Document:

exhibit_10-1.htm

EXHIBIT 10.1

	
16 February 2011

 

 

	
The Directors

Royal Wolf Australia Group

Suite 203, Level 2

22-28 Edgeworth David Ave

Hornsby NSW 2077

Dear Sirs

We are pleased to enclose our Letter of Offer (in duplicate) which includes the changes to your arrangements we recently discussed.

As there have been a number of full variations to your arrangements with us since we last provided details of our terms and conditions in full, we take this opportunity to restate all existing arrangements in addition to the current changes. As a result the Letter of Offer, once accepted, wholly replaces previous Letters of Offer and Variation Letters that we have issued to you.

For your information, clause 28 of the General Conditions clarifies the meaning of many of the words and legal expressions used in the documents. Should you have any questions, please don’t hesitate to contact me on (02) 9227 1468. We suggest however that you contact your solicitor for any detailed legal queries.

The enclosed documents include:

	
·  

	
The Letter of Offer – detailing the facilities offered, security and conditions.

	
·  

	
A copy of the Letter of Offer – this copy is for you to sign and return to accept the offer. The covering Customer Information Sheet details the steps you need to take to accept this offer and satisfy those things required before any additional facilities will be made available.

	
·  

	
General Conditions – specifies the general conditions of use for ANZ facilities.

	
·  

	
Specific Conditions – details additional conditions specific to facilities which are part of this offer and for which Specific Conditions apply.

To accept the Letter of Offer please sign a copy of the Letter of Offer and return it to me. Please note that this offer expires on 16 March 2011.

If you do not accept the Letter of Offer within the offer period, the arrangements for the facilities that we are currently making available to you, including the conditions on which those facilities are being made available, continue.

We look forward to continuing a strong working relationship with you and your business.

Yours faithfully,

Chris Chase

Relationship Manager

  

  

  

CUSTOMER INFORMATION SHEET

 

This information sheet is attached to assist you in completing the steps necessary to accept our offer and satisfy those things required by us before we will make the facilities available.

If you have any concerns about what is required please discuss these with your ANZ Manager.

	
NOTE:

	
If there is any inconsistency between this Customer Information Sheet and any other documents which you have received from us, those other documents prevail.

 

To accept our offer:

	
 ̈

	
SIGN the acceptance in the attached duplicate letter where indicated on pages 37-38.

	  	  
	
 ̈

	
Ensure the Corporate Surety Acknowledgment on page 39 of the letter is signed.

	  	  
	
 ̈

	
RETURN the signed letter and all other required documents, as listed below, to us at our address shown in the letter by 16 March 2011.

	  	  
	
Other documents attached which are required to be executed and returned with the accepted Letter of Offer or prior to facilities being drawn:

	  	  
	
 ̈

	
Certificate of Value and Location of Assets

	  	  
	
 ̈

	
Authorised Representative Certificate

	  	  
	
 ̈

	
Direct Debit Request Form

	  	  
	
In addition, if you wish to nominate a representative to submit financial management accounts to us electronically, the following document will also need to be completed and returned:

	  	  
	
 ̈

	
Provision of Electronic Financial Information – Nominated Representative Letter

	
The following document, duly completed and signed, is to accompany financial statements provided to us (as covenanted in the Financial Requirements and Other Conditions Schedule):

	  	  
	
 ̈

	
Principal’s Certificate – Full Form

	
 

þ Tick when completed.

 

  

  

  

	  
	  
	  
	  
	  
	  
	  
	  
	
LETTER OF OFFER

	  
	  
	  
	  
	
TO

	  
	  
	  
	  
	
Royal Wolf Australia Group

	
(AS DEFINED IN THE CUSTOMER GROUP SCHEDULE)

	  
	  
	  
	  
	  
	  
	
DATED 16 February 2011

	  
	  
	  
	  
	  
	  
	  
	  
	  
	  
	  
	  
	  
	  
	  
	  
	  
	  
	  
	
Australia and New Zealand Banking Group Limited

ABN 11 005 357 522

LOO8086306

  

  

  

CUSTOMER GROUP SCHEDULE

 

For the purpose of this Letter of Offer the following entities are collectively known as Royal Wolf Australia Group:

 

	
·  

	
GFN Australasia Holdings Pty Ltd ACN 121 226 793

 

	
·  

	
GFN Australasia Finance Pty Ltd ACN 121 227 790

 

	
·  

	
RWA Holdings Pty Ltd ACN 106 913 964

 

	
·  

	
Royal Wolf Trading Australia Pty Ltd ACN 069 244 417

 

	
·  

	
Royal Wolf Hi-Tech Pty Ltd ACN 079 735 050

  

  

  

LETTER OF OFFER

 

Issuing Office:

Australia and New Zealand Banking Group Limited

Corporate Banking

Level 12, 20 Martin Place

Sydney NSW 2000

Phone: +61 2 92271468

Fax: +61 2 92271124

Chris.Chase@anz.com

www.anz.com

The Directors

Royal Wolf Australia Group

Suite 203, Level 2

22-28 Edgeworth David Ave

Hornsby NSW 2077

Dear Sirs,

We are pleased to offer to you the facilities set out below:

 

Summary of facilities available:

 

A summary of facilities is as follows:

 

	
Facility

	 	
Facility Limit AUD

	 
	
Overdraft Facility (1)

	 	 	1,000,000	 
	
Electronic Payaway Facility (1)

	 	 	2,000,000	 
	
Electronic Payaway Facility (2)

	 	 	1,000,000	 
	
Multi Option Facility (1)

	 	 	1,720,000	 
	
 

- Lease Finance (Progressive Draw) Facility

	 	 	 	 
	
 

- Hire Purchase (Progressive Draw) Facility

	 	 	 	 
	
Indemnity/Guarantee Facility (1) – Financial Guarantees

	 	 	455,000	 
	
Indemnity/Guarantee Facility (2) – Financial Guarantees

	 	 	140,000	 
	
Interchangeable Facility (1) (Tranche A)

	 	 	56,052,000	 
	
 

- Fixed Rate Commercial Bill Facility

	 	 	 	 
	
 

- Variable Rate Commercial Bill Acceptance and Discount Facility

	 	 	 	 
	
Interchangeable Facility (2) (Tranche B)

	 	 	8,913,000	 
	
- Fixed Rate Commercial Bill Facility

	 	 	 	 
	
- Variable Rate Commercial Bill Acceptance and Discount Facility

	 	 	 	 
	
Documentary Credit/Documents Surrendered Facility (Local or Overseas)

	 	 	675,000	 
	
Overdraft Facility (2)

	 	 	7,750,000	 
	
Overdraft Facility (3)

	 	 	2,000,000	 
	
Standby Letter of Credit Facility (Tranche C)

	 	
NZD14,337,133

	 
	
Variable Rate Commercial Bill Acceptance and Discount Facility

	 	 	5,500,000	 
	
Foreign Currency Dealing Facility

	 	 	1,500,000	 
	
Total Facility Limits:

	 	
AUD88,705,000

NZD14,337,133

	 

  

  

  

 

Details of facilities:

 

Details of the facilities are set out in the Facilities Schedule to this Letter of Offer.

 

Security:

 

Securities for the facilities are set out in the Security Schedule to this Letter of Offer.

 

Financial Requirements, Other Conditions and Conditions Precedent:

 

Any financial reporting requirements, financial covenants, other conditions and conditions precedent applicable to the facilities are set out in the Financial Requirements and Other Conditions Schedule to this Letter of Offer.

 

General Conditions and Specific Conditions and Amendments:

 

Details pertaining to General Conditions and Specific Conditions and any amendments are attached in the General Conditions and Specific Conditions Schedule to this Letter of Offer.

Unless otherwise defined in this Letter of Offer, definitions in, and incorporated by reference into, the General Conditions and Specific Conditions apply in this Letter of Offer.

 

Annual review:

 

The facilities are subject to annual review. The next review date will be 19 October 2011.

If the annual review is not carried out on or before the next review date, we may carry out the annual review at any time after the next review date.

 

Conditions continue:

 

Until you accept this Letter of Offer and have complied with all conditions precedent, or the facilities become repayable on demand by us, the arrangements for the facilities that we are currently making available to you, including the conditions on which those facilities are being made available, continue.

 

Stamp Duty - Certificate of Value and Location of Assets:

 

To assess mortgage stamp duty payable in respect of the transaction would you please provide us with a certificate signed by each entity providing security which sets out the location of secured assets on a State or Territory basis (the form of the certificate required is attached).

Stamp duty and other State and Federal Government charges may be levied/payable on the facilities provided by us. State charges may apply in a single jurisdiction or multiple jurisdictions. You are liable for all such duties or charges and we may debit your account for those charges. If you do not have an account with us we will ask you to pay by cheque. We may, at our discretion, seek advice from external legal sources to advise on duties and charges payable. Any costs associated with obtaining this advice will be for your account.

 

Offer period:

 

Our offer is available for acceptance until the close of business on 16 March 2011, unless otherwise extended by us in writing.

If you do not accept this Letter of Offer within the offer period, the arrangements for the facilities that we are currently making available to you, including the conditions on which those facilities are being made available, continue.

  

  

  

 

Acceptance:

 

To accept this Offer, please sign the duplicate copy where indicated and return it to me at this office.

Yours faithfully,

Chris Chase

Relationship Manager

  

  

  

FACILITIES SCHEDULE

 

FACILITIES SCHEDULE to the Letter of Offer dated 16 February 2011.

The facilities specified below are only available to the customer named before the facility details.

	
CUSTOMER:

	
Royal Wolf Australia Group

	  	
Overdraft Facility (1)

	  
	  	
Facility limit:

	
$1,000,000

	  	
Termination date:

	
Not before the next review date.

	  	
Purpose:

	
Working capital.

	  	
Interest rate:

	
ANZ’s reference rate for amounts up to the facility limit.

	  	  	
ANZ’s reference rate is published weekly (usually each Monday) in the Australian Financial Review.

	  	
Interest payment:

	
Monthly in arrears on the first business day of each month, accruing daily starting on the first day of overdraft (interest is charged and payable monthly).

	  	
Fees:

	
Line Fee:

1.250% pa charged quarterly in arrears on the highest Facility Limit recorded for your accounts during the preceding quarter.

	  	
Prepayment:

	
Prepayment or cancellation of the facility (in whole or in part) may be effected without penalty at any time at the election of the customer.

	  	
Specific Conditions:

	
There are no Specific Conditions which apply to this facility.

	
Electronic Payaway Facility (1)

	
Facility limit:

	
$2,000,000

The facility limit represents the extent to which we will assume pay away exposure on any one day.

	
Termination date:

	
Not before the next review date

	
Purpose:

	
To facilitate direct payments using an ANZ electronic banking service.

	
Conditions precedent:

	
You may only use the Electronic Payaway facility if:

	  	
(a)

	
you complete an application for an ANZ electronic banking service in terms acceptable to us; and

	  	
(b)

	
you execute all documents required by us in connection with the use of that service.

	
Cancellation of facility:

	
We may cancel this facility at any time if for any reason you cease to have access to the relevant ANZ electronic banking service.

	
Pay – away exposure:

	
Any pay – away exposure under this facility will be against funds available in your account or, if the provision of credit is required, will be debited to your overdraft.  If there is no available overdraft limit, the amount outstanding is immediately due and payable and we may charge excess fees at the Excess/Overdue Rate on the amount outstanding for so long as it remains unpaid. You authorise us to debit your account for any such amount.

	
Fees:

	
As advised by us from time to time.

	
Specific Conditions:

	
There are no Specific Conditions which apply to this facility.

  

  

  

	  	  
	
Electronic Payaway Facility (2)

	
Facility limit:

	
$1,000,000

The facility limit represents the extent to which we will assume pay away exposure on any one day.

	
Termination date:

	
Not before the next review date.

	
Purpose:

	
To facilitate global payments, using an ANZ electronic banking service.

	
Conditions precedent:

	
You may only use the Electronic Payaway facility if:

	  	
(a)

	
you complete an application for an ANZ electronic banking service in terms acceptable to us; and

	  	
(b)

	
you execute all documents required by us in connection with the use of that service.

	
Cancellation of facility:

	
We may cancel this facility at any time if for any reason you cease to have access to the relevant ANZ electronic banking service.

	
Pay – away exposure:

	
Any pay – away exposure under this facility will be against funds available in your account or, if the provision of credit is required, will be debited to your overdraft.  If there is no available overdraft limit, the amount outstanding is immediately due and payable and we may charge excess fees at the Excess/Overdue Rate on the amount outstanding for so long as it remains unpaid. You authorise us to debit your account for any such amount.

	
Fees:

	
As advised by us from time to time.

	
Specific Conditions:

	
There are no Specific Conditions which apply to this facility.

	
Multi Option Facility

	
Total facility limit:

	
$1,720,000

	
Termination date:

	
Not before the next review date.

	
Purpose:

	
To facilitate the allocation of the approved facility amount across the following facility types to meet business requirements.

 

- Lease Finance (Progressive Draw) Facility

 

- Hire Purchase (Progressive Draw) Facility

To cover any lease/hire purchase requirements, specifically for cars and forklifts.

	
Total facility limit for Multi Option Facility and separate facility limits:

	
You may only make a drawing under a particular facility included in the Multi Option Facility so long as the making of the drawing would not cause:

	  	
(i)

	
the amount of the outstanding drawings under both the facilities included in the Multi Option Facility to exceed the total facility limit for the Multi-Option Facility; and

 

	  	
(ii)

	
the amount of the outstanding drawings under the particular facility under which the drawing is made to exceed the facility limit, if any, for that particular facility.

	
Detailed Facility Information:

	
The terms associated with the specific facility types listed within the Multi Option facility are documented separately.

  

  

  

	
Hire Purchase (Progressive Draw) Facility

	
Subject to execution and acceptance of hire purchase request:

	
The Customer is entitled to an agreement to hire or hire purchase agreement, as the case may be, only upon acceptance by the Bank of a signed hire purchase request.

	
Fees:

	
Documentation Fee:

A Documentation fee of $395.00 is payable on each draw.

Asset Drawdown fee:

An Asset Drawdown fee of $150.00 is payable on each draw.

Inspection fee:

An Inspection fee of $500.00 applies.

Other fees may be payable in accordance with the Specific Conditions.

	
Specific Conditions:

	
Specific Conditions for the facility are enclosed.

	
Lease Finance (Progressive Draw) Facility

	
Subject to execution and acceptance of lease request:

	
The Customer is entitled to an agreement to lease or lease, as the case may be, only upon acceptance by the Bank of a signed lease request.

	
Fees:

	
Documentation Fee:

 

A Documentation fee of $434.50 is payable on each draw.

Asset Drawdown Fee:

An Asset Drawdown fee of $165.00 is payable on each draw.

Inspection fee:

An Inspection fee of $550.00 applies.

Other fees may be payable in accordance with the Specific Conditions.

	
Specific Conditions:

	
Specific Conditions for the facility are enclosed.

	
Indemnity/Guarantee Facility – Financial Guarantees (1)

	
Facility limit:

	
$455,000

	
Note:  A financial guarantee is a guarantee of a financial commitment or obligation.

	
Termination date:

	
Not before the next review date.

	
Purpose:

	
To assist with the issue of bank guarantees for business purposes.

	
Fee rate for each Bank Guarantee:

	
1.50% pa subject to a minimum fee of $100 per half year. The minimum fee is subject to variation at any time during the term of the facility.

	
Fee payment:

	
For each Bank Guarantee, the fee is payable on the date of drawdown and afterwards half yearly.

	
Specific Conditions:

	
Specific Conditions - Indemnity/Guarantee are enclosed.

	
Indemnity/Guarantee Facility – Financial Guarantees (2)

	
Facility limit:

	
$140,000

	
Note:  A financial guarantee is a guarantee of a financial commitment or obligation.

	
Termination date:

	
Not before the next review date.

	
Purpose:

	
To assist with the issue of bank guarantees for business purposes.

	
Fee rate for each Bank Guarantee:

	
1.50% pa subject to a minimum fee of $100 per half year. The minimum fee is subject to variation at any time during the term of the facility.

	
Fee payment:

	
For each Bank Guarantee, the fee is payable on the date of drawdown and afterwards half yearly.

	
Specific Conditions:

	
Specific Conditions - Indemnity/Guarantee are enclosed.

 

 

  

  

  

 

 

	  	
Interchangeable Facility (1) (Tranche A)

	  	
Total facility limit:

	
$56,052,000

	  	
Termination date:

	
14 September 2012

	  	
Purpose:

	
Refinance of existing commercial bill facilities originally provided for various acquisitions. Interchange of the credit limits across the following approved facilities permitted:

 

- Fixed Rate Commercial Bill Facility

- Variable Rate Commercial Bill Acceptance and Discount Facility

	  	
Total facility limit for Interchangeable Facility and separate facility limits:

	
You may only make a drawing under a particular facility included in the Interchangeable Facility so long as the making of the drawing would not cause:

	  	  	
(i)

	
the amount of the outstanding drawings under both the facilities included in the Interchangeable Facility to exceed the Total facility limit for the Interchangeable Facility; and

	  	  	
(ii)

	
the amount of the outstanding drawings under the particular facility under which the drawing is made to exceed the facility limit, if any, for that particular facility.

	  	
Detailed Facility Information:

	
The terms associated with the specific facility types listed within the Interchangeable facility are documented separately.

	
Fixed Rate Commercial Bill Facility

	
Yield rate:

	
For each drawing of bills, a rate fixed for all rollovers up until the last day of the term.

	
Rate and tenor quotations:

	
If the Termination Date is “Not before the next review date” and you request us to quote for a term or tenor which has a maturity date after the Termination Date of the facility, we may (in our absolute discretion) and despite the Specific Conditions which specifically excludes this, allow a quote for a term or tenor which extends past the Termination Date.

 

 

	  	
If we allow a quote for a term or tenor which ends after the Termination Date, you acknowledge and agree that this is subject to the rights that we have at “Review” in terms of the General Conditions.

	
Fees:

	
Line Fee:

3.150% pa on the facility limit, payable quarterly in advance, commencing on the date on which the facility is first drawn. This fee is not rebatable.

	  	
Handling Fee:

A fee of $125.00 is payable when each bill is rolled.

	
Specific Conditions:

	
Specific Conditions are enclosed.

  

  

  

	
Variable Rate Commercial Bill Acceptance and Discount Facility

	
Yield Rate:

	
For each drawing of bills, a rate quoted by us expressed as a yield percent per annum to maturity and, if necessary, will be rounded to the nearest two decimal places for the face value of the bills for the relevant tenor.

	  	
(a)

	
For tenors of 90, 120, 150 or 180 days, the actual rate used in the calculation will be the Bank Bill Swap Reference Rate – Average Bid which is the average bid rate for the relevant term displayed at or about 10.30am (Melbourne time) (“Specified Time”) on the Reuters Screen BBSY page (“Screen Rate”) on the day the quote is to be given by us (“Quotation Day”) and advertised in the Australian Financial Review the following business day, plus a margin of 0.00% per annum (“Margin”).

	  	
If for any reason the Screen Rate is not available at the Specified Time on the Quotation Day, then the Bank Bill Swap Reference Rate – Average Bid will be the rate determined by us to be the average of the buying rates quoted to us (each a Quotation) by:

	  	
-

	
Australia and New Zealand Banking Group Limited

	  	
-

	
Commonwealth Bank of Australia

	  	
-

	
National Australia Bank Limited, and

	  	
-

	
Westpac Banking Corporation,

	  	
(or their respective successors and assigns) (each a “Reference Bank”) at or about that time on that date. The buying rates must be for bills of exchange accepted by a leading Australian bank for bills having the same tenor as those bills to be discounted or rolled.

	
Market Disruption:

	
If the Bank Bill Swap Reference Rate – Average Bid is to be determined by reference to the Reference Banks and a Reference Bank does not supply a Quotation by the Specified Time on the Quotation Day, the applicable Bank Bill Swap Reference Rate – Average Bid will be determined on the basis of the Quotations of the remaining Reference Banks.

 

 

	  	
Should a Market Disruption Event occur then the yield rate will be the rate notified to you by us that we determine to be our cost of funding the relevant drawing (from whatever source or sources we reasonably select) for a period equal to the tenor of the bills being discounted plus the Margin.

We may provide you with a certificate confirming this rate signed by any manager of ours, which certificate shall be sufficient evidence of the rate certified unless the contrary is proved.

For the purposes of this facility, Market Disruption Event means:

	  	
(i)

	
At or about noon (Melbourne time) on the Quotation Day, the Screen Rate is not available and none or only one of the Reference Banks supplies a quotation to us to determine the Bank Bill Swap Reference Rate – Average Bid; or

	  	
(ii)

	
Before close of business in Melbourne on the Quotation Day we determine that the cost to us of funding the drawing exceeds the Bank Bill Swap Reference Rate – Average Bid; or

	  	
(iii)

	
The rate calculated by reference to the Screen Rate or by reference to the Reference Banks in our opinion ceases to reflect our cost of funding the drawing to the same extent as at the date of this Letter of Offer,

	  	
Alternative basis of funding

If a Market Disruption Event occurs and we or you so require, we must together enter into negotiations (for a period of not more than thirty days) with a view to agreeing in writing a substitute basis for determining an alternative yield rate for the drawing.

Any alternative basis agreed pursuant to this clause shall bind the parties but, unless and until such agreement is reached, the applicable yield rate for the drawing will be the rate notified to you by us to be our cost of funding the drawing, plus the Margin. For the avoidance of doubt, should a refund of any amount be due from one party to the other as a result of such negotiations, such amount must be paid as soon as practicable and no party shall be entitled to claim or to receive any interest or other compensation on any amount so refunded.

	  	
(b)

	
For any tenor other than 90, 120, 150 or 180 days, the actual rate used in the calculation will be the rate that we determine is the prevailing rate at which we can discount bills for the relevant term (rounded to the nearest two decimal places) which will be no less than our cost of funding the relevant drawing of bills for that period plus a margin.

	  	
In any case, an additional margin reflecting any movement in the actual rate since its quotation may be applied if your bills are not ready for acceptance by us by 12 noon on the day the bills are to be discounted or rolled. The margin to be applied will depend on the size of the bill parcel and tenor.

Full details of how the rate has been calculated will be set out in the quotation given by us.

  

  

  

	
Fees:

	
Line Fee:

3.15% pa on the facility limit, payable quarterly in advance, commencing on the date on which the facility is first drawn. This fee is not rebatable.

	  	
Handling Fee:

A fee of $125.00 is payable when each bill is rolled.

	
Specific Conditions:

	
Specific Conditions are enclosed.

	
Interchangeable Facility (2) (Tranche B)

	
Total Facility Limit:

	
$8,913,000

	
Termination Date:

	
14 September 2012

	
Purpose:

	
Refinance of existing commercial bill facilities originally provided for various acquisitions. Interchange of the credit limits across the following approved facilities permitted:

 

- Fixed Rate Commercial Bill Facility

- Variable Rate Commercial Bill Acceptance and Discount Facility

	
Repayment:

	
Repayments of $1,625,000 per quarter at the end of every March, June, September and December. (Delete this row if there are no repayment arrangements specified.)

	
Total facility limit for Interchangeable Facility and separate facility limits:

	
You may only make a drawing under a particular facility included in the Interchangeable Facility (2) so long as the making of the drawing would not cause:

	  	
(i)

	
the amount of the outstanding drawings under both the facilities included in the Interchangeable Facility to exceed the Total facility limit for the Interchangeable Facility; and

	  	
(ii)

	
the amount of the outstanding drawings under the particular facility under which the drawing is made to exceed the facility limit, if any, for that particular facility.

	
Detailed Facility Information:

	
The terms associated with the specific facility types listed within the Interchangeable facility are documented separately.

	
Fixed Rate Commercial Bill Facility

	
Yield rate:

	
For each drawing of bills, a rate fixed for all rollovers up until the last day of the term.

	
Rate and tenor quotations:

	
If the Termination Date is “Not before the next review date” and you request us to quote for a term or tenor which has a maturity date after the Termination Date of the facility, we may (in our absolute discretion) and despite the Specific Conditions which specifically excludes this, allow a quote for a term or tenor which extends past the Termination Date.

	  	
If we allow a quote for a term or tenor which ends after the Termination Date, you acknowledge and agree that this is subject to the rights that we have at “Review” in terms of the General Conditions.

	
Fees:

	
Line Fee:

4.15% pa on the facility limit, payable quarterly in advance, commencing on the date on which the facility is first drawn. This fee is not rebatable.

	  	
Handling Fee:

A fee of $125.00 is payable when each bill is rolled.

	
Specific Conditions:

	
Specific Conditions are enclosed.

  

  

  

	
Variable Rate Commercial Bill Acceptance and Discount Facility

	
Yield Rate:

	
For each drawing of bills, a rate quoted by us expressed as a yield percent per annum to maturity and, if necessary, will be rounded to the nearest two decimal places for the face value of the bills for the relevant tenor.

	  	
(a)

	
For tenors of 90, 120, 150 or 180 days, the actual rate used in the calculation will be the Bank Bill Swap Reference Rate – Average Bid which is the average bid rate for the relevant term displayed at or about 10.30am (Melbourne time) (“Specified Time”) on the Reuters Screen BBSY page (“Screen Rate”) on the day the quote is to be given by us (“Quotation Day”) and advertised in the Australian Financial Review the following business day, plus a margin of 0.00% per annum (“Margin”).

	  	
If for any reason the Screen Rate is not available at the Specified Time on the Quotation Day, then the Bank Bill Swap Reference Rate – Average Bid will be the rate determined by us to be the average of the buying rates quoted to us (each a Quotation) by:

	  	
-

	
Australia and New Zealand Banking Group Limited

	  	
-

	
Commonwealth Bank of Australia

	  	
-

	
National Australia Bank Limited, and

	  	
-

	
Westpac Banking Corporation,

	  	
(or their respective successors and assigns) (each a “Reference Bank”) at or about that time on that date. The buying rates must be for bills of exchange accepted by a leading Australian bank for bills having the same tenor as those bills to be discounted or rolled.

	
Market Disruption:

	
If the Bank Bill Swap Reference Rate – Average Bid is to be determined by reference to the Reference Banks and a Reference Bank does not supply a Quotation by the Specified Time on the Quotation Day, the applicable Bank Bill Swap Reference Rate – Average Bid will be determined on the basis of the Quotations of the remaining Reference Banks.

	  	
Should a Market Disruption Event occur then the yield rate will be the rate notified to you by us that we determine to be our cost of funding the relevant drawing (from whatever source or sources we reasonably select) for a period equal to the tenor of the bills being discounted plus the Margin.

We may provide you with a certificate confirming this rate signed by any manager of ours, which certificate shall be sufficient evidence of the rate certified unless the contrary is proved.

For the purposes of this facility, Market Disruption Event means:

	  	
(i)

	
At or about noon (Melbourne time) on the Quotation Day, the Screen Rate is not available and none or only one of the Reference Banks supplies a quotation to us to determine the Bank Bill Swap Reference Rate – Average Bid; or

	  	
(ii)

	
Before close of business in Melbourne on the Quotation Day we determine that the cost to us of funding the drawing exceeds the Bank Bill Swap Reference Rate – Average Bid; or

	  	
(iii)

	
The rate calculated by reference to the Screen Rate or by reference to the Reference Banks in our opinion ceases to reflect our cost of funding the drawing to the same extent as at the date of this Letter of Offer,

	  	
Alternative basis of funding

If a Market Disruption Event occurs and we or you so require, we must together enter into negotiations (for a period of not more than thirty days) with a view to agreeing in writing a substitute basis for determining an alternative yield rate for the drawing.

Any alternative basis agreed pursuant to this clause shall bind the parties but, unless and until such agreement is reached, the applicable yield rate for the drawing will be the rate notified to you by us to be our cost of funding the drawing, plus the Margin. For the avoidance of doubt, should a refund of any amount be due from one party to the other as a result of such negotiations, such amount must be paid as soon as practicable and no party shall be entitled to claim or to receive any interest or other compensation on any amount so refunded.

	  	
(b)

	
For any tenor other than 90, 120, 150 or 180 days, the actual rate used in the calculation will be the rate that we determine is the prevailing rate at which we can discount bills for the relevant term (rounded to the nearest two decimal places) which will be no less than our cost of funding the relevant drawing of bills for that period plus a margin.

	  	
In any case, an additional margin reflecting any movement in the actual rate since its quotation may be applied if your bills are not ready for acceptance by us by 12 noon on the day the bills are to be discounted or rolled. The margin to be applied will depend on the size of the bill parcel and tenor.

Full details of how the rate has been calculated will be set out in the quotation given by us.

  

  

  

	
Fees:

	
Line Fee:

4.15% pa on the facility limit, payable quarterly in advance, commencing on the date on which the facility is first drawn. This fee is not rebatable.

	  	
Handling Fee:

A fee of $125.00 is payable when each bill is rolled.

	
Specific Conditions:

	
Specific Conditions are enclosed.

	
Documentary Credit/Documents Surrendered Facility (Local or Overseas)

	
Facility limit:

	
AUD 675,000

(For this purpose we will determine exchange rates to convert foreign currency amounts to the equivalent amounts in AUD.)

	
Termination date:

	
Not before the next review date.

	
Purpose:

	
To facilitate payment for imported goods under documentary credit arrangements.

	
Condition precedent:

	
You are only entitled to use the facility if we agree to the terms of your application and if you execute all documents required by us.

	
Fees:

	
Subject to the current ANZ International Trade Finance Fees or as advised by ANZ International Trade Finance.

	
Specific Conditions:

	
Subject to the current International Trade Services Terms and Conditions.

	
Overdraft Facility (2)

	
Facility limit:

	
$7,750,000

	
Termination date:

	
Not before the next review date.

	
Purpose:

	
Refinance of Invoice Finance to meet working capital requirements.

	
Interest rate:

	
Bank Bill Swap Reference Rate – Average Bid plus a margin of 2.4% pa (“Margin”).

	  	
Bank Bill Swap Reference Rate - Average Bid means the average bid rate for 30 days quoted on the BBSY page of the Reuters Monitor System (“Screen Rate”) at 10.30am (Melbourne time) (“Specified Time”) on any day on which your account has a debit balance (“Quotation Day”).

	  	
If for any reason the Screen Rate is not available at the Specified Time on the Quotation Day, then the Bank Bill Swap Reference Rate – Average Bid will be the rate determined by us to be the average of the buying rates quoted to us (each a Quotation) by:

	  	  	
-

	
Australia and New Zealand Banking Group Limited

	  	  	
-

	
Commonwealth Bank of Australia

	  	  	
-

	
National Australia Bank Limited, and

	  	  	
-

	
Westpac Banking Corporation,

	  	  	
(or their respective successors and assigns) (each a “Reference Bank”) at or about that time on that date. The buying rates must be for bills of exchange accepted by a leading Australian bank for bills having a tenor of 30 days.

	  	
Market Disruption:

	
If the Bank Bill Swap Reference Rate – Average Bid is to be determined by reference to the Reference Banks and a Reference Bank does not supply a Quotation by the Specified Time on the Quotation Day, the applicable Bank Bill Swap Reference Rate – Average Bid will be determined on the basis of the Quotations of the remaining Reference Banks.

	  	  	
Should a Market Disruption Event occur then the Interest rate will be the rate notified to you by us that we determine to be our cost of funding the relevant drawing (from whatever source or sources we reasonably select) plus the Margin.

We may provide you with a certificate confirming this rate signed by any manager of ours, which certificate shall be sufficient evidence of the rate certified unless the contrary is proved.

For the purposes of this facility, Market Disruption Event means:

	  	  	
(A)

	
At or about noon (Melbourne time) on the Quotation Day, the Screen Rate is not available and none or only one of the Reference Banks supplies a quotation to us for purposes of determining the Bank Bill Swap Reference Rate – Average Bid; or

	  	  	
(B)

	
Before close of business in Melbourne on the Quotation Day we determine that the cost to us of funding the drawing exceeds the Bank Bill Swap reference Rate – Average Bid; or

	  	  	
(C)

	
The rate calculated by reference to the Screen Rate or by reference to the Reference Banks in our opinion ceases to reflect our cost of funding to the same extent as at the date of this Letter of Offer,

	  	  	
Alternative basis of funding

If a Market Disruption Event occurs and we or you so require, we must together enter into negotiations (for a period of not more than thirty days) with a view to agreeing in writing a substitute basis for determining an alternative interest rate for the facility.

Any alternative basis agreed pursuant to this clause shall bind the parties but, unless and until such agreement is reached, the applicable interest rate for drawings under the facility will be the rate notified to you by us to be our cost of funding the drawing, plus the margin. For the avoidance of doubt, should a refund of any amount be due from one party to the other as a result of such negotiations, such amount must be paid as soon as practicable and no party shall be entitled to claim or to receive any interest or other compensation on any amount so refunded.

  

  

  

	
Interest payment:

	
Monthly in arrears on the first business day of each month, accruing daily starting on the first day of overdraft (interest is charged and payable monthly).

	
Fees:

	
Line Fee:

0.750% pa charged quarterly in arrears on the highest Facility Limit recorded for your accounts during the preceding quarter.

	
Prepayment:

	
Prepayment or cancellation of the facility (in whole or in part) may be effected without penalty at any time at the election of the customer.

	
Specific Conditions:

	
There are no Specific Conditions which apply to this facility.

	
Overdraft Facility (3)

	
Facility limit:

	
$2,000,000

	
Termination date:

	
28 February 2011

	
Purpose:

	
To assist with funding of additional container CAPEX.

	
Interest rate:

	
ANZ’s reference rate for amounts up to the facility limit.

	  	
ANZ’s reference rate is published weekly (usually each Monday) in the Australian Financial Review.

	
Interest payment:

	
Monthly in arrears on the first business day of each month, accruing daily starting on the first day of overdraft (interest is charged and payable monthly).

	
Fees:

	
Line Fee:

1.250% pa charged quarterly in arrears on the highest Facility Limit recorded for your accounts during the preceding quarter.

	
Prepayment:

	
Prepayment or cancellation of the facility (in whole or in part) may be effected without penalty at any time at the election of the customer.

	
Specific Conditions:

	
There are no Specific Conditions which apply to this facility.

	
Standby Letter Of Credit Facility (Tranche C)

	
Facility limit:

	
NZD11,379,000

	
Termination date:

	
14 September 2012

	
Purpose:

	
Bank guarantee to be provided in favour of ANZ National Bank Ltd in support of the Working Capital Facilities, Property loan and Transactional facilities provided to the RWNZ Group by ANZ National Bank Ltd.

Specific facility terms and conditions relating to facilities provided to the RWNZ Group are documented via a separate Letter of Offer issued by ANZ National Bank Ltd as amended from time to time.

