Document:

Exhibit
10.101

 

 

ASSET PURCHASE AGREEMENT

 

 

By and Among

 

AUDIOVOX COMMUNICATIONS
CORP.

 

QUINTEX MOBILE COMMUNICATIONS CORPORATION

 

AUDIOVOX COMMUNICATIONS
CANADA CO.

 

UTSTARCOM, INC.

 

UTSTARCOM CANADA COMPANY

 

and

 

with respect to Sections
2.05, 2.07, 2.09, 3.01, 3.02, 3.11(b), 3.30, 5.06, 5.08, 5.19, 5.20, 5.21,

5.22, 5.24 and Articles VII – X only,

 

AUDIOVOX  CORPORATION

 

Dated as of June 11, 2004

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I

  	
  Page

  
	
   

  	
   

  
	
  DEFINITIONS

  	
   

  
	
   

  	
   

  
	
  SECTION 1.01. Certain Defined Terms

  	
  2

  
	
  SECTION 1.02. Definitions

  	
  14

  
	
  SECTION 1.03. Interpretation and Rules of
  Construction

  	
  15

  
	
   

  	
   

  
	
  ARTICLE II

  	
   

  
	
   

  	
   

  
	
  PURCHASE AND
  SALE

  	
   

  
	
   

  	
   

  
	
  SECTION 2.01. Purchase and Sale of
  Purchased Assets

  	
  16

  
	
  SECTION 2.02. Assumption and Exclusion of
  Liabilities

  	
  18

  
	
  SECTION 2.03. Purchase Price; Allocation of
  Purchase Price

  	
  20

  
	
  SECTION 2.04. Closing

  	
  20

  
	
  SECTION 2.05. Closing Deliveries by the
  Seller

  	
  20

  
	
  SECTION 2.06. Closing Deliveries by the
  Purchaser

  	
  21

  
	
  SECTION 2.07. Post-Closing Adjustment of
  Purchase Price

  	
  22

  
	
  SECTION 2.08. Escrow

  	
  25

  
	
  SECTION 2.09. Receivables

  	
  25

  
	
  SECTION 2.10. Inventories

  	
  26

  
	
   

  	
   

  
	
  ARTICLE III

  	
   

  
	
   

  	
   

  
	
  REPRESENTATIONS AND
  WARRANTIES

  OF THE SELLER

  	
   

  
	
   

  	
   

  
	
  SECTION 3.01. Organization, Authority and
  Qualification and Corporate Power of the Seller and Audiovox

  	
  27

  
	
  SECTION 3.02. No Conflict

  	
  28

  
	
  SECTION 3.03. Governmental Consents and
  Approvals

  	
  28

  
	
  SECTION 3.04. Financial Information; Books
  and Records

  	
  28

  
	
  SECTION 3.05. Absence of Undisclosed
  Liabilities

  	
  29

  
	
  SECTION 3.06. Receivables

  	
  29

  
	
  SECTION 3.07. Inventories

  	
  29

  
	
  SECTION 3.08. Assumed Contracts

  	
  30

  
	
  SECTION 3.09. Sales and Purchase Order
  Backlog

  	
  30

  
	
  SECTION 3.10. Conduct in the Ordinary
  Course; Absence of Certain Changes, Events and Conditions

  	
  30

  
	
  SECTION 3.11. Litigation

  	
  33

  
	
  SECTION 3.12. Compliance with Laws

  	
  34

  
	
  SECTION 3.13. Environmental and Other
  Permits and Licenses; Related Matters

  	
  34

  

 

i

 

	
  SECTION 3.14. Material Contracts

  	
  35

  
	
  SECTION 3.15. Intellectual Property

  	
  37

  
	
  SECTION 3.16. Real Property

  	
  38

  
	
  SECTION 3.17. Tangible Personal Property

  	
  39

  
	
  SECTION 3.18. Assets

  	
  40

  
	
  SECTION 3.19. Customers

  	
  40

  
	
  SECTION 3.20. Suppliers

  	
  40

  
	
  SECTION 3.21. Employee Benefit Matters

  	
  41

  
	
