Document:

Exhibit 10.1

 

CREDIT AGREEMENT

 

by and between

 

INFOSONICS CORPORATION, a Maryland corporation

 

and

 

WELLS FARGO HSBC TRADE BANK, N.A.

 

Dated as of

 

October 6, 2005

 

Exhibit A – Addendum to Credit Agreement

Exhibit B – Revolving Credit Facility Supplement

Exhibit C – Collateral/Credit Support Document

Exhibit D – Borrowing Base Certificate

 

 

	
  WELLS FARGO HSBC TRADE BANK

  	
   

  	
  CREDIT AGREEMENT

  

 

INFOSONICS CORPORATION, a Maryland corporation
(“Borrower”), organized under the laws of the State of Maryland whose chief
executive office is located at the address specified after its signature to
this Agreement (“Borrower’s Address”) and WELLS FARGO HSBC TRADE
BANK, N.A. (“Trade Bank”), whose address is specified after its
signature to this Agreement, have entered into this CREDIT
AGREEMENT as of October 6, 2005. (“Effective Date”). All references to this “Agreement”
include those covenants included in the Addendum to Agreement (“Addendum”)
attached as Exhibit A hereto.

 

I.  CREDIT
FACILITY

 

1.1           The
Facility. Subject to
the terms and conditions of this Agreement, Trade Bank will make available to
Borrower a Revolving Credit Facility (“Facility”) for which a Facility
Supplement (“Supplement”) is attached as Exhibit B hereto. Additional
terms for the Facility. The Facility will be available from the Closing Date up
to and until October 1, 2006 (“Facility Termination Date”). Collateral and
credit support required for the Facility is set forth in Exhibit C hereto.
Definitions for those capitalized terms not otherwise defined are contained in Article 8
below.

 

1.2           Credit
Extension Limit. The aggregate outstanding amount of all Credit
Extensions may at no time exceed the lesser of (a)  Twenty Million Dollars
($20,000,000) or (b) the Borrowing Base in effect from time to time (“Overall
Credit Limit”). The aggregate outstanding amount of all Credit Extensions
outstanding at any time under Revolving Credit Facility may not exceed that
amount specified as the “Credit Limit” in the Supplement for the Facility.  An amount equal to 100% of each unfunded
Credit Extension shall be used in calculating the outstanding amount of Credit
Extensions under this Agreement.

 

1.3           Overadvance.
All Credit Extensions made hereunder shall be added to and deemed part of the
Obligations when made. If, at any time and for any reason, the aggregate
outstanding amount of all Credit Extensions made pursuant to this Agreement
exceeds the dollar limitation in Section 1.2 or the Borrowing Base, then
Borrower shall immediately pay to Trade Bank on demand, in cash, the amount of
such excess.

 

1.4           Repayment;
Interest and Fees. Each funded Credit Extension shall be repaid
by Borrower, and shall bear interest from the date of disbursement at those per
annum rates and such interest shall be paid, at the times specified in the
Supplement, Note or Facility Document. Borrower agrees to pay to Trade Bank
with respect to (a) the Revolving Credit Facility, interest at a per annum
rate equal to (i) at a fluctuating rate per annum equal to the Prime Rate
in effect from time to time, or (ii) Wells Fargo’s LIBOR Rate plus 1.5% as
specified in the Note, and (b) the fees specified in the Supplement as
well as those fees specified in the relevant Facility Document(s). Interest and
fees will be calculated on the basis of a 360 day year, actual days elapsed.
Any overdue payments of principal (and interest to the extent permitted by law)
shall bear interest at a per annum floating rate equal to the Prime Rate plus
5%.

 

1.5           Prepayments.
Credit Extensions under any Facility may only be prepaid in accordance with the
terms of the Supplement. At the time of any prepayment (including, but not
limited to, any prepayment which is a result of the occurrence of an Event of
Default and an acceleration of the Obligations) Borrower will pay to Trade Bank
all interest accrued on the amount so prepaid to the date of such prepayment
and all costs, expenses and fees specified in the Loan Documents.

 

II.  REPRESENTATIONS
AND WARRANTIES

 

Borrower represents and warrants to Trade Bank that
the following representations and warranties are true and correct:

 

2.1           Legal
Status. Borrower is duly organized and existing and in good
standing under the laws of the jurisdiction indicated in this Agreement, and is
qualified or licensed to do business in all jurisdictions in which such
qualification or licensing is required and in which the failure to so qualify
or to be so licensed could have a material adverse affect on Borrower.

 

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2.2           Authorization
and Validity. The execution, delivery and performance of this
Agreement, and all other Loan Documents to which Borrower is a party, have been
duly and validly authorized, executed and delivered by Borrower and constitute
legal, valid and binding agreements of Borrower, and are enforceable against
Borrower in accordance with their respective terms, except as such
enforceability may be limited by debtor relief laws from time to time in effect
affecting the rights of creditors generally or general principles of equity
(whether considered in a suit at law or in equity).

 

2.3           Borrower’s
Name. The name of
Borrower set forth at the end of this Agreement is its correct name. If
Borrower is conducting business under a fictitious business name, Borrower is
in material compliance with all laws relating to the conduct of such business
under such name.

 

2.4           Financial
Condition and Statements. All financial statements of Borrower
delivered to Trade Bank have been prepared in conformity with GAAP, and
completely and accurately reflect the financial condition of Borrower (and any
consolidated Subsidiaries) at the times and for the periods stated in such
financial statements subject to footnotes and normal year end adjustments.
Neither Borrower nor any Subsidiary has any material contingent liability not
reflected in the aforesaid financial statement. Since the date of the financial
statements delivered to Trade Bank for the last fiscal period of Borrower to
end before the Effective Date, there has been no material adverse change in the
financial condition, business or prospects of Borrower. Borrower is solvent.

 

2.5           Litigation.
Except as disclosed in writing to Trade Bank prior to the Effective Date, there
is no action, claim, suit, litigation, proceeding or investigation pending or
(to best of Borrower’s knowledge) threatened by or against or affecting
Borrower or any Subsidiary in any court or before any governmental authority,
administrator or agency which may result in (a) any material adverse
change in the financial condition or business of Borrower’s, or (b) any
material impairment of the ability of Borrower to carry on its business in
substantially the same manner as it is now being conducted.

 

2.6           No
Violation. The execution, delivery, and performance by Borrower
of each of the Loan Documents do not violate any provision of any applicable
law or regulation except where such violation would reasonably be expected to
result in a material adverse effect on Borrower, or contravene any provision of
the Articles of Incorporation or By-Laws of Borrower, or result in a breach of
or constitute a default under any material contract, obligation, indenture, or
other instrument to which Borrower is a party or by which Borrower may be
bound.

 

2.7           Income
Tax Returns. Borrower has no knowledge of any pending assessments
or adjustments of its income tax payable with respect to any year.

 

2.8           No
Subordination. There is no agreement, indenture, contract, or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower’s obligations
subject to this Agreement to any other obligation of Borrower.

 

2.9           ERISA.
Borrower is in compliance in all material respects with all applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended
or recodified from time to time (“ERISA”); Borrower has not violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a “Plan”); no Reportable Event,
as defined in ERISA, has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able to fulfill its
benefit obligations as they come due in accordance with the Plan documents and
under GAAP.

 

2.10         Other
Obligations. Except as disclosed in writing to Trade Bank prior
to the Effective Date, neither Borrower nor any Subsidiary is in default of any
obligation for borrowed money, any purchase money obligation or any material
lease, commitment, contract, instrument or obligation.

 

2.11         No
Defaults. No Event of Default, and event which with the giving
of notice or the passage of time or both would constitute an Event of Default,
has occurred and is continuing.

 

2.12         Information
Provided to Trade Bank. The information provided to the Trade
Bank concerning Borrower’s business is true and correct, provided that with
respect to projected financial information Borrower represents only that such
information was prepared in good faith based upon assumptions believed to be
reasonable at the time.

 

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2.13         Environmental
Matters. Except as disclosed by Borrower to Trade Bank in
writing prior to the Effective Date, Borrower (as well as any Subsidiary) is
each in compliance in all material respects with all applicable Federal or
state environmental, hazardous waste, health and safety statutes, and any rules or
regulations adopted pursuant thereto, which govern or affect any Borrower’s or
any Subsidiary’s operations and/or properties, including without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource
Conservation and Recovery Act of 1976, the Federal Toxic Substances Control Act
and the California Health and Safety Code, as any of the same may be amended,
modified or supplemented from time to time. None of the operations of Borrower
or of any Subsidiary is the subject of any Federal or state investigation
evaluating whether any remedial action involving a material expenditure is
needed to respond to a release of any toxic or hazardous waste or substance
into the environment.

 

2.14         The Policy. Borrower has reviewed the
representations set forth in that certain Short Term Comprehensive Multi-Buyer
Credit Insurance policy No. GMB-I20246 issued by Great American Insurance
Company as insurer (“Insurer”) to Borrower as insured, dated as of August 5,
2005 and policy No. 386956R issued by Euler Hermes ACI as insurer (“Insurer”)
to Borrower as insured, dated as of November 1, 2004 (together the “Policy”)
and all amendments and endorsements thereto which representations are
reconfirmed and incorporated into this Agreement by reference, and Borrower has
no knowledge that the terms of the Policy have not or will not be met, or that
a claim there under will not be paid. 
The Policy is and shall remain legally enforceable in accordance with
its terms until all Obligations under this Agreement have been paid in full.

 

III.  CONDITIONS
TO EXTENDING FACILITIES

 

3.

 

3.1           Conditions
to Initial Credit Extension. The obligation of Trade Bank to
make the first Credit Extension is subject to the fulfillment to Trade Bank’s
satisfaction of the following conditions:

 

(a)                                  Approval of Trade Bank Counsel. All
legal matters relating to making the Facility available to Borrower must be
satisfactory to counsel for Trade Bank.

 

(b)                                 Documentation. Trade Bank must have
received, in form and substance satisfactory to Trade Bank, the following
documents and instruments duly executed and in full force and effect:

 

(1)                                  a
corporate borrowing resolution and incumbency certificate if Borrower is a
corporation, a partnership or joint venture borrowing certificate if Borrower
is a partnership or joint venture, and a limited liability company borrowing
certificate if Borrower is a limited liability company;

 

(2)                                  the
Facility Documents for the Facility, including, but not limited to, note(s) (“Notes”)
for the Revolving Credit Facility, Trade Bank’s standard Commercial Letter of
Credit Agreement or Standby Letter of Credit Agreement for any letter of credit
Facility;

 

(3)                                  those
guarantees, security agreements, deeds of trust, subordination agreements,
intercreditor agreements, factoring agreements, tax service contracts, and
other Collateral Documents required by Trade Bank to evidence the
collateral/credit support specified in the Supplement;

 

(4)                                  if
an audit or inspection of any books, records or property is specified in the
Supplement for the Facility, an audit or inspection report from Wells Fargo or
another auditor or inspector acceptable to Trade Bank reflecting values and
property conditions satisfactory to Trade Bank; and

 

(5)                                  if
insurance is required in the Addendum, the insurance policies specified in the
Addendum (or other satisfactory proof thereof) from insurers acceptable to
Trade Bank.

 

3.2           Conditions
to Making Each Credit Extension. The obligation of Trade Bank to
make each Credit Extension is subject to the fulfillment to Trade Bank’s
satisfaction of the following conditions:

 

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(a)                                  Representations and Warranties. The
representations and warranties contained in this Agreement, the Facility
Documents and the Collateral Documents will be true and correct in all material
respects on and as of the date of the Credit Extension with the same effect as
though such representations and warranties had been made on and as of such
date;

 

(b)                                 Documentation. Trade Bank must have
received, in form and substance satisfactory to Trade Bank, the following
documents and instruments duly executed and in full force and effect:

 

(1)                                  if
the Credit Extension is the issuance of a Commercial Letter of Credit, Trade
Bank’s standard Application For Commercial Letter of Credit or standard
Application and Agreement For Commercial Letter of Credit;

 

(2)                                  if
the Credit Extension is the issuance of a Standby Letter of Credit, Trade Bank’s
standard Application For Standby Letter of Credit or standard Application and
Agreement For Standby Letter of Credit;

 

(3)                                  if
a Borrowing Base Certificate is required for the Credit Extension, a Borrowing
Base Certificate demonstrating compliance with the requirements for such Credit
Extension.

 

(c)                                  Fees. Trade Bank must have received
any fees required by the Loan Documents to be paid at the time such Credit
Extension is made.

 

3.3          Conditions
Subsequent:

 

(a)                                  Documentation. Not later than
thirty (30) days after the date of the Agreement, Trade Bank must have
received, in form and substance satisfactory to Trade Bank, the following
documents and instruments duly executed and in full force and effect:

 

(1)           Completion
of an inventory appraisal from an appraiser satisfactory to Trade Bank with the
cost paid by Borrower;

 

(2)           Completion
and satisfactory verification of Borrower’s accounts receivable;

 

(3)           Satisfactory
credit investigations of the Borrower’s major Argentinean customers;

 

(4)           Trade Bank
named as loss payee on all credit insurance policies.

 

IV.           AFFIRMATIVE
COVENANTS

 

Borrower covenants that so long as Trade Bank remains
committed to make Credit Extensions to Borrower, and until payment of all
Obligations and Credit Extensions, Borrower will comply with each of the
following covenants: (For purposes of this Article IV, and Article V
below, reference to “Borrower” may also extend to Borrower’s subsidiaries, if
so specified in the Addendum.)

 

4.1           Punctual
Payments. Punctually pay all principal, interest, fees and other
Obligations due under this Agreement or under any Loan Document at the time and
place and in the manner specified herein or therein.

 

4.2           Notification
to Trade Bank. Promptly, but in no event more than 5 calendar
days after the occurrence of each such event, provide written notice in
reasonable detail of each of the following:

 

(a)                                  Occurrence of a Default. The
occurrence of any Event of Default or any event which with the giving of notice
or the passage of time or both would constitute an Event of Default;

 

(b)                                 Borrower’s Trade Names; Place of Business.
Any change of Borrower’s (or any Subsidiary’s) name, trade name or place of
business, or chief executive officer;

 

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(c)                                  Litigation. Any action, claim,
proceeding, litigation or investigation threatened or instituted by or against
or affecting Borrower (or any Subsidiary) in any court or before any government
authority, administrator or agency which may materially and adversely affect
Borrower’s (or any Subsidiary’s) financial condition or business or Borrower’s
ability to carry on its business in substantially the same manner as it is now
being conducted;

 

(d)                                 Uninsured or Partially Uninsured Loss.
Any uninsured or partially uninsured loss through liability or property damage
or through fire, theft or any other cause affecting Borrower’s (or any
Subsidiary’s) property in excess of the aggregate amount required hereunder;

 

(e)                                  Reports Made to Insurance Companies.
Copies of all material reports made to insurance companies; and

 

(f)                                    ERISA. The occurrence and nature of
any Reportable Event or Prohibited Transaction, each as defined in ERISA, or
any funding deficiency with respect to any Plan.

 

4.3           Books and
Records. Maintain at Borrower’s address books and records in
accordance with GAAP, and permit any representative of Trade Bank, at any
reasonable time, to inspect, audit and examine such books and records, to make
copies of them, and to inspect the properties of Borrower upon prior notice
during normal business hours.

 

4.4           Tax
Returns and Payments. Timely file all tax returns and reports
required by foreign, federal, state and local law, and timely pay all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower. Borrower may, however, defer payment of any contested taxes, provided
that Borrower (i) in good faith contests Borrower’s obligation to pay the
taxes by appropriate proceedings promptly instituted and diligently conducted, (ii) notifies
Trade Bank in writing of the commencement of, and any material development in,
the proceedings, (iii) posts bonds or takes any other steps required to
keep the contested taxes from becoming a lien upon any of the Collateral, and (iv) makes
provision, to Trade Bank’s satisfaction, for eventual payment of such taxes in
the event Borrower is obligated to make such payment.

 

4.5           Compliance
with Laws. Comply in all material respects with the provisions
of all foreign, federal, state and local laws and regulations relating to
Borrower, including, but not limited to, those relating to Borrower’s ownership
of real or personal property, the conduct and licensing of Borrower’s business,
and health and environmental matters.

 

4.6           Taxes and
Other Liabilities. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real and personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except (a) such as Borrower may in good
faith contest or as to which a bona fide dispute may arise, and (b) for
which Borrower has made provision, to Trade Bank’s satisfaction, for eventual
payment thereof in the event that Borrower is obligated to make such payment.

 

4.7           Insurance.
Maintain and keep in force insurance of the types and in amounts customarily
carried in lines of business similar to that of Borrower, including, but not
limited to, fire, extended coverage, public liability, flood, property damage
and workers’ compensation, with all such insurance to be in amounts
satisfactory to Trade Bank and to be carried with companies approved by Trade
Bank before such companies are retained, and deliver to Trade Bank from time to
time at Trade Bank’s request schedules setting forth all insurance then in
effect. All insurance policies shall name Trade Bank as an additional loss
payee, and shall contain a lenders loss payee endorsement in form reasonably
acceptable to Trade Bank. (Upon receipt of the proceeds of any such insurance,
Trade Bank shall apply such proceeds in reduction of the outstanding funded
Credit Extensions and shall hold any remaining proceeds as collateral for the
outstanding unfunded Credit Extensions, as Trade Bank shall determine in its
reasonable discretion, except that, provided no Event of Default has occurred,
Trade Bank shall release to Borrower insurance proceeds with respect to
equipment totaling less than $100,000, which shall be utilized by Borrower for
the replacement of the equipment with respect to which the insurance proceeds
were paid, if Trade Bank receives reasonable assurance that the insurance
proceeds so released will be so used.) If Borrower fails to provide or pay for
any insurance, Trade Bank may, but is not obligated to, obtain the insurance at
Borrower’s expense.

