brokers to Lessor in this transaction.

15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor further
agrees that: (a) if Lessee exercises any Option (as defined in Paragraph 39.1)
or any Option subsequentiy granted which is substantially similar to an Option
granted to Lessee in this Lease, or (b) if Lessee acquires any rights to the
Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.

15.4 Any buyer or transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this Paragraph 15. Each Broker shall be a third party
beneficiary of the provisions of this Paragraph 15 to the extent of its interest
in any commission arising from this Lease and may enforce that right direcily
against Lessor and its successors.

15.5 Lessee and Lessor each represent and warrant to the other that it has had
no dealings with any person, firm, broker or finder (other than the Brokers, if
any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.

15.6 Lessor and Lessee hereby consent to and approve all agency relationships,
including any dual agencies, indicated in Paragraph 1.10.

16. Tenancy Statement

16.1 Each Party (as "Responding Party") shall within ten (10) days after written
notice from the other Party (the "Requesting Party") execute, acknowledge and
deliver to the Requesting Party a statement in writing in form similar to the
then most current "Tenancy Statement" form published by the American Industrial
Real Estate Association, plus such additional information, confirmation and/or
statements as may be reasonably requested by the Requesting Party. The Tenancy
Statement required to be delivered pursuant to Paragraph 16.1 shall be modified
to accommodate any reasonable objection Lessee makes to the form submitted to
Lessee and shall in no event obligate Lessee to state that there are no defaults
under the Lease unless such statement is qualified by reference to Lessee's
knowledge. Any such Tenancy Statement shall be limited to acknowledgement of
facts and shall not amend or supplement the Lease or impose additional
obligations on Lessee.

16.2 If Lessor desires to finance, refinance, or sell the Premises, any part
thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.

17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding

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only upon the Lessor as hereinabove defined. Nothing in Paragraph 17 of the
Lease shall relieve Lessor from any liability with respect to obligations and/or
covenants under the Lease required to be performed prior to the transfer of
Lessor's title or interest in the Premises.

18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.

19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at two percent (2%) in excess of the
reference rate of Bank of America National Trust and Savings Association as then
in effect the rate of 12% per annum, but not exceeding the maximum rate allowed
by law, in addition to the late charge provided for in Paragraph 13.4.

20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.

21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.

22. No Prior or Other Agreement; Broker Disclaimers. This Lease contains all
agreements between the parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.

23. Notices.

23.1 All notices required or permitted by this Lease shall be in writing and may
be delivered in person (by hand or by messenger or courier service) or may be
sent by regular, certified or registered mail or U.S. Postal Service Express
Mail, with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.

23.2 Any notice sent by registered or certified mail, return receipt requested,
shall be deemed given on the date of delivery shown on the receipt card, or if
no delivery date is shown, the postmark thereon. If sent by regular mail the
notice shall be deemed given forty-eight (48) hours after the same is addressed
as required herein and mailed with postage prepaid. Notices delivered by United
States Express Mail or overnight courier that guarantees next day delivery shall
be deemed given twenty-four (24) hours after delivery of the same to the United
States Postal Service or courier. If any notice is transmitted by facsimile
transmission or similar means, the same shall be deemed served or delivered upon
telephone confirmation of receipt of the transmission thereof, provided a copy
is also delivered via delivery or mail. If notice is received on a Sunday or
legal holiday, it shall be deemed received on the next business day.

24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in

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<PAGE>

connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.

25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.

26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease, and if Lessee shall holdover regardless, then the rent shall be
one-hundred twenty percent (120%) of the last rent due under this Lease.

27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.

28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.

29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.

30. Subordination; Attornment; Non-Disturbance.

30.1 Subordination. This Lease and any Option granted hereby shall be subject
and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.

30.2 Attornment. Subject to the non-disturbance provisions of Paragraph 30.3,
Lessee agrees to attorn to a Lender or any other party who acquires ownership of
the Premises by reason of a foreclosure of a Security Device, and that in the
event of such foreclosure, such new owner shall not: (i) be liable for any act
or omission of any prior lessor or with respect to events occurring prior to
acquisition of ownership, (ii) be subject to any offsets or defenses which
Lessee might have against any prior lessor, or (iii) be bound by prepayment of
more than one (1) month's rent.

30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor
after the execution of this Lease, Lessee's subordination of this Lease shall be
subject to receiving assurance (a "non-disturbance agreement") from the Lender
that Lessee's possession and this Lease, including any options to extend the
term hereof, will not be disturbed so long as Lessee is not in Breach hereof and
attorns to the record owner of the Premises.

30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attomment and/or non-disturbance agreement
as is provided for herein.

31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without

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<PAGE>

limitation, a Party or Broker who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or the
abandonment by the other Party or Broker of its claim or defense. The attorney's
fees award shall not be computed in accordance with any court fee schedule, but
shall be such as to fully reimburse all attorney's fees reasonably incurred.
Lessor shall be entitled to attorney's fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach.

32. Lessor's Access; Showing Premises; Repairs. With reasonable notice, except
in cases of emergency, Lessor and Lessor's agents shall have the right to enter
the Premises at any time, in the case of an emergency, and otherwise at
reasonable times for the purpose of showing the same to prospective purchasers,
lenders, or lessees, and making such alterations, repairs, improvements or
additions to the Premises or to the building of which they are a part, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred twenty (120) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.

33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.

34. Signs. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.

35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.