  SECTION 3.22. Labor Matters

  	
  42

  
	
  SECTION 3.23. Key Employees

  	
  43

  
	
  SECTION 3.24. Certain Interests

  	
  44

  
	
  SECTION 3.25. Taxes

  	
  44

  
	
  SECTION 3.26. Insurance

  	
  44

  
	
  SECTION 3.27. Certain Business Practices

  	
  45

  
	
  SECTION 3.28. INTENTIONALLY OMITTED

  	
  45

  
	
  SECTION 3.29. Brokers

  	
  45

  
	
  SECTION 3.30. Board Approval; Vote Required

  	
  45

  
	
   

  	
   

  
	
  ARTICLE IV

  	
   

  
	
   

  	
   

  
	
  REPRESENTATIONS
  AND WARRANTIES

  OF
  THE PURCHASER

  	
   

  
	
   

  	
   

  
	
  SECTION 4.01. Organization and Authority of
  the Purchaser

  	
  46

  
	
  SECTION 4.02. No Conflict

  	
  46

  
	
  SECTION 4.03. Governmental Consents and
  Approvals

  	
  46

  
	
  SECTION 4.04. Financing

  	
  47

  
	
  SECTION 4.05. Litigation

  	
  47

  
	
  SECTION 4.06. Brokers

  	
  47

  
	
  SECTION 4.07. UTStarcom Canada

  	
  47

  
	
   

  	
   

  
	
  ARTICLE V

  	
   

  
	
   

  	
   

  
	
  ADDITIONAL
  AGREEMENTS

  	
   

  
	
   

  	
   

  
	
  SECTION 5.01. Conduct of Business Prior to
  the Closing

  	
  47

  
	
  SECTION 5.02. Access to Information

  	
  48

  
	
  SECTION 5.03. Confidentiality

  	
  49

  
	
  SECTION 5.04. Regulatory and Other
  Authorizations; Notices and Consents

  	
  49

  
	
  SECTION 5.05. Notice of Developments

  	
  50

  
	
  SECTION 5.06. No Solicitation or
  Negotiation

  	
  50

  
	
  SECTION 5.07. Use of Intellectual Property

  	
  53

  
	
  SECTION 5.08. Non-Competition

  	
  53

  
	
  SECTION 5.09. INTENTIONALLY OMITTED

  	
  54

  
	
  SECTION 5.10. Bulk Transfer Laws

  	
  54

  
	
  SECTION 5.11. Inter-company Arrangements

  	
  54

  
	
  SECTION 5.12. Payments on Behalf of
  Affiliates

  	
  54

  

 

ii

 

	
  SECTION 5.13. Transition Services

  	
  54

  
	
  SECTION 5.14. Tax Cooperation and Exchange
  of Information

  	
  54

  
	
  SECTION 5.15. Conveyance Taxes

  	
  55

  
	
  SECTION 5.16. Further Action

  	
  55

  
	
  SECTION 5.17. INTENTIONALLY OMITTED

  	
  55

  
	
  SECTION 5.18. Proration of Taxes and
  Certain Charges

  	
  56

  
	
  SECTION 5.19. Proxy Statement

  	
  56

  
	
  SECTION 5.20. Audiovox Stockholders’
  Meeting

  	
  57

  
	
  SECTION 5.21. Trademark License Agreement

  	
  57

  
	
  SECTION 5.22. Replication Service

  	
  57

  
	
  SECTION 5.23. Limited Updating of
  Disclosure Schedules

  	
  58

  
	
  SECTION 5.24. Leases

  	
  58

  
	
  SECTION 5.25. Section 404 Compliance

  	
  58

  
	
   

  	
   

  
	
  ARTICLE VI

  	
   

  
	
   

  	
   

  
	
  EMPLOYEE MATTERS

  	
   

  
	
   

  	
   

  
	
  SECTION 6.01. Offer of Employment

  	
  58

  
	
   

  	
   

  
	
  ARTICLE VII

  	
   

  
	
   

  	
   

  
	
  CONDITIONS
  TO CLOSING

  	
   

  
	
   

  	
   

  
	