 

4.8           Further
Assurances. At Trade Bank’s request and in form and substance
satisfactory to Trade Bank, execute all documents and take all such actions at
Borrower’s expense as Trade Bank may deem reasonably necessary or useful to
perfect and maintain Trade Bank’s perfected security interest in the Collateral
and in order to fully consummate all of the transactions contemplated by the
Loan Documents.

 

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4.9           The Policy.  Borrower shall comply at its own expense with
all obligations and covenants binding upon Borrower under the Policy.  Borrower shall permit Trade Bank to
communicate directly with the Insurer without further permission or
authorization from Borrower on any aspect or matter relating to the Policy, including
without limitation, filing a claim under the Policy, as assignee.  Borrower shall pay when due all premiums due
under the Policy.  Borrower will not
request, agree to or accept any amendments or modifications to the Policy
without Trade Bank’s prior written consent.

 

V.  NEGATIVE
COVENANTS

 

Borrower covenants that so long as Trade Bank remains
committed to make any Credit Extensions to Borrower and until all Obligations
and Credit Extensions have been paid, Borrower will not:

 

5.1           Merge or
Consolidation, Transfer of Assets. Merge into or consolidate
with any other entity; make any substantial change in the nature of Borrower’s
business as conducted as of the date hereof; acquire all or substantially all
of the assets of any other entity; nor sell, lease, transfer or otherwise
dispose of all or a substantial or material portion of Borrower’s assets except
in the ordinary course of its business.

 

5.2           Use of
Proceeds. Borrower will not use the proceeds of any Credit
Extension except for the purposes, if any, specified for such Credit Extension in
the Supplement covering the Facility under which such Credit Extension is made.

 

5.3           Liens.
Mortgage, pledge, grant or permit to exist a security interest in, or lien
upon, all or any portion of Borrower’s assets now owned or hereafter acquired,
except any of the foregoing in favor of Trade Bank or which is existing as of,
and disclosed to Trade Bank in writing prior to, the date hereof.

 

5.4           Acquisitions
of Assets. Borrower will not acquire any assets or enter into
any other transaction outside the ordinary course of Borrower’s business.

 

5.5           Loans and
Investments. Borrower will not make any loans or advances to, or
investments in, any person or entity except for accounts receivable created in
the ordinary course of Borrower’s business.

 

5.6           Indebtedness
For Borrowed Money. Borrower will not incur any indebtedness for
borrowed money, except to Trade Bank and except for indebtedness subordinated
to the Obligations by an instrument or agreement in form acceptable to Trade
Bank.

 

5.7           Guarantees.
Borrower will not guarantee or otherwise become liable with respect to the
obligations of any other person or entity, except for endorsement of
instruments for deposit into Borrower’s account in the ordinary course of
Borrower’s business.

 

5.8           Dividends
and Distributions of Capital of C Corporation. If Borrower is a
corporation, Borrower will not pay or declare any dividends or make any
distribution of capital on Borrower’s stock (except for dividends payable
solely in stock of Borrower; provided however, that Borrower may declare or pay
85% of net income after tax), nor redeem, retire, purchase or otherwise
acquire, directly or indirectly, any shares of any class of Borrower’s stock
now or hereafter outstanding.

 

5.9           Investments
in, or Acquisitions of, Subsidiaries. Borrower will not make any
investments in, or form or acquire, any subsidiaries.

 

VI.  EVENTS
OF DEFAULT AND REMEDIES

 

6.1           Events of
Default. The occurrence of any of the following shall constitute
an “Event of Default”:

 

(a)                                  Failure to Make Payments When Due.
Borrower’s failure to pay principal, interest, fees or other amounts when due
under any Loan Document.

 

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(b)                                 Failure to Perform Obligations. Any
failure by Borrower to comply with any covenant or obligation in this Agreement
or in any Loan Document (other than those referred to in subsection (a)above),
and such default shall continue for a period of twenty calendar days from the
earlier of (i) Borrower’s failure to notify Trade Bank of such Event of
Default pursuant to Section 4.2(a) above, or (ii) Trade Bank’s
notice to Borrower of such Event of Default.

 

(c)                                  Untrue or Misleading Warranty or Statement.
Any warranty, representation, financial statement, report or certificate made
or delivered by Borrower under any Loan Document is untrue or misleading in any
material respect when made or delivered.

 

(d)                                 Defaults Under Other Loan Documents.
Any “Event of Default” occurs under any other Loan Document; any Guaranty is no
longer in full force and effect (or any claim thereof made by Guarantor) or any
failure of a Guarantor to comply with the provisions thereof; or any breach of
the provisions of any Subordination Agreement or Intercreditor Agreement by any
party other than the Trade Bank.

 

(e)                                  Defaults Under Other Agreements or Instruments.
Any default in the payment or performance of any obligation, or the occurrence
of any event of default, under the terms of any other agreement or instrument
pursuant to which Borrower, any Subsidiary or any Guarantor or general partner
of Borrower has incurred any debt or other material liability to any person or
entity.

 

(f)                                    Concealing or Transferring Property.
Borrower conceals, removes or transfers any part of its property with intent to
hinder, delay or defraud its creditors, or makes or suffers any transfer of any
of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law.

 

(g)                                 Judgments and Levies Against Borrower.
The filing of a notice of judgment lien against Borrower, or the recording of
any abstract of judgment against Borrower, in any county in which Borrower has
an interest in real property, or the service of a notice of levy and/or of a
writ of attachment or execution, or other like process, against the assets of
Borrower, or the entry of a judgment against Borrower that is not vacated or
removed within 60 days.

 

(h)                                 Event or Condition Impairing Payment or
Performance. Any event occurs or condition arises which Trade
Bank in good faith believes impairs or is substantially likely to impair the
prospect of payment or performance by Borrower of the Obligations, including,
but not limited to any material adverse change in Borrower’s financial
condition or business.

 

(i)                                     Voluntary Insolvency. Borrower, any
Subsidiary or any Guarantor (i) becomes insolvent, (ii) suffers or
consents to or applies for the appointment of a receiver, trustee, custodian or
liquidator of itself or any of its property, (iii) generally fails to pay
its debts as they become due, (iv) makes a general assignment for the
benefit of creditors, or (v) files a voluntary petition in bankruptcy, or
seeks reorganization, in order to effect a plan or other arrangement with
creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time (“Bankruptcy
Code”), or under any state or Federal law granting relief to debtors, whether
now or hereafter in effect.

 

(j)                                     Involuntary Insolvency. Any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower, any Subsidiary or
Guarantor, or an order for relief is entered against it by any court of competent
jurisdiction under the Bankruptcy Code or any other applicable state or federal
law relating to bankruptcy, reorganization or other relief for debtors which
remains unstayed for 60 days.

 

(k)                                  Change in Ownership. Any change in
the ownership of Borrower, any general partner of Borrower or any Guarantor
which the Trade Bank determines, in its reasonable discretion, may adversely
affect the creditworthiness of Borrower or credit support for the Obligations.

 

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(l)                                     Policy. The refusal for any reason of
Insurer to, pursuant to the terms and conditions of the Policy, to pay any
claim made by Borrower or Trade Bank as assignee there under.

 

6.2           Remedies.
Upon the occurrence of any Event of Default, or at any time thereafter, Trade
Bank, at its option, and without notice or demand of any kind (all of which are
hereby expressly waived by Borrower), may do any one or more of the following: (a) terminate
Trade Bank’s obligation to make Credit Extensions or to make available to
Borrower the Facility or other financial accommodations; (b) accelerate
and declare all or any part of the Obligations to be immediately due, payable,
and performable, notwithstanding any deferred or installment payments allowed
by any instrument evidencing or relating to any Credit Extension; and/or (c) exercise
all its rights, powers and remedies available under the Loan Documents, or
accorded by law, including, but not limited to, the right to resort to any or
all Collateral or other security for any of the Obligations and to exercise any
or all of the rights of a beneficiary or secured party pursuant to applicable
law. Notwithstanding the provisions in the foregoing sentence, if any Event of
Default set out in subsections (i) and (j) of Section 6.1 above
shall occur, then all the remedies specified in the preceding sentence shall
automatically take effect without notice or demand of any kind (all of which
are hereby expressly waived by Borrower) with respect to any and all
Obligations. All rights, powers and remedies of Trade Bank may be exercised at
any time by Trade Bank and from time to time after the occurrence of an Event
of Default, are cumulative and not exclusive, and shall be in addition to any
other rights, powers or remedies provided by law or equity.

 

VII.  GENERAL
PROVISIONS

 

7.1           Notices.
All notices to be given under this Agreement shall be in writing and shall be
given personally or by regular first-class mail, by certified mail return
receipt requested, by a private delivery service which obtains a signed
receipt, or by facsimile transmission addressed to Trade Bank or Borrower at
the address indicated after their signature to this Agreement, or at any other
address designated in writing by one party to the other party. Trade Bank is hereby
authorized by Borrower to act on such instructions or notices sent by facsimile
transmission or telecommunications device which Trade Bank believes come from
Borrower. All notices shall be deemed to have been given upon delivery, in the
case of notices personally delivered or delivered by private delivery service,
upon the expiration of 3 calendar days following the deposit of the notices in
the United States mail, in the case of notices deposited in the United States
mail with postage prepaid, or upon receipt, in the case of notices sent by
facsimile transmission.

 

7.2           Waivers.
No delay or failure of Trade Bank in exercising any right, power or remedy
under any of the Loan Documents shall affect or operate as a waiver of such
right, power or remedy; nor shall any single or partial exercise of any such
right, power or remedy preclude, waive or otherwise affect any other or further
exercise thereof or the exercise of any other right, power or remedy. Any
waiver, consent or approval by Trade Bank under any of the Loan Documents must
be in writing and shall be effective only to the extent set out in such
writing.

 

7.3           Benefit
of Agreement. The provisions of the Loan Documents shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, executors, administrators, beneficiaries and legal representatives of
Borrower and Trade Bank; provided, however, that Borrower may not assign or
transfer any of its rights under any Loan Document without the prior written
consent of Trade Bank, and any prohibited assignment shall be void. No consent
by Trade Bank to any assignment shall release Borrower from its liability for
the Obligations unless such release is specifically given by Trade Bank to
Borrower in writing. Trade Bank reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in,
Trade Bank’s rights and benefits under each of the Loan Documents. In
connection therewith, Trade Bank may disclose any information relating to the
Facility, Borrower or its business, or any Guarantor or its business.

 

7.4           Joint and
Several Liability. If Borrower consists of more than one person
or entity, the liability of each of them shall be joint and several, and the
compromise of any claim with, or the release of, any one such Borrower shall
not constitute a compromise with, or a release of, any other such Borrower.

 

7.5           No Third
Party Beneficiaries. This Agreement is made and entered into for
the sole protection and benefit of Borrower and Trade Bank and their respective
permitted successors and assigns, and no other person or entity shall be a
third party beneficiary of, or have any direct or indirect cause of action or
claim in connection with, any of the Loan Documents to which it is not a party.

 

8

 

7.6           Governing
Law and Jurisdiction. This Agreement shall, unless provided
differently in any Loan Document, be governed by, and be construed in
accordance with, the internal laws of the State of California, except to the
extent Trade Bank has greater rights or remedies under federal law whether as a
national bank or otherwise. Borrower and Trade Bank (a) agree that all
actions and proceedings relating directly or indirectly to this Agreement shall
be litigated in courts located within California; (b) consent to the
jurisdiction of any such court and consent to service of process in any such
action or proceeding by personal delivery or any other method permitted by law;
and (c) waive any and all rights Borrower may have to object to the
jurisdiction of any such court or to transfer or change the venue of any such
action or proceeding.

 

7.7           Mutual
Waiver of Jury Trial. Borrower and Trade Bank each hereby waive
the right to trial by jury in any action or proceeding based upon, arising out
of, or in any way relating to, (a) any Loan Document, (b) any other
present or future agreement, instrument or document between Trade Bank and
Borrower, or (c) any conduct, act or omission of Trade Bank or Borrower or
any of their directors, officers, employees, agents, attorneys or any other
persons or entities affiliated with Trade Bank or Borrower, which waiver will
apply in all of the mentioned cases whether the case is a contract or tort case
or any other case. Borrower represents and warrants that no officer,
representative or agent of Trade Bank has represented, expressly or otherwise,
that Trade Bank would not seek to enforce this waiver of jury trial.

 

7.8           Severability.
Should any provision of any Loan Document be prohibited by, or invalid under
applicable law, or held by any court of competent jurisdiction to be void or
unenforceable, such defect shall not affect, the validity of the other
provisions of the Loan Documents.

 

7.9           Entire
Agreement; Amendments. This Agreement and the other Loan
Documents are the final, entire and complete agreement between Borrower and
Trade Bank concerning the Credit Extensions and the Facility; supersede all
prior and contemporaneous negotiations and oral representations and agreements.
There are no oral understandings, representations or agreements between the
parties concerning the Credit Extensions or the Facility which are not set
forth in the Loan Documents. This Agreement and the Supplement may not be
waived, amended or superseded except in a writing executed by Borrower and
Trade Bank.

 

7.10         Collection
of Payments. Unless otherwise specified in any Loan Document,
other than this Agreement or any Note, all principal, interest and any fees due
to Trade Bank by Borrower under this Agreement, the Addendum, any Supplement,
any Facility Document, any Collateral Document or any Note, will be paid by
Trade Bank having Wells Fargo debit any of Borrower’s accounts with Wells Fargo
and forwarding such amount debited to Trade Bank, without presentment, protest,
demand for reimbursement or payment, notice of dishonor or any other notice
whatsoever, all of which are hereby expressly waived by Borrower. Such debit
will be made at the time principal, interest or any fee is due to Trade Bank
pursuant to this Agreement, the Addendum, any Supplement, any Facility
Document, any Collateral Document or any Note.

 

7.11         Costs,
Expenses and Attorneys’ Fees. Borrower will reimburse Trade Bank
for all costs and expenses, including, but not limited to, reasonable attorneys’
fees and expenses (which counsel may be Trade Bank or Wells Fargo employees),
expended or incurred by Trade Bank in the preparation and negotiation of this
Agreement, the Notes, the Collateral Documents, the Addendum, and the Facility
Documents, in amending this Agreement, the Collateral Documents, the Notes, the
Addendum, or the Facility Documents, in collecting any sum which becomes due
Trade Bank on the Notes, under this Agreement, the Collateral Documents, the
Addendum, the Supplement, or any of the Facility Documents, in the protection,
perfection, preservation and enforcement of any and all rights of Trade Bank in
connection with this Agreement, the Notes, any of the Collateral Documents, the
Supplement, any of the Addendum, or any of the Facility Documents, including,
without limitation, the fees and costs incurred in any out-of-court work out or
a bankruptcy or reorganization proceeding.

 

VIII.  DEFINITIONS

 

8.1           “Accounts
Receivable” means all presently existing and hereafter arising “Rights
to Payment” (as that term is defined in the “Continuing Security Agreement –
Rights to Payment and Inventory” executed by Borrower in favor of Trade Bank)
which arise from the sale, lease or other disposition of Inventory, or from
performance of contracts for service, manufacture, construction or repair,
together with all goods returned by Borrower’s customers in connection with any
of the foregoing.

 

9

 

8.2           “Agreement”
means this Agreement and the Addendum attached hereto, as corrected or modified
from time to time by Trade Bank and Borrower.

 

8.3           “Banking
Day” means each day except Saturday, Sunday and a day specified
as a holiday by federal or California statute.

 

8.4           “Borrowing
Base” means an amount equal to eighty percent (80%) of Borrower’s
Eligible Accounts Receivable and eighty-five percent (85%) of Borrower’s
insured Foreign Accounts Receivable, as long as Borrower maintains in full
force and effect a foreign export credit insurance, policy in form and
substance acceptable to Trade Bank in its sole and absolute discretion.  All of the foregoing shall be determined by
Trade Bank upon receipt and review of all collateral reports required hereunder
and such other documents and collateral information as Trade Bank may from time
to time reasonably require. Borrower acknowledges that said Borrowing Base was
established by Trade Bank with the understanding that, among other items, the
aggregate of all returns, rebates, discounts, credits, and allowances for the
immediately preceding three (3) months at all times shall be less than
five percent (5%) of Borrower’s gross sales for said period. If such dilution
of Borrower’s accounts for the immediately preceding three (3) months at
any time exceeds five percent (5%) of Borrower’s gross sales for said period,
or if there at any time exists any other matters, events, conditions or
contingencies which Bank reasonably believes may affect payment of any portion
of Borrower’s accounts, Trade Bank, in its sole discretion, may reduce the
foregoing advance rate against Borrower’s Eligible Accounts Receivable to a
percentage appropriate to reflect such additional dilution and/or establish
reserves against Borrower’s Eligible Accounts Receivable.

