Exhibit 10.1




 





 


ASSET AND STOCK PURCHASE AGREEMENT


 


by and among




ELECTRO SWITCH CORP.


 


and


 


ESC WORLDWIDE, INC.




and




EMRISE ELECTRONICS CORPORATION




and




EMRISE CORPORATION


 


Dated March 20, 2009




 





 

















 


TABLE OF CONTENTS


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
  DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  SALE AND PURCHASE TRANSACTIONS;
  CLOSING

  	
  14

  
	
  2.1

  	
  Sale and Purchase of the Digitran
  Assets

  	
  14

  
	
  2.2

  	
  Retained Assets

  	
  16

  
	
  2.3

  	
  Assumption of Liabilities

  	
  17

  
	
  2.4

  	
  Retained Liabilities

  	
  17

  
	
  2.5

  	
  Assignability and Consents.

  	
  19

  
	
  2.6

  	
  Sale and Purchase of XCEL Japan
  Shares

  	
  19

  
	
  2.7

  	
  Purchase
  Price

  	
  19

  
	
  2.8

  	
  Closing

  	
  21

  
	
  2.9

  	
  Closing
  Obligations

  	
  21

  
	
  2.10

  	
  Purchase
  Price Adjustment

  	
  24

  
	
  2.11

  	
  Purchase Price Allocation

  	
  25

  
	
  2.12

  	
  Buyers’ Representative

  	
  26

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  REPRESENTATIONS AND WARRANTIES OF
  SELLER

  	
  26

  
	
  3.1

  	
  Organization
  and Good Standing

  	
  26

  
	
  3.2

  	
  Authority;
  No Conflict

  	
  26

  
	
  3.3

  	
  Capitalization;
  No Subsidiaries; Stockholder Claims
  Against XCEL Japan.

  	
  27

  
	
  3.4

  	
  Financial
  Statements

  	
  28

  
	
  3.5

  	
  Books and
  Records

  	
  29

  
	
  3.6

  	
  Title to
  Assets; Encumbrances; Leases

  	
  29

  
	
  3.7

  	
  Condition and Sufficiency of
  Facilities

  	
  31

  
	
  3.8

  	
  Accounts
  Receivable

  	
  31

  
	
  3.9

  	
  Inventory

  	
  31

  
	
  3.10

  	
  No
  Undisclosed Liabilities

  	
  31

  
	
  3.11

  	
  Taxes

  	
  32

  
	
  3.12

  	
  No
  Material Adverse Change

  	
  32

  
	
  3.13

  	
  Employee
  Benefits

  	
  32

  
	
  3.14

  	
  Compliance with Legal Requirements;
  Governmental Authorizations

  	
  34

  
	
  3.15

  	
  Legal
  Proceedings; Orders

  	
  36

  
	
  3.16

  	
  Absence
  of Certain Changes and Events

  	
  37

  
	
  3.17

  	
  Contracts;
  No Defaults

  	
  38

  
	
  3.18

  	
  Insurance

  	
  39

  
	
  3.19

  	
  Environmental
  Matters

  	
  41

  
	
  3.20

  	
  Employees

  	
  42

  
	
  3.21

  	
  Labor
  Relations; Compliance

  	
  43

  
	
  3.22

  	
  Intellectual
  Property

  	
  44

  
	
  3.23

  	
  Certain
  Payments

  	
  47

  
	
  3.24

  	
  Customer
  / Supplier Relations

  	
  47

  
					



 


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  Page

  
	
   

  	
   

  	
   

  
	
  3.25

  	
  Product Warranty

  	
  47

  
	
  3.26

  	
  Product Liability

  	
  48

  
	
  3.27

  	
  Export
  Regulation

  	
  48

  
	
  3.28

  	
  Disclosure

  	
  48

  
	
  3.29

  	
  Brokers or
  Finders

  	
  48

  
	
  3.30

  	
  No
  Insolvency

  	
  48

  
	
  3.31

  	
  Intercompany Arrangements and
  Accounts

  	
  48

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  REPRESENTATIONS AND WARRANTIES OF
  BUYERS

  	
  49

  
	
  4.1

  	
  Organization
  and Good Standing

  	
  49

  
	
  4.2

  	
  Authority;
  No Conflict

  	
  49

  
	
  4.3

  	
  Investment
  Intent

  	
  49

  
	
  4.4

  	
  Certain
  Proceedings

  	
  49

  
	
  4.5

  	
  Brokers
  or Finders

  	
  50

  
	
  4.6

  	
  Bulk Transfer Laws

  	
  50

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  INDEMNIFICATION; REMEDIES

  	
  50

  
	
  5.1

  	
  Survival; Right to Indemnification
  Not Affected by Knowledge

  	
  50

  
	
  5.2

  	
  Indemnification and Payment of
  Damages by Seller and Parent

  	
  50

  
	
  5.3

  	
  Indemnification and Payment of
  Damages by Buyers

  	
  52

  
	
  5.4

  	
  Time
  Limitations

  	
  52

  
	
  5.5

  	
  Limitations
  on Amount

  	
  52

  
	
  5.6

  	
  Procedure For
  Indemnification—Third-Party Claims

  	
  53

  
	
  5.7

  	
  Procedure For Indemnification—Other
  Claims

  	
  54

  
	
  5.8

  	
  Sole Remedy

  	
  54

  
	
  5.9

  	
  Insurance and Third Party
  Recoveries

  	
  54

  
	
  5.10

  	
  Tax Benefit

  	
  54

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  TAX MATTERS

  	
  55

  
	
  6.1

  	
  Tax
  Returns

  	
  55

  
	
  6.2

  	
  Transfer
  Taxes

  	
  55

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  POST-CLOSING COVENANTS

  	
  56

  
	
  7.1

  	
  Confidentiality

  	
  56

  
	
  7.2

  	
  Maintenance of, and Access to,
  Records.

  	
  56

  
	
  7.3

  	
  Non-Competition.

  	
  57

  
	
  7.4

  	
  Accounts Receivable

  	
  59

  
	
  7.5

  	
  Employee Matters.

  	
  59

  
	
  7.6

  	
  Electronic Mail

  	
  59

  
	
  7.7

  	
  Post Closing Governance

  	
  60

  
	
  7.8

  	
  Environmental Report

  	
  60

  
	
  7.9

  	
  Offsite Purchase Assets

  	
  60

  
	
  7.10

  	
  Other Intellectual Property Rights

  	
  60

  
	
  7.11

  	
  Transfer of Digitran Ltd

  	
  60

  
	
  7.12

  	
  Accounts Payable

  	
  60

  
						



 


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  Page

  
	
   

  	
   

  	
   

  
	
  7.13

  	
  Reconciliation of Financed
  Equipment

  	
  61

  
	
  7.14

  	
  Delivery of Documents Regarding
  XCEL Japan Shares

  	
  61

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  GENERAL PROVISIONS

  	
  61

  
	
  8.1

  	
  Expenses

  	
  61

  
	
  8.2

  	
  Public Announcements

  	
  61

  
	
  8.3

  	
  Notices

  	
  61

  
	
  8.4

  	
  Governing Law; Jurisdiction;
  Service of Process

  	
  62

  
	
  8.5

  	
  Further
  Assurances

  	
  63

  
	
  8.6

  	
  Waiver

  	
  63

  
	
  8.7

  	
  Entire
  Agreement and Modification

  	
  63

  
	
  8.8

  	
  Disclosure
  Schedule

  	
  63

  
	
  8.9

  	
  Assignments, Successors, and No
  Third-Party Rights

  	
  63

  
	
  8.10

  	
  Severability

  	
  64

  
	
  8.11

  	
  Section Headings,
  Construction

  	
  64

  
	
  8.12

  	
  Time of
  Essence

  	
  64

  
	
  8.13

  	
  Specific
  Performance

  	
  64

  
	
  8.14

  	
  Counterparts

  	
  64

  
						



 


 


	
  EXHIBITS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.3

  	
   

  	
  Form of Assignment
  and Assumption Agreement

  
	
  Exhibit 2.9(a)(ii)

  	
   

  	
  Form of Bill of Sale

  
	
  Exhibit 2.9(a)(iv)

  	
   

  	
  Form of
  Intellectual Property Assignment

  
	
  Exhibit 2.9(a)(v)

  	
   

  	
  Form of Domain
  Name Assignment

  
	
  Exhibit 2.9(a)(vi)

  	
   

  	
  Form of Transition
  Services Agreement

  
	
  Exhibit 2.9(a)(xx)

  	
   

  	
  Forms of Opinions of
  Seller’s Counsel

  
	
  Exhibit 2.10

  	
   

  	
  Sample Closing Net
  Value Calculation

  



 


 


	
  SCHEDULES:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 1

  	
   

  	
  Financed Equipment

  
	
  Schedule 2.1(a)

  	
   

  	
  Fixed Assets

  
	
  Schedule 2.1(b)

  	
   

  	
  Inventory

  
	
  Schedule 2.1(c)

  	
   

  	
  Other Tangible Personal
  Property

  
	
  Schedule 2.1(d)

  	
   

  	
  Advance Payments

  
	
  Schedule 2.1(g)

  	
   

  	
  Contracts

  
	
  Schedule 2.1(h)

  	
   

  	
  Intangible Rights

  
	
  Schedule 2.1(j)

  	
   

  	
  Unfilled Purchase
  Orders

  
	
  Schedule 2.1(k)

  	
   

  	
  Governmental
  Authorizations

  
	
  Schedule 2.1(m)

  	
   

  	
  Other Assets

  
	
  Schedule 2.2(k)

  	
   

  	
  Retained Assets

  
	
  Schedule 2.5(a)

  	
   

  	
  Required Consents

  
	
  Schedule 2.9(a)(i)(B)

  	
   

  	
  Offsite Assets

  
	
  Schedule 4.2

  	
   

  	
  Buyer Consents

  
	
  Schedule 4.5

  	
   

  	
  Buyer Brokers and
  Finders

  



 


iii

















 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule 7.5(b)

  	
   

  	
  Continuing Employees

  	
   

  
	
  Schedule 7.12

  	
   

  	
  Accounts Payable

  	
   

  



 


iv

















 


ASSET AND STOCK
PURCHASE AGREEMENT


 


THIS ASSET AND STOCK PURCHASE AGREEMENT (the “Agreement”) is made as of March 20,
2009, by and between Electro Switch
Corp., a Delaware corporation (“Buyer”),
ESC Worldwide, Inc., a Massachusetts corporation (“Stock Buyer”),
EMRISE Electronics Corporation, a New Jersey corporation (“Seller”), and EMRISE Corporation, a
Delaware corporation (“Parent”).  Buyer, Stock Buyer, Seller and Parent are
referred to collectively as the “Parties,”
and each individually as a “Party.”


 


R E C I T A L S


 


A.                                   Digitran
is a division of Seller, which is in the business (the “Digitran
Business”) of developing and manufacturing high reliability
electromechanical switch products (the “Products”)
serving niche applications in military, commercial aerospace and specialized
industrial markets.


 


B.                                     XCEL
Japan Ltd., a corporation organized under the laws of Japan (“XCEL Japan”), a wholly-owned subsidiary of Seller, is in
the business (collectively with the Digitran Business, the “Business”)
of serving as the sales and distribution entity for the Digitran Business in
the Asia Pacific market.


 


C.                                     Seller
desires to sell to Buyer, and Buyer desires to purchase from Seller,
substantially all of the assets and properties relating to the Digitran
Business and in connection therewith Buyer is willing to assume certain
specified liabilities of Seller relating thereto, all upon the terms and
subject to the conditions set forth herein.


 


D.                                    Seller
desires to sell, and Stock Buyer desires to purchase, all of the Capital Equity
(as defined below) of XCEL Japan (the “XCEL Japan Shares”),
for the consideration and on the terms set forth in this Agreement.


 


E.                                      Parent
is the parent of Seller and will derive substantial direct and indirect
benefits from the performance of this Agreement and the transactions
contemplated hereby.


 


NOW, THEREFORE, in consideration of the premises,
representations, warranties and the mutual covenants contained in this
Agreement, and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Parties agree as follows:


 


ARTICLE
I


DEFINITIONS


 


For purposes of this Agreement, the following terms
have the meanings specified or referred to in this Article I:


 


“Accounting Firm”
shall have the meaning set forth in Section 2.7(b).


 


“Accounts Receivable”
shall have the meaning set forth in Section 3.8.


 


1

















 


“Affiliate”
means with respect to any particular Person any other Person controlling,
controlled by or under common control with such Person.


 


“Agreement”
shall have the meaning set forth in the first paragraph of this Agreement.


 


“Applicable Contract” means any Contract relating to the
Business (a) under which Seller or XCEL Japan has or may acquire any
rights, (b) under which Seller or XCEL Japan has or may become subject to
any obligation or liability, or (c) by which Seller, XCEL Japan or any of
the Purchased Assets is or may become bound.


 


“AQMD” means the South Coast Air Quality
Management District.


 


“Arbitrator”
shall have the meaning set forth in Section 6.1(d).


 


“Assignment and
Assumption Agreement” shall have the meaning set forth in Section 2.3.


 


“Assumed Liabilities”
shall have the meaning set forth in Section 2.3.


 


“Benefit Plan”
shall have the meaning set forth in Section 3.13(a).


 


“Bill of Sale”
shall have the meaning set forth in Section 2.9(a)(ii).


 


“Business”
shall have the meaning set forth in the recitals of this Agreement.


 


“Business Day” means any day that is not a
Saturday, Sunday or other day on which banks in the State of California are
authorized or required to close.


 


“Business Financial
Statements” shall have the meaning set forth in Section 3.4(b).


 


“Business Leases”
shall have the meaning set forth in Section 3.6(c).


 


“Business Leased Real
Property” shall have the meaning set forth in Section 3.6(c).


 


“Business Real Property
Permits” shall have the meaning set forth in Section 3.6(e).


 


“Buyer”
shall have the meaning set forth in the first paragraph of this Agreement.


 


“Buyers” means Buyer and Stock
Buyer.


 


“Capital Equity”
means any and all shares, interests, participations or other equivalents
(however designated) of equity of a corporation, and any and all ownership
interests in a Person (other than a corporation), including membership
interests, partnership interests, joint venture interests and beneficial
interests, and any and all warrants, options or other rights to purchase any of
the foregoing.


 


“Claim Date”
shall have the meaning set forth in Section 5.4.


 


2

















 


“Closing”
shall have the meaning set forth in Section 2.8.


 


“Closing Accounts
Payable” shall have the meaning set forth in Section 7.12.


 


“Closing Cash
Consideration” shall have the meaning set forth in Section 2.7.


 


“Closing Date”
means the date and time as of which the Closing actually takes place.


 


“Closing Net Asset
Value” shall equal the sum of the following items on the
balance sheet of the Digitran Business as of the Closing Date calculated in
accordance with GAAP: (a) accounts receivable of the Digitran Business plus (b) inventory of the Digitran
Business plus (c) other current assets plus (d) other intangibles (net) plus
(e) property, plant and equipment (net) plus
(f) other assets.


 


“Closing Net Book Value”
shall equal (a) total assets of XCEL Japan minus (b) total liabilities of XCEL Japan as of the
Closing Date calculated in accordance with GAAP.


 


“Closing Net Value”
shall have the meaning set forth in Section 2.10(a).


 


“Closing Statement”
shall have the meaning set forth in Section 2.10(a).


 


“Company”
shall have the meaning set forth in the first paragraph of this Agreement.


 


“Company Improvements”
shall have the meaning set forth in Section 3.6(g).


 


“Consent”
means any approval, consent, ratification, waiver, or other authorization
(including any Governmental Authorization).


 


“Contemplated
Transactions” means all
of the transactions contemplated by this Agreement, including:


 


(a)                                  the
sale of the Purchased Assets by Seller to Buyer;


 


(b)                                 the
sale of the XCEL Japan Shares by Seller to Stock Buyer;


 


(c)                                  the
execution, delivery, and performance of the Transaction Documents;


 


(d)                                 the
performance by Buyers, Parent and Seller of their respective covenants and
obligations under the Transaction Documents;


 


(e)                                  Buyer’s
acquisition and ownership of the Purchased Assets; and


 


(f)                                    Stock
Buyer’s acquisition and ownership of the XCEL Japan Shares.


 


“Continued Employees”
shall have the meaning set forth in Section 7.5(b).


 


“Contract” means any agreement, contract,
obligation, promise, or undertaking (whether written or oral and whether
express or implied) that is legally binding.


 


3

















 


“Copyrights”
shall have the meaning set forth in
the definition of Intellectual Property Assets.


 


“Customer”
shall have the meaning set forth in Section 2.1(i).


 


“Damages”
shall have the meaning set forth in Section 5.2.


 


“Deductible”
shall have the meaning set forth in Section 5.5.


 


“Deferred Cash
Consideration” shall have the meaning set forth in Section 2.7(b)(i).


 


“Digitran Balance Sheet”
shall have the meaning set forth in Section 3.4(a).


 


 “Digitran Business” shall
have the meaning set forth in the recitals of this Agreement.


 


“Digitran Financial
Statements” shall have the meaning set forth in Section 3.4(a).


 


“Digitran Interim
Financial Statements” shall have the meaning set forth in Section 3.4(a).


 


“Digitran, Ltd.” means
Digitran Ltd., a corporation organized under the laws of the United Kingdom.


 


“Disclosure Schedule” means the disclosure schedule delivered by
Seller to Buyers concurrently with the execution and delivery of this
Agreement.


 


“Domain Name Assignment”
shall have the meaning set forth in Section 2.9(a)(v).


 


“Encumbrance” means any charge, claim, community property
interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal, or material restriction of any kind,
including any material restriction on use, voting, transfer, receipt of income,
or exercise of any other attribute of ownership.


 


“Environment” means soil, land surface or subsurface
strata, surface waters (including navigable waters, ocean waters, streams,
ponds, drainage basins, and wetlands), groundwaters, drinking water supply,
stream sediments, ambient air (including indoor air), plant and animal life,
and any other environmental medium or natural resource.


 


“Environmental, Health,
and Safety Liabilities”
means any cost, damages, expense (including reasonable attorneys fees),
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:


 


(a)                                  any
environmental, health, or safety matters or conditions (including, but not
limited to, on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products);


 


4

















 


(b)                                 fines,
penalties, judgments, awards, settlements, legal or administrative proceedings,
damages, losses, claims, demands and response, investigative, remedial, or
inspection costs and expenses arising under Environmental Law or Occupational
Safety and Health Law;


 


(c)                                  financial
responsibility under Environmental Law or Occupational Safety and Health Law
for cleanup costs or corrective action, including any investigation, cleanup,
removal, containment, or other remediation or response actions (“Cleanup”) required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for any
natural resource damages; or


 


(d)                                 any
other compliance, corrective, investigative, or remedial measures required
under Environmental Law or Occupational Safety and Health Law.


 


The terms “removal,” “remedial,” and “response action,”
include the types of activities covered by the United States Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq., as amended (“CERCLA”).


 


“Environmental Law” means any Legal Requirement that requires
or relates to:


 


(a)                                  advising
appropriate authorities, employees, Governmental Bodies, and the public of
intended or actual Release or Threat of Release of pollutants or Hazardous
Materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction, that
could have significant impact on the Environment;


 


(b)                                 preventing
or reducing to acceptable levels the Release of Hazardous Materials into the
Environment;


 


(c)                                  reducing
the quantities, preventing the Release, or minimizing the hazardous
characteristics of Hazardous Materials;


 


(d)                                 assuring
that products are designed, formulated, packaged, and used so that they do not
present unreasonable risks to human health or the Environment when used or
disposed of;


 


(e)                                  protecting
the Environment, natural resources, species, or ecological amenities;


 


(f)                                    reducing
to acceptable levels the risks inherent in the transportation of Hazardous
Materials;


 


(g)                                 cleaning
up pollutants that have been Released, preventing the Threat of Release, or
paying the costs of such Cleanup or prevention; or


 


5
















 


(h)                                 making
responsible parties pay private parties, or groups of them, for damages done to
their health or the Environment, or permitting self-appointed representatives
of the public interest to recover for injuries done to public assets.


 


“ERISA” means the Employee Retirement Income
Security Act of 1974 or any successor law, and regulations and rules issued
pursuant to that Act or any successor law.