	
Condition precedent:

	
You will only be entitled to use the facility if we agree with the terms of your application and if you execute all documents required by us.

	
Fees:

	
Subject to the current ANZ International Trade Services Fees or as advised by ANZ International Trade Services.

	
Fees payment:

	
Six monthly in advance.

	
Specific Conditions:

	
Subject to the current International Trade Services Terms and Conditions.

	
Variable Rate Commercial Bill Acceptance and Discount Facility

	
Facility limit:

	
$5,500,000 (representing the aggregate face value of the bills).

	
Termination date:

	
30 June 2011

	
Purpose:

	
To assist with short term working capital requirements for investment in hire fleet and used container stock.

	
Yield Rate:

	
For each drawing of bills, a rate quoted by us expressed as a yield percent per annum to maturity and, if necessary, will be rounded to the nearest two decimal places for the face value of the bills for the relevant tenor.

	  	
(a)

	
For tenors of 90, 120, 150 or 180 days, the actual rate used in the calculation will be the Bank Bill Swap Reference Rate – Average Bid which is the average bid rate for the relevant term displayed at or about 10.30am (Melbourne time) (“Specified Time”) on the Reuters Screen BBSY page (“Screen Rate”) on the day the quote is to be given by us (“Quotation Day”) and advertised in the Australian Financial Review the following business day, plus a margin of 0.00% per annum (“Margin”).

 

	  	
If for any reason the Screen Rate is not available at the Specified Time on the Quotation Day, then the Bank Bill Swap Reference Rate – Average Bid will be the rate determined by us to be the average of the buying rates quoted to us (each a Quotation) by:

	  	
-

	
Australia and New Zealand Banking Group Limited

	  	
-

	
Commonwealth Bank of Australia

	  	
-

	
National Australia Bank Limited, and

	  	
-

	
Westpac Banking Corporation,

	  	
(or their respective successors and assigns) (each a “Reference Bank”) at or about that time on that date. The buying rates must be for bills of exchange accepted by a leading Australian bank for bills having the same tenor as those bills to be discounted or rolled.

  

  

  

	
Market Disruption:

	
If the Bank Bill Swap Reference Rate – Average Bid is to be determined by reference to the Reference Banks and a Reference Bank does not supply a Quotation by the Specified Time on the Quotation Day, the applicable Bank Bill Swap Reference Rate – Average Bid will be determined on the basis of the Quotations of the remaining Reference Banks.

	  	
Should a Market Disruption Event occur then the yield rate will be the rate notified to you by us that we determine to be our cost of funding the relevant drawing (from whatever source or sources we reasonably select) for a period equal to the tenor of the bills being discounted plus the Margin.

We may provide you with a certificate confirming this rate signed by any manager of ours, which certificate shall be sufficient evidence of the rate certified unless the contrary is proved.

For the purposes of this facility, Market Disruption Event means:

	  	
(i)

	
At or about noon (Melbourne time) on the Quotation Day, the Screen Rate is not available and none or only one of the Reference Banks supplies a quotation to us to determine the Bank Bill Swap Reference Rate – Average Bid; or

	  	
(ii)

	
Before close of business in Melbourne on the Quotation Day we determine that the cost to us of funding the drawing exceeds the Bank Bill Swap Reference Rate – Average Bid; or

	  	
(iii)

	
The rate calculated by reference to the Screen Rate or by reference to the Reference Banks in our opinion ceases to reflect our cost of funding the drawing to the same extent as at the date of this Letter of Offer,

	  	
Alternative basis of funding

If a Market Disruption Event occurs and we or you so require, we must together enter into negotiations (for a period of not more than thirty days) with a view to agreeing in writing a substitute basis for determining an alternative yield rate for the drawing.

 

 

 

 

Any alternative basis agreed pursuant to this clause shall bind the parties but, unless and until such agreement is reached, the applicable yield rate for the drawing will be the rate notified to you by us to be our cost of funding the drawing, plus the Margin. For the avoidance of doubt, should a refund of any amount be due from one party to the other as a result of such negotiations, such amount must be paid as soon as practicable and no party shall be entitled to claim or to receive any interest or other compensation on any amount so refunded.

	  	
(b)

	
For any tenor other than 90, 120, 150 or 180 days, the actual rate used in the calculation will be the rate that we determine is the prevailing rate at which we can discount bills for the relevant term (rounded to the nearest two decimal places) which will be no less than our cost of funding the relevant drawing of bills for that period plus a margin.

	  	
In any case, an additional margin reflecting any movement in the actual rate since its quotation may be applied if your bills are not ready for acceptance by us by 12 noon on the day the bills are to be discounted or rolled. The margin to be applied will depend on the size of the bill parcel and tenor.

Full details of how the rate has been calculated will be set out in the quotation given by us.

	
Fees:

	
Line Fee:

3.15% pa on the facility limit, payable quarterly in advance, commencing on the date of acceptance of our offer. This fee is not rebatable.

	  	
Handling Fee:

A fee of $125.00 is payable when each bill is rolled.

	
Conditions Precedent

	
A Due Diligence Review is to be completed by an ANZ panel firm to review the working capital position and cash flow forecast assumptions to 30 June 2011, and the findings of the review are to be satisfactory to the bank.

	
Specific Conditions:

	
Specific Conditions for the facility are enclosed.

  

  

  

	
Foreign Currency Dealing Facility

	
Facility limit:

	
AUD 1,500,000

For this purpose we adjust the face value of the customer's obligation under each transaction by a multiplier (determined by us). The process includes conversion of any foreign currency amount to the equivalent amount in AUD).

	
Termination date:

	
30 June 2011

	
Purpose:

	
To fund the deferred premium for the Customer’s foreign exchange options.

	
Repayment

	
On or before 30 June 2011.

	
No pay away exposure except under Foreign Currency Settlement Facility limit:

	
We do not assume any pay away exposure under this facility unless and to the extent that it links this facility with a Foreign Currency Settlement Facility. Except to that extent we can have no obligation to deliver currency under a contract until we are satisfied that counter funds have been lodged by you or on your behalf.

	
Condition precedent:

	
You may only enter into a foreign currency contract with us if we agree to the terms of the contract and if you execute all other documents required by us.

	
Specific Conditions:

	
All transactions entered into under this facility will be governed by either:

 

· The Terms and Conditions For Trading in Foreign Exchange and Derivatives Transactions (December 2008) (FX Terms and Conditions) as amended, varied or substituted from time to time by us, whether you receive the FX Terms and Conditions before or after we agree to enter into a particular transaction and even if no reference is made to the FX Terms and Conditions in a confirmation of a transaction; or

 

· A 2002 ISDA Master Agreement (ISDA) with such modifications and in a form acceptable to us.

	
Securities confirmation

	
The Securities set out in the Security Schedule to this Letter of Offer also support all current and future transactions entered into under this facility. For clarity, this includes all amounts payable by you under the transactions and, in situations where the transactions are closed out in accordance with the terms of the FX Terms and Conditions or the ISDA (as the case may be), any amount payable by you as a result of closing out the transactions

	
Acknowledgement

	
By accepting and/or acknowledging this Letter of Offer, you and any Guarantors acknowledge that the amount payable on closing out transactions is linked to the mark-to-market valuations of those transactions and fluctuates as a result of currency and interest rate movements and other factors. Other than as required under the Terms and Conditions or the ISDA (as the case may be), we are not obliged to notify you or anyone else of the mark-to-market exposure or any fluctuations or movement in the mark-to-market exposure.

 

Uncommitted Markets Facilities

 

We may, in our sole discretion and from time to time, enter into transactions with you under one or more of the following uncommitted facilities:

	
·  

	
Foreign Exchange Dealing Facility

 

	
·  

	
Interest Swap Rate Facility

 

	
·  

	
Commodity Trading Facility

 

	
  

	
(collectively, the Uncommitted Markets Facilities)

  

  

  

The Uncommitted Markets Facilities are uncommitted and we have no obligation to enter into any transaction with you. The transactions under all or any of the Uncommitted Markets Facilities are subject to our absolute discretion. Further, we will only enter into transactions if we agree to the terms of the contract and after you execute all other documents required by us and satisfy all of our other requirements. Unless otherwise agreed in writing by you and us, all transactions entered into under any of the Uncommitted Markets Facilities will, as advised by us, be governed by either:

	
·  

	
the Terms and Conditions For Trading in Foreign Exchange and Derivatives Transactions (December 2008) (FX Terms and Conditions) as amended, varied or substituted from time to time by us, whether you receive the FX Terms and Conditions before or after we agree to enter into a particular transaction and even if no reference is made to the FX Terms and Conditions in a confirmation of a transaction; or

	
·  

	
a 2002 ISDA Master Agreement (ISDA) with such modifications and in a form acceptable to us.

The Securities set out in the Security Schedule to this Letter of Offer also support all current and future transactions entered into under all or any of the Uncommitted Markets Facilities. For clarity, this includes all amounts payable by you under the transactions and, in situations where the transactions are closed out in accordance with the terms of the FX Terms and Conditions or the ISDA (as the case may be), any amount payable by you as a result of closing out the transactions.

By accepting and/or acknowledging this Letter of Offer, you and any Guarantors acknowledge that the amount payable on closing out transactions is linked to the mark-to-market valuations of those transactions and fluctuates as a result of currency and interest rate movements and other factors. Other than as required under the Terms and Conditions or the ISDA (as the case may be), we are not obliged to notify you or anyone else of the mark-to-market exposure or any fluctuations or movement in the mark-to-market exposure.

  

  

  

SECURITY SCHEDULE

 

SECURITY SCHEDULE to Letter of Offer dated 16 February 2011.

Existing Securities

 

	
·

	
Corporate Guarantee and Indemnity dated 14 September 2007 between:

	  	
-

	
Royal Wolf Trading Australia Pty Ltd ACN 069 244 417(Insert full name of guarantor)- (See example below)

	  	
-

	
RWA Holdings Pty Ltd ACN 106 913 964

	  	
-

	
GFN Australasia Holdings Pty Ltd ACN 121 226 793ABC Co Pty Ltd [ACN]/[ABN]

	  	
-

	
GFN Australasia Finance Pty Ltd ACN 121 227 790DEF Co Pty Ltd [ACN]/[ABN]

	  	
-

	
Royal Wolf Hi-Tech Pty Ltd ACN 079 735 050

	
·

	
Corporate Guarantee and Indemnity dated 1 May 2008 by Royalwolf NZ Acquisition Co. Limited Company Number 2115393 in favour of:

	  	
-

	
Royal Wolf Trading Australia Pty Ltd ACN 069 244 417

	  	
-

	
RWA Holdings Pty Ltd ACN 106 913 964

	  	
-

	
GFN Australasia Holdings Pty Ltd ACN 121 226 793

	  	
-

	
GFN Australasia Finance Pty Ltd ACN 121 227 790

	  	
-

	
Royal Wolf Hi-Tech Pty Ltd ACN 079 735 050

	  	
-

	
Royalwolf Trading New Zealand Limited Company Number 1062072

	
·

	
Corporate Guarantee and Indemnity dated 1 May 2008 by RWNZ Acquisition Co. Limited Company Number 1937693 and Royalwolf Trading New Zealand Limited Company Number 1062072

	  	
-

	
Royal Wolf Trading Australia Pty Ltd ACN 069 244 417

	  	
-

	
RWA Holdings Pty Ltd ACN 106 913 964

	  	
-

	
GFN Australasia Holdings Pty Ltd ACN 121 226 793

	  	
-

	
GFN Australasia Finance Pty Ltd ACN 121 227 790

	  	
-

	
Royal Wolf Hi-Tech Pty Ltd ACN 079 735 050

	  	
-

	
Royalwolf NZ Acquisition Co. Limited Company Number 2115393

	
·

	
First Registered Company Charges (Mortgage Debentures) over all the assets and undertaking of:

	  	
-

	
Royal Wolf Trading Australia Pty Ltd ACN 069 244 417 Charge Number 1117185, dated 20 May 2005

	  	
-

	
RWA Holdings Pty Ltd ACN 106 913 964 Charge Number 1117184 dated 31 December 2004

	  	
-

	
Royal Wolf Hi-Tech Pty Ltd ACN 079 735 050 Charge Number 1438843 dated 29 March 2007

	  	
-

	
GFN Australasia Holdings Pty Ltd ACN 121 226 793 Charge Number 1514557 dated 14 September 2007

	  	
-

	
GFN Australasia Finance Pty Ltd ACN 121 227 790 Charge Number 1514546 dated 14 September 2007

	  	
-

	
Royalwolf Trading New Zealand Ltd Company Number 1062072, dated 1 May 2008

	  	
-

	
Royalwolf NZ Acquisition Co Ltd, Company Number 2115393, dated 1 May 2008

	  	
-

	
RWNZ Acquisition Co. Limited Company Number 1937693, dated 1 May 2008

	  	
These are fixed and floating charge over all present and future assets, undertaking (including goodwill) and unpaid/uncalled capital of the companies.

  

  

  

	
·

	
Registered Fixed Company Charge from RWA Holdings Pty Ltd ACN 106 913 964 Charge Number 1117849 dated 31 December 2004 over its shares in Royal Wolf Trading Australia Pty Limited ACN 069 244 417

	
·

	
First Registered Mortgage dated 1 May 2008 given by Royalwolf Trading New Zealand Ltd Company Number 1062072 over the property situated at 4 Ormiston Rd, East Tamaki, New Zealand.

	
·

	
Amendment and Restatement Deed dated 1 May 2008 amending and restating the original Intercreditor Deed dated 14 September 2007 between, among others, General Finance Corporation (U.S), GFN U.S. Australasia Holdings, Inc., Bison Capital Australia, LLC., Royal Wolf Australia Group and Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (the Bank).

  

  

  

FINANCIAL REQUIREMENTS AND OTHER CONDITIONS SCHEDULE

 

FINANCIAL REQUIREMENTS AND OTHER CONDITIONS SCHEDULE to Letter of Offer dated 16 February 2011.

Financial Reports:

 

You agree to provide us with:

 

Annually

 

	
·

	
Consolidated audited annual financial statements as soon as they are available, but not later than 120 days after the end of each financial year.

	
·

 

 

 

	
Consolidated annual projected Statement of Financial Position, Statement of Financial Performance, cashflow forecast and Capex budget, detailing on-discretionary capex (being capital expenditure required to acquire containers) and Discretionary Capex, at the start of each financial year, for the ensuing 12 months, as soon as they are available, but not later than 15 days prior to the commencement of each financial year.

 

Quarterly

 

	
·

	
Consolidated working capital information including listing of aged debtors, creditors and stock within 45 days of the end of each financial quarter (i.e. March, June, September, December).

	
·

	
Detailed schedule of Container Fleet with the following information as soon as they are available but no later than 45 days after the end of each quarter:

-Containers held for hire/lease outlining type, number, acquisition cost and book value.

-Containers held for sale outlining type, number, acquisition cost and book value.

	
·

	
Consolidated Management accounts (Statement of Financial Position and Statement of Financial Performance accounts) within 30 days after the end of each financial month. These accounts may be provided electronically in terms of our requirements for provision of electronic financials.

Other than management accounts which may be provided via electronic mail as detailed below, all financial reports provided by you must be attached to a duly completed Principal’s Certificate in the form annexed to this Annual Review and Variation Letter (“Principal’s Certificate”) and signed by a director, partner or business owner, as appropriate.

 

Provision of Electronic Financials

 

Copies of management accounts provided via electronic mail (email) must also be accompanied by a Principal’s Certificate and sent by either:

 

	
·  

	
One of your directors; or

 

	
·  

	
A person nominated by you and acceptable to us (“Nominated Representative”).

In the case of the latter, the attached letter titled “Nominated Representative for Provision of Electronic Financials” must be signed by both the Nominated Representative and by you, and returned to us.

You will ensure that every director of each company (to which the management accounts relate) reviews the management accounts and the Principal’s Certificate on or before the date they are sent to us to confirm they are true and correct and are not misleading in any way.

A director sending management accounts and the Principal’s Certificate to us in this manner will be taken to have certified the accounts and the Principal’s Certificate as being true and correct and not misleading in any way on the date that they are received by us.

The directors will be taken to have jointly and severally certified the management accounts and the Principal’s Certificate in this manner, unless they notify us of any discrepancy within five business days from the date that your Nominated Representative sends the management accounts and the Principal’s Certificate to us.

A failure to meet any of the above requirements where they apply will constitute an event of default under this Annual Review and Variation Letter.

Where the number of directors is greater than two, the management accounts and the Principal’s Certificate sent (electronically) to us need only be copied to a minimum of two such directors.

  

  

  

 

Financial covenants:

 

While we are making facilities available to you and while there remains any obligations by you to us, you undertake that:

	
·

	
Consolidated Interest Cover Ratio: The interest cover ratio for each financial quarter for the Consolidated entities will not, as at the compliance date, be less than 2.20:1.

	  	  
	
Calculation: Interest Cover Ratio:

	
Trailing Adjusted EBITDA

Interest Expense - GFN Loan Interest Subordinated

 

 

- 

 

	  
	
·

	
Consolidated Senior Debt Interest Cover Ratio: The interest cover ratio for each financial quarter for the Consolidated entities will not, as at the compliance date, be less than the Minimum SDICR.

	
Calculation: Interest Cover Ratio:

	
Trailing Adjusted EBITDA

Senior Debt Interest Expense

For the purpose of the Consolidated Senior Debt Interest Cover Ratio, “Minimum SDICR” means:

   - 3.25:1, for the financial quarter ending 31 March 2011; and

   - 3.40:1, for the financial quarter ending 30 June 2011 and the financial quartersthereafter.

	
 

· 

 

	
Consolidated Total Debt Gearing Ratio: Total Debt Gearing Ratio for each financial quarter for the Consolidated entities will not, as at the compliance date, exceed the Maximum DGR

	  
	
Calculation:  Total Debt Gearing Ratio :

	
Debt - GFC Subordinated Debt

Trailing Adjusted EBITDA

For the purpose of this Consolidated Total Debt Gearing Ratio, “Maximum DGR” means:

 

- 4.50:1, for the financial quarter ending 31 March 2011; and

 

 

- 4.25:1, for the financial quarter ending 30 June 2011 and the financial quartersthereafter.

 

	  
	
·

	
Consolidated Senior Debt Gearing Ratio: Consolidated Senior Debt Gearing Ratio for each financial quarter for the Consolidated Entities will not, as at the compliance date, exceed the Maximum SDGR.

	  
	
Calculation:  Senior Debt Gearing Ratio :

	
Senior Debt

Trailing Adjusted EBITDA

For the purpose of this Consolidated Senior Debt Gearing Ratio, “Maximum SDGR” means:

-    3.50:1, for the financial quarter ending 31 March 2011; and

-    3.25:1, for the financial quarter ending 30 June 2011 and the financial quartersthereafter.

 

	
·

	
Consolidated Loan to valuation limitation: Outstanding balance of facilities is not to exceed 80% of the Container Liquidation Value, to be tested quarterly.

  

  

  

	
  

	
Calculation: Loan to valuation limitation:

	
  

	 

	
 

· 

 

	
Working Capital Ratio: The working capital ratio, when expressed as a percentage, for each financial quarter for the Consolidated entities will not, as at the compliance date, exceed 60%.

	
           Calculation:  Working Capital Ratio:

	
Working Capital Facility

Total Debtors – Excluded Debtors

unless we have given you our prior written consent to a variation.

 

Compliance with financial covenants:

 

If any of the above financial covenants are breached, unless we have given you our prior written consent to a variation, you will be in breach of your obligations under this Variation Letter and this breach will constitute an event of default.

We will test the financial covenants for each entity that the financial covenants apply to at the end of each compliance period as set out above, based on the definitions set out at the end of this schedule.

You agree that the interpretation and testing of the above financial covenants will be carried out in accordance with the provisions of the Corporations Act and the accounting concepts, standards and disclosure requirements of the Australian accounting bodies consistently applied, unless otherwise agreed in writing.

 

Other conditions to be met:

 

	
·  

	
(PPSA undertaking) If either you or a surety holds any security interests for the purposes of the PPSA (each, a “PPSA Obligor”) and if a failure by a PPSA Obligor would have a material adverse effect (as described in clause 14(1)(k) of the General Conditions), the relevant PPSA Obligor agrees to implement, maintain and comply in all material respects with, procedures for the perfection of those security interests.  These procedures must include procedures designed to ensure that the PPSA Obligor takes all steps under the PPSA to perfect continuously any such security interest including all steps necessary:

	
o  

	
for the PPSA Obligor to obtain the highest ranking priority possible in respect of the security interest (such as perfecting a purchase money security interest or perfecting a security interest by control); and

	
o  

	
to reduce as far as possible the risk of a third party acquiring an interest free of the security interest (such as including the serial number in a financing statement for personal property that may or must be described by a serial number).

If we ask, the PPSA Obligor agrees to arrange at your expense an audit of the above PPSA procedures.  We may ask a PPSA Obligor to do this if we reasonably suspect that the PPSA Obligor is not complying with this clause.

Everything that a PPSA Obligor is required to do under this clause is at your expense. You agree to pay or reimburse us for our costs in connection with anything the PPSA Obligor is required to do under this clause.

 

	
·  

	
You agree that GFNAH will pay the USD5,500,000 principal repayment of the Bison Debt no later than 1 July 2011.  You agree that it will be an event of default GFN U.S. fails to provide GFNAH with USD 5,500,000 of capital, equity or subordinated debt prior to 1 July 2011 to enable GFNAH to make this principal repayment.

 

 

	
·  

	
You agree that, until the Short Term Cash Advance Facility is repaid in full, the total amount of cash payments that Royal Wolf Trading pays to GFN U.S. for management fees may not exceed:

  

  

  

 

	
(i)

	
USD 1,000,000 in any financial year; and

	
(ii)

	
Maximum Monthly Amount for any month,

 

	
  

	
without our prior written consent.

	
  

	
You agree that once the Short Term Cash Advance Facility is repaid in full, the total amount of cash payments that Royal Wolf Trading pays to GFN U.S. for management fees may not exceed Maximum Monthly Amount for any month, without our prior written consent.

	
  

	
Maximum Monthly Amount" means:

 

	
  

	
-  USD 100,000 until 30 June 2011, and

	
  

	
-  USD 125,000 on and from 1 June 2011.

You agree that any management fees incurred but unpaid (Accrued Management Fees) will appear as a liability in your Consolidated financial statements which will not be repaid in the short term, and that no repayment of the Accrued Management Fees will be made to GFN U.S. without our prior written consent.

 

 

	
·  

	
You agree we can conduct a cash flow sweep calculation within 60 days of the end of each financial year.  Should the cash flow sweep reveal a positive Cash Sweep Amount, you agree we can elect in our discretion for you to apply some or all of the Cash Sweep Amount in permanent reduction of the Interchangeable Facility (2) (Tranche B) or, if the Interchangeable Facility (2) (Tranche B) has been fully repaid, in permanent reduction of the Interchangeable Facility (1) (Tranche A).

	
  

	
The Cash Sweep Amount is determined in accordance with the following calculations:

1. Cash Sweep Amount = FCFA – Voluntary Principal Repayments.

	
2.  

	
FCFA = Reduced CFADS – Required Principal Repayments – Annual Interest Expense

	
3.  

	
Reduced CFADS = CFADS x 80%

	
4.  

	
CFADS = Annual EBITDA - Annual CAPEX - Net Capital Increase - Tax

 

	
·  

	
You agree that there will be no material changes to the Standard Rental Agreement without our prior written consent.  You agree that any material changes to the Rental Agreement must be satisfactory to us in our absolute discretion.

 

 

	
·  

	
You agree that the Container Fleet must be re-valued for us at least once every financial quarter at your cost while facilities continue to be provided by us.  Each valuation must be undertaken by a reputable licensed valuer appointed by and acceptable to us, and the valuation must be to our satisfaction in all respects.

 

 

	
·  

	
You agree that all hired containers must stay within the boundaries of Australian or New Zealand waters at all times, unless you have obtained our prior written consent for any container to move outside the boundaries of Australian or New Zealand waters.

 

 

	
·  

	
You agree that you will not change your current depreciation or amortisation policy without our prior written consent, which we agree to not unreasonably withhold.

 

 

	
·  

	
You agree that Discretionary Capex by the Consolidated entities will not exceed AUD2,000,000 in any financial year, without our prior written consent.

 

 

	
·  

	
You agree that you will not incur On or Off Balance Sheet Liabilities in excess of $500,000 per annum without our prior written consent (such consent not to be unreasonably withheld).

 

 

	
·  

	
You agree that our prior written consent is required before containers from the Container Fleet are sold in any one transaction for a price of AUD3,000,000 or greater.  We agree we will not unreasonably withhold our consent.

 

	
·  

	
You agree that you will not provide any loan or financial accommodation, or make any regular payments, to any shareholder, parent company or Associated Entity without our prior written consent.  You agree that you will not pay or declare any dividend, other than the GFN Dividend, without our prior written consent.

 

	
·  

	
You agree that you will maintain at all times an agreement to hedge your interest rate risk in relation to at least 50% of your Debt Funding.

 

A breach of any of these conditions will constitute an Event of Default.

  

  

  

 

Insurance:

 

In accordance with clause 4 of the General Conditions you must, within 14 days of a request by us, provide us with a copy of a Cover Note or Certificate of Currency in a form satisfactory to us of insurance over all property or assets mortgaged or charged to us.

A breach of this clause will constitute a Review Event.

 

Valuations:

 

You agree that each Security Property must be re-valued for us at least once every 36 months at your cost while facilities continue to be provided by us. Each valuation must be undertaken by a reputable licensed property valuer acceptable to us, on the basis prescribed by us and must be satisfactory in all respects.

You also agree that additional valuations of any Security Property may be undertaken by us, at our discretion and at our cost. For the avoidance of doubt, we reserve the right to test the loan to valuation limitation (as set out under the Financial Requirements), if applicable, as at the date of the additional valuation.

 

Due Diligence Review

 

You agree that within 45 days of the end of each financial quarter we may engage a qualified accountant or auditor ("ANZ Field Appointee") to review the existence, title and value of your debtors and stock, debtor and stock controls and other matters such as creditor values and ageing, statutory obligations to the Australian Taxation Office, State and Local Governments, employee obligations and any legal action ("Due Diligence Review") and that you will co-operate with any ANZ Field Appointee and the costs will be paid by you. Also, you agree that neither we nor any of our employees will be liable to you or any other person for any loss, liability, cost or expense that is caused (directly or indirectly) by anything that an ANZ Field Appointee does or does not do arising out of the provision of a service to us. Should any aspect of the Due Diligence Review in our opinion be unsatisfactory, this will constitute a Review Event.

 

Taxation payment plan or agreement with the Australian Taxation Office or other statutory body:

 

You agree to notify us of any payment plan arrangement that you enter into with the Australian Taxation Office or some other statutory body in relation to outstanding tax liabilities (“Payment Plan”). You acknowledge and agree that, should you fail to notify us of a Payment Plan within 14 days of entering into a Payment Plan, this will constitute a review event for the purposes of this agreement.

Where you have entered into a Payment Plan you acknowledge and agree that, should you default under a Payment Plan, this will constitute an event of default for the purposes of this agreement.

 

Direct debit arrangements for costs and interest:

 

You agree that we may debit to your account held with a financial institution nominated by you all costs and interest charges as agreed between you and us from time to time. You agree to execute any documents required by us to authorise us to debit these amounts to your nominated account. We will notify you of any amounts to be debited to your nominated account before those amounts are debited.

We are not obliged to debit any amount to the account nominated by you. If we do not debit your nominated account with an amount that you owe us, despite being authorised to do so, this does not constitute a waiver by us of your obligation to pay that amount to us.

You may owe us other amounts from time to time other than those that we are authorised under your direct debit arrangements with us to debit to your nominated account. It is your responsibility to ensure that these amounts are paid by suitable payment method by their due date for payment.

If you do not execute any documents required by us to authorise us to debit these amounts to your nominated account or you terminate your direct debit arrangement with us without our prior written consent, this will constitute a Review Event for the purposes of this agreement.

  

  

  

 

Conditions Precedent:

 

Our obligation to make any facilities available is subject to our being satisfied that you have complied with clause 8 of the General Conditions and the following relative to Authorised Representatives.

	
·

	
Authorised Representative Certificate

	  	  
	  	
We must have received from you a properly completed and executed Authorised Representative Certificate and the identity of each Authorised Representative must be verified to our satisfaction in order to comply with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). Each person so named as an Authorised Representative will be an authorised representative for the purposes of the transaction documents.

 

Definitions:

 

"Annual CAPEX" means Discretionary CAPEX plus Non Discretionary CAPEX for the most recent financial year.

"Annual EBITDA" means EBITDA for the most recent financial year, as identified in the Consolidated financial statements.

"Annual Interest Expense" means the Interest Expense for the most recent financial year.

"Non Discretionary CAPEX" means all capital expenditure to acquire containers for the Container Fleet, as identified in the Consolidated financial statements.

“ANZNZ Facilities” means the financial accommodation provided by ANZ National Bank Limited to the RWNZ Group and documented in its letter of offer, as varied or replaced from time to time.

“Associated Entity” has the same definition as contained in the Corporations Act 2001 (Commonwealth).

“Bison” means Bison Capital Australia, L.P.

“Bison Debt” means all money which GFN Australasia Finance Pty Ltd ACN 121 227 790 is or at any time becomes actually or contingently liable to pay to Bison.

“Bison Interest” means the aggregate amount of interest paid or payable in respect of the Bison Debt.

“Capex” means capital expenditure on containers to form part of the Container Fleet.

"Cash Sweep Amount" means the estimated surplus cashflow determined in accordance with the cash flow sweep 'other condition' which is the amount we may we may elect to require you to apply in permanent reduction of some of your facilities with us.

"CFADS" is calculated as Annual EBITDA - Total CAPEX + Net Capital Increases - Tax.

“Consolidated” means, for the purposes of your financial statements, the following entities:

 

· RWA Holdings Pty Ltd ACN 106 913 964;

 

· Royal Wolf Trading Australia Pty Ltd ACN 069 244 417;

 

· GFN Australasia Holdings Pty Ltd ACN 121 226 793;

 

· GFN Australasia Finance Pty Ltd ACN 121 227 790;

 

· Royal Wolf Hi-Tech Pty Ltd ACN 079 735 050;

 

· Royalwolf Trading New Zealand Limited Company Number 1062072; and

 

· Royalwolf NZ Acquisition Co. Limited Company Number 2115393

“Container Fleet” means the fleet of containers owned by the Royal Wolf Australia Group and the RWNZ Group.

“Container Liquidation Value” means the orderly liquidation value of the Container Fleet as

identified in the most recent valuation we hold.

  

  

  

“Debt” means the aggregate of short term and long term debt for the Consolidated Entities as identified in the Consolidated financial statements.

“Debt Funding” means Senior Debt

"Discretionary CAPEX" means all capital expenditure to acquire property, plant and equipment, as identified in the Consolidated financial statements.

“EBITDA” means the consolidated net profit/(loss) before deduction of interest, tax, depreciation and amortisation (before significant items).

“Excluded Debtors” means the value of all trade receivables owing to the Royal Wolf Australia Group for more than 90 days and the value of bad and doubtful debts, receivables owing from related parties for that period, credit notes, disputed debts and debtors exercising a set-off.

“Facility Balance” means the total of the balances of the following facilities:

	
  

	
- Overdraft Facility (3);

- Interchangeable Facility (1) (Tranche A);

	
  

	
- Interchangeable Facility (2) (Tranche B);

	
  

	
- Variable Rate Commercial Bill Acceptance and Discount Facility; and

 

 

"FCFA" is calculated as Reduced CFADS - Required Principal Repayments - Annual Interest Expense.

“GFN Dividend” means a dividend paid by RWA holdings Pty Ltd ACN 106 913 964 to GFN Australasia Finance Pty Ltd ACN 121 226 793 which is no more than what is required to enable GFN Australasia Finance Pty Ltd ACN 121 226 793 to pay the Bison Interest.

“GFN Subordinated Debt” means loans from General Finance Corporation to some or all members of the Royal Wolf Australia Group which have both principal and interest subordinated to the facilities being provided by us pursuant to the Intercreditor Deed (as listed in the Securities Schedule to this letter of offer).

“GFN Loan Interest Subordinated” means the aggregate of interest expense on the GFN Subordinated Debt.

“GFNAH” means GFN Australasia Holdings Pty Ltd ACN 121 226 793.

“GFN U.S.” means GFN U.S. Australasia Holdings, Inc., a company incorporated in the United States of America.

“Interest Expense” means the aggregate of interest expense, including Bison Interest, interest expense for Intra Group loans and interest expense of Directors, Owners and Shareholder loans.

"Net Capital Increase" means Net Capital 2 minus Net Capital 1.

"Net Capital 1" means Total Stock plus Net Debtors minus Trade Creditors for the year preceding the most recent financial year.

"Net Capital 2" means Total Stock plus Net Debtors minus Trade Creditors for the most recent financial year.

"Net Debtors" means Total Debtors minus Excluded Debtors.

“NZ Debt” means all amounts actually or contingently owing by you under the ANZNZ Facilities.”

“NZ Term Debt Facilities” means the limits of those ANZNZ Facilities which are the bill prices term loan facilities.

“On or Off Balance Sheet Liabilities” means the total of current liabilities and non-current liabilities of you and your controlled entities as disclosed in the consolidated financial statements. This, by definition, includes off balance sheet liabilities as well as redeemable preference shares, subordinated loans, provisions and dividends declared or accrued but not paid.

  

  

  

"Reduced CFADS" is calculated as CFADS x 80%.

“Rental Agreement” means the agreement for the lease of the Container Fleet.

"Required Principal Repayments" means all required principal repayments of financial accommodation paid by the Consolidated entities in the most recent financial year.

“Royal Wolf Trading” means Royal Wolf Trading Australia Pty Ltd ACN 069 244 417.

“RWA Dividends” means dividends paid by RWA Holdings Pty Ltd ACN 106 913 964 to GFNAH to enable GFNAH to pay the Bison Interest.

“RWNZ Group” is a reference to the following New Zealand entities individually and collectively:

 

•     Royalwolf Trading New Zealand Ltd, company number 1062072;

 

 

•     Royalwolf NZ Acquisition Co Ltd, company number 2115393.

 

“Senior Debt” means all amounts actually or contingently owing by you under the facilities provided by this letter of offer, as varied or replaced from time to time.

“Senior Debt Interest Expense” means the aggregate gross amount of interest and payments in the nature of interest paid or payable to us in respect of the Senior Debt and the ANZNZ Facilities.

“Short Term Cash Advance Facility” means the short term cash advance facility owed by Royal Wolf Trading to GFN U.S. for approximately USD300,000.