 

8.5           “Closing
Date” means the date on which the first Credit Extension is
made.

 

8.6           “Collateral”
means all property securing the Obligations.

 

8.7           “Collateral
Documents” means those security agreement(s), deed(s) of trust,
guarantee(s), subordination agreement(s), intercreditor agreement(s), and other
credit support documents and instruments required by the Trade Bank to effect
the collateral and credit support requirements set forth in the Supplement with
respect to the Facility.

 

8.8           “Credit”
means any discount, allowance, credit, rebate, or adjustment granted by
Borrower with respect to an Account Receivable.

 

8.9           “Credit
Extension” means each extension of credit under the Facility
(whether funded or unfunded), including, but not limited to, (a) the
issuance of sight or usance commercial letters of credit or commercial letters
of credit supported by back-up letters of credit, (b) the issuance of
standby letters of credit, (c) the issuance of shipping guarantees, (d) the
making of revolving credit working capital loans, (e) the making of loans
against imports for letters of credit, (f) the making of clean import
loans outside letters of credit, (g) the making of advances against export
orders, (h) the making of advances against export letters of credit, (i) the
making of advances against outgoing collections, (j) the making of term
loans, and (k) the entry into foreign exchange contracts.

 

8.10         “Credit
Limit” means, with respect to the any Facility, the amount
specified under the column labeled “Credit Limit” in the Supplement for that
related Facility.

 

8.11         “Credit
Sublimit” means, with respect to any Subfacility, the amount
specified after the name of that Subfacility under the column labeled “Credit
Sublimit” in the Supplement for the related Facility.

 

8.12         “Dollars”
and “$” means United States dollars.

 

8.13         “Eligible
Accounts Receivable” means those Accounts Receivable which have
been created in the ordinary course of Borrower’s business and upon which
Borrower’s right to receive payment is absolute and not contingent upon the fulfillment
of any conditions whatsoever, and shall not include:

 

(a)                                  any
account which is past due ninety (90) days after the invoice date with respect
to Accounts Receivable with payment terms of net thirty (30) or net sixty (60)
calendar days from invoice date and thirty (30) days after the due date with
respect to Accounts Receivable with payment terms of net 90 calendar days from
invoice date;

 

10

 

(b)                                 any
account for which there are any right of setoff, defense or discount (except
regular discounts allowed in the ordinary course of business to promote prompt
payment) or for which any defense or counterclaim has been asserted;

 

(c)                                  any
account which represents an obligation of any state or municipal government or
of the United States government or any political subdivision thereof;

 

(d)                                 any
account which represents an obligation of an account debtor located in a
foreign country and which is not insured under a credit insurance policy
acceptable to Trade Bank.

 

(e)                                  any
account which arises from the sale or lease to or performance of services for,
or represents an obligation of, an employee, affiliate, partner, parent or
subsidiary of Borrower.

 

(f)                                    that
portion of any account which represents interim or progress billings or
retention rights on the part of the account debtor;

 

(g)                                 any
account which represents an obligation of any account debtor when twenty
percent (20%) or more of Borrower’s accounts from such account debtor is not
eligible pursuant to (a) above;

 

(h)                                 that
portion of any account from an account debtor which represents the amount by
which Borrower’s total Accounts Receivable from said account debtor exceeds
twenty-five percent (25%) of Borrower’s total Accounts Receivable;

 

(i)                                     any
account deemed ineligible by Trade Bank when Trade Bank, in its sole
discretion, deems the creditworthiness or financial condition of the account
debtor, or the industry in which the account debtor is engaged, to be
unsatisfactory.

 

In addition, if more than twenty percent (20%) of the accounts owing
from an account debtor are outstanding more than sixty (60) calendar days from
the invoice date or are otherwise not eligible accounts, then all accounts
owing from that account debtor will be deemed ineligible for borrowing.

 

8.14         “Export Order” shall mean a written export order or
contract for purchase by a buyer from Borrower of any finished goods or
services of Borrower which are intended for export.

 

8.15         “Facility Documents” means, with respect to the
Facility, those documents specified in the Supplement for the Facility, and any
other documents customarily required by Trade Bank for said Facility.

 

8.16         “Foreign
Accounts Receivable” means all accounts which represent an
obligation of an account debtor located in a foreign country which is insured
under a credit insurance policy acceptable to Trade Bank.

 

8.17         “GAAP”
means generally accepted accounting principles, which are applicable to the
circumstances, as of the date of determination, set out in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and in the statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting profession

 

8.18         “Inventory” has the meaning assigned to such term in
the “Continuing Security Agreement – Rights to Payment and Inventory” executed
by Borrower in favor of Trade Bank.

 

8.19         “Loan Documents” means this Agreement, the Addendum,
the Supplement, the Facility Documents and the Collateral Documents.

 

8.20         “Note” has the meaning specified in Section 3.1(b)(2) above.

 

8.21         “Obligations” means (a) the obligation of
Borrower to pay principal, interest and fees on all funded Credit Extensions
and fees on all unfunded Credit Extensions, and (b) the obligation of
Borrower to pay and perform when due all other indebtedness, liabilities,
obligations and covenants required under the Loan Documents.

 

11

 

8.22         “Person”
means and includes natural persons, corporations, limited partnerships, general
partnerships, joint stock companies, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments and agencies and
political subdivisions thereof.

 

8.23         “Prime
Rate” means the rate most recently announced by Wells Fargo at
its principal office in San Francisco, California as its “Prime Rate”, with the
understanding that the Prime Rate is one of Wells Fargo’s base rates and serves
as the basis upon which effective rates of interest are calculated for those
loans making reference thereto, and is evidenced by the recording thereof after
its announcement in such internal publication or publications as Wells Fargo
may designate. Any change in an interest rate resulting from a change in the
Prime Rate shall become effective as of 12:01 a.m. of the Banking Day on
which each change in the Prime Rate is announced by Wells Fargo.

 

8.24         “Subsidiary”
means (i) any corporation at least the majority of whose securities having
ordinary voting power for the election of directors (other than securities
having such power only by reason of the happening of a contingency) are at the
time owned by Borrower and/or one or more Subsidiaries, and (ii) any joint
venture or partnership in which Borrower and/or one or more Subsidiaries has a
majority interest.

 

8.25         “Wells
Fargo” means Wells Fargo Bank, N.A.

 

IX.  ARBITRATION

 

9.1           Arbitration.  The parties hereto agree, upon demand by any
party, to submit to binding arbitration all claims, disputes and controversies
between or among them (and their respective employees, officers, directors,
attorneys, and other agents), whether in tort, contract or otherwise arising
out of or relating to in any way (i) the loan and related loan and
security documents which are the subject of this Agreement and its negotiation,
execution, collateralization, administration, repayment, modification,
extension, substitution, formation, inducement, enforcement, default or
termination; or (ii) requests for additional credit.

 

9.2           Governing
Rules.  Any arbitration
proceeding will (i) proceed in a location in California selected by the
American Arbitration Association (“AAA”); (ii) be governed by the Federal
Arbitration Act (Title 9 of the United States Code), notwithstanding any
conflicting choice of law provision in any of the documents between the
parties; and (iii) be conducted by the AAA, or such other administrator as
the parties shall mutually agree upon, in accordance with the AAA’s commercial
dispute resolution procedures, unless the claim or counterclaim is at least
$1,000,000.00 exclusive of claimed interest, arbitration fees and costs in
which case the arbitration shall be conducted in accordance with the AAA’s
optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex
commercial disputes to be referred to, as applicable, as the “Rules”).  If there is any inconsistency between the
terms hereof and the Rules, the terms and procedures set forth herein shall
control.  Any party who fails or refuses
to submit to arbitration following a demand by any other party shall bear all
costs and expenses incurred by such other party in compelling arbitration of
any dispute.  Nothing contained herein
shall be deemed to be a waiver by any party that is a bank of the protections
afforded to it under 12 U.S.C. §91 or any similar applicable state law.

 

9.3           No Waiver
of Provisional Remedies, Self-Help and Foreclosure.  The arbitration requirement does not limit
the right of any party to (i) foreclose against real or personal property
collateral; (ii) exercise self-help remedies relating to collateral or
proceeds of collateral such as setoff or repossession; or (iii) obtain
provisional or ancillary remedies such as replevin, injunctive relief,
attachment or the appointment of a receiver, before during or after the
pendency of any arbitration proceeding. 
This exclusion does not constitute a waiver of the right or obligation
of any party to submit any dispute to arbitration or reference hereunder,
including those arising from the exercise of the actions detailed in sections
(i), (ii) and (iii) of this paragraph.

 

9.4           Arbitrator
Qualifications and Powers. 
Any arbitration proceeding in which the amount in controversy is
$5,000,000.00 or less will be decided by a single arbitrator selected according
to the Rules, and who shall not render an award of greater than
$5,000,000.00.  Any dispute in which the
amount in controversy exceeds $5,000,000.00 shall be decided by majority vote
of a panel of three arbitrators; provided however, that all three arbitrators
must actively participate in all hearings and deliberations.  The arbitrator will be a neutral attorney
licensed in the State of California or a neutral retired judge of the state or
federal judiciary of California, in either case with a minimum of ten years experience
in the substantive law applicable to the subject matter of the dispute to be
arbitrated.  The arbitrator will
determine whether or not an issue is arbitratable and will give effect to the
statutes of limitation in determining any claim.  In any arbitration

 

12

 

proceeding the arbitrator will decide (by documents
only or with a hearing at the arbitrator’s discretion) any pre-hearing motions
which are similar to motions to dismiss for failure to state a claim or motions
for summary adjudication.  The arbitrator
shall resolve all disputes in accordance with the substantive law of California
and may grant any remedy or relief that a court of such state could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award.  The arbitrator
shall also have the power to award recovery of all costs and fees, to impose
sanctions and to take such other action as the arbitrator deems necessary to
the same extent a judge could pursuant to the Federal Rules of Civil
Procedure, the California Rules of Civil Procedure or other applicable
law.  Judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction.  The institution and maintenance of an action
for judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.

 

9.5           Discovery.  In any arbitration proceeding discovery will
be permitted in accordance with the Rules. 
All discovery shall be expressly limited to matters directly relevant to
the dispute being arbitrated and must be completed no later than 20 days before
the hearing date and within 180 days of the filing of the dispute with the
AAA.  Any requests for an extension of
the discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery
is essential for the party’s presentation and that no alternative means for
obtaining information is available.

 

9.6           Class Proceedings
and Consolidations.  The
resolution of any dispute arising pursuant to the terms of this Agreement shall
be determined by a separate arbitration proceeding and such dispute shall not
be consolidated with other disputes or included in any class proceeding.

 

9.7           Payment
Of Arbitration Costs And Fees. 
The arbitrator shall award all costs and expenses of the arbitration
proceeding to the prevailing party.

 

9.8           Real
Property Collateral; Judicial Reference.  Notwithstanding anything herein to the
contrary, no dispute shall be submitted to arbitration if the dispute concerns
indebtedness secured directly or indirectly, in whole or in part, by any real
property unless (i) the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration, or (ii) all
parties to the arbitration waive any rights or benefits that might accrue to
them by virtue of the single action rule statute of California, thereby
agreeing that all indebtedness and obligations of the parties, and all
mortgages, liens and security interests securing such indebtedness and
obligations, shall remain fully valid and enforceable.  If any such dispute is not submitted to
arbitration, the dispute shall be referred to a referee in accordance with
California Code of Civil Procedure Section 638 et seq., and this general
reference agreement is intended to be specifically enforceable in accordance
with said Section 638.  A referee
with the qualifications required herein for arbitrators shall be selected
pursuant to the AAA’s selection procedures. 
Judgment upon the decision rendered by a referee shall be entered in the
court in which such proceeding was commenced in accordance with California Code
of Civil Procedure Sections 644 and 645.

 

9.9           Miscellaneous.  To the maximum extent practicable, the AAA,
the arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the dispute with the
AAA.  No arbitrator or other party to an
arbitration proceeding may disclose the existence, content or results thereof,
except for disclosures of information by a party required in the ordinary
course of its business or by applicable law or regulation.  If more than one agreement for arbitration by
or between the parties potentially applies to a dispute, the arbitration
provision most directly related to the documents between the parties or the
subject matter of the dispute shall control. 
This Agreement may be amended or modified only in writing signed by each
party hereto.  If any provision of this
Agreement shall be held to be prohibited by or invalid under applicable law
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement. 
This arbitration provision shall survive termination, amendment or
expiration of any of the documents or any relationship between the parties.

 

13

 

Borrower and Trade Bank have caused this Agreement to
be executed by their duly authorized officers or representatives on the date
first written above.

 

	
  “BORROWER”

  	
   

  
	
   

  	
   

  
	
  INFOSONICS CORPORATION

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Joseph Ram

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  CEO

  	
   

  	
   

  
	
   

  	
   

  
	
  Borrower’s Address:

  	
   

  
	
  5880 Pacific Center Blvd.

  	
   

  
	
  San Diego, CA 92121

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  “LENDER”

  	
   

  
	
   

  	
   

  
	
  WELLS FARGO HSBC TRADE BANK,

  	
   

  
	
  NATIONAL ASSOCIATION

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
    /s/ Dean Yasuda

  	
   

  
	
   

  	
  Dean Yasuda

  	
   

  
	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Lender’s Address:

  	
   

  	
   

  
	
  333 South Grand Avenue, 8th Floor

  	
   

  
	
  Los Angeles, CA 90071

  	
   

  
								

 

14Exhibit 10.1

 

 

 

AMENDED AND
RESTATED ASSET PURCHASE AGREEMENT

 

BY AND
BETWEEN

 

NEOWARE
SYSTEMS, INC. AND

 

TELEVIDEO,
INC.

 

 

October 5,
2005

 

 

 

 

TABLE OF
CONTENTS

 

	
  ARTICLE I
  DEFINITIONS

  	
   

  
	
   

  	
   

  
	
  ARTICLE II
  PURCHASE AND SALE OF ASSETS

  	
   

  
	
  2.1

  	
  Purchase and Sale of Assets

  	
   

  
	
  2.2

  	
  Excluded
  Assets

  	
   

  
	
  2.3

  	
  Purchase
  Price

  	
   

  
	
  2.4

  	
  Payment of Purchase Price

  	
   

  
	
  2.5

  	
  Closing

  	
   

  
	
  2.6

  	
  Ad Valorem Tax Adjustment

  	
   

  
	
  2.7

  	
  Allocation of Purchase
  Price

  	
   

  
	
  2.8

  	
  Assumed Liabilities

  	
   

  
	
  2.9

  	
  Retained Liabilities

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III
  REPRESENTATIONS AND WARRANTIES OF SELLER

  	
   

  
	
  3.1

  	
  Organization and Good
  Standing

  	
   

  
	
  3.2

  	
  Authorization and
  Effect of Agreement

  	
   

  
	
  3.3

  	
  No
  Restrictions Against Sale of the Assets

  	
   

  
	
  3.4

  	
  Financial
  Statements; SEC Reports

  	
   

  
	
  3.5

  	
  Operation
  of the Business Since October 31, 2003

  	
   

  
	
  3.6

  	
  Title to Assets; Licenses

  	
   

  
	
  3.7

  	
  No
  Litigation

  	
   

  
	
  3.8

  	
  Income and Other Taxes

  	
   

  
	
  3.9

  	
  Employee Benefit Matters

  	
   

  
	
  3.10

  	
  Governmental Approvals

  	
   

  
	
  3.11

  	
  Assumed
  Contracts

  	
   

  
	
  3.12

  	
  Employee and Labor Matters

  	
   

  
	
  3.13

  	
  Principal Customers
  and Suppliers

  	
   

  
	
  3.14

  	
  Compliance with Law

  	
   

  
	
  3.15

  	
  Product Warranties

  	
   

  
	
  3.16

  	
  Intellectual Property

  	
   

  
	
  3.17

  	
  Operation of the Business

  	
   

  
	
  3.18

  	
  Environmental Matters

  	
   

  
	
  3.19

  	
  Insurance

  	
   

  
	
  3.20

  	
  Brokers’ Fees

  	
   

  
	
  3.21

  	
  Disclosure

  	
   

  
	
  3.22

  	
  Transactions with
  Affiliates

  	
   

  
	
  3.23

  	
  No
  Liquidation or Winding-Up; Fairness of Consideration

  	
   

  
	
  3.24

  	
  No Undisclosed Liabilities

  	
   

  
	
  3.25

  	
  Approval
  and Adoption Requirements; No Sale of Substantially All the Assets

  	
   

  

 

 

	
  ARTICLE IV
  REPRESENTATIONS AND WARRANTIES OF PURCHASER

  	
   

  
	
  4.1

  	
  Organization and Good
  Standing

  	
   

  
	
  4.2

  	
  Execution and Delivery

  	
   

  
	
  4.3

  	
  No Conflicts

  	
   

  
	
  4.4

  	
  Compliance with Law

  	
   

  
	
  4.5

  	
  No
  Restrictions Against Purchase of Assets

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V
  ADDITIONAL COVENANTS

  	
   

  
	
  5.1

  	
  Covenants of Seller

  	
   