 


“ERISA Affiliate” means, with
respect to Seller and XCEL Japan, any other person that, together with Seller
or XCEL Japan, would be treated as a single employer under IRC § 414.


 


“Facilities” means any real property, leaseholds, or
other interests currently or formerly owned or operated by Seller or XCEL Japan
relating to the Business and any buildings, structures, or equipment (including
motor vehicles) currently or formerly owned or operated by Seller or XCEL Japan
relating to the Business.


 


“Financed Equipment
Amount” means the
total amount owed by Seller for the equipment loans and leases set forth on Schedule 1 attached hereto.


 


“GAAP” means generally accepted United States
accounting principles.


 


“Governmental
Authorization” means
any approval, consent, license, permit, waiver, or other authorization issued,
granted, given, or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement.


 


“Governmental Body” means any:


 


(a)                                  nation,
state, county, city, town, village, district, or other jurisdiction of any
nature;


 


(b)                                 federal,
state, local, municipal, foreign, or other government;


 


(c)                                  governmental
or quasi-governmental authority of any nature (including any governmental
agency, commission, branch, department, official, or entity and any court or
other tribunal);


 


(d)                                 multinational
organization or body; or


 


(e)                                  body
exercising, or entitled to exercise, any administrative, executive, judicial,
legislative, investigative, police, regulatory, or taxing authority or power of
any nature.


 


“Hazardous Activity” means the distribution, generation,
handling, importing, management, manufacturing, processing, production,
refinement, Release, storage, transfer, transportation, treatment, disposal, or
use (including any withdrawal or other use of groundwater) of Hazardous
Materials in, on, under, about, or from the Facilities or any part thereof into
the Environment, and any other act, business, operation, or thing that
increases the danger, or risk of 


 


6

















 


danger,
or poses an unreasonable risk of harm to persons, or property or the
Environment on or off the Facilities, or that may affect the value of the
Facilities or Seller.


 


“Hazardous Materials” means any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
harmful, hazardous, radioactive, or toxic or a pollutant or a contaminant under
or pursuant to any Environmental Law, including any admixture or solution
thereof, and specifically including petroleum and all derivatives thereof or
synthetic substitutes therefor and asbestos or asbestos-containing materials.


 


“Indemnified Persons”
shall have the meaning set forth in Section 5.2.


 


“Intellectual Property
Assets” includes:


 


(a)                                  the
names “Digitran” and “XCEL Japan,” all fictional business names, trading names,
registered and unregistered trademarks, service marks, and applications
(collectively, “Marks”);


 


(b)                                 all
patents, patent applications, patent rights and inventions and discoveries that
may be patentable (collectively, “Patents”) used
by Seller or XCEL Japan in any manner in the Business or otherwise necessary to
the design, manufacture, sale or distribution of the Products;


 


(c)                                  all
copyrights in both published works and unpublished works and all copyright
registrations and applications and all derivatives, translations, adaptations
and combinations used by Seller in the Business (collectively, “Copyrights”);


 


(d)                                 all
rights in mask works (collectively, “Rights in Mask Works”);
and


 


(e)                                  all
know-how, trade secrets, confidential information, customer lists, software,
technical information, data, process technology, plans, drawings, and
blueprints used by Seller in the Business and all material knowledge and
experience necessary for the operation of the Business and the practical
application of all technology and state of the art industrial techniques
necessary for the manufacture of the Products (collectively, “Trade Secrets”)
owned, used, or licensed by Seller as licensee or licensor.


 


(f)                                    all
goodwill, franchise, licenses, permits, consents, and approvals and claims of
infringement against third parties owned or used by Seller in any manner in the
Business or otherwise necessary for the design, manufacture, sale or
distribution of the Products;


 


(g)                                 all
engineering and other specifications, flow charts, system documentation or
procedures, statements of principals of operation, schematics and other
technical documentation used by Seller in the Business or otherwise necessary
for the design, manufacture, marketing, sale or distribution of the Products (“Technical Documentation”);


 


7

















 


(h)                                 all
written agreements with Seller’s past and present employees of the Business
which assign the inventions, discoveries, improvements and ideas to Seller and
the inventions, improvements and ideas related documents and work of authorship
referred to in such agreements;


 


(i)                                     all
nondisclosure contracts and/or confidentiality agreements entered into between
Seller and Persons in connection with disclosure by Seller relating to the
Products, the Intellectual Property Assets or the Business.


 


“Intellectual Property
Assignment” shall have the meaning set forth in Section 2.9(a)(iv).


 


“Interim Business
Balance Sheets” shall have the meaning set forth in Section 3.4(b).


 


“Interim Business
Financial Statements” shall have the meaning set forth in Section 3.4(b).


 


“IRC” means the Internal Revenue Code of 1986, as
amended, or any successor law, and regulations issued by the IRS pursuant to
the Internal Revenue Code or any successor law.


 


“IRS” means  the United
States Internal Revenue Service or any successor agency, and, to the extent
relevant, the United States Department of the Treasury.


 


“ITAR”
shall have the meaning set forth in Section 3.27.


 


“Knowledge” means an individual will be deemed to have “Knowledge”
of a particular fact or other matter if:


 


(a)                                  such
individual is actually aware of such fact or other matter; or


 


(b)                                 a
prudent individual reasonably would be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a reasonable
investigation concerning the existence of such fact or other matter.


 


A Person (other than an individual) will be deemed to
have “Knowledge” of a particular fact or other matter if any individual who is
serving, or who has at any time served, as a director, officer, or trustee of
such Person (or in any similar capacity) has, or at any time had, Knowledge of
such fact or other matter.


 


“Lease Assignment”
shall have the meaning set forth in Section 2.9(a)(vi).


 


“Legal Requirement” means any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.


 


“Liability” means any liability or obligation (whether
known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether 


 


8

















 


liquidated
or unliquidated, whether incurred or consequential and whether due or to become
due), including any liability for Taxes.


 


“Marks” shall
have the meaning set forth in the
definition of Intellectual Property Assets.


 


“Material Interest”
means direct or indirect beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended) of voting securities or
other voting interests representing at least 10% of the outstanding voting
power of a Person or equity securities or other equity interests representing
at least 10% of the outstanding equity securities or equity interests in a
Person.


 


“Multi-Employer Plan” has the
meaning given in ERISA § 3(37)(A).


 


“Net Sales” means gross sales of the Business for
fiscal year 2009 less returns and
allowances calculated in accordance with GAAP and the principles,
policies and practices that were used in preparing the Business Financial
Statements.


 


“Net Sales Target” means $9,113,493; provided, however,
that such amount shall be reduced by $297,000 if the Distribution Agreement
between the Digitran Business and XPS is terminated prior to the end of fiscal
year 2009 for any reason other than (i) the termination of such
relationship by Buyer due to breach by XPS of any of its obligations under the
Distribution Agreement or (ii) the termination of such Distribution
Agreement by XPS.


 


“Nonassignable Items”
shall have the meaning set forth in Section 2.5(b).


 


“Notice of Disagreement”
shall have the meaning set forth in Section 2.10(a).


 


“Occupational Safety
and Health Law”
means any Legal Requirement designed to provide safe and healthful
working conditions and to reduce occupational safety and health hazards, and
any program, whether governmental or private (including those promulgated or
sponsored by industry associations and insurance companies), designed to provide
safe and healthful working conditions.


 


“Offsite Assets” shall
have the meaning set forth in Section 2.9(a)(i)(B).


 


“Order” means any award, decision, injunction,
judgment, order, ruling, subpoena, or verdict entered, issued, made, or
rendered by any court, administrative agency, or other Governmental Body or by
any arbitrator.


 


“Ordinary Course of
Business” means an
action taken by a Person will be deemed to have been taken in the “Ordinary
Course of Business” only if:


 


(a)                                  such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; and


 


9

















 


(b)                                 such
action is similar in nature and magnitude to actions customarily taken, without
any authorization by the board of directors (or by any Person or group of
Persons exercising similar authority), in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of business as
such Person.


 


“Organizational
Documents” means (a) the
articles or certificate of incorporation and the bylaws of a
corporation; (b) the partnership agreement and any statement of
partnership of a general partnership; (c) the limited partnership
agreement and the certificate of limited partnership of a limited partnership; (d) the
operating agreement and the certificate of formation of a limited liability
company; (e) any charter or similar document adopted or filed in
connection with the creation, formation, or organization of a Person; and (f) any
amendment to any of the foregoing.


 


“Owner” shall have the meaning
set forth in the definition of Subsidiary.


 


“Parent” means
EMRISE Corporation, a Delaware corporation and the parent of Seller.


 


“Parties” shall
have the meaning set forth in the
first paragraph of this Agreement.


 


“Patents” shall
have the meaning set forth in the
definition of Intellectual Property Assets.


 


“PBGC” means the Pension Benefit
Guaranty Corporation, or any successor thereto.


 


“Person” means any individual, corporation (including
any non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Body.


 


“Potential AQMD Permit
Liability” means any Liabilities of Seller related to failure
to obtain a permit for the painting station used in the Digitran Business from
the AQMD.


 


“Potential BKK
Environmental Liability” means any Liabilities of Seller
related to disposal of waste at the BKK Corporation Class I landfill.


 


“Potential Clean Room Liability”
means any Liabilities of Seller related to (i) failure to obtain a permit
and/or landlord consent for build out of the clean room in the Facility at 9654
Hermosa Avenue, Rancho Cucamonga, California, and/or (ii) at the
termination of the lease for such Facility, the removal of such clean room such
that it is returned to its condition at the commencement of the lease.


 


“Potential Rent Dispute
Liability” means any Liabilities of Seller for payment of
additional rent for the XCEL Japan Facilities relating to periods prior to the
Closing based upon the outcome of the ongoing rent dispute with the landlord
relating to the XCEL Japan Facilities.


 


“Potential Sierra
Circuits Liability” means any Liabilities of Seller related
to penalties imposed for failure to purchase minimum quantities of printed
circuit boards pursuant to 


 


10

















 


Section 6 of that
certain Supply Agreement by and between Seller and Sierra Circuits, Inc.
dated July 24, 2008.


 


“Potential XCEL Japan
Asbestos Liability” means any Liabilities of Seller related
to asbestos contamination at the XCEL Japan Facilities.


 


“Pre-Closing Straddle Period Taxes”
shall have the meaning set forth in the definition of Pre-Closing Taxes.


 


“Pre-Closing
Taxes” means:


 


(i)                                     with
respect to Taxes (other than those addressed in Section 6.2
(Transfer Taxes)) imposed upon XCEL Japan, or for which XCEL Japan is liable,
with respect to taxable periods ending prior to or on the Closing Date, all
Taxes due for such taxable period (regardless of whether such Taxes are due and
payable at Closing); and


 


(ii)                                  with
respect to Taxes (other than those addressed in Section 6.2
(Transfer Taxes)) imposed upon XCEL Japan, or for which XCEL Japan is liable,
with respect to taxable periods beginning before and ending after the Closing
Date (each, a “Straddle Period”),
the portion of any such Taxes that is allocable to the portion of the Straddle
Period ending on the Closing Date (such Taxes, the “Pre-Closing Straddle Period Taxes”), determined in accordance
with the following:


 


(A)                              In
the case of Taxes that are either (x) based upon or related to income,
receipts or shareholders’ equity or (y) imposed in connection with any
sale, transfer or assignment or any deemed sale, transfer or assignment of
property (real or personal, tangible or intangible) (regardless of whether such
transaction occur before or after the Closing Date), Pre-Closing Period
Straddle Taxes shall be deemed equal to the amount that would be payable if the
Tax year ended on the Closing Date.  For
purposes of this clause (A), any exemption, deduction, credit or other item
that is calculated on an annual basis shall be allocated to the portion of the
Straddle Period ending on the Closing Date on a pro rata
basis determined by multiplying the entire amount of such item allocated to the
Straddle Period by a fraction, the numerator of which is the number of calendar
days in the portion of the Straddle Period ending on the Closing Date and the
denominator of which is the number of calendar days in the entire Straddle
Period.


 


(B)                                In
the case of Taxes (other than those described in Clause (A) above) imposed
on a periodic basis with respect to Seller or otherwise measured by the level
of any item, Pre-Closing Straddle Period Taxes shall be deemed to equal (x) the
aggregate amount of such Taxes for the entire Straddle Period (or, in the case
of Taxes determined on an arrears basis, the amount of such Taxes for the
immediately preceding Tax period) multiplied by (y) a fraction, the
numerator of which is the number of calendar days in the portion of the
Straddle Period ending on the Closing Date and the denominator of which is the
number of calendar days in the entire Straddle Period.


 


11





















 


“Proceeding” means any action, arbitration, audit,
hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or
arbitrator.


 


“Products”
shall have the meaning set forth in the recitals of this Agreement, and shall
include the underlying technologies, designed, sold or distributed by Seller in
connection with the Digitran Business and XCEL Japan, including, without
limitation, any such technology in development.


 


“Proprietary Rights
Agreement” shall have the meaning set forth in Section 3.20(b).


 


“Prorated Rent Amount” means
$4,213.07.


 


“Purchase Price” shall
have the meaning set forth in Section 2.7.


 


“Purchased Assets”
shall have the meaning set forth in Section 2.1.


 


“Rancho Cucamonga Lease”
shall have the meaning set forth in Section 2.1(g).


 


“Release” means any spilling, leaking, emitting,
discharging, depositing, escaping, leaching, disposing, dumping, or other
releasing into the Environment, whether intentional or unintentional.


 


“Remaining Accounts
Payable” shall have the meaning set forth in Section 7.12.


 


“Representative” means with respect to a particular Person,
any director, officer, employee, agent, consultant, advisor, or other
representative of such Person, including legal counsel, accountants, and
financial advisors.


 


“Restricted Period”
shall have the meaning set forth in Section 7.3(a).


 


“Restricted Territory”
shall have the meaning set forth in Section 7.3(b).


 


“Retained Assets”
shall have the meaning set forth in Section 2.2.


 


“Retained Liabilities”
shall have the meaning set forth in Section 2.4.


 


“Rights in Mask Works” shall
have the meaning set forth in the
definition of Intellectual Property Assets.


 


“Securities Act” means the Securities Act of 1933, as
amended, or any successor law, and regulations and rules issued pursuant
to that Act or any successor law.


 


“Seller”
shall have the meaning set forth in the first paragraph of this Agreement.


 


“Straddle Period” shall
have the meaning set forth in the
definition of Pre-Closing Taxes.


 


12

















 


“Stock Buyer” shall have the meaning set forth in the
first paragraph of this Agreement.


 


“Subsidiary” means with respect to any Person (the “Owner”), any corporation or other Person
of which securities or other interests having the power to elect a majority of
that corporation’s or other Person’s board of directors or similar governing
body, or otherwise having the power to direct the business and policies of that
corporation or other Person (other than securities or other interests having
such power only upon the happening of a contingency that has not occurred) are
held by the Owner or one or more of its Subsidiaries.


 


“Target Net Value”
shall mean $2,990,537.


 


“Tax” means any tax (including any income tax,
excise tax, capital gains tax, value-added tax, sales tax, property tax,
franchise tax, gross receipts tax, license tax, payroll tax, employment tax,
severance tax, stamp tax, occupation tax, premium tax, windfall profits tax,
environmental tax, capital stock tax, profits, withholding tax, social security
tax (or similar), unemployment, disability, real property, personal property,
transfer, registration, alternative, or add on minimum or estimated tax,
assessment, charge, levy, and all other taxes and similar assessments, customs
duties, charges and fees of any kind whatsoever and any related charge or
amount (including any fine, penalty, interest, or addition to tax), imposed,
assessed, or collected by or under the authority of any Governmental Body or
payable pursuant to any tax-sharing agreement or any other Contract relating to
the sharing or payment of any such tax, levy, assessment, tariff, duty,
deficiency, or fee.


 


“Tax Return” means any return (including any information
return), report, statement, schedule, notice, form, or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment,  collection, or payment of
any Tax or in connection with the administration, implementation, or
enforcement of or compliance with any Legal Requirement relating to any Tax.


 


“Technical
Documentation” shall have the meaning set forth in the definition of Intellectual Property
Assets.


 


“Threat of Release” means a substantial likelihood of a Release
that may require action in order to prevent or mitigate damage to the
Environment that may result from such Release.


 


“Threatened” means a claim, Proceeding, dispute, action,
or other matter will be deemed to have been “Threatened” if any demand or
statement has been made (orally or in writing) or any notice has been given
(orally or in writing), or if any other event has occurred or any other
circumstances exist, that would lead a prudent Person to conclude that such a
claim, Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.


 


“Trade Secrets” shall
have the meaning set forth in the
definition of Intellectual Property Assets.


 


13

















 


“Transaction Costs” shall
have the meaning set forth in Section 3.25.


 


“Transaction Documents” means
this Agreement, the Assignment Assumption Agreement, the Bill of Sale, the
Intellectual Property Assignment, the Domain Name Assignment, the Transition
Services Agreement, the Lease Assignment, and all other agreements, documents
and instruments executed and delivered or to be executed and delivered in
connection with the execution and delivery of this Agreement and the
consummation of the Contemplated Transactions.


 


“Transfer Taxes” shall
have the meaning set forth in Section 6.2.


 


“WARN Act” shall
have the meaning set forth in Section 3.21(b).


 


“XCEL Japan” shall
have the meaning set forth in the
recitals of this Agreement.


 


“XCEL Japan Balance
Sheet” shall have the meaning set forth in Section 3.4(b).


 


“XCEL Japan Financial
Statements” shall have the meaning set forth in Section 3.4(b).


 


“XCEL Japan Interim
Financial Statements” shall have the meaning set forth in Section 3.4(b).


 


“XCEL Japan Shares”
shall have the meaning set forth in
the recitals of this Agreement.


 


“XPS”
shall have the meaning set forth in Section 7.3(a)(i).