  SECTION 7.01. Conditions to Obligations of
  the Seller and Audiovox

  	
  59

  
	
  SECTION 7.02. Conditions to Obligations of
  the Purchaser

  	
  60

  
	
   

  	
   

  
	
  ARTICLE VIII

  	
   

  
	
   

  	
   

  
	
  INDEMNIFICATION

  	
   

  
	
   

  	
   

  
	
  SECTION 8.01. Survival of Representations
  and Warranties

  	
  61

  
	
  SECTION 8.02. Indemnification by the Seller
  and Audiovox

  	
  62

  
	
  SECTION 8.03. Indemnification by the
  Purchaser

  	
  63

  
	
  SECTION 8.04. Limitation on Obligation to
  Indemnify

  	
  63

  
	
  SECTION 8.05. Notice of Loss; Third Party
  Claims

  	
  64

  
	
  SECTION 8.06. Distributions from Escrow
  Fund

  	
  65

  
	
  SECTION 8.07. Other Provisions

  	
  65

  
	
  SECTION 8.08. Tax Treatment

  	
  65

  
	
   

  	
   

  
	
  ARTICLE IX

  	
   

  
	
   

  	
   

  
	
  TERMINATION, AMENDMENT AND
  WAIVER

  	
   

  
	
   

  	
   

  
	
  SECTION 9.01. Termination

  	
  65

  
	
  SECTION 9.02. Effect of Termination

  	
  67

  
	
  SECTION 9.03. Expenses

  	
  67

  
	
  SECTION 9.04. Amendment

  	
  67

  

 

iii

 

	
  SECTION 9.05. Waiver

  	
  68

  
	
   

  	
   

  
	
  ARTICLE X

  	
   

  
	
   

  	
   

  
	
  GENERAL
  PROVISIONS

  	
   

  
	
   

  	
   

  
	
  SECTION 10.01. Notices

  	
  68

  
	
  SECTION 10.02. Public Announcements

  	
  69

  
	
  SECTION 10.03. Severability

  	
  69

  
	
  SECTION 10.04. Entire Agreement

  	
  69

  
	
  SECTION 10.05. Assignment

  	
  70

  
	
  SECTION 10.06. No Third Party Beneficiaries

  	
  70

  
	
  SECTION 10.07. Governing Law

  	
  70

  
	
  SECTION 10.08. Waiver of Jury Trial

  	
  70

  
	
  SECTION 10.09. Arbitration

  	
  70

  
	
  SECTION 10.10. Currency

  	
  71

  
	
  SECTION 10.11. Counterparts

  	
  71

  

 

iv

 

EXHIBITS

 

	
  Exhibit A

  	
   

  	
  Rules for Valuing Inventories

  
	
   

  	
   

  	
   

  
	
  1.01(a)

  	
   

  	
  Form of Trademarks and Domain Name Assignment

  
	
   

  	
   

  	
  Form of Patent Assignment

  
	
   

  	
   

  	
   

  
	
  1.01(b)

  	
   

  	
  INTENTIONALLY OMITTED

  
	
   

  	
   

  	
   

  
	
  1.01(c)

  	
   

  	
  Form of Assumption Agreement

  
	
   

  	
   

  	
   

  
	
  1.01(d)

  	
   

  	
  Form of Bill of Sale and Assignment

  
	
   

  	
   

  	
   

  
	
  2.08

  	
   

  	
  Form of Escrow Agreement

  
	
   

  	
   

  	
   

  
	
  5.13

  	
   

  	
  Form of Transition Services Agreement

  
	
   

  	
   

  	
   

  
	
  5.21

  	
   

  	
  Form of Trademark License Agreement

  
	
   

  	
   

  	
   

  
	
  7.02(i)(i)

  	
   

  	
  555 Wireless Sublease Term Sheet

  
	
   

  	
   

  	
   

  
	
  7.02(i)(ii)

  	
   

  	
  Cerritos Lease Term Sheet

  

 

v

 

DISCLOSURE SCHEDULE

 

The Disclosure Schedule shall include the following
Sections:

 

	
  Section

  	
   

  	
  Title

  
	
   

  	
   

  	
   

  
	