  
	
  5.2

  	
  Covenants of Purchaser

  	
   

  
	
  5.3

  	
  Expenses

  	
   

  
	
  5.4

  	
  Further Assurances

  	
   

  
	
  5.5

  	
  Inconsistent Action

  	
   

  
	
  5.6

  	
  Employee Matters

  	
   

  
	
  5.7

  	
  Assignments; Consents

  	
   

  
	
  5.8

  	
  Sufficiency of Assets

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI
  CONDITIONS PRECEDENT TO CLOSING

  	
   

  
	
  6.1

  	
  Conditions of Purchaser

  	
   

  
	
  6.2

  	
  Conditions of Seller

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII
  POST-CLOSING OBLIGATIONS

  	
   

  
	
  7.1

  	
  Seller-Assumed
  Warranty Obligations

  	
   

  
	
  7.2

  	
  Seller Supply of the
  Products

  	
   

  
	
  7.3

  	
  Seller-Assumed
  Support Services Obligations

  	
   

  
	
  7.4

  	
  Continued
  Operations; No Bankruptcy

  	
   

  
	
  7.5

  	
  Product Returns

  	
   

  
	
  7.6

  	
  Stockholder Vote

  	
   

  
	
  7.7

  	
  Korea Distributor Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII
  INDEMNIFICATION

  	
   

  
	
  8.1

  	
  Survival

  	
   

  
	
  8.2

  	
  Indemnification

  	
   

  
	
  8.3

  	
  Procedures

  	
   

  
	
  8.4

  	
  Indemnification Exclusive

  	
   

  
	
  8.5

  	
  Limitation on Amount

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX
  REBATE AND MARKETING PROGRAMS

  	
   

  
	
  9.1

  	
  List of Programs

  	
   

  
	
  9.2

  	
  Payments

  	
   

  
	
  9.3

  	
  Marketing Rights

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE X
  GENERAL PROVISIONS

  	
   

  
	
  10.1

  	
  Notices

  	
   

  
	
  10.2

  	
  Severability

  	
   

  

 

ii

 

	
  10.3

  	
  Entire Agreement

  	
   

  
	
  10.4

  	
  Successors and Assigns

  	
   

  
	
  10.5

  	
  Counterparts

  	
   

  
	
  10.6

  	
  Recitals,
  Schedules, Exhibits and Annexes

  	
   

  
	
  10.7

  	
  Construction

  	
   

  
	
  10.8

  	
  Governing Law

  	
   

  
	
  10.9

  	
  Passage of Title and
  Risk of Loss

  	
   

  
	
  10.10

  	
  Bulk Sales

  	
   

  

 

iii

 

INDEX OF
EXHIBITS

 

	
  Exhibit A

  	
   

  	
  Escrow Agreement

  	
   

  
	
  Exhibit B

  	
   

  	
  Korea Distributor
  Agreement, as shall be agreed to by the parties

  	
   

  
	
  Exhibit C

  	
   

  	
  License Agreement

  	
   

  
	
  Exhibit D

  	
   

  	
  Noncompetition Agreements

  	
   

  
	
  Exhibit E

  	
   

  	
  Transitional Services

  	
   

  
	
  Exhibit F

  	
   

  	
  Transitional Supply and Trademark
  License Agreement

  	
   

  
	
  Exhibit G

  	
   

  	
  Seller’s Opinion

  	
   

  
	
  Exhibit H

  	
   

  	
  Warranties

  	
   

  
	
  Exhibit I

  	
   

  	
  Opinion of Richards,
  Layton & Finger P.A.

  	
   

  

 

iv

 

AMENDED AND
RESTATED ASSET PURCHASE AGREEMENT

 

THIS AMENDED AND RESTATED ASSET
PURCHASE AGREEMENT
(the “Agreement”) is entered into as of October 5, 2005 by and between NEOWARE SYSTEMS, INC., a Delaware
corporation (“Purchaser”) and TELEVIDEO,
INC., a Delaware corporation (“Seller”) in order to amend and
restate that certain Asset Purchase Agreement between Purchaser and Seller,
dated as of January 11, 2005 (the “Purchase Agreement”), as amended by the
First Amendment to Asset Purchase Agreement, dated as of June 14, 2005
(the “First Amendment”).

 

RECITALS

 

A.            Seller is presently engaged in the business
of designing, developing, manufacturing, distributing and selling Windows and
Linux-based thin client devices (the “Products”) and general purpose terminal
products.

 

B.            Seller desires to Transfer (as hereinafter
defined) to Purchaser, and Purchaser desires to purchase from Seller, all of
the assets owned or held for use by Seller or used by Seller in connection with
Seller’s business of designing, developing, manufacturing, distributing and
selling the Windows and Linux-based thin client devices (referred to herein as
the “Business”), other than the Excluded Assets (as hereinafter defined), on
the terms and subject to the conditions set forth in this Agreement.

 

C.            Seller desires to delegate to Purchaser, and
Purchaser is willing to assume from Seller, the Assumed Liabilities (as
hereinafter defined), on the terms and subject to the conditions set forth in
this Agreement.

 

D.            Simultaneously with the execution of this
Agreement, and as a condition and inducement to Purchaser’s willingness to
enter into this Agreement, Dr. K. Philip Hwang and his spouse, C. Gemma
Hwang (the “Principal Stockholders”) are entering into an agreement (the “Stockholders’
Agreement”) with Purchaser, pursuant to which each of the Principal
Stockholders agrees, among other things, to take certain actions in furtherance
of the Transfer, including the execution of an irrevocable proxy in accordance
with Delaware Law (as hereinafter defined) and, in certain circumstances, the
indemnification of Purchaser as specifically provided in the Stockholders’
Agreement.

 

E.             Seller and Purchaser desire to amend the
Purchase Agreement, as amended by the First Amendment.

 

F.             Seller and Purchaser entered into a reseller
agreement (the “Reseller Agreement”) simultaneously with the execution of the
Purchase Agreement pursuant to which Purchaser has been the exclusive reseller
and sales agent for Seller’s Products during the period commencing on the date
of the Purchase Agreement until the Closing.

 

 

NOW, THEREFORE, in consideration of the premises and the
respective representations, warranties, covenants, agreements and conditions
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, and intending to be legally
bound, the parties hereto hereby agree as follows:

 

ARTICLE I

DEFINITIONS

 

Unless otherwise defined herein or the context
otherwise requires, the terms defined in this Article I shall have the
meanings herein specified for all purposes of this Agreement, applicable to
both the singular and plural forms of any of the terms herein defined. Unless
otherwise indicated, any reference herein to a Section, Article,
Exhibit or Schedule shall mean the applicable section, article,
exhibit or schedule of or to this Agreement. All accounting terms used in
this Agreement not defined in this Article I shall, except as otherwise
provided for herein, be construed in accordance with generally accepted
accounting principles, consistently applied.

 

“Action”
shall mean any actual or threatened claim, action, suit, arbitration, hearing,
inquiry, proceeding, complaint, charge or investigation by or before any Governmental
Entity or arbitrator and any appeal from any of the foregoing.

 

“Affiliate”
of a Person shall mean any Person that directly or indirectly controls, is
controlled by, or is under common control with, the indicated Person.

 

“Agreement”
shall mean this Asset Purchase Agreement, together with all Schedules and
Exhibits hereto.

 

“Ancillary
Agreements” shall mean the Escrow Agreement, the License
Agreement, the Noncompetition Agreements, the Stockholders’ Agreement, the
Reseller Agreement and the Transitional Supply and Trademark License Agreement.

 

“Code”
shall mean the Internal Revenue Code of 1986, as amended.

 

“Damages”
shall mean any and all losses, liabilities, obligations, costs, expenses,
damages or judgments of any kind or nature whatsoever (including reasonable
attorneys’, accountants’ and experts’ fees, disbursements of counsel, and other
costs and expenses incurred pursuing indemnification claims under
Article IX hereof).

 

“Delaware Law”
shall mean the Delaware General Corporation Law.

 

“ERISA”
shall mean the Employee Retirement Income Security Act of 1974, as amended from
time to time.

 

“ERISA
Affiliate” shall mean any Person which is (or at any relevant
time was) a member of a controlled group of corporations within the meaning of
Code Section 414(b), all trades or businesses under common control within
the meaning of Code Section 414(c), and all

 

2

 

affiliated service groups within the meaning
of Code Section 414(m), of which Seller is (or at any relevant time was) a
member.

 

“Escrow
Agreement” shall mean the form of Escrow Agreement attached
hereto as Exhibit A.

 

“Exchange Act”
shall mean the Securities Exchange Act of 1934.

 

“Governmental
Entity” shall mean any local, state, federal or foreign
(i) court, (ii) government or (iii) governmental department,
commission, instrumentality, board, agency or authority, including, without
limitation, the IRS and other taxing authorities.

 

“Knowledge”
shall mean (a) knowledge of any of the senior management of Seller,
including Dr. K. Philip Hwang, Richard Kim, and Carmino Rosa, and
(b) the knowledge that any of such persons would be reasonably expected to
have after making inquiry of those persons employed by such party who would
reasonably be expected to have knowledge of the issue in question.

 

“Legal
Requirement” shall mean any statute, law, ordinance, rule,
regulation, permit, order, writ, judgment, injunction, decree or award issued,
enacted or promulgated by any Governmental Entity or any arbitrator.

 

“License
Agreement” shall mean the License Agreement in the form attached
hereto as Exhibit C.

 

“Lien”
shall mean all liens (including judgment and mechanics’ liens, regardless of
whether liquidated), mortgages, assessments, security interests, easements,
claims, pledges, trusts (constructive or other), deeds of trust, options or
other charges, encumbrances or restrictions.

 

“Material
Adverse Effect” shall mean any event, change or effect that is
(or could reasonably be expected to be) materially adverse to the Assets or the
Business or to Purchaser’s ability to continue to operate the Business as
operated prior to the Closing.

 

“Noncompetition
Agreement” shall mean the Noncompetition Agreement in the form
attached hereto as Exhibit D.

 

“Ordinary
Course” shall mean, when used with reference to Seller, the
ordinary and normal course of the operation of the Business, consistent with
past practices.

 

“Person”
shall mean all natural persons, corporations, business trusts, associations,
companies, partnerships and joint ventures.

 

“Plan”
shall mean any employee benefit plan within the meaning of
Section 3(3) of ERISA and any other written or oral employee plan
(other than arrangements merely involving the payment of wages) which are or at
any time have been established, maintained, or contributed

 

3

 

to by Seller or any ERISA Affiliate for the
benefit of current or former employees, with respect to which Seller or an
ERISA Affiliate has or may in the future have any liability or obligation to
contribute or make payments of any kind.

 

“SEC”
shall mean the United States Securities and Exchange Commission.

 

“Securities Act”
shall mean the Securities Act of 1933.

 

“Seller Common
Stock” shall mean
Seller’s common stock, par value $0.01 per share.

 

“Subsidiary of
a Person” shall mean any corporation, partnership, limited
liability company, association or other business entity at least 50% of the
outstanding voting power of which is at the time owned or controlled directly
or indirectly by such Person or by one or more of such subsidiary entities, or
both.

 

“Tax”
shall mean all taxes, including without limitation all Federal, state, local or
foreign income, gross receipts, license, payroll, unemployment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including, without limitation, taxes under Code Section 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), employment, disability, real property, personal property, ad valorem,
sales, use, transfer, registration, value added, alternative or add-on minimum,
estimated tax or other tax, assessment or charge of any kind whatsoever, and
any interest, fine, penalty or addition thereto, whether disputed or not.

 

“Tax Return”
shall mean any return, declaration, report, claim for refund or information, or
statement relating to Taxes, and any exhibit, schedule, attachment or amendment
thereto.

 

“Transitional
Services” shall mean the Transitional Services included in
Exhibit E.

 

“Transitional
Supply and Trademark License Agreement” shall mean the
Transitional Supply and Trademark License Agreement in the form attached hereto
as Exhibit F.

 

ARTICLE II

PURCHASE AND SALE OF ASSETS

 

2.1           Purchase and Sale of Assets.  On the terms and subject to the
conditions hereof, at the Closing (as defined in Section 2.5), Seller will
sell, transfer, grant, convey, assign and deliver (“Transfer”) to Purchaser,
and Purchaser will purchase and accept from Seller, the rights, properties and
assets owned, held for use or used by Seller in connection with the operation
or conduct of the Business, including any technology under development, as of
the date hereof, or acquired by Seller in connection with the operation of the
Business between the date hereof and the Closing Date (as defined in
Section 2.5), or used by Seller in connection with the operation of the
Business including, but not limited to, the rights, properties and assets
described in this Section 2.1 (collectively the “Assets”):

 

4

 

(a)           Personal
Property.  The software, files, books, records,
fixtures, equipment, supplies, computers, printers and all other tangible
personal property owned or held by Seller in connection with the operation of
the Business, as of the date hereof or acquired by Seller in connection with
the operation of the Business between the date hereof and the Closing Date or
used by Seller in connection with the operation of the Business, including
those items listed or described on Schedule 2.1(a), except for property
excluded under Section 2.2 (collectively, the “Owned Tangible Personal
Property”);

 

(b)           Contract
Rights. 
All rights and incidents of interest of Seller existing as of the date
hereof or acquired by Seller between the date hereof and the Closing Date in,
to or under all licenses, leases, agreements, customer orders, contracts,
written or verbal (including product warranty claims, rebates and indemnity or
other rights of action against any person arising out of acts, omissions or
occurrences before, at or after the Closing), prepaid items, deposits and
refunds relating to the Business, including those items listed on
Schedule 2.1(b) (collectively, the “Contracts”);

 

(c)           Intellectual
Property.  The entire right, title and interest of
Seller existing as of the date hereof or acquired by Seller between the date
hereof and the Closing Date in connection with the operation of the Business or
used by Seller in connection with the operation of the Business in, to or under
(i) all United States, international and foreign patents and applications
therefor and all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof, (ii) all software,
licenses, inventions (whether patentable or not), invention disclosures,
improvements, trade secrets, proprietary information, know how, technology,
technical data and customer lists, and all documentation relating to any of the
foregoing, (iii) all copyrights, copyrights registrations and applications
therefor, and all other rights corresponding thereto throughout the world,
(iv) all industrial designs and any registrations and applications
therefor, (v) all trade names, logos, common law trademarks and service
marks, trademark and service mark registrations and applications therefor
(except that the ownership of the TeleVideo tradename shall be excluded,
subject to a license to Purchaser pursuant to the License Agreement),
(vi) all databases and data collections and all rights therein,
(vii) Seller’s list of customer prospects pertaining to the Business
(including customer data base and contact information related to historic sales
of general purpose terminals by Seller and databases and contact information of
customer prospects maintained by Seller’s sales personnel), (viii) all
moral and economic rights of authors and inventors, however denominated, and
(ix) any similar or equivalent rights to any of the foregoing (as
applicable), including the items listed on Schedule 2.1(c) (collectively,
the “Intellectual Property”);

 

(d)           Governmental
Licenses, Permits and Approvals.  To the extent Transferable, all rights and
incidents of interest of Seller existing as of the date hereof or acquired by
Seller between the date hereof and the Closing Date in, to or under all
licenses, permits and authorizations (collectively, the “Approvals”) issued or
requested to be issued by any Governmental Entity in connection with the
operation of the Business, including the Approvals listed or described on Schedule 2.1(d);

 

5

 

(e)           Books
and Records.  All books, records, ledgers, files,
documents, correspondence, studies, reports and other documents of Seller
relating to the Business or the Assets; and

 

(f)            Goodwill.  The
goodwill of the Business.

 

2.2           Excluded Assets. 
Notwithstanding anything contained in this Agreement to the contrary,
the following rights, properties and assets (collectively, the “Excluded Assets”)
will not be included in the Assets:

 

(a)           Inventory.  All
raw material, works-in-progress and finished goods inventories relating to the
Business.

 

(b)           Accounts
Receivable.  All accounts receivable arising from the
conduct of the Business prior to the Closing.

 

(c)           The
Televideo tradename, which shall be subject to a fully paid license to
Purchaser to use the name in connection with the Business in accordance with
the License Agreement.

 

(d)           Real
Estate.

 

(e)           Certain
personal property not directly related to the design or manufacture of the
Products, as listed or described on Schedule 2.2(e).

 

2.3           Purchase Price. 
Purchaser will pay for the Assets a purchase price in the amount of
Three Million Three Hundred Fifty Thousand Dollars ($3,350,000), subject to
adjustment as provided in Sections 2.4(b) and 2.6 (the “Purchase Price”).

 

2.4           Payment of Purchase Price.

 

Closing
Payment and Escrow.  At the
Closing (as defined in Section 2.5):

 

(a)           Purchaser shall pay to Seller an amount equal
to Three Million Fifty Thousand Dollars ($3,050,000), subject to adjustment, as
provided in Sections 2.4(b) and 2.6 (the “Closing Payment”); and

 

(b)           Purchaser shall deposit into an escrow
account (the “Escrow Account”) Three Hundred Thousand Dollars ($300,000) (the “Escrow
Amount”), to be held and disbursed by Wachovia Bank (or if Wachovia Bank is
unable to serve, by another party appointed by the parties), as escrow agent
(the “Escrow Agent”).  The Escrow Amount
shall be held by the Escrow Agent pursuant to the Escrow Agreement.  The Escrow Amount, or a portion thereof, as
set forth in the Escrow Agreement, will be subject to set-off for any
indemnification claims arising during the twelve-month period commencing on the Closing Date (the
“Escrow Period”), and as otherwise provided herein and in the Escrow Agreement.