36. Consents.

(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an arnount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.

(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the

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<PAGE>

time of consent of such further or other conditions as are then reasonable with
reference to the particular matter for which consent is being given.

37. Guarantor.

37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the
form of the guaranty to be executed by each such Guarantor shall be in the form
most recently published by the American Industrial Real Estate Association, and
each said Guarantor shall have the same obligations as Lessee under this Lease,
including but not limited to the obligation to provide the Tenancy Statement and
information called for by Paragraph 16.

37.2 It shall constitute a Default of the Lessee under this Lease if any such
Guarantor fails or refuses, upon reasonable request by Lessor to give:

(a) evidence of the due execution of the guaranty called for by this
Lease, including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.

38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.

39. Options.

39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.

39.2 Options Personal To Original Lessee. Each Option granted to Lessee in this
Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise. Notwithstanding the provisions of Paragraph 39.2 of
this Lease, Lessee's option to extend the term of the Lease shall be assignable
with the Lease providing Lessor has approved the assignee.

39.3 Multiple Options. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.

39.4 Effect of Default on Options.

(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.

(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).

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<PAGE>

(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, not withstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the term
of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.

40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.

41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.

42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
Notwithstanding Paragraph 42 of the Lease, Lessor shall not grant any easements,
rights or dedications which interfere with Lessee's use of Premises in any
non-trivial way. Also, Lessee shall have no obligation to join in any such grant
if such joinder will subject Lessee to any obligation, liability, cost or
expense or any risk of any of the foregoing.

43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.

44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.

45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.

46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.

47. Amendments. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part. Notwithstanding the last sentence of Paragraph
47 of the Lease, Lessee shall not be obligated to make any modifications to the
Lease that are required by a Lender specified in Paragraph 47 unless the
modifications are reasonable and customary and do not subject Lessee to any
liability, obligation, cost or expense or any risk not contemplated by the Lease
without giving effect to the change.

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<PAGE>

48. Multiple Parties. Except as otherwise expressly provided herein, if more
then one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.

IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS
OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR
THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER
THAN CALIFORNIA, AN ATTORNEY FOR THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.

The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.

Executed at Newport Beach, California Executed at Lake Forest,
California

on January 8, 1998 on January 8, 1998

By LESSOR: By LESSEE:

OLEN PROPERTIES CORP: WHO? VISION, INC., A DELAWARE
CORPORATION, A SUBSIDIARY OF
XL VISION, INC., A DELAWARE
CORPORATION

By: /s/ Charles C. Aufhammer By: /s/ Alex Dickinson
------------------------ ---------------------------
Charles C. Aufhammer Name Printed: Alex Dickinson
Vice President Title: Chief Financial Officer

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<PAGE>

ADDENDUM "A"

TO LEASE DATED: JANUARY 8, 1998

BY AND BETWEEN: OLEN PROPERTIES CORP.
A FLORIDA CORPORATION

AS LESSOR; AND: WHO? VISION, INC., A DELAWARE CORPORATION,
A SUBSIDIARY OF XL VISION, INC.,
A DELAWARE CORPORATION
AS LESSEE

A. SIGN CRITERIA

These regulations are established in order to maintain a continuity in
appearance throughout Spectrum Pointe and to comply with the City of
Lake Forest sign ordinances. Conformance with the following sign
regulations will be strictly enforced:

1. GENERAL REQUIREMENTS:

(a) Each unit or building shall be allowed one identity sign.

(b) The sign shall be installed at Lessee's expense.

(d) Except as provided herein, no advertising placards,
banners, pennants, names, insignias, trademarks, or other
descriptive material shall be affixed or maintained upon
the glass panes or exterior walls of the building.

2. SPECIFICATIONS - Single-tenant Buildings:

(a) Building Sign:

(i) Lessee shall use three-dimensional, plant-on,
individual letters. These letters shall be made
of 3" thick, poly-styrened back with a high
impact styrene letter face not to exceed 14" in
height.

(ii) Type face shall be Helvetica medium and the
color shall be white.

(iii) The maximum area within which the sign,
including logo, can be installed shall be 40
square feet per building, except in the event
that more than one tenant occupies a single
building, in which case the sign size allotment
shall be determined on a prorata basis. The
square footage dimensions shall be calculated
by taking the distance from the first to the
last letter, including all spaces between the
letters ("length") and multiplying that
dimension by the distance from the top to the
bottom of the largest letter or logo ("width").

(iv) Placement of the sign on the building shall be
in the location and by the method designated by
Lessor. Lessee shall submit a scaled drawing of
the proposed sign to Lessor for approval prior
to construction and installation.

(v) Lessee shall be responsible for obtaining all
approvals and permits that may be required by
the City of Lake Forest or the Association.

<PAGE>

ADDENDUM "A"
Page 2
(b) Warehouse Mandoor Sign:

(i) The sign shall be 5" x 18" plexiglass, white in
color with black lettering hot-stamped onto the
plexiglass face. It shall be attached with
double-sided adhesive tape and the skin of the
door shall not to be penetrated.

B. DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS

Lessee acknowledges that its leasehold estate is part of the Planned
Development and subject to a Declaration of Covenants, Conditions, and
Restrictions. Lessee agrees to accept its leasehold estate subject to
the aforementioned Declaration and agrees to perform and comply with
any and all restrictions set forth in said declaration or to make
adequate provisions to permit entry and other actions by Lessor for the
purpose of performing and complying with these restrictions.