“Standard Rental Agreement” means the standard agreement for hiring out containers within the Container Fleet.

"Tax" means tax paid or payable, as identified in the Consolidated financial statements for the most recent financial year.

"Total Stock" means the value of all finished goods, raw materials held by the Consolidated entities to manufacture stock and work in progress, as identified in the Consolidated financial statements.

“Total Debtors” means value of all trade receivables owing to the Consolidated entities, as identified in the Consolidated financial statements.

“Trailing Adjusted EBITDA” means the EBITDA for the 12 month period ending the relevant financial quarter, as disclosed from the Consolidated financial statements.

"Voluntary Principal Repayments" means all voluntary principal repayments of financial accommodation paid by the Consolidated entities in the most recent financial year.

“Working Capital Facility” means the total balance of the Overdraft Facility (2).

The above terms are to be interpreted according to the Corporations Act, Statement of Accounting Concepts, Australian Accounting Standards and other mandatory reporting requirements.

  

  

  

GENERAL CONDITIONS AND SPECIFIC CONDITIONS SCHEDULE

 

GENERAL CONDITIONS AND SPECIFIC CONDITIONS SCHEDULE to Letter of Offer dated 16 February 2011.

General Conditions and Specific Conditions:

 

Our General Conditions (Fifth Edition 2009) apply to the facilities as well as any applicable Specific Conditions to the facilities. Both the General Conditions and any applicable Specific Conditions are enclosed with this Letter of Offer.

General Conditions Fifth Edition 2009:

 

Excess fee:

 

If drawings are made to your account in excess of the agreed limit and we decide to pay those drawings, we may charge an excess fee of up to $150. This fee is to compensate us for costs we incur as a result of an excess. If charged, this fee is payable on the date of the excess.

	
Conditions precedent:

	
Clause 8(d) of the General Conditions is deleted and replaced with the following new replacement clause 8(d):

	  
	
“(d)

	
other documents: all other documents required to be provided by you to us in the letter of offer have been provided;”

	  	  
	
Representations made by you:

	
Clause 9(1) of the General Conditions is amended by inserting the following new sub-clauses (n), (o), (p), (q), (r) and (s):

	  
	
“(n)

	
compliance with laws: you and each surety are in compliance in all material respects with all laws to which you and each surety may be subject.”;

	  	  
	
(o)

	
status:

	  	  
	  	
(i)

	
if you are a corporation, you are duly incorporated and validly existing under the laws of your jurisdiction of incorporation and have the power to own your assets and carry on your business as it is being conducted; and

	  	  	  
	  	
(ii)

	
for each corporate surety, it is duly incorporated and validly existing under the laws of its jurisdiction of incorporation and has the power to own its assets and carry on its business as it is being conducted;

	  	  
	
(p)

	
power and authority: you have the power to enter into, perform and deliver, and have taken all necessary action to authorise your entry into, performance and delivery of, each transaction document to which you are a party and the transactions contemplated by each transaction document;

	  	  
	
(q)

	
commercial benefit: the entry into and performance by you and each surety of obligations under the transaction documents to which you and each surety is expressed to be a party is for your and each surety’s commercial benefit and is in your and each surety’s commercial interests and, in the case of a trustee, for the benefit and is in the commercial interests of the beneficiaries of the trust;

 

	  	  
	
(r)

	
assets: you and each surety is maintaining your and each surety’s assets in a good state of repair and in good working order consistent with good operating practice (allowing for fair wear and tear); and

	  	  
	
(s)

	
right of indemnity: if you act now or in the future as trustee of any trust (regardless of whether or not you have told us about that trust):

	  	  
	  	
(i)

	
you have the right to be indemnified out of the trust fund in relation to any liability arising under or in connection with the proper performance of your rights and obligations under each transaction document to which you are a party; and

	  	  	  
	  	
(ii)

	
you have not released or disposed of your equitable lien over the trust fund.”

  

  

  

 

Interest rate on excesses and overdue amounts:

 

For the purposes of clause 12 of the General Conditions, the applicable rate of interest is the interest applicable to the facility on which the excess occurs or the facility on which an overdue amount occurs plus margin, plus 4% per annum.

 

Review of the facilities:

 

Clause 13(3) of the General Conditions is varied by replacing “30” with “15”.

Clause 13(7) of the General Conditions is varied by replacing “facilities” with “facilities affected by the market disruption event”.

	
Default:

	  
	
Clause 14(1) of the General Conditions is varied by:

 

	
(a) deleting clause 14(1)(k) and replacing it with the following new replacement clause:

	  	  
	  	
“(k)

	
change in circumstances: circumstances arise that, in our opinion, may have a material adverse effect on:

	  	  	  
	  	  	
(i)

	
your business, assets or financial condition; or

	  	  	  
	  	  	
(ii)

	
your ability to perform your obligations under, or the effectiveness or priority of, any transaction document.”

	  	  	  
	
(b) inserting the following new sub-clause (q):

	  	  
	  	  
	  	
“(q)

	
compulsory acquisition:

	  	  	  
	  	  	
(i)

	
all or a material part of your property or the property of a surety is compulsorily acquired by a government agency; or

	  	  	  
	  	  	
(ii)

	
you or a surety sells or divests yourself or itself of all or a material part of your or its property because you or the surety is required to do so by a binding order from a government agency,

	  	  
	  	  	
and you or the surety do not receive compensation for the acquisition, sale or disposal which is acceptable to us.”

 

Different currencies:

 

Clause 18(1) of the General Conditions is deleted and replaced with the following new replacement clause numbered 18(1):

	
  

	
“Payments

	
(1)

	
All payments under a transaction document must be made in the same currency as the drawing or obligation to which it relates.”

 

Changes in government requirements:

 

Clause 21 of the General Conditions is deleted and replaced with the following new replacement clause numbered 21:

  

  

  

	
“Changes in government requirements or treatment of facilities

	
(1)

	
This clause applies if:

	  	  	  
	  	
(a)

	
after the date of the letter of offer there is:

	  	  	  	  
	  	  	
(i)

	
a change in a government requirement or a new government requirement;

	  	  	  	  
	  	  	
(ii)

	
a change in a tax or a new tax;

	  	  	  	  
	  	  	
(iii)

	
a change in the interpretation of a government requirement or a tax; or

	  	  	  	  
	  	  	
(iv)

	
a change in our recourse or exposure to you or a surety, or in the business, operations, assets, condition, financial position or other aspect of you or a surety, where this affects our credit risk treatment or capital allocation or exposure treatment of the facilities or our commitment to provide the facilities; and

	  	  	  	  
	  	
(b)

	
Its effect is, in our opinion, directly or indirectly:

	  
	  	  	  	  
	  	  	
(i)

	
to increase the cost to us of providing or maintaining the facilities or of providing funds under them; or

	  	  	  	  
	  	  	
(ii)

	
to reduce the effective rate of return to us (whether on capital, assets, deposits or otherwise) on the facilities.

	  	  
	  	
For the purpose of this clause “tax” includes duties but does not include a tax on our net income in the normal course of our business.

	  	  
	
(2)

	
You agree to pay to us, on demand, the amount calculated by us as necessary to compensate us for the increase in cost or reduction in rate. The amount payable will be calculated by us from the day when we first incurred the cost or suffered the reduction.”

	
Privacy and Confidentiality Information:

	
Clause 26 of the General Conditions is amended by:

	  	  
	
(a)

	
inserting the following wording under the heading to that clause and before sub-clause (1):

	  	  
	  	
“References to "you" and "your" in this clause apply equally to a surety or an entity that is contemplating becoming a surety.”; and

	  	  
	
(b)

	
inserting the following wording at the end of sub-clause (1):

	  	  
	  	
“When you deal with us, we are likely to collect and use some confidential information about you. We explain below when and how we may collect and use your confidential information.”

	  	  
	
(c)

	
deleting clause 26(2)(m) and replacing it with the following new sub-clause:

 

	  	  
	  	
“(m) other parties we are authorised or required by law to disclose information to (except this clause does not require us to disclose any information of the kind referred to in section 275(1) of the PPSA).”

	  	  

 

Accounts reconciliation:

 

In terms of clause 27(7) of the General Conditions and by mutual agreement between us, you must reconcile your records in respect of each account held with us within 30 days after you should have received the statement of account. All other conditions of this clause remain unchanged.

  

  

  

 

PPSA further steps:

 

Clause 27 is varied by inserting the following new sub-clauses (18) and (19):

	
 “(18)

	
PPSA further steps

	  	  
	  	
If we determine that a transaction document (or a transaction in connection with it) is or contains a security interest for the purposes of the PPSA, you agree to do anything (such as obtaining consents, signing and producing documents, getting documents completed and signed and supplying information) which we ask and consider necessary for the purposes of:

 

	  	
(a)

	
ensuring that the security interest is enforceable, perfected and otherwise effective; or

	  	  	  
	  	
(b)

	
enabling us to apply for any registration, or give any notification, in connection with the security interest so that the security interest has the priority required by us; or

	  	  	  
	  	
(c)

	
enabling us to exercise rights in connection with the security interest.”

	  	
 

Everything that you are required to do under this clause is at your expense.  You agree to pay or reimburse us for our costs in connection with anything you are required to do under this clause.

 

	
(19)

	
No PPSA notice required unless mandatory

	  	  
	  	
We need not give any notice under the PPSA (including a notice of a verification statement) unless the notice is required by the PPSA and cannot be excluded.”

	
Meanings of words and expressions:

	
Clause 28(1) of the General Conditions is varied by:

	  	  
	
(a)

	
deleting the definition of “account operating authority”;

	  	  
	
(b)

	
inserting the following new definition of “cost of funds” after the definition of “costs”:

	  	  
	  	
“"cost of funds” means the rate determined conclusively by us to be equal to the cost to us of raising deposits in the relevant currency in the relevant interbank market for an amount comparable to the outstanding amounts under the particular facility and for a term comparable to the relevant interest period specified in the particular facility;";

	  	  
	
(c)

	
inserting the following new definition of “good operating practice” after the definition of “General Conditions”:

 

	  	  
	  	
““good operating practice” means the exercise of that degree of skill, prudence (operational and financial), foresight and operating practice which would reasonably and ordinarily be expected from an experienced and reputable operator of a business which is similar to the business conducted by you and consistent with applicable laws, regulations, codes and licenses;” and

	  	  
	
(d)

	
deleting the definition of “government requirement” set out in clause 28(1) of the General Conditions is deleted and replacing it with the following new definition:

	  	  
	  	
““government requirement” means a law or regulation (including in relation to tax), or an order, treaty, policy, ruling, directive, guideline, standard, requirement or request of the Australian Prudential Regulation Authority or any central bank, prudential supervisory authority or other government agency or regulatory agency of any jurisdiction, having either force of law or with which responsible banks or financial institutions in the applicable jurisdiction would comply in practice.”

	  	  
	
(e)

	
inserting the following new definition of “PPSA” after the definition of “potential event of default”:

	  	  
	  	
““PPSA” means the Personal Property Securities Act 2009 (Cth).”

	  	  
	
(f)

	
deleting the definition of “security” and replacing it with the following new definition:

 

	  	
““security” for your obligations (whether under this agreement or not) and which has been given to us previously or will be given to us in the future means:

 

	  	
(a)

	
any right or interest of any kind given by way of security (including, for example, a mortgage, pledge, lien, charge or assignment);

	  
	  	  	  	  
	  	
(b)

	
any other arrangement (including any preferential, trust, title retention or set-off arrangement) having a similar commercial effect as a grant of security; or

	  
	  	  	  	  
	  	
(c)

	
a guarantee or indemnity,

	  
	  	
 

and includes any security interest under the PPSA.”

	  

  

  

  

ACCEPTANCE AND CUSTOMER SURETY ACKNOWLEDGEMENT

 

To:           Australia and New Zealand Banking Group Limited (“ANZ”)

Corporate Banking

Level 11, 20 Martin Place

Sydney NSW 2000

Acceptance of Letter of Offer dated 16 February 2011.

We accept your offer to provide the facilities on the conditions detailed in this Letter of Offer and acknowledge receipt of the General Conditions (Fifth Edition 2009) and any applicable Specific Conditions.

We authorise you to provide information about the customer (including creditworthiness, history, standing or capacity) to:

	
·  

	
an intending guarantor, to enable that person to consider whether or not to act as guarantor, or offer property as security, for a facility or facilities in the name of the customer.

	
·  

	
a person who is a guarantor, or has provided property as security, for a facility or facilities in the name of the customer.

Select whichever applies:

T By ticking this box, we each certify that there has been no change to the Customer’s Authorised Representatives since the date that the last completed certificate was provided to ANZ. Accordingly, we do not need to complete and provide the pro forma Authorised Representative Certificate attached to this Letter of Offer as the previous certificate is complete and up to date.

OR

□ We each attach an updated completed and executed Authorised Representative Certificate.

Customer Surety Acknowledgment to Letter of Offer dated 16 February 2011.

 

To the extent that I have given, or will give, any securities, I acknowledge and agree that the securities given, or to be given, by me secure all my present and future obligations to ANZ, including obligations in respect of the facilities, subject to the limit (if any) set out in any such security.

By providing this Surety Acknowledgment to the facilities, I acknowledge that the provisions contained at clause 26 “Privacy” of the General Conditions apply to me.

Dated 4 March 2011

	
SIGNED for and on behalf of GFN Australasia Holdings Pty Ltd ACN 121 226 793 by:

	  	  
	
/s/ Robert Allan

	
Robert Allan

	
.................................................................................

	
................................................................................

	
Signature of Director

	
Print name of Director

	  	  
	
/s/ Greg Baker

	
Greg Baker

	
.................................................................................

	
................................................................................

	
Signature of Director/Secretary

	
Print name of Director/Secretary

	  	  
	  	  
	
SIGNED for and on behalf of GFN Australasia Finance Pty Ltd ACN 121 227 790 by:

	  	  
	
/s/ Robert Allan

	
Robert Allan

	
.................................................................................

	
................................................................................

	
Signature of Director

	
Print name of Director

	  	  
	
/s/ Greg Baker

	
Greg Baker

	
.................................................................................

	
................................................................................

	
Signature of Director/Secretary

	
Print name of Director/Secretary

	  	  
	  	  
	
SIGNED for and on behalf of RWA Holdings Pty Ltd ACN 106 913 964 by:

	  	  
	
/s/ Robert Allan

	
Robert Allan

	
.................................................................................

	
................................................................................

	
Signature of Director

	
Print name of Director

	  	  
	
/s/ Greg Baker

	
Greg Baker

	
.................................................................................

	
................................................................................

	
Signature of Director/Secretary

	
Print name of Director/Secretary

	  	  
	  	  
	
SIGNED for and on behalf of Royal Wolf Trading Australia Pty Ltd ACN 069 244 417 by:

	  	  
	
/s/ Robert Allan

	
Robert Allan

	
.................................................................................

	
................................................................................

	
Signature of Director

	
Print name of Director

	  	  
	
/s/ Greg Baker

	
Greg Baker

	
.................................................................................

	
................................................................................

	
Signature of Director

	
Print name of Director

	  	  
	  	  
	
SIGNED for and on behalf of Royal Wolf Hi-Tech Pty Ltd ACN 079 735 050 by:

	  	  
	
/s/ Robert Allan

	
Robert Allan

	
.................................................................................

	
................................................................................

	
Signature of Director

	
Print name of Director

	  	  
	
/s/ Greg Baker

	
Greg Baker

	
.................................................................................

	
................................................................................

	
Signature of Director/Secretary

	
Print name of Director/Secretary

	  	  

  

  

  

CORPORATE SURETY ACKNOWLEDGMENT

 

To:           Australia and New Zealand Banking Group Limited (“ANZ”)

Corporate Banking

Level 11, 20 Martin Place

Sydney NSW 2000

Corporate Surety Acknowledgment to Letter of Offer dated 16 February 2011.

 

Each of the following sureties acknowledges and agrees that the securities given, or to be given, by us secure all present and future obligations of the customer(s) to ANZ, including obligations in respect of the facilities, subject to the limit (if any) set out in any such security.

By providing this Surety Acknowledgment to the facilities, each surety acknowledges that the provisions contained at clause 26 “Privacy” of the General Conditions apply to them.

Dated 4 March 2011

	
SIGNED for and on behalf of Royalwolf NZ Acquisition Co Ltd Company Number 2115393 by:

	  	  
	
/s/ Robert Allan

	
Robert Allan

	
.................................................................................

	
................................................................................

	
Signature of Director

	
Print name of Director

	  	  
	
/s/ Greg Baker

	
Greg Baker

	
.................................................................................

	
................................................................................

	
Signature of Director/Secretary

	
Print name of Director/Secretary

	  	  

	
SIGNED for and on behalf of Royalwolf Trading New Zealand Ltd Company Number 1062072 by:

	  	  
	
/s/ Robert Allan

	
Robert Allan

	
.................................................................................

	
................................................................................

	
Signature of Director

	
Print name of Director

	  	  
	
/s/ Greg Baker

	
Greg Baker

	
.................................................................................

	
................................................................................

	
Signature of Director/Secretary

	
Print name of Director/Secretary

  

  

  

CERTIFICATE OF VALUE AND LOCATION OF ASSETS

 

	
Group Name:

	
Royal Wolf Australia Group ($1,000)

	  	 	
NSW

	 	 	
VIC

	 	 	
QLD

	 	 	
WA

	 	 	
SA

	 	 	
TAS

	 	 	
ACT

	 	 	
NT

	 	 	
Overseas

	 	 	
Total

	 
	
Customer Representative to complete values (include all assets e.g. debtors, plant, land, inventory, goodwill and loans – excluding intercompany loans to other companies on this list who have given mortgage debentures)

	 
	
Royal Wolf Trading Australia Pty Ltd ACN 069 244 417

	 	$	117,802	 	 	$	11,426	 	 	$	20,430	 	 	$	14,920	 	 	$	6,012	 	 	$	2,430	 	 	$	4,507	 	 	$	6,187	 	 	$	 	 	 	$	183,713	 
	
RWA Holdings Pty Ltd ACN 106 913 964

	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 
	
GFN Australasia Holdings Pty Ltd ACN 121 226 793

	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 
	
GFN Australasia Finance Pty Ltd ACN 121 227 790

	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 
	
Royal Wolf Hi-Tech Pty Ltd ACN 079 735 050

	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 
	
Royalwolf NZ Acquisition Co Ltd

	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 
	
Royalwolf Trading New Zealand Ltd

	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	24,330	 	 	$	24,330	 
	
RWNZ Acquisition Co. Limited

	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 
	
Totals

	 	$	117,802	 	 	$	11,426	 	 	$	20,430	 	 	$	14,920	 	 	$	6,012	 	 	$	2,430	 	 	$	4,507	 	 	$	6,187	 	 	$	24,330	 	 	$	208,093	 

Customer Representative Signature                                                                   /s/ Greg Baker

Customer Representative Name                                                                           Greg Baker

Position of Customer Representative                                                                  Director

(Director/Financial Controller etc)

Date 4 March 2011ex10_1.htm

Exhibit 10.1

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS AGREEMENT. THE REDACTIONS ARE INDICATED WITH SIX ASTERISKS (“******”). A COMPLETE VERSION OF THIS AGREEMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

ASSET PURCHASE AGREEMENT

 

AMONG

 

ASI HOLDINGS LIMITED,

 

ASI AUDIO TECHNOLOGIES, LLC,

 

AND

 

AURASOUND, INC.

 

July 10, 2010

  

  

  

 

TABLE OF CONTENTS

	
ARTICLE I ASSET PURCHASE

	
1

	  	  	  
	
1.1

	
Purchase and Sale of Assets; Assumption of Liabilities

	
1

	
1.2

	
Purchase Price and Related Matters

	
3

	
1.3

	
The Closing

	
4

	
1.4

	
Common Stock Certificate

	
4

	
1.5

	
Consents to Assignment

	
5

	
1.6

	
Further Assurances

	
5

	  	  	  
	
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLERS

	
6

	  	  	  
	
2.1

	
Organization, Qualification and Corporate Power

	
6

	
2.2

	
Authority

	
6

	
2.3

	
Noncontravention

	
6

	
2.4

	
Financial Statements

	
7

	
2.5

	
Absence of Certain Changes

	
7

	
2.6

	
Undisclosed Liabilities

	
7

	
2.7

	
Foreign Corrupt Practices

	
7

	
2.8

	
Ownership of Personal Property

	
7

	
2.9

	
Real Property

	
8

	
2.10

	
Intellectual Property

	
8

	
2.11

	
Contracts

	
9

	
2.12

	
Intentionally Omitted

	
9

	
2.13

	
Litigation

	
9

	
2.14

	
Employment Matters

	
9

	
2.15

	
Employee Benefits

	
11

	
2.16

	
Environmental Matters

	
11

	
2.17

	
Legal Compliance

	
12

	
2.18

	
Permits

	
12

	
2.19

	
Business Relationships with Affiliates

	
12

	
2.20

	
Brokers’ Fees

	
12

	
2.21

	
Inventory

	
12

	
2.22

	
Intentionally Omitted

	
12

	
2.23

	
Insurance

	
12

	
2.24

	
Warranty Matters

	
13

	
2.25

	
Customers, Distributors and Suppliers

	
13

	
2.26

	
Investment

	
13

	
2.27

	
Tax Compliance

	
13

	
2.28

	
Disclaimer of Sellers

	
14

	  	
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER

	
14

	
3.1

	
Organization

	
14

  

  

  

 

	
3.2

	
Authority

	
14

	
3.3

	
Noncontravention

	
14

	
3.4

	
Litigation

	
15

	
3.5

	
SEC Documents

	
15

	
3.6

	
Capitalization

	
15

	
3.7

	
Financial Statements

	
16

	
3.8

	
Events Subsequent to Financial Statements

	
16

	
3.9

	
No Brokers

	
17

	  	  	  
	
ARTICLE IV PRE-CLOSING COVENANTS

	
17

	  	  	  
	
4.1

	
Closing Efforts

	
17

	
4.2

	
Operation of Business

	
17

	
4.3

	
Access

	
19

	
4.4

	
Exclusivity

	
19

	
4.5

	
Supplement to Disclosure Schedules

	
19

	  	  	  
	
ARTICLE V CONDITIONS PRECEDENT TO CLOSING

	
20

	  	  	  
	
5.1

	
Conditions to Obligations of Buyer

	
20

	
5.2

	
Conditions to Obligations of Sellers

	
21

	  	  	  
	
ARTICLE VI INDEMNIFICATION

	
22

	  	  	  
	
6.1

	
Indemnification by Sellers

	
22

	
6.2

	
Indemnification by Buyer

	
22

	
6.3

	
Claims for Indemnification

	
23

	
6.4

	
Survival

	
24

	
6.5

	
Limitations on Indemnification by Sellers

	
24

	
6.6

	
Limitations on Indemnification by Buyer

	
25

	
6.7

	
Exclusive Remedy

	
25

	
6.8

	
Treatment of Indemnification Payments

	
25

	
6.9

	
Mitigation

	
25

	
6.10

	
Claims Involving Pre-Closing and Post-Closing Liability

	
26

	  	  	  
	
ARTICLE VII TAX MATTERS

	
26

	  	  	  
	
7.1

	
Preparation and Filing of Tax Returns; Payment of Taxes

	
26

	
7.2

	
Allocation of Certain Taxes

	
26

	
7.3

	
Cooperation on Tax Matters; Tax Audits

	
26

	
7.4

	
Termination of Tax Sharing Agreements

	
27

	  	  	  
	
ARTICLE VIII TERMINATION

	
27

	  	  	  
	
8.1

	
Termination of Agreement

	
27

	
8.2

	
Effect of Termination

	
27

  

  

  

 

	
ARTICLE EX EMPLOYEE MATTERS

	
27

	  	  	  
	
9.1

	
Offers of Employment

	
27

	  	  	  
	
ARTICLE X OTHER POST-CLOSING COVENANTS

	
28

	  	  	  
	
10.1

	
Access to Information; Record Retention; Cooperation

	
28

	
10.2

	
Non-Solicitation and No Hiring

	
29

	
10.3

	
Non-Competition

	
30

	
10.4

	
Payment of Assumed Liabilities

	
30

	
10.5

	
Insurance

	
30

	
10.6

	
Name Change

	
30

	
10.7

	
Registration Statement

	
31

	
10.8

	
Working Capital

	
31

	  	  	  
	
ARTICLE XI DEFINITIONS

	
31

	  	  	  
	
ARTICLE XII MISCELLANEOUS

	
37

	  	  	  
	
12.1

	
Press Releases and Announcements

	
37

	
12.2

	
No Third Party Beneficiaries

	
37

	
12.3

	
Intentionally Omitted

	
37

	
12.4

	
Entire Agreement

	
37

	
12.5

	
Succession and Assignment

	
37

	
12.6

	
Notices

	
38

	
12.7

	
Amendments and Waivers

	
38

	
12.8

	
Severability

	
38

	
12.9

	
Expenses

	
39

	
12.10

	
Specific Performance

	
39

	
12.11

	
Governing Law

	
39

	
12.12

	
Submission to Jurisdiction

	
39

	
12.13

	
Construction

	
39

	
12.14

	
WAIVER OF JURY TRIAL

	
39

	
12.15

	
Incorporation of Exhibits and Schedules

	
39

	
12.16

	
Counterparts and Facsimile Signature

	
39

  

  

  

 

Disclosure Schedule

 

Schedules:

	  	  	  
	 	 	 
	
Schedule 1.1(a)(ii)

	
—

	
Personal Property

	
Schedule 1.1 (b)

	
—

	
Excluded Assets

	
Schedule 1.1 (c)

	
—

	
Assumed Liabilities

	
Schedule 1.2(a)(ii)

	
—

	
Personal Property

	
Schedule 1.2(c)

	
—

	
Allocation of Purchase Price

	
Schedule 5.1(i)

	
—

	
Required Third Party Consents

	
Schedule 5.2(1)

	
—

	
Cancelled Debt

	
Schedule 9.1

	
—

	
Employees Offered Employment by Buyer

	  	  	  
	
Exhibits:

	  	  
	  	  	  
	
Exhibit A

	
—

	
Form of Lock-Up Agreement

	
Exhibit B

	
—

	
Form of Warrant

	
Exhibit C

	
—

	
Form of Bill of Sale

	
Exhibit D

	
—

	
Form of Trademark Assignment Agreement

	
Exhibit E

	
—

	
Form of Patent Assignment Agreement

	
Exhibit F

	
—

	
Form of Assignment and Assumption Agreement

	
Exhibit G

	
—

	
Form of Weisshaupt Employment Agreement

	
Exhibit H

	
—

	
Form of Noncompetition Agreement

  

  

  

 

ASSET PURCHASE AGREEMENT

 

This ASSET PURCHASE AGREEMENT (“Agreement”) is entered into as of July 10,2010 by and among ASI Holdings Limited, a Hong Kong corporation (“ASI Holdings”), ASI Audio Technologies, LLC, an Arizona limited liability company and wholly-owned subsidiary of ASI Holdings (“ASI Arizona”) (ASI Holdings and ASI Arizona are referred to sometimes collectively herein as “Sellers”, and each individually as “Seller”), and AuraSound, Inc., a Nevada corporation (the “Buyer”). Sellers and Buyer are referred to sometimes collectively herein as the “Parties.”

 

RECITALS

	
1.

	
Sellers are currently engaged in the business of design and distribution of sound speaker systems (the “Business”).

	  	  
	
2.

	
Buyer desires to purchase from each Seller, and each Seller desires to sell to Buyer, the assets of such Seller used in or relating to the Business described herein, subject to the assumption of certain related liabilities and upon the terms and subject to the conditions set forth herein.

	  	  
	
3.

	
Capitalized terms used in this Agreement shall have the meanings ascribed to them in Article XI.

 

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement and other good and valuable consideration, the receipt of which is hereby acknowledged, the Parties agree as follows:

 

ARTICLE I  

ASSET PURCHASE

 

1.1 Purchase and Sale of Assets: Assumption of Liabilities.

 

(a) Transfer of Assets. On the basis of the representations, warranties, covenants and agreements and subject to the satisfaction or waiver of the conditions set forth in this Agreement, at the Closing, each Seller shall sell, convey, assign, transfer and deliver to Buyer, and Buyer shall purchase and acquire from each Seller, free and clear of all Security Interests, all of such Seller’s right, title and interest in and to all assets used by such Seller in or relating to the Business (collectively, the “Acquired Assets”), including, without limitation, the following assets:

 

(i) except as otherwise described herein, all of such Seller’s right, title and interest in and to all inventories, wherever located, of Business Products, including all finished goods, consigned goods, work-in-progress, raw materials, spare parts, packaging, accessories and all other materials and supplies to be used, consumed, sold, resold or distributed by such Seller, and all warranties and guarantees, if any, express or implied, by the manufacturers or Seller of any such item or component part thereof, rights of return, rebate rights, over-payment recovery rights and any other rights of such Seller relating to these items (collectively, the “Inventory”):

 

(ii) all machinery, equipment, tools, furniture, office equipment, computer hardware, supplies, materials, vehicles and other items of tangible personal property (other than the Inventory) used in or relating to the Business (other than the Excluded Assets) and all warranties and guarantees, if any, express or implied, rights of return, rebate rights, over-payment recovery rights and any other rights of such Seller relating to these items, in each case existing for the benefit of such Seller in connection therewith to the extent transferable (collectively, the “Personal Property”):

  

1

  

 

(iii) all of such Seller’s right, title and interest in and to the Designated Contracts;

 

(iv) all of such Seller’s right, title and interest in and to all Business Intellectual Property;

 

(v) to the extent assignable, all of such Seller’s right, title and interest in and to all Permits relating to the Business;

 

(vi) all other assets relating to existing customer relationships and all written materials, data and records relating to the Business (in whatever form or medium), including (A) client, customer, prospect, supplier, dealer and distributor lists and records, (B) information regarding referral sources, (C) product catalogs and brochures, (D) sales and marketing, advertising and promotional materials, (E) research and development materials, reports and records, (F) production reports and records, (G) equipment logs, (H) service, warranty and claim records, (I) records relating to the Inventory, (J) maintenance records and other documents relating to the Personal Property, (K) purchase orders and invoices, (L) sales orders and sales order log books, (M) material safety data sheets, (N) price lists, (O) quotations and bids, (P) operating guides and manuals, (Q) correspondence, (R) financial books, records, journals and ledgers, (S) product ideas and developments and (T) plans and specifications, plats, surveys, drawings, blueprints and photographs;

 

(vii) all other intangible rights and property of such Seller relating to the Business, including (A) going concern value, (B) the goodwill of such Seller relating to the Business as conducted by such Seller, (C) directory, telecopy names, numbers, addresses and listings, and all rights that such Seller may have to institute or maintain any action to protect the same and recover damages for any misappropriation or misuses thereof;

 

(viii) all insurance benefits, including rights under and proceeds from, insurance policies providing coverage for the Acquired Assets or such Seller relating to the Business, where such rights, benefits and proceeds relate to events occurring prior to the Closing;

 

(ix) all rights with respect to deposits, prepaid expenses, claims for refunds and rights to offset related to the Business (excluding rights relating to the prior payment of Taxes) and interest payable with respect to any of the foregoing;

 

(x) all claims (including claims for past infringement or misappropriation of Business Intellectual Property or rights related thereto included in the Acquired Assets) and causes of action of such Seller relating to the Business against any other Person, whether or not such claims and causes of action have been asserted, and all rights of indemnity, warranty rights, rights of contribution, rights to refunds, rights of reimbursement and other rights of recovery of such Seller (regardless of whether such rights are currently exercisable) relating to the Acquired Assets;

 

(xi) all leasehold interests in the HK Leased Property, including all improvements and fixtures thereon and all rights and easements appurtenant thereto;

 

(xii) all leasehold or other contractual interests in the California Warehouse Property;

  

2

  

 

(xiii) all leasehold interests in the Arizona Leased Property, including all improvements and fixtures thereon and all rights and easements appurtenant thereto; and

 

(xiv) all accounts receivable of such Seller of any kind.

 

(b) Excluded Assets. Notwithstanding anything to the contrary in this Agreement, the Acquired Assets shall not include any of the assets of such Seller listed on Schedule 1.1 (b) (collectively, the “ExcludedAssets”).

 

(c) Assumed Liabilities. On the basis of the representations, warranties, covenants and agreements and subject to the satisfaction or waiver of the conditions set forth in this Agreement, at the Closing, Buyer shall assume and agree to pay, perform and discharge when due only the liabilities of Sellers relating to the Business that are specifically set forth on Schedule 1.1 (c) (the “Assumed Liabilities”).

 

(d) Excluded Liabilities. Notwithstanding anything to the contrary in this Agreement, the Assumed Liabilities shall not include any liability, obligation, agreement, undertaking or arrangement (contingent or otherwise) other than those which are specifically set forth on Schedule 1.1 (c) (collectively, the “Excluded Liabilities”).

 

(e) Treatment of Product Returns. In the event a customer of a Seller returns to such Seller or to Buyer after the Closing a Business Product purchased by such customer from such Seller in the course of the Business prior to the Closing (a “Returned Product”) and such customer either claims a credit for such Returned Product after the Closing against amounts owed by such customer to such Seller or demands payment as a result of such return after the Closing, Buyer shall be solely responsible for granting the credit or making the payment, as appropriate. Sellers shall be solely responsible for granting any credit or making any payment in respect of a product returned prior to the Closing.

 

1.2 Purchase Price and Related Matters.

 

(a) Purchase Price. In consideration for the sale and transfer of the Acquired Assets, Buyer shall at the Closing assume and agree to pay the Assumed Liabilities and shall deliver to ASI Holdings the following (together with the value of the Assumed Liabilities, the “Purchase Price”):

 

(i) at the Closing, Buyer shall issue 5,988,005 shares (the “Shares”) of Buyer’s unregistered common stock, par value US$0.01 per share (“Common Stock”) as follows: 5,389,204 Shares to Sunny World Associates Limited, a British Virgin Islands corporation, and 598,801 Shares to Faithful Aim Limited, which Shares shall be subject to certain transfer restrictions as provided in the Lock-Up Agreement in the form of Exhibit A hereto (the “Lock-Up Agreement”):

 

(ii) at the Closing, Buyer shall issue to Sunny World Associates Limited, a British Virgin Islands corporation a warrant, in the form of Exhibit B hereto (the “Warrant”), to purchase 3,000,000 shares of Common Stock at an exercise price of US$1.00 per share, which shall vest as provided in the Warrant, and which shall not be exercisable until Buyer shall have duly amended its Articles of Incorporation, in accordance with Chapter 78 of the Nevada Revised Statutes and Regulation 14A or 14C under the Exchange Act, to increase Buyer’s authorized Common Stock to a number sufficient to enable the full exercise or conversion into Common Stock of all outstanding securities of Buyer that are convertible into or exercisable for Common Stock (the “Authorized Shares Increase”).