 


ARTICLE II


SALE AND PURCHASE TRANSACTIONS; CLOSING


 


2.1                                 Sale and Purchase of the Digitran Assets.  At the Closing, Seller and Parent shall sell
and transfer to Buyer, and Buyer shall purchase from Seller and Parent, free
and clear of all Encumbrances, all of Seller’s and Parent’s assets, properties
and business as a going concern relating to the Digitran Business of every
kind, nature and description, wherever located and whether real, personal or mixed,
tangible or intangible, in electronic form or otherwise, and whether or not
having any value for accounting purposes or carried or reflected on or
specifically referred to in its books or financial statements, except those
assets specifically excluded pursuant to Section 2.2.  The properties, business, goodwill and assets
of Seller and Parent relating to the Digitran Business to be sold and
transferred to Buyer hereunder (collectively, the “Purchased
Assets”) shall include the following:


 


(a)                                  all
of Seller’s machinery, equipment, components, parts, tooling, dies, jigs, spare
parts, supplies and materials relating to the Digitran Business
wherever located, including the items specifically set forth on Schedule 2.1(a);


 


14
















 


(b)                                 all
of Seller’s inventories of raw materials, work-in-process, parts, subassemblies and finished goods relating
to the Digitran Business, and all packaging and all other materials and
supplies to be used or consumed by Seller relating to the Digitran Business
in the production of finished goods, wherever located and whether or not
obsolete or carried on Seller’s books of account, including the items set forth
on Schedule 2.1(b);


 


(c)                                  all
of Seller’s other tangible personal property relating to the Digitran Business,
including office furniture, office equipment and supplies, leasehold
improvements, vehicles, computers and all related equipment, and telephones and
all related equipment, including the items set forth on Schedule 2.1(c);


 


(d)                                 all
of Seller’s advance payments, rental deposits, prepaid items, surety accounts
and other similar assets, claims, deferred charges, credits and claims for
refund relating to the Digitran Business, including the
items set forth on Schedule 2.1(d), but excluding such items as are
associated primarily with Retained Liabilities;


 


(e)                                  all
notes and billed and unbilled accounts receivable and other rights to payments
from customers of the Digitran Business, including
trade accounts receivable from goods shipped, products sold or services
rendered, vendor credits, and the full benefit to all security for such
accounts or rights to payment, a listing of which is set forth on Schedule 2.1(e);


 


(f)                                    all
of Seller’s books, records, manuals, documents, and books of account relating to
the Digitran
Business, whether inscribed on tangible medium or stored
in electronic or other medium, including sales and credit reports, client,
customer and supplier lists, literature, brochures, advertising material,
maintenance records, service and warranty records, referral sources, research
and development records, production records, equipment logs, operating guides
and manuals, financial and accounting records, creative materials, advertising
materials, promotional materials, studies, reports, correspondence and other
similar documents, all rights to receive and retain mail and other
communications relating to the Digitran Business, and, subject
to Legal Requirements, copies of all personnel records;


 


(g)                                 all
of Seller’s rights under the lease for its Facility at 9654 Hermosa Avenue,
Rancho Cucamonga, California (the “Rancho Cucamonga Lease”),
and all other Contracts identified on Schedule 2.1(g);


 


(h)                                 all
of Seller’s and Parent’s intangible rights and property relating to the Digitran Business,
including goodwill and rights in and to the name “Digitran,” any Product names,
and in any other trade name, trademark, fictitious name or service mark, or any
variant of any of them, and any applications therefor or registrations thereof,
and any other forms of Intellectual Property Assets, and all research related
to the Digitran
Business conducted by Seller or Parent, all development
facilities and inventions and work-in-process a part thereof, all rights to
Seller’s and Parent’s software, telephone numbers, facsimile numbers, Internet
sites, Internet addresses (excluding email addresses) 


 


15





















 


and domain names thereof
and other listings related to the Digitran Business, including the items
identified on Schedule 2.1(h);


 


(i)                                     all
information, data, lists and documents related to all Persons to whom or to
which Seller has sold or otherwise furnished Products, directly or indirectly,
at any time (“Customer” or “Customers”)
including related information as to the unit and dollar volume of such sales,
the type of Products so sold or furnished, the method of distribution and other
relevant marketing and product information for each Customer;


 


(j)                                     all
unfilled purchase and sale orders relating to the Digitran Business set forth
on Schedule 2.1(j);


 


(k)                                  to
the extent permitted by Legal Requirements, all Governmental Authorizations
relating to the Digitran Business, and all pending applications for issuance or
renewal thereof, including the items identified on Schedule 2.1(k);


 


(l)                                     all
of Seller’s rights to the Digitran Business, to the extent not described above,
all assets that are employed by Seller solely in connection with the Digitran
Business, and all of the assets to be reflected on the Closing Statement;


 


(m)                               the
other assets, properties, rights, titles and interests specifically listed on Schedule 2.1(m);
and


 


(n)                                 all
of Seller’s claims, causes of action and judgments, all express and implied
warranties, guarantees, refunds, causes of action, rights of recovery, rights
of set-off and rights of recoupment of every kind and nature and all existing
and inchoate claims, rights and remedies related to any of the foregoing
relating to the Digitran Business.


 


2.2                                 Retained Assets.  Seller shall retain and the Purchased Assets
shall not include the following assets relating to the Digitran Business
(collectively, the “Retained Assets”):


 


(a)                                  the
consideration to be delivered to Seller pursuant to, and all other rights
under, this Agreement and the other Transaction Documents;


 


(b)                                 Seller’s
other rights hereunder;


 


(c)                                  Seller’s
minute book, stock records and seal;


 


(d)                                 any
right to receive mail and other communications addressed to Seller relating to
the Retained Assets and Retained Liabilities;


 


(e)                                  all
of Seller’s cash, cash in banks, cash equivalents, bank and mutual fund
accounts and lockboxes (other than post-Closing payments sent to such lockboxes
in payment of the Accounts Receivable);


 


(f)                                    all
Tax Returns of Seller;


 


16





















 


(g)                                 all
email addresses of Seller and its Affiliates;


 


(h)                                 all
personnel records that Seller is required by law to retain in its possession;


 


(i)                                     all
claims for refund of Taxes and other governmental charges of whatever nature;


 


(j)                                     all
rights in connection with and assets of any Benefit Plan;


 


(k)                                  subject
to Section 7.11, Digitran, Ltd. (only to the extent necessary to
maintain its corporate charter), and


 


(l)                                     the
assets specifically listed on Schedule 2.2(l).


 


2.3                                 Assumption of Liabilities.  Buyer shall
assume, pay, and perform in accordance with their terms or otherwise satisfy,
after the Closing Date, only the following liabilities (collectively, the “Assumed Liabilities”):


 


(a)                                  at
the Closing, Buyer shall, pursuant to an Assignment and Assumption Agreement
substantially in the form of Exhibit 2.3
attached hereto (the “Assignment and
Assumption Agreement”), assume and agree to perform, defend, pay or
discharge, when due, all of the obligations after the date of this Agreement
assumed by Buyer pursuant to the Contracts sold to Buyer under Section 2.1, including any
future change in terms of such Contracts of which Buyer is informed prior to
the Closing; provided, however, that in no event shall Buyer
assume any portion of the Potential Sierra Circuits Liability; and


 


(b)                                 after
the Closing, Buyer shall perform all warranty service related to Products sold
by Seller prior to Closing; provided, however, that Seller shall
reimburse Buyer for any direct labor, materials, freight and out-of-pocket
costs and expenses incurred by Buyer in excess of $37,500 for providing such
warranty service.


 


2.4                                 Retained Liabilities.  Notwithstanding
anything contained in this Agreement to the contrary and regardless of whether
such Liability is disclosed herein or on any schedule or exhibit hereto, except
for the Assumed Liabilities, Buyer will not assume or be liable for any
liabilities of Seller or any other Person, regardless of whether relating to
the Digitran Business or the Purchased Assets, and in each case, whether known
or unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated and whether
due or to become due (collectively, the “Retained Liabilities”).
Seller shall retain and shall be responsible for paying and satisfying the
Retained Liabilities including, but not limited to, the following:


 


(a)                                  all
Liabilities arising out of the Contracts to be transferred to Buyer as set
forth in Section 2.1(g) which are not assigned to the Buyer
because necessary consents to such assignment have not been obtained; provided,
however, that Buyer shall be responsible for paying and satisfying all
such Liabilities to the extent that Buyer has received the benefit of such
Contracts notwithstanding such lack of assignment;


 


17





















 


(b)                                 any
Liability of Seller arising out of a breach of its obligations under this
Agreement;


 


(c)                                  subject
to Section 2.3(b), any Liabilities in connection with or relating
to actions, suits, judgments, litigation, assessments, proceedings,
investigations or claims relating to periods and arising out of events
occurring prior to the Closing Date;


 


(d)                                 all
Liabilities which are (i) related to the operation of the Digitran
Business by Seller prior to the Closing or (ii) accrued in accordance with
GAAP prior to the Closing with respect to (x) the Contracts or (y) an
occurrence related to the Digitran Business which occurred prior to the
Closing;


 


(e)                                  all
Liabilities of Seller arising out of or in connection with employment related
claims for benefits of any kind by the employees of the Digitran Business
arising out of any occurrence prior to the Closing including, but not limited
to, (i) any earned account, vacation, holiday pay or any other fringe
benefits provided by Seller to such employees, (ii) any health,
disability, bonuses, compensation or life insurance coverage or medical
benefits provided by Seller to such employees, (iii) any severance pay or
other termination benefits due from Seller to such employees and (iv) obligations
of Seller set forth in Section 7.5;


 


(f)                                    any
Liabilities caused by any Product shipped by Seller or XCEL Japan in the
operation of  the Digitran Business prior
to the Closing, including, but not limited to, Liabilities for death, bodily
injury or property damage, and any Liability for recalls of any Products
produced, sold or distributed prior to the Closing;


 


(g)                                 all
Liabilities of any unfunded vested benefit liability to any Multi-Employer
Pension Plan to which Seller made contributions;


 


(h)                                 any
Liability related to any Benefit Plan of Seller;


 


(i)                                     any
Liability arising out of the failure to comply with any applicable bulk
transfer law;


 


(j)                                     any
Environmental Health and Safety Liabilities related to the operation of the
Digitran Business by Seller prior to the Closing;


 


(k)                                  the
Potential AQMD Permit Liability;


 


(l)                                     the
Potential Sierra Circuits Liability;


 


(m)                               the
Potential Clean Room Liability;


 


(n)                                 the
Potential BKK Environmental Liability; and


 


(o)                                 all
other Liabilities of Seller relating to the Digitran Business not included in
the Assumed Liabilities.


 


18





















 


2.5                                 Assignability and Consents.


 


(a)                                  Required
Consents.  Schedule 2.5(a) sets
forth a list of all Purchased Assets, including Contracts and Governmental
Authorizations, which are non-assignable or non-transferable or cannot be
subleased to Buyer without the consent of some other Person.  Seller has taken or caused to be taken by
others, all  commercially reasonable actions
to (i) obtain or satisfy all Consents from any Persons necessary to
authorize, approve or permit the full and complete sale, conveyance,
assignment, sublease or transfer of the Purchased Assets, (ii) ensure that
any Contracts assigned to Buyer, as contemplated by this Agreement, are
assigned on the same terms as are disclosed on the Schedules to this Agreement,
and (iii) consummate and make effective the Contemplated
Transactions.  In addition, Seller agrees
to take, or cause to be taken, all  commercially
reasonable actions to continue such efforts as may be required after the
Closing Date to facilitate the full and expeditious assignment, transfer of
legal title, or sublease, as the case may be, of the Purchased Assets.


 


(b)                                 Nonassignable
Items.  Anything in this Agreement to
the contrary notwithstanding, this Agreement shall not constitute an agreement
to sell, convey, assign, sublease or transfer any Purchased Assets, including
Contracts and Governmental Authorizations, if an attempted sale, conveyance,
assignment, sublease or transfer thereof, without the consent of another
Person, would constitute a breach of, or in any way affect the rights of either
Seller or Buyer with respect to, such Purchased Assets (collectively, the “Nonassignable Items”). Seller shall use its commercially
reasonable efforts (and Buyer shall cooperate in all reasonable respects with
Seller) to obtain and satisfy all Consents and to resolve all impracticalities
of sale, conveyance, assignment, sublease or transfer necessary to convey to
Buyer all Nonassignable Items. If any such Consents are not obtained and
satisfied or if an attempted sale, conveyance, assignment, sublease or transfer
would be ineffective, Seller and its Affiliates shall enter into such
arrangements (including related written agreements) as Buyer may reasonably
request to provide Buyer with the benefit of the Nonassignable Items.


 


2.6                                 Sale and Purchase of XCEL Japan Shares.  Subject to the terms and conditions of this
Agreement, at the Closing, Seller will sell and transfer the XCEL Japan Shares
to Stock Buyer, and Stock Buyer will purchase the XCEL Japan Shares from
Seller.


 


2.7                                 Purchase Price.  Subject to Section 2.10, the
purchase price (the “Purchase Price”)
for the XCEL Japan Shares and Purchased Assets will be payable at or after
the Closing, as the case may be, and in the manner as further described below:


 


(a)                                  Cash at Closing.  At the Closing, Buyer will pay to Seller by
wire transfer in immediately available funds an amount equal to the sum of (i) $11,500,000
(the portion of such sum as is attributable to the price of the XCEL Japan
Shares having been provided to Buyer from Stock Buyer) plus
(ii) the Financed Equipment Amount (collectively, the “Closing
Cash Consideration”) plus (iii) the
Prorated Rent Amount minus (iv) the
aggregate amount of the Closing Accounts Payable.


 


19





















 


(b)                                 Deferred Purchase Price.


 


(i)                                     If
Net Sales for fiscal year 2009 (which is the calendar year) exceed $6,835,120,
Buyer shall pay to Seller, in accordance with the procedures set forth in Section 2.7(b)(ii),
an amount in cash (the “Deferred Cash
Consideration”) equal to the product of $500,000 multiplied by a fraction, the numerator of which is Net
Sales for fiscal year 2009 and the denominator of which is the Net Sales
Target; provided, however, that the amount of the Deferred Cash
Consideration shall not exceed $500,000.


 


(ii)                                  Within
forty-five (45) days after December 31, 2009, Buyer shall deliver to
Seller a written statement (the “Payment
Statement”), including supporting documentation, setting forth the
amount of Net Sales for fiscal year 2009. 
The Payment Statement shall become final and binding upon Buyers and
Seller on the 15th day following delivery thereof, unless Seller
gives notice of disagreement with the Payment Statement (a “Dispute Notice”) to Buyer prior to such
date.  Any Dispute Notice shall specify
in reasonable detail the nature of any disagreement so asserted.  If a
Dispute Notice is received by Buyer in a timely manner, then the Payment
Statement shall become final and binding upon Buyers and Seller on the earlier
of (i) the date Buyer and Seller resolve in writing any differences they
have with respect to the matters specified in the Dispute Notice and (ii) the
date any disputed matters are finally resolved in writing by the Accounting
Firm.  During the 30-day period (the “Resolution
Period”) following the delivery of a Dispute Notice, Buyer and
Seller shall use their commercially reasonable efforts and seek in good faith
to resolve in writing any differences that they may have with respect to the
matters specified in the Dispute Notice. 
At the end of the Resolution Period, Buyer and Seller shall submit to an
independent accounting firm (the “Accounting
Firm”) for arbitration, in accordance with the standards set forth
in this Section 2.7(b), only matters that remain in dispute and
were properly included in the Notice of Disagreement in accordance with this Section 2.7(b) and
any claim of calculation-related errors.  The Accounting Firm shall be RSM
McGladrey (which the parties represent has not provided services to any of them
or their respective subsidiaries during the past three years) or, if such firm
is unable or unwilling to act, such other independent public accounting firm as
shall be agreed upon by Buyer and Seller in writing.  Buyer and Seller
shall use their commercially reasonable efforts to cause the Accounting Firm to
render a written decision resolving the matters submitted to the Accounting Firm
within thirty (30) days of their delivery of such submission.  The
Accounting Firm shall determine Net Sales for fiscal year 2009 pursuant to this
Section 2.7(b) in accordance with GAAP and the principles,
policies and practices that were used in preparing the Business Financial
Statements; provided, however,
that no adjustment shall be made by the Accounting Firm in favor of Seller with
respect to any item that was not included in Seller’s Dispute Notice.  The Accounting Firm’s decision shall be based
solely on written submissions by Buyer and Seller and their respective
representatives and by reference to the terms of this 


 


20





















 


Agreement.  Seller and Buyer shall furnish or cause to be
furnished to the Accounting Firm such work papers and other documents and
information related to the disputed matters as the Accounting Firm may request
and are reasonably available to Seller, Buyer or their respective agents.  The Accounting Firm shall address only those
items in dispute and calculation-related errors.  Judgment may be entered upon the
determination of the Accounting Firm in any court having jurisdiction over the
party against which such determination is to be enforced.  Within three (3) Business Days of the
Payment Statement becoming final and binding, Buyer shall pay to Seller the
Deferred Cash Consideration.  The fees
and expenses of the Accounting Firm incurred pursuant to this Section 2.7(b) shall
be borne equally by Buyer and Seller.


 


2.8                                 Closing.  The purchase and sale (the “Closing”) provided for in this Agreement
will take place upon execution and delivery of this Agreement by both parties.


 


2.9                                 Closing Obligations.  At the Closing:


 


(a)                                  Seller
will deliver, or cause to be delivered, as applicable, to Buyer (or the Stock
Buyer, as the case may be):


 


(i)                                     Physical
possession and/or control of the Purchased Assets in accordance with the
following:


 


(A)                              all
Purchased Assets which are tangible personal property and located at Seller’s
Facility shall be turned over to the Buyer; and


 


(B)                                for
all Purchased Assets located at or with a supplier or outside manufacturer
(collectively, the “Offsite Assets”),
a listing of which is attached hereto as Schedule 2.9(a)(i)(B),
Seller will take all steps required to place Buyer in control of such Offsite
Assets at Closing, including delivering at or prior to the Closing a listing of
all such Offsite Assets;


 


(ii)                                  a
bill of sale transferring the Purchased Assets to Buyer, free and clear of any
and all Encumbrances whatsoever in the form of Exhibit 2.9(a)(ii) (the
“Bill of Sale”), executed by Seller;


 


(iii)                               the
Assignment and Assumption Agreement, executed by Seller;


 


(iv)                              an
Intellectual Property Assignment in the form of Exhibit 2.9(a)(iv) (the
“Intellectual Property Assignment”), executed
by Seller and Parent, as applicable;


 


(v)                                 a
Domain Name Assignment in the form of Exhibit 2.9(a)(v) (the “Domain Name Assignment”), executed by Seller and Parent, as
applicable;


 


21





















 


(vi)                              a
Transition Services Agreement in the form of Exhibit 2.9(a)(vi) (the
“Transition Services Agreement”),
executed by Seller;


 


(vii)                           copies
of all Consents to the transfer, assignment or sublease to Buyer of each
Purchased Asset, including Contracts and Governmental Authorizations that
require such Consent;


 


(viii)                        an
assignment and assumption agreement relating the Rancho Cucamonga Lease (the “Lease Assignment”), executed by Seller with written consent
of the landlord;


 


(ix)                                a
request for entry in shareholders’ register, executed by Seller and addressed
to XCEL Japan, that XCEL Japan effect an entry in its shareholders’ register
with respect to the acquisition due to transfer to Stock Buyer, in form
approved by Buyers’ counsel prior to Closing;


 


(x)                                   the
resignations, dated as of the Closing Date, of (A) Carmine T. Oliva as a
director of XCEL Japan and (B) Gallant Thein as the statutory auditor of
XCEL Japan, and such director and statutory auditor shall represent that they
have no claims against XCEL Japan;


 


(xi)                                a
duly executed acceptance of directors and statutory auditor of XCEL Japan and
duly executed resolutions of the board of directors of XCEL Japan appointing
new representative directors in form submitted by Buyers’ counsel;


 


(xii)                             evidence
(in the form and substance reasonably satisfactory to Buyer) of termination of
all agreements regarding voting, transfer, restrictions or Encumbrances on the
XCEL Japan Shares, rights of repurchase or other arrangements related to the
XCEL Japan Shares that are in effect prior to Closing;


 


(xiii)                          duly
executed satisfactions, termination statements and/or releases, to the extent
required, to release any existing liens, claims or encumbrances;


 


(xiv)                         evidence
(in the form and substance reasonably satisfactory to Buyer) that Seller’s
investment bankers, attorneys and/or other advisors and any other similar
agents or Representatives have been paid in full prior to the Closing and/or
that Seller has no liability to any such parties for Transaction  Costs;


 


(xv)                            evidence
(in the form and substance reasonably satisfactory to Buyer) that the equipment
loans and leases set forth on Schedule 1
have been paid in full;


 


(xvi)                         evidence
(in the form and substance reasonably satisfactory to Buyer) that all
intercompany accounts between the Digitran Business or XCEL Japan, on the one
hand, and Parent or any Subsidiary of Parent, on the other hand, 


 


22





















 


have been settled, except
for intercompany accounts between the Digitran Business and XCEL Japan;


 


(xvii)                      certificates of Seller’s legal existence and
corporate and tax good standing from the State of New Jersey and the State of
California and from such other jurisdictions where Seller’s activities require
qualification as a foreign corporation in connection with the operation of the
Digitran Business;


 


(xviii)                   a secretary or clerk’s certificate of Seller
dated as of the date of the Closing certifying as to the incumbency and
signature of any officer of Seller executing any document being delivered to Buyer
in connection with the transactions contemplated by this Agreement and attached
to such certificate shall be certified copies of the resolutions of the Board
of Directors of Seller and Parent, authorizing the execution and delivery of
this Agreement and the transactions contemplated hereby.


 


(xix)                           such tax waivers from such jurisdictions as
are customary for a transaction of this type;


 


(xx)                              opinions from Seller’s counsel (both United
States and Japan counsel) in the forms set forth on Exhibit 2.9(a)(xx)
attached hereto;


 


(xxi)                           such
other deeds, bills of sale, endorsements, assignments, affidavits and other
good and sufficient instruments of sale, assignment, conveyance and transfer
including, without limitation, instruments necessary for the transfer of any
vehicles included in the Purchased Assets in form and substance reasonably
satisfactory to Buyer and its counsel, as are required to effectively vest in
Buyer good and marketable title in and to all of the Purchased Assets, free and
clear of any and all Encumbrances;


 


(xxii)                        the true
and complete original corporate records and business and financial records,
employment records and agreements of XCEL Japan and all regulatory approvals,
consents and authorizations issued to XCEL Japan and all documents related to
XCEL Japan’s corporate structure and business;


 


(xxiii)                     a side letter
agreement by and between Parent’s senior lender and Buyer relating to access to
Accounts Receivable in the lockboxes;


 


(xxiv)                    copies of all
documents (in form approved by Buyers’ counsel) filed by XCEL Japan with the
Legal Affairs Bureau relating to the conversion of XCEL Japan to a “Non-Share
Certificate Issuing Company” and a receipt from the Legal Affairs Bureau
acknowledging that it has received  these
documents for filing; and


 


(xxv)                       an
affidavit of lost certificate with respect to the XCEL Japan Shares which
provides indemnification to Buyer; and


 


23
















 


(xxvi)                    a certified
true copy of commercial register and certificates of tax payment (“nozei-shomeisho”) regarding XCEL Japan.