C. MANAGEMENT

Lessor agrees to perform Lessee's obligations ("Direct Expenses") on
behalf of Lessee as defined in Article 10.1 and the common area
landscape portion only of Article 7.1 of this Lease as hereinafter set
forth:

Direct Expense Budget for 1998 is as follows:

TOTAL DIRECT EXPENSE MONTHLY BUDGET FOR:
SPECTRUM POINTE
<TABLE>

<S> <C> <C>
Total Project Square Footage: 164,900
Tenant's Square Footage: 21,000
Tenant's Percentage: 12.73%

MONTHLY EXPENSES

PER MONTH

Landscaping $ 1,319.20
Sweeping 494.70
Utilities 1,649.00
Exterior Maintenance 1,319.20
Management (1.5% of gross) 1,649.00
Reserve 989.40
----------
TOTAL COMMON AREA $ 7,420.50

Property Taxes 10,388.70
Melo Roos Assessments 5,111.90
Pacific Commercentre Assn. Dues 824.50
----------
TOTAL PROPERTY TAXES, ASSESSMENTS & DUES $16,325.10

Lessee's monthly prorata share is 11.10% the above expenses as follows:

Common Area. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 944.63
Property Taxes, Assessments & Dues . . . . . . . . . . . . . . . . $ 2,078.19
----------

TOTAL MONTHLY DIRECT EXPENSE BUDGET. . . . . . . . . . . . . . . . . . . . . . . . . $ 3,022.82
==========
</TABLE>

<PAGE>

ADDENDUM "A"
PAGE 3

Lessor will provide Lessee an estimate of the Direct Expenses each year
which will be added to the monthly lease payment. The estimate for the
first year is based on the Direct Expense Budget above. Lessor agrees
to provide Lessee with an accounting of the actual expenses as of
December 31st of each year. Should the cost of providing these services
exceed the estimate, then upon receipt of a statement from Lessor,
Lessee shall pay a lump sum equal to Lessee's prorata share of Direct
Expenses for the previous calendar year, less the total of the monthly
installments of the estimated Direct Expenses paid in the previous
calendar year. The estimated monthly installments to be paid for the
next calendar year shall be adjusted to reflect such increase.

If in any calendar year Lessee's share of Direct Expenses shall be less
than the preceding year, then upon receipt of Lessor's statement, any
over payment made by Lessee on the monthly installment basis provided
above shall be credited toward the next monthly rent falling due and
the estimated monthly installment of Direct Expenses to be paid shall
be adjusted to reflect such lower Direct Expenses for the most recent
year. In the event any amount is refundable to Lessee pursuant to said
paragraph and the Lease has expired or terminated, said amounts shall
be paid in cash to Lessee.

D. EXTERIOR STORAGE

Lessee shall neither store nor permit to be stored any goods,
machinery, merchandise, equipment or any other items whatsoever in the
parking lot or common areas or anywhere outside the Premises; all such
items shall only be stored wholly within Lessee's leased Premises.

E. WATER AND TRASH REMOVAL

Lessee shall contract directly for its own water and trash removal
services.

F. START DATE AMENDMENT

Upon establishing a fixed Commencement and Expiration Date for this
Lease, an amendment shall be created defining said dates which will be
attached hereto and will become hereof a part of the terms and
conditions of this Lease.

G. EARLY ACCESS AGREEMENT

Lessor agrees to grant Lessee rent-free access to the Premises during
the last thirty (30) days of the construction period and prior to final
inspection for the purpose of fixturization and utility installations.
Said access shall be coordinated with Lessor's job-site superintendent
and shall be granted at times and in such areas as said job-site
superintendent deems in his sole discretion to in no way interfere with
or delay the construction of the Tenant Improvements as set forth on
Addendum E herein and shall be subject to applicable requirements of
the City of Lake Forest, if any. Lease payments shall not commence
until the Commencement Date as set forth on the Start Date Amendment
vandalism, theft, or destruction of the property by fire or other
causes.. Lessor shall have no liability or responsibility for damages
to the personal property of Lessee, or any loss suffered by Lessee
through vandalism, theft, or destruction of the property by fire or
other causes.

<PAGE>

ADDENDUM "B"

BY AND BETWEEN: OLEN PROPERTIES CORP., A FLORIDA CORPORATION

AS LESSOR; AND: WHO? VISION, INC., A DELAWARE CORPORATION, A
SUBSIDIARY OF XL VISION, INC., A DELAWARE
CORPORATION
AS LESSEE

TO LEASE DATED: JANUARY 8, 1998

1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the
outside or inside of the Building without the written consent of Lessor
first had and obtained and Lessor shall have the right to remove and
destroy any such sign, placard, picture, advertisement, name or notice
without notice to and at the expense of Lessee.

All approved signs or lettering on doors shall be printed,
painted, affixed or inscribed at the expense of Lessee by a
person approved by the Lessor.

Lessee shall not place anything or allow anything to be placed
near the glass of any window, door, partition or wall which may
appear unsightly from outside the Premises; provided, however,
that the Lessor may furnish and install a Building standard
window covering at all exterior windows. Lessee shall not
without prior written consent of Lessor cause or otherwise
install sunscreen on any window.

2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways, driveways, and parking areas shall not be obstructed by
Lessees or used by them for any purpose other than for ingress and
egress from their respective Premises.