 

(b) Allocation of Purchase Price. The Purchase Price shall be allocated among the Acquired Assets and the covenant contained in Section 10.3 as set forth on Schedule 1.2(c) hereto. Buyer and Sellers agree to allocate the Purchase Price among the Acquired Assets and the covenant set forth in Section 10.3 for all purposes (including financial accounting and Tax purposes) in accordance with Schedule 1.2(c). Buyer and ASI Arizona shall prepare or cause to be prepared IRS Forms 8594 in accordance with such allocation and consistent with one another and in accordance with the Code and Treasury Regulations. Buyer and ASI Holdings, on behalf of ASI Arizona, shall each deliver such Forms to one another for review and comment no later than 20 business days prior to filing with the IRS.

 

  

3

  

 

1.3 The Closing.

 

(a) Time and Location. The Closing shall take place at such physical location, or by electronic means, as determined by the Parties, on the Closing Date.

 

(b) Actions at the Closing. At the Closing:

 

(i) Each Seller shall deliver (or cause to be delivered) to Buyer the various certificates, instruments, agreements and documents required to be delivered by such Seller under Section 5.1;

 

(ii) Buyer shall deliver (or cause to be delivered) to ASI Holdings the various certificates, instruments, agreements and documents required to be delivered under Section 5.2;

 

(iii) Sellers and Buyer shall execute and deliver a Bill of Sale in substantially the form attached hereto as Exhibit C:

 

(iv) Sellers shall execute and deliver a Trademark Assignment Agreement in substantially the form attached hereto as Exhibit D:

 

(v) Sellers shall execute and deliver a Patent Assignment Agreement in substantially the form attached hereto as Exhibit E;

 

(vi) Buyer and Sellers shall execute and deliver an Assignment and Assumption Agreement in substantially the form attached hereto as Exhibit F;

 

(vii) Each Seller shall transfer to Buyer all the books, records, files and other data (or copies thereof), financial or otherwise, within the possession of such Seller relating to the Acquired Assets and reasonably necessary for the continued operation of the Business by Buyer;

 

(viii) Each Seller shall deliver to Buyer a list of all open customer and supplier purchase orders of such Seller as of the Closing Date;

 

(ix) Each Seller shall execute and deliver such other instruments of conveyance as Buyer may reasonably request in order to effect the sale, transfer, conveyance and assignment to Buyer of valid ownership of the Acquired Assets owned by such Seller; and

 

(x) Each Seller shall deliver to Buyer, or otherwise put Buyer in possession and control of, all of the Acquired Assets of a tangible nature owned by such Seller.

 

1.4 Common Stock Certificate.

 

(a) Sellers agree that the certificate representing the Shares to be issued by Buyer to ASI Holdings at the Closing will be imprinted with a legend substantially in the following form:

  

4

  

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

 

THE TRANSFER OF THESE SECURITIES IS SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN A LOCK-UP AGREEMENT DATED AS OF JULY________, 2010 BETWEEN THE ISSUER OF THESE SECURITIES AND THE PERSON TO WHOM THESE SECURITIES ORIGINALLY WERE ISSUED. THE ISSUER OF THESE SECURITIES WILL FURNISH A COPY OF SUCH LOCK-UP AGREEMENT TO THE HOLDER OF THESE SECURITIES WITHOUT CHARGE UPON WRITTEN REQUEST.

 

1.5 Consents to Assignment. Anything in this Agreement to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign or transfer any contract, lease, authorization, license or Permit, or any claim, right or benefit arising thereunder or resulting therefrom, if an attempted assignment or transfer thereof, without the consent of a third party thereto or of the issuing Governmental Entity, as the case may be, would constitute a breach thereof. If a Deferred Consent is not obtained, or if an attempted assignment or transfer thereof would be ineffective or would affect the rights thereunder so that Buyer would not receive all such rights, then, in each such case, (a) the Deferred Item shall be withheld from sale pursuant to this Agreement without any reduction in the Purchase Price, (b) from and after the Closing, Sellers and Buyer will cooperate, in all reasonable respects, to obtain such Deferred Consent as soon as practicable after the Closing, and (c) until such Deferred Consent is obtained, Sellers and Buyer will cooperate, in all reasonable respects, to provide to Buyer the benefits under the Deferred Item to which such Deferred Consent relates (with Buyer entitled to all the gains and responsible for all the losses, Taxes, liabilities and/or obligations thereunder). In particular, in the event that any such Deferred Consent is not obtained prior to the Closing, then Buyer and Seller shall enter into such arrangements (including subleasing or subcontracting if permitted) to provide to the Parties the economic and operational equivalent of obtaining such Deferred Consent and assigning or transferring such contract, lease, authorization, license or Permit, including enforcement for the benefit of Buyer of all claims or rights arising thereunder, and the performance by Buyer of the obligations thereunder on a prompt and punctual basis.

 

1.6 Further Assurances. At any time and from time to time after the Closing Date, as and when requested by any Party hereto and at such Party’s expense, the other Party shall promptly execute and deliver, or cause to be executed and delivered, all such documents, instruments and certificates and shall take, or cause to be taken, all such further or other actions as are necessary to evidence and effectuate the transactions contemplated by this Agreement.

 

  

5

  

 

ARTICLE II 

REPRESENTATIONS AND WARRANTIES OF SELLERS

 

Sellers jointly and severally represent and warrant to Buyer that, except as set forth in the Disclosure Schedule, the statements contained in this Article II are true and correct as of the date hereof as to each Seller. The Disclosure Schedule shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Article II. The disclosures in any section or subsection of the Disclosure Schedule shall qualify other sections and subsections in this Article II only to the extent it is reasonably clear from a reading of the disclosure that such disclosure is applicable to such other sections and subsections.

 

2.1 Organization, Qualification and Corporate Power. ASI Holdings is a corporation duly incorporated or organized, validly existing and in good standing under the laws of Hong Kong, ASI Arizona is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Arizona, USA, and each is duly qualified to conduct business under the laws of each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its activities makes such qualification necessary, except for any such failure to be qualified that would not reasonably be expected to result in a Business Material Adverse Effect. Seller has not established any place of business other than in Hong Kong and the States of California and Arizona, USA. Seller has all requisite corporate power and authority to carry on the business in which it is now engaged and to own and use the properties now owned and used by it.

 

2.2 Authority. Seller has all requisite corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it will be a party and to perform its obligations hereunder and thereunder. The execution and delivery by Seller of this Agreement and such Ancillary Agreements and the consummation by Seller of the transactions contemplated hereby and thereby have been validly authorized by all necessary corporate action on the part of Seller. This Agreement has been, and such Ancillary Agreements will be, validly executed and delivered by Seller and, assuming this Agreement and each such Ancillary Agreement constitute the valid and binding obligation of Buyer, constitutes or will constitute a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors generally and by equitable principles, including those limiting the availability of specific performance, injunctive relief and other equitable remedies and those providing for equitable defenses.

 

2.3 Noncontravention. Subject to compliance with applicable antitrust or trade regulation laws, neither the execution and delivery by Seller of this Agreement or the Ancillary Agreements to which Seller will be a party, nor the consummation by Seller of the transactions contemplated hereby or thereby, will:

 

(a) conflict with or violate any provision of the charter or bylaws or comparable organizational documents of Seller;

 

(b) except as would not have a Business Material Adverse Effect, require on the part of Seller any filing with, or any Permit, authorization, consent or approval of, any Governmental Entity, except for any filing, Permit, authorization, consent or approval that has been obtained;

 

(c) except as set forth on Section 2.3(c) of the Disclosure Schedules, and except as would not have a Business Material Adverse Effect, conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party the right to terminate or modify, or require any notice, consent or waiver under, any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness or Security Interest to which Seller is a party or by which Seller is bound or to which any of its assets is subject; or

 

  

6

  

 

(d) violate any order, writ, injunction or decree specifically naming, or statute, rule or regulation applicable to, Seller or any of its properties or assets.

 

2.4 Financial Statements. Section 2.4 of the Disclosure Schedule includes copies of the Financial Statements. The Financial Statements have been prepared in accordance with GAAP and the methodologies described in the footnotes thereto and fairly present, in all material respects, the financial condition and combined results of operations and cash flows of the Business as of the respective dates thereof and for the periods referred to therein.

 

2.5 Absence of Certain Changes. Except as set forth in Section 2.5 of the Disclosure Schedule, (a) since the Balance Sheet Date, there have not been any changes in the business, financial condition or results of operations of the Business that would reasonably be expected to result in a Business Material Adverse Effect and (b) since the Balance Sheet Date, Seller has not taken any of the actions (or permitted any of the events to occur) set forth in clauses (i) through (xi) of Section 4.2(b).

 

2.6 Undisclosed Liabilities. The Business does not have any liability of a nature which is material to the Business, except for (a) liabilities shown on the Most Recent Balance Sheet, (b) liabilities which have arisen since the Balance Sheet Date in the ordinary course of business, (c) contractual and other liabilities which are not required by GAAP to be reflected on a balance sheet, (d) the Excluded Liabilities and (e) liabilities which would not have a Business Material Adverse Effect.

 

2.7 Foreign Corrupt Practices. Neither Seller, nor to the Knowledge of Seller, any agent or other person acting on behalf of Seller, has (a) directly or indirectly, used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (b) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (c) failed to disclose fully any contribution made by Seller (or made by any person acting on its behalf of which Seller is aware) which is in violation of applicable law, or (d) violated in any material respect any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended.

 

2.8 Ownership of Personal Property.

 

(a) Seller is the true and lawful owner of, and has good and marketable title to, or has a valid leasehold interest in or a valid license or right to use, all of the Acquired Assets, free and clear of all Security Interests. Except as set forth on Section 2.8(a) of the Disclosure Schedule, no financing statement under the Uniform Commercial Code with respect to any of the Personal Property is active in any jurisdiction in the United States, and Seller has not signed any such active financing statement or any security agreement authorizing any secured party thereunder to file any such financing statement.

 

(b) Section 2.8(b) of the Disclosure Schedule lists individually (i) all pieces of Personal Property which are fixed assets (within the meaning of GAAP) having a book value greater than US$5,000, indicating the cost, location, accumulated book depreciation (if any) and the net book value of each such fixed asset as of the Balance Sheet Date, and (ii) all other Personal Property of a tangible nature (other than Inventory) whose book value exceeds US$5,000.

 

  

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2.9 Real Property.

 

(a) Seller does not own any real property. The real properties demised by the leases listed on Section 2.9(b) of the Disclosure Schedule constitute all of the real property leased (whether or not occupied and including any leases assigned or leased premises sublet for which Seller remains liable), used or occupied by Seller relating to the Business.

 

(b) The leases of real property listed on Section 2.9(b) of the Disclosure Schedule as being leased by Seller (the “Leased Real Property”) are in full force and effect, and Seller holds a valid and existing leasehold interest under each of the leases for the term listed on Section 2.9(b) of the Disclosure Schedule.

 

(c) Other than as set forth on Section 2.9(c) of the Disclosure Schedule, Seller has not received written notice of any violation of any applicable zoning ordinance or other law relating to the Leased Real Property, and Seller has not received any written notice of the existence of any condemnation or other proceeding with respect to any of the Leased Real Property.

 

2.10 Intellectual Property.

 

(a) Section 2.10(a) of the Disclosure Schedule lists all material or registered Business Intellectual Property. Seller owns, or is licensed or, to the Knowledge of Seller, otherwise possesses valid rights to use, each item of Business Intellectual Property indicated as being owned by Seller on Section 2.10(a) of the Disclosure Schedule.

 

(b) Other than as set forth on Section 2.10(b) of the Disclosure Schedule, with respect to the Business, Seller has not received written notice that it has been named, nor to Seller’s Knowledge has it been named, in any pending suit, action or proceeding which involves a claim of infringement of any Third Party Rights.

 

(c) Seller has performed the obligations required to be performed by it under the terms of any agreement pursuant to which Seller has rights in any Business Intellectual Property, and neither Seller nor, to the Knowledge of Seller, any third party is in default under any such agreement, except in each case as would not reasonably be expected to have a Business Material Adverse Effect.

 

(d) Other than rights and licenses granted in the ordinary course of business, Seller has not granted to any third party any license or right to the commercial use of any of the Business Intellectual Property.

 

(e) Other than as set forth on Section 2.10(e) of the Disclosure Schedule, there are no pending, or, to the Knowledge of Seller, threatened claims against Seller or any of its former or current employees alleging that (i) any of the Business Intellectual Property or the Business infringes or violates any Third Party Rights or (ii) Seller or any of its employees has misappropriated any Third Party Rights in furtherance of the Business.

 

(f) To the Knowledge of Seller, neither the operation of the Business by Seller nor any activity by Seller nor any use by Seller of the Business Intellectual Property infringes or violates any Third Party Rights. Seller has not received any written communications alleging that any of the Business Intellectual Property is invalid or unenforceable. To the Knowledge of Seller, no third party has violated or infringed or is violating or infringing any of the Business Intellectual Property. Except as listed in Schedule 2.10(f), Seller does not have any licenses or other agreements under which it is granted rights by others in any Business Intellectual Property.

 

  

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(g) To the Knowledge of Seller, no current or former employee or consultant of Seller owns or has claimed any ownership rights in or to, or any right to use, any of the Business Intellectual Property, and to the Knowledge of Seller no employee of Seller has entered into any agreement that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign or disclose any Business Intellectual Property to anyone other than Seller.

 

(h) Except as disclosed in Schedule 2.10(h), the Seller (i) has not directly or indirectly licensed or granted to anyone rights of any nature with respect to any of the Business Intellectual Property; and (ii) is not obligated to and does not pay royalties or other fees to anyone with respect to the ownership, use, license or transfer of any of the Business Intellectual Property.

 

2.11 Contracts.

 

(a) Section 2.11 (a) of the Disclosure Schedule lists all of the written contracts or agreements to which Seller is a party as of the date of this Agreement that are used in or related to the Business (other than contracts or agreements relating to Excluded Assets or Excluded Liabilities) (the “Designated Contracts”) and that provide for either Seller to receive or make total annual payments in excess of $5,000..

 

(b) Seller has delivered or made available to Buyer a complete and accurate copy of each Designated Contract. Each Designated Contract is a valid and binding obligation of Seller, and, to the Knowledge of Seller, of each other party thereto, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the rights of creditors generally and subject to the rules of law governing (and all limitations on) specific performance, injunctive relief and other equitable remedies. Neither Seller nor, to the Knowledge of Seller, any other party to any Designated Contract, is in default in complying with any provisions thereof, and no condition or event or fact exists which, with notice, lapse of time or both would constitute a default thereof on the part of Seller or, to the Knowledge of Seller, on the part of any other party thereto.

 

2.12 Intentionally Omitted.

 

2.13 Litigation. Section 2.13 of the Disclosure Schedule lists (other than with respect to Taxes), as of the date of this Agreement, each (a) judgment, order, decree, stipulation or injunction of any Governmental Entity naming Seller that relates to the Business and (b) action, suit or proceeding by or before any Governmental Entity to which Seller is a party and that relates to the Business.

 

2.14 Employment Matters.

 

(a) Seller is currently in compliance in all material respects with, and has at all times complied in all material respects with, all applicable laws governing the hiring, employment and classification of employees. Section 2.14(a) of the Disclosure Schedule contains a complete and accurate list of all Business Employees, describing for each such Business Employee, the position, date of hire, business location, annual base salary, monthly/weekly/hourly rates of compensation, average scheduled hours per week, status (i.e., active or inactive and if inactive, the type of leave and estimated duration) and the total amount of bonus, severance and other amounts to be paid to such Business Employee at the Closing or otherwise in connection with the transactions contemplated hereby. Section 2.14(a) of the Disclosure Schedule contains a complete and accurate list of all Contingent Workers, describing for each Contingent Worker such individual’s role in the Business, fee or compensation arrangements and other contractual terms with Seller.

 

  

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(b) Each current Business Employee has entered into a confidentiality and assignment of inventions agreement with Seller, a copy or form of which has previously been delivered to Buyer. Section 2.14(b) of the Disclosure Schedule contains a list of all Business Employees who are a party to a non-competition agreement and/or non-solicitation agreement with Seller (indicating the type of agreement for each such individual); copies of such agreements have previously been delivered to Buyer.

 

(c) Section 2.14(c) of the Disclosure Schedule lists each Business Employee as of the date of this Agreement who is required by applicable law to hold a temporary work authorization or a particular class of non-immigrant visa in order to work in any jurisdiction in which such employee is employed (each a “Work Permit”), and shows for each such employee the type of Work Permit held by such Business Employee and the remaining period of validity of such Work Permit. With respect to each Work Permit, all of the information that Seller has provided to the relevant Governmental Entities (collectively, “Immigration Authorities”) in the application for such Work Permit was true and complete. Seller has received the appropriate notice of approval from the Immigration Authorities with respect to each such Work Permit. None of the Sellers has received any notice from the Immigration Authorities that any Work Permit has been revoked. There is no action pending or, to Seller’s Knowledge, threatened to revoke or adversely modify the terms of any Work Permit. Except as disclosed in Section 2.14(c) of the Disclosure Schedule, no employee of Seller is a non-immigrant employee of a nationality other than that of the jurisdiction in which he or she is employed whose right to remain in such employment would terminate or otherwise be affected by the transactions contemplated by this Agreement.

 

(d) Seller is not a party to or bound by any collective bargaining agreement relating to the Business, nor has Seller, with respect to the Business, experienced, since 2007, any material strikes, grievances, claims of unfair labor practices or other collective bargaining disputes.

 

(e) To the Knowledge of Seller, no Business Employee has any plans to terminate employment with Seller (other than for the purpose of accepting employment with Buyer following the Closing) or not to accept employment with Buyer.

 

(f) The employment of any terminated former employee of Seller engaged in the Business has been terminated in material compliance with any applicable contract terms and applicable law, and, to Seller’s Knowledge, Seller does not have any material liability under any contract or applicable Law toward any such terminated employee, except as may be set forth in any Plan.

 

(g) Except as set forth on Schedule 2.14(g) of the Disclosure Schedule, Seller has not made any loans (except advances for business expenses in the ordinary course of business) to any Business Employee that have not been fully repaid, forgiven or otherwise satisfied.

 

(h) Except as set forth on Schedule 2.14(h) of the Disclosure Schedule, the Seller has paid in full to all employees all wages, salaries, bonuses and commissions due and payable to such employees and Buyer assumes no obligation for any unpaid amounts.

 

(i) No orders, awards, improvements, prohibitions or other notices have been served upon and no other enforcement or similar proceedings have been taken against Seller in the past two years pursuant to any legislation, regulations, orders or codes of conduct of any Governmental Entity in respect of employees.

 

(j) There are no current negotiations for any change in the rate of remuneration or the bonus, incentives, prerequisites or emoluments or pension benefits of any Business Employee.

 

  

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2.15 Employee Benefits.

 

(a) Section 2.15(a) of the Disclosure Schedule contains a complete and accurate list of all Business Benefit Plans. Complete and accurate copies of all Business Benefit Plans and all related trust agreements, insurance contracts and summary plan descriptions have been made available to Buyer.

 

(b) Seller has complied with all applicable requirements of the MPFO. Seller has no obligations to make any voluntary contribution under the Employee Benefit Plan maintained under the MPFO above the mandatory contribution.

 

(c) Seller has made all contributions (including all employer contributions and employee salary reduction contributions) due within the time period prescribed by the MPFO and all contributions for any period ending on or before the Closing Date which are not yet due have been made to each such Employee Benefit Plan. All premiums or other payments for all periods ending on or before the Closing Date have been paid with respect to each Employee Benefit Plan.

 

(d) There are no criminal proceedings against, and no material civil, arbitration, administrative or other proceedings or disputes by or against, the trustees, managers or administrators of the Business Benefit Plans or Seller in relation to the Business Benefit Plans and none is pending or, to Seller’s Knowledge, threatened.

 

(e) There are no unfunded obligations under any Business Benefit Plan providing welfare benefits after termination of employment to any Business Employee (or to any beneficiary of any such employee), excluding continuation of health coverage required to be continued under Section 4980B of the Code or other similar applicable laws.

 

(f) Section 2.15(f) of the Disclosure Schedule sets forth the policy of Seller with respect to accrued vacation, personal and sick time and earned time off applicable to the Business Employees and the total amount of such liabilities with respect to the Business Employees as of the date hereof (and updated as of the Closing Date).

 

(g) No undertaking or assurance (whether or not constituting a legally binding commitment) has been given to any Business Employee as to the continuation and assumption by Buyer of the Business Benefit Plans after the Closing.

 

2.16 Environmental Matters. Except as described or identified in Section 2.16 of the Disclosure Schedule:

 

(i) Except as would not have a Business Material Adverse Effect, the Business’ operations are currently in compliance with, and have at all times complied with, applicable Environmental Laws and, to the Knowledge of Seller, there are no circumstances that may prevent or interfere with such compliance in the future;

 

(ii) there is no pending civil or criminal litigation, written notice of violation or formal administrative proceeding, investigation or claim relating to any Environmental Law involving any Leased Real Property or any property formerly owned or operated by the Business;

 

(iii) no Materials of Environmental Concern have been Released by the Business at any Leased Real Property in violation of applicable Environmental Law; and

 

  

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(iv) Seller is not aware of any liability under Environmental Laws of any solid or hazardous waste transporter or treatment, storage or disposal facility that has been used in connection with the operations of the Business.

 

2.17 Legal Compliance. Except as would not have a Business Material Adverse Effect, Seller, with respect to the Business, has been and remains in material compliance with all applicable laws (including rules and regulations thereunder, other than with respect to Taxes) of any federal, state or foreign government, or any Governmental Entity, in effect with respect to the Business. Seller has not received written notice of, or to Seller’s Knowledge is not subject to, any pending or threatened civil, criminal or administrative action, suit, proceeding, hearing, demand letter, investigation, claim, complaint, demand, request for information, or notice relating to the Business (other than with respect to Taxes). To Seller’s Knowledge, there is no act, omission, event or circumstance that would reasonably be expected to give rise to any such action, suit, proceeding, hearing, demand letter, investigation, claim, complaint, demand, request for information or notice (other than with respect to Taxes).

 

2.18 Permits. Section 2.18 of the Disclosure Schedule lists all Permits. Except as would not have a Business Material Adverse Effect, each Permit listed in the Disclosure Schedule is in full force and effect, and Seller is not in material violation of or default under any Permit. No suspension or cancellation of any such Permit has been threatened in writing. The Permits include, but are not limited to, those required in order for Seller to conduct the Business under federal, state, local or foreign statutes, ordinances, orders, requirements, rules, regulations, Environmental Laws and laws pertaining to public health and safety, worker health and safety, buildings, highways or zoning. To the Knowledge of Seller, none of the Permits is subject to termination as a result of the execution of this Agreement or the consummation of the transactions contemplated hereby, and, to Seller’s Knowledge, Buyer will not be required to obtain any further Permits to continue to conduct the Business immediately after the Closing. To the Knowledge of Seller, Seller has not made any false statements on, or omissions from, any notifications, applications, approvals, reports and other submissions to any Governmental Entity or in or from any other records and documentation prepared or maintained to comply with the requirements of any Governmental Entity.

 

2.19 Business Relationships with Affiliates. Section 2.19 of the Disclosure Schedule lists any agreements with respect to the Business whereby any Affiliate of Seller, directly or indirectly, (a) owns any property or right, tangible or intangible, which is used in the Business, (b) has any material claim or cause of action against the Business, or (c) owes any money to, or is owed any money by, the Business. Section 2.19 of the Disclosure Schedule describes any commercial transactions or relationships between Seller and any Affiliate thereof (as well as any commercial transactions or relationships between any such Affiliates and Suppliers) which occurred or have existed since the beginning of the time period covered by the Financial Statements.

 

2.20 Brokers’ Fees. Seller has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement that would constitute an Assumed Liability.

 

2.21 Inventory. All of the Inventory as of the Balance Sheet Date is set forth in Section 2.21 of the Disclosure Schedule, which shall be updated as of the Closing.

 

2.22 Intentionally Omitted.

 

2.23 Insurance. Section 2.23 of the Disclosure Schedule lists each insurance policy (including fire, theft, casualty, comprehensive general liability, workers compensation, business interruption, environmental, product liability and automobile insurance policies and bond and surety arrangements) relating to the Business to which Seller is a party, all of which are in full force and effect. There is no claim pending under any such policy as to which coverage has been questioned, denied or disputed by the underwriter of such policy, and Seller is otherwise in compliance in all material respects with the terms of such policies. Seller has not received written notice of any threatened termination of any such policy.

 

  

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2.24 Warranty Matters. None of the Business Products manufactured, sold, leased, licensed or delivered by Seller is subject to any guaranty, warranty, right of return, right of credit or other indemnity other than (i) the applicable standard terms and conditions of sale or lease of the Business, which are set forth in Section 2.24 of the Disclosure Schedule, (ii) manufacturers’ warranties for which the Business has no liability or (iii) warranties imposed by applicable law. The reserves for Warranty Obligations reflected on the Most Recent Balance Sheet are reasonable in amount, are consistent with the past practice of Seller with respect to the Business. Section 2.24 of the Disclosure Schedule sets forth the aggregate expenses incurred by Seller in fulfilling its obligations under its guaranty, warranty, right of return and indemnity provisions with respect to the Business during each of the fiscal years and the interim period covered by the Financial Statements.

 

2.25 Customers, Distributors and Suppliers. Section 2.25 of the Disclosure Schedule sets forth a true and complete list of all customers, sales representatives, dealers and distributors (whether pursuant to a commission, royalty or other arrangement) that accounted for US$100,000 or more of the sales of the Business for the fiscal year ended December 31,2009, showing with respect to each, the name, address and dollar value involved (collectively, the “Customers and Distributors”). Section 2.25 of the Disclosure Schedule also sets forth a true and complete list of all suppliers of the Business to whom during the fiscal year ended December 31,2009, Seller made payments aggregating US$25,000 or more, showing with respect to each, the name, address and dollar value involved (the “Suppliers”). No Customer, Distributor or Supplier has canceled or otherwise terminated its relationship with Seller, or, during the last twelve (12) months, has decreased materially its services, supplies or materials to Seller or its usage or purchase of the services or products of Seller nor, to the knowledge of Seller, does any Customer, Distributor or Supplier have any plan or intention to do any of the foregoing.

 

2.26 Investment. Seller (a) understands that the Shares have not been registered under the Securities Act or under any state securities laws, is being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering and will contain a legend restricting transfer; (b) is acquiring the Shares solely for Seller’s own account for investment purposes, and not with a view to the distribution thereof (other than to Seller’s shareholders); (c) is a sophisticated investor with knowledge and experience in business and financial matters; (d) has received certain information concerning Buyer and has had the opportunity to obtain additional information as desired in order to evaluate the merits and the risks inherent in holding the Shares; and (e) is able to bear the economic risk and lack of liquidity inherent in holding the Shares.

 

2.27 Tax Compliance.

 

(a) Seller has filed all Tax Returns that it was required to file. All such Tax Returns and all information supplied, including Tax Returns to be filed to the Inland Revenue Department of Hong Kong or other Taxing Authority were correct, complete and proper in all material respects. All Taxes owed by Seller (whether or not shown on any Tax Return) have been timely paid. Seller currently is not the beneficiary of any extension of time within which to file any Tax Return. To Seller’s Knowledge, no claim has ever been made by an authority in a jurisdiction where Seller does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets of Seller that arose in connection with any failure (or alleged failure) to pay any Tax.

 

  

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(b) Seller has withheld and paid all material Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party.

 

2.28 Disclaimer of Sellers. Sellers make no representations or warranties to Buyer relating to Sellers or the Business or otherwise in connection with the transactions contemplated by this Agreement other than those expressly set forth in this Agreement, the Disclosure Schedule and any other schedule or exhibit hereto. Without limiting the generality of the foregoing, Sellers have made no representations or warranties in the materials relating to the Business made available to Buyer or in any presentation of the Business in connection with the transaction contemplated hereby, and no statement contained in any of such materials or made in any such presentation shall be deemed a representation or warranty hereunder.

 

ARTICLE III 

REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer represents and warrants to Sellers that, except as otherwise disclosed in Buyer’s reports and filings made with the Securities and Exchange Commission, the statements contained in this Article III are true and correct as of the date hereof, and will be true and correct as of the Closing Date as though made as of the Closing Date, except to the extent such representations and warranties are specifically made as of a particular date (in which case such representations and warranties will be true and correct as of such date).

 

3.1 Organization. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Nevada and is duly qualified to conduct business under the laws of each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its activities makes such qualification necessary, except for any such failure to be qualified that would not reasonably be expected to result in a material adverse effect.

 

3.2 Authority. Buyer has all requisite corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it will be a party and to perform its obligations hereunder and thereunder. The execution and delivery by Buyer of this Agreement and such Ancillary Agreements and the consummation by Buyer of the transactions contemplated hereby and thereby have been validly authorized by all necessary company action on the part of Buyer. This Agreement has been, and such Ancillary Agreements will be, validly executed and delivered by Buyer and, assuming this Agreement and each such Ancillary Agreement constitute the valid and binding obligation of Seller, constitutes or will constitute a valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws relating to or affecting the rights of creditors generally and by equitable principles, including those limiting the availability of specific performance, injunctive relief and other equitable remedies and those providing for equitable defenses.

 

3.3 Noncontravention. Subject to compliance with the applicable requirements of applicable antitrust or trade regulation laws, neither the execution and delivery by Buyer of this Agreement or the Ancillary Agreements to which Buyer will be a party, nor the consummation by Buyer of the transactions contemplated hereby or thereby, will:

 

(a) conflict with or violate any provision of the organizational documents of Buyer;

 

  

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(b) require on the part of Buyer any filing with, or permit, authorization, consent or approval of, any Governmental Entity, except for any filing, permit, authorization, consent or approval that has been obtained;

 

(c) conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party any right to terminate or modify, or require any notice, consent or waiver under, any contract or agreement to which Buyer is a party or by which Buyer is bound; or

 

(d) violate any order, writ, injunction or decree specifically naming, or statute, rule or regulation applicable to, Buyer or any of its properties or assets.

 

3.4 Litigation. There are no actions, suits, claims or legal, administrative or arbitratorial proceedings pending against, or, to Buyer’s knowledge, threatened against, Buyer which would adversely affect Buyer’s performance under this Agreement or the consummation of the transactions contemplated by this Agreement.

 

3.5 SEC Documents. Buyer hereby makes reference to the following documents filed by it with the United States Securities and Exchange Commission (the “SEC”), as posted on the SEC’s website, www.sec.gov: (collectively, the “SEC Documents”): (a) Annual Report on Form 10-KSB for the fiscal year ended June 30,2009; and (b) Quarterly Reports on Form 10-Q for the periods ended September 30 and December 31,2009 and March 31,2010; and any amendments thereto. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act and/or the Exchange Act, as the case may require, and the rules and regulations promulgated thereunder and none of the SEC Documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of Buyer included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance GAAP (except, in the case of unaudited statements, as permitted by the applicable form under the Securities Act or the Exchange Act) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the financial position of Buyer as of the dates thereof and its consolidated statements of operations, stockholders’ equity and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal and recurring year-end audit adjustments which were and are not expected to have a material adverse effect on Buyer, its business, financial condition or results of operations).

 

3.6 Capitalization. Buyer’s authorized capital stock consists of (i) 16,666,667 shares of Common Stock, of which 4,678,662 shares are issued and outstanding, and (ii) 3,333,333 shares of preferred stock, none of which are issued and outstanding. All issued and outstanding shares of Common Stock are duly authorized, validly issued, fully paid, non-assessable and free of preemptive rights. When issued, the Shares will be duly authorized, validly issued, fully paid, non-assessable and free of preemptive rights. Except as set forth in the SEC Documents, there are no outstanding or authorized options, rights, warrants, calls, convertible securities, rights to subscribe, conversion rights or other agreements or commitments to which Buyer is a party or which are binding upon Buyer providing for the issuance by Buyer or transfer by Buyer of additional shares of Buyer’s capital stock. To Buyer’s knowledge, there are no voting trusts or any other agreements or understandings with respect to the voting of Buyer’s capital stock.

 

  

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3.7 Financial Statements.

 

(a) Included in the SEC Documents is the audited balance sheet of Buyer as at June 30,2009, and the related statements of operations, stockholders’ equity and cash flows for the two years then ended, together with the unqualified report thereon (except with respect to continuation as a going concern) of Kabani & Co. (“Kabani”), independent auditors (collectively, “Buyer’s Audited Financials”).

 

(b) Included in the SEC Documents are the unaudited balance sheet of Buyer as at March 31,2010, and the related statements of operations, stockholders’ equity and cash flows for the three months then ended, as reviewed by Kabani (“Buyer’s Interim Financials”).

 

(c) Buyer’s Audited Financials and Buyer’s Interim Financials (collectively “Buyer’s Financial Statements”) (i) are in accordance with the books and records of Buyer, (ii) are correct and complete in all material respects, (iii) fairly present the financial position and results of operations of Buyer as of the dates indicated, and (iv) are prepared in accordance with GAAP (except that (x) unaudited financial statements may not be in accordance with GAAP because of the absence of footnotes normally contained therein, and (y) interim (unaudited) financials are subject to normal year-end audit adjustments that in the aggregate will not have a material adverse effect on Buyer, its business, financial condition or results of operations.

 

(d) Schedule 3.7(d) sets forth a list of all of Buyer’s liabilities (both current and long term) required to be disclosed on a balance sheet in accordance with GAAP.

 

3.8 Events Subsequent to Financial Statements. Since March 31,2010, there has not been:

 

(a) Any sale, lease, transfer, license or assignment of any assets, tangible or intangible, of Buyer outside Buyer’s ordinary course of business;

 

(b) Any damage, destruction or property loss, whether or not covered by insurance, affecting materially and adversely the properties or business of Buyer;

 

(c) Any declaration or setting aside or payment of any dividend or distribution with respect to the shares of capital stock of Buyer or any redemption, purchase or other acquisition of any such shares;

 

(d) Any lien placed on any of the assets, tangible or intangible, of Buyer outside the ordinary course of business;

 

(e) Any incurrence of indebtedness or liability or assumption of obligations by Buyer outside Buyer’s ordinary course of business;

 

(f) Any waiver or release by Buyer of any right of any material value; or

 

(g) Any material adverse change in the condition (financial or otherwise) of the properties, assets, liabilities or business of Buyer.

 

  

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3.9 No Brokers. No Person has acted, directly or indirectly, as a broker, finder or financial advisor for Buyer in connection with the transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment in respect thereof.