 


(b)                                 Buyer
will deliver to Seller:


 


(i)                                     the
Closing Cash Consideration (including the portion provided by Stock Buyer) by
wire transfer at the account specified in writing to Buyer;


 


(ii)                                  the
Assignment and Assumption Agreement, executed by Buyer;


 


(iii)                               the
Intellectual Property Assignment, executed by Buyer;


 


(iv)                              the
Domain Name Assignment, executed by Buyer;


 


(v)                                 the
Transition Services Agreement, executed by Buyer; and


 


(vi)                              the
Lease Assignment, executed by Buyer.


 


2.10                           Purchase Price Adjustment.  The Purchase Price shall be adjusted after
the Closing as follows:


 


(a)                                  Closing Statement.  Within forty-five (45) days after the Closing Date, Seller shall deliver
to Buyers a statement (the “Closing Statement”)
setting forth (i) the Closing Net Asset Value, (ii) the Closing Net
Book Value, and (iii) the sum of the Closing Net Asset Value and the
Closing Net Book Value (the “Closing Net Value”).  For illustration purposes only, a computation
of the Closing Net Book Value utilizing the figures from the Interim Business
Balance Sheets is attached hereto as Exhibit 2.10.  The Closing Statement shall become final and
binding upon Buyers and Seller on the 15th day following
delivery thereof, unless Buyer gives notice of disagreement with the Closing
Statement (a “Notice of Disagreement”)
to Seller prior to such date.  Any Notice of Disagreement shall (i) specify
in reasonable detail the nature of any disagreement so asserted and (ii) only
include disagreements based on mathematical errors or based on the Closing Net
Asset Value or Closing Net Book Value not being calculated pursuant to this Section 2.10,
which requires that the calculations be in accordance with GAAP.  If a Notice of Disagreement is received by
Seller in a timely manner, then the Closing Statement (as revised in accordance
with this sentence) shall become final and binding upon Buyers and Seller on
the earlier of (A) the date Buyers and Seller resolve in writing any
differences they have with respect to the matters specified in the Notice of
Disagreement and (B) the date any disputed matters are finally resolved in
writing by the Accounting Firm.  During the 30-day period following the
delivery of a Notice of Disagreement, Buyers and Seller shall seek in good
faith to resolve in writing any differences that they may have with respect to
the matters specified in the Notice of Disagreement.  At the end of such
30-day period, Buyers and Seller shall submit to the Accounting Firm for
arbitration, in accordance with the standards set forth in this Section 2.10,
only matters that remain in dispute and were properly included in the Dispute
Notice in accordance with this Section 2.10.  Buyers and
Seller shall use their commercially reasonable efforts to cause the Accounting
Firm to render a written 


 


24

















 


decision resolving the
matters submitted to the Accounting Firm within thirty (30) days of the receipt
of such submission. The Accounting Firm shall determine the Closing Net Asset
Value and the Closing Net Book Value pursuant to this Section 2.10;
provided, however, that no adjustment shall be made by the
Accounting Firm in favor of Buyers with respect to any item that was not
included in Buyer’s Notice of Disagreement. 
The Accounting Firm’s decision shall be based solely on written
submissions by Buyers and Seller and their respective Representatives and by
reference to the terms of this Agreement.  Seller and Buyers shall furnish
or cause to be furnished to the Accounting Firm such work papers and other
documents and information related to the disputed matters as the Accounting
Firm may request and are reasonably available to Seller, Buyers or their
respective agents.  The Accounting Firm shall address only those items in
dispute and calculation-related errors. 
Judgment may be entered upon the determination of the Accounting Firm in
any court having jurisdiction over the party against which such determination
is to be enforced.  The fees and expenses of the Accounting Firm incurred
pursuant to this Section 2.10 shall be borne by Buyers and Seller
equally.


 


(b)                                 Inventory Reserve; Pension Obligation.  Prior to delivery of the Closing Statement,
Buyer and Seller shall determine if the inventory reserve of XCEL Japan is
adequate assuming a maximum of 18 months on hand at an individual unit level
(based on the order activity during the past 18 months immediately prior to the
Closing) assuming all current open orders are filled.  If such inventory reserve is not sufficient,
Buyer and Seller shall mutually agree upon the amount by which the inventory
reserve shall be increased and increase the Target Net Value accordingly.  Prior to delivery of the Closing Statement,
the Target Net Value shall be increased to reflect an adjustment to the pension
obligation of XCEL Japan to ¥43,015,811, which reflects the agreed upon
liability as of the Closing.


 


(c)                                  Payment of Adjustment.  Within three (3) days following the date
that the Closing Statement becomes final and binding upon Buyers and Seller, if
the Closing Net Value as set forth in the Closing Statement is less than an
amount equal to the Target Net Value, then Seller shall pay to Buyers (in such
proportion as directed by the Buyers) an amount equal to the Target Net Value minus the Closing Net Value and the Purchase Price shall be
reduced accordingly.  If the Closing Net
Value as set forth on the Closing Statement is greater than the Target Net
Value, then Buyers shall pay to Seller an amount equal to the Closing Net Value
minus the Target Net Value and the
Purchase Price shall be increased accordingly.


 


2.11                           Purchase Price Allocation.  The Purchase Price represents the amount
agreed upon by the Parties to be the aggregate value of the Purchased Assets
and the XCEL Japan Shares. Promptly after Closing but in no event more than
ninety (90) days after the Closing, the Parties shall agree upon the allocation
of the Purchase Price among the Purchased Assets and the XCEL Japan Shares. If
Buyers and Seller are not able to agree upon the allocation of the Purchase
Price among the Purchased Assets and XCEL Japan shares, such allocation shall
be made by a valuation firm mutually acceptable to Buyer and Seller. Each of
the Parties shall report the purchase and sale of the Purchased Assets,
including, without limitation, in all federal, foreign, state, local and other
Tax Returns and reports prepared and filed by or for either Seller or 


 


25

















 


Buyer, including but not
limited to their respective Internal Revenue Service Forms 8594, in accordance with the basis of
allocation described in this Section 2.11.


 


2.12                           Buyers’ Representative.  Buyer shall act as the representative for
both Buyers in the administration of the provisions of Sections 2.10 and
2.11.


 


ARTICLE III


REPRESENTATIONS AND WARRANTIES OF SELLER


 


Seller represents and
warrants to Buyers as follows:


 


3.1                                 Organization and Good Standing.  Section 3.1 of the
Disclosure Schedule contains a complete and accurate list for each of Seller
and XCEL Japan:  its name, its
jurisdiction of incorporation, and other jurisdictions in which it is
authorized to do business.  Seller is a
corporation duly incorporated, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all
its obligations under Applicable Contracts and to operate the Digitran
Business.  XCEL Japan is a corporation
duly incorporated under the laws of its jurisdiction of incorporation, with
full corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under Applicable Contracts.  Each of Seller (solely as it relates to the
Digitran Business) and XCEL Japan is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification in which failure to so qualify would have a material adverse
effect on the Business.  Each of Seller
and XCEL Japan has made available to Buyer copies of its Organizational
Documents, as currently in effect.


 


3.2                                 Authority; No Conflict.


 


(a)                                  This
Agreement and each of the other Transaction Documents to which Seller or XCEL
Japan is a party constitutes the legal, valid, and binding obligation of Seller
or XCEL Japan, as applicable, enforceable against it in accordance with its
terms, except to the extent that enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, receivership, moratorium and other
similar laws relating to or affecting the rights and remedies of creditors
generally and (ii) general principles of equity.  Seller has the absolute and unrestricted
right, power, authority, and capacity to execute and deliver this Agreement and
to perform its obligations under this Agreement. This Agreement has been duly
authorized by Seller and Seller and XCEL Japan have taken all action required
by law, its respective certificate of incorporation, bylaws or any similar
governing instrument or otherwise to authorize the execution, delivery and
performance of this Agreement and the other Transaction Documents.


 


(b)                                 Except
as set forth in Section 3.2 of the Disclosure Schedule, neither the
execution and delivery of this Agreement and the other Transaction Documents
nor the 


 


26

















 


consummation or
performance of any of the Contemplated Transactions will, directly or
indirectly (with or without notice or lapse of time):


 


(i)                                     contravene,
conflict with, or result in a violation of (A) any provision of the
Organizational Documents of Seller or XCEL Japan, or (B) any resolution
adopted by the board of directors or the stockholders of Seller or XCEL Japan;


 


(ii)                                  contravene,
conflict with, or result in a violation of, or give any Governmental Body or
other Person the right to, challenge any of the Contemplated Transactions or to
exercise any remedy or obtain any relief under, any Legal Requirement or any
Order to which Seller, XCEL Japan or the Purchased Assets may be subject;


 


(iii)                               contravene,
conflict with, or result in a violation of any of the terms or requirements of,
or give any Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate, or modify, any Governmental Authorization that is held by Seller,
XCEL Japan or that otherwise relates to the Business or the Purchased Assets;


 


(iv)                              contravene,
conflict with, or result in a violation or breach of any provision of, or give
any Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Applicable Contract; or


 


(v)                                 result
in the imposition or creation of any Encumbrance upon or with respect to any of
the Purchased Assets.


 


(c)                                  Except
as set forth in Schedule 2.5(a) and Section 3.2(c) of
the Disclosure Schedule, neither Seller nor XCEL Japan is or will be required
to give any notice to or obtain any Consent from any Person in connection with
the execution and delivery of this Agreement and the other Transaction
Documents or the consummation or performance of any of the Contemplated
Transactions.


 


3.3                                 Capitalization; No Subsidiaries; Stockholder Claims Against XCEL Japan.


 


(a)                                  Seller
is the sole legal, beneficial, equitable and record owner of all of the
authorized and issued outstanding Capital Equity of XCEL Japan.  XCEL Japan does not have outstanding any
shares of Capital Equity containing any profit participation features, any
stock appreciation rights or phantom stock plan.  XCEL Japan is not
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any of its Capital Equity.  All of the XCEL Japan Shares
have been duly authorized and are validly issued, fully paid and
nonassessable.  There are no outstanding options, warrants, calls,
agreements, subscriptions, understandings, conversion or other rights
(including preemptive rights, rights of first refusal and phantom stock
rights), proxy, voting, transfer restriction or stockholder agreements or
agreements of any kind for the purchase or 


 


27

















 


acquisition from XCEL
Japan for Capital Equity of XCEL Japan or obligating XCEL Japan to issue any
additional Capital Equity or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any Capital Equity of
XCEL Japan.  XCEL Japan does not own, or have any contract to acquire, any
Capital Equity of any other Person or any direct or indirect equity or
ownership interest in any other business. The XCEL Japan shares are not subject
to any transfer restrictions other than restrictions on transferability generally
imposed on securities under the securities laws of the United States and Japan.
No third party has any claim or right to any ownership interest in XCEL Japan.


 


(b)                                 XCEL
Japan does not directly or indirectly own any Capital Equity of any other
corporation or have any direct or indirect equity or ownership in any business.
XCEL Japan is not subject to any obligation or requirement to provide funds or
to make any investment in the form of a loan, capital contribution or otherwise
in any entity.  Except for XCEL Japan,
Seller does not own or have any direct or indirect interest or control over any
corporation, partnership, joint venture or entity of any kind that operates a
business similar to the Digitran Business or which provides any supplies or
manufactures any Product or part thereof for the Digitran Business.


 


(c)                                  No
stockholder of XCEL Japan has any direct or indirect claim against XCEL Japan
and XCEL Japan is not directly or indirectly obligated or liable to any
stockholder.


 


(d)                                 Digitran,
Ltd. currently conducts no business operations.


 


3.4                                 Financial Statements.


 


(a)                                  Seller has
delivered to Buyers: (i) the unaudited balance sheets of the Digitran
Business for the fiscal quarters ended March 31, 2005 through September 30,
2008, and the related unaudited statements of income for the fiscal quarters
then ended (collectively, the “Digitran
Financial Statements”), and (ii) an unaudited balance sheet of
the Digitran Business as of December 31, 2008 (the “Interim Digitran Balance Sheet”) and the
related unaudited statements of income for the twelve months then ended
(collectively, the “Interim Digitran
Financial Statements”).  Such
financial statements fairly present the financial condition and the results of
operations of the Digitran Business as of the respective dates of and for the
periods referred to in such financial statements.


 


(b)                                 Seller has
delivered to Buyers: (i) the unaudited balance sheets of XCEL Japan for
the fiscal quarters ended March 31, 2005 through September 30, 2008,
and the related unaudited statements of income for the fiscal quarters then
ended (collectively, the “XCEL Japan
Financial Statements” and
collectively with the Digitran Financial Statements, the “Business Financial Statements”),
and (ii) an unaudited balance sheet of XCEL Japan as of December 31,
2008 (the “Interim XCEL Japan Balance Sheet” and collectively with the Digitran Balance
Sheet, the “Interim Business Balance Sheets”)
and the related unaudited statements of income for the twelve months then ended
(collectively, the “Interim XCEL Japan
Financial Statements” and
collectively 


 


28

















 


with the
Digitran Interim Financial Statements, the “Interim
Business Financial Statements”).  Except as set forth on Section 3.4(b) of
the Disclosure Schedule, such financial statements fairly present the financial
condition and the results of operations of XCEL Japan as of the respective
dates of and for the periods referred to in such financial statements.


 


3.5                                 Books and Records.  The books of account and other records of the
Business, all of which have been made available to Buyers, are complete and
correct and have been maintained in accordance with sound business practices.


 


3.6                                 Title to Assets; Encumbrances; Leases.


 


(a)                                  Neither
Seller nor XCEL Japan owns any real property.


 


(b)                                 Except
as set forth in Section 3.6(b) of the Disclosure Schedule, Seller has
good, marketable title to all of the Purchased Assets and the Purchased Assets
are free and clear of all Encumbrances. 
XCEL Japan has good, marketable title to all of its assets and such
assets are free and clear of all Encumbrances.


 


(c)                                  Section 3.6(c) of
the Disclosure Schedule sets forth a list, which is correct and complete in all
material respects, of all of the leases and subleases (the “Business Leases”) and each leased and
subleased parcel of real property in which Seller or XCEL Japan is a tenant,
subtenant, landlord or sublandlord as of the date of this Agreement relating to
the Business (collectively, the “Business
Leased Real Property”). Seller or XCEL Japan, as applicable, holds a
valid and existing leasehold or subleasehold interest (as applicable) in the
Business Leased Real Property under each of the Business Leases listed in Section 3.6(c) of
the Disclosure Schedule. Seller has made available to Buyer true, correct and
complete copies of each of the Business Leases, including, without limitation,
all amendments, modifications, side agreements, consents, subordination
agreements and guarantees executed or otherwise in force with respect to any
Business Lease. Except as set forth in Section 3.6(c) of the
Disclosure Schedule, with respect to each Business Lease: (i) to the
Knowledge of Seller, the Business Lease is legal, valid, binding, enforceable
and in full force and effect to the extent permitted by applicable Legal
Requirements; (ii) neither Seller or XCEL Japan, as applicable, nor, to
the Knowledge of Seller, any other party to the Business Lease, is in any
material respect in breach or default under the Business Lease, and no event
has occurred that, with notice or lapse of time, would constitute a breach or
default in any material respect by Seller or XCEL Japan, as applicable, or
permit termination, modification or acceleration under the Business Lease by
any other party thereto; (iii) other than the execution of this Agreement
by Seller, no event has occurred that would constitute or permit termination,
modification or acceleration of the Business Lease or trigger liquidated
damages; (iv) Seller or XCEL Japan, as applicable, has performed all of
its obligations in all material respects under the Business Lease; (v) Seller
or XCEL Japan, as applicable, has not, and, to the Knowledge of Seller, no
third party has, repudiated any material provision of the Business Lease; (vi) there
are no disputes, oral agreements or forbearance programs in effect as to the
Business Lease that would be material to Seller or XCEL Japan; (vii) the
Business Lease 


 


29

















 


has not been modified in
any respect, except to the extent that such modifications are set forth in the
documents previously made available to Buyer and set forth on Section 3.6(c) of
the Disclosure Schedule; and (viii) neither Seller nor XCEL Japan has
assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any
interest in the Business Lease.


 


(d)                                 All
buildings and other improvements included within the Business Leased Real
Property (the “Company Improvements”)
are, in all material respects, adequate to operate such Facilities as currently
used, and, to the Knowledge of Seller, there are no facts or conditions
affecting any of Seller Improvements that would, individually or in the
aggregate, interfere in any significant respect with the current use, occupancy
or operation thereof. With respect to Seller Improvements, Seller or XCEL
Japan, as applicable, has all rights of access that are reasonably necessary
for the operation of the Business.


 


(e)                                  All
required or appropriate certificates of occupancy, permits, licenses, franchises,
approvals and authorizations (collectively, the “Business Real Property Permits”) of all Government Bodies
having jurisdiction over the Business Leased Real Property, the absence of
which would be reasonably likely to cause a material adverse effect to Seller
or XCEL Japan, have been lawfully issued to Seller or XCEL Japan, as
applicable, to enable the Business Leased Real Property to be lawfully occupied
and used for all of the purposes for which it is currently occupied and used
and are, as of the date hereof, in full force and effect. Neither Seller nor
XCEL Japan has received, or been informed by a third party of the receipt by it
of, any notice that would be reasonably likely to cause a material adverse
effect to Seller or XCEL Japan from any Government Body having jurisdiction
over the Business Leased Real Property threatening a suspension, revocation,
modification or cancellation of any Business Leased Real Property Permit or
requiring any remediation in connection with maintaining any Business Leased
Real Property Permit.


 


(f)                                    No
supplier, outside manufacturer or third party has any rights, title or interest
in or to any molds, dies, tooling or similar properties used in the Digitran
Business, including, but not limited to, such properties which may be located
with a supplier or outside manufacturer.


 


(g)                                 All
of the Purchased Assets are sufficient for the operation of the Digitran
Business and are, subject to normal wear and tear and depreciation, in good
working order and condition except as set forth at Section 3.6(g) of
the Disclosure Schedule.  Except as set
forth at Section 3.6(g) of the Disclosure Schedule, all of the
Purchased Assets that are tangible personal property are located at Seller’s
Facility.


 


(h)                                 Except
as set forth at Section 3.6(h) of the Disclosure Schedule, the
Purchased Assets constitute all assets used in the conduct of the Digitran
Business as currently conducted and necessary and sufficient for the conduct of
the Digitran Business.


 


30

















 


3.7                                 Condition and Sufficiency of Facilities.  The Facilities of the Business are in good
operating condition and repair (subject to ordinary wear and tear), and are
adequate for the uses to which they are being put.  The Facilities of the Business are sufficient
for the continued conduct of the Business after the Closing in substantially
the same manner as conducted prior to the Closing.


 


3.8                                 Accounts Receivable.  All accounts receivable of the Business that
are reflected on the accounting records of the Business as of the Closing Date
(collectively, the “Accounts Receivable”)
represent or will represent valid obligations arising from sales actually made
or services actually performed in the Ordinary Course of Business.  Unless paid prior to the Closing Date, the
Accounts Receivable are or will be as of the Closing Date current and
collectible, net of the respective reserves shown on the accounting records of
the Business as of the Closing Date (which reserves are adequate and calculated
consistent with past practice).  Subject
to such reserves, each of the Accounts Receivable either has been or will be
collected in full, without any setoff, within two hundred ten (210) days after
the day on which it first becomes due and payable.  There is no contest, claim or right of
setoff, other than returns in the Ordinary Course of Business, under any
Contract with any obligor of an Accounts Receivable relating to the amount or
validity of such Accounts Receivable.  Section 3.8
of the Disclosure Schedule contains a complete and accurate list of all
Accounts Receivable as of the date of the Interim Business Balance Sheets,
which list sets forth the aging of such Accounts Receivable.