 

6

 

The
Escrow Agreement shall terminate at the close of business on the last day of
the Escrow Period (the “Escrow Termination Date”), unless there are any
unresolved indemnification or other claims or disputes on such date pursuant to
which Purchaser may be entitled to all or a portion of the Escrow Amount.  In the event of any such unresolved claims or
disputes, the Escrow Agreement will continue in force, but any portion of the
Escrow Amount which exceeds the amount for which a claim has been made or a
dispute exists shall be released to Seller, except as provided in the Escrow
Agreement.  Seller’s liability for the
claims identified in this Section 2.4(b), or any other claims of Purchaser
hereunder, shall not be limited to the Escrow Amount.

 

2.5           Closing.  The
purchase and sale of the Assets and the consummation of the other transactions
contemplated by this Agreement (the “Closing”) shall occur at 10:00 a.m.,
local time, on October 5, 2005 at the offices of Neoware or at such other
time or on such other date as shall be agreed by Seller and Purchaser upon
fulfillment of all conditions precedent to the Closing, such hour and date
being herein generally referred to as the “Closing Date.”  At the Closing:

 

(a)           Seller shall deliver or cause to be delivered
to Purchaser, against payment by Purchaser to Seller of the Closing Payment:

 

(i)            all of the agreements, documents,
certificates and instruments required to be delivered by Seller pursuant to
Section 6.1 hereof.

 

(b)           Purchaser shall deliver or cause to be
delivered to Seller against delivery of the agreements, documents, certificates
and instruments required to be delivered by Seller pursuant to
Section 6.1:

 

(i)            a wire transfer of immediately available
funds to an account designated in writing by Seller in an amount representing
the Closing Payment; and

 

(ii)           all of the documents, if any, required to be
delivered by Purchaser pursuant to Section 7.2 hereof.

 

2.6           Ad Valorem Tax Adjustment.  All ad valorem Taxes imposed
by any taxing authority upon the Assets will be prorated between Seller and
Purchaser as of the Closing Date based on the most current available tax rates
and assessed values (such prorations to be adjusted when final rates and
assessed values are established).  All
such Taxes attributable to the period up to the Closing Date and which remain
unpaid as of the Closing Date shall be deducted from the Purchase Price.  All such Taxes, if any, attributable to the
period following the Closing Date and which have been paid by Seller prior to
the Closing Date shall be added to the Purchase Price.  All adjustments to the Purchase Price will be
calculated as of 11:59 p.m. on the Closing Date.

 

2.7           Allocation of Purchase Price.  The
Purchase Price represents the amount agreed upon by Purchaser and Seller to be
the aggregate fair market value of the Assets. 
Purchaser and Seller have agreed that the Purchase Price will be
allocated based upon an appraisal to be obtained by Purchaser within sixty (60)
days following the Closing Date. 
Purchaser and Seller

 

7

 

will allocate the Purchase Price to the
Assets in such manner consistently for all purposes, including in connection
with all federal, foreign, state, local and other Tax Returns and reports
prepared and filed by or for either of Purchaser or Seller.

 

2.8           Assumed Liabilities.  On the terms and subject to
the conditions hereof, as of the Closing, Purchaser will assume only and
thereafter in due course pay, perform and discharge the following, and only the
following, liabilities and obligations of Seller (the “Assumed Liabilities”):

 

(a)           all liabilities and obligations of Seller
arising under the terms of the Contracts that are included in the Assets and
listed or described on Schedule 3.11(a) (the “Assumed Contracts”),
but only to the extent such liabilities and obligations arise after the Closing
Date (and are not based on events occurring on or prior to the Closing Date)
under the terms of such Assumed Contracts, provided, however, that Purchaser
will not assume or be responsible for any such liabilities or obligations which
arise under or in relation to any Plan or from any breach or default by Seller
under any Contract, all of which liabilities and obligations will constitute Retained
Liabilities (as defined in Section 2.9); and

 

(b)           such liabilities and obligations as are
listed on Schedule 2.8(b).

 

2.9           Retained Liabilities.  Except as provided in
Section 2.8, Seller will retain, and Purchaser will not assume or be
responsible or liable with respect to, any liabilities or obligations of Seller
or its Affiliates or their respective predecessors-in-interest, whether or not
arising out of or relating to the operation of the Business or associated with
or arising from any of the Assets or any other rights, properties or assets
used in or associated with the Business at any time, and whether fixed or
contingent, direct or indirect, or known or unknown, including, but not limited
to, liabilities relating to warranties and service obligations relating to the
operation of the Business by the Seller, liabilities for Taxes relating to the
sale of the Assets and liabilities with respect to any of Seller’s employees
(collectively the “Retained Liabilities”).

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Seller hereby represents and warrants to, and
covenants and agrees with, Purchaser that as of the date hereof and as of the
Closing Date:

 

3.1           Organization and Good Standing.

 

(a)           Each of Seller and its Subsidiaries has been
duly organized and is existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation with full power and authority
(corporate and other) to own and lease its assets and properties and to conduct
its business and the operation of the Business as currently conducted.  Each of Seller and its Subsidiaries has been
duly qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each jurisdiction set forth on
Schedule 3.1(a), such jurisdictions comprising all jurisdictions in which
Seller or any of its Subsidiaries owns or leases

 

8

 

any property, or conducts any business, so as
to require such qualification, except where any failure to qualify would not
have a Material Adverse Effect, as defined in Article I.

 

(b)           Except as set forth in Schedule 3.1(b),
Seller has no Subsidiary nor owns or controls, or has any other equity
investment or other interest in, directly or indirectly, any corporation, joint
venture, partnership, association or other entity.

 

3.2           Authorization and Effect of
Agreement. 
Seller has the requisite corporate power and authority to execute and
deliver this Agreement and the Ancillary Agreements to which Seller is a party
and to perform the transactions contemplated hereby and thereby to be performed
by Seller.  The execution and delivery by
Seller of this Agreement and the Ancillary Agreements and the performance by
Seller of the transactions contemplated hereby and thereby to be performed by
Seller has been duly authorized by all necessary action on the part of Seller’s
board of directors and, if applicable, holders of the Seller’s indebtedness,
and no vote of Seller’s stockholders is required.  This Agreement has been duly executed and
delivered by Seller, and this Agreement is, and the Ancillary Agreements to
which Seller is a party will be, when duly executed and delivered by Seller,
assuming the due execution and delivery of this Agreement and the Ancillary
Agreements to which Purchaser is a party by Purchaser, legal, valid and binding
obligations of Seller enforceable in accordance with their respective terms.

 

3.3           No Restrictions Against Sale of
the Assets.  Except as listed or described on
Schedule 3.3, the execution and delivery of this Agreement and the
Ancillary Agreement to which Seller is a party by Seller do not, and the
performance by Seller of the transactions contemplated hereby and thereby to be
performed by it will not, conflict with, or result in any violation of, or
constitute a default (with or without notice or lapse of time, or both) under,
or give rise to a right of termination, cancellation or acceleration of any
obligation or to loss of a material benefit under, (a) the certificate of
incorporation or bylaws of Seller, (b) any Legal Requirement to which
Seller or any of the Assets is subject, (c) any Contract or other material
agreement, instrument or obligation of Seller, or (d) any licenses of
Seller.  No consent, approval, order or
authorization of, or registration, declaration or filing with, any Person or
Governmental Entity is required to be obtained or made by or with respect to
Seller under any Legal Requirement in connection with the execution and
delivery of this Agreement or the Ancillary Agreements by Seller or the
performance by Seller of the transactions contemplated hereby or thereby to be
performed by it, except as set forth on Schedule 3.3.

 

3.4           Financial Statements; SEC Reports.

 

(a)           (i) The
audited balance sheets of Seller at October 31, 2003 and 2004, and the
related audited statements of income, shareholders’ equity and cash flows for
the years then ended (the “Audited Financial Statements”) included in Seller’s
Annual Report on Form 10-K for the year ended October 31, 2004, and
(ii) the unaudited balance sheets of Seller quarters ended
January 31, April 30 and July 31, 2005 (the balance sheet at
July 31, 2005 referred to as the “Interim Balance Sheet”), and the related
statement of income for the quarters then ended, included in Seller’s Quarterly
Reports on Forms 10-Q for the quarters ended January 31, April 30 (as
amended), and July 31, 2005, including, where available, in each case, the
notes thereto (the

 

9

 

financial statements described
in clause (i) and (ii) above are collectively referred to as the “Financial
Statements”).

 

(b)           The
Financial Statements fairly present, in all material respects, the financial
condition of the Seller and the Business as of the dates indicated therein and
the results of operations and changes in financial position of the Seller and
the Business for the periods specified therein, have been prepared in
conformity with generally accepted accounting principles (“GAAP”) applied on a
consistent basis during the periods covered thereby and prior periods (except
in each case as stated in the applicable footnotes or auditor’s report and
except, in the case of interim financial statements, for year end adjustments).

 

(c)           The
Seller has no liabilities or obligations which would be required under GAAP to
be reflected on a balance sheet of the Seller as of the date of this Agreement,
except for liabilities and obligations (i) reflected or reserved against
in the Interim Balance Sheet, (ii) incurred or arising in the ordinary
course of business since October 31, 2004, (iii) incurred or arising
other than in the ordinary course of business since October 31, 2004 and
not, individually or in the aggregate, material, or (iv) described on
Schedule 3.4(c).

 

(d)           As
of their respective dates, Seller’s annual reports on Form 10-K for the
fiscal years ended October 31, 2003 and 2004, and all quarterly reports on
Form 10-Q, current reports on Form 8-K, proxy statements and other
forms and reports filed with the SEC since November 1, 2003 (other than
the financial statements (including the notes thereto) filed as a part thereof
or incorporated by reference therein about which no representation is made
hereby) (the “Seller SEC Documents”), in so far as they relate to the Assets or
the Business, complied in all material respects with the requirements of the
Exchange Act and the Sarbanes-Oxley Act and the rules and regulations of
the SEC promulgated thereunder applicable to such Seller SEC Documents, and
none of the Seller SEC Documents when filed contained any untrue statement of a
material fact or omitted to state a material fact, in either case only in so
far as such fact or omission relates to the Assets or the Business, required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.  Seller has filed with the SEC all reports and
forms required to be filed by Seller with the SEC since November 1, 2003.

 

3.5           Operation of the Business Since
October 31, 2004. 
Except as described on Schedule 3.5, since October 31, 2004
(the “Balance Sheet Date”), Seller has conducted the operation of the Business
in the Ordinary Course, and no change has occurred which materially and
adversely affects the Assets or the condition (financial or otherwise), results
of operations or prospects of the Business, nor, to Seller’s knowledge, have
any events occurred nor do there exist any circumstances which might reasonably
be expected to result, either before or after the Closing Date, in any such
change.

 

3.6           Title to Assets; Licenses.

 

(a)           Seller has, and immediately prior to the
Closing will have, good, marketable and exclusive title to all of the Assets
reflected on the Balance Sheet as owned by Seller and all of the Assets
acquired by Seller since the Balance Sheet Date, in each case free and

 

10

 

clear of all Liens except as set forth on
Schedule 3.6(a).  Seller has the
valid and enforceable power and unqualified right to use and Transfer to
Purchaser, the Assets.

 

(b)           Schedule 3.6(b) contains a list of
all licenses relating to the Business under which Seller is the licensee,
together with (i) the nature of each of the licensed Assets, (ii) the
termination date of each such license, (iii) the name of the licensor,
(iv) all payments made or required to be made for the fiscal year ended
October 31, 2004, and (v) all prepaid payments made thereunder.  All licenses pursuant to which Seller
licenses from others property are valid, subsisting in full force and effect in
accordance with their respective terms, and there is not, under any license,
any existing default or event of default (or event that, with notice or passage
of time, or both, would constitute a default, or would constitute a basis of
force majeure or other claim of excusable delay or nonperformance).  Seller has the valid and enforceable right to
use and Transfer to Purchaser Seller’s rights in and to the licensed
Assets.  True and complete copies of all
licenses listed on Schedule 3.6(b) have been delivered to Purchaser
heretofore.  Except as set forth on
Schedule 3.6(b), no such license will require the consent of the licensor
to, or as a result of, the consummation of the transactions contemplated by
this Agreement.

 

(c)           The delivery to Purchaser at Closing of the
instruments of Transfer contemplated by this Agreement will vest in Purchaser
good, marketable and exclusive title to the Assets, free and clear of all
Liens, except for Liens listed or described on Schedule 3.6(a).

 

(d)           Except as set forth in Schedule 3.6(d),
no Person, other than Seller, has any rights or interests in the Assets or the
Business.

 

(e)           The Assets include all of the assets,
property and rights, tangible or intangible, required by Purchaser to operate
the Business, as currently operated on a stand alone basis after the Closing
and which are held and used in or held for use in the operation of the Business
by Seller.

 

3.7           No Litigation. 
Except as set forth on Schedule 3.7, there is no outstanding
judgment, order, decree, award, stipulation or injunction of any Governmental
Entity or arbitrator against or Action pending or, to Seller’s Knowledge,
threatened, against Seller relating to or affecting the Business or the Assets
or affecting Seller’s ability to perform its obligations under this Agreement
or under any agreement or instrument contemplated by this Agreement.  Any Action for defective or allegedly
defective products or workmanship pending or threatened against Seller, and the
details of such Action, are described on Schedule 3.7.

 

3.8           Income and Other Taxes.  Except as set forth on
Schedule 3.8:

 

(a)           All Tax Returns required to be filed through
and including the date hereof in connection with the operations of the Business
are true, complete and correct in all respects and have been properly and
timely filed.  Seller has not requested
any extension of time within which to file any Tax Return, which Tax Return has
not since been filed. No Liens have been imposed on or asserted against any of
the Assets as a result of or in connection with any failure to pay any Taxes;

 

11

 

(b)           All Taxes required to be paid or withheld and
deposited through and including the date hereof in connection with the Business
have been duly and timely paid or deposited by Seller. Seller has properly
withheld or collected all amounts required by law for income Taxes and
employment Taxes relating to its employees, creditors, independent contractors
and other third parties, and for sales Taxes on sales, and has properly and
timely remitted such withheld or collected amounts to the appropriate
Governmental Entity. Seller has no liabilities for any Taxes for any taxable
period ending prior to or coincident with the Closing Date; and

 

(c)           No Tax Return of Seller is currently being
audited or is the subject of other Action by any Governmental Entity. Seller
has not received any notice from any Governmental Entity of any pending
examination or any proposed deficiency, addition, assessment, demand for
payment or adjustment relating to or affecting Seller, the Business or the
Assets and Seller has no reason to believe that any Governmental Entity may
assess (or threaten to assess) any Taxes for any periods ending on or prior to
the Closing Date.

 

3.9           Employee Benefit Matters.  Schedule 3.9 contains a
complete list of all Plans. Each Plan and related trust, annuity, or other
funding agreement complies and has been maintained in compliance with all
applicable Legal Requirements. Purchaser is not assuming, and shall not be
subject to, any liabilities or obligations to Seller’s employees as a result of
the consummation of the transactions contemplated by this Agreement. All
contributions, premiums, and other payments, including, without limitation,
employer contributions and employee salary reduction contributions, have been
paid when due or accrued in accordance with the past custom and practice of
Seller and any ERISA Affiliate.  There
are no pending or, to Seller’s knowledge, threatened Actions (other than
routine claims for benefits) asserted or instituted against any Plan or the
assets of any Plan, or against Seller, or ERISA Affiliate, trustee,
administrator, or fiduciary of such Plan, and Seller has no knowledge of any
facts that could form the basis of any such Action. Neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will constitute a termination of employment or other event
entitling any Person to any additional or other benefits, or that would
otherwise modify benefits or the vesting of benefits, provided under any
Plan.  No event has occurred which could
subject Seller or any ERISA Affiliate to any material liability (i) under
any Legal Requirement relating to any Plan, or (ii) resulting from any
obligation of Seller or an ERISA Affiliate to indemnify any Person against
liability incurred with respect to or in connection with any Plan.

 

3.10         Governmental Approvals.

 

(a)           Seller possesses, and is operating in
compliance with, all approvals material to the operation of the Business (“Approvals”).  Schedule 3.10(a) contains a true
and complete list of all Approvals.  Each
Approval has been lawfully and validly issued, and no proceeding is pending or,
to Seller’s knowledge, threatened looking toward the revocation, suspension or
limitation of any Approval.  Each of the
Approvals is in full force and effect, and Seller is in compliance with all of
the provisions of the Approvals.

 

(b)           Except as set forth on Schedule 3.10(b),
each of the Approvals (i) is assignable by Seller to Purchaser as
contemplated by the Agreement and (ii) will be Transferred

 

12

 

to Purchaser by Seller’s delivery to
Purchaser at Closing of the instruments of Transfer contemplated by this
Agreement and will thereafter remain in full force and effect.  Except as set forth on Schedule 3.10(b),
no notice to or consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity or other third party is
required to be obtained or made in connection with the Transfer to Purchaser of
the Approvals.