 

ARTICLE IV 

PRE-CLOSING COVENANTS

 

4.1 Closing Efforts.

 

(a) Subject to the terms hereof, including Section 4.l(b), each of the Parties shall use reasonable commercial efforts to take all actions and to do all things reasonably necessary or advisable to consummate the transactions contemplated by this Agreement, including using reasonable commercial efforts to: (i) obtain all Third Party Consents, (ii) effect all Governmental Filings, including as necessary to effect a transfer of ownership to Buyer of any applicable regulatory approvals, registrations, licenses or authorizations, and (iii) otherwise comply in all material respects with all applicable laws and regulations in connection with the consummation of the transactions contemplated by this Agreement. Buyer shall pay any out-of-pocket costs (excluding legal fees, for which the parties will each bear their own costs) associated with obtaining such Third Party Consents. Each of the Parties shall promptly notify each of the other Parties of any fact, condition or event known to it that would reasonably be expected to prohibit, make unlawful or delay the consummation of the transactions contemplated by this Agreement.

 

(b) Each of the Parties shall use reasonable commercial efforts to resolve any objections that may be asserted by any Governmental Entity with respect to the transactions contemplated hereby, and shall cooperate with each other to contest any challenges to the transactions contemplated hereby by any Governmental Entity; provided, however, that Buyer shall have no obligation under this Section 4.1 to dispose or hold separately or make any change in or to any portion of its business or assets (or in or to any portion of the Acquired Assets), to incur any other burden with respect thereto or to agree to do any of the foregoing, as a condition of such governmental clearances or approvals. Each of the Parties shall promptly inform each other of any material communication received by such Party from any Governmental Entity regarding any of the transactions contemplated hereby (unless the provision of such information would (i) violate the provisions of any applicable laws or regulations (including without limitation those relating to security clearance or export controls) or any confidentiality agreement or (ii) cause the loss of the attorney-client privilege with respect thereto).

 

4.2 Operation of Business.

 

(a) During the period from the date of this Agreement until the Closing Date, Sellers shall: 

 

(i) conduct the operations of the Business in the ordinary course, consistent with past practice;

 

(ii) maintain consistent with past practice the assets, properties, facilities and equipment of the Business in good working order and condition as of the date hereof (excluding ordinary wear and tear);

 

(iii) perform in all material respects all of its obligations under all agreements relating to or affecting the Business or the assets, liabilities, properties, equipment or rights thereof;

 

(iv) use its commercially reasonable efforts to (A) preserve the Business organization intact, (B) retain the Business’s present employees, but in no event shall a Seller be required to increase compensation or benefits or extend bonuses and (C) maintain the relationships and agreements with the Business’s suppliers, distributors, customers and others having dealings with the Business, all in a manner consistent with past practices, but in no event shall a Seller be required to extend any discounts or rebates or agree to any cost increases, in each case to the extent inconsistent with past practice;

 

  

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(v) continue in full force and effect all existing insurance policies (or comparable insurance) relating to the Business; and

 

(vi) comply in all material respects with all Permits, rules, laws and regulations applicable to the Business.

 

(b) Prior to the Closing, a Seller shall not, without the prior written consent of Buyer:

 

(i) sell, assign, transfer, lease, exchange or dispose of any portion of the Acquired Assets, except for sales of Inventory in the ordinary course of business consistent with past practice; provided, however, that nothing in this clause (i) shall prohibit the collection by a Seller of accounts receivable of the Business;

 

(ii) incur or guarantee any indebtedness for borrowed money relating to the Business, except in the ordinary course of business consistent with past practice;

 

(iii) grant any rights to severance benefits, “stay pay” or termination pay to any Business Employee, or increase the compensation or other benefits payable or potentially payable to, any Business Employee under any previously existing severance benefits, “stay-pay” or termination pay arrangements except for “stay pay” or termination pay to a Business Employee not to exceed US$10,000 in the aggregate;

 

(iv) make any capital expenditures or commitments therefor with respect to the Business in an amount in excess of US$20,000 in the aggregate;

 

(v) acquire any operating business, whether by merger, stock purchase, asset purchase or otherwise (except for any business that will not become part of the Business);

 

(vi) increase the current compensation or benefits of, or current level of payments to, or enter into any employment, compensation or deferred compensation agreement (or any amendment to any such existing agreement) with any Business Employees except in the ordinary course of business consistent with past practice;

 

(vii) materially amend the terms of any existing Business Benefit Plan, except as required by law;

 

(viii) materially change the accounting principles, methods or practices insofar as they relate to the Business, except in each case to conform to changes in GAAP;

 

(ix) enter into any contract, agreement, obligation or commitment relating to the Business, other than contracts, agreements, obligations or commitments entered into in the ordinary course of business consistent with past practice (provided, however, if Seller enters into any such contract, agreement, obligations or commitment that would require a Seller to make payments or incur costs or expenses in an amount more than $20,000, Seller shall provide Buyer a copy of such contract within three (3) Business Days after the date thereof);

 

(x) create any Security Interests in any of the Acquired Assets; or (xi) agree in writing or otherwise to take any of the foregoing actions.

 

  

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4.3 Access.

 

(a) Sellers shall permit representatives of Buyer to have access (at reasonable times, on reasonable prior written notice and in a manner so as not to interfere with the normal business operations of the Business) to the Business Employees and the counsel and auditors of Sellers as well as the premises, properties, financial and accounting records, contracts and other records and documents, of or pertaining to the Business; provided, however, such counsel shall not be obligated to disclose any information or documents covered by the attorney-client privilege or the attorney work product privilege. Prior to the Closing, Buyer and its representatives shall not contact or communicate with the customers, sales representatives, dealers, distributors and suppliers of Sellers in connection with the transactions contemplated by this Agreement, except with the prior written consent of ASI Holdings.

 

(b) Sellers will provide Buyer, Buyer’s representatives and Buyer’s independent registered public accountants reasonable access during normal business hours to such books, records, workpapers, data and other information as may be reasonably requested by the Buyer to allow Buyer and its independent registered public accountants to conduct an audit or review of the Business and Acquired Assets for such periods as Buyer may require for its financial reporting purposes required in connection with any report required to be filed with the SEC under the Securities Exchange Act of 1934. Sellers shall cooperate with Buyer’s independent registered public accountants in the preparation of audited and/or pro forma financial statements in respect of the Business and Acquired Assets for such periods as Buyer may require; provided, that Buyer shall be responsible for the cost of such audit.

 

(c) Buyer and Sellers acknowledge and agree that the Confidentiality Agreement remains in full force and effect and that Information provided by Sellers or any of their respective Affiliates to Buyer pursuant to this Agreement prior to the Closing shall be treated in accordance with the Confidentiality Agreement. If this Agreement is terminated prior to the Closing, the Confidentiality Agreement shall remain in full force and effect in accordance with its terms. If the Closing occurs, the Confidentiality Agreement, insofar as it covers Information relating to the Business, shall terminate effective as of the Closing, but shall remain in effect insofar as it covers other Information disclosed thereunder.

 

4.4 Exclusivity. After the date hereof and until the earlier of the Closing or the termination of this Agreement pursuant to Article VIII, Sellers shall not, and shall require each of their respective managers, employees, directors, officers, partners, Affiliates, attorneys, investment bankers, accountants, representatives and agents not to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate any inquiry, proposal, offer or discussion with any party (other than Buyer) concerning any merger, reorganization, consolidation, recapitalization, business combination, liquidation, dissolution, share exchange, lease, sale of stock, sale of material assets, disposition or similar business transaction involving the Business or Sellers (any such inquiry, proposal, offer or discussion, an “Acquisition Proposal”).

 

(b) If a Seller receives any Acquisition Proposal, such Seller shall, within two Business Days after such receipt, notify Buyer of such Acquisition Proposal, including the identity of the other party and the terms of such Acquisition Proposal.

 

4.5 Supplement to Disclosure Schedules. In the event that a Seller becomes aware of any fact or condition occurring after the date hereof that would require a change to any Disclosure Schedule such Seller may deliver a supplement to the Disclosure Schedules specifying the change. Buyer shall promptly determine prior to Closing whether it desires to terminate the Agreement under Article VIII hereof or proceed to Closing with such changed Disclosure Schedules. In the event that Buyer proceeds to Closing without terminating the Agreement, Buyer shall be deemed to have waived its right to recover Damages from Sellers resulting from such change.

 

  

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ARTICLE V

CONDITIONS PRECEDENT TO CLOSING

 

5.1 Conditions to Obligations of Buyer. The obligation of Buyer to consummate the transactions to be consummated at the Closing is subject to the satisfaction (or waiver by Buyer) of the following conditions:

 

(a) The representations and warranties of Sellers set forth in Article II shall be true and correct in all material respects (except for such representations and warranties that are already qualified by their terms by a reference to materiality or Business Material Adverse Effect which representations and warranties as so qualified shall be true and correct in all respects) on and as of the Closing Date as if made as of the Closing Date, except for those representations and warranties that address matters only as of a particular date (which shall be true and correct as of such date);

 

(b) Each Seller shall have performed or complied with the agreements and covenants required to be performed or complied with by it under this Agreement as of or prior to the Closing;

 

(c) Buyer shall have been granted access to all of the materials and individuals reasonably requested and shall have had full opportunity to complete its due diligence investigation with the cooperation of all personnel of Sellers involved in the Business and, if requested, outside professional consultants and professionals retained by Sellers.

 

(d) Buyer shall have completed its business, financial and legal due diligence review of Sellers, and Buyer shall be satisfied with the results of such review in Buyer’s sole and absolute discretion.

 

(e) no third party action, suit or proceeding shall be pending by or before any Governmental Entity seeking to prevent consummation of the transactions contemplated by this Agreement and no judgment, order, decree, stipulation or injunction enjoining or preventing the consummation of the transactions contemplated by this Agreement shall be in effect;

 

(f) Sellers shall have executed and delivered to Buyer the Seller Certificate;

 

(g) all applicable waiting periods (and any extensions thereof) under applicable antitrust or trade regulation laws shall have expired or otherwise been terminated;

 

(h) Weisshaupt shall have executed and delivered to Buyer an Employment Agreement and a Noncompetition Agreement in the forms attached hereto as Exhibits G and H, respectively;

 

(i) Sellers shall have obtained all Third Party Consents listed in Schedule 5. l(i);

 

(j) Buyer shall have received the audited consolidated balance sheet, statements of operations, statement of stockholders’ equity (deficit), and statements of cash flows with respect to the Business for the years ended December 31,2009 and 2008, prepared in accordance with GAAP, audited by a Public Company Accounting Oversight Board certified independent auditor (collectively, the “Financial Statements”);

 

(k) all statutory notice requirements under Chapter 49 of the laws of Hong Kong (Transfer of Businesses (Protection of Creditors) Ordinance) shall have been completed.

 

(1) Buyer and GGEC America, Inc. (“GGEC”) shall have consummated the private placement of Buyer’s Common Stock and warrants to GGEC, substantially as described in Buyer’s amended Tender Offer Statement filed with the U.S. Securities and Exchange Commission on October 5,2009 (the “GGEC Transaction”), and the transactions incident to the GGEC Transaction or upon which the GGEC Transaction is conditioned, substantially as described in such amended Tender Offer Statement, shall have been consummated;

 

  

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(m) Buyer shall have received copies of (i) stockholders’ resolutions of ASI Holdings and members’ resolutions of ASI Arizona duly approving this Agreement and the transactions contemplated hereby and the name changes of Sellers following the Closing to names not containing the word “ASI”, and (ii) a Certificate of Registration of Change of Name of ASI Holdings from the applicable Government Entity of Hong Kong and a Certificate of Amendment of Articles of Organization of ASI Arizona filed with the Secretary of State of Arizona;

 

(n) Buyer and Seller shall have executed and delivered an Employee Transition Agreement in a form mutually acceptable to ASI Holdings and Buyer (the “Employee Transition Agreement”).

 

5.2 Conditions to Obligations of Sellers. The obligation of Sellers to consummate the transactions to be consummated at the Closing is subject to the satisfaction (or waiver by Sellers) of the following conditions:

 

(a) the representations and warranties of Buyer set forth in Article III shall be true and correct in all material respects (except for such representations and warranties that are already qualified by their terms by a reference to materiality or material adverse effect which representations and warranties as so qualified shall be true and correct in all respects) on and as of the Closing Date as if made as of the Closing Date, except for those representations and warranties that address matters only as of a particular date (which shall be true and correct as of such date);

 

(b) Buyer shall have performed or complied with its agreements and covenants required to be performed or complied with by it under this Agreement as of or prior to the Closing;

 

(c) no action, suit or proceeding shall be pending by or before any Governmental Entity seeking to prevent consummation of the transactions contemplated by this Agreement and no judgment, order, decree, stipulation or injunction enjoining or preventing consummation of the transactions contemplated by this Agreement shall be in effect;

 

(d) Buyer shall have delivered to ASI Holdings the Buyer Certificate;

 

(e) all applicable waiting periods (and any extensions thereof) under applicable antitrust or trade regulation laws shall have expired or otherwise been terminated;

 

(f) ASI Holdings shall have received a certificate of good standing of Buyer in its jurisdiction of incorporation and a certificate as to the incumbency of officers and the adoption of authorizing resolutions;

 

(g) Judie Rothenberger and Amy Liu shall have submitted their written resignations from the board of Directors of Buyer, to be effective as of the closing of the GGEC Transaction;

 

(h) Immediately prior to the Closing, Arthur Liu shall resign as Chief Executive Officer and Chief Financial Officer of Buyer and the board of directors of Buyer shall appoint, effective as of the Closing, Weisshaupt as the Chief Executive Officer and President of Buyer, and shall appoint Weisshaupt to the board of directors of Buyer.

 

  

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(i) GGEC shall provide its written commitment to transfer to employees of Buyer, other than Weisshaupt, and new board members of Buyer identified by Weisshaupt, warrants to purchase a total of up to 500,000 shares of Common Stock, at an exercise price of U.S. $0.75 per share; provided, however, that such warrants shall not be exercisable until Buyer shall have duly effected the Authorized Shares Increase;

 

(j) ASI Holdings shall have received a certificate representing the Shares and the executed Warrant from Buyer;

 

(1) ASI Holdings shall have received documentation reflecting the satisfaction and/or cancellation of all obligations of Buyer set forth on Schedule 5.2(1);

 

(m) That certain Manufacturing Agreement by and between GGEC and Buyer shall be terminated without any liability to Buyer and GGEC shall enter into a new manufacturing agreement in a form mutually acceptable to ASI Holdings and Buyer, which agreement shall provide that all of Buyer’s and Buyer’s existing and new products are to be manufactured by GGEC at the same cost as currently charged by GGEC to ASI Holdings as further described in Schedule 5.2(m);

 

(n) GGEC shall have executed a voting agreement, in form and substance acceptable to ASI Holdings, agreeing to vote its shares of Common Stock in favor of, or otherwise consent in writing to, the Authorized Shares Increase;

 

(o) Buyer’s current and long-term liabilities, in the aggregate, shall be no more than US $4,545,623; (p) Buyer and Seller shall have executed and delivered the Employee Transition Agreement; and

 

(q) Buyer and GGEC shall have consummated the GGEC Transaction, and the transactions incident to the GGEC Transaction or upon which the GGEC Transaction is conditioned, substantially as described in such amended Tender Offer Statement, shall have been consummated.

 

ARTICLE VI 

INDEMNIFICATION

 

6.1 Indemnification by Sellers. Subject to the terms and conditions of this Article VI, from and after the Closing, Sellers, jointly and severally, shall indemnify Buyer in respect of, and hold Buyer harmless against, all Damages incurred or suffered by Buyer or any Affiliate thereof resulting from or constituting:

 

(a) any breach of a representation or warranty of a Seller contained in this Agreement or Sellers’ Certificate;

 

(b) any failure by a Seller to perform any covenant or agreement contained in this Agreement to be performed after the Closing; or

 

(c) any Excluded Liabilities.

 

6.2 Indemnification by Buyer. Subject to the terms and conditions of this Article VI, from and after the Closing, Buyer shall indemnify Sellers in respect of, and hold Sellers harmless against, any and all Damages incurred or suffered by Sellers or any Affiliate thereof resulting from or constituting:

 

  

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(a) any breach of a representation or warranty of Buyer contained in this Agreement or Buyer Certificate;

 

(b) any failure by Buyer to perform any covenant or agreement contained in this Agreement;

 

(c) any Assumed Liabilities;

 

(e) the conduct of the Business by the Buyer following the Closing; or

 

(f) any claim or cause of action by any Person arising after the Closing against a Seller with respect to the Business or the Acquired Assets, except to the extent such claims or causes of action are based on events, conditions or circumstances which first occurred prior to the Closing.

 

6.3 Claims for Indemnification.

 

(a) Third-Party Claims. All claims for indemnification made under this Agreement resulting from, related to or arising out of a third-party claim against an Indemnified Party shall be made in accordance with the following procedures. An Indemnified Party shall give prompt written notification to the Indemnifying Party of the commencement of any action, suit or proceeding relating to a third-party claim for which indemnification may be sought or, if earlier, upon the assertion of any such claim by a third party. Such notification shall include a description in reasonable detail (to the extent known by the Indemnified Party) of the facts constituting the basis for such third-party claim and the amount of the Damages claimed. Within 30 days after delivery of such notification, the Indemnifying Party may, upon written notice thereof to the Indemnified Party, assume control of the defense of such action, suit, proceeding or claim with counsel reasonably satisfactory to the Indemnified Party. If the Indemnifying Party does not assume control of such defense, the Indemnified Party shall control such defense. The Party not controlling such defense may participate therein at its own expense; provided that if the Indemnifying Party assumes control of such defense and the Indemnified Party reasonably concludes, based on advice from counsel, that the Indemnifying Party and the Indemnified Party have conflicting interests with respect to such action, suit, proceeding or claim, the reasonable fees and expenses, not to exceed US$25,000 per claim, of counsel to the Indemnified Party solely in connection therewith shall be considered “Damages” for purposes of this Agreement. The Party controlling such defense shall keep the other Party advised of the status of such action, suit, proceeding or claim and the defense thereof and shall consider recommendations made by the other Party with respect thereto. The Indemnified Party shall not agree to any settlement of such action, suit, proceeding or claim without the prior written consent of the Indemnifying Party. The Indemnifying Party shall not agree to any settlement of such action, suit, proceeding or claim that does not include a complete release of the Indemnified Party from all liability with respect thereto or that imposes any liability or obligation on the Indemnified Party without the prior written consent of the Indemnified Party.

 

(b) Procedure for Claims. An Indemnified Party wishing to assert a claim for indemnification under this Article VI shall deliver to the Indemnifying Party a Claim Notice. Within 30 days after delivery of a Claim Notice, the Indemnifying Party shall deliver to the Indemnified Party a written response in which the Indemnifying Party shall: (i) agree that the Indemnified Party is entitled to receive all of the Claimed Amount (in which case such response shall be accompanied by a payment by the Indemnifying Party to the Indemnified Party of the Claimed Amount, by check or by wire transfer), (ii) agree that the Indemnified Party is entitled to receive the Agreed Amount (in which case such response shall be accompanied by a payment by the Indemnifying Party to the Indemnified Party of the Agreed Amount, by check or by wire transfer), or (iii) contest that the Indemnified Party is entitled to receive any of the Claimed Amount. If the Indemnifying Party in such response contests the payment of all or part of the Claimed Amount, the Indemnifying Party and the Indemnified Party shall use good faith efforts to resolve such dispute. If such dispute is not resolved within 60 days following the delivery by the Indemnifying Party of such response, the Indemnifying Party and the Indemnified Party shall each have the right to submit such dispute to a court of competent jurisdiction in accordance with the provisions of Section 12.12.

 

  

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6.4 Survival.

 

(a) The representations and warranties of Sellers and Buyer set forth in this Agreement, Sellers Certificate and Buyer Certificate shall survive the Closing and the consummation of the transactions contemplated hereby and continue until the 18-month anniversary of the Closing Date, at which time they shall expire. Notwithstanding the foregoing, (i) the representations and warranties of Sellers contained in Sections 2.1 (Organization, Qualification and Corporate Power), 2.2 (Authority) and 2.8(a) (Ownership of Personal Property) and of Buyer contained in Sections 3.1 (Organization) and 3.2 (Authority) shall survive the Closing and the consummation of the transactions contemplated hereby without limitation and (ii) the representations and warranties of Sellers contained in Section 2.16 (Environmental Matters) shall survive until 30 days following the expiration of all statutes of limitation applicable to the matters referred to therein.

 

(b) Notwithstanding anything to the contrary contained herein, if an indemnification claim is properly asserted in writing pursuant to Section 6.3 prior to the expiration of the representation or warranty that is the basis for such claim, then such representation or warranty shall survive until, but only for the purpose of, the resolution of such claim.

 

6.5 Limitations on Indemnification by Sellers.

 

(a) Sellers’ Basket. Sellers shall not be liable under Section 6.1 (a) unless and until the aggregate Damages for which it would otherwise be liable under Section 6.1(a) exceed US$100,000 (the “Sellers’ Basket”), after which the Seller shall be liable only for those Damages in excess of the Sellers’ Basket. For purposes solely of determining the amount of Damages for which Sellers are jointly and severally liable under this Article VI (and not for determining whether or not any breaches of representations or warranties have occurred), all representations and warranties of Sellers in Article II (other than Section 2.5) shall be construed as if the term “material” and any reference to “Business Material Adverse Effect” (and variations thereof) were omitted from such representations and warranties.

 

(b) Payment of Indemnification Claims by Seller; Sellers’ Cap. In the event that Sellers are required to make any indemnification payments pursuant to this Article VI, Sellers shall make such payments by delivery of Buyer’s Common Stock. The Parties agree that such Common Stock shall be valued at an amount equal to the closing price of such Common Stock as reported by Bloomberg LP on the date that such indemnification obligation is finally determined. Notwithstanding anything to the contrary contained herein, Sellers shall not be liable under Section 6.1 (a) for Damages in excess of, in the aggregate, 2,994,002 shares of Buyer’s Common Stock received pursuant to Section 1.2(a)(i) hereof (the “Sellers’ Cap”): provided, however, if Sellers hold less than such number of shares of Buyer’s Common Stock at the time the Sellers’ indemnification obligation is finally determined pursuant hereto, the Seller’s Cap shall be such lesser amount. If an indemnification claim is properly asserted in writing pursuant to Section 6.3 prior to the expiration of the 18 months of the survival period, Seller will not sell any shares that will reduce the number of shares held by Seller below 2,994,002 shares until such claim has been finally adjudicated or settled.

 

(c) No Limitation on Certain Claims. Notwithstanding anything in this Agreement to the contrary, subject to the Sellers’ Cap, Buyer shall be entitled to dollar-for-dollar indemnification from the first dollar and shall not be subject to Sellers’ Basket, or any limit on Damages, or any limitation as to time in seeking indemnification (except that claims for breach pursuant to Section 2.16 shall be limited as to time as set forth in Section 6.4(a)), with respect to Damages under:

 

  

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(i) Section 6.1(a) relating to a breach of the representations and warranties set forth in Sections 2.1, 2.2,2.8(a), 2.16 and 2.27; or

 

(ii) Sections 6.1(b) and (c).

 

6.6 Limitations on Indemnification by Buyer.

 

(a) Buyer’s Basket. Buyer shall not be liable under Section 6.2(a) unless and until the aggregate Damages for which it would otherwise be liable under Section 6.2(a) exceed US$100,000 (the “Buyer’s Basket”), after which the Buyer shall be jointly and severally liable only for those Damages in excess of the Buyer’s Basket. For purposes solely of determining the amount of Damages for which Buyer is liable under this Article VI (and not for determining whether or not any breaches of representations or warranties have occurred), all representations and warranties of Buyer in Article III shall be construed as if the term “material” and any reference to “Buyer Material Adverse Effect” (and variations thereof) were omitted from such representations and warranties.

 

(b) Buyer’s Cap. Buyer shall not be liable under Section 6.2(a) for Damages in excess of fifty percent (50%) of the Closing Value.

 

(c) No Limitation on Certain Claims. Notwithstanding anything herein to the contrary, subject to the Sellers’ Cap, Sellers shall be entitled to dollar-for-dollar indemnification from the first dollar and shall not be subject to Buyer’s Basket, or any limit on Damages, or any limitation as to time in seeking indemnification, with respect to Damages under:

 

(i) Section 6.2(a) relating to a breach of the representations and warranties set forth in Sections 3.1 and 3.2; or

 

(ii) Sections 6.2(b) and (c).

 

6.7 Exclusive Remedy. Except with respect to claims based on fraud and claims for equitable relief, including specific performance, made with respect to breaches of any covenant or agreement contained in this Agreement, the rights of the Indemnified Parties under this Article VI shall be the sole and exclusive remedy of the Indemnified Parties with respect to claims resulting from or relating to any misrepresentation or breach of warranty or other provision contained in this Agreement.

 

6.8 Treatment of Indemnification Payments. All indemnification payments made under this Agreement shall be treated by the Parties as an adjustment to the Purchase Price.

 

6.9 Mitigation. Prior to application of Sellers’ Basket or Buyer’s Basket or payment of any claims under this Article VI, the amount of any Damages shall be reduced by (i) any reimbursements or other amounts to which any of the Indemnified Parties is entitled from third parties in connection with such Damages, and (ii) any insurance proceeds to which any of the Indemnified Parties is entitled in connection with such Damages. The Indemnified Parties shall use commercially reasonable efforts to pursue all such reimbursements or proceeds that may reduce or eliminate any claims. If any of the Indemnified Parties receives any such reimbursements or proceeds after a payment is made which relates thereto, the Party that received such reimbursement or proceeds shall promptly deliver to the other Party such amount of the indemnification payment as would not have been paid had the reimbursements or proceeds reduced the original payment.

 

  

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6.10 Claims Involving Pre-Closing and Post-Closing Liability. Subject to the procedures set forth in Section 6.3(b), in the event that any third party brings a claim relating to the Business for a matter that involves both pre-closing and post-closing activity and the third party successfully recovers damages resulting from that claim, then Buyer shall be responsible and pay for any damages relating to that portion of the activity that relates to post-closing activity and Sellers shall be responsible for that portion of the activity that relates to pre-closing activity.

 

ARTICLE VII 

TAX MATTERS

 

7.1 Preparation and Filing of Tax Returns; Payment of Taxes.

 

(a) Each Seller will report as part of its Tax Returns the transactions and results of the operations of the Business and the Acquired Assets for taxable periods or portions thereof ending on or prior to the Closing Date and Sellers shall pay any and all Taxes attributable thereto.

 

(b) Buyer will pay any transfer, sales, use, stamp, conveyance, value added, recording, registration, documentary, filing and other non-Income Taxes and administrative fees (including, without limitation, notary fees) arising in connection with the consummation of the transactions contemplated by this Agreement, whether levied on Buyer or a Seller or any of its Affiliates.

 

(c) Buyer will report as part of its Tax Returns the transactions and results of the operations of the Business and the Acquired Assets for taxable periods or portions thereof beginning after the Closing Date, and Buyer shall pay any and all Taxes attributable thereto.

 

7.2 Allocation of Certain Taxes. Buyer shall assume responsibility to pay all Taxes that are payable with respect to a Straddle Period and which are specifically included in the Assumed Liabilities set forth on Schedule 1.1 (c) hereto.

 

7.3 Cooperation on Tax Matters: Tax Audits.

 

(a) Sellers shall be entitled to assume and control (including as to settlements) any Tax Audit relating to the Acquired Assets or the Business for any taxable period that ends on or prior to the Closing Date, and shall provide written notice to Buyer regarding whether it elects so to control any such Tax Audit no later than 30 days after receipt by Sellers of written notice of such Tax Audit; provided, however, if Sellers elect to control such Tax Audit, then Buyer shall be entitled to be reasonably informed of the status regarding any such Tax Audit.

 

(b) Buyer and Sellers and their respective Affiliates shall cooperate in the conduct of all such Tax Audits and in the preparation of all Tax Returns or other administrative or judicial proceedings relating to the determination of any Tax for any Tax periods for which one Party could reasonably require the assistance of the other Party in obtaining any necessary information. Such cooperation shall include, but not be limited to, furnishing such information or documents within such Party’s possession as are reasonably relevant to the preparation of such Tax Returns or conduct of such Tax Audit, promptly forwarding copies of appropriate notices and forms or other communications received from or sent to any Taxing Authority which relate to the Business or the Acquired Assets, and making the respective employees or facilities of the Parties available on a mutually convenient basis to explain any documents or information provided hereunder.

 

  

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7.4 Termination of Tax Sharing Agreements. All Tax sharing agreements or similar arrangements with respect to or involving the Business shall be terminated prior to the Closing Date and, after the Closing Date, Buyer and its Affiliates shall not be bound thereby or have any liability thereunder for amounts due in respect of periods ending on or before the Closing Date.

 

ARTICLE VIII 

TERMINATION

 

8.1 Termination of Agreement. The Parties may terminate this Agreement prior to the Closing as provided below:

 

(a) Buyer and Sellers may terminate this Agreement by mutual written consent;

 

(b) Buyer may terminate this Agreement by written notice to ASI Holdings if the Closing shall not have occurred on or prior to July 31,2010 (the “Outside Date”);

 

(c) ASI Holdings may terminate this Agreement by written notice to Buyer if the Closing shall not have occurred on or prior to the Outside Date;

 

(d) Buyer may terminate this Agreement by giving written notice to ASI Holdings in the event a Seller is in breach of any representation, warranty, covenant or agreement contained in this Agreement, and such breach, individually or in combination with any other such breach, (i) would cause the conditions set forth in Section 5.1 (a) or Section 5.1(b) not to be satisfied and (ii) is not cured within 10 days following delivery by Buyer to ASI Holdings of written notice of such breach; or

 

(e) ASI Holdings may terminate this Agreement by giving written notice to Buyer in the event Buyer is in breach of any representation, warranty, covenant or agreement contained in this Agreement, and such breach, individually or in combination with any other such breach, (i) would cause the conditions set forth in Section 5.2(a) or Section 5.2(b) not to be satisfied and (ii) is not cured within 10 days following delivery by ASI Holdings to Buyer of written notice of such breach.

 

8.2 Effect of Termination. If any Party terminates this Agreement pursuant to Section 8.1, all obligations of the Parties hereunder shall terminate without any liability of any Party to the other Parties provided that (a) if such termination is a direct result of a Party’s willful or intentional breach of any covenant or agreement contained in this Agreement, such Party shall pay for the other Party’s transaction expenses incurred in connection with this Agreement in an amount not to exceed $150,000 and (b) the provisions of this Section 8.2 (Effect of Termination) and Article XII (Miscellaneous) of this Agreement and the Confidentiality Agreement shall remain in full force and effect and survive any termination of this Agreement.

 

ARTICLE IX 

EMPLOYEE MATTERS

 

9.1 Offers of Employment.

 

(a) The Parties hereto intend that there shall be continuity of employment with respect to certain Business Employees. Sellers hereby consent to the hiring of their respective Business Employees and waives, with respect to the employment by Buyer (or an Affiliate of Buyer) of any Business Employees, any claims or rights Sellers may have against Buyer (or an Affiliate of Buyer) or any Business Employee under any non-competition, confidentiality or employment agreement. Buyer shall offer at-will employment at to the Transferred Employees listed on Schedule 9.1 hereto as provided in Employee Transition Agreement. Nothing in this Agreement shall be construed to prevent Buyer (or any Affiliate of Buyer) at any time from terminating the employment of any Transferred Employee, amending or terminating any employee benefit plan or otherwise changing the terms and conditions of employment of the Transferred Employees.

 

  

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(b) Nothing in this Agreement shall be construed to create a right in any Business Employee to employment with Buyer or its Affiliates and, subject to any agreement between an employee and Buyer or an Affiliate of Buyer, the Business Employees who continue employment with Buyer or an Affiliate of Buyer after the Closing Date shall be employed in “at will” employment.

 

(c) With respect to each Transferred Employee, Buyer (or its Affiliates) shall (i) cause any Transferred Employee that was covered under a medical or dental plan, disability benefit plan or life insurance plan (collectively the “Benefit Plans”) of a Seller immediately prior to the Closing Date to be covered either (A) by Buyer’s Benefit Plans at such time as the Transferred Employees become employees of Buyer in accordance with the Employee Transition Agreement, (B) by assuming one or more of Sellers’ Benefit Plans as applicable at such time as the Transferred Employees become employees of Buyer in accordance with the Employee Transition Agreement (in which case the same shall become an Assumed Liability at such time) or (C) to the extent allowed by Sellers’ existing Benefit Plans, keeping such Transferred Employee on Sellers’ Benefit Plans as applicable and paying when due to the applicable Seller any and all costs of maintaining and administering such Benefit Plans; provided, however, in any event, that each Transferred Employee by no later than January 1,2011 will be covered by a comparable employee benefit plan, program, or arrangement maintained by Buyer (or its Affiliates), without limitations based upon pre­ existing conditions (and the amount of any expenses incurred prior to such date under the Benefit Plans of Sellers shall be credited toward satisfaction of deductibles under the benefit plans of Buyer (or its Affiliates)), and (ii) recognize the service completed by the Transferred Employees for purposes of determining eligibility service and vesting service under any employee benefit plan, program or arrangement maintained by the applicable Seller or Buyer for their employees on or after the date when the Transferred Employees become employees of Buyer in accordance with the Employee Transition Agreement.

 

ARTICLE X 

OTHER POST-CLOSING COVENANTS

 

10.1 Access to Information; Record Retention; Cooperation.

 

(a) Access to Information. Subject to compliance with contractual obligations and applicable laws and regulations regarding classified Information and security clearance (if applicable), following the Closing, Sellers shall afford to Buyer and to Buyer’s authorized accountants, counsel and other designated representatives during normal business hours in a manner so as to not unreasonably interfere with the conduct of business (i) reasonable access and duplicating rights to all Information within the possession or control of Sellers applicable to the Business and (ii) reasonable access to the personnel of Sellers involved or previously involved with the Business. Requests may be made under this Section 10.1(a) for financial reporting and accounting matters, preparing financial statements, preparing, reviewing and analyzing the calculation of performance measures associated with the vesting conditions in the Warrant, resolving any differences with respect thereto, preparing and filing of any Tax Returns, prosecuting any claims for refund, defending any Tax claims or assessment, preparing securities law or securities exchange filings, prosecuting, defending or settling any litigation, Environmental Matter or insurance claim, performing obligations under this Agreement and the Ancillary Agreements, and all other proper business purposes.