 


3.9                                 Inventory. 
All inventory of the Business, whether or not reflected in the Business
Financial Statements or the Interim Business Balance Sheets, consists of a
quality and quantity usable and salable in the Ordinary Course of Business,
except for obsolete items and items of below-standard quality, all of which
have been written off or written down to net realizable value in the Business
Financial Statements or the Interim Business Balance Sheets or on the
accounting records of Seller as of the Closing Date, as the case may be.  All inventories not written off have been
priced at the lower of cost or market. 
The quantities of each item of inventory (whether raw materials,
work-in-process, or finished goods) are reasonable in the present circumstances
of the Business, all consistent with past practices.  Section 3.9 of the Disclosure Schedule
contains a list of all inventory of the Digitran Business as of March 17,
2009 and of XCEL Japan as of February 28, 2009.  All such inventory is owned free and clear of
any Encumbrances.  None of the inventory
reflected in the Financial Statements has been sold for an amount less than the
value placed on such inventory as reflected in the Business Financial
Statements or the Interim Business Balance Sheets, as applicable.  Seller has not offered price reductions,
discounts or allowances on sales of inventory, or sold inventory at less than
cost.


 


3.10                           No Undisclosed Liabilities.  The Business has no liabilities or
obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent, or otherwise) except for liabilities or obligations
reflected or reserved against in the Business Financial Statements or, except
as set forth in Section 3.10 of the Disclosure Schedule, the Interim
Business Balance Sheets, and current liabilities incurred in the Ordinary
Course of Business since the respective dates thereof.


 


31

















 


3.11                           Taxes.


 


(a)                                  Seller
and XCEL Japan (or Parent on their behalf) have filed or caused to be filed on
a timely basis all Tax Returns that are or were required to be filed by or with
respect to the Business, pursuant to applicable Legal Requirements.  Seller and XCEL Japan (or Parent on their
behalf) have paid, all Taxes with respect to the Business that have or may have
become due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by Seller or XCEL Japan.


 


(b)                                 The
charges, accruals, and reserves with respect to Taxes with respect to the
Business on the books of each of Seller and XCEL Japan are adequate and are at
least equal to its liability for Taxes. 
There exists no proposed tax assessment against Seller or XCEL Japan (or
Parent on their behalf) with respect to the Business.  All Taxes with respect to the Business that
each of Seller and XCEL Japan (or Parent on their behalf) is or was required by
Legal Requirements to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental Body or
other Person.


 


(c)                                  All
Tax Returns with respect to the Business filed by each of Seller and XCEL Japan
(or Parent on their behalf) are true, correct, and complete.


 


(d)                                 Neither
Seller nor XCEL Japan is a party to, bound by, or have any obligation under any
tax sharing, tax indemnity or similar agreements.


 


3.12                           No Material Adverse Change.  Since the date of the Interim
Business Balance Sheets, there has not been any material adverse change in
the business, operations, properties, prospects, assets, or condition of the
Business, and no event has occurred or circumstance exists that may result in such
a material adverse change.


 


3.13                           Employee Benefits.


 


(a)                                  Section 3.13(a) of
the Disclosure Schedule sets forth a list of each Benefit Plan that covers any
employee of the Business based in the United States (the “U.S.
Benefit Plans”). “Benefit Plan”
means any of the following: an “employee pension benefit plan” (as defined in Section 3(2) of
ERISA), an “employee welfare benefit plan” (as defined in Section 3(1) of
ERISA), and any other plan, program, arrangement or agreement providing for
severance or retention benefits, profit-sharing, fees, bonuses, stock options,
stock appreciation, stock purchase or other stock-related rights, current
compensation, incentive or deferred compensation, change-in-control benefits,
vacation benefits, insurance, health or medical benefits, dental benefits,
employee assistance programs, disability benefits, workers’ compensation
benefits or post-employment or retirement benefits and any material fringe
benefits (excluding any plans, programs or arrangements mandated by applicable
Legal Requirement) that is sponsored, maintained or contributed to, or required
to be maintained or contributed to, or with respect to which Liability is
borne, by Seller or any ERISA Affiliate of Seller for the benefit of any
employee of the Business. Seller has made available to Buyer true and complete
copies of 


 


32

















 


the U.S. Benefit Plans
(or, to the extent no such copy exists, a description of the material terms),
summary plan descriptions and summaries of material modification for the U.S.
Benefit Plans (if applicable) and the most recent Internal Revenue Service
determination letter or opinion letter related to the U.S. Benefit Plans (if
applicable). Except as set forth in Section 3.13(a) of the Disclosure
Schedule, no U.S. Benefit Plan is sponsored or maintained by Seller or any
ERISA Affiliate of Seller.


 


(b)                                 Neither
Seller nor any ERISA Affiliate of Seller has incurred any unsatisfied liability
to the PBGC or the Internal Revenue Service under Title IV of ERISA or Section 412
of the IRC or Section 302 of ERISA that could result in the imposition of
any liability on Buyer or any of its ERISA Affiliates.


 


(c)                                  Each
U.S. Benefit Plan with respect to which Buyer or any Affiliate of Buyer could
have any material Liability hereunder that covers any employee of the Business
has been and is being administered in all material respects in accordance with
its terms and ERISA, the IRC and all other applicable Legal Requirements. All
the U.S. Benefit Plans that are intended to be qualified under Section 401(a) of
the IRC have received determination letters from the IRS to the effect that
such U.S. Benefit Plans are qualified and the plans and trusts related thereto
are exempt from federal income taxes under Sections 401(a) and 501(a),
respectively, of the IRC and no condition exists and no event has occurred that
would reasonably be expected to result in the revocation of such letters.


 


(d)                                 Neither
Seller nor any ERISA Affiliate of Seller nor any person appointed or otherwise
designated to act on behalf of Seller or any ERISA Affiliate of Seller has
engaged in any transactions in connection with any U.S. Benefit Plan that are
reasonably expected to result in the imposition of material penalties pursuant
to Section 502(i) of ERISA, material damages pursuant to Section 409
of ERISA or a material tax pursuant to Section 4975(a) of the IRC
that could result in the imposition of any material Liability on Buyer or any
of its ERISA Affiliates.


 


(e)                                  Neither
the execution of, nor consummation of, the transactions contemplated by this
Agreement will (either alone or upon the occurrence of any additional or
subsequent event) constitute an event under any U.S. Benefit Plan that will or
may result in any payment or provision of, acceleration of, vesting or increase
in, any benefits (whether of severance pay or otherwise), with respect to any
current or former employee, independent contractor, consultant, agent or
director of Seller or any Affiliate of Seller, or any beneficiary thereof, with
respect to which Buyer or its Affiliates may have any obligations or material
Liability.


 


(f)                                    No
claim, litigation or administrative or other action, proceeding, audit,
examination or investigation is pending or asserted, or, to the Knowledge of
Seller, threatened, anticipated or expected to be asserted with respect to any
U.S. Benefit Plan or the assets of any such plan (other than routine claims for
benefits arising in the ordinary course) that could result in the imposition of
any material Liability on Buyer or its ERISA Affiliates.


 


33
















 


(g)                                 Neither
Seller nor any Affiliate of Seller has ever maintained any employee benefit
plan that has been the subject of Title IV of ERISA (including, but not limited
to, any Multi-Employer Plan) or has ever provided healthcare or any other
nonpension benefits to any employees after their employment terminated other
than as required by ERISA, or has ever promised to provide such
post-termination benefits.


 


(h)                                 Section 3.13(h) of
the Disclosure Schedule sets forth a list of each Benefit Plan maintained, or
contributed to, by Seller, XCEL Japan or their respective Affiliates for the
benefit of employees of the Business based outside of the United States (the “Foreign Benefit Plans”). Each Foreign Benefit Plan with
respect to which Buyer or its Affiliates could have any material Liability has
been operated in all material respects in compliance with its terms and with
applicable Legal Requirements of the relevant jurisdiction in which such
Foreign Benefit Plan is maintained. Each Foreign Benefit Plan with respect to
which Buyer or its Affiliates may have any obligations or material liability
that is intended to qualify for favorable tax benefits under the Legal
Requirements of any jurisdiction is so qualified, and, to the Knowledge of
Seller, no condition exists and no event has occurred that would reasonably be
expected to result in the loss or revocation of such status. All benefits,
contributions and premiums relating to each Foreign Benefit Plan with respect
to which Buyer or its Affiliates may have any obligations or material liability
have been timely paid or made in material compliance with its terms and with
applicable Legal Requirements and any related Contract. Seller has made
available to Buyer true and complete copies of the Foreign Benefit Plans. There
are no pending promised or committed, whether legally binding or not,
undertakings to create or terminate any new Foreign Benefit Plan or to make
material improvements, increases or changes to any Foreign Benefit Plan, nor is
there any pattern of ad hoc benefit
increases under any Foreign Benefit Plan that may be enforceable against Buyer
or its Affiliates. Neither the execution of, nor consummation of, the
Contemplated Transactions will (either alone or upon the occurrence of any
additional or subsequent event) constitute an event under any Foreign Benefit
Plan that will or may result in any payment or provision of, acceleration of,
or vesting or increase in, any benefits (whether of severance pay or
otherwise), with respect to any current or former employee, independent
contractor, consultant, agent or director of Seller or any Affiliate thereof,
or any beneficiary thereof, with respect to which Buyer or its Affiliates may
have any obligations or material Liability. No claim, litigation or
administrative or other action, proceeding, audit, examination or investigation
is pending or asserted, or, to the Knowledge of Seller, threatened, anticipated
or expected to be asserted with respect to any Foreign Benefit Plan or the
assets of any such plan (other than routine claims for benefits arising in the
ordinary course) that could result in the imposition of any material Liability
on Buyer or any of its Affiliates.


 


3.14                           Compliance with Legal Requirements; Governmental
Authorizations.


 


(a)                                  Except
as set forth in Section 3.14(a) of the Disclosure Schedule:


 


(i)                                     Each
of Seller and XCEL Japan is, and at all times since January 1, 2004 has
been, in full compliance with each Legal Requirement that is or was 


 


34





















 


applicable to the conduct
or operation of the Business or the ownership or use of any of the Purchased
Assets;


 


(ii)                                  no
event has occurred or circumstance exists that (with or without notice or lapse
of time) (A) may constitute or result in a violation by Seller or XCEL
Japan of, or a failure on the part of Seller or XCEL Japan to comply with, any
Legal Requirement applicable to the conduct or operation of the Business, or (B) may
give rise to any obligation on the part of Seller or XCEL Japan to undertake,
or to bear all or any portion of the cost of, any remedial action of any nature
with respect to the Business; and


 


(iii)                               neither
Seller nor XCEL Japan has received, at any time since January 1, 2004, any
notice or other communication (whether oral or written) from any Governmental
Body or any other Person regarding (A) any actual, alleged, possible, or
potential violation of, or failure to comply with, any Legal Requirement
applicable to the conduct or operation of the Business, or (B) any actual,
alleged, possible, or potential obligation on the part of it to undertake, or
to bear all or any portion of the cost of, any remedial action of any nature
with respect to the Business.


 


(b)                                 Section 3.14(b) of
the Disclosure Schedule contains a complete and accurate list of each
Governmental Authorization that is held by Seller or XCEL Japan relating to the
Business or that otherwise relates to the Purchased Assets.  Each Governmental Authorization listed or
required to be listed in Section 3.14(b) of the Disclosure Schedule
is valid and in full force and effect. 
Except as set forth in Section 3.14(b) of the Disclosure
Schedule:


 


(i)                                     each
of Seller and XCEL Japan is, and at all times since January 1, 2006 has
been, in full compliance with all of the terms and requirements of each
Governmental Authorization identified or required to be identified in Section 3.14(b) of
the Disclosure Schedule;


 


(ii)                                  no
event has occurred or circumstance exists that may (with or without notice or
lapse of time) (A) constitute or result directly or indirectly in a
violation of or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in Section 3.14(b) of
the Disclosure Schedule, or (B) result directly or indirectly in the
revocation, withdrawal, suspension, cancellation, or termination of, or any
modification to, any Governmental Authorization listed or required to be listed
in Section 3.16(b) of the Disclosure Schedule;


 


(iii)                               neither
Seller nor XCEL Japan has received, at any time since January 1, 2006, any
notice or other communication (whether oral or written) from any Governmental
Body or any other Person regarding (A) any actual, alleged, possible, or
potential violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (B) any actual, proposed, 


 


35

















 


possible, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization; and


 


(iv)                              all
applications required to have been filed for the renewal of the Governmental
Authorizations listed or required to be listed in Section 3.14(b) of
the Disclosure Schedule have been duly filed on a timely basis with the
appropriate Governmental Bodies, and all other filings required to have been
made with respect to such Governmental Authorizations have been duly made on a
timely basis with the appropriate Governmental Bodies.


 


Except as set forth in Section 3.14(b) of
the Disclosure Schedule, the Governmental Authorizations listed in Section 3.14(b) of
the Disclosure Schedule collectively constitute all of the Governmental
Authorizations necessary to permit Seller and XCEL Japan to lawfully conduct
and operate the Business in the manner currently conducted and to permit Seller
to own and use the Purchased Assets in the manner in which it currently owns
and uses the Purchased Assets.


 


3.15                           Legal Proceedings; Orders.


 


(a)                                  There
is no pending Proceeding:


 


(i)                                     by
or against Seller or XCEL Japan or that otherwise relates to or may affect the
Business or the Purchased Assets; or


 


(ii)                                  that
challenges, or that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated Transactions.


 


Except as set forth on Section 3.15
of the Disclosure Schedule, to the Knowledge of Seller, no such Proceeding has
been Threatened, and no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding.


 


(b)                                 There
is no Order to which Seller (solely with respect to the Digitran Business),
XCEL Japan, or any of the Purchased Assets, is subject.


 


(c)                                  No
officer, director, agent, or employee of Seller or XCEL Japan is subject to any
Order that prohibits such officer, director, agent, or employee from engaging
in or continuing any conduct, activity, or practice relating to the Business.


 


(d)                                 No
event has occurred or circumstance exists that may constitute or result in
(with or without notice or lapse of time) a violation of or failure to comply
with any term or requirement of any Order to which the Business or the
Purchased Assets is subject.


 


(e)                                  Neither
Seller nor XCEL Japan has received, at any time since January 1, 2006, any
notice or other communication (whether oral or written) from any Governmental
Body or any other Person regarding any actual, alleged, possible, or 


 


36

















 


potential violation of,
or failure to comply with, any term or requirement of any Order to which Seller
(solely with respect to the Digitran Business), XCEL Japan or any of the
Purchased Assets is or has been subject.


 


3.16                           Absence of Certain Changes and Events.  Except as set forth in Section 3.16 of
the Disclosure Schedule, since the date of the Interim Business Balance Sheets,
the Business has been conducted only in the Ordinary Course of Business and
there has not been any:


 


(a)                                  change
in XCEL Japan’s authorized or issued Capital Equity; grant of any stock option
or right to purchase XCEL Japan’s Capital Equity; issuance by XCEL Japan of any
security convertible into such Capital Equity; purchase, redemption,
retirement, or other acquisition by Seller or XCEL Japan of any of XCEL Japan’s
Capital Equity; or declaration or payment of any dividend or other distribution
or payment in respect of XCEL Japan’s Capital Equity;


 


(b)                                 amendment
to Seller’s or XCEL Japan’s Organizational Documents;


 


(c)                                  payment
or increase, decrease, or cessation by it of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the Ordinary
Course of Business) employee or entry into any employment, severance,
consulting, independent contractor, or similar Contract with any director,
officer, or employee relating to the Business;


 


(d)                                 adoption
of, or increase, decrease, or cessation in the payments to or benefits under,
any profit-sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of the
Business;


 


(e)                                  damage
to or destruction or loss of any Purchased Assets, whether or not covered by
insurance;


 


(f)                                    entry
into, termination of, or receipt of notice of termination of (i) any
license, distributorship, dealer, sales representative, joint venture, credit,
or similar agreement, or (ii) any Contract or transaction involving a
total remaining commitment by or to it;


 


(g)                                 sale
(other than sales of inventory in the Ordinary Course of Business), lease, or
other disposition of any asset or property or mortgage, pledge, or imposition
of any lien or other encumbrance on any material assets or property, including
the sale, lease, or other disposition of any of the Intellectual Property
Assets;


 


(h)                                 cancellation
or waiver of any claims or rights;


 


(i)                                     material
change in accounting methods used; or


 


(j)                                     agreement,
whether oral or written, by it to do any of the foregoing.


 


37

















 


3.17                           Contracts; No Defaults.


 


(a)                                  Section 3.17(a) of
the Disclosure Schedule contains a complete and accurate list, and Seller has
made available to Buyer true and complete copies, of:


 


(i)                                     each
Applicable Contract that involves performance of services or delivery of goods
or materials to the Business of an amount or value in excess of $10,000;


 


(ii)                                  each
Applicable Contract that was not entered into in the Ordinary Course of
Business;


 


(iii)                               each
lease, rental or occupancy agreement, license, installment and conditional sale
agreement, and other Applicable Contract affecting the ownership of, leasing of,
title to, use of, or any leasehold or other interest in, any real or personal
property;


 


(iv)                              each
licensing agreement or other Applicable Contract with respect to patents,
trademarks, copyrights, or other intellectual property, including agreements
with current or former employees, consultants, or contractors regarding the
appropriation or the nondisclosure of any of the Intellectual Property Assets;


 


(v)                                 each
joint venture, partnership, and other Applicable Contract (however named)
involving a sharing of profits, losses, costs, or liabilities by the Business
with any other Person;


 


(vi)                              each
Applicable Contract containing covenants that in any way purport to restrict
its (or any of its Affiliates’) business activity or limit its (or any of its
Affiliates’) freedom to engage in any line of business or to compete with any
Person;


 


(vii)                           each
Applicable Contract providing for payments to or by any Person based on sales,
purchases, or profits, other than direct payments for goods;


 


(viii)                        each power
of attorney that is currently effective and outstanding;


 


(ix)                                each
Applicable Contract entered into other than in the Ordinary Course of Business
that contains or provides for an express undertaking by the Business to be
responsible for consequential damages;


 


(x)                                   each
Applicable Contract for capital expenditures;


 


(xi)                                each
written warranty, guaranty, and or other similar undertaking with respect to
contractual performance extended by the Business other than in the Ordinary
Course of Business; and


 


38

















 


(xii)                             each
amendment, supplement, and modification (whether oral or written) in respect of
any of the foregoing.


 


(b)                                 No
officer, director, agent, employee, consultant, or contractor of the Business
is bound by any Contract that purports to limit the ability of such officer,
director, agent, employee, consultant, or contractor to (A) engage in or
continue any conduct, activity, or practice relating to the business of the
Business, or (B) assign to the Business or to any other Person any rights
to any invention, improvement, or discovery.


 


(c)                                  Each
Contract identified or required to be identified in Section 3.17(a) of
the Disclosure Schedule is in full force and effect and is valid and
enforceable in accordance with its terms.


 


(d)                                 (i)                                     each
of Seller and XCEL Japan is, and at all times since January 1, 2004 has
been, in full compliance with all applicable terms and requirements of each
Contract relating to the Business under which it has or had any obligation or
liability or by which it or any of the assets owned or used by it is or was
bound;


 


(ii)                                  to
the Knowledge of Seller, each other Person that has or had any obligation or
liability under any Contract relating to the Business under which and Seller or
XCEL Japan has or had any rights is, and at all times since January 1,
2004 has been, in full compliance with all applicable terms and requirements of
such Contract;


 


(iii)                               no
event has occurred or circumstance exists that (with or without notice or lapse
of time) may contravene, conflict with, or result in a violation or breach of,
or give Seller or XCEL Japan or, to the Knowledge of Seller, other Person, the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any Applicable
Contract; and


 


(iv)                              neither
Seller nor XCEL Japan has given to or received from any other Person, at any
time since January 1, 2004, any notice or other communication (whether
oral or written) regarding any actual, alleged, possible, or potential
violation or breach of, or default under, any Contract.