 

(c)           The Approvals are all of the rights and
authorizations required by Legal Requirements for the operation of the
Business.  All of the Approvals are owned
or held by Seller free and clear of all Liens or other encumbrances of any
nature whatsoever.

 

(d)           To Seller’s knowledge, Seller or Purchaser
would be able to renew all such Approvals by the terms thereof or in the
ordinary course of business without the need to comply with any special
qualifications procedures or to pay any amounts other than regular fees
prescribed by law.

 

3.11         Assumed Contracts.

 

(a)           Schedule 3.11(a) contains a true
and complete list and description of all Assumed Contracts, other than the
Plans. True and complete copies of all such Assumed Contracts have been
delivered to Purchaser heretofore.

 

(b)           Except as described in Schedule 3.11(b):

 

(i)            each Contract is legal, valid, binding,
enforceable and in full force and effect;

 

(ii)           no event or condition has occurred or become
known to Seller or, to Seller’s knowledge, is alleged to have occurred that
constitutes or, with notice or the passage of time, or both, would constitute a
default or a basis of force majeure or other claim of excusable delay,
termination, nonperformance or accelerated or increased rights by Seller or any
other Person under any of the Contracts;

 

(iii)          no person with whom Seller has a Contract is
in default thereunder or has failed to perform fully thereunder by reason of
force majeure or other claim of excusable delay, termination or nonperformance
thereunder;

 

(iv)          none of the Contracts currently is in the
process of renegotiation, either in whole or in part;

 

(v)           no consent of any third party is required
under any Contract as a result of or in connection with, and the enforceability
of any Contract will not be affected in any manner by, the execution, delivery
and performance of this Agreement;

 

(vi)          no Contract has materially impaired or will
materially impair the ability of Seller to perform its obligations under this
Agreement; and

 

13

 

(vii)         no Assumed Contract which is a license
contains any minimum quantity commitments.

 

3.12         Employee and Labor Matters.

 

(a)           Schedule 3.12(a) contains a true
and complete list of all labor, collective bargaining, union and similar
agreements under or by which Seller is obligated, and true and complete copies
of all such agreements have been delivered to Purchaser heretofore.

 

(b)           Purchaser does not and will not have any
responsibility for retaining any person in the employ (or retaining any person
as a consultant) from and after the Closing or have any liability for any
severance payments to or similar arrangements with any such Person.

 

(c)           There is not occurring or, to Seller’s
knowledge, threatened, any strike, slow down, picket, work stoppage or other
concerted action by any union or other group of employees or other persons
against Seller or its products. Except for activities by the unions that are
parties to any of the agreements listed on Schedule 3.12(a) with
respect to the existing members of such unions, to Seller’s knowledge, no union
or other labor organization has attempted to organize any of the employees of
Seller engaged in the Business.

 

(d)           Seller has complied with all Legal
Requirements relating to employment and labor, and, to Seller’s knowledge, no
facts or circumstances exist that could provide a reasonable basis for a claim
of wrongful termination by any current or former employee of Seller engaged in
the Business.

 

(e)           Schedule 3.12(e) contains a
complete list of all of the current employees of Seller who are employed in
connection with the Business (“Employees”) and, for each Employee, his or her
current title, current annual base salary or wages and date of hire.  None of the Employees listed on
Schedule 3.12(e) is a member of any collective bargaining unit or is
a party to any employment agreement with Seller.

 

3.13         Principal Customers and Suppliers.

 

(a)           Schedule 3.13(a) contains a true
and complete list of the name and address of each customer that purchased in
excess of 5% of Seller’s sales of goods or services of the Business during the
twelve months ended on October 31, 2004, and since that date no such
customer has terminated its relationship with or adversely curtailed its
purchases from Seller or indicated (for any reason) its intention so to
terminate its relationship or curtail its purchases.

 

(b)           Schedule 3.13(b) contains a true
and complete list of each supplier from whom Seller purchased in excess of 5%
of Seller’s purchases of goods or services of the Business during the twelve
months ended on October 31, 2004 and since that date no such supplier has
terminated its relationship with or adversely curtailed its accommodations,
sales or services to Seller or indicated (for any reason) its intention to
terminate such relationship or curtail its accommodations, sales or services.

 

14

 

(c)           Except as set forth on Schedule 3.13(c),
Seller is not involved in any claim or controversy with any of the customers or
suppliers who are listed on Schedule 3.13(a) or 3.13(b).

 

3.14         Compliance with Law.  Through and including the date hereof, Seller
(i) has not violated or operated the Business in violation of, and has not
used the Assets in violation of, any Legal Requirement, (ii) to Seller’s
knowledge, has not been alleged to be in violation of any Legal Requirement,
and (iii) has not received any notice of any alleged violation of, or any
citation for noncompliance with, any Legal Requirement.

 

3.15         Product Warranties.  Except as set forth in Schedule 3.15,
(a) there are no warranties express or implied, written or oral, with
respect to the Business and (b) there are no pending or threatened claims
with respect to any such warranty, and Seller has no liability with respect to
any such warranty, whether known or unknown, absolute, accrued, contingent or
otherwise and whether due or to become due.

 

3.16         Intellectual Property.

 

(a)           Title. 
Schedule 3.16(a) contains a complete and correct list of all
Intellectual Property that is owned by Seller and primarily related to, used
in, held for use in connection with, or necessary for the conduct of, or otherwise
material to the Business (the “Owned Intellectual Property”).  Seller owns or has the right to use pursuant
to license, sublicense, agreement or permission all Intellectual Property,
including all Intellectual Property Rights, free and clear of any Liens (except
as set forth on Schedule 3.6(a)) and free from any requirement of any
past, present or future royalty payments, license fees, charges or other
payments, or conditions or restrictions whatsoever.  The Intellectual Property comprises all of the
Intellectual Property and Intellectual Property Rights used in and/or necessary
to the conduct and operation of the Business as now being conducted by Seller
or as currently contemplated to be conducted, including, but not limited to,
all Intellectual Property used by Gempack in connection with the Business.

 

(b)           Development. 
Other than “shrink-wrap” and similar widely available binary code and
commercial end-user licenses, to the extent that any Intellectual Property has
been developed or created independently or jointly by any Person other than
Seller for which Seller has, directly or indirectly, paid, Seller has a written
agreement with such Person with respect thereto, and Seller thereby has
obtained ownership of, and is the exclusive owner of, all such Intellectual
Property and associated Intellectual Property Rights by operation of law or by
valid assignment.  None of the
Intellectual Property was developed by or on behalf of or using grants or any
other subsidies of any governmental entity.

 

(c)           Transfer. 
Immediately after the Closing, Purchaser will own all of the Owned
Intellectual Property and will have a right to use all other Intellectual
Property, free and clear of any Liens (except as set forth on Schedule 3.6(a))
and on the same terms and conditions as in effect prior to the Closing.

 

15

 

(d)           No
Infringement.  The operation of the Business does not, and
will not, when conducted by Purchaser, infringe or otherwise conflict with any
rights of any Person in respect of any Intellectual Property.  Except as set forth on Schedule 3.16(d),
Seller has not received any notice from any Person claiming that such operation
or any act, product, technology or service of Seller infringes or
misappropriates the Intellectual Property of any Person (nor does Seller have
knowledge of any claims or any basis therefor). 
There have been no assertions to Seller by any Persons relating to the
invalidity or unenforceability of any Intellectual Property.  To Seller’s knowledge, none of the
Intellectual Property is being infringed or otherwise used or available for use,
by any other Person.

 

(e)           Licensing
Arrangements.  Schedule 3.16(e) sets forth all
agreements, arrangements or laws (i) pursuant to which Seller has licensed
Intellectual Property to, or the use of Intellectual Property is otherwise
permitted (through non-assertion, settlement or similar agreements or
otherwise) by, any other Person and (ii) pursuant to which Seller has had
Intellectual Property licensed to it, or has otherwise been permitted to use
Intellectual Property (through non-assertion, settlement or similar agreements
or otherwise).  All of the agreements or
arrangements set forth on Schedule 3.16(e)(x) are in full force and effect
in accordance with their terms and no default exists thereunder by Seller, or
to the knowledge of Seller after due inquiry, by any other party thereto, (y)
are free and clear of all Liens, and (z) do not contain any change in control
or other terms or conditions that will become applicable or inapplicable as a
result of the consummation of the transactions contemplated by this
Agreement.  The consummation of the
transactions contemplated by this Agreement will neither violate nor result in
the breach, modification, cancellation, termination or suspension of such
arrangements and agreements.  Seller has
delivered to Purchaser true and complete copies of all licenses and
arrangements (including amendments) set forth on Schedule 3.16(e).  All royalties, license fees, charges and
other amounts payable by, on behalf of, to, or for the account of, the Seller
in respect of any Intellectual Property are disclosed in the Financial
Statements.

 

(f)            No
Intellectual Property Litigation or Disputes.  No claim or demand of any
Person has been made nor is there any proceeding that is pending, or to the
knowledge of Seller after due inquiry, threatened, nor is there a reasonable
basis therefor, which (i) challenges the rights of Seller in respect of
any Intellectual Property, (ii) asserts that Seller is infringing or
otherwise in conflict with, or is, except as set forth in Schedule 3.16(f),
required to pay any royalty, license fee, charge or other amount with regard
to, any Intellectual Property, or (iii) claims that any default exists
under any agreement or arrangement listed on Schedule 3.16(f).  None of the Intellectual Property is subject
to any outstanding order, ruling, decree, judgment or stipulation by or with
any court, arbitrator, or administrative agency, or has been the subject of any
litigation within the last five years, whether or not resolved in favor of
Seller.  Except as set forth in Schedule 3.16(f),
there are no contracts, licenses or agreements between Seller and any other
Person with respect to the Intellectual Property under which there is any
dispute regarding the scope of such agreement or performances under such agreement,
including with respect to any payments to be made or received by Seller
thereunder.

 

(g)           Due
Registration, Etc.  To the extent deemed necessary or appropriate
by Seller, the Owned Intellectual Property has been duly registered with, filed
in or issued by, as the case may be, the United States Patent and Trademark
Office, United States Copyright Office or

 

16

 

such
other filing offices, domestic or foreign, and Seller has taken such other
reasonable steps to ensure full protection under any applicable laws or
regulations, and such registrations, filings, issuances and other actions
remain in full force and effect.  Seller
has no knowledge of any necessary steps to protect the Intellectual Property which
have not been taken, which if not taken would jeopardize Seller’s Rights to the
Intellectual Property.  In each case in
which Seller has acquired any Intellectual Property related to the Business
from any Person, Seller has obtained a valid and enforceable assignment
sufficient to irrevocably transfer all rights in such Intellectual Property to
Seller and, to the maximum extent provided for by, and in accordance with,
applicable laws and regulations, Seller has recorded each such assignment with
the relevant governmental authorities, including the PTO, the U.S. Copyright
Office, or respective equivalents in any relevant foreign jurisdiction, as the
case may be.

 

(h)           Use
of Name and Mark.  Except as set forth in Schedule 3.16(h),
there are, and immediately after the Closing will be, no contractual
restriction or limitations pursuant to any orders, decisions, injunctions,
judgments, awards or decrees of any Governmental Authority on the Purchaser’s
right to use the names and marks identified in Schedule 3.16(a) in
the conduct of the Business as presently carried on by Seller or as such
Business may be extended by Purchaser.

 

(i)            Protection
of Information.  Seller has taken reasonable steps to protect
Seller’s rights in Seller’s confidential information and trade secrets that it
wishes to protect or any trade secrets or confidential information of third
parties provided to Seller relating to the Business, and, without limiting the
foregoing, Seller has and enforces a policy requiring each employee and consultant
engaged in the Business to execute a proprietary information/ confidentiality
agreement substantially in the form provided to Seller and all current and
former employees and consultants of Seller engaged in the Business have
executed such an agreement.

 

(j)            Effect
of Agreement.  Neither this Agreement nor the transactions
contemplated by this Agreement, including the assignment to Purchaser
expressly, by operation of law or otherwise of any contracts or agreements,
will result in (i) Purchaser or Seller granting to any third party any right to
or with respect to any Intellectual Property owned by, or licensed to, any of
them (ii) Purchaser being bound by, or subject to, any non-competition or
other material restriction on the operation or scope of its businesses or (iii) Purchaser
being obligated to pay any royalties or other material amounts to any third
party in excess of those payable by Seller with respect to the Business, in the
absence of this Agreement or the transactions contemplated hereby.

 

(k)           Intellectual Property Licensed to
Gempack.  All Intellectual Property
currently licensed by Seller to Gempack and used in the Business is listed on Schedule 3.16(k).

 

3.17         Operation of the Business.  Except as set forth in Schedule 3.17,
(a) Seller has operated the Business only through Seller and not through
any other divisions or any direct or indirect subsidiary or affiliate of Seller
and (b) no part of the operation of the Business is operated by or through
any entity other than Seller.

 

17

 

3.18         Environmental Matters.

 

(a)           Hazardous
Material.  Except as would not result in material
liability to Seller, no underground storage tanks and no amount of any
substance that has been designated by any Governmental Entity or by applicable
Legal Requirement to be radioactive, toxic, hazardous or otherwise a danger to
health or the environment, including, without limitation, PCBs, asbestos,
petroleum, urea-formaldehyde and all substances listed as hazardous substances pursuant
to the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office and janitorial
supplies, (a “Hazardous Material”) are present, as a result of the actions of
Seller or any affiliate of Seller, or, to Seller’s knowledge, as a result of
any actions of any third Person or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water
thereof, that Seller has at any time owned, operated, occupied or leased in
connection with the operation of the Business.

 

(b)           Hazardous
Materials Activities.  Except as would not result in a material
liability to Seller (in any individual case or in the aggregate) (i) Seller
has not transported, stored, used, manufactured, disposed of, released or
exposed its employees or others to Hazardous Materials in violation of any
Legal Requirement in effect on or before the Closing Date in connection with
the operation of the Business, and (ii) Seller has not disposed of,
transported, sold, used, released, exposed its employees or others to or
manufactured any product containing a Hazardous Material (collectively “Hazardous
Materials Activities”) in violation of any Legal Requirement promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity in
connection with the operation of the Business.

 

(c)           Permits. 
Seller currently holds all environmental approvals, permits, licenses,
clearances and consents (the “Seller Environmental Permits”) necessary for the
conduct of Seller’s Hazardous Material Activities and other activities of the
Business.

 

(d)           Environmental
Liabilities.  No action, proceeding, revocation proceeding,
amendment procedure, writ or injunction is pending, and to Seller’s knowledge,
no action, proceeding, revocation proceeding, amendment procedure, writ or
injunction has been threatened by any Governmental Entity against Seller in a
writing delivered to Seller concerning any Seller Environmental Permit,
Hazardous Material or any Hazardous Materials Activity of Seller.  Seller knows of no fact or circumstance which
could involve Seller in any environmental litigation or impose upon Seller any
material environmental liability.

 

3.19         Insurance.  Schedule 3.19
contains a true and complete list of all insurance policies and bonds and self
insurance arrangements currently in force that cover or purport to cover risks
or losses to or associated with the Business, the Assets, employees and agents
relating to the Business and sets forth, with respect to each such policy, bond
and self insurance arrangement, a description of the insured loss coverage, the
expiration date and time of coverage, the dollar limitations of coverage, a
general description of each deductible feature and principal exclusion and the
premiums paid and to be paid prior to expiration. The insurance policies, bonds

 

18

 

and
arrangements described on Schedule 3.19 (the “Policies”) provide such
coverage against such risk of loss and in such amounts as are customary for
corporations of established reputation engaged in the same or similar
operations as the Business.

 

3.20         Brokers’ Fees.  No
broker, finder or similar agent has been employed by or on behalf of Seller in
connection with this Agreement or the transactions contemplated hereby, and
Seller has not entered into any agreement or understanding of any kind with any
person or entity for the payment of any brokerage commission, finder’s fee or
any similar compensation in connection with this Agreement or the transactions
contemplated hereby.

 

3.21         Disclosure.  No
representation or warranty of Seller in this Agreement and no information
contained in any Schedule or other writing delivered pursuant to this
Agreement or at the Closing contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
any of them herein or therein, in light of the circumstances in which it was
made, not misleading.

 

3.22         Transactions with Affiliates. 
Except as set forth on Schedule 3.22, there are no written or oral
contracts or agreements between Seller and its Affiliates relating to the
Business.

 

3.23         No Liquidation or Winding-Up;
Fairness of Consideration.

 

(a)           No order has been made or petition presented,
or resolution passed for the winding-up or liquidation of Seller and there is
not outstanding: (i) any petition or order for the winding-up of Seller; (ii) any
appointment of a receiver over the whole or part of the undertaking of assets
of Seller; (iii) any petition or order for administration of Seller; (iv) any
voluntary arrangement between Seller and any of its creditors; (v) any
distress or execution or other process levied in respect of Seller which
remains undischarged; or (vi) any unfulfilled or unsatisfied judgment or
court order against Seller relating to the Business or the Assets.

 

(b)           There are no circumstances which would
entitle any Person to present a petition for the winding-up or administration
of Seller or to appoint a receiver over the whole or any part of the Assets of
Seller.