  1.01

  	
   

  	
  Shared MIS Software

  
	
  2.01(a)(x)

  	
   

  	
  Assumed Contracts

  
	
  2.01(b)(vii)

  	
   

  	
  Excluded Intellectual
  Property

  
	
  3.01(c)

  	
   

  	
  Organization, Authority and
  Qualification and Corporate Power of the Seller and Audiovox

  
	
  3.02(c)

  	
   

  	
  No Conflict

  
	
  3.03

  	
   

  	
  Governmental Consents and
  Approvals

  
	
  3.04(a)(i)

  	
   

  	
  Financial Information; Book
  and Records

  
	
  3.05

  	
   

  	
  Absence of Undisclosed
  Liabilities

  
	
  3.06

  	
   

  	
  Receivables

  
	
  3.07(a)(i)

  	
   

  	
  Inventories

  
	
  3.07(a)(ii)

  	
   

  	
  Inventories

  
	
  3.07(a)(iii)

  	
   

  	
  Inventories

  
	
  3.07(b)

  	
   

  	
  Inventories

  
	
  3.08

  	
   

  	
  Acquired Assets

  
	
  3.09(a)

  	
   

  	
  Sales and Purchase Order
  Backlog

  
	
  3.09(b)

  	
   

  	
  Sales and Purchase Order
  Backlog

  
	
  3.10(d)

  	
   

  	
  Conduct in the Ordinary
  Course; Absence of Certain Changes, Events and Conditions

  
	
  3.10(k)

  	
   

  	
  Conduct in the Ordinary
  Course; Absence of Certain Changes, Events and Conditions

  
	
  3.10(m)

  	
   

  	
  Conduct in the Ordinary
  Course; Absence of Certain Changes, Events and Conditions

  
	
  3.10(o)

  	
   

  	
  Conduct in the Ordinary
  Course; Absence of Certain Changes, Events and Conditions

  
	
  3.10(p)

  	
   

  	
  Conduct in the Ordinary
  Course; Absence of Certain Changes, Events and Conditions

  
	
  3.11(a)

  	
   

  	
  Litigation

  
	
  3.12(a)

  	
   

  	
  Compliance with Laws

  
	
  3.12(b)

  	
   

  	
  Compliance with Laws

  
	
  3.13(a)

  	
   

  	
  Environmental and Other
  Permits and Licenses; Related Matters

  
	
  3.14(a)

  	
   

  	
  Material Contracts

  
	
  3.14(b)

  	
   

  	
  Material Contracts

  
	
  3.14(e)

  	
   

  	
  Material Contracts

  
	
  3.15(a)(i)

  	
   

  	
  Intellectual Property

  
	
  3.15(b)

  	
   

  	
  Intellectual Property

  
	
  3.15(f)

  	
   

  	
  Intellectual Property

  
	
  3.15(g)

  	
   

  	
  Intellectual Property

  
	
  3.15(j)

  	
   

  	
  Intellectual Property

  
	
  3.16(c)

  	
   

  	
  Real Property

  
	
  3.16(d)

  	
   

  	
  Real Property

  

 

vi

 

	
  Section

  	
   

  	
  Title

  
	
   

  	
   

  	
   

  
	
  3.16(g)

  	
   

  	
  Real Property

  
	
  3.17(a)

  	
   

  	
  Tangible Personal Property

  
	
  3.19

  	
   

  	
  Customers

  
	
  3.20

  	
   

  	
  Suppliers

  
	
  3.21(a)

  	
   

  	
  Employee Benefit Matters

  
	
  3.21(b)

  	
   

  	
  Employee Benefit Matters

  
	
  3.22

  	
   

  	
  Labor Matters

  
	
  3.23(a)

  	
   

  	
  Key Employees

  
	
  3.23(b)

  	
   

  	
  Key Employees

  
	
  3.24

  	
   

  	
  Certain Interests

  
	
  3.25(c)

  	
   

  	
  Taxes

  
	
  3.25(e)

  	
   

  	
  Taxes

  
	
  3.26

  	
   

  	
  Insurance

  
	
  3.27(a)

  	
   

  	
  Certain Business Practices

  
	