3. Lessee shall not alter any lock or install any new or additional locks
or bolts on any doors or windows of the Premises, without prior written
consent of Lessor and subsequent delivery of a duplicate key to Lessor.

4. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown therein and
the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Lessee who, or whose
employees or invitees shall have caused it.

5. Lessee shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.

6. Lessee shall not use, keep or permit to be used or kept any foul or
noxious gas or substances in the Premises, or permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable
to the Lessor or other occupants of the Building by reason of noise,
odors and/or vibrations, or interfere in any way with other Lessees or
those having business therein, nor shall any animals or birds be brought
in or kept in or about the Premises or the Building.

7. No cooking shall be done or permitted by any Lessee on the Premises, nor
shall the Premises be used for washing clothes, for lodging, or for any
improper, objectionable or immoral purpose.

8. Lessee shall not keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any
method of heating or air conditioning other than that supplied or
approved in writing by the Lessor.

9. Lessor will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires
will be allowed without the consent of the Lessor. The locations of
telephones, call boxes and other office equipment affixed to the
Premises shall be subject to the approval of Lessor.

10. Lessor reserves the right to exclude or expel from the Building any
person who, in the judgment of Lessor, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the Building.

11. Lessee shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate to prevent same.

12. Without the written consent of Lessor, Lessee shall not use the name of
the building in connection with or in promoting or advertising the
business of Lessee except as Lessee's address.

13. Lessor shall have the right to control and operate the public portions
of the Building, and the public facilities, and heating and air
conditioning, as well as facilities furnished for the common use of the
Lessees, in such manner as it deems best for the benefit of the Lessees
generally.

14. All garbage and refuse shall be placed by Lessee in the containers at
the location prepared by Lessor for refuse collection, in the manner and
at the times and places specified by Lessor. Lessee shall not burn any
trash or garbage of any kind in or about the Leased Premises or the
Business Park. All cardboard boxes must be "broken down" prior to being
placed in the trash container. All Styrofoam chips must be bagged or
otherwise contained prior to placement in the trash container, so as not
to constitute a nuisance. Pallets may not be disposed of in the trash
bins or enclosures. It is the Lessee's responsibility to dispose of
pallets by alternative means.

<PAGE>

ADDENDUM "B"
PAGE 2

Should any garbage or refuse not be deposited in the manner specified by
Lessor, Lessor may after three (3) hours verbal notice to Lessee, take
whatever action necessary to correct the infraction at Lessee's expense.

15. No aerial antenna shall be erected on the roof or exterior walls of the
Leased Premises, or on the grounds, without in each instance, the
written consent of Lessor first being obtained. Any aerial or antennae
so installed without such written consent shall be subject to removal by
Lessor at any time without notice.

16. No loud speakers, televisions, phonographs, radios or other devices
shall be used in a manner so as to be heard or seen outside of the
Leased Premises or in neighboring space without the prior written
consent of Lessor.

17. The outside areas immediately adjoining the Leased Premises shall be
kept clean and free from dirt and rubbish by the Lessee, to the
satisfaction of the Lessor, and Lessee shall not place or permit any
obstruction or materials in such areas. No exterior storage shall be
allowed.

18. Lessee shall use at Lessee's cost such pest extermination contractors as
Lessor may direct and at such intervals as Lessor may require.

19. These common types of damages will be charged back to the Lessee if they
are not corrected prior to vacating the premises:

- Keys not returned to Lessor for ALL locks, requiring the service of a
locksmith and rekeying.

- Removal of all decorator painting, wallpapering and paneling, or
Lessor's prior consent to remain.

- Electrical conduit and receptacles on the surface of walls.

- Phone outlets, wiring, or phone equipment added on wall surfaces.

- Security tape/magnetic tape switches for burglar alarm systems added
to windows and door surfaces.

- Penetration of roof membrane in any manner.

- Holes in walls, doors, and ceiling surfaces.

- Addition or change of standard door hardware.

- Painting or gluing of carpet or tile on warehouse floors.

- Glass damage.

- Damage to warehouse ceiling insulation.

- Stains or damage to carpeting beyond normal wear-and-tear.

- Damaged, inoperative, or missing electrical, plumbing, or HVAC
equipment.

- Debris and furniture requiring disposal.

- Damaged or missing mini-blinds, draperies, and baseboards.

- Installation of additional improvements without Lessor's prior written
approval or obtainment of required City building permits.

Lessee agrees to comply with all such rules and regulations upon notice
from Lessor. Should Lessee not abide by these Rules and Regulations,
Lessor may serve a three (3) day notice to correct deficiencies. If
Lessee has not corrected deficiencies by the end of the notice period,
Lessee will be in default of lease.

Lessor reserves the right to amend or supplement the foregoing rules and
regulations and to adopt and promulgate additional rules and regulations
applicable to the leased premises. Notice of such rules and regulations
and amendments and supplements thereto, if any, shall be given to the
Lessee.

<PAGE>

ADDENDUM "C"

TO LEASE DATED: JANUARY 8, 1998

BY AND BETWEEN: OLEN PROPERTIES CORP.
A FLORIDA CORPORATION

AS LESSOR;

AND: WHO? VISION, INC., A DELAWARE
CORPORATION, A SUBSIDIARY OF XL VISION, INC., A
DELAWARE CORPORATION
AS LESSEE

ANNUAL RENT ADJUSTMENT

The minimum monthly Base Rent and Security Deposit set forth in Paragraphs 1.5
and 1.7 of this Lease shall be adjusted as follows:

Beginning on the 1st day of the 13th month through the last day of the 24th
month, the minimum monthly Base Rent and Security Deposit shall be $23,812.82*.