 


(e)                                  There
are no renegotiations of, attempts to renegotiate, or outstanding rights to
renegotiate any material amounts paid or payable to Seller or XCEL Japan under
current or completed Contracts with any Person and, to the Knowledge of Seller,
no such Person has made written demand for such renegotiation.


 


3.18                           Insurance.


 


(a)                                  Each
of Seller and XCEL Japan has made available to Buyers true and complete copies
of all policies of insurance relating to the Business to which it is a party or
under which it, or any of its directors, is or has been covered at any time
within the one (1) year preceding the date of this Agreement.


 


39

















 


(b)                                 Section 3.18(b) of
the Disclosure Schedule describes:


 


(i)                                     any
self-insurance arrangement by or affecting each of Seller (solely with respect
to the Digitran Business) and XCEL Japan, including any reserves established
thereunder;


 


(ii)                                  any
contract or arrangement, other than a policy of insurance, for the transfer or
sharing of any risk by each of Seller (solely with respect to the Digitran
Business) and XCEL Japan; and


 


(iii)                               all
obligations of each of Seller (solely with respect to the Digitran Business)
and XCEL Japan to third parties with respect to insurance (including such
obligations under leases and service agreements) and identifies the policy
under which such coverage is provided.


 


(c)                                  Section 3.18(c) of
the Disclosure Schedule sets forth, by year, for the current policy year and
the preceding policy year a summary of the loss experience under each policy.


 


(d)                                 Except
as set forth on Section 3.18(d) of the Disclosure Schedule, all
policies relating to the Business to which each of Seller and XCEL Japan is a
party or that provide coverage to Seller, XCEL Japan, or any director or
officer of each of Seller and XCEL Japan:


 


(i)                                     are
valid, outstanding, and enforceable;


 


(ii)                                  are
issued by an insurer that is financially sound and reputable;


 


(iii)                               taken
together, provide adequate insurance coverage for the assets and the operations
of each of Seller and XCEL Japan for all risks normally insured against by a
Person carrying on the same business or businesses as each of Seller and XCEL
Japan;


 


(iv)                              are
sufficient for compliance with all Legal Requirements and Contracts to which
Seller is a party or by which it is bound; and


 


(v)                                 solely
with respect to XCEL Japan, will continue in full force and effect following
the consummation of the Contemplated Transactions.


 


(e)                                  Neither
Seller (solely with respect to the Digitran Business) nor XCEL Japan has
received (i) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (ii) any notice of cancellation or
any other indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not willing
or able to perform its obligations thereunder.


 


(f)                                    Each
of Seller (solely with respect to the Digitran Business) and XCEL Japan has
paid all premiums due, and have otherwise performed all of its respective 


 


40

















 


obligations, under each
policy to which it is a party or that provides coverage to it or a director thereof.


 


(g)                                 Each
of Seller (solely with respect to the Digitran Business) and XCEL Japan has
given notice to the insurer of all claims that may be insured thereby.


 


3.19                           Environmental Matters.  Except as set forth in Section 3.19 of
the Disclosure Schedule:


 


(a)                                  Each
of Seller (solely with respect to the Digitran Business) and XCEL Japan is, and
at all times has been, in full compliance with, and has not been and is not in
violation of or liable under, any Environmental Law.  Neither Seller (solely with respect to the
Digitran Business) nor XCEL Japan has any basis to expect, nor has any of them
or any other Person for whose conduct they are or may be held to be responsible
received, any actual or Threatened Order, notice, or other communication from (i) any
Governmental Body or private citizen acting in the public interest, or (ii) the
current or prior owner or operator of any Facilities, of any actual or
potential violation or failure to comply with any Environmental Law, or of any
actual or Threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or mixed)
in which Seller or XCEL Japan has or had an interest, or with respect to any
property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, Released, or processed by
Seller (solely with respect to the Digitran Business), XCEL Japan, or any other
Person for whose conduct they are or may be held responsible, or from which
Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, received or Released.


 


(b)                                 There
are no pending or, to the Knowledge of Seller, Threatened claims, Encumbrances,
or other restrictions of any nature, resulting from any Environmental, Health,
and Safety Liabilities or arising under or pursuant to any Environmental Law,
with respect to or affecting any of the Facilities or any other properties and
assets (whether real, personal, or mixed) in which Seller (solely with respect
to the Digitran Business) or XCEL Japan has or had an interest or with respect
to any products manufactured, produced, sold or distributed by Seller (solely
with respect to Digitran Business) or XCEL Japan or any Person for whose
conduct they are or may be held responsible.


 


(c)                                  Neither
Seller nor XCEL Japan have any Knowledge of any basis to expect, nor has any of
them or any other Person for whose conduct Seller (solely with respect to the
Digitran Business) or XCEL Japan are or may be held responsible, received any
citation, directive, inquiry, notice, Order, summons, warning, or other
communication that relates to Hazardous Activity, Hazardous Materials, or any
alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets
(whether real, personal, or mixed) in which Seller (solely with respect to the
Digitran 


 


41

















 


Business) or XCEL Japan
had an interest, or with respect to any property or facility to which Hazardous
Materials generated, manufactured, refined, transferred, imported, used, or
processed by Seller (solely with respect to the Digitran Business), XCEL Japan,
or any other Person for whose conduct they are or may be held responsible, have
been transported, treated, stored, handled, transferred, disposed, recycled,
received or Released or with respect to any product manufactured, produced,
sold or distributed by Seller or XCEL Japan or any Person for whose conduct
they are or may be held responsible.


 


(d)                                 Neither
Seller (solely with respect to the Digitran Business), XCEL Japan, nor any
other Person for whose conduct they are or may be held responsible, has any
Environmental, Health, and Safety Liabilities with respect to the Facilities
or, to the Knowledge of Seller, with respect to any other properties and assets
(whether real, personal, or mixed) in which Seller (solely with respect to the
Digitran Business) or XCEL Japan, has or had an interest or any product
manufactured, produced, sold or distributed by Seller (solely with respect to
the Digitran Business) or XCEL Japan or any Person for whose conduct they are
or may be responsible.


 


(e)                                  There
are no Hazardous Materials present on or in the Environment at the Facilities,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, or deposited or
located in land, water, sumps, or any other part of the Facilities or such
adjoining property, or incorporated into any structure therein or thereon.  Neither Seller (solely with respect to the
Digitran Business) nor XCEL Japan, nor any other Person for whose conduct they
are or may be held responsible, or to the Knowledge of Seller, any other
Person, has permitted or conducted, or is aware of, any Hazardous Activity
conducted with respect to the Facilities or any other properties or assets
(whether real, personal, or mixed) in which Seller (solely with respect to the
Digitran Business) or XCEL Japan has or had an interest except in full
compliance with all applicable Environmental Laws.


 


(f)                                    There
has been no Release or Threat of Release, of any Hazardous Materials at or from
the Facilities or at any other locations where any Hazardous Materials were
generated, manufactured, refined, transferred, treated, produced, imported,
used, disposed, or processed from or by the Facilities, or from or by any other
properties and assets (whether real, personal, or mixed) in which Seller or
XCEL Japan has or had an interest, whether by Seller (solely with respect to
the Digitran Business), XCEL Japan, or any other Person.


 


3.20                           Employees.


 


(a)                                  Section 3.20(a) of
the Disclosure Schedule contains a complete and accurate list of the following
information for each current employee or director of the Business, including
each employee on authorized or unauthorized leave of absence or layoff
status:  employer; name; job title; current
compensation.  To the Knowledge of Seller,
no employee of the Business intends to terminate his or her employment with the
Business.


 


42
















 


(b)                                 No
offer of employment has been made by the Business to any individual that has
not yet been accepted or which has been accepted but the individual’s
employment has not started.


 


3.21                           Labor Relations; Compliance.


 


(a)                                  Since
January 1, 2004, neither Seller nor XCEL Japan has been or is a party to
any collective bargaining agreement or other labor Contract relating to the
Business, and no labor union or employee organization has been certified or
recognized as the collective bargaining representative of any Employee.


 


(b)                                 Since
the enactment of the Worker Adjustment and Retraining Notification Act (the “WARN Act”) the Business has not
effectuated (A) a “plant closing” (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within any
site of employment or facility of the Business; or, (B) a “mass layoff”
(as defined in the WARN Act) affecting any site of employment or facility of
the Business; nor has the Business been affected by any transaction or engaged
in layoffs or employment terminations sufficient in number to trigger
application of any similar state or local law.


 


(c)                                  There
has not been, there is not presently pending or existing, and to the Knowledge
of Seller there is not Threatened, any of the following with respect to the
Business:


 


(i)                                     any
formal union organizing campaigns or representation proceedings;


 


(ii)                                  any
application for certification of a collective bargaining agent;


 


(iii)                               any
strike, slowdown, picketing, work stoppage, or employee grievance process; or


 


(iv)                              any
Proceeding involving an alleged violation of any Legal Requirement pertaining
to labor relations or employment matters, or other labor or employment dispute
or claim against or affecting the Business or its premises, including any
charge or complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission, the Department of
Labor, the Department of Justice, a state or federal court, or any Governmental
Body.


 


(d)                                 To
the Knowledge of Seller, no event has occurred or circumstance exists that
could provide the basis for any work stoppage or other labor dispute.  There is no lockout of any employees by the
Business, and no such action is contemplated by the Business.


 


(e)                                  Each
of Seller (solely with respect to the Digitran Business) and XCEL Japan has
complied in all material respects with all Legal Requirements relating to 


 


43

















 


employment, equal
employment opportunity, fair employment practices, nondiscrimination,
immigration, wages, hours, benefits, workers’ compensation, unemployment
compensation, collective bargaining, the payment and withholding of social
security and similar taxes, occupational safety and health, and plant closing
or mass layoff notices.  Neither Seller
(solely with respect to the Digitran Business) nor XCEL Japan is liable for the
payment of any compensation, damages, taxes, fines, penalties, interest, or
other amounts, however designated, for failure to comply with any of the
foregoing Legal Requirements.


 


(f)                                    Neither
Seller (solely with respect to the Digitran Business) nor XCEL Japan has failed
to pay when due any wages, bonuses, commissions, benefits, penalties or
assessments or other monies that are material in amount, owed to, or arising
out of the employment of or any relationship or arrangement with, any officer,
director, employee, sales representative, contractor, consultant or other
agent, except where such failure to pay is the result of a bona fide good faith
dispute by it regarding the existence of or amount of such payment obligation.


 


(g)                                 Within
the five (5) years prior to the Closing Date, there have been no filed or,
to the Knowledge of Seller, Threatened, citations, investigations, audits,
administrative proceedings, charges, or complaints of violations of any
federal, state or local employment laws with respect to the Business.  This includes, without limitation, any audits
or investigations conducted by the Department of Labor, the Equal Employment
Opportunity Commission, the Department of Justice or any other Governmental
Body, regarding compliance with any of the following:


 


(i)                                     the
Fair Labor Standards Act or any other wage and hour laws;


 


(ii)                                  Title
VII, the Age Discrimination in Employment Act, the Americans with Disabilities
Act, the Family and Medical Leave Act, or any other laws prohibiting employment
discrimination; and


 


(iii)                               the
Fair Employment & Housing Act or any other applicable state or local
laws governing employment.


 


(h)                                 Seller
does not have any Knowledge of any basis on which any current employee, and any
employee whose employment with the Business terminated for any reason during
the three years prior to the Closing Date, could claim failure to pay the
minimum wage, or failure to pay overtime wages where applicable, or failure to
pay all wages when due.


 


3.22                           Intellectual Property.


 


(a)                                  Neither
Seller (solely with respect to the Digitran Business), Parent (solely with
respect to the Digitran Business) nor XCEL Japan is a party to any Contract
relating to the Intellectual Property Assets or by which Seller (solely with
respect to the Digitran Business), Parent (solely with respect to the Digitran
Business) or XCEL Japan is bound, 


 


44

















 


except for any license
implied by the sale of a product and perpetual, paid-up licenses for commonly
available software programs with a value of less than $15,000 under which
Seller (solely with respect to the Digitran Business), Parent (solely with
respect to the Digitran Business) or XCEL Japan is the licensee.  There are no outstanding and, to the
Knowledge of Seller, no Threatened disputes or disagreements with respect to
any such Contract.  All such Contracts
are in full force and effect, and, to the Knowledge of Seller, there is no
default by any party thereto. Except as set forth on Section 3.22(a) of
the Disclosure Schedule, all of the rights of Seller or Parent under such
Contracts are freely assignable. Seller or Parent, as applicable, has the
exclusive right to use, distribute, transfer and bring infringement actions
with respect to the Intellectual Property Assets. Except as set forth on Section 3.22(a) of
the Disclosure Schedule, neither Seller nor Parent has licensed or granted to
anyone rights of any nature with respect to any of the Intellectual Property
Assets.


 


(b)                                 No
current employee of the Business has entered into any Contract that restricts
or limits in any way the scope or type of work in which the employee may be
engaged or requires the employee to transfer, assign, or disclose information
concerning his work to anyone other than Seller or XCEL Japan, as applicable.


 


(c)                                  (i)                                     Section 3.22(c) of
Disclosure Schedule contains a complete and accurate list and summary
description of all Patents and pending Patent applications relating to the
Business.  Seller, Parent or XCEL Japan
is the owner of all right, title, and interest in and to each of the Patents,
free and clear of all Encumbrances. In each case where a Patent is held by Seller,
Parent or XCEL Japan by assignment, the assignment has been duly recorded with
the United States Patent and Trademark Office.


 


(ii)                                  All
Patents that have been registered with the United States Patent and Trademark
Office or the trademark office of any other applicable jurisdiction are
currently in compliance with all formal Legal Requirements (including, without
limitation, the timely post-registration filing of affidavits of use and
incontestability and renewal applications and the payment of filing,
examination and maintenance fees), are valid and enforceable.


 


(iii)                               Except
as set forth on Section 3.22(c) of the Disclosure Schedule, no Patent
has been or is now involved in any opposition, invalidation, or cancellation
and, to the Knowledge of Seller, no such action is Threatened with the respect
to any of the Patents.


 


(iv)                              To
the Knowledge of Seller, there is no potentially interfering patent or patent
application of any third party.


 


(v)                                 No
Patent is infringed or, to the Knowledge of Seller, has been challenged or
threatened in any way.  None of the
Patents used by the Business infringes or is alleged to infringe any patent of
any third party.


 


45

















 


(vi)                              All
products and materials containing a Patent bear the proper federal registration
notice where permitted by law.


 


(d)                                 (i)                                     Section 3.22(d) of
Disclosure Schedule contains a complete and accurate list and summary
description of all Marks relating to the Business.  Seller, Parent or XCEL Japan is the owner of
all right, title, and interest in and to each of the Marks, free and clear of
all liens, security interests, charges, encumbrances, equities, and other
adverse claims.


 


(ii)                                  Except
as set forth on Section 3.22(d) of the Disclosure Schedule, all Marks
that have been registered with the United States Patent and Trademark Office
are currently in compliance with all formal Legal Requirements (including the
timely post-registration filing of affidavits of use and incontestability and
renewal applications), are valid and enforceable.


 


(iii)                               No
Mark has been or is now involved in any opposition, invalidation, or
cancellation and, to the Knowledge of Seller, no such action is Threatened with
the respect to any of the Marks. In each case where a Mark is held by assignment,
the assignment has been duly recorded with the United States Patent and
Trademark Office and all other jurisdictions of registration.


 


(iv)                              To
the Knowledge of Seller, there is no potentially interfering trademark or
trademark application of any third party.


 


(v)                                 No
Mark is infringed or, to the Knowledge of Seller, has been challenged or
threatened in any way.  None of the Marks
used by the Business infringes or is alleged to infringe any trade name,
trademark, trade dress, logo, packaging design or slogan of any third party or
service mark of any third party.


 


(vi)                              To
the Knowledge of Seller there is no trademark, tradename, service mark, trade
dress, logo, packaging design, slogan or Internet domain name of any third
party which infringes any Mark.


 


(e)                                  All
Internet domain names of Seller or XCEL Japan used in the Business are listed
on Section 3.22(e) of the Disclosure Schedule. Such domain names have
been duly registered through ICANN Accredited Registrar through its
registration procedures and are operating active domain names. Seller has taken
all reasonable steps to maintain and enforce such domain name registrations.


 


(f)                                    Neither
Seller nor XCEL Japan has any Copyrights relating to the Business.


 


(i)                                     Each
of Seller (solely with respect to the Digitran Business) and XCEL Japan has
taken all reasonable precautions to protect the secrecy, confidentiality, and
value of their Trade Secrets. To the Knowledge of Seller, no third party has
asserted that the use by Seller of any Trade Secret violates the rights of any
third party.


 


46

















 


(ii)                                  Each
of Seller (solely with respect to the Digitran Business) and XCEL Japan has
good title and an absolute (but not necessarily exclusive) right to use its
Trade Secrets.  The Trade Secrets are not
part of the public knowledge or literature, and, to the Knowledge of Seller,
have not been used, divulged, or appropriated either for the benefit of any
Person (other than Seller or XCEL Japan, as applicable) or to the detriment of
the Business.  No Trade Secret is subject
to any adverse claim or has been challenged or threatened in any way.


 


(g)                                 To
the Knowledge of Seller, the Intellectual Property Assets described in this
Agreement constitute the only intellectual property assets or rights related to
the Digitran Business.


 


3.23                           Certain Payments. 
Since January 1, 2004, neither Seller (solely
with respect to the Digitran Business) nor XCEL Japan nor any director,
officer, agent, or employee of the Business, or to the Knowledge of Seller, any
other Person associated with or acting for or on behalf of the Business, has
directly or indirectly (a) made any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other payment to any Person, private or
public, regardless of form, whether in money, property, or services, (i) to
obtain favorable treatment in securing business, (ii) to pay for favorable
treatment for business secured, (iii) to obtain special concessions, or
for special concessions already obtained, for or in respect of the Business, or
(iv) in violation of any Legal Requirement; or (b) established or
maintained any fund or asset that has not been recorded in the books and
records of the Business.


 


3.24                           Customer / Supplier Relations.  Except as set forth on Section 3.24 of
the Disclosure Schedule, to the Knowledge of Seller, there exists no condition
or state of facts or circumstances involving the Customers, suppliers,
distributors or sales representatives of the Business that Seller can
reasonably foresee could adversely affect the Business after the Closing Date.
Neither Seller nor any Affiliate of Seller has any ownership interest in any
customer or supplier of the Business.


 


3.25                           Product Warranty.  Except as set forth on Section 3.25 of
the Disclosure Schedule, each Product manufactured, sold, leased, or delivered
by the Business has been in conformity with all applicable material contractual
commitments and all express and implied warranties, and the Business has no
Liability (and there is no basis for any present or future Proceeding against
any of them giving rise to any Liability) in excess of $10,000 for replacement
or repair thereof or other damages in connection therewith, subject only to the
reserve for product warranty claims set forth on the face of the Interim
Business Balance Sheets as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of the Business.  No Product manufactured, sold, leased, or delivered
by the Business is subject to any guaranty, warranty, or other indemnity beyond
the applicable standard terms and conditions of sale or lease.  Section 3.25 of the Disclosure Schedule
includes copies of the standard terms and conditions of sale or lease for the
Business (containing applicable guaranty, warranty, and indemnity
provisions).  Seller
has no obligation to any person to maintain, modify, improve or upgrade any of
the Products. The Technical Documentation includes all technical drawings,
product specifications, manufacturing instructions, schematics and other design
and 


 


47

















 


manufacturing
documentation related to the Products that may be necessary to render such
materials understandable and usable.


 


3.26                           Product Liability.  The Business has no Liability (and there is
no basis for any present or future Proceeding against any the Business giving
rise to any Liability) arising out of any injury to individuals or property as
a result of the ownership, possession, or use of any Product manufactured,
sold, leased, or delivered by the Business.


 


3.27                           Export Regulation.  Parent
is registered with the U.S. Department of State Office of Defense Trade
Controls pursuant to the International Traffic in Arms Regulations, title 22,
parts 120 through 130 of the Code of Federal Regulations (“ITAR”) and is in compliance with such
registration and the ITAR.