  5.01(a)

  	
   

  	
  Conduct of Business Prior to
  the Closing

  
	
  5.01(b)

  	
   

  	
  Conduct of Business Prior to
  the Closing

  
	
  5.04

  	
   

  	
  Regulatory and Other
  Authorizations; Notices and Consents

  
	
  5.08(a)

  	
   

  	
  Non-Competition

  
	
  5.11

  	
   

  	
  Inter-company Arrangements

  
	
  6.01

  	
   

  	
  Offer of Employment

  
	
  7.02(e)(i)

  	
   

  	
  Conditions to Obligations of
  the Purchaser

  
	
  7.02(e)(ii)

  	
   

  	
  Conditions to Obligations of
  the Purchaser

  
	
  7.02(g)

  	
   

  	
  Conditions to Obligations of
  the Purchaser

  

 

vii

 

ASSET PURCHASE AGREEMENT (this “Agreement”),
dated as of June 11, 2004, by and among AUDIOVOX COMMUNICATIONS CORP., a
Delaware corporation (“ACC”), QUINTEX MOBILE COMMUNICATIONS CORPORATION,
a Delaware corporation (“Quintex”), AUDIOVOX COMMUNICATIONS CANADA CO.,
a Nova Scotia company (“ACCC”; and, together with ACC and Quintex,
collectively, the “Seller”), UTSTARCOM, INC., a Delaware corporation (“UTStarcom”),
UTSTARCOM CANADA COMPANY, a Nova Scotia company (“UTStarcom Canada” and,
together with UTStarcom, the “Purchaser”) and, with respect to Sections
2.05, 2.07, 2.09, 3.01, 3.02, 3.11(b), 3.30, 5.06, 5.08, 5.19, 5.20, 5.21,
5.22, 5.24 and Articles VII – X only, AUDIOVOX CORPORATION, a Delaware
corporation (“Audiovox”).

 

WHEREAS, the Seller is engaged in the business of
marketing mobile cellular handset systems and other wireless communications
devices, including, without limitation, personal digital assistants,
transceiver PCMCIA cards and non-telematic devices, that use the infrastructure
of wireless communication carriers (“Carriers”) and are sold through the
Carrier distribution channel which is comprised of (a) a direct channel (which
consists of (i) retail stores owned by Carriers and (ii) the Carriers’ sales
organizations for corporate enterprise customers) through which Seller sells
products to Carriers; and (b) an indirect channel through which Seller sells
products to retailers, distributors and agents that are authorized by Carriers
to activate products, to sell air time on behalf of Carriers, to promote
products to end users and to perform other activities that support the sale of
products to end users on behalf of Carriers. The Seller’s business, however,
excludes consumer electronics products, including those with wireless
communications capability, not having as their primary function cellular
telephone connectivity or cellular telephone activation, but rather having as
their primary function entertainment, information processing, data
downloading/uploading, and security (e.g., products such as navigation devices,
audio/video entertainment devices, computing devices and security products)
(hereinafter the “Business”);

 

WHEREAS, the Seller wishes to sell to the Purchaser,
and the Purchaser wishes to purchase from the Seller, the Business, including
all right, title and interest of the Seller in and to the property and assets
of the Business, and in connection therewith the Purchaser is willing to assume
certain liabilities of the Seller relating thereto, all upon the terms and
subject to the conditions set forth herein;

 

WHEREAS, the Boards of Directors of the Seller,
Audiovox, and the Purchaser have determined that the transactions contemplated
by this Agreement are fair to and in the best interests of their respective
corporations and stockholders and have approved and adopted this Agreement and
the transactions contemplated hereby;

 

WHEREAS, as a condition to the Purchaser’s willingness
to enter into this Agreement, the Purchaser and John Shalam (the “Stockholder”)
has entered into a voting agreement dated as of the date hereof (the “Voting
Agreement”), providing that, among other things, the Stockholder will vote
all of his shares of stock of Audiovox (a) in favor of this Agreement and the
transactions contemplated in this Agreement and (b) against any action that
would result in a breach of any covenant, representation, warranty or agreement
under this Agreement;