Beginning on the 1st day of the 25th month through the last day of the 36th
month, the minimum monthly Base Rent and Security Deposit shall be $24,652.82*.

Beginning on the 1st day of the 37th month through the last day of the 48th
month, the minimum monthly Base Rent and Security Deposit shall be $25,492.82*.

Beginning on the 1st day of the 49th month through the last day of the 60th
month, the minimum monthly Base Rent and Security Deposit shall be $26,332.82*.

* Note: These amounts include monthly Direct Expense Charges of $3,022.82 and
shall be subject to adjustment for these items pursuant to Addendum A, Item C of
this Lease.

<PAGE>

ADDENDUM "D"

TO LEASE DATED: JANUARY 8, 1998

BY AND BETWEEN: OLEN PROPERTIES CORP.
A FLORIDA CORPORATION

AS LESSOR;

AND: WHO? VISION, INC., A DELAWARE
CORPORATION, A SUBSIDIARY OF XL VISION, INC., A
DELAWARE CORPORATION
AS LESSEE

OPTION TO EXTEND/LEASE EXTENSION

Subject to the terms of Article 39.4 of this Lease, Lessee shall have the Option
to Extend the term of this Lease for ONE (1) FIVE-YEAR period on all the same
terms and conditions as contained in this Lease, except that the monthly Base
Rent commencing with the first month of each Lease Extension shall be the THEN
MARKET RATE for equivalent space in Spectrum Pointe, but in no event shall the
new monthly Base Rent be less than the monthly Base Rent for the previous twelve
(12) months. Thereafter, the monthly Base Rent shall be subject to an upward
only adjustment at the beginning of each one-(1) year period of the Lease
Extension/Option Period. The new monthly Base Rent for each twelve (12) month
period shall be determined by adding to the annual rental for the previous
twelve (12) months a sum equal to any percentage increase that may occur in the
Consumer Price Index (Urban Wage Earners and Clerical Workers) as published by
the United States Department of Labor, Bureau of Labor Statistics for the Los
Angeles-Long Beach-Anaheim Metropolitan Area (1967 - 100 Base), for the previous
twelve months.

To exercise this Option to Extend, Lessee must give notice IN WRITING to Lessor
by Certified mail, return receipt requested at least ONE HUNDRED AND EIGHTY DAYS
prior to the expiration of the previous term.

If such index is not published for the period for which a rental adjustment
determination is to be based upon, another index generally recognized as being
comparable and authoritative shall be substituted by Lessor. Inasmuch as the
appropriate index numbers may not be available on the date when any such
adjustment is to be effective, the latest index numbers available shall be used
until such time as the appropriate index numbers become available, at which time
the calculation shall be made as soon as reasonably possible and the rent
payment shall be appropriately adjusted so as to include both the correctly
adjusted monthly rent current from the intended adjustment date.

In the event the Bureau of Labor Statistics ceases to publish the Consumer Price
Index, the parties hereto may agree to use any similar type of Index, or if they
are unable to agree upon a substitute Index, the parties shall select an
independent arbitrator who shall determine an alternate method of computing the
increased rental. In the event the parties hereto cannot agree on an independent
arbitrator, the Option to Extend shall terminate.

<PAGE>

All terms and conditions of Article 39 of the Lease shall remain in full force
and effect.

-2-

<PAGE>

ADDENDUM "E"

TO LEASE DATED: JANUARY 8, 1998

BY AND BETWEEN: OLEN PROPERTIES CORP.
A FLORIDA CORPORATION
AS LESSOR;

AND: WHO? VISION, INC., A DELAWARE
CORPORATION, A SUBSIDIARY OF XL VISION, INC., A
DELAWARE CORPORATION
AS LESSEE

CONSTRUCTION OF TENANT IMPROVEMENTS

In consideration of Lessee's agreement to enter into this Lease, Lessor agrees
to cause the Premises to be constructed and improved substantially in accordance
with such improvements as are more particularly described and detailed on the
plans attached hereto as "Exhibit A" (Site Plan), and Exhibit "B" (Floor Plan),
both of which are attached hereto. As soon as reasonably possible after Lessor's
receipt of signed Leases and move-in monies, Lessor shall cause to be prepared
working drawings for the Tenant Improvements and shall furnish them to Lessee
for Lessee's prompt review and approval, which approval shall not be
unreasonably withheld. It shall be unreasonable for Lessee to withhold such
approval except if such working drawings are inconsistent in some material
respect with Exhibit B attached hereto. If Lessee has not approved and signed
working drawings on or before five (5) business days from its receipt of same,
then such working drawings shall be deemed approved by Lessee. If Lessee
disapproves such working drawings, Lessee's notice of disapproval shall also
include the specific reasons authorized hereunder for such disapproval. Lessor
and Lessee shall negotiate in good faith to resolve as soon as possible any
differences between them regarding such working drawings.