 

  

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(b) Retention of Records. Except as may otherwise be required by law or agreed to in writing by the Parties, Sellers shall use reasonable commercial efforts to preserve, until six years after the Closing Date, all Information in its possession or control pertaining to the Business prior to the Closing. Notwithstanding the foregoing, in lieu of retaining any specific Information, Sellers may offer in writing to Buyer to deliver such Information to Buyer, and if such offer is not accepted within 90 days, the offered Information may be disposed of at any time.

 

(c) Confidentiality. Each Party shall hold, and shall use reasonable commercial efforts to cause their respective Affiliates, consultants and advisors to hold, in strict confidence all Information concerning the other furnished to it by the other Party or Parties or their representatives pursuant to this Agreement (except to the extent that such Information (i) is or becomes generally available to the public other than as a result of any action or inaction by the receiving Party, (ii) was within the possession of the receiving Party prior to it being furnished to the receiving Party by or on behalf of the disclosing Party pursuant hereto, provided that the source of such Information was not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to any Person with respect to such Information, or (iii) is or becomes available on a non-confidential basis to the receiving Party from a source other than the disclosing Party, provided that the source of such Information was not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to any Person with respect to such Information), and each Party shall not release or disclose such Information to any other Person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors, unless compelled to disclose such Information by judicial or administrative process or by other requirements of law or so as not to violate the rules of any stock exchange; provided that in the case of disclosure compelled by judicial or administrative process, the receiving Party shall (to the extent permitted by applicable law) notify the disclosing Party promptly of the request and the documents requested thereby so that the disclosing Party may seek an appropriate protective order or other appropriate remedy. If, in the absence of a protective order or other remedy or the receipt of a waiver hereunder, a Party is, in the written opinion of its counsel, compelled to disclose any Information to any tribunal or other entity or else stand liable for contempt or suffer other censure or penalty, such Party may so disclose the Information without liability hereunder; provided that such Party gives written notice to the other Party or Parties of the Information to be disclosed (including copies of the relevant portions of the relevant documents) as far in advance of its disclosure as is practicable, uses all reasonable efforts to limit any such disclosure to the precise terms of such requirement and cooperates with the disclosing Party to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded to such information by the tribunal or other entity. Notwithstanding the foregoing, Sellers shall be entitled to use and disclose any Confidential Information for any legitimate reasonable business purpose, including without limitation, (1) for purposes under the Agreement, including resolving disputes, (2) for Tax reporting purposes, (3) in connection with disposition of Inventory and (4) resolving litigation.

 

10.2 Non-Solicitation and No Hiring.

 

(a) For a period commencing at such time as the Transferred Employees become employees of Buyer in accordance with the Employee Transition Agreement and ending two (2) years after the cessation of Weisshaupt’s employment with Buyer, a Seller shall not, either directly or indirectly (including through an Affiliate), (i) solicit or attempt to induce any Transferred Employee to terminate his or her employment with Buyer or any Affiliate of Buyer or (ii) hire or attempt to hire any Transferred Employee; provided, that this clause (ii) shall not apply to any individual whose employment with Buyer or an Affiliate of Buyer has been terminated for a period of six months or longer.

 

  

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10.3 Non-Competition.

 

(a) For a period commencing on the Closing Date and ending two (2) years after the cessation of Weisshaupt’s employment with Buyer, a Seller shall not, either directly or indirectly (including through an Affiliate) (i) design, develop, manufacture, market, sell, distribute, license or provide any Business Products anywhere in the world or (ii) otherwise engage anywhere in the world in any business competitive with the Business; provided that notwithstanding the foregoing, nothing contained in this paragraph shall prohibit a Seller from performing its obligations under this Agreement or the Ancillary Agreements; provided further, however, that the foregoing restrictions shall not be construed to prohibit the ownership by Sellers collectively of not more than five percent (5%) of any class of equity securities of any entity having a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, which are publicly owned and regularly traded on any national securities exchange or over-the-counter market if such ownership represents a passive investment.

 

(b) Sellers and Buyer agree that the duration and geographic scope of the non-competition provisions set forth in this Section 10.3 are reasonable. In the event that any court determines that the duration or the geographic scope, or both, are unreasonable and that such provision is to that extent unenforceable, the Parties agree that the provision shall remain in full force and effect for the greatest time period and in the greatest area that would not render it unenforceable. The Parties intend that each of these non-competition provisions shall be deemed to be a series of separate covenants, one for each and every county of each and every state of the United States of America and each and every political subdivision of each and every country outside the United States of America where this provision is intended to be effective.

 

(c) From and after the Closing, Sellers shall, and shall use their respective best efforts to cause their respective Affiliates to, refer all inquiries regarding the business, products and services of the Business to Buyer.

 

10.4 Payment of Assumed Liabilities. In the event that a Seller inadvertently pays or discharges, after the Closing, any Assumed Liabilities, Buyer shall reimburse the applicable Seller for the amount so paid or discharged within 30 days of being presented with written evidence of such payment or discharge.

 

10.5 Insurance. Sellers shall provide reasonable cooperation to Buyer, at Buyer’s expense, in order to afford Buyer the right to receive payment under any insurance policies of Sellers covering the Business or the Acquired Assets prior to the Closing with respect to any claim or loss covered by such policies that relates to any of the Acquired Assets or constitutes an Assumed Liability. Buyer shall promptly notify ASI Holdings of the basis and amount of any such insurance claim. This Section 10.5 shall not require a Seller to convert any “claims made” policy to an “occurrence based” policy and shall not obligate a Seller to maintain any insurance policy in effect such that it covers claims made or events occurring after the Closing.

 

10.6 Name Change. At or prior to the Closing, each Seller shall change its name to a name not containing the word “ASI” and neither Seller shall use the word “ASI” in a commercial manner following the Closing. At the request of Buyer, Sellers shall take such actions as may be necessary or appropriate to permit Buyer to qualify as a foreign or domestic entity to do business under the name set forth above and under any similar names in any state in which the Business is currently conducted.

 

  

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10.7 Registration Statement. Buyer agrees to include the Shares and the shares underlying the Warrant in the first resale registration statement on Form S-l or S-3 (or any successor registration form thereto) filed by Buyer with the SEC after the Closing Date. Buyer agrees to use commercially reasonable efforts to file such registration statement as soon as commercially practicable following the Closing Date, and to use commercially reasonable efforts to cause such registration statement to be declared effective by the SEC as soon as commercially practicable following the filing thereof with the SEC. Buyer shall cause such registration statement to comply as to form in all material respects with the applicable requirements of the Exchange Act, the Securities Act and the rules and regulations of any applicable exchange. Buyer shall pay all expenses of registration of the Shares and the shares underlying the Warrant.

 

10.8 Working Capital. Immediately after the Closing, Buyer shall use commercially reasonable efforts to increase its working capital to $7,000,000. For purposes hereof, “working capital” means (a) current assets of Buyer, less (b) current liabilities of Buyer, in each case, determined in accordance with GAAP.

 

ARTICLE XI 

DEFINITIONS

 

For purposes of this Agreement, each of the following terms shall have the meaning set forth below. “Acquired Assets” shall have the meaning set forth in Section 1.1.(a). “Acquisition Proposal” shall have the meaning set forth in Section 4.4(a).

 

“Affiliate” shall mean, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified.

 

“Agreed Amount” shall mean part, but not all, of the Claimed Amount. “Agreement” shall have the meaning set forth in the first paragraph of this Agreement.

 

“Ancillary Agreements” shall mean the agreements and instruments referred to in clauses (iii) through (v) in Section 1.3(b) of this Agreement.

 

“Arizona Leased Property” means that certain property located at 6125 E. Indian School Road, Scottsdale, AZ 85251.

 

“Assumed Liabilities” shall have the meaning set forth in Section 1.1 (c). “Balance Sheet Date” shall mean December 31,2009.

 

“Business Benefit Plans” shall mean any Employee Benefit Plan maintained, or contributed to, by a Seller, or any ERISA Affiliate for the benefit of Business Employees (and their beneficiaries) that are material to the Business.

 

“Business Day” shall mean any day other than (i) a Saturday or Sunday or a day on which banking institutions located in New York, New York are permitted or required by law, executive order or governmental decree to remain closed or (ii) a Saturday, Sunday or public holiday in Hong Kong.

 

  

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“Business Employees” shall mean all employees of a Seller engaged in or associated with the Business.

 

“Business Intellectual Property” shall mean all of the following that are used in or related to the Business:

 

(a) patents, patent applications, patent disclosures and all related continuation, continuation-in-part, divisional, reissue, reexamination, utility model, certificate of invention and design patents, registrations and applications for registrations;

 

(b)  trademarks, service marks, trade dress, Internet domain names, logos, trade names and corporate names and registrations and applications for registration thereof;

 

(c) copyrights and registrations and applications for registration thereof, including, without limitation, copyrights in computer software and claims of protection in mask works;

 

(d) inventions, trade secrets and confidential business information, whether patentable or nonpatentable and whether or not reduced to practice, know-how, manufacturing and product processes and techniques, research and development information, and to the extent assignable or transferable, other proprietary rights relating to any of the foregoing.

 

“Business Material Adverse Effect” shall mean any change, effect or circumstance that (a) is, or could reasonably be expected to be, materially adverse to the business, financial condition, prospects or results of operations of the Business as a whole or (b) has a material adverse effect on the ability of Seller to consummate the transactions contemplated by this Agreement; provided, however, that any such change or effect resulting from (i) any change in economic conditions generally or in the industry in which Seller or its Affiliates operate, (ii) any change in applicable laws, rules or regulations or interpretations thereof applicable to the Seller or its Affiliates, (iii) any change in the financial condition or results of operation of Seller from the transaction that is the subject of this Agreement or any announcement of the execution of this Agreement, and (iv) any actions to be taken pursuant to, or in connection with, this Agreement or any Ancillary Agreement, shall not be considered when determining whether a Business Material Adverse Effect has occurred.

 

“Business Products” shall mean products or services produced, sold or provided by the Business. “Buyer” shall have the meaning set forth in the first paragraph of this Agreement. “Buyer Basket” shall have the meaning set forth in Section 6.6(a).

 

“Buyer Certificate” shall mean a certificate to the effect that each of the conditions specified in clauses (a) through (c) (insofar as clause (c) relates to an action, suit or proceeding involving, or a judgment, order, decree, stipulation or injection against, Buyer) of Section 5.2 is satisfied.

 

“Buyer Material Adverse Effect” shall mean a material adverse effect on the ability of Buyer to consummate the transactions contemplated by this Agreement.

 

“California Warehouse Property” means that certain warehouse property operated by Pacer Distribution Services, Inc. and located at 9350 South Rayo Avenue, South Gate, California 90280.

 

“Claim Notice” shall mean a written notice which contains (i) a description and the Claimed Amount of any Damages incurred by the Indemnified Party, (ii) a statement that the Indemnified Party is entitled to indemnification under Article VI and a reasonable explanation of the basis therefor, and (iii) a demand for payment in the amount of such Damages.

 

  

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“Claimed Amount” shall mean the amount of any Damages claimed by an Indemnified Party. “Closing” shall mean the closing of the transactions contemplated by this Agreement.

 

“Closing Date” shall mean such mutually agreeable date as soon as practicable (but in no event more than three (3) Business Days) after the first date on which the conditions to the obligations of the Parties to consummate the transactions contemplated hereby (excluding the delivery of any documents to be delivered at the Closing by any of the Parties, it being understood that the occurrence of the Closing shall remain subject to the delivery of such documents) have been satisfied or waived.

 

“Closing Value” means an amount equal to the product of (a) the closing price of the Common Stock reported by Bloomberg LP on the Closing Date multiplied by (b) the number of Shares.

 

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

 

“Confidentiality Agreement” shall mean the Mutual Confidentiality Agreement dated October 1,2009 between Seller and Buyer.

 

“Contingent Workers” shall mean the independent contractors, consultants, temporary employees, leased employees or other servants or agents rendering services to the Business and classified by a Seller as other than Business Employees or compensated other than through wages paid by the applicable Seller through its payroll department.

 

“Customers and Distributors” shall have the meaning set forth in Section 2.25.

 

“Damages” shall mean any and all liabilities, monetary damages (excluding any punitive, unforeseen, indirect or other consequential damages), fines, fees, penalties, interest obligations, deficiencies, losses and expenses (including amounts paid in settlement, interest, court costs, costs of investigators, fees and expenses of attorneys, accountants, financial advisors and other experts, and other expenses of litigation).

 

“Deferred Consent” shall mean an agreement to assign or transfer any contract, lease, authorization, license or Permit, or any claim, right or benefit arising thereunder or resulting therefrom, if an attempted assignment or transfer thereof, without the consent of a third party thereto or of the issuing Governmental Entity, as the case may be, would constitute a breach thereof.

 

“Deferred Item” shall mean the contract, lease, authorization, license or Permit to which Deferred Consent relates.

 

“Designated Contract” shall mean each contract and agreement listed or described in Section 2.11 (a) of the Disclosure Schedule.

 

“Disclosure Schedule” shall mean the disclosure schedule provided by Seller to, and accepted by, Buyer on the date hereof.

 

“Employee Benefit Plan” shall mean (a) any “employee pension benefit plan” (as defined in Section 3(2) of ERISA) other than a Multiemployer Plan, (b) any “employee welfare benefit plan” (as defined in Section 3(1) of ERISA), (c) to the extent applicable to more than one employee, any other written or oral plan, agreement or arrangement involving compensation, including without limitation insurance coverage, severance benefits, disability benefits, deferred compensation, bonuses, stock options, stock purchase, phantom stock, stock appreciation or other forms of incentive compensation or post-retirement compensation, or fringe benefits, including any and all applicable plans maintained outside the United States, and (d) any employee benefit plan, program or arrangement maintained under MPFO.

 

  

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“Employee Transition Agreement” shall have the meaning set forth in Section 5.1(n).

 

“Environment” shall mean any surface water, ground water, drinking water supply, land surface or subsurface strata, or ambient air.

 

“Environmental Law” shall mean any foreign, federal, state, provincial, or municipal statute, rule or regulation as in effect on the Closing Date relating to the protection of the Environment or occupational health and safety, including, without limitation, any statute or regulation pertaining to (a) the presence, manufacture, processing, use, treatment, storage, disposal, transportation, handling or generation of Materials of Environmental Concern; (b) air, water and noise pollution; (c) groundwater and soil contamination; or (d) the Release or threatened Release of Materials of Environmental Concern to the Environment.

 

“Environmental Matters” shall mean any legal obligation or liability arising under Environmental Law. “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

 

“ERISA Affiliate” shall mean any entity which is a member of (a) a controlled group of corporations (as defined in Section 414(b) of the Code), (b) a group of trades or businesses under common control (as defined in Section 414(c) of the Code), or (c) an affiliated service group (as defined under Section 414(m) of the Code or the regulations under Section 414(o) of the Code), any of which includes a Seller.

 

“Excluded Liabilities” shall have the meaning set forth in Section 1.1 (d). “Financial Statements” shall have the meaning set forth in Section 5.1(j). “GAAP” shall mean United States generally accepted accounting principles.

 

“Governmental Entity” shall mean any court, arbitrational tribunal, administrative agency or commission or other governmental or regulatory authority or agency.

 

“Governmental Filings” shall mean all registrations, filings and notices with or to Governmental Entities.

 

“HK Leased Property” means that certain property located at Room B, 10/F Neich Tower, 128 Gloucester Road, Wanchai, Hong Kong and that other certain property located at Flat C, 22/F, Block 20 of Phase 2C, Hong Kong Gold Coast, 1 Castle Peak Road, Castle Peak Bay, Tuen Mun, New Territories, Hong Kong.

 

“Immigration Authorities” shall have the meaning set forth in Section 2.14(c). “Income Taxes” shall mean any taxes imposed upon or measured by net income.

 

“Indemnified Party” shall mean the party entitled to indemnification under Article VI of this Agreement.

 

  

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“Indemnifying Party” shall mean the party from whom indemnification is sought by the Indemnified Party.

 

“Information” shall mean all non-privileged records, books, contracts, instruments, documents, correspondence, computer data and other data and information relating to the Business.

 

“Inventory” shall have the meaning set forth in Section l.l(a)(i). “IRS” shall mean the United States Internal Revenue Service.

 

“Leased Real Property” shall mean all real property leased prior to the date hereof by a Seller in connection with the Business.

 

“Materials of Environmental Concern” shall mean any hazardous substance, pollutant or contaminant, as those terms are defined under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, solid waste and hazardous waste, as those terms are defined in the Federal Resource Conservation and Recovery Act (as in effect on the date of this Agreement) and oil, petroleum and petroleum products.

 

“Most Recent Balance Sheet” shall mean the unaudited consolidated balance sheet of the Business as of the Balance Sheet Date.

 

“MPFO” means Mandatory Provident Fund Schemes Ordinance, Chapter 485, Laws of Hong Kong.

 

“Multiemployer Plan” shall mean a “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA).

 

“Outside Date” shall have the meaning set forth in Section 8.1(b). “Parties” shall mean Sellers and Buyer collectively.

 

“Permits” shall mean all permits, clearances, approvals, licenses, franchises or authorizations from any Governmental Entity relating to the development, use, maintenance or occupation of the HK Leased Property and the California Leased Property, and the manufacturing, sale, distribution, advertising or promotion of the products of the Business, or any operations of the Business.

 

“Person” shall mean an individual, partnership, limited liability company, corporation, joint venture or other entity.

 

“Personal Property” shall have the meaning set forth in Section l.l(a)(ii). “Purchase Price” shall have the meaning set forth in Section 1.2(a).

 

“Release” shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the Environment (including the abandonment or discarding of barrels, containers, and other closed receptacles containing any Materials of Environmental Concern).

 

“Returned Product” shall have the meaning set forth in Section l.l(e)(i).

 

  

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“Security Interest” shall mean any mortgage, pledge, security interest, encumbrance, charge or other lien (whether arising by contract or by operation of law), other than (a) mechanic’s, materialmen’s, landlord’s and similar liens, (b) liens arising under worker’s compensation, unemployment insurance, social security, retirement and similar legislation, (c) liens on goods in transit incurred pursuant to documentary letters of credit, in each case arising in the ordinary course of business, (d) liens for Taxes not yet due and payable, (e) liens for Taxes which are being contested in good faith and by appropriate proceedings, (f) liens relating to capitalized lease financings or purchase money financings that have been entered into in the ordinary course of business, and (g) liens arising solely by action of Buyer.

 

“Seller” or “Sellers” shall have the meanings set forth in the first paragraph of this Agreement. “Sellers’ Basket” shall have the meaning set forth in Section 6.5(a).

 

“Sellers Certificate” shall mean a certificate to the effect that each of the conditions specified in clauses (a) through (c) (insofar as clause (c) relates to an action, suit or proceeding involving, or a judgment, order, decree, stipulation or injunction against, a Seller) of Section 5.1 is satisfied.

 

“Seller’s knowledge” or “Knowledge of Seller”, means Weisshaupt’s actual knowledge after reasonable inquiry and investigation (which shall include, without limitation, conversations with such managers, officers, directors and employees of Sellers having responsibility for, and review of, the documents, files, books and records (financial or otherwise) of Sellers relating to the subject matter to which the representation and warranty herein relates), and without receipt of any actual or constructive notice from any party charged with giving any notice that conflicts with Seller’s knowledge.

 

“Straddle Period” means any Tax period beginning on or before and ending after the Closing Date. “Suppliers” shall have the meaning set forth in Section 2.25.

 

“Tax Audit” shall mean any audit or examination of Taxes or other similar proceeding by any Taxing Authority.

 

“Taxes” shall mean all taxes, including without limitation income, gross receipts, ad valorem, value-added, excise, real property, personal property, sales, use, transfer, withholding, employment, social security charges and franchise taxes imposed by Hong Kong, the United States of America or any state, local or foreign government, or any agency thereof, or other political subdivision of the United States or any such government, and any interest, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any tax or any contest or dispute thereof.

 

“Taxing Authority” shall mean any applicable Governmental Entity responsible for the imposition of Taxes.

 

“Tax Returns” shall mean all reports, returns, declarations, statements, forms or other information required to be supplied to a Taxing Authority in connection with Taxes.

 

“Third Party Consents” shall mean all waivers, permits, consents, approvals or other authorizations from Governmental Entities, stockholders and other third parties which are set forth on Schedule 5.1(i).

 

“Third Party Rights” shall mean the rights of any other party under any patent, trademark, service mark, copyright, trade secret, confidential information or other intellectual property.

 

  

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“Transferred Employees” shall mean all Business Employees who accept offers of employment from Buyer and who are employed by Buyer immediately following the Closing.

 

“Treasury Regulations” shall mean any applicable regulations issued by the United States Department of the Treasury interpreting the Code.

 

“Warranty Obligations” shall mean all liabilities and obligations arising out of or relating to the repair, rework, replacement or return of, or any claim for breach of warranty in respect of or refund of the purchase price of, any Business Products.

 

“Weisshaupt” shall mean Harald Armin Weisshaupt, an individual. “Work Permit” has the meaning set forth in Section 2.14(c).

 

ARTICLE XII

MISCELLANEOUS

 

12.1 Press Releases and Announcements. From the date of execution of this Agreement until the Closing, no Party shall issue any press release (or make any other public announcement) related to this Agreement or the transactions contemplated hereby without prior written approval of the other Parties hereto, except as may be necessary, in the opinion of counsel to the Party seeking to make disclosure, to comply with the requirements of this Agreement or applicable law or any applicable rules of any securities market or exchange. The Parties shall use their commercially reasonable efforts to coordinate their respective announcements and communications with employees, customers and suppliers of each of them.

 

12.2 No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns and, to the extent specified herein, their respective Affiliates.

 

12.3 Intentionally Omitted.

 

12.4 Entire Agreement. This Agreement (including the documents referred to herein) and the Confidentiality Agreement constitute the entire agreement among Buyer, on the one hand, and Sellers, on the other hand, with respect to the subject matter herein. This Agreement supersedes any prior agreements or understandings among Buyer, on the one hand, and Sellers, on the other hand, including without limitation the Memorandum of Understanding between the Parties, dated January 6,2010, and any representations or statements made by or on behalf of Sellers or any of their respective Affiliates to Buyer, whether written or oral, with respect to the subject matter hereof, other than the Confidentiality Agreement, and the Parties specifically disclaim reliance on any such prior representations or statements to the extend not embodied in this Agreement. The Confidentiality Agreement, insofar as it covers Information relating exclusively or primarily to the Business, shall terminate effective as of the Closing, but shall remain in effect insofar as it covers other Information disclosed thereunder.

 

12.5 Succession and Assignment. Buyer may assign to an Affiliate of Buyer this Agreement, or any portion hereof, and any or all of Buyer’s rights, interests and obligations hereunder without the prior written approval of ASI Holdings provided that Buyer remains liable for its obligations hereunder. Sellers may not assign either this Agreement or any of their respective rights, interests or obligations hereunder without the prior written consent of Buyer, which written approval shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, this Agreement, and all rights, interests and obligations hereunder, may be assigned, without such consent, to any entity that acquires all or substantially all of a Party’s business or assets. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. 

 

  

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12.6 Notices. All notices, requests, demands, claims and other communications hereunder shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly delivered four (4) Business Days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one (1) Business Day after it is sent for next Business Day delivery via a reputable nationwide overnight courier service, in each case to the intended recipient as set forth below:

 

	If to Buyer: 	Copies (which shall not constitute notice) to: 
	 	 
	AuraSound, Inc.	Richardson & Patel LLP
	 	 
	11839 East Smith Avenue 	10900 Wilshire Blvd., Suite 500 
	Santa Fe Springs, California 90670 	Los Angeles, California 90024 
	Facsimile: (562) 821-0249 	Facsimile: (310) 208-1154s
	Attention: Chief Executive Officer	Attention: Kevin Friedmann, Esq.
	 	 
	If to Sellers:	Copies (which shall not constitute notice) to:
	 	 
	ASI Holdings Limited 	Stradling Yocca Carlson & Rauth 
	Room B, 10/F, Neich tower, 	660 Newport Center Drive 
	128 Gloucester Road 	Suite 1600
	Wanchai, Hong Kong 	Newport Beach, California 92660 
	Attention; Harald Weisshaupt	Facsimile: (949) 725-4100
	 	Attention: Shivbir S. Grewal, Esq.

 

Any Party may give any notice, request, demand, claim or other communication hereunder using any other means (including personal delivery, expedited courier, messenger service, facsimile, ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the party for whom it is intended. Any Party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.

 

12.7 Amendments and Waivers. The Parties may mutually amend or waive any provision of this Agreement at any time. No amendment or waiver of any provision of this Agreement shall be valid unless the same shall be in writing and signed by all of the Parties. No waiver by any Party of any default, misrepresentation or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

 

12.8 Severability. Subject to the provisions of Section 10.3(b), any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the body making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified.

 

  

38

  

 

12.9 Expenses. Except as otherwise specifically provided to the contrary in this Agreement, each of the Parties shall bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby.

 

12.10 Specific Performance. Each Party acknowledges and agrees that the other Party or Parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each Party agrees that the other Party or Parties may be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter.

 

12.11 Governing Law. This Agreement and any disputes hereunder shall be governed by and construed in accordance with the internal laws of the State of California without giving effect to any choice or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of California.

 

12.12 Submission to Jurisdiction. Each Party (a) submits to the exclusive jurisdiction of any state or federal court sitting in City of Los Angeles, State of California in any action or proceeding arising out of or relating to this Agreement, (b) agrees that all claims in respect of such action or proceeding may be heard and determined only in any such court, (c) waives any claim of inconvenient forum or other challenge to venue in such court, and (d) agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each Party agrees to accept service of any summons, complaint or other initial pleading made in the manner provided for the giving of notices in Section 12.6. Nothing in this Section 12.12 however, shall affect the right of any Party to serve such summons, complaint or initial pleading in any other manner permitted by law.

 

12.13 Construction.

 

(a) The language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party.

 

(b) Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.

 

(c) The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

 

(d) Any reference herein to an Article, section or clause shall be deemed to refer to an Article, section or clause of this Agreement, unless the context clearly indicates otherwise.

 

12.14 WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF ANY PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT.

 

12.15 Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof.

 

12.16 Counterparts and Facsimile Signature. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. This Agreement may be executed by facsimile signature.

 

[Remainder of this page remains blank; signature page follows]

 

  

39

  

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS AGREEMENT. THE REDACTIONS ARE INDICATED WITH SIX ASTERISKS (“******”). A COMPLETE VERSION OF THIS AGREEMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

 

 

  

  

  

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS AGREEMENT. THE REDACTIONS ARE INDICATED WITH SIX ASTERISKS (“******”). A COMPLETE VERSION OF THIS AGREEMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

DISCLOSURE SCHEDULES

 

OF

 

ASI HOLDINGS LIMITED

 

IN CONNECTION WITH THE

 

ASSET PURCHASE AGREEMENT

 

BY AND AMONG

 

ASI HOLDINGS LIMITED,

 

ASI AUDIO TECHNOLOGIES, LLC

 

AND

 

AURASOUND, INC.

 

July 10, 2010

  

 

  

 

DISCLOSURE SCHEDULES

 

The Disclosure Schedules (hereinafter called the “Schedule”) are furnished by ASI Holdings Limited, a corporation organized under the laws of Hong Kong (the “Company”), pursuant to that certain Asset Purchase Agreement, dated as of July 10, 2010 (the “Agreement”) by and among the Company, ASI Audio Technologies, LLC, an Arizona limited liability company, and AuraSound, Inc., a Nevada Corporation (“Buyer”). Capitalized terms used herein, unless otherwise defined herein, shall have the meanings ascribed to them in the Agreement.

 

Each section of this Schedule qualifies the correspondingly numbered section of the Agreement and any disclosure in each section of this Schedule shall be deemed to be incorporated into all other sections within this Schedule. The titles and headings used herein are for reference purposes only and shall not in any manner limit the construction of the Schedule.

 

Disclosure of a matter not required to be made does not require disclosure of any similar matters not required to be disclosed, and disclosure of any item shall not constitute an admission that such item is material, could have a Business Material Adverse Effect, or is required to be disclosed.

 

The inclusion in this Schedule of any matter or document shall not imply any representation, warranty or undertaking not expressly given in the Agreement, nor shall such disclosure be taken as extending the scope of any of the representations or warranties. The information contained herein is disclosed solely for the purposes of the Agreement, and no information contained herein constitutes, nor shall be deemed to be, an admission by any party to any third party of any matter whatsoever, including, without limitation, any violation of law or breach of any agreement.

 

Document titles have been provided by the Company for the convenience of Buyer. However, the provision of such titles shall not imply any representation or warranty as to the accuracy or completeness of such titles. Reference in this Schedule to an agreement includes a reference to all amendments, modifications or other supplements to such agreement, to the extent such amendments, modifications, or other supplements have been made available to Buyer and are specifically listed herein.

 

To the extent there is any inconsistency between information set forth in this Schedule and any information, disclosure, document or schedule heretofore delivered to Buyer, this Schedule supersedes and replaces such other information, disclosure, document and schedule previously provided.

 

This Schedule may be corrected, clarified, modified and/or supplemented in writing by the Company at any time prior to the Closing, subject to Section 4.5 of the Agreement.

  

 

  

 

Schedule 1.1(b)

 

Excluded Assets

	
1.

	
Company owned membership interests in ASI Audio Technologies, L.L.C. (referred to herein as “ASI Audio”).

	  	  
	
2.

	
Company shall retain US$250,000.

  

 

  

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS AGREEMENT. THE REDACTIONS ARE INDICATED WITH SIX ASTERISKS (“******”). A COMPLETE VERSION OF THIS AGREEMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Schedule 1.1(c)

 

Assumed Liabilities

	  	  
	
1.

	
In connection with the contracts listed in Section 2.11 of the Schedule entered into in the ordinary course of business, there may be certain obligations arising out of such contracts, including but not limited to payment and performance obligations, such as royalties, fees, indemnification and confidentiality.

	  	  
	
2.

	
Declaration of Controlled Hazardous Substances Confirmation and Compliance dated January 5, 2007 by ASI Holdings Limited certifying to ******.

	  	  
	
3.

	
Deed of Undertaking dated May 11, 2010 by ASI Holdings Limited in favor of ******.

	  	  
	
4.

	
Certification of non-use of AmTRAN controlled substances dated ___ by ASI Holdings Limited in favor of AmTRAN.

	  	  
	
5.

	
Supplier Social and Environmental Responsibility (SER) Declaration dated July 7, 2007 by ASI Holdings Limited in favor of ******.

	  	  
	
6.

	
Environment Protection Warranty dated July 7, 2007 by ASI Holdings Limited in favor of ******.

	  	  
	
7.

	
Guaranty and Authority of Environmental Documentation dated February 26, 2008 by ASI Holdings Limited in favor of ******.

	  	  
	
8.

	
Trade and other payables in Hong Kong dollars:

	
Company Name

	
HKD

	
Kuehne & Nagel Limited

	
7,593,486.40

	
Hency Shipping Limited

	
1,999,478.64

	
Expeditors HK Limited

	
988,823.14

	
******

	
7,960,214.13

	
Pacer Distribution Services

	
1,675,480.18

	  	
20,217,482.49

 

	
9.

	Bank overdrafts:

 

  

 

  

 

ASI HOLDINGS LIMITED

BANK RECONCILIATION STATEMENT

AS AT 31st DECEMBER 2009

 

	
Balance per Bank Statement

	  	
315,717.45

	  	  	
315,717.45

	
Less :      Outstanding checks :

	  	  
	
JV091226                      24/12/2009

	
Federal Express

	
7,181.58

	
PV091231                      24/12/2009

	
MPF - Dec/2009

	
3,500.00

	
JV091227                      28/12/2009

	
Hecny Shipping Limited

	
299,571.85

	
PV091246                      31/12/2009

	
SunnyWorld Associates Ltd

	
131,568.64

	
PV911043                      27/11/2009

	
Sunny World Associates Ltd Expense -Ref: ASIPV0911043 

	
99,401.06

	  	  	 
	Adjusted balance (correct cash balance)	 	   (225,505.68)

 

	
10. 