 

(c)           Seller is not deemed unable to pay its debts
within the meaning of applicable law.

 

(d)           Neither the execution and delivery of this
Agreement nor the performance of the transactions contemplated hereby will
result in a transfer which is fraudulent under 6 Del. C. §§1304 or 1305.

 

(e)           The operations of Seller have not been
terminated.

 

(f)            The consideration paid by Purchaser under
this Agreement for the Assets represents reasonably equivalent value for the
Assets.  Seller is not entering into this
Agreement with the intent to defraud, delay or hinder its creditors and the
consummation of the transactions contemplated by this Agreement will not have
any such effect.

 

19

 

3.24         No Undisclosed Liabilities.  Except (i) as set forth
on Schedule 3.24, (ii) as reflected in Seller’s audited financial
statements for the year ended October 31, 2003 and (iii) for
liabilities incurred in the ordinary and usual course of business and
consistent with past practice since October 31, 2003, the Business does
not have any liability of any nature, whether or not absolute, accrued,
contingent or otherwise, whether known or unknown, that individually or in the
aggregate have had or are reasonably likely to have, a Material Adverse Effect
on the Business.

 

3.25         Approval and Adoption
Requirements; No Sale of All or Substantially All the Assets.  The
only approval or consent necessary to approve this Agreement, the Transfer and
the other transactions contemplated hereby, under Delaware Law, is the approval
of Seller’s Board of Directors, and no other corporate proceedings are
necessary to approve this Agreement or to consummate the transactions
contemplated hereby.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Purchaser hereby represents and warrants to, and
covenants and agrees with, Seller that:

 

4.1           Organization and Good Standing. 
Purchaser has been duly organized and is existing as a corporation in
good standing under the laws of the State of Delaware with full corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby.

 

4.2           Execution and Delivery.  This Agreement and the
Ancillary Agreements have been duly authorized by all necessary corporate
action on the part of Purchaser, this Agreement has been duly executed and
delivered by Purchaser and the Ancillary Agreements when duly executed and
delivered by Purchaser, assuming the due execution and delivery by Seller, will
be legal, valid and binding agreements of Purchaser enforceable against
Purchaser in accordance with their respective terms.

 

4.3           No Conflicts.  The
execution, delivery and performance of this Agreement and the Ancillary
Agreements by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby will not conflict with or result in the violation of the
provisions of the Certificate of Incorporation or Bylaws of Purchaser.

 

4.4           Compliance with Law.  Through and including the date hereof,
Purchaser (i) to Purchaser’s knowledge, has not been alleged to be in
violation of any Legal Requirement, and (ii) has not received any notice
of any alleged violation of, or any citation for noncompliance with, any Legal
Requirement.

 

4.5           No Restrictions Against Purchase
of Assets.  Except as listed or described on Schedule 4.5,
the execution and delivery of this Agreement and the Ancillary Agreements by
Purchaser do not and the performance by Seller of the transactions contemplated
hereby and thereby to be performed by it will not, conflict with, or result in
any violation of, or constitute a

 

20

 

default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under, (a) the certificate of incorporation or
bylaws of Purchaser, (b) any Legal Requirement to which Purchaser is
subject, (c) any material agreement of Purchaser, or (d) any material
licenses of Purchaser.  No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required to be obtained or made by or with
respect to Purchaser under any Legal Requirement in connection with the
execution and delivery of this Agreement or the Ancillary Agreements by
Purchaser or the performance by Purchaser of the transactions contemplated
hereby and thereby to be performed by it.

 

ARTICLE V

ADDITIONAL COVENANTS

 

5.1           Covenants of Seller.  Seller agrees to:

 

(a)           use its best efforts to obtain (and to
cooperate with Purchaser in obtaining) any consent, authorization or approval
of, or exemption by, any Person required to be obtained or made by Seller in
connection with the transactions contemplated by this Agreement; and

 

(b)           use its best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Article VI
of this Agreement.

 

5.2           Covenants of Purchaser.  Purchaser agrees to use its
best efforts to bring about the satisfaction of the conditions precedent to
Closing set forth in Section 6.2 of this Agreement.

 

5.3           Expenses.  All
costs and expenses (including, without limitation, all legal fees and expenses
and fees and expenses of any brokers, finders or similar agents) incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring the same.

 

5.4           Further Assurances.

 

(a)           Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use its best efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Legal Requirements, to
consummate and make effective the transactions contemplated by this Agreement.

 

(b)           If at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
Seller and Purchaser, and the proper officers or directors of Seller and
Purchaser, as the case may be, shall take or cause to be taken all such
necessary or convenient action and execute, and deliver and file, or cause to
be executed, delivered and filed, all necessary or convenient documentation.

 

(c)           Without limiting the foregoing, Seller hereby
agrees that it shall use its best efforts and take any further action necessary
or desirable in accordance with all applicable

 

21

 

laws
to protect any and all trade secrets and confidential or proprietary
information related to the Business from disclosure or use by any current or
future employees.

 

5.5           Inconsistent Action.  Seller shall not take or cause
or suffer to be taken, any action that would cause any of the representations
or warranties of Seller in this Agreement to be untrue, incorrect, incomplete
or misleading.

 

5.6           Employee Matters.

 

(a)           Seller acknowledges and agrees that after the
Closing (a) except as set forth on Schedule 5.6(a)(i), neither
Purchaser nor Seller shall be required to employ or retain any employee of Seller
or any other Person, and (b) Purchaser, in its sole and absolute
discretion, may hire all, some, or none of the Employees.  Seller agrees not to terminate the employment
of any employee who is listed on Schedule 5.6(a) for the period
commencing on the date hereof through the period ending ninety days after the
Closing Date unless such employee engages in willful or grossly negligent
misconduct to the detriment of Seller or the Business.  Seller shall not be required to maintain the
employment of any employee who does not desire to remain employed by Seller or
Purchaser.

 

(b)           Except to the extent expressly included in
Assumed Liabilities or in another paragraph of this Section 5.6, Purchaser
does not, and shall not, assume or be responsible for any obligation or
liability arising out of any employment relationship of Seller, and without
limiting the foregoing, Purchaser shall have no liability or obligation in
connection with current or former employees or agents of Seller or any
dependent or beneficiary of any of them by reason of their relationship to
Seller.  Without limiting the foregoing,
Seller shall remain liable for, and shall pay on or before the Closing, the
following in connection with current or former employees or agents of Seller
(or any dependent or beneficiary of them):

 

(i)            unpaid wages, salaries or other compensation;

 

(ii)           contributions to or payments under employee
benefit plans, programs, policies, arrangements or understandings;

 

(iii)          accrued, but unused, holiday, sick leave and
severance pay, if any;

 

(iv)          liabilities or obligations under any
collective bargaining agreement or bargaining relationship; or

 

(v)           claims, demands, administrative proceedings
or suits arising out of, or in connection with, alleged unlawful employment
practices of Seller.

 

(c)           Seller shall remain responsible for all
liabilities and obligations in connection with claims for post-employment
medical, vision and dental benefits that may be required under IRC Section 4980B
made by or in respect of any employee of Seller whose employment terminated on
or prior to the Closing Date and any “qualified beneficiary” (within the
meaning of IRC Section 4980B) of any such employee who is receiving
post-employment

 

22

 

medical
and dental benefits or whose “qualifying event” (within the meaning of IRC Section 4980B)
entitling such individual to such benefits occurred on or before the Closing
Date.

 

(d)           Seller shall be responsible for giving any
notice that may be required by the Worker Adjustment and Retraining
Notification Act (“WARN”), or any similar state or local statue or ordinance,
as a result of the purchase of the Business both as to (i) layoffs or
facility closings ordered prior to the Closing Date, including layoff of employees
who are not employed or retained by Purchaser, or (ii) decisions to layoff
employees employed or retained by Purchaser made within 90 days after the
Closing Date.  Purchaser agrees to give
Seller notice of any decision to layoff employees employed or retained by
Purchaser made within 90 days after the Closing Date.

 

5.7           Assignments; Consents.  To the extent that the
assignment of any Contract, license or other agreement or arrangement or any
claim, right or benefit arising thereunder or resulting therefrom is not
permitted without the consent of a third party, this Agreement shall constitute
Seller’s agreement to obtain such consent, upon Purchaser’s request.  Upon Purchaser’s request, Seller shall use
its commercially reasonable efforts to obtain any such consent after the
Closing Date until such time as such consent has been obtained, and Seller will
cooperate with Purchaser in any lawful and economically feasible arrangement to
provide that Purchaser shall receive the interest of Seller in the benefits
under any such Contract, license or other agreement or arrangement, including
performance by Seller, as agent, if economically feasible, provided that
Purchaser shall undertake to pay or satisfy the corresponding liabilities for
the enjoyment of such benefit to the extent Purchaser would have been
responsible therefor hereunder if such consent or approval had been
obtained.  Nothing in this Section 5.7
shall be deemed a waiver by Purchaser of its right to have received on or
before the Closing an effective assignment of all of the Assets nor shall this Section 5.7
be deemed to constitute an agreement to exclude from Purchaser any of the
Assets described under Section 2.1.

 

5.8           Sufficiency of Assets.  Following the Closing, if
Purchaser determines that Seller has failed to Transfer to Purchaser any
assets, properties or rights, tangible or intangible, except for the Excluded
Assets, necessary for Purchaser to operate the Business as currently operated,
and to produce, sell, distribute, maintain, design, enhance and license, and
design and develop derivatives of, the Products, or derivatives thereof, Seller
shall promptly take all actions as shall be necessary, or otherwise reasonably
requested by Purchaser, to transfer such assets, properties and rights to
Purchaser.

 

ARTICLE VI

CONDITIONS PRECEDENT TO CLOSING

 

6.1           Conditions of Purchaser.  Notwithstanding any other
provision of this Agreement, the obligations of Purchaser to consummate the
transactions contemplated hereby shall be subject to the satisfaction, at or
prior to the Closing Date, of the following conditions:

 

(a)           There shall not be instituted and pending or
threatened any Action before any Governmental Entity (i) challenging or
otherwise seeking to restrain or prohibit the consummation of the transactions
contemplated hereby or (ii) seeking to prohibit the direct or

 

23

 

indirect
ownership or operation by Purchaser of all or a material portion of the
Business or Assets, or to compel Purchaser or Seller to dispose of or hold
separate all or a material portion of the Business or Assets of Seller or
Purchaser;

 

(b)           The representations and warranties of Seller
in this Agreement shall be true and correct as of the date of this Agreement
and shall be true and correct in all material respects (or in all respects in
the case of any representation or warranty subject to a materiality
qualification) on and as of the Closing Date with the same effect as if made on
the Closing Date, except for those representations and warranties which address
matters only as of a particular date (which shall be true and correct as of
such date) and Seller shall have complied with all covenants and agreements and
satisfied all conditions on Seller’s part in this Agreement or any Ancillary
Agreement to be performed or satisfied on or prior to the Closing Date, and
Seller shall have provided Purchaser with a certificate with respect to the
foregoing signed by an authorized officer of Seller;

 

(c)           Purchaser shall have received from counsel
for Seller, a written opinion dated the Closing Date and addressed to
Purchaser, in substantially the form attached as Exhibit G hereto;

 

(d)           Purchaser shall have received from the
President of Seller a certificate dated the Closing Date to the effect that the
conditions set forth in Section 6.1(b) have been satisfied and that
Seller’s Board of Directors has approved the Agreement, the Transfer and the
other transactions contemplated hereby;

 

(e)           Purchaser will have received such bills of
sale, assignments, certificates of title and other instruments of transfer (the
“Transfer Documents”) duly executed by Seller, in such forms and covering such
matters as Purchaser may reasonably request, Transferring the Assets to
Purchaser;

 

(f)            Seller and Dr. K. Philip Hwang shall each have entered into and delivered
to Purchaser the Noncompetition Agreements;

 

(g)           Purchaser shall have concluded (through its
representatives, accountants, counsel and other experts) an investigation of
the condition (financial and other), results of operations, properties, assets,
prospects and operations of the Business and shall be satisfied, in its sole
discretion, with the results thereof;

 

(h)           All corporate and other proceedings and
actions taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments, releases and documents
referenced herein or incident to the transactions contemplated hereby shall be
in form and substance satisfactory to Purchaser and its counsel;

 

(i)            All consents and assignments from third
parties, including from any Governmental Entity or other Person, relating to
the Contracts listed on Schedule 2.1(a) or the

 

24

 

conduct
and operation of the Business as currently conducted and operated, shall have
been obtained;

 

(j)            No act, event or condition shall have
occurred after the date hereof which Purchaser determines has had or could have
a Material Adverse Effect on the Business or the Assets;

 

(k)           The Board of Directors of Seller shall have
authorized and approved this Agreement and the transactions contemplated
hereby;

 

(l)            Seller, Purchaser and the Escrow Agent shall
have entered into the Escrow Agreement;

 

(m)          Seller and Purchaser shall have entered into
the Transitional Supply and Trademark License Agreement;

 

(n)           Seller and Purchaser shall have entered into
the License Agreement;

 

(o)           Seller and each of the key employees listed
on Schedule 5.6(a) shall have entered into legally binding and
enforceable non-disclosure agreements in a form satisfactory to Purchaser;

 

(p)           The Principal Stockholders and Purchaser
shall have entered into the Stockholders Agreement;

 

(q)           Gemma Hwang shall have amended and released
her security interest in all of the Assets, and shall have filed an amendment
to the UCC Financing Statements related thereto releasing the Assets from the
collateral under such filing;

 

(r)            Seller shall have received and delivered to
Purchaser a written opinion from Richards, Layton & Finger, P.A. with
respect to the approval of Seller’s Stockholders not being required under Section 271
of Delaware Law, in the form attached hereto as Exhibit I.

 

6.2           Conditions of Seller.  Notwithstanding any other
provision of this Agreement, and except as set forth below, the obligations of
Seller to consummate the transactions contemplated hereby shall be subject to
the satisfaction, at or prior to the Closing, of the conditions set forth in
subsections (a), (l), (m), (n), (o), (q) and (r) of Section 6.1 of this
Agreement, and the condition that the representations and warranties of
Purchaser in this Agreement shall be true and correct as of the date of this
Agreement and the true and correct in all material respects (or in all respects
in the case of any representations or warranty subject to a materiality
qualification) on and as of the Closing Date with the same effect as if made on
the Closing Date and Purchaser shall have complied with all covenants and
agreements and satisfied all conditions on its part to be performed or
satisfied on or prior to the Closing Date, and Purchaser shall have provided
Seller with a certificate with respect to the foregoing signed by an authorized
officer of Purchaser.

 

25

 

ARTICLE VII

POST-CLOSING OBLIGATIONS

 

7.1           Seller-Assumed Warranty Obligations. 
Notwithstanding, and not in limitation of, any other provision herein,
Seller shall assume, commencing at the Closing, all obligations and liabilities
of any nature whatsoever arising out of, relating to, or in connection with the
matters set forth in this Section 7.1.

 

(a)           Seller
shall retain sole responsibility for, and shall bear the cost of complying
with, all warranties (the “Warranties”) in existence on the Closing Date with
respect to Products sold by Seller on or prior to the Closing Date and for any
product purchased by Purchaser from Seller under the Transitional Supply and
Trademark License Agreement until the expiration of such Warranties
(collectively, “Warranty Obligations”).

 

(b)           Exhibit H
hereto sets forth the Warranties.

 

(c)           Seller
agrees to provide all services required to correct, repair or replace Products
or parts thereof covered by the Warranties in accordance with the terms of the
Warranties.  Such services shall be
consistent, in all material respects, with the quality and manner of
performance of similar services provided by or made available to under the
Warranties prior to the Closing Date. 
Seller shall use business practices, standards and internal controls
that are substantially the same as those used by Seller prior to the Closing
Date and consistent with past practices, with only such changes as are agreed
to between Seller and Purchaser, and shall maintain sufficient materials,
equipment and employees required to satisfy its Warranty Obligations hereunder,
including the continued employment of the person(s) who are designated in Schedule 7.1
as essential to the performance of Seller’s obligations under this Section 7.1.  Not in limitation of the foregoing, Seller
shall repair or replace and ship at least 95% of units of Products returned
pursuant to the terms of the Warranties in accordance with the following time
schedule:

 

(i)            within 10 business days after receipt of the
Products, for Products that were in production in the 12 calendar month period
prior to the return; and

 

(ii)           within 10 business days after receipt of the
Products, for Products that were in production in the 13 to 36 calendar month
period prior to the return.

 

7.2           Seller Supply of the Products. 
Pursuant to the terms and conditions of the Transitional Supply
Agreement, Purchaser will purchase Seller’s existing inventory of its Products
at such time that Purchaser makes sales of such Products.

 

7.3           Seller-Assumed Support Services
Obligations.  Notwithstanding any other provision herein to
the contrary, Seller shall assume, commencing on the date hereof, all
obligations and liabilities of any nature whatsoever arising out of, relating
to, or in connection with the matters set forth in this Section 7.3.