Lessor agrees to construct "turn-key" Tenant Improvements substantially in
accordance with Exhibit "B" attached hereto and made a part hereof, said
Improvements to be completed in a workmanlike manner using Lessor's building
standards and include the following:

1. All full-height drywall partitions taped, textured and painted;

2. All air conditioning and heating unit(s) and distribution and return air
ducts as required to provide industry standard office HVAC;

3. Designweave, Monaco 30 oz. plush-pile carpet (or Lessor's equivalent)
and pad with carpet base, and/or vinyl composition tile with Roppe 4"
rubber base;

4. Vertical blinds on all exterior windows;

5. Doors and lever-type door hardware;

<PAGE>

6. Standard grid dropped ceiling with 2'x4' fluorescent office lighting
(warehouse to have metal halide 30 foot candle warehouse lighting);

7. Building standard electrical throughout dropped-ceiling areas (includes
J-boxes and/or power poles in open areas for demountable partitions) per
a mutually agreed upon plan;

8. Building standard telephone and computer pull-string and plaster rings
in mutually-approved locations;

9. Space planning, working drawings and electrical drawings and all
applicable building permits for construction;

10. Kitchen with sink and garbage disposal;

11. One (1) three-stall restroom with laminate counter and sink, one (1)
two-stall/one urinal restroom with laminate counter and sink, and two
(2) single restrooms with sink;

The base building shall consist of concrete tilt-up construction and include the
following:

1. 24' minimum warehouse clearance;
2. Two (2) ground level loading positions;
3. 600 amps, 120/208 volt, 3 phase power panel;
4. .45/3,000 g.p.m. fire sprinkler system;
5. Foil insulation in the warehouse;
6. 6 inch concrete slab;
7. 4 ply roof;
8. 70 parking stalls;
9. Metal halide, 30-foot candle warehouse lighting.

Lessor reserves the right to construct Lessee's Tenant Improvements. Lessee
acknowledges that the tenant improvements to be completed by Lessor are subject
to the review and approval of final working drawings by Lessee, Lessor and the
City of Lake Forest. All Improvements shall be constructed in accordance with
all applicable building codes and ordinances, including but not limited to all
applicable ADA codes and requirements.

Lessor shall make every reasonable effort to complete the above Tenant
Improvements as soon as reasonably possible after receipt of signed leases and
move-in monies, and estimates said work to take approximately seventy-five (75)
days to complete from date of Lessor's receipt of building permits, but Lessor
can make no guaranty of an exact date of completion. However, Lessor shall
diligently prosecute the construction of the Tenant Improvements to completion,
using its best efforts to substantially complete same by March 1, 1998. Lessee
shall be responsible for obtaining any permits or licenses required for Lessee's
particular use and operation in the Premises including, without limitation,
business licenses, permits for any Hazardous Materials utilized in Lessee's
operations, and any certificate of occupancy which may be required for Lessee's
particular use and operation in the Premises.

Additional Tenant Improvements: Lessor and Lessee recognize that the Tenant
Improvements identified and detailed on Exhibit B are the result of agreements
arrived at during previous meeting

<PAGE>

between Lessor and Lessee. Any Additional Tenant Improvements are subject to
Lessor's approval thereof, with the understanding that the total cost of the
Additional Tenant Improvements shall be the sole responsibility of Lessee. If
Lessor and Lessee are unable to agree upon the plans for, or the cost of, any
such proposed Additional Tenant Improvements, Lessor shall not be obliged to
construct such Additional Tenant Improvements and may proceed with the
construction of the Tenant Improvements in accordance with the Working Drawings.
In the event Additional Tenant Improvements are approved by Lessor, then Lessor
shall prepare an Additional Work Authorization ("AWA")outlining the specific
additional work to be completed and shall deliver same to Lessee. Lessee shall
execute said AWA and return it to Lessor, together with a check for the total
cost of such Additional Tenant Improvements. Lessor shall not be obligated to
commence construction of any approved Additional Tenant Improvements until
Lessor has received such signed AWA and the check. Any construction delay
arising out of Lessee's request for any Additional Tenant Improvements shall
result in the date of Commencement of lease payments be adjusted to the date
Lessor would have reasonably completed the original Tenant Improvements.

Completion of Tenant Improvements: The Tenant Improvements shall be deemed
"Substantially Completed" for purposes of this Lease upon final inspection
sign-off for the Tenant Improvements by the City of Lake Forest Building
Department.

See Addendum A, Item G for Early Access Agreement.

-2-

ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------

THIS AGREEMENT, dated as of this 21st day of May 1998, by and between
SAFEGUARD SCIENTIFICS, INC., a Pennsylvania corporation, ("Safeguard"), XL
VISIONS, INC., a Delaware corporation ("XL Vision") and WHO? VISIONS SYSTEMS,
INC., a Delaware corporation, ("Company").

W I T N E S S E T H:
--------------------

WHEREAS, Safeguard and XL Vision are willing to provide Company with
certain administrative support services; and

WHEREAS, Safeguard, XL Vision and Company have agreed to enter into an
Administrative Services Agreement to reflect the parties' respective rights and
obligations.

NOW, therefore, the parties hereto, in consideration of their mutual
covenants and intending to be legally bound, hereby agree as follows:

1. Services. Safeguard and XL Vision agree to provide (each either directly
or indirectly through its subsidiaries) to Company for the term specified herein
administrative support services and access to the broad management experience of
the corporate management staff of Safeguard. Such services shall include,
without limitation, consultation in regard to general management, investor
relations, financial management, human resources management, legal services,
insurance programs administration, audit administration and, tax research and
planning. Nothing herein shall be construed to require Safeguard or XL Vision to
provide any services under this Agreement which cannot reasonably be provided by
Safeguard or XL Vision's management and corporate staff.