	Outstanding invoices and other expenses:

 

	
 

Company name

	 	
 

Origination

	  	
 

Nature

	  	
 

Item

	  	
HKD 

Amounts

	
Expeditors Hong Kong Limited

	 	
HK

	  	
Freight charges

	  	
7

	  	
373,276.89

	
Expeditors Hong Kong Limited

	 	
HK

	  	
Freight charges

	  	
7

	  	
111,853.06

	
Kuehne & Nagel Limited

	 	
HK

	  	
Freight charges

	  	
7

	  	
475,428.40

	
Hecny Shipping Limited

	 	
HK

	  	
Freight charges

	  	
7

	  	
2,426,446.52

	
HK Staff

	 	
HK

	  	
Salary

	  	
10

	  	
70,125.00

	
Hutchison Global Communications Ltd

	 	
HK

	  	
Telephone bills

	  	
8

	  	
573.00

	
Hutchison Global Communications Ltd

	 	
HK

	  	
Telephone bills

	  	
8

	  	
356.00

	
Hutchison Telecommunications (HK) Ltd

	 	
HK

	  	
Telephone bills

	  	
8

	  	
16,728.00

	
Hutchison Telecommunications (HK) Ltd

	 	
HK

	  	
Telephone bills

	  	
8

	  	
5,182.00

	
The Hong Kong Electric Co Ltd

	 	
HK

	  	
Electricity plus deposit

	  	
8

	  	
4,856.00

	
Hang Fat Engineering Co

	 	
HK

	  	
Office decoration

	  	
8

	  	
5,000.00

	
Fuji Xerox (Hong Kong) Ltd

	 	
HK

	  	
Fixed Charges - Printing

	  	
8

	  	
1,000.00

  

 

  

	
Kintetsu World Express (HK) Ltd

	 	
HK

	  	
Storage Charges

	  	
7

	  	
2,095.39

	
Federal Express (HK) Ltd

	 	
HK

	  	
Courier and Postage

	  	
7

	  	
34,727.63

	
Baynard Limited

	 	
HK

	  	
Rent for Quarter

	  	
9

	  	
18,800.00

	
SF Express (HK) Ltd

	 	
HK

	  	
Courier and Postage

	  	
7

	  	
236.00

	
Cheung Ying Furniture Co

	 	
HK

	  	
Office decoration

	  	
8

	  	
10,120.00

	
Sun World’s Interior Design Decoration Gallery Co

	 	
HK

	  	
Office decoration

	  	
8

	  	
98,800.00

	
The Hong Kong and China Towngas Limited

	 	
HK

	  	
Gas Charges

	  	
8

	  	
409.00

	
Water Supplies Department - HKSAR

	 	
HK

	  	
Water

	  	
8

	  	
206.70

	
Sunbase Int’l Properties Management Ltd

	 	
HK

	  	
Monthly office rent -HK

	  	
9

	  	
36,897.00

	
Sunbase Int’l Properties Management Ltd

	 	
HK

	  	
Monthly Management fee for office - HK

	  	
9

	  	
8,042.00

	
HSBC Insurance

	 	
HK

	  	
Mandatory Provident Fund

	  	
10

	  	
5,750.00

	
Alorica Inc

	 	
HK

	  	
Warranty charges

	  	
7

	  	
173,719.39

	
Pacer Distribution Services

	 	
HK

	  	
Warehouse -storage fee

	  	
7

	  	
77,304.13

	
PRC Staff to Fesco

	 	
PRC

	  	
Monthly Salary

	  	
10

	  	
92,080.43

	
T.Y. Lam & Co. Solicitors

	 	
HK

	  	
Consultancy Fee

	  	
8

	  	
2,575.80

	
Petty Cash

	 	
HK

	  	
Monthly Cleaning Fee

	  	
8

	  	
500.00

	

	 	
PRC

	  	
Rent in Shen zhen office

	  	
9

	  	
11,520.00

	
Petty Cash

	 	
PRC

	  	
Claim Expenses

	  	
10

	  	
84,177.00

	
HK Staff

	 	
HK

	  	
Claim Expenses

	  	
8

	  	
12,224.73

	
Pioneer Courier Co

	 	
HK

	  	
Courier and Postage

	  	
7

	  	
180.00

	
CLP Power HK Limited

	 	
HK

	  	
Electricity

	  	
8

	  	
652.00

	
Taiwanese Staff

	 	
HK

	  	
Salary

	  	
10

	  	
24,500.00

	
Sunny World Associates Limited

	 	HK	  	
Consultancy Fee

	  	
11

	  	
39,000.00

	
Max Profit Consulting Ltd

	 	HK	  	
Consultancy Fee

	  	
11

	  	
58,500.00

	
Triple-shift Rapid Prototyping Manufacturer

	 	HK	  	
Mock up Fee

	  	
8

	  	
194,137.00

	
GuangGuo Electric Limited

	 	HK	  	
Costs of good 2010

	  	
6

	  	
47,311,708.08

	
GGEC Technology Limited

	 	HK	  	
Costs of good 2010

	  	
6

	  	
3,589,483.33

	
GuangGuo Electric Limited

	 	HK	  	
Costs of good-2009

	  	
6

	  	
1,100,484.22

	
GGEC Technology Limited

	 	HK	  	
Costs of good-2009

	  	
6

	  	
959,412.01

	
PRC Tax department

	 	PRC	  	
Quarterly tax

	  	
8

	  	
27,428.00

	

	 	PRC	  	
Management fee for PRC office

	  	
8

	  	
2,000.00

	
US Staff

	 	US	  	
Salary-2nd half of monthly salary

	  	
10

	  	
232,830.00

	
Dolby Laboratory

	 	US	  	
Certification and sign up fee

	  	
8

	  	
1,014,000.00

	  	 	  	  	  	  	  	  	
58,715,324.71

  

 

  

 

Schedule 1.2(c)

 

Allocation of Purchase Price

 

[NOTE TO DRAFT: To be prepared by Buyer.]

  

 

  

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS AGREEMENT. THE REDACTIONS ARE INDICATED WITH SIX ASTERISKS (“******”). A COMPLETE VERSION OF THIS AGREEMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Schedule 2.3(c)

 

Contracts Requiring Consent to Assignment

 

	
1.

	
****** License Agreement dated May 10, 2010 by and between ****** and ASI Holdings Limited.

	  	  
	
2.

	
License for Distribution of Executable Software dated April 16, 2010 by and between Cirrus Logic, Inc. and ASI Holdings Limited.

	  	  
	
3.

	
Technology License Agreement dated November 14, 2008 by and between SRS Labs, Inc. and ASI Holdings Limited.

	  	  
	
4.

	
Consumer Manufacturing License Agreement dated May 27, 2010 by and between ASI Holdings Limited and Guangzhou DTS Digital Theater System Company Limited.

	  	  
	
5.

	
Made for iPod License dated October 23, 2009 by and between ASI Holdings Ltd. and Apple Inc. and all supplements thereto (Collectively, items 3-11 of Section 2.10(f) of this Schedule).

	  	  
	
6.

	
Tenancy Agreement dated June 26, 2009 by and between Gold Harvest Properties Limited and ASI Holdings Limited.

	  	  
	
7.

	
Tenancy Agreement dated August 15th, 2008 by and between Billion Trend Holdings Limited carrying on business in H.K. as Yick Cheong Real Estate Limited and ASI Holdings Limited.

	  	  
	
8.

	
Tenancy Agreement dated January 31, 2009 by and between Baynard Limited and ASI Holdings Limited.

	  	  
	
9.

	
Month to month tenancy at 6125 E. Indian School Road Scottsdale, AZ 85251, by and between FFP, LLC and ASI Audio.

	  	  
	
10.

	
Intentionally omitted.

	  	  
	
11.

	
Made for iPod Manufacturing License dated ____ by and between ASI Holdings Ltd. and Apple Inc.

  

 

  

 

Section 2.4

 

Financial Statements

	  	  
	
1.

	
A copy of the Financial Statements is attached immediately following this page.

  

 

  

 

ASI Holdings Limited and Subsidiaries

 

June 29, 2010

 

Kabani & Company, Inc

6033 W. Century Blvd., #810

Los Angeles, CA 90045

 

We are providing this letter in connection with your audits of the balance sheets of ASI Holdings Limited and Subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the years ended December 31,2009 and 2008 for the purpose of expressing an opinion as to whether the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of ASI Holdings Limited and Subsidiaries in conformity with U.S. generally accepted accounting principles. We confirm that we are responsible for the feir presentation in the financial statements of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. We are also responsible for adopting sound accounting policies, establishing and maintaining internal control, and preventing and detecting fraud.

 

Certain representations in this letler are described as being limited to matters that are material. Items are considered material if they involve an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement. An omission or misstatement that is monetarily small in amount could be considered material as a result of qualitative factors.

 

We confirm, to the best of our knowledge and belief, as of June 29, 2010 the following representations made to you during your audit.

	
1)

	
The financial statements referred to above are fairly presented in conformity with U.S. generally accepted accounting principles, and include all disclosures necessary for such fair presentation and disclosures required to be included therein by the laws and regulations to which the Company is subject.

	  	  
	
2)

	We have made available to you financial records and related data -
	  	  	  
	  	
a)

	
Financial records and related data.

	  	  	  
	  	
b)

	
There have been no communications from the SEC or other regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices.

	  	  	  
	
3)

	
There are no material transactions that have not been properly recorded in the accounting records underlying the financial statements.

  

 

  

 

	
4)

	
We believe that the effects of the uncorrected financial statement misstantements summarized in the attached schedule arc immaterial, both individually and in the aggregate, to the financial statements taken as a whole.

	  	  	  
	
5)

	
We acknowledge our responsibility for the design and implementation of programs and controls to prevent and detect fraud.

	  	  	  
	
6)

	
We have no knowledge of any fraud or suspected fraud affecting the Company involving:

	  	  	  
	  	
a}

	
Management,

	  	  	  
	  	
b)

	
Employees who have significant roles in internal control, over financial reporting, or

	  	  	  
	  	
c)

	
Others where the fraud could have a material effect on the financial statements.

	  	  	  
	
7)

	
We have no knowledge of any allegations of fraud or suspected fraud affecting the Company received in communications from employees, former employees, regulators, or others.

	  	  	  
	
8)

	
The Company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities.

	  	  	  
	
9)

	
The following, if material, have been properly recorded or disclosed in the financial statements:

	  	  	  
	  	
a)

	
Related party transactions and related accounts receivable or payable, including sales, purchases, loans, transfers, leasing arrangements, and guarantees,

	  	  	  
	  	
b)

	
Guarantees, whether written Or oral, under which the company is contingently liable.

	  	  	  
	
10)

	
There are no estimates that may be subject to a material change in the near term that have not been properly disclosed in the financial statements. We understand that near term means the period within one year of the date of the financial statements. In addition, we have no knowledge of concentrations existing at the date of the financial statements that make the company vulnerable to the risk of severe impact that have not been properly disclosed in the financial statements.

	  	  	  
	
11)

	
There are no:

	  	  	  
	  	
a)

	
Violations or possible violations of laws or regulations whose effect should be considered for disclosure in the financial statements or as a basis for recording a loss contingency.

	  	  	  
	  	
b)

	
Unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed in accordance with Statement of Financial Accounting Standards No. 5 (ASC 30. 1).

	  	  	  
	  	
c)

	
Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by Statement of Financial Accounting Standards No. 5 (ASC 30.1).

	  	  	  
	
12)

	
The Company has satisfactory title to all owned assets, and other than as disclosed to you, there are no liens or encumbrances on such assets nor has any asset been pledged as collateral.

  

 

  

 

	
13)

	
Adequate provision has been made in the consolidated financial statements for 2009 and 2008 in respect of income taxes and deferred income taxes.

	  	  
	
14)

	
The Company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance.

	  	  
	
15)

	
The Company has appropriately reconciled its general ledger accounts to their related supporting information. All related reconciling items considered to be material were identified and included on the reconciliations and were appropriately adjusted in the financial statements. All intercompany (and intercompany) accounts have been eliminated or appropriately measured and considered for disclosure in the financial statements.

	  	  
	
16)

	
The Company was not part of any litigation or outstanding legal proceedings as of December 31, 2009, except as disclosed in the notes to the consolidated financial statements.

	  	  
	
17)

	
The Company recognizes the revenue properly in accordance with accounting principles generally accepted in the United States of America.

 

No events have occurred subsequent to the balance sheet date and through the date of this letter that would require adjustment to, or disclosure in, the financial statements.

 

Very truly yours,

 

  

 

  

 

ASI Holdings Limited

 

CONSOLIDATED FINANCIAL STATEMENTS

  

December 31, 2009 and 2008

 

Index to Consolidated Financial Statements

 

	
Reports of Independent Registered Public Accounting Firms

	
2

	
Consolidated Balance Sheets as of December 31, 2009 and 2008

	
3

	
Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008

	
4

	
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2009 and 2008

	
5

	
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008

	
6

	
Notes to Consolidated Financial Statements

	
7 to 13

 

  

1

  

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

ASI Holdings Limited

 

We have audited the accompanying consolidated balance sheets of ASI Holdings Limited and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2009. ASI Holdings Limited and subsidiaries’ management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting.  Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ASI Holdings Limited and subsidiaries as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company's significant operating losses and insufficient capital raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Kabani & Company, Inc.

Certified Public Accountants

 

Los Angeles, California

June ____, 2010

 

  

2

  

 

ASI Holdings Limited And Subsidiaries

Consolidated Balance Sheets

	  	  	  	  	  	  	  
	  	  	
As of

December 31,

2009

	  	  	
As of

December 31,

2008

	  
	
ASSETS

	  	  	  	  	  	  
	
Current Assets :

	  	  	  	  	  	  
	
Cash and cash equivalents

	  	
$

	
90,543

	  	  	
$

	
32,870

	  
	
Accounts receivable, net of allowance for bad debts

	  	  	
4,767,736

	  	  	  	
1,291,158

	  
	
Inventories, net

	  	  	
1,709,107

	  	  	  	
68,535

	  
	
Deposits

	  	  	
24,688

	  	  	  	
14,327

	  
	
Prepayments

	  	  	
30,780

	  	  	  	
16,564

	  
	
Total current assets

	  	  	
6,622,854

	  	  	  	
1,423,454

	  
	  	  	  	  	  	  	  	  	  
	
Property and equipment, at cost

	  	  	
39,115

	  	  	  	
38,217

	  
	
Less : Accumulated depreciation

	  	  	
(15,466

	
)

	  	  	
(3,184

	
)

	
Property and equipment, net

	  	  	
23,648

	  	  	  	
35,033

	  
	  	  	  	  	  	  	  	  	  
	
Total assets

	  	
$

	
6,646,503

	  	  	
$

	
1,458,487

	  
	  	  	  	  	  	  	  	  	  
	
LIABLITIES AND STOCKHOLDERS’ DEFICIT

	  	  	  	  	  	  	  	  
	
Current liabilites:

	  	  	  	  	  	  	  	  
	
Secured bank overdraft

	  	
$

	
28,923

	  	  	
$

	
—

	  
	
Short Term Loan

	  	  	
500,000

	  	  	  	
—

	  
	
Accounts payable

	  	  	
7,684,336

	  	  	  	
3,202,510

	  
	
Provision for warranty service

	  	  	
276,362

	  	  	  	
—

	  
	
Accrued Expenses and other payable

	  	  	
577,825

	  	  	  	
329,372

	  
	
Due to bank under factoring agreement

	  	  	
504,368

	  	  	  	
145,083

	  
	
Due to Related Parties

	  	  	
—

	  	  	  	
71,837

	  
	
Total Liabilities

	  	  	
9,571,814

	  	  	  	
3,748,801

	  
	  	  	  	  	  	  	  	  	  
	
Commitments and Contingencies

	  	  	  	  	  	  	  	  
	  	  	  	  	  	  	  	  	  
	
Stockholders’ Deficit :

	  	  	  	  	  	  	  	  
	
Common Stock, $0.1282 par value;

	  	  	
6,410

	  	  	  	
6,410

	  
	
Other Comprehensive loss

	  	  	
(1,063

	
)

	  	  	
(448

	
)

	
Accumulated deficit

	  	  	
(2,930,658

	
)

	  	  	
(2,283,990

	
)

	
Total

	  	  	
(2,925,311

	
)

	  	  	
(2,278,028

	
)

	
Non controlling interest in subsidiary

	  	  	
—

	  	  	  	
(12,287

	
)

	
Total Stockholder’s deficit

	  	  	
(2,925,311

	
)

	  	  	
(2,290,315

	
)

	  	  	  	  	  	  	  	  	  
	
Total liabilities and stockholders’ deficit

	  	
$

	
6,646,503

	  	  	
$

	
1,458,487

	  

 

See accompanying notes to these consolidated financial statements

  

3

  

ASI Holdings Limited And Subsidiaries

Consolidated Statements of Operations

	  	  	
For the years ended

	  
	  	  	
December 31, 2009

	  	  	
December 31, 2008

	  
	
Net revenue

	  	
$

	
20,579,309

	  	  	
$

	
7,332,017

	  
	  	  	  	  	  	  	  	  	  
	
Cost of revenue

	  	  	
18,253,473

	  	  	  	
6,891,229

	  
	  	  	  	  	  	  	  	  	  
	
Gross profit

	  	  	
2,325,836

	  	  	  	
440,788

	  
	  	  	  	  	  	  	  	  	  
	
Operating expenses :

	  	  	  	  	  	  	  	  
	
Selling expenses

	  	  	
278,572

	  	  	  	
59,326

	  
	
General and administrative

	  	  	
2,602,421

	  	  	  	
2,772,721

	  
	
Total operating expenses

	  	  	
2,880,993

	  	  	  	
2,832,047

	  
	  	  	  	  	  	  	  	  	  
	
Loss from Operations

	  	  	
(555,157

	
)

	  	  	
(2,391,259

	
)

	  	  	  	  	  	  	  	  	  
	
Other income (expenses) :

	  	  	  	  	  	  	  	  
	
Total other income (expenses)

	  	  	
(113,789

	
)

	  	  	
(21,354

	
)

	  	  	  	  	  	  	  	  	  
	
Net Loss from continuing operations

	  	  	
(668,945

	
)

	  	  	
(2,412,613

	
)

	  	  	  	  	  	  	  	  	  
	
Discontinued Operations :

	  	  	  	  	  	  	  	  
	  	  	  	  	  	  	  	  	  
	
Loss from operations of discontinued operations (including noncontrolling interest)

	  	  	
—

	  	  	  	
(4,939

	
)

	
Gain on disposal of subsidiary

	  	  	
22,277

	  	  	  	
—

	  
	  	  	  	  	  	  	  	  	  
	
Net Loss

	  	  	
(646,668

	
)

	  	  	
(2,417,552

	
)

	  	  	  	  	  	  	  	  	  
	
Other Comprehensive Income (loss) :

	  	  	  	  	  	  	  	  
	
Foreign currency translation loss

	  	  	
(615

	
)

	  	  	
(448

	
)

	
Net comprehensive loss

	  	
$

	
(647,283

	
)

	  	
$

	
(2,418,000

	
)

 

See accompanying notes to these consolidated financial statements

 

  

4

  

ASI Holdings Limited And Subsidiaries

Consolidated Statements of Stockholders’ Equity (Deficit)

For the years ended December 31, 2009 and 2008

 

	 	 	 Common tock 	 	 	 Other Comprehensive 	 	 	 Non controlling 	 	 	 Accumulated	 	 	Total Stockholders’ Equity 	 
	  	  	
Shares

	  	  	
Amount

	  	  	
Loss

	  	  	
Interest

	  	  	
 Deficit

	  	  	
(Deficit)

	  
	
Balance December 31, 2007

	  	  	
50,000

	  	  	
$

	
6,410

	  	  	
$

	
—

	  	  	
$

	
(9,560

	
)

	  	
$

	
133,562

	  	  	
$

	
130,412

	  
	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  
	
Foreign currency translation loss

	  	  	  	  	  	  	  	  	  	  	
(448

	
)

	  	  	  	  	  	  	  	  	  	  	
(448

	
)

	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  
	
Non controlling interest in subsidiary

	  	  	  	  	  	  	  	  	  	  	  	  	  	  	
(2,727

	
)

	  	  	  	  	  	  	
(2,727

	
)

	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  
	
Net loss for the year

	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	
(2,417,552

	
)

	  	  	
(2,417,552

	
)

	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  
	
Balance December 31, 2008

	  	  	
50,000

	  	  	
$

	
6,410

	  	  	
$

	
(448

	
)

	  	
$

	
(12,287

	
)

	  	
$

	
(2,283,990

	
)

	  	
$

	
(2,290,315

	
)

	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  
	
Foreign currency translation loss

	  	  	  	  	  	  	  	  	  	  	
(615

	
)

	  	  	  	  	  	  	  	  	  	  	
(615

	
)

	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  
	
Disposal of subsidiary with noncontrolling interest

	  	  	  	  	  	  	  	  	  	  	  	  	  	  	
12,287

	  	  	  	  	  	  	  	
12,287

	  
	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  
	
Net loss for the year

	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	
(646,668

	
)

	  	  	
(646,668

	
)

	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  
	
Balance December 31, 2009

	  	  	
50,000

	  	  	
$

	
6,410

	  	  	
$

	
(1,063

	
)

	  	
$

	
—

	  	  	
$

	
(2,930,658

	
)

	  	
$

	
(2,925,311

	
)

 

See accompanying notes to these consolidated financial statements

 

  

5

  

ASI Holdings Limited And Subsidiaries

Consolidated Statements of Cash Flows

	  	  	
For the years ended

	  
	  	  	
December 31,

2009

	  	  	
December 31,

2008

	  
	
Cash flows from operating activities

	  	  	  	  	  	  
	
Net Loss from continuing operations

	  	
$

	
(668,945

	
)

	  	
$

	
(2,412,613

	
)

	
Adjustments to reconcile net income to net cash provided by operating activities

	  	  	  	  	  	  	  	  
	
Depreciation

	  	  	
12,282

	  	  	  	
3,184

	  
	
Decrease / (Increase) in current assets:

	  	  	  	  	  	  	  	  
	
Accounts receivable

	  	  	
(3,476,598

	
)

	  	  	
(1,291,159

	
)

	
Inventories

	  	  	
(1,640,572

	
)

	  	  	
(68,535

	
)

	
Other assets

	  	  	
(25,311

	
)

	  	  	
(26,618

	
)

	
(Decrease) / Increase in current liabilities:

	  	  	  	  	  	  	  	  
	
Accounts payable

	  	  	
4,481,827

	  	  	  	
3,202,509

	  
	
Warranty service reserve

	  	  	
276,362

	  	  	  	
—

	  
	
Tax payables

	  	  	
974

	  	  	  	
1,699

	  
	
Bank Payable

	  	  	
28,923

	  	  	  	
—

	  
	
Accrued expenses

	  	  	
427,719

	  	  	  	
—

	  
	
Other payables

	  	  	
(149,355

	
)

	  	  	
325,711

	  
	
Net cash used in operating activities from continuing operations

	  	  	
(732,674

	
)

	  	  	
(265,821

	
)

	
Net cash used in operative activities of entity disposed

	  	  	
(1,228

	
)

	  	  	
(665

	
)

	
Net cash provided by operating activities

	  	  	
(733,902

	
)

	  	  	
(266,486

	
)

	  	  	  	  	  	  	  	  	  
	
Cash flows from investing activities

	  	  	  	  	  	  	  	  
	
Acquisition of plant, property, and equipment

	  	  	
(897

	
)

	  	  	
(38,217

	
)

	
Net cash used in investing activities from continuing operations

	  	  	
(897

	
)

	  	  	
(38,217

	
)

	
Net cash provided by investing activities of entity disposed

	  	  	
—

	  	  	  	
19,938

	  
	
Net cash used in investing activities

	  	  	
(897

	
)

	  	  	
(18,279

	
)

	  	  	  	  	  	  	  	  	  
	
Cash flows from financing activities

	  	  	  	  	  	  	  	  
	
Proceeds from (repayment of) installment loan

	  	  	
859,285

	  	  	  	
145,083

	  
	
Payments to related parties

	  	  	
—

	  	  	  	
199

	  
	
Proceeds from (payments to) related parties

	  	  	
(38,509

	
)

	  	  	
—

	  
	
Net cash provided by financing activities from continuing operations

	  	  	
820,776

	  	  	  	
145,282

	  
	
Net cash provided by (used in) financing activities of entity disposed

	  	  	
(33,328

	
)

	  	  	
86,710

	  
	
Net cash provided by financing activities

	  	  	
787,448

	  	  	  	
231,992

	  
	  	  	  	  	  	  	  	  	  
	
Effect of exchange rate change on cash and cash equivalents

	  	  	
5,024

	  	  	  	
51,239

	  
	
Net increase in cash and cash equivalents

	  	  	
57,673

	  	  	  	
(1,535

	
)

	  	  	  	  	  	  	  	  	  
	
Cash and cash equivalents, beginning balance

	  	  	
32,870

	  	  	  	
34,405

	  
	
Cash and cash equivalents, ending balance

	  	
$

	
90,543

	  	  	
$

	
32,870

	  
	  	  	  	  	  	  	  	  	  
	
Supplement disclosure of cash flow information

	  	  	  	  	  	  	  	  
	
Interest expense paid

	  	
$

	
239,483

	  	  	
$

	
14,294

	  
	
Income taxes paid

	  	
$

	
-

	  	  	
$

	
-

	  

 

See accompanying notes to these consolidated financial statements

 

  

6

  

ASI Holdings Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - ORGANIZATION AND OPERATIONS

 

General

 

ASI Holdings Limited (the Company or we/us/our) was incorporated under the laws of Hong Kong as a limited liability company in May 2007. The Company’s principle registered offices is located at Wanchai, Hong Kong.  The Company is engaged in the development, commercialization, and sales of audio products, sound systems, and audio components.

 

Basis of Presentation

 

The Company’s financial statements for all periods presented have been prepared in accordance with accounting principles generally accepted in the United States.  All significant inter-company transactions and accounts have been eliminated in the consolidation.  The functional currency is the Hong kong Dollar (HKD); however the accompanying financial statements have been translated and presented in United States Dollars (USD).

 

GOING CONCERN:

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of its liabilities in the normal course of business. Through December 31, 2009, the Company had incurred cumulative losses of $2,930,658 including net losses from continuing operations of $668.945 for the year ended December 31, 2009.

 

In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Management has taken the following steps to revise its operating and financial requirements, (i) The company plans to raise additional capital by selling more shares to current shareholders and potential investors with a discount price (ii) The company also plans to borrow money from current shareholders and potential investors with an attractive interest rate. (iii) The company plans to reduce overhead and expenses by reducing unnecessary marketing and advertisement expenses, improving efficiency on distribution channel, freezing salary increase and laying off administrative staffs.

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation:

 

The accompanying consolidated financial statements for the period ended December 31, 2009 include the accounts of the Company and its wholly owned subsidiaries The Digital Experience Limited (a Hong Kong corporation) and ASI Audio Technologies L.L.C. The Digital Experience Limited was disposed on November 11, 2009, accordingly, the subsidiary’s  operating results for the period ending December 31, 2009 only reflect the indicated period and the balance sheet at December 31, 2009 does not include The Digital Experience Limited.  All material inter-company accounts have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the combined financial statements and disclosures made in the accompanying notes. Actual results could differ from those estimates.

 

Foreign currency translation

 

The reporting currency is the U.S. dollar. The functional currency of the Company is the local currency, the Hong Kong Dollar (“HKD”). The financial statements of the Company are translated into United States dollars in accordance with Statement of Financial Accounts Standards (“SFAS”) No. 52 (ASC830), “Foreign Currency Translation”, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for the equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. At December 31, 2009 and 2008, the cumulative translation adjustment of $1,063 and $448, respectively, was classified as an item of other comprehensive income in the stockholders’ deficit section of the consolidated balance sheet. For the years ended December 31, 2009 and 2008, accumulated other comprehensive income (loss) was $615 and $448, respectively.

 

  

7

  

Cash and Cash Equivalents

 

Cash and cash equivalents include cash in hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

 

Accounts Receivable

 

The Company maintains an allowance for uncollectible accounts receivable to estimate the risk of extending credit to customers and distributors. The allowance is estimated based on the customer or distributor's compliance with our credit terms, the financial condition of the customer or distributor and collection history where applicable. Additional allowances could be required if the financial condition of our customers or distributors were to be impaired beyond our estimates. As of December 31, 2009 and 2008, the allowance for doubtful accounts amounted to  $554,763 and $554,763 respectively.

 

Inventories

 

Inventories are valued at the lower of cost (first-in, first-out) or market. Appropriate consideration is given to deterioration, obsolescence and other factors in evaluating net realizable value.

Property and Equipment

 

Property, plant, and equipment, including leasehold improvements, are recorded at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets as follows: 

 

	
Office equipment

	
5 years

	
Furniture and fixtures

	
5 years

 

Improvements to leased property are depreciated over the lesser of the life of the lease or the life of the improvements. Depreciation expense on assets acquired under capital leases is included with depreciation expense on owned assets. As of December 31, 2009 and 2008, the Company had net property, plant and equipment in the amount of $23,649 and $35,033 respectively consisting of the following:

 

	  	  	
2009

	  	  	
2008

	  
	
Office furniture and fixtures

	  	
$

	
2,778

	  	  	
$

	
2,778

	  
	  	  	  	  	  	  	  	  	  
	
Leasehold Improvements

	  	  	
23,822

	  	  	  	
23,822

	  
	
Office Equipment

	  	  	
12,514

	  	  	  	
11,617

	  
	
Total

	  	  	
39,114

	  	  	  	
38,217

	  
	
Less accumulated depreciation

	  	  	
(15,466

	
)

	  	  	
(3,184

	
)

	  	  	
$

	
23,648

	  	  	
$

	
35,033

	  

 

Maintenance and minor replacements are charged to expense as incurred. Gains and losses on disposals are included in the results of operations.

 

Valuation of Long-Lived Assets

 

The Company has adopted Statement of Financial Accounting Standards No. 144 (ASC 360), “Accounting for the Impairment or Disposal of Long-Lived Assets”, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes the pronouncement “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations for a Disposal of a Segment of a Business.” The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144 (ASC 360), SFAS 144 (ASC 360), requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from our normal business activities. We place our cash in what we believe to be credit-worthy financial institutions. We have a diversified customer base. We control credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

 

  

8

  

Revenue Recognition

 

The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin SAB 104 (ASC 605). Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured.

 

Advertising Expense

 

Advertising costs are charged to expense as incurred and were immaterial for the years ended December 31, 2009 and 2008.

 

Research and Development

 

Research and development costs are expensed as incurred.

 

Income Taxes

 

The Company utilizes SFAS No. 109 (ASC 740), "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

ASI Holdings Ltd has significant income tax net operating losses carried forward from prior years. Due to the uncertainty of the realizability of the related deferred tax asset, a reserve equal to the amount of deferred income taxes has been established at December 31, 2009 and 2008.

 

Fair Value of Financial Instruments

 

Statement of Financial Accounting Standard No. 107 (ASC 825), “Disclosures about Fair Value of Financial Instruments”, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for assets and liabilities qualifying as financial instruments are a reasonable estimate of fair value.

 

Segment Reporting

 

Statement of Financial Accounting Standards No. 131 (ASC 280), “Disclosure about Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. SFAS 131 (ASC 280) has no effect on the Company’s financial statements as the Company consists of one reportable business segment as of December 31, 2009 and 2008.

 

Risks and Uncertainties

 

The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history and the volatility of public markets.

 

Contingencies

 

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. Our management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.

 

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

 

  

9

  

Stock-based compensation

 

The Company records stock-based compensation expense pursuant to SFAS 123R (ASC 718), "Share Based Payment.”  SFAS 123R (ASC 718) requires companies to measure compensation cost for stock-based employee compensation plans at fair value at the grant date and recognize the expense over the employee's requisite service period. Under SFAS 123R (ASC 718), the Company’s expected volatility assumption is based on the historical volatility of Company’s stock or the expected volatility of similar entities. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

 

Stock-based compensation expense is recognized based on awards expected to vest, and there were no estimated forfeitures as the Company has a short history of issuing options. SFAS 123R (ASC 718) requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.

 

Warranty and Customer Support

The Company typically warrants its products against defects in materials and workmanship for a period of one year from the date of shipment. A provision for estimated future warranty and customer support is recorded when products are shipped. The provision of,warranty and customer support as of December 2009 and 2008 was $276,362 and 0 respectively.

 

  New Accounting Pronouncements

 

In June 2009, the FASB issued ASC 855 (previously SFAS No. 165, Subsequent Events), which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or available to be issued. It is effective for interim and annual periods ending after June 15, 2009. There was no material impact upon the adoption of this standard on the Company’s consolidated financial statements.

 

In June 2009, the FASB issued ASC 860 (previously SFAS No. 166, “Accounting for Transfers of Financial Assets”) , which requires additional information regarding transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. SFAS 166 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. SFAS 166 is effective for fiscal years beginning after November 15, 2009. The Company does not believe this pronouncement will impact its financial statements.

 

In June 2009, the FASB issued ASC 810 (previously SFAS No. 167) for determining whether to consolidate a variable interest entity. These amended standards eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and require an ongoing reassessment of whether an entity is the primary beneficiary. This Statement shall be effective for reporting period that begins after November 15, 2009. The Company does not believe this pronouncement will impact its financial statements.

 

In June 2009, the FASB issued new guidance which is now part of ASC 105-10, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (ASC 105-10) (formerly Statement of Financial Accounting Standards No. 168),  establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles. ASC 105-10 is effective for interim and annual periods ending after September 15, 2009. The adoption of ASC 105-10 did not have a material impact on the Company’s consolidated financial statements.

 

In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional guidance on the measurement of liabilities at fair value. These amended standards clarify that in circumstances in which a quoted price in an active market for the identical liability is not available, we are required to use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not available, we are required to use another valuation technique, such as an income approach or a market approach. These amended standards are effective from October 1, 2009, and do not have a significant impact on our consolidated financial statements.

 

In January 2010, the FASB issued ASU No. 2010-06 Fair Value Measurements and Disclosures Topic 820 “Improving Disclosures about Fair Value Measurements”.  This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. This pronouncement is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

  

10

  

 

In October 2009, the FASB issued guidance on revenue recognition that will become effective for the Company beginning July 1, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We believe adoption of this new guidance will not have a material impact on our financial statements.

 

Reclassifications:

 

For comparative purposes, the prior year’s consolidated financial statements have been reclassified to conform with report classifications of the current year.

 

NOTE 3 - INVENTORIES

 

Inventories at December 31, 2009 and 2008 consisted of the following:

 

	  	  	
2009

	  	  	
2008

	  
	
Finished Goods

	  	
$

	
1,709,107

	  	  	
$

	
68,535

	  
	
Total

	  	
$

	
1,709,107

	  	  	
$

	
68,535

	  

 

NOTE 4 -ACCRUED EXPENSES AND OTHER PAYABLE

 

Accrued expenses and other payable consisted of the following as of December 31, 2009 and 2008:

	  	  	  	
 2009

	  	  	  	
2008

	  
	
Accrued consulting fees

	  	
$

	
13,462

	  	  	
$

	
-

	  
	
Accrued interest

	  	  	
12,428

	  	  	  	
-

	  
	
Accrued general and administrative expenses

	  	  	
346,058

	  	  	  	
-

	  
	
Other

	  	  	
2,755

	  	  	  	
3,661

	  
	
Accrued payroll

	  	  	
128

	  	  	  	
-

	  
	
Tax payable

	  	  	
2,673

	  	  	  	
-

	  
	
Other payable

	  	  	
176,356

	  	  	  	
325,711

	  
	
Total

	  	
$

	
577,825

	  	  	
$

	
329,372

	  

 

NOTE 5- DEBT AGREEMENTS

 

Factoring Line of Credit

 

ASI Holdings Ltd has entered into a factoring line of credit agreement with HSBC to factor purchase orders from two major customers under the agreement, the company is required to submit all sales invoices to HSBC. The payments from customers go directly to HSBC.  After repayment of funds drawn and service charges, the balance of funds (50% - 70%) received are credited to ASI Holdings Ltd.  As of December 31, 2009 and 2008 the company had outstanding balances of $504,368 and $145,083 respectively.  Amounts due the bank are secured by the uncollected accounts receivable.

 

The Company has entered into a letter of credit guaranty facility and a factoring and loan agreement with HSBC for major portion of its accounts receivable through March 6, 2008. HSBC has a security interest in all of the Company’s assets. It purchases and factors up to 70% of approved sales up to a $3 million limit. A factoring commission is charged based upon the invoice’s payment terms. Letters of credit guarantees are issued up to a $0.6 million limit with a fee of 0.90% charged upon their issuance.

 

Short Term Loan

 

On January 15, 2009 the Company entered into an Investment Agreement with Faithful Aim Limited whereby the amount of the loan will be converted into capital stock unless the acquisition of ASI by AuraSound is not consummated, in which case the loan will become a commercial loan with an interest rate of five percent.  As of December 31, 2009 the acquisition had not been consummated and the balance of $500,000 was considered an interest bearing note. ASI accrued interest of $12,500 on this note during the year ended December 31, 2009. The note is due in ten equal installments upon demand if the acquisition is not consummated.