 


3.28                           Disclosure. 
No representation or warranty of Seller in this
Agreement and no statement in the Disclosure Schedule omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.  There is no fact known to Seller that has
specific application to the Business (other than general economic or industry
conditions) and that materially adversely affects or, materially threatens, the
assets, business, prospects, financial condition, or results of operations of
the Business that has not been set forth in this Agreement or the Disclosure
Schedule.


 


3.29                           Brokers or Finders.  Except as set forth on Section 3.29 of
the Disclosure Schedule, neither Seller, XCEL Japan nor their agents have
incurred any Liability, contingent or otherwise, for brokerage or finders’ fees
or agents’ commissions or other similar payment in connection with this
Agreement.  At the Closing, neither
Seller nor XCEL Japan shall have any Liability for or shall have paid any
costs, fees or expenses incurred by Seller or XCEL Japan or to which it is
obligated to pay in connection with the negotiation, execution, delivery of and
performance under this Agreement, including but not limited to, fees and costs
of professionals such as attorneys, bankers, consultants, accountants and
financial advisors (the “Transaction Costs”).


 


3.30                           No Insolvency. Seller is not now and will not be
rendered insolvent as a result of the transactions contemplated by this
Agreement. The assets of Seller remaining after the Closing (including the sale
proceeds) exceed Seller’s liabilities. Seller is not now and is not about to engage
in any business or transaction for which Seller’s remaining assets after the
Closing will be unreasonably small and Seller does not intend to incur or
believe that Seller will incur debts beyond its ability to pay.


 


3.31                           Intercompany Arrangements and Accounts. Except as
set forth in Section 3.31 of the Disclosure Schedule, Seller has (i) terminated
all Contracts or other arrangements between Seller or its Affiliates (other
than XCEL Japan), on the one hand, and XCEL Japan, on the other hand, that were
entered into on or prior to the Closing and (ii) settled all intercompany
receivables and payables between Seller or its Affiliates (other than XCEL
Japan), on the one hand, and XCEL Japan, on the other hand, that were incurred
on or prior to the Closing, in each case without further recourse to or any
Liability of XCEL Japan.


 


48

















 


ARTICLE IV


REPRESENTATIONS AND WARRANTIES OF BUYERS


 


Buyers jointly and
severally represent and warrant to Seller as follows:


 


4.1                                 Organization and Good Standing.  Each of Buyer and Stock
Buyer is a corporation duly organized, validly existing, and in good standing
under the laws of its jurisdiction of incorporation.


 


4.2                                 Authority; No Conflict.


 


(a)                                  This
Agreement constitutes the legal, valid, and binding obligation of each of Buyer
and Stock Buyer, enforceable against it in accordance with its terms.  Each of Buyer and Stock Buyer has the
absolute and unrestricted right, power, and authority to execute and deliver
this Agreement.


 


(b)                                 Except
as set forth in Schedule 4.2, neither the execution and delivery of this
Agreement by Buyer or Stock Buyer nor the consummation or performance of any of
the Contemplated Transactions by either will give any Person the right to
prevent, delay, or otherwise interfere with any of the Contemplated
Transactions pursuant to:


 


(i)                                     any
provision of Buyer’s or Stock Buyer’s Organizational Documents;


 


(ii)                                  any
resolution adopted by the board of directors or the stockholders of Buyer or
Stock Buyer;


 


(iii)                               any
Legal Requirement or Order to which Buyer or Stock Buyer may be subject; or


 


(iv)                              any
Contract to which Buyer or Stock Buyer is a party or by which Buyer may be
bound.


 


Except as set forth in Schedule 4.2,
Buyers are not and will not be required to obtain any Consent from any Person
in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.


 


4.3                                 Investment Intent.  Stock Buyer is acquiring the XCEL Japan
Shares for its own account and not with a view to their distribution within the
meaning of Section 2(11) of the Securities Act.


 


4.4                                 Certain Proceedings.  There is no pending Proceeding that has been
commenced against Buyer or Stock Buyer and that challenges, or may have the effect
of preventing, delaying, making illegal, or otherwise interfering with, any of
the Contemplated Transactions.  To Buyers’
Knowledge, no such Proceeding has been Threatened.


 


49

















 


4.5                                 Brokers or Finders.  Except as set forth in Schedule 4.5,
Buyer and Stock Buyer and their respective officers and agents have incurred no
Liability, contingent or otherwise, for brokerage or finders’ fees or agents’
commissions or other similar payment in connection with this Agreement and will
indemnify and hold Seller harmless from any such payment alleged to be due by
or through Buyer or Stock Buyer as a result of the action of Buyer or Stock
Buyer or its officers or agents.


 


4.6                                 Bulk Transfer Laws. Buyer
hereby waives compliance by Seller and its Affiliates with the provisions of
any so-called “bulk transfer law” of any jurisdiction in connection with the
sale of the Purchased Assets to Buyer.


 


ARTICLE V


INDEMNIFICATION; REMEDIES


 


5.1                                 Survival; Right to Indemnification Not Affected by
Knowledge.


 


(a)                                  All
representations, warranties, covenants, and obligations in this Agreement, the
Disclosure Schedule, and any other certificate or document delivered pursuant
to this Agreement will survive the Closing. 
The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after
the execution and delivery of this Agreement or the Closing Date, with respect
to the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation.  The
waiver of any condition based on the accuracy of any representation or
warranty, or on the performance of or compliance with any covenant or
obligation, will not affect the right to indemnification, payment of Damages,
or other remedy based on such representations, warranties, covenants, and obligations.


 


(b)                                 Notwithstanding
anything contained in this Agreement, the rights of Buyers, Seller  and/or
their respective Affiliates to indemnification, reimbursement or any other
remedy based upon any representations, warranties, covenants and obligations
set forth in the Agreement shall not be affected by any investigation
(including any environmental investigation or assessment) conducted with
respect to, or any Knowledge acquired (or capable of being acquired) at any
time, whether before or after the execution and delivery of this Agreement or
the Closing Date, with respect to the accuracy or inaccuracy of or compliance
with any such representation, warranty, covenant or obligation.  The waiver of any condition requiring the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, reimbursement or other remedy based upon such representations
or warranties’ inaccuracy and/or covenants or obligations’ non-performance
and/or non-compliance.  Each of these
representations, warranties, covenants and/or obligations are meant as
contractual rights of Buyer and Seller.


 


5.2                                 Indemnification and Payment of Damages by Seller and
Parent.  Seller and
Parent shall jointly and severally indemnify, defend and hold harmless Buyers,
XCEL Japan, and 


 


50

















 


their respective Representatives,
stockholders, controlling persons, and affiliates (collectively, the “Indemnified Persons”) for, and will pay to
the Indemnified Persons the amount of, any loss, liability, claim, damage
(including incidental and consequential damages), expense (including costs of
investigation and defense and reasonable attorneys’ fees) or diminution of value,
whether or not involving a third-party claim (collectively, “Damages”), arising, directly or indirectly,
from or in connection with:


 


(a)                                  any
breach of any representation or warranty made by Seller or Parent in this
Agreement, the Disclosure Schedule, or any other certificate or document
delivered by Seller pursuant to this Agreement;


 


(b)                                 any
breach by Seller or Parent of any covenant or obligation of Seller or Parent in
this Agreement;


 


(c)                                  the
operation of the Digitran Business by Seller prior to the Closing;


 


(d)                                 any claim by
any Person for brokerage or finder’s fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such
Person with Seller (or any Person acting on its behalf) in connection with any
of the Contemplated Transactions;


 


(e)                                  the
failure of Seller to assume, pay, perform and discharge the Retained
Liabilities;


 


(f)                                    any
failure to comply with the laws of any jurisdiction relating to bulk transfers
which may be applicable in connection with the transfer of the Purchased Assets
to Buyer;


 


(g)                                 any
Liabilities caused by any product sold or distributed by XCEL Japan prior to
the Closing, including but not limited to, Liabilities for death, bodily injury
or property damage, and any Liability for recalls of any Products produced sold
or distributed prior to the Closing;


 


(h)                                 any
Liabilities attributable to (i) any and all Taxes (or the non-payment
thereof) of XCEL Japan for all periods ending on or before the Closing Date, or
(ii) any and all Taxes of any Person imposed on XCEL Japan as a transferee
or successor, by contract or pursuant to any Legal Requirement, which Taxes
relate to an event or transaction occurring before the Closing;


 


(i)                                     the
Potential XCEL Japan Asbestos Liability;


 


(j)                                     the
Potential Rent Dispute Liability;


 


(k)                                  the
Potential AQMD Permit Liability;


 


(l)                                     the
Potential Sierra Circuits Liability;


 


51
















 


(m)                               the
Potential Clean Room Liability;


 


(n)                                 the
Potential BKK Environmental Liability;


 


(o)                                 notwithstanding
anything to the contrary in Section 7.7, any Liabilities related to
actions taken by Gallant Thein serving as statutory auditor of XCEL Japan prior
to the Closing;


 


(p)                                 any
Liabilities related to any claim for any tax obligations of Seller to the State
of New Jersey now or hereafter determined to be due to the State of New Jersey;
and


 


(q)                                 the
lost stock certificate for the XCEL Japan Shares.


 


5.3                                 Indemnification and Payment of Damages by Buyers.  Buyers shall jointly and severally indemnify
and hold harmless Seller, and will pay to Seller the amount of any Damages
arising, directly or indirectly, from or in connection with:


 


(a)                                  any breach of
any representation or warranty made by Buyers in this Agreement or in any
certificate delivered by Buyers pursuant to this Agreement;


 


(b)                                 any breach by
Buyers of any covenant or obligation of Buyers in this Agreement;


 


(c)                                  the
operation of the Digitran Business by Buyer or any Affiliate of Buyer after the
Closing;


 


(d)                                 any claim by
any Person for brokerage or finder’s fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such
Person with Buyer (or any Person acting on its behalf) in connection with any
of the Contemplated Transactions.


 


5.4                                 Time Limitations. 
Notwithstanding anything in this Agreement to the contrary, neither
Seller nor Parent will have any liability for indemnification with respect to
the matters described in clause (a) or (b) of Section 5.2
and Buyers will have no liability for indemnification with respect to the
matters described in clause (a) or (b) of Section 5.3,
unless on or before the date eighteen (18) months after the Closing Date (the “Claim Date”), such Party notifies the other Party of a
claim specifying the factual basis of that claim in reasonable detail to the
extent then known; provided,
however, that any claim
with respect to Section 3.3 (Capitalization), 3.6 (Title to
Assets) or 3.11 (Taxes), or any claim of fraud or intentional
misrepresentation, may be made at any time up to the expiration of all
applicable statutes of limitation and any claim based on a breach of the
covenants set forth at Sections 7.1, 7.3, 7.4 or 7.6 may be made at any
time. There is no time limitation on any claim for indemnification with respect
to the matters described at clauses (b) through (q) of Section 5.2.


 


5.5                                 Limitations on Amount.  Notwithstanding anything in this Agreement to
the contrary, Seller and Parent will have no liability for indemnification with
respect to the matters 


 


52

















 


described in clause (a) of Section 5.2
and Buyers will have no liability for indemnification with respect to the
matters described in clause (a) of Section 5.3 (subject in
both cases to the limitations in Section 5.4) until all claims for
indemnification by such party exceed One Hundred Thousand Dollars ($100,000)
(the “Deductible”).  Once the aggregate claims for indemnification
by such Party under clause (a) of Section 5.2 and Section (a) of
Section 5.3, as applicable, exceed the Deductible, then such Party shall
be entitled to recover only the amount of such claims in excess of the
Deductible; provided, however, that except as provided
in the following sentence, the aggregate liability for indemnity claims under
clause (a) of Section 5.2 other than claims with respect to Section 3.3
(Capitalization), 3.6 (Title to Assets) or 3.11 (Taxes) (which
shall be limited to the Purchase Price) shall not exceed $4,500,000  (the “Liability Cap”)
and shall not be subject to the Deductible. 
Notwithstanding the foregoing, any claim for indemnification under this
Agreement relating to fraud or intentional misrepresentation or with respect to
the matters set forth in clauses (b) through (q) of Section 5.2
or clauses (b) through (d) of Section 5.3, as applicable,
shall not be subject to the Deductible or the Liability Cap.


 


5.6                                 Procedure For Indemnification—Third-Party Claims.


 


(a)                                  Promptly
after receipt by an indemnified party under Article V of notice of
the commencement of any Proceeding against it, such indemnified party will, if
a claim is to be made against an indemnifying party under such Section, give
notice to the indemnifying party of the commencement of such claim, but the
failure to notify the indemnifying party will not relieve the indemnifying
party of any liability that it may have to any indemnified party, except to the
extent that the indemnifying party demonstrates that the defense of such action
is prejudiced by the indemnifying party’s failure to give such notice.


 


(b)                                 If
any Proceeding referred to in Section 5.6(a) is brought
against an indemnified party and it gives notice to the indemnifying party of
the commencement of such Proceeding, the indemnifying party will, unless the
claim involves Taxes, be entitled to participate in such Proceeding and, to the
extent that it wishes (unless (i) the indemnifying party is also a party
to such Proceeding and the indemnified party determines in good faith that
joint representation would be inappropriate, or (ii) the indemnifying
party fails to provide reasonable assurance to the indemnified party of its
financial capacity to defend such Proceeding and provide indemnification with
respect to such Proceeding), to assume the defense of such Proceeding with
counsel satisfactory to the indemnified party and, after notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such Proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the indemnified party under this
Article V for any fees of other counsel or any other expenses with
respect to the defense of such Proceeding, in each case subsequently incurred
by the indemnified party in connection with the defense of such Proceeding,
other than reasonable costs of investigation. 
If the indemnifying party assumes the defense of a Proceeding, (i) it will be conclusively established
for purposes of this Agreement that the claims made in that Proceeding are
within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the 


 


53

















 


indemnified party’s
consent unless (A) there is no finding or admission of any violation of
Legal Requirements or any violation of the rights of any Person and no effect
on any other claims that may be made against the indemnified party, and (B) the
sole relief provided is monetary damages that are paid in full by the
indemnifying party; and (iii) the indemnified party will have no liability
with respect to any compromise or settlement of such claims effected without
its consent.  If notice is given to an
indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within ten days after the indemnified party’s notice is given,
give notice to the indemnified party of its election to assume the defense of
such Proceeding, the indemnifying party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the indemnified
party.


 


(c)                                  Notwithstanding
the foregoing, if an indemnified party determines in good faith that there is a
reasonable probability that a Proceeding may adversely affect it or its
affiliates other than as a result of monetary damages for which it would be
entitled to indemnification under this Agreement, the indemnified party may, by
notice to the indemnifying party, assume the exclusive right to defend,
compromise, or settle such Proceeding, but the indemnifying party will not be
bound by any determination of a Proceeding so defended or any compromise or
settlement effected without its consent (which may not be unreasonably
withheld).


 


5.7                                 Procedure For Indemnification—Other Claims.  A claim for indemnification for any matter
not involving a third-party claim may be asserted by notice to the party from
whom indemnification is sought.


 


5.8                                 Sole Remedy. 
From and after the Closing, the remedies provided in this Article V shall be the
sole remedy of the Indemnified Persons and Seller for any claim arising out of
this Agreement and the Contemplated Transactions or any law or legal theory
applicable thereto, including the breach of any representation, warranty or
covenant contained in this Agreement and Schedules to this Agreement; provided,
however, that nothing contained in this Agreement shall limit or impair
any right that any Indemnified Person or Seller may have to sue and obtain
equitable relief, including specific performance and other injunctive relief or
any right or remedy that any Indemnified Person or Seller may have against
Seller or Buyer on account of fraud.


 


5.9                                 Insurance and Third Party Recoveries.  Any Damages for which indemnification is
provided to any Indemnified Person or Seller under this Article V
shall be net of any amounts actually recovered by an Indemnified Person or
Seller from third parties (including amounts actually recovered under insurance
policies) with respect to such Damages after having subtracted from the amounts
so recovered the costs incurred by an Indemnified Person or Seller in pursuing
such recovery.


 


5.10                           Tax Benefit. 
The Parties agree to treat any payment made pursuant to this Article V
as an adjustment to the Purchase Price for Federal, State and local income tax
purposes.  In the event that an
Indemnified Person or Seller receives a Tax benefit in respect to any Damages
for which an indemnification payment would be made hereunder, such 


 


54

















 


indemnification payment shall be
calculated net of any such Tax benefit (after considering any Tax detriment
from receipt of such indemnification payment).


 


ARTICLE VI


TAX MATTERS


 


6.1                                 Tax Returns.


 


(a)                                  Seller
shall cause to be prepared and file or cause to be filed all Tax Returns for
XCEL Japan for all periods ending on or prior to the Closing Date which are
required to be filed after the Closing Date. 
Seller shall permit Stock Buyer to review and approve each such Tax
Return described in the preceding sentence prior to filing, which approval
shall not be unreasonably withheld.


 


(b)                                 Seller
shall cause to be prepared and file or cause to be filed all Tax Returns of
XCEL Japan for Straddle Periods.  Seller
shall permit Stock Buyer to review and approve each such Tax Return described
in the preceding sentence prior to filing, which approval shall not be
unreasonably withheld.


 


(c)                                  Stock
Buyer and Seller shall cooperate with each other in connection with the filing
of any Tax Returns and any audit, litigation or other proceeding with respect
to Taxes.  Stock Buyer and Seller agree (i) to
retain all books and records with respect to Tax matters pertinent to each of
Seller and XCEL Japan relating to the Business and to any taxable period
beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Seller or Stock Buyer, any
extensions of the statute of limitations) of the respective taxable periods,
and to abide by all record retention agreements entered into with any taxing
authority, or (ii) to give the other Party reasonable written notice prior
to transferring, destroying or discarding any such books and records and, if
any of the other Party so requests, Stock Buyer or Seller, as the case may be,
shall allow the other party to take possession of such books and records.


 


(d)                                 To
the extent Stock Buyer does not approve a Tax Return pursuant to Section 6.1(a) or
6.1(b) and Seller does not agree to the changes suggested by Stock
Buyer, the dispute shall be submitted to RSM  McGladrey
(or its international affiliates) (the “Arbitrator”),
within five (5) Business Days of the date on which Seller does not agree
to make such changes.  The Arbitrator shall
resolve any disputed items within fifteen (15) Business Days of having the item
referred to it (and in any case at least three Business Days prior to the time
in which such Tax Return must be filed (taking into accounts all extensions
that are available without incurring penalties or additional Taxes)) pursuant
to such procedures as it may require. 
The Parties shall promptly act to implement the decision of the
Arbitrator.  The costs, fees and expenses
of the Arbitrator shall be borne equally by Seller and Stock Buyer unless the
Arbitrator determines that a Party’s position was unreasonable or not in good
faith.


 


6.2                                 Transfer Taxes. 
All excise, sales, use, value added, transfer (including real property
transfer), stamp, documentary, filing, recordation, registration and other
similar taxes, 


 


55

















 


together with any interest,
additions, fines, costs or penalties thereon and any interest in respect of any
additions, fines, costs or penalties, resulting directly from the Acquisition
or imposed in connection with this Agreement and the transaction contemplated
hereby (the “Transfer Taxes”)
shall be paid by one-half by Buyer and one-half by Seller.


 


ARTICLE VII


POST-CLOSING COVENANTS


 


7.1                                 Confidentiality.  After the Closing, Seller shall, and shall
cause its Affiliates, to hold in confidence and not use any confidential
information that after Closing is in the possession of Seller or its Affiliates
concerning the Business, the Purchased Assets, Buyer or any Affiliate of Buyer,
or any information regarding the terms of this Agreement or any other
Transaction Document.  Seller shall not
release or disclose any such information to any Person other than Buyer and its
authorized Representatives. Notwithstanding the foregoing, the confidentiality
obligations of this Section 7.1 shall not apply to information (a) that
Seller or its Affiliates is compelled to disclose by judicial or administrative
process, or, in the opinion of counsel, by other mandatory Legal Requirements, (b) that
has been disclosed in the public filings of Parent made with the Securities and
Exchange Commission and state securities laws administrators, or (c) provided
to professional advisors of Seller. 
Notwithstanding anything herein to the contrary, each Party (and each
employee, Representative, or other agent of each Party) may disclose to any and
all persons, without limitation of any kind, the tax treatment and tax
structure of the transactions contemplated by this Agreement and all materials
of any kind (including opinions and other tax analyses) that are provided to
each Party relating to such tax treatment and tax structure (as such terms are defined in Treasury Regulation
Section 1.6011-4(c)).