2. Special Project Services. Notwithstanding the foregoing, if certain
particular projects will require extensive administrative support from Safeguard
or XL Vision, in either Safeguard or XL Vision's reasonable judgment, and such
projects are not in the ordinary course of Company's business, prior to
undertaking to provide such services Safeguard or XL Vision each may propose to
Company that it provide all or a part of such services only upon the payment of
an additional fee by Company. If agreement as to such fees cannot be reached
between Company and Safeguard or the Company and XL Vision, Safeguard or XL
Vision may decline to provide such services. Specific examples of types of
projects which may require additional fee payments include, without limitation,
rights offerings; secondary public offerings; acquisitions; investments by third
parties, and negotiation of material contracts.

<PAGE>

3. Fee. In consideration of the services to be rendered by Safeguard and XL
Vision under this Agreement, Company shall pay an annual fee ("Services Fee")
equal to 1-1/2% of Company's gross revenues each year, with such Services Fees
to be at least $100,000 and not more than $300,000 in any given year. This
Service Fee shall be split equally between Safeguard and XL Vision such that
each shall receive 0.75% of the Company's annual gross revenues subject to the
limitations set forth above. The Services Fee shall be payable to each of
Safeguard and XL Vision in monthly installments within 30 days of the
commencement of each month based on revenues from the preceding month and shall
be subject to adjustment on the basis of the fiscal year audited financial
statements of Company; provided, however, that the Service Fee will accrue to
each of Safeguard and XL Vision until the Company's cash flow is positive or the
Company completes its initial public offering and payments of the current and
accrued fees will then be made as provided in this paragraph for such periods
during which the cash flow remains positive.

4. Outside Services. Company recognizes that Safeguard and XL Vision each
may provide, or make arrangements for others to provide, certain other services
and benefits for Company. Such services and benefits may include, without
limitation, various types of insurance programs; and various legal, accounting
and other matters requiring outside professional services. To the extent either
Safeguard or XL Vision incurs obligations for Company at Company's request in
connection with such services and benefits, Company shall pay to Safeguard, XL
Vision or to the provider of such services and benefits as the case may be, in
addition to the fees provided in Paragraphs 1 or 2 of this Agreement, the actual
and identifiable costs of such services and benefits or, in those cases where
actual costs cannot be identified, Company's proportionate share of such
benefits or services, and the sums necessary to discharge, repay or to otherwise
compensate Safeguard or XL Vision for any obligations incurred by Safeguard or
XL Vision in connection therewith. Safeguard and XL Vision shall submit to
Company a monthly statement of all such sums due in accordance with the
provisions of this Paragraph and each such statement shall be paid by Company
within 30 days after the delivery of such statement to Company.

5. Term. This Agreement shall be effective on May 18, 1998, and shall
extend through and include May 18, 2003, and shall automatically continue to be
effective thereafter on an annual basis, subject to termination on the final day
of any succeeding calendar year by delivery of written notice by either party to
the other party no less than 90 days prior to the termination date.

6. Miscellaneous.

(a) Nothing herein shall be construed to relieve the directors or
officers of Company from the performance of their respective duties or limit the
exercise of their powers in accordance with the Certificate or Articles of
Incorporation or By-Laws of Company, any applicable provisions of the applicable
corporate law, or otherwise. The activities of Company shall at all times be
subject to the control and direction of its Board of Directors and Officers.

-2-
<PAGE>

(b) This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and may not be amended or
modified except by the written agreement of the parties hereto.

(c) This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors. Nothing in this Agreement,
expressed or implied, is intended to confer on any other person other than the
parties hereto, or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.

(d) This Agreement and any rights or obligations pursuant hereto shall
not be assignable by either party without prior written consent of the other
party.

(e) Nothing in this Agreement shall be deemed to constitute the parties
hereto joint venturers, partners or participants in an unincorporated business
or other separate entity.

(f) This Agreement shall be governed by the laws of the State of
Delaware.

-3-
<PAGE>

IN WITNESS WHEREOF, Safeguard Scientifics, Inc., XL Vision, Inc. and
Who? Vision Systems, Inc. have caused this Agreement to be executed in their
respective corporate names by an officer thereunto duly authorized, all as of
the date first above written.

ATTEST: SAFEGUARD SCIENTIFICS, INC.

By: /s/ Michael W. Miles
- --------------------------- ----------------------
Michael W. Miles
Title: Vice President and Chief Financial Officer

ATTEST: XL VISION, INC.

/s/ Kathleen Lees By: John S. Scott
- ---------------------------- -----------------------
Kathleen Lees John S. Scott
Assistant Secretary Chief Executive Officer

ATTEST: WHO? VISION SYSTEMS, INC.

/s/ Brian Berger By: /s/ James W. Kerrigan
- --------------------------- ----------------------
Name: Brian Berger James Kerrigan
Title: V.P. Chief Financial Officer

DIRECT CHARGE ADMINISTRATIVE SERVICES AGREEMENT
-----------------------------------------------

THIS AGREEMENT, dated as of this 9th_ day of December, 1997, by and between
XL VISION, INC., a Delaware corporation, ("XL Vision") and WHO? VISION SYSTEMS,
INC., a Delaware corporation, ("WHO").