  

11

  

Secured Bank Overdraft

 

On December 31, 2009, ASI had an overdraft due to HSBC of $28,923.  The overdraft is secured by accounts receivable of the Company and by the founders’ personal guarantee.  The amount has been reclassified as a current liability.

 

NOTE 6 - RELATED PARTY TRANSACTIONS AND COMMITMENT

 

Due to Related Parties amounted to $0 and $71,837 as of December 31, 2009 and 2008, respectively. The loan was from the shareholder for the purpose of working capital. The loans is interest free, due on demand and unsecured.

 

NOTE 7 - STOCKHOLDERS' EQUITY

 

Common Stock

 

At December 31, 2009 and 2008, the Company was authorized to issue 50,000 shares of $0.1282 par value common stock. There were 50,000 common shares issued and outstanding as of December 31, 2009 and 2008.

 

NOTE 8 - INCOME TAXES

 

The Company did not record any income tax expense due to net loss during the years ended December 31, 2009 and 2008. A provision for income taxes has not been provided in these financial statements due to the net loss carry-forward. At December 31, 2009, the Company had net operating loss carry-forwards of approximately $2,930,658.

 

NOTE 9- MAJOR CUSTOMERS AND MAJOR VENDORS

 

The Company had one major customers during the year ended December 31, 2009 which accounted for 78% of its sales.  The Company had three major customers during the year ended December 31, 2008 which accounted for 22%, 19% and 17% of its sales respecitively. The receivables due from these customers as of December 31, 2009 and 2008 totaled $4,555,259 and $respectively.

 

The Company had one major vendor during the year ended December, 2009 which accounted for 93% of the Company’s purchases. During the year ended December 31, 2008 one major vendor accounted for over 95% of the Company’s purchases.  The amount due this vendor as of December 31, 2009 and 2008 totaled $7,610,591 and $5,339,358 respectively.

 

NOTE 10 - ENTITY DISPOSED

 

The Digital Experience Limited was disposed on November 11, 2009.  

 

The components of loss from operations related to the entity disposed for the years ended December 31, 2009 and 2008 are shown below.

 

	  	  	
2009

	  	  	
2008

	  
	
Net sales

	  	
$

	
-

	  	  	
$

	
-

	  
	  	  	  	  	  	  	  	  	  
	
Cost of sales

	  	  	
-

	  	  	  	
-

	  
	  	  	  	  	  	  	  	  	  
	
Gross profit

	  	  	
-

	  	  	  	
-

	  
	  	  	  	  	  	  	  	  	  
	
Operating expenses

	  	  	  	  	  	  	  	  
	
Selling expenses

	  	  	
-

	  	  	  	
-

	  
	
Research & development expenses

	  	  	
-

	  	  	  	
7,670

	  
	
General and administrative

	  	  	
-

	  	  	  	
-

	  
	
     Total operating expenses

	  	  	
-

	  	  	  	
7,670

	  
	  	  	  	  	  	  	  	  	  
	
Loss from operations

	  	  	
-

	  	  	  	
(7,670

	
)

	  	  	  	  	  	  	  	  	  
	
Non-operating expenses

	  	  	  	  	  	  	  	  
	
Other income(loss)

	  	  	
-

	  	  	  	
5

	  
	
Interest income

	  	  	
-

	  	  	  	
-

	  
	  	  	  	  	  	  	  	  	  
	
Net Loss before income tax

	  	  	
-

	  	  	  	
(7,665

	
)

	  	  	  	  	  	  	  	  	  
	
Non-controlling interest

	  	  	
-

	  	  	  	
  (2,726

	) 
	  	  	  	  	  	  	  	  	  
	
Net loss from entity disposed

	  	
$

	
-

	  	  	
$

	
(4,939

	
)

 

  

12

  

 

Assets and liabilities for the entily spun off as of September 30, 2009 and 2008 are as follows:

	  	 	
December 31, 2009

	 	 	
December 31, 2008

	 
	
Assets

	 	 	 	 	 	 
	
Other current assets

	 	$	—	 	 	$	733	 
	
Total Assets

	 	 	—	 	 	 	733	 
	
Liabilities

	 	 	 	 	 	 	 	 
	
Account payable and accrued expenses

	 	 	—	 	 	 	1,692	 
	
Due to related party

	 	 	—	 	 	 	33,328	 
	
Total liabilities

	 	 	—	 	 	 	35,290	 
	
Net liabilities

	 	$	—	 	 	$	(34,557	)

 

NOTE 11. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

 

The Company’s operations are carried out in Hong Kang. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in Hong Kong, and by the general state of Hong Kong*s economy.

 

The Company’s operations in Hong Kong are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange, The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

The Company does not maintain fire, theft or liability insurance. The Company is exposed to various risks of ioss related to torts; theft of, damage to and destruction of assets; error and omissions and natural disasters.

 

NOTE 12. COMMITMENTS AND CONTINGENCIES

 

a) Operating Leases

 

Effective May 1, 2009 the Company entered into a two-year lease agreement. The agreement contains a base rent escalation clause. The Company leases it office facility under a month-to-month rental agreement at $2,726” per month. For the year ended December 31, 2009 rent expense for the operating lease totaled $21,805.

 

The future minimum lease payments under non-cancelable leases are as follows:

 

	
2010

	  	
$

	
32,708

	  
	
2011

	  	
$

	
10,903

	  

 

b) Litigation

 

There was no litigation against the Company as of December 31,2009.

  

13

  

 

EXHIBIT 21

 

SIGNIFICANT SUBSIDIARIES

 

	
Subsidiary Name

	
Place of Incorporation

	
Principal Business Activity

	
The Digital Experience Limited

	
Hong Kong, SAR

	
Agency Service

	 	 	 
	
ASI Auttio Technologies L.L.C.

	
Arizona, USA

	
Product Development & Support Services

  

14

  

 

Section 2.5(a)

 

Business Material Adverse Effect

 

None.

  

15

  

 

Section 2.5(b)

 

Absence of Certain Changes

 

	
1.

	
Item 3 of Schedule 1.1 (c) of this Schedule is herein incorporated by reference.

	  	  
	
2.

	
Item 2 and 5 of Section 2.9(b) of this Schedule is herein incorporated by reference.

	  	  
	
3.

	
Items 1, 2, 7-11 and 13-15 of Section 2.10(f) of this Schedule are herein incorporated by reference.

	  	  
	
4.

	
Items 5,9, 11-15 and 22 of Section 2.11 of this Schedule are herein incorporated by reference.

	  	  
	
5.

	
Items 1, 5, 9, 10, 12, 13, 17 18, 19, 21 of Section 2.15(a) of this Schedule are herein incorporated by reference.

	  	  
	
6.

	
Item 1 and 4of Section 2.23 of this Schedule is herein incorporated by reference.

  

16

  

 

Section 2.8(b)

 

Ownership of Personal Property

 

None.

  

17

  

 

Section 2.9(b)

 

Leased Real Property

 

	
1.

	
Tenancy Agreement dated June 26, 2009 by and between Gold Harvest Properties Limited and ASI Holdings Limited.

	  	  
	
2.

	
Tenancy Agreement dated June 17th, 2010 by and between Billion Trend Holdings Limited carrying on business in H.K. as Yick Cheong Real Estate Limited and ASI Holdings Limited.

	  	  
	
3.

	
Tenancy Agreement dated January 31, 2009 by and between Baynard Limited and ASI Holdings Limited.

	  	  
	
4.

	
Chinese document: Shenzen Lease and Amendment thereto.

	  	  
	
5.

	
Month to month tenancy at 6125 E. Indian School Road Scottsdale, AZ 85251, by and between FFP, LLC and ASI Audio.

  

18

  

 

Section 2.9(c)

 

Real Property, Violation of Zoning Ordinances

 

None.

  

19

  

 

Section 2.10(a)

 

Intellectual Property

 

Patent/Trademark Applications

 

 

Internet Domain Names

 

1. http://www.asiaudiotechnologies.com/

  

20

  

 

Section 2.10(b)

 

Notice of Infringement of Intellectual Property

 

None.

  

21

  

 

Section 2.10(e)

 

Pending or Threatened Claims of Infringement of Intellectual Property

 

None.

  

22

  

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS AGREEMENT. THE REDACTIONS ARE INDICATED WITH SIX ASTERISKS (“******”). A COMPLETE VERSION OF THIS AGREEMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Section 2.10(f)

 

Intellectual Property; License Granted by Third Parties

 

	
1.

	
****** Agreement dated May 10, 2010 by and between ****** ASI Holdings Limited.

	  	  
	
2.

	
License for Distribution of Executable Software dated April 16, 2010 by and between Cirrus Logic, Inc. and ASI Holdings, Limited.

	  	  
	
3.

	
Made for iPod License dated October 23, 2009 by and between ASI Holdings Ltd. and Apple Inc.

	  	  
	
4.

	
Made for iPod License: Power Only Product Supplement to Contract dated October 23, 2009 by and between ASI Holdings Ltd. and Apple Inc.

	  	  
	
5.

	
Made for iPod License: Remote Control Supplement to Contract dated October 23, 2009 by and between ASI Holdings Ltd. and Apple Inc.

	  	  
	
6.

	
Made for iPod License: iPhone Supplement to Contract dated October 23, 2009 by and between ASI Holdings Ltd. and Apple Inc.

	  	  
	
7.

	
Made for iPod License: Amendment #1 to the Use License dated January 28, 2010 by and between ASI Holdings Ltd. and Apple Inc.

	  	  
	
8.

	
Made for iPod License: iPhone Supplement to Contract dated January 28, 2010 by and between ASI Holdings Ltd. and Apple Inc.

	  	  
	
9.

	
Made for iPod License: iPhone/iPad Supplement to Contract dated May 6, 2010 by and between Apple Inc. and ASI Holdings Limited.

	  	  
	
10.

	
Made for iPod License: Remote Control Supplement to Contract dated May 6, 2010 by and between Apple Inc. and ASI holdings Limited.

	  	  
	
11.

	
Made for iPod License: Power Only Product Supplement to Contract dated May 6, 2010 by and between Apple Inc. and ASI holdings Limited.

	  	  
	
12.

	
Technology License Agreement dated November 14, 2008 by and between SRS Labs, Inc. and ASI Holdings Limited.

	  	  
	
13.

	
First Amendment to the Technology License Agreement dated April 6, 2010 by and between SRS Labs, Inc. and ASI Holdings Limited.

	  	  
	
14.

	
Consumer Manufacturing License Agreement dated May 27, 2010 by and between ASI Holdings Limited and Guangzhou DTS Digital Theater System Company Limited.

	  	  
	
15.

	
Made for iPod Manufacturing License dated _______ by and between ASI Holdings Ltd. and Apple Inc.

  

23

  

 

Section 2.10(h)

 

Intellectual Property; Licenses Granted to Third Parties

 

1.      Items set forth in Section 2.10(f) of this Schedule are included herein by reference.

  

24

  

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS AGREEMENT. THE REDACTIONS ARE INDICATED WITH SIX ASTERISKS (“******”). A COMPLETE VERSION OF THIS AGREEMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Section 2.11 (a)

 

Designated Contracts

 

	
1.

	
Items set forth in Section 2.9(b) of this Schedule are included herein by reference.

	  	  
	
2.

	
Items set forth in Section 2.10(f) of this Schedule are included herein by reference.

	  	  
	
3.

	
Items set forth in Section 2.15(e) of this Schedule are included herein by reference.

	  	  
	
4.

	
Items set forth in Section 2.23 of this Schedule are included herein by reference.

	  	  
	
5.

	
Intentionally omitted.

	  	  
	
6.

	
Warehouse Services Contract for ****** Managed Inventory Program and other ASI Products dated April 1, 2009 by and between Pacer Distribution Services, Inc. and ASI Holdings Limited.

	  	  
	
7.

	
Supply Agreement (Accessories) dated December 19, 2008 by and ****** and ASI Holdings Ltd.

	  	  
	
8.

	
Partnership Agreement dated January 1, 2008 by and between Guoguang Electric Co., Ltd. and ASI Audio Technologies L.L.C.

	  	  
	
9.

	
Document Solution Agreement dated March 31, 2010 by and between Fuji Xerox (Hong Kong) Ltd. and ASI Holdings Ltd.

	  	  
	
10.

	
Consulting Agreement dated November 23, 2009 by and between Huang Hao and ASI Holdings. Ltd.

	  	  
	
11.

	
Consulting Agreement dated April 1, 2010 by and between ASI Holdings Ltd. and MaxProfit Ltd.

	  	  
	
12.

	
Independent Contractor Agreement dated April 1, 2010 by and between ASI Audio and Thomas R. Farr.

	  	  
	
13.

	
Independent Contractor Agreement dated February 22, 2010 by and between ASI Audio and John Berkheimer.

	  	  
	
14.

	
Independent Contractor Agreement dated ________ by and between ASI Audio and Martin Melmers

	  	  
	
15.

	
Independent Contractor Agreement dated June 1, 2010, by and between ASI Audio and Vanessa Yang

  

25

  

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS AGREEMENT. THE REDACTIONS ARE INDICATED WITH SIX ASTERISKS (“******”). A COMPLETE VERSION OF THIS AGREEMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

	
16.

	
General Terms for the Installation of Buffer Stock in the Wistron (Zhongshan) Hub dated January 15, 2009 by and between ASI Holdings Limited and WZS Procurement representative.

	  	  
	
17.

	
Dedicated Server Hosting Services Sales Agreement dated November 20, 2008 by and between ASI Holdings Limited and Access Solutions Limited.

	  	  
	
18.

	
Chinese Document: Agreement for accounting services in the P.R.C. office.

	  	  
	
19.

	
Chinese Document: Agreement for audit services in the P.R.C. office.

	  	  
	
20.

	
Chinese Document: Sales Agreement dated November 7, 2008 by and between ASI Holdings Limited and ******.

	  	  
	
21.

	
Chinese Document: Sales Agreement dated January 25, 2008 by and between ASI Holdings Limited and ******.

	  	  
	
22.

	
Chinese Document: Quality Agreement dated May 11, 2010 by and between ASI Holdings Limited and ******.

	  	  
	
23.

	
Chinese Document: Authorization of Trademark dated April 1, 2008 from ASI Holdings, Limited to GGEC. (Authorization for use of “axp audio” mark.)

  

26

  

 

 

Section 2.13

 

Litigation

 

None.

  

27

  

 

Section 2.14(a)

 

Employment Matters

	
Name of Employee/Contractor

	  	
Preferred name

	  	
Location

	  	
Position

	  	
Date position was offered

	  	
Annual Base Salary (HKD)

	  	
Annual Base Salary (USD @HKD 7.8; RMB 6.8)

	  	
Hours Per week

	  	
Compensation to be paid upon a change of control

	
Dennis Barnes

	  	
Dennis

	  	
Ariziona

	  	
Acoustic Engineer

	  	
December 31 2007

	  	
-

	  	
53,688.00

	  	
40

	  	
N/A

	
Anthony DeGiovine

	  	
Tony

	  	
Ariziona

	  	
Electronic Engineer

	  	
December 31 2007

	  	
-

	  	
55,000.00

	  	
40

	  	
N/A

	
Jenyang Luc Yu

	  	
Lu

	  	
California

	  	
Director of Business Development and Logistics Management

	  	
January 13 2010

	  	
-

	  	
72,000.00

	  	
40

	  	
N/A

	
Wai Shan CHENG

	  	
Ivy

	  	
Hong Kong

	  	
Supply chain / Logistic manager

	  	
July 28 2008

	  	
210,000.00

	  	
26,923.08

	  	
40

	  	
N/A

	
Chung Sang HO

	  	
Penny

	  	
Hong Kong

	  	
Assistant Finance Manager

	  	
Jan 22 2010

	  	
240,000.00

	  	
30,769.23

	  	
40

	  	
N/A

	
Ka Man LAU

	  	
Carmen

	  	
Hong Kong

	  	
Accounts clerk

	  	
April 23 2010

	  	
126,000.00

	  	
16,153.85

	  	
40

	  	
N/A

	
Hsin Yung SHENG

	  	
Daphne

	  	
Hong Kong

	  	
Sales Accountant

	  	
January 17 2009

	  	
294,000.00

	  	
37,692.31

	  	
40

	  	
N/A

	
Kong Sau Wia

	  	
 

	  	
Hong Kong

	  	
Office Manager

	  	
June 29, 2010

	  	
192,000

	  	
24,615

	  	
40

	  	
N/A

	
Change Hing Lam, Ben

	  	  	  	
Hong Kong

	  	
Shipping Clerk

	  	
June 29, 2010

	  	
132,000

	  	
16,923

	  	
40

	  	
N/A

	
Harald Weisshaupt

	  	
Harald

	  	  	  	
Director / CEO

	  	  	  	
-

	  	
120,000.00

	  	
40

	  	
N/A

	
Xin QU

	  	
Quincey

	  	
Shenzhen, PRC

	  	
Project manager

	  	
Jan 1 2008

	  	
-

	  	
22,059.00

	  	
40

	  	
N/A

	
Wen Qiang YANG

	  	
Alex

	  	
Shenzhen, PRC

	  	
Mechancial Engineer Manager

	  	
Feb 27 2008

	  	
-

	  	
24,706.00

	  	
40

	  	
N/A

	
Ze Jun PANG

	  	
Eric

	  	
Shenzhen, PRC

	  	
Acoustic Engineer Manager

	  	
Jun 20 2008

	  	
-

	  	
28,235.00

	  	
40

	  	
N/A

	
Yan XIAO

	  	
Julie

	  	
Shenzhen, PRC

	  	
Commodity manager

	  	
July 22 2008

	  	
-

	  	
14,118.00

	  	
40

	  	
N/A

	
Qiu Ping JIANG

	  	
Vicky

	  	
Shenzhen, PRC

	  	
Commodity manager

	  	
Aug 4 2008

	  	
-

	  	
13,765.00

	  	
40

	  	
N/A

	
Tian Bao XIE

	  	
Tyler

	  	
Shenzhen, PRC

	  	
Mechanical Engineer Manager

	  	
Jan 16 2009

	  	
-

	  	
7,059.00

	  	
40

	  	
N/A

	
Hai Tao HE

	  	
Hort

	  	
Shenzhen, PRC

	  	
Electronic Engineer

	  	
20 Feb 2009

	  	
-

	  	
17,647.00

	  	
40

	  	
N/A

	
Yuan Yuan WANG

	  	
Selina

	  	
Shenzhen, PRC

	  	
Quality manager

	  	
Sep 27 2009

	  	
-

	  	
6,176.00

	  	
40

	  	
N/A

	
Wei YANG

	  	
Ian

	  	
Shenzhen, PRC

	  	
Project manager

	  	
Jan 15 2010

	  	
-

	  	
12,353.00

	  	
40

	  	
N/A

	
Xing Wang YANG

	  	
Longger

	  	
Shenzhen, PRC

	  	
Electronic Engineer

	  	
April 26 2010

	  	
-

	  	
14,118.00

	  	
40

	  	
N/A

	
Qiang HUANG

	  	
Kevin

	  	
Shenzhen, PRC

	  	
Procurement Manager

	  	
May 24 2010

	  	
-

	  	
15,882.00

	  	
40

	  	
N/A

  

28

  

 

Section 2.14(b)

 

Employment Matters; Confidentiality and Invention Assignment Agreements

 

	
1.

	
Employees listed in Section 2.14(a) of this Schedule are included herein by reference.

  

29

  

 

Section 2.14(c)

 

Employees Required to Hold a Work Permit

 

	
1.

	
Harald Weisshaupt, work permit in Hong Kong

  

30

  

 

Section 2.14(g)

 

Loans to Business Employees

 

None.

  

31

  

 

Section 2.14(h)

 

Failure to Make Payments to Employees

 

None.

  

32

  

 

Section 2.15(a)

 

Business Benefit Plans

 

	  	  
	
1.

	
ASI Audio Technologies LLC Group Health Plan dated January 1, 2010 provided by Blue Cross Blue Shield of Arizona.

	  	  
	
2.

	
Health Plan dated November 1, 2009 provided by Blue Cross (Asia-Pacific) Insurance Limited.

	  	  
	
3.

	
Offer of Employment Letter dated December 31, 2007 sent by ASI Audio to Mr. Dennis Barnes.

	  	  
	
4.

	
Offer of Employment Letter dated December 31, 2007 sent by ASI Audio to Ms. Caroline Brunet.

	  	  
	
5.

	
Offer Letter dated January 13, 2010 sent by ASI Audio to Mr. Jenyang Luc Yu

	  	  
	
6.

	
Offer of Employment Letter dared May 22, 2007 sent by ASI Holdings Limited to Mr. Harald Armin Weisshaupt.

	  	  
	
7.

	
Offer letter dated July 28, 2008 sent by the Company to Mr. Cheng Wai Shan Ivy.

	  	  
	
8.

	
Offer letter dated December 15, 2009 sent by the Company to Ms. Ma Tze Ching.

	  	  
	
9.

	
Offer letter dated January 22, 2010 sent by the Company to Miss Penny Ho.

	  	  
	
10.

	
Offer letter dated April 23, 2010 sent by the Company to Miss Carmen Lau.

	  	  
	
11.

	
Offer letter dated January 17, 2009 sent by the Company to Ms. Sheng Hsin Yung.

	  	  
	
12.

	
Offer letter dated June 29, 2010 sent by the Company to Ms. Kong Sau Wai.

	  	  
	
13.

	
Offer letter dated June 29, 2010 sent by the Company to Mr. Chan Hing Lam, Ben.

	  	  
	
14.

	
FESCO Employment agreement, Yan Xiao (Julie) dated July 22nd, 2008

	  	  
	
15.

	
FESCO Employment agreement, Ze Jun Pang (Eric) dated July 20th, 2009

	  	  
	
16.

	
FESCO Employment agreement, Wen Qiang Yang (Alex) dated March 18th, 2008

	  	  
	
17.

	
FESCO Employment agreement, Xing, Wang Yang (Longger) dated April 19th, 2010

	  	  
	
18.

	
FESCO Employment agreement, Qiang Huang dated May 19th, 2010

	  	  
	
19.

	
FESCO Employment agreement, Xin Qu (Quincey) dated January 1st, 2010

	  	  
	
20.

	
FESCO Employment agreement, Qiu Ping Jiang (Vicky) dated August 4th, 2008

	  	  
	
21.

	
FESCO Employment agreement, Wei Yang (Ian) dated January 15th, 2010, executed on January 20th, 2010

	  	  
	
22.

	
FESCO Employment agreement, Yuan Yuan Wang (Selina) dated September 27th, 2009

	  	  
	
23.

	
FESCO Employment agreement, Hai Tao He (Hort) dated February 23th, 2009

  

33

  

 

Section 2.15(f)

 

Accrued Vacation, Personal and Sick Time and Earned Time Off

 

	
Name

	
Position

	
Location

	 	
Leave Balance

	
Cheng Wai Shan, Ivy

	
Logisitics Officer

	
HK

	 	
12.5

	
Ho Chung Sang, Penny

	
Assistant Finance Manager

	
HK

	 	
10.0

	
Lau Ka Man, Carmen

	
Accounts Clerk

	
HK

	 	
under probation period

	
Ma Tze Ching, Jenny

	
Office Manager

	
HK

	 	
13.5

	
Alex Yang

	
Mechanical Engineer Manager

	
SZ

	 	
30.0

	
Eric Pang

	
Acoustic Engineer Manager

	
SZ

	 	
21.5

	
Hort He

	
Electronic Engineer

	
SZ

	 	
21.5

	
Ian Yang

	
Project Manager

	
SZ

	 	
9.0

	
Julie Xiao

	
Project Manager

	
SZ

	 	
24.0

	
Kevin Huang

	
Procurement Manager

	
SZ

	 	
under probation period

	
Longger Yang

	
Electronic Engineer

	
SZ

	 	
under probation period

	
Quincey Qu

	
Project Manager

	
SZ

	 	
12.5

	
Selina Wang

	
Project Manager

	
SZ

	 	
13.5

	
Vicky Jiang

	
Project Manager

	
SZ

	 	
25.0

	
Sheng Hsin Yung, Daphne

	
Sales Manager

	
TW

	 	
20.0

	
Caroline Brunet

	
Project Manager

	
US

	 	
13.0

	
Dennis Barnes

	
Electronic Engineer

	
US

	 	
19.0

	
Tony DeGiovine

	
Electronic Engineer

	
US

	 	
14.0

  

34

  

 

Section 2.16

 

Environmental Matters

 

None.

  

35

  

 

Section 2.18

 

Permits

 

	
1.

	
Certificate of Good Standing dated June 14, 2010 from the Arizona Corporation Commission for ASI Audio Technologies, L.L.C.

	  	  
	
2.

	
Business Registration Form for ASI Holding Ltd. in Hong Kong.

	  	  
	
3.

	
Registration certificate of Foreign enterprises Permanent Residence in China.

	  	  
	
4.

	
Renewal Certification of Foreign enterprises Permanent Residence in China.

	  	  
	
5.

	
Tax Certification Permit for ASI Shenzhen.

  

36

  

 

Section 2.19

 

Business Relationships with Affiliates

 

	
1.

	
Business Consultant Agreement dated January 1, 2008 by and between ASI Holdings Limited and Sunny World Associates.

  

37

  

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS AGREEMENT. THE REDACTIONS ARE INDICATED WITH SIX ASTERISKS (“******”). A COMPLETE VERSION OF THIS AGREEMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Section 2.21

 

Inventory

 

	
Customer

	
Product

	
Quantity

	
******

	
******

	
2,333.00

	  	
******

	
3,899.00

	  	  	  
	
******

	
******

	
3,840.00

	  	
******

	
960.00

	  	  	  
	
******

	
078G01206A

	
1,362.00

	  	
078G0120B06A

	
3,162.00

	  	
078G0120A06A

	
2,872.00

	  	  	  
	
******

	
SP.10600.018 - EMCPU1-1G

	
2,688.00

	  	
SP.10600.019-GEMPU1

	
1,920.00

	  	  	  
	
******

	
SP.10600.019

	
12,360.00

	  	  	  
	
Good returns

	
******

	  
	  	
B-stock

	
1,176.00

	  	
C-stock

	
109.00

	  	  	  
	  	
******

	  
	  	
B-stock

	
767.00

	  	
C-stock

	
106.00

  

38

  

 

Section 2.23

 

Insurance

 

	
1.

	
Office Trust Package Insurance Quotation/Application dated May 14, 2010, accepted on May 6th, 2010 prepared by Midland Financial Planning Limited and Hanson Insurance Brokers Limited for The Digital Experience Limited and/or ASI Holdings Limited.

	  	  
	
2.

	
Cover Note, Marine Cargo Insurance Annual Cover dated July 31, 2009 by NACORA Insurance Brokers LTD for ASI holdings Limited and all subsidiaries.

	  	  
	
3.

	
Products Liability Insurance Quotation dated August 18, 2009, accepted on September 10th 2009, prepared by Mildand Financial Planning Limited and Hanson Insurance Brokers Limited for ASI Holdings Limited and/or ASI Audio Technologies Limited.

	  	  
	
4.

	
ASI Audio Technologies LLC Group Health Plan dated January 1, 2010 provided by Blue Cross Blue Shield of Arizona.

	  	  
	
5.

	
Health Plan dated November 1, 2009 provided by Blue Cross (Asia-Pacific) Insurance Limited

  

39

  

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS AGREEMENT. THE REDACTIONS ARE INDICATED WITH SIX ASTERISKS (“******”). A COMPLETE VERSION OF THIS AGREEMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Section 2.24

 

Warranty Matters

 

	
1.

	
Supply Agreement (Accessories) dated December 19, 2008 by and between ****** and ASI Holdings Ltd.

	  	  
	
2.

	
Chinese Document: Sales Agreement dated January 25, 2008 by and between ASI Holdings Limited and ******.

	  	  
	
3.

	
Chinese Document: Quality Agreement dated May 11, 2010 by and between ASI Holdings Limited and ******.

 

Aggregate Warranty Expenses

 

	
1.

	
Fiscal year ended 2009 aggregate warranty expenses: US$464,820.19

  

40

  

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS AGREEMENT. THE REDACTIONS ARE INDICATED WITH SIX ASTERISKS (“******”). A COMPLETE VERSION OF THIS AGREEMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Section 2.25

 

Customers, Distributors and Suppliers

 

Customers

 

	
Customer Name

	
Customer Address

	
2009 U.S. Dollar Value

	
******.

	
******

	
18M

	
******

	

******

	
200k

	
Former name :******

	
 
******

	
400k

	
******

	

******

	
200k

	
******

	

******

	
1.8M

Suppliers

	
Supplier Name

	
Supplier Address

	
2009 U.S. Dollar Value

	
Guoguang Electric Company Limited

	
No. 8 Jinghu Road, Xinhua Street, Huadu Reg, Guangzhou, 510800 P.R. China

	
15.3M

	

******

	

******

	
3.2M

	
******

	

******

	
1M

	
Kuehne and Nagel Limited

	
24/F., MassMutual Tower 38 Gloucester Road Wanchai G.P.O Box 6657 Hong Kong

	
970K

	
Pacer Distribution Services, Inc.

	
9350 South Rayo Ave, South Gate, CA 90280

	
215K

	
Hecny Shipping Limited

	
Block East, 43/F, International Trade, centre building, 3002, Renmin South Road, Luohu District, Shenzhen, China

	
251K

	
Expeditors Hong Kong Limited

	
36/F-38/F, Enterprise Square Three, #9 Wang Chiu Road, Kowloon Bay, Kowloon Hong Kong

	
125K

  

41

  

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS AGREEMENT. THE REDACTIONS ARE INDICATED WITH SIX ASTERISKS (“******”). A COMPLETE VERSION OF THIS AGREEMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Schedule 5.1(i)

 

Required Third Party Consents

 

	
1.

	
****** License Agreement dated May 10, 2010 by and between ****** ASI Holdings Limited.

	  	  
	
2.

	
License for Distribution of Executable Software dated April 16, 2010 by and between Cirrus Logic, Inc. and ASI Holdings Limited.

	  	  
	
3.

	
Technology License Agreement dated November 14, 2008 by and between SRS Labs, Inc. and ASI Holdings Limited.

	  	  
	
4.

	
Consumer Manufacturing License Agreement dated May 27, 2010 by and between ASI Holdings Limited and Guangzhou DTS Digital Theater System Company Limited.

  

42

  

Schedule 5.2(l)

Cancelled Debt

	  	  	  	  
	
Amount Due InSeat Solutions LLC1

	  	  	  
	  	  	  	  
	
Notes payable

	
1,264,526

	  	  
	
Accrued interest

	
232,317

	  	  
	
Accounts payable

	
460,418

	  	  
	
Total

	  	  	
1,957,261

	  	  	  	  
	
Amount Due GGEC

	  	  	  
	  	  	  	  
	
Notes payable

	
1,253,558

	  	  
	
Accrued interest

	
111,798

	  	  
	
Accounts payable

	
5,699,868

	  	  
	
Total

	  	  	
7,065,224

	  	  	  	  
	
Other Accounts payable

	  	  	
18,454

	  	  	  	  
	
Due Arthur Liu

	  	  	
25,000

	
Accrued liabilities:

	  	  	  
	
Accrued payroll

	
14593

	  	  
	
Accrued vacation pay

	
30988

	  	  
	
Accrued sales tax

	
11

	  	  
	
Other accrued liabilities2

	
391353

	  	  
	  	  	  	  
	
Total

	  	  	
436,945

	  	  	  	  
	
Total liabilities which would be reflected in accordance with GAAP.

	  	  	
9,502,884

	  	  	  	  
	
Less:

	  	  	  
	
Conversion of InSeat Solutions obligations

	  	  	
(1,957,261)

	 	 	 	 

	
If GGEC invests $3.0 mil and then repays $3.0 mil due GGEC

	 	
(3,000,000)

	  	 	  
	
Total liabilities which must be reflected as a condition to closing.

	 	
4,545,623

_____________________

     1 The total amount due InSeat Solutions will be converted into stock and warrants on the closing date.

     2 Other Accrued liabilities are old stale or error liabilities from prior periods which will be reversed in two more years.

 

  

43

  

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS AGREEMENT. THE REDACTIONS ARE INDICATED WITH SIX ASTERISKS (“******”). A COMPLETE VERSION OF THIS AGREEMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Schedule 9.1

 

Employee Offered Employment by Buyer

 

	
Name of Employee/Contractor

	  	
Preferred name

	  	
Location

	  	
Position

	
Dennis Barnes

	  	
Dennis

	  	
Arizona

	  	
Acoustic Engineer

	
Anthony DeGiovine

	  	
Tony

	  	
Arizona

	  	
Electronic Engineer

	
Jenyang Luc Yu

	  	
Lu

	  	
California

	  	
Director of Business Development and Logistics Management

	
Wai Shan CHENG

	  	
Ivy

	  	
Hong Kong

	  	
Supply chain / Logistic manager

	
Chung Sang HO

	  	
Penny

	  	
Hong Kong

	  	
Assistant Finance Manager

	
Ka Man LAU

	  	
Carmen

	  	
Hong Kong

	  	
Accounts clerk

	
Hsin Yung SHENG

	  	
Daphne

	  	
Hong Kong

	  	
Sales Accountant

	
Kong Sau Wia

	  	  	  	
Hong Kong

	  	
Office Manager

	
Chang Hing Lam, Ben

	  	  	  	
Hong Kong

	  	
Shipping Clerk

	
Harald Weisshaupt

	  	
Harald

	  	  	  	
Director / CEO

	
Xin QU

	  	
Quincey

	  	
Shenzhen, PRC

	  	
Project manager

	
Wen Qiang YANG

	  	
Alex

	  	
Shenzhen, PRC

	  	
Mechanical Engineer Manager

	
Ze Jun PANG

	  	
Eric

	  	
Shenzhen, PRC

	  	
Acoustic Engineer Manager

	
Yan XIAO

	  	
Julie

	  	
Shenzhen, PRC

	  	
Commodity manager

	
Qiu Ping JIANG

	  	
Vicky

	  	
Shenzhen, PRC

	  	
Commodity manager

	
Tian Bao XIE

	  	
Tyler

	  	
Shenzhen, PRC

	  	
Mechanical Engineer Manager

	
Hai Tao HE

	  	
Hort

	  	
Shenzhen, PRC

	  	
Electronic Engineer

	
Yuan Yuan WANG

	  	
Selina

	  	
Shenzhen, PRC

	  	
Quality manager

	
Wei YANG

	  	
Ian

	  	
Shenzhen, PRC

	  	
Project manager

	
Xing Wang YANG

	  	
Longger

	  	
Shenzhen, PRC

	  	
Electronic Engineer

	
Qiang HUANG

	  	
Kevin

	  	
Shenzhen, PRC

	  	
Procurement Manager

  

44

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