 


7.2                                 Maintenance of, and Access to, Records.


 


(a)                                  By Seller.  After the Closing, Seller shall provide
Buyers with access (with an opportunity to make copies), during normal business
hours, and upon reasonable notice, to any records relating to the Business
which are retained by Seller.  Seller
shall preserve and maintain any books and records relating to the Business and
retained by it for at least five years after the Closing Date.


 


(b)                                 By Buyer.  From and after the Closing, Buyers shall,
whenever reasonably requested by Seller (including reasonable prior notice to
Buyers) and during normal business hours, permit Seller or its Representatives
to have access to such business records (including without limitation computer
files) turned over to Buyers pursuant to this Agreement as may be required by
Seller in connection with the closing of Seller’s books, the preparation of
Seller’s audited statement of Purchased Assets and Assumed Liabilities as of
the Closing Date, any audit or investigation by any Governmental Authority, or
any matter relating to insurance coverage or third party claims, in each such
case to the extent relating to the operation of the Business prior to the
Closing.  Buyer shall, upon not less than
two (2) Business Days prior notice by Seller to, and the agreement (not to
be unreasonably withheld or delayed) by Buyers, allow Seller reasonable access
to former employees of Seller or employees of Buyers that are not 


 


56

















 


former employees of
Seller, for the purpose of assisting Seller in connection with any of the
foregoing matters.  Buyers shall use
commercially reasonable efforts to preserve and maintain Seller’s payroll
records for each fiscal year until the expiration of the statute of limitations
(and any waivers or extensions thereof) for tax purposes relating to such year,
and all other records relating to the Business which are part of the Purchased
Assets for at least five years after the Closing Date.


 


7.3                                 Non-Competition.


 


(a)                                  Period and Conduct.  As further consideration for the purchase and
sale of the Purchased Assets and the XCEL Japan Shares (including the goodwill
of the Business as a going concern), during the period commencing on the
Closing Date, and ending on the date which is five (5) years thereafter
(the “Restricted Period”), Seller, Parent
and their Affiliates shall not, in any Restricted Territory, directly or
indirectly:


 


(i)                                     engage
in any business, activity, or enterprise competitive with or substantially
similar to the Business, including, without limitation, in the manufacture,
production, design, engineering, importation, purchase, marketing, sale,
distribution, research or development of any Products, or engage or invest in,
own, manage, operate, finance, control, solicit business related to, or
participate in the ownership, management, operation, financing, or control of,
be employed by, lend its name or any similar name, or lend its or his credit
to, or render services or advice to, any Person engaged in any business,
activity or enterprise competitive with or substantially similar to the
Business including, without limitation, in the manufacture, production, design,
engineering, importation, purchase, marketing, sale, distribution, research or
development of any Products; provided, however, that if Seller’s
Subsidiary, XCEL Power Systems, Ltd. (“XPS”), ceases
to have a distributor agreement with Buyer and XPS is requested to supply
products which include the Products, XPS shall have the right to distribute
such products after first offering to Buyer the opportunity to supply such
products.


 


(ii)                                  recruit
or solicit any person who has been an employee, Representative, consultant or
agent of Buyer or former employee of Seller hired by Buyer, to terminate his or
her employment with Buyer; or


 


(iii)                               solicit,
call upon, or attempt to communicate with any customer, former customer, or
prospective customer of Buyer or the Business for the purposes of manufacture,
production, design, engineering, importation, purchase, marketing, sale,
distribution, research or development of any Products.


 


(b)                                 Restricted Territory.  The “Restricted Territory”
includes anywhere in the world in which Seller or XCEL Japan has conducted any
aspect of the Business, and anywhere in the world in which Buyer conducts its
business (including, without limitation, the Business) hereafter.


 


57

















 


(c)                                  Conduct of Buyer’s Business and Operations
Post-Closing.  Seller
acknowledges that (i) after the Closing, Buyers intend to conduct Buyers’
businesses (including, without limitation, the Business) throughout the
Restricted Territory, among other places, (ii) a very substantial portion
of the value of the Purchased Assets and the XCEL Japan Shares is the goodwill
that Seller has built up in the Restricted Territory and the ability of Buyers
(as successor to the Business) and Buyers’ Affiliates to expand Buyers’
business within the Restricted Territory and (iii) that Buyers would not
be purchasing the Purchased Assets and the XCEL Japan Shares but for such
goodwill and ability to expand.


 


(d)                                 Remedies.  Because a breach, or failure to comply with,
this Section 7.3 will cause irreparable injury to Buyers for which
there is no adequate remedy at law and the exact amount of which will be
difficult to ascertain, if Seller or any of its Affiliates should in any way
breach, or fail to comply with, the terms of this Section 7.3,
Buyers shall be entitled to an injunction restraining such Person(s) from
any such breach or failure in addition to monetary damages.  All remedies expressly provided for herein
are cumulative of any and all other remedies now existing at law or in equity,
to the extent permitted under applicable law. 
Buyers shall, in addition to the remedies herein provided, be entitled
to avail itself of all such other remedies as may now or hereafter exist at law
or in equity for compensation, and for the specific enforcement of the
covenants contained herein without the necessity of proving actual
damages.  Resort to any remedy provided for
hereunder or provided for by law shall not preclude or bar the concurrent or
subsequent employment of any other appropriate remedy or remedies, or preclude
the recovery by Buyers of monetary damages and compensation.


 


(e)                                  Severability.  If any provision of this Section 7.3
shall finally be judicially determined to be invalid, ineffective or
unenforceable, such determination shall apply only in the jurisdiction in which
such adjudication is made and every other provision of this Section 7.3
shall remain in full force and effect. 
The invalid, ineffective or unenforceable provision shall, without
further action by the parties, be automatically amended, to the extent
permitted under applicable law, to effect the original purpose and intent of
the invalid, ineffective or unenforceable provision (and if such provision
governs the duration of the Restricted Period or geographic scope of the
Restricted Territory, such provision shall be amended to reduce such duration
or scope, as applicable, as minimally as possible so that such provision is
valid, effective and enforceable for the longest period of time and fullest
geographic area as is adjudged permissible for such provision to be valid,
effective and enforceable); provided, however, that such
amendment shall apply only with respect to the operation of such provision in
the particular jurisdiction in which such adjudication is made.


 


(f)                                    Acknowledgement.  Seller acknowledges that the duration of the
Restricted Period, the geographic scope of the Restricted Territory, and the
scope of restricted activities described in Section 7.3(a) are
reasonable and necessary to protect the legitimate business interests of Buyer
in view of the nature of the Business, the nature of the businesses in which
Buyers are engaged, and the nature of the Contemplated Transactions.


 


58

















 


7.4                                 Accounts Receivable.  After the Closing, Buyer shall have the right
and authority to collect all Accounts Receivable purchased hereunder as
Purchased Assets and other items transferred and assigned by Seller hereunder
as Purchased Assets, and to endorse in the name of Seller as Buyer’s property
any checks received on Accounts Receivable or other items. If Seller or any of
its Affiliates receives on or after the Closing Date any payment relating to
any Account Receivable, such payment shall be the property of, and shall be
forwarded and remitted to, Buyer.  Seller
will promptly endorse and deliver to Buyer any cash, checks or other documents
received by or made payable to Seller on account of any such Account
Receivable.  Seller shall advise Buyer
(promptly following Seller’s becoming aware thereof) of any counterclaims or
set-offs that may arise subsequent to the Closing Date with respect to any
Account Receivable.


 


7.5                                 Employee Matters.


 


(a)                                  Employee Benefits.  Seller shall retain all liabilities and
obligations in respect of its past, present and future employees of the
Digitran Business (and, as applicable, their spouse and dependents) under
Benefit Plans and Legal Requirements. Without limiting the generality of the
foregoing, Buyer shall have no liability or obligation whatsoever under Benefit
Plans of the Digitran Business.


 


(b)                                 Continuing Employees.  Seller shall terminate all employees employed
in the Digitran Business as of the Closing Date.  Buyer shall offer employment from and after
the Closing Date to all employees listed on Schedule 7.5(b) (collectively,
the “Continued Employees”) on terms, in
Buyer’s opinion, reasonably similar to the conditions of each such employee’s
employment in the Business immediately prior to the Closing Date, subject to
the Continued Employees obtaining insurance coverage through COBRA until such
time as Buyer institutes its own medical coverage for such Continued
Employees.  In no event shall Buyer be
liable or responsible for paying or providing any severance benefits to any
employee or former employee of Seller.


 


(c)                                  WARN Act Compliance.  If Seller takes any action that could be
construed as a “plant closing” or “mass layoff”, or that results in any
Employee retained or employed suffering or deeming to have suffered any “employment
loss”, as those terms are defined in the WARN Act, Seller shall be solely
responsible for providing any notice required by the WARN Act and for making
payments, if any, which may be required under the WARN Act for failure to
provide appropriate notice.


 


(d)                                 Payment of Wages.  On or prior to the Closing Date, Seller shall
be responsible for making all payments to Employees required under any federal,
state or local wage and hour law, including without limitation the payment of
accrued wages and vacation time.


 


7.6                                 Electronic Mail.  Until the date three (3) months after
the Closing Date, Seller shall automatically forward to Buyer any electronic
mail message relating to the Business which is sent to an electronic mail
address ending in “@emrise.com.”


 


59

















 


7.7                                 Post Closing Governance.  On the Closing Date, Buyer shall cause XCEL
Japan to appoint at least three directors and at least one statutory auditor of
XCEL Japan and apply for official registration to such effect in a legal and
appropriate manner pursuant to the Companies Act of Japan and related Legal
Requirements.  Buyer and XCEL Japan shall
waive any claim or right against resigning directors and statutory auditors and
release them from any liabilities that may arise or be revealed after the
Closing.


 


7.8                                 Environmental Report. Within
sixty (60) days after the Closing, Seller shall, at Seller’s expense, arrange
for the completion of a Phase I environmental report related to the Facility at
9654 Hermosa Avenue, Rancho Cucamonga, California, which shall be conducted by
an environmental firm reasonably satisfactory to Buyer. Any Environmental
Health and Safety Liabilities disclosed in such report shall be Retained
Liabilities.


 


7.9                                 Offsite Purchase Assets.  Seller shall use commercially reasonable
efforts to deliver within thirty (30) days after the Closing letters signed by
any supplier or outside manufacturer which is in possession of any Offsite
Assets, including any molds, tooling, dies or similar assets, which shall
certify that such supplier or outside manufacturer has no ownership interest,
right or title in and to such Offsite Assets.


 


7.10                           Other Intellectual Property Rights.  To the extent not conveyed to Buyer under the
terms of this Agreement, Seller and Parent hereby grant to Buyer a perpetual,
assignable, worldwide, fully paid up license, including the right to grant
sublicenses, under any intellectual property asset required for the operation
of the Digitran Business which is not set forth under the terms of this
Agreement or on any Schedule to this Agreement, whether personally held or
hereafter acquired by Seller or Parent, as well as under any trademarks, to
operate the Digitran Business, including to develop, make, have made use, sell,
import, copy, perform, display, prepare derivative works of, market, distribute
and otherwise exploit products or services in connection with the operation of
the Digitran Business. Seller and Parent hereby irrevocably covenant not to sue
Buyer or its customers, sublicensees, assignees or distributors for violation
of Seller’s or Parent’s intellectual property rights in connection with any
such use or exploitation of the Purchased Assets or any Products or services
that embody or are derived from the Purchased Assets.


 


7.11                           Transfer of Digitran Ltd.  If Buyer so requests within ninety (90) days
after the Closing, Seller shall execute and deliver to Buyer such other
documents and do such other acts and things as Buyer may request in order to
transfer Digitran Ltd. to Buyer.


 


7.12                           Accounts Payable.  Promptly after the Closing, Buyer shall pay
on behalf of Seller the accounts payable set forth on Schedule 7.12
attached hereto designated to be paid at Closing (the “Closing
Accounts Payable”).  Until all
of the accounts payable set forth on Schedule 7.12 other than the
Closing Accounts Payable (the “Remaining Accounts
Payable”) are paid in full, on the first day of each week after the
Closing Buyer shall provide to Seller (i) a written statement summarizing
all Remaining Accounts Payable which will come due during the following week; (ii) copies
of invoices related to such Remaining Accounts Payable and (iii) a copy of
the accounts payable aging report on which the Remaining Accounts Payable to be
paid are highlighted.  Within two (2) Business
Days of receipt of such statement, Seller shall pay to 


 


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Buyer an amount equal to the
aggregate amount of all Remaining Accounts Payable on such report which come
due during the following week.  Promptly
upon receipt of such amount, Buyer shall pay all such Remaining Accounts
Payable on behalf of Seller. 
Notwithstanding the foregoing, such Remaining Accounts Payable shall
remain Retained Liabilities.


 


7.13                           Reconciliation of Financed Equipment.  Within ten (10) days after the Closing,
Seller shall determine all amounts owing on the equipment loans and leases
which relate to the period prior to the Closing, including but not limited to
any penalties, interest and principal, and shall remit such amount to Buyer.


 


7.14                           Delivery of Documents Regarding XCEL Japan Shares.  Seller represents and warrants that it has
delivered or caused to be delivered all documents filed by XCEL Japan with the
Legal Affairs Bureau relating to the conversion of XCEL Japan to a “Non-Share
Certificate Issuing Company” and receipt from the Legal Affairs Bureau
acknowledging that it has received these documents for filing.  To the extent that any such documents have
not been delivered prior to the Closing, Seller shall use its best efforts to
deliver such documents to Buyer promptly after the Closing.


 


ARTICLE VIII


GENERAL PROVISIONS


 


8.1                                 Expenses. 
Buyers and Seller shall bear and pay all costs and expenses (including
legal and accountants’ fees and expenses and broker fees) incurred by such
Party in connection with this Agreement and the Contemplated Transactions.  In the event of termination of this
Agreement, the obligation of each Party to pay its own expenses will be subject
to any rights of such Party arising from a breach of this Agreement by another
Party.


 


8.2                                 Public Announcements.  Without the prior written consent of the
other Party (which shall not be unreasonably withheld), neither Buyer nor
Seller nor any of their respective subsidiaries, affiliates, officers,
directors, employees, agents or shareholders shall, without the prior written
consent of the other, make any public statement or announcement or any release
to trade publications or through the press or otherwise, or make any statement
to any third party with respect to the Contemplated Transactions (including,
without limitation, with respect to the entering into of this Agreement and the
terms hereof) except as may be necessary to comply with the requirements of any
law, governmental order or regulation, stock exchange rule or regulation
or legal proceeding, and then only after notice to the other party; provided,
however, that either Party may issue a press release which contains only
such information which has been included in a prior press release issued by
either Party in accordance with this Section 8.2.


 


8.3                                 Notices. 
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to 


 


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such other addresses and facsimile
numbers as a party may designate by notice to the other parties):


 


Buyers:                                                                                                       c/o
Electro Switch Corp.

775-1 Pleasant Street

Weymouth, MA  02189-2301

Attention:  Robert M. Pineau

Phone:  (781) 335-1195

Fax:  (781) 335-1288


 


with a copy to (which
does not constitute notice):


 


Ottenberg &
Dunkless

101 Arch Street

Boston, MA  02110

Attention:  Robert Dunkless, Esq.

Phone:  (617) 342-8600

Fax:  (617) 342-7525


 


Seller:                                                                                                                EMRISE Electronics Corporation
 9485 Haven Avenue, Suite 100

Rancho Cucamonga, CA  91730

Attention:  Carmine T. Oliva

Telephone:  (909) 987-9220

Facsimile:  (909) 354-3568


 


with a
copy to (which does not constitute notice):


 


Rutan & Tucker,
LLP

611 Anton Boulevard, Suite 1400

Costa Mesa, CA 926126

Attention: Larry A. Cerutti, Esq.

Phone:  (714) 641-3450

Fax: (714) 556-9035


 


8.4                                 Governing Law; Jurisdiction; Service of Process.  This Agreement will be governed by the laws
of the State of Delaware without regard to conflict of laws principles.  Any action or proceeding seeking to enforce
any provision of, or based on any right arising out of, this Agreement may be
brought against any of the Parties in the Delaware Court of Chancery located in
New Castle County, or, if it has or can acquire jurisdiction, in the United
States District Court for the District of Delaware, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein.  Process in any action or proceeding
referred to in the preceding sentence may be served on any Party anywhere in
the world.


 


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8.5                                 Further Assurances.  The Parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver
to each other such other documents, and (c) to do such other acts and
things, all as the other party may reasonably request for the purpose of
carrying out the intent of this Agreement and the documents referred to in this
Agreement.


 


8.6                                 Waiver. 
The rights and remedies of the Parties are cumulative and not
alternative.  Neither the failure nor any
delay by any Party in exercising any right, power, or privilege under this
Agreement or the documents referred to in this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power,
or privilege.  To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this
Agreement or the documents referred to in this Agreement can be discharged by
one Party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other Party; (b) no waiver that may
be given by a Party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one Party will be
deemed to be a waiver of any obligation of such Party or of the right of the
Party giving such notice or demand to take further action without notice or
demand as provided in this Agreement or the documents referred to in this
Agreement.


 


8.7                                 Entire Agreement and Modification.  This Agreement supersedes all prior
agreements between the Parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter.  This
Agreement may not be amended except by a written agreement executed by the
Party to be charged with the amendment.


 


8.8                                 Disclosure Schedule.


 


(a)                                  The
disclosures in the Disclosure Schedule, and those in any supplement thereto,
must relate only to the representations and warranties in the Section of
the Agreement to which they expressly relate and not to any other
representation or warranty in this Agreement.


 


(b)                                 In
the event of any inconsistency between the statements in the body of this
Agreement and those in the Disclosure Schedule (other than an exception
expressly set forth as such in the Disclosure Schedule with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.


 


8.9                                 Assignments, Successors, and No Third-Party Rights.  Neither Party may assign any of its rights
under this Agreement without the prior consent of the other Parties, which will
not be unreasonably withheld, except that Buyer may assign any of its rights
under this Agreement to any Subsidiary of Buyer.  Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the Parties.  Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement.  This 


 


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Agreement and all of its provisions
and conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and assigns.


 


8.10                           Severability. 
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement
will remain in full force and effect. 
Any provision of this Agreement held invalid or unenforceable only in
part or degree will remain in full force and effect to the extent not held
invalid or unenforceable.


 


8.11                           Section Headings, Construction.  The headings of Articles and Sections in this
Agreement are provided for convenience only and will not affect its
construction or interpretation.  All
references to “Article” or “Articles” and “Section” or “Sections” refer to the
corresponding Article or Articles and Section or Sections of this
Agreement.  All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require.  Unless otherwise expressly
provided, the word “including” does not limit the preceding words or terms.


 


8.12                           Time of Essence. 
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.


 


8.13                           Specific Performance.  All of the Parties acknowledge and agree that
the other Party would be damaged irreparably in the event any of the provisions
of this Agreement are not performed in accordance with their specific terms or
otherwise are breached.  Accordingly, all
of the Parties agree that the other Party shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter in addition to any other remedy.


 


8.14                           Counterparts. 
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same
agreement.  Facsimile
signatures shall be deemed original signatures.


 


[Signature page follows.]


 


64

















 


IN WITNESS
WHEREOF, the parties have executed and delivered this Agreement as of the date
first written above.


 


	
  BUYER:

  	
  ELECTRO SWITCH CORP., a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert M. Pineau

  
	
   

  	
  Name:

  	
  Robert M. Pineau

  
	
   

  	
  Its:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  STOCK BUYER:

  	
  ESC WORLDWIDE, INC., a Massachusetts corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert M. Pineau

  
	
   

  	
  Name:

  	
  Robert M. Pineau

  
	
   

  	
  Its:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  SELLER:

  	
  EMRISE ELECTRONICS CORPORATION, a New Jersey
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
  Name:

  	
  Carmine T. Oliva

  
	
   

  	
  Its:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PARENT:

  	
  EMRISE CORPORATION, a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
  Name:

  	
  Carmine T. Oliva

  
	
   

  	
  Its:

  	
   

  



 


[Signature page to
Asset and Stock Purchase Agreement]