WITNESSETH:
-----------

WHEREAS, XL Vision is providing WHO with certain administrative support
services; and

WHEREAS, XL Vision and WHO have agreed to enter into an Administrative
Services Agreement to reflect the parties' respective rights and obligations.

NOW, therefore, the parties hereto, in consideration of their mutual
covenants and intending to be legally bound, hereby agree as follows:

1. XL Vision agrees to provide (either directly or indirectly through its
subsidiaries) to WHO for the term specified herein, administrative support
services and access to the broad management experience of the corporate
management staff of XL vision. Such services shall be substantially those
heretofore provided by XL Vision to WHO, including without limitation,
consultation in regard to general management, investor relations, financial
management, human resources management, legal services, insurance programs
administration, audit administration, tax research and planning, and
preparation of federal and state income tax returns. Nothing herein shall
be construed to require XL Vision to provide any services under this
Agreement which cannot reasonably be provided by XL Vision's management and
corporate staff.

2. In consideration of the services to be rendered by XL Vision under this
Agreement, WHO shall pay to XL Vision costs which shall be based on the
individual personal rates and which such hours shall be billed at the end
of each month.

3. WHO recognizes that XL Vision has heretofore provided, or has made
arrangements for, certain other services and benefits for WHO and has
incurred certain obligations of WHO and that XL Vision may continue to
provide, or make arrangements for, certain of such services and benefits
and may incur guarantees of obligations of WHO. The foregoing may involve,
among other things, various types of insurance programs; various legal,

<PAGE>

accounting and other matters requiring outside professional services or
in-house services by XL Vision personnel (including but not limited to
legal and accounting services) which are not in the ordinary course; and
guarantees of obligations. To the extent XL Vision continues to incur
obligations for WHO at WHO's request in connection with such services and
benefits, WHO shall pay to XL Vision or to the provider of such services,
in addition to the fees provided in Paragraph 2 of the Agreement, the
actual and identifiable costs of such services and benefits, or in those
cases where actual costs cannot be identified, WHO's proportionate share of
such benefits and services, and the sums necessary to discharge, repay or
to otherwise compensate XL Vision for any obligations incurred by XL Vision
in connection therewith. XL Vision shall submit to WHO a monthly statement
of all such sums due in accordance with the provisions of this Paragraph
and each such statement shall be paid by WHO within 30 days after the
delivery of such statement to WHO.

4. This Agreement shall be effective January 1, 1998 and shall extend on a
month to month basis. Termination of this agreement can be made by either
party to the other party with no less than 30 days prior written notice.

5. Nothing herein shall be construed to relieve the directors or officers of
WHO from the performance of their respective duties or limit the exercise
of their powers in accordance with the Certificate of Incorporation or
By-Laws of XL Vision, any applicable provisions of the Corporation Law of
the State of Delaware, or otherwise. The activities of WHO shall at all
times be subject to the control and direction of its Board of Directors and
Officers.

6. This Agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and may not be amended or
modified except by the written agreement of the parties hereto.

7. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors. Nothing in this Agreement,
expressed or implied, is intended to confer on any other person other than
the parties hereto, or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.

8. This Agreement and any rights or obligations pursuant hereto shall not be
assignable by either party without prior written consent of the other
party.

<PAGE>

9. Nothing in this Agreement shall be deemed to constitute the parties hereto
joint venturers, partners or participants in an unincorporated business or
other separate entity.

IN WITNESS WHEREOF, XL Vision, Inc. and WHO? VISION SYSTEMS, INC. have
caused this Agreement to be executed in their respective corporate names by an
officer thereunto duly authorized, all as of the date first above written.

ATTEST: XL VISION, INC.

/s/ Kathleen Lees By: /s/ Gregory W. Haskell
- ---------------------- ------------------------
Kathleen Lees Gregory W. Haskell
Assistant Secretary President and COO

ATTEST: WHO? VISION SYSTEMS, INC.

/s/ Kathleen Lees By: /s/ Alexander G. Dickinson
- ---------------------- --------------------------
Kathleen Lees Alexander G. Dickinson
Assistant Secretary Chief Executive Officer

SUBSIDIARIES

None.

Consent of Independent Certified Public Accountants

The Board of Directors
Who? Vision Systems, Inc.:

We consent to the use of our report dated April 22, 1998, except for note 10
which is as of July 16, 1998, included herein and to the references to our firm
under the headings "Selected Financial Data" and "Experts" in the prospectus.

/s/ KPMG Peat Marwick LLP
---------------------

Orlando, Florida
July 16, 1998

<ARTICLE> 5
<MULTIPLIER> 1000

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 1 1
<SECURITIES> 0 0
<RECEIVABLES> 6 29
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 7 30
<PP&E> 189 235
<DEPRECIATION> (19) (33)
<TOTAL-ASSETS> 188 394
<CURRENT-LIABILITIES> 3,125 6,600
<BONDS> 0 0
0 0
0 83
<COMMON> 50 50
<OTHER-SE> (2,988) (6,339)
<TOTAL-LIABILITY-AND-EQUITY> 188 394
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 3,164 11,373
<LOSS-PROVISION> (3,164) (11,373)
<INTEREST-EXPENSE> (76) (155)
<INCOME-PRETAX> (3,240) (11,528)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,240) (11,528)
<EPS-PRIMARY> (2.46) (2.29)
<EPS-DILUTED> (2.46) (2.29)

</TABLE>