 

26

 

(a)           For the period that ends ninety days after
the Closing Date, Seller shall have the responsibility for and shall bear the
cost of providing engineering and technical support services, access to Seller’s
key personnel and documentation, introductions to vendors and customers and
other similar support (the “Transitional Services”) to assist Purchaser with
respect to the manufacturing, distribution and sales of the Products, as set
forth in Exhibit E hereto.  Services
provided by Seller under this Section 7.3(a) shall be consistent, in
all material respects, with the quality and manner of performance of similar
services provided by or made available to support the Products in connection
with Seller’s operations prior to the Closing Date.  Seller shall use business practices,
standards and internal controls that are substantially the same as those used
by Seller prior to the Closing Date and consistent with past practices, with
only such changes as are agreed to between Seller and Purchaser.

 

(b)           Seller shall designate at least one contact
person within Seller who is knowledgeable and experienced in the design,
workings, capabilities and use of the Products who will be responsible for
initially responding to inquiries relating to the support services to be
provided on behalf of Purchaser.  Seller
shall maintain sufficient materials, equipment and employees to provide the
Transitional Services under this Section 7.3, including the continued
employment of the person(s) who are designated in Schedule 7.3(b) as
essential to the Transitional Services being provided, and Seller shall perform
its services in a manner consistent with good business practices which are
customary in the industry.

 

(c)           Seller agrees that all Intellectual Property
currently licensed by Seller to Gempack, included in the Assets transferred
hereunder free and clear of all Liens, shall be delivered as part of the
Transitional Services, and all such license agreements shall be terminated and
evidence of such termination provided to Purchaser within the Transitional
Services period.

 

7.4           Continued Operations; No Bankruptcy. 
Seller intends to continue its operations consistent with its past
practices after the Closing Date, other than as contemplated by this
Agreement.  As of the date hereof and as
of the Closing Date, Seller does not intend or expect to file or seek relief
under the United States Bankruptcy Code or any other insolvency or similar law
after the Closing Date.  Seller intends
to use its commercially reasonable best efforts to discourage and avoid any
involuntary petition by creditors or others to place Seller in any bankruptcy
case or proceeding under the United States Bankruptcy Code or any other
insolvency law or similar law.

 

7.5           Product Returns.  Seller agrees that it will accept for return
and for full credit, at any time upon a customer’s request, any and all units
of Products that are in the worldwide distribution channel on the Closing Date
that are subject to any rights of return from distribution customers.

 

7.6           Stockholder Vote.  In the event of a court order to the effect
that the approval of the stockholders of Seller is required under Section 271
of Delaware Law to effect the Transfer of the Business, Seller shall promptly
use its best efforts to cause the Principal Stockholders to take any action
required under Delaware Law to give operative effect to the Stockholders’
Agreement.

 

27

 

7.7           Korea Distributor Agreement.  Purchaser and Seller agree to use their
commercially reasonable efforts to negotiate and enter into a non-exclusive
distributor agreement within thirty days after the Closing.  The agreement will contain terms similar to
those contained in Purchaser’s standard form of distributor agreement, and will
provide Seller with the non-exclusive right to distribute TeleVideo-branded
products in Korea for a one-year period.

 

7.8           Stockholders’ Agreement Opinion.  Seller agrees that within seven days after
the Closing Date, Seller shall deliver to Purchaser a written opinion of
Richards, Layton & Finger, P.A. with respect to the enforceability
under Delaware Law of the Stockholders’ Agreement and the proxy, attached
thereto.

 

7.9           Transfer of Shares subject to Stockholders’
Agreement.  Seller agrees that it will not approve the
transfer the Principal Stockholders’ shares of Seller’s common stock that are
subject to the transfer restrictions contained in the Stockholders’ Agreement,
in violation of such transfer restrictions.

 

ARTICLE VIII

INDEMNIFICATION

 

8.1           Survival. 
Notwithstanding any investigation conducted at any time with regard
thereto by or on behalf of Purchaser, the representations and warranties of
Seller contained in this Agreement or in any Exhibit or Schedule hereto
shall survive the Closing and the consummation of the transactions contemplated
hereby (and any examination or investigation by or on behalf of any party
hereto); provided, however, that (i) the representations and warranties
contained in Sections 3.2 and 3.26 and the related claims for indemnification,
shall survive until the earliest of (x) the receipt of stockholder approval of
this Agreement, the Transfer and the other transactions contemplated hereby in
accordance with Section 271 of Delaware Law, (y) October 5, 2008, if
no action has been filed alleging that stockholder approval is required
pursuant to Section 271 of Delaware Law to effect the Transfer (a “Section 271
Action”), and (z) the receipt of a non-appealable, final order of a court to
the effect that stockholder approval is not required under Section 271 of
Delaware Law to effect the Transfer, if a Section 271 Action has been
timely filed by a stockholder; (ii) the representations and warranties
contained in Sections 3.3 and 3.6, and the related claims for indemnification,
shall survive until the fifth anniversary of the Closing Date; (iii) the
representations and warranties contained in Section 3.8, and the related
claims for indemnification, shall survive until sixty (60) days after the
expiration of the applicable statute of limitations, and (iv) all other
representations and warranties, and related claims for indemnification, shall
survive until the third anniversary of the Closing Date.  The termination of the representations and
warranties provided herein shall not affect the rights of a party in respect of
any claim made by Purchaser prior to the expiration of the applicable survival
period.  The agreements and covenants
contained in this Agreement shall survive the Closing Date indefinitely or in
accordance with their terms, if any.

 

8.2           Indemnification.  Subject to the limitations in Section 8.5,
Seller covenants and agrees to defend, indemnify and hold harmless Purchaser
and each Person who controls Purchaser from and against any Damages arising out
of or resulting from: (i) any inaccuracy in or breach of any representation or
warranty made by Seller in this Agreement or in any writing

 

28

 

delivered
pursuant to this Agreement or at the Closing; (ii) the failure of Seller
to perform or observe fully any covenant, agreement or provision to be
performed or observed by Seller pursuant to this Agreement; (iii) Purchaser’s
waiver of any applicable bulk sales laws; or (iv) any claim arising out of
any oral or written agreement between Seller and DT Research, Inc. or its
affiliates.

 

8.3           Procedures.  If
Purchaser seeks indemnification under this Article VIII, it shall give
notice (“Claim Notice”) to Seller of the basis of the claim (the “Claim”) (i) within
a reasonable time after discovery of the facts and (ii) in any event,
within the time periods set forth in Section 8.1, provided that the
failure to give such notice shall not relieve Seller of any liability hereunder
except to the extent that Seller is materially adversely prejudiced by such
failure.  Seller shall give notice to
Purchaser within fifteen (15) business days after receipt of the notice
requested by this Section 8.3 advising whether it (i) acknowledges
its obligation to indemnify Purchaser or (ii) disputes its obligation to
indemnify Purchaser.  If Seller
acknowledges its indemnification obligation with respect to the Claim, and such
Claim is based upon an asserted liability or obligation to a person or entity
that is not a party to this Agreement (a “Third Party Claim”), Purchaser may,
in its sole discretion, control and conduct the defense of any such Third Party
Claim, including settlement, and take reasonable steps to defend such Third
Party Claim.  Notwithstanding the
foregoing, Purchaser shall not agree to the settlement or compromise of any
Third Party Claim for money Damages without Seller’s consent (which consent
shall not be unreasonably withheld or delayed) to the amount of any such
settlement or compromise.  If such Claim
is not a Third Party Claim, Purchaser shall be entitled to immediate
satisfaction of such Claim.  If Purchaser
does not notify Seller within fifteen (15) business days following receipt of a
Claim Notice that it elects to undertake the defense of the Third Party Claim
described therein, Seller shall have the right to control and conduct the
defense of such Claim, and take reasonable steps to defend such Third Party
Claim, on behalf of and for the account of Seller, provided that no settlement
or compromise may be effected without the consent of Purchaser (which consent
shall not be unreasonably withheld or delayed). 
If Seller does not notify Purchaser within fifteen (15) business days
following receipt of notice of a Claim that is not a Third Party Claim that it
disputes such Claim, such Claim shall be deemed a liability of Seller and
Seller shall pay the amount of the Claim on demand by Purchaser, or in the case
of any notice in which the amount of the Claim is estimated, on such later date
when the amount of the Claim is finally determined.  If Seller disputes the Claim in a timely
manner as set forth herein, Seller and Purchaser shall proceed in good faith to
negotiate a resolution of the dispute, or, if necessary, to final judgment or
order of a court of equity of competent jurisdiction determining the amount of
the Damages or by any other means elected by Purchaser.

 

8.4           Indemnification Exclusive.  Except as provided herein, the
foregoing indemnification provisions shall be the sole and exclusive remedy
after the Closing Date for money damages available to Purchaser for breach of
any representations, warranties or covenants contained herein, but shall not
limit any other remedy to which Purchaser may be entitled.  Nothing in this Agreement shall be construed
as limiting in any way the remedies that may be available to Purchaser in the
event of fraud relating to the representations, warranties or covenants made by
Seller in this Agreement.

 

29

 

8.5           Limitation on Amount.  Seller shall not be liable for
claims made under this Article VIII until the aggregate amount of the
Damages incurred by Purchaser shall exceed $50,000, in which event the
indemnification obligations of Seller shall apply to the amount of all claims
made under this Article VIII, provided, however, that any amount
recoverable by Purchaser from Seller in accordance with Sections 2.6, 3.2, 3.26
or 7.6, shall not be subject to the $50,000 threshold.

 

ARTICLE IX

REBATE AND MARKETING PROGRAMS

 

9.1           List of Programs.  Schedule 9.1 contains a true and
complete list and description of, and amounts that Purchaser may be
contingently obligated to pay under, all market development fund (“MDF”),
marketing and rebate programs. Purchaser shall assume no liability or obligations
for any such claims under Seller’s MDF, marketing or rebate programs except for
the items specifically set forth on Schedule 9.1.  In particular, but not in limitation of the
foregoing, Purchaser shall not assume any liability or obligations for Seller’s
special price quote (“SPQ”) program with regard to inventory of the Products in
the worldwide distribution channel and in transit to distributors worldwide on
the Closing Date.  Any claims arising
under Seller’s SPQ program from customers will be the sole responsibility of
Seller.

 

9.2           Payments. 
Seller agrees to pay to Purchaser, within thirty (30) days of the date
of invoice by Purchaser, the amounts of any and all claims made to Purchaser
arising under Seller’s MDF, marketing or rebate programs for which Seller is
responsible under Section 9.1, provided that Purchaser provides Seller
with a copy of the claim made to Purchaser, Seller reasonably concludes such
claim is a valid obligation of the Seller as determined in accordance with this
Article XI and Purchaser makes appropriate payments to the customer.

 

9.3           Marketing Rights.  Seller shall provide a prominent link, with
the content approved by Purchaser, from the main page of Seller’s website
at www.televideo.com, from the products page at www.televideo.com and such
other pages as Purchaser may reasonably request to Purchaser’s website at
www.neoware.com for a two (2)-year period commencing on the Closing Date.

 

ARTICLE X

GENERAL PROVISIONS

 

10.1         Notices.  All
notices and other communications under or in connection with this Agreement
shall be in writing and shall be deemed given (a) if delivered personally
(including by overnight express or messenger), upon delivery, (b) if
delivered by registered or certified mail (return receipt requested), upon the
earlier of actual delivery or three days after being mailed, or (c) if
given by telecopy, upon confirmation of transmission by telecopy, in each case
to the parties at the following addresses:

 

30

 

(a)           If to the Purchaser, addressed to:

 

Neoware Systems, Inc.

400 Feheley Drive

King of Prussia, Pennsylvania 19406

Attention:  Michael G. Kantrowitz, President and Chief
Executive Officer

Facsimile:  (610) 275-5739

 

With a copy to:

 

McCausland Keen & Buckman

Radnor Court, Suite 160

259 N. Radnor-Chester Road

Radnor, Pennsylvania 19087

Attention: 
Nancy D. Weisberg, Esquire

Facsimile: 
(610) 341-1099

 

(b)           If to Seller, addressed to:

 

TeleVideo, Inc.

2345 Harris Way

San Jose, California 95131

Attn:  Richard
Kim, Vice President

Facsimile: 
(408) 955-7788

 

With a copy to:

 

O’Melveny & Myers

2765 Sand Hill Road

Menlo Park, California 94025

Attn: John Mills, Esquire

Facsimile: (650) 473-2601

 

10.2         Severability.  If
any term or provision of this Agreement or the application thereof to any
circumstance shall, in any jurisdiction and to any extent, be invalid or
unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable such term or provision in any other
jurisdiction, the remaining terms and provisions of this Agreement or the
application of such terms and provisions to circumstances other than those as
to which it is held invalid or enforceable.

 

10.3         Entire Agreement.  This Agreement, including the annexes and
schedules attached hereto and other documents referred to herein, contains the
entire understanding of the parties hereto in respect of its subject matter and
supersedes all prior and contemporaneous agreements and understandings, oral
and written, between the parties with respect to such subject matter.

 

10.4         Successors and Assigns.  This Agreement shall be
binding upon and inure to the benefit of Purchaser and Seller and their
respective successors, heirs and assigns; provided,

 

31

 

however,
that Seller shall not directly or indirectly transfer or assign any of Seller’s
rights or obligations hereunder in whole or in part without the prior written
consent of Purchaser.  Subject to the
foregoing, this Agreement is not intended to benefit, and shall not run to the
benefit of or be enforceable by, any other person or entity other than the
parties hereto and their permitted successors and assigns.

 

10.5         Counterparts.  This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all such counterparts together shall constitute but one
and the same Agreement.

 

10.6         Recitals, Schedules, Exhibits and
Annexes.  The recitals, schedules, exhibits and annexes
to this Agreement are incorporated herein and, by this reference, made a part
hereof as if fully set forth at length herein.

 

10.7         Construction.

 

(a)           The article, section and subsection headings
used herein are inserted for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement.

 

(b)           As used in this Agreement, the masculine,
feminine or neuter gender, and the singular or plural, shall be deemed to
include the others whenever and wherever the context so requires.

 

(c)           For the purposes of this Agreement, unless
the context clearly requires, “or” is not exclusive.

 

10.8         Governing Law.  This
Agreement shall be governed by and construed in accordance with the internal
laws (and not the law of conflicts) of the Commonwealth of Pennsylvania.

 

10.9         Passage of Title and Risk of Loss. 
Legal title, equitable title and risk of loss with respect to the Assets
will not pass to Purchaser until such Assets are Transferred at the Closing,
which transfer, once it has occurred, will be deemed effective for tax,
accounting and other computational purposes as of 11:59 P.M. (Eastern
Time) on the Closing Date.

 

10.10       Bulk Sales. 
Purchaser hereby waives compliance by Seller with the provisions of the
bulk sales laws of any jurisdiction, if applicable, provided that Seller agrees
to indemnify Purchaser for claims of creditors of Seller with respect to
liabilities not expressly assumed by Purchaser pursuant to this Agreement.

 

32

 

IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement, or has caused this Agreement to be executed on its behalf by a
representative duly authorized, all as of the date first above set forth.

 

 

	
   

  	
  NEOWARE SYSTEMS, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  TELEVIDEO, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
										

 

33

 

Exhibit E

Transitional
Services

 

Transitional Services shall include the following:

 

•                  Transfer of all documentation of Products and
technology acquired or licensed including source code

•                  Transfer all manufacturing, packaging,
process, testing documentation and instructions and any owned tooling.

•                  Provide vendor introductions and meetings and
facilitate transfer of relationship.

•                  Provide customer introductions and facilitate
meetings and transfer of relationship.

•                  Provide access to engineering, manufacturing,
tech support and customer data bases related to documentation, procedures, RMA,
customer (including general purpose terminals), engineering problem reports,
etc. including access in electronic and hard copy format.

•                  Provide any marketing materials which would
be used to define and describe current products.  This includes but is not limited to product
specifications, requirements, photographs, logos, illustrations or other
materials which would be used either to develop marketing materials or would be
the end marketing deliverables to support sales.

•                  All documentation of product certifications
such as UL, CSA, etc.

•                  Provide a software production environment for
Purchaser to build the images.  Provide
pre-installed development environment including any build automation or
scripts, such that Purchaser can reproduce any production image exactly by
following Seller’s current release procedures.

•                  Provide any software enhancements that have
been provided to any vendor that are to be installed at time of
manufacture.  Documentation must describe
exactly how to reproduce and/or modify the custom image.

•                  Provide a complete thin client system
sufficient to continue development and testing of thin client products.  Include ability to build the final images
from source code of all shipping products including, but not limited to source
code, management tools, build procedures and scripts, and build computers.

•                  Provide all hardware and equipment dedicated
to design, manufacture and testing of thin client products.

•                  Provide complete software test procedures
used to validate software prior to release, including test scripts and manual
test plans.  Also provide documented
results, including exceptions and anomalies, of testing all software currently
in production.

•                  Seller to provide training to Purchaser
operations and development teams on building and maintaining thin client S/W
including management system.

 

 

•                  Provide any other support including access to
employees, documentation, third party providers, etc. necessary to enable a
complete transition of all technology, product, customers, etc acquired or
licensed as part of the transaction.

•                  Prior to the Closing, Seller will continue to
be responsible for supporting and fixing bugs in Thin Client software and
management software. Seller must provide any source code modifications which
take place after initial transfer of the source code.

 

2

 

Exhibit H

 

Warranties

 

See
attached.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00091-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00091-of-00352.parquet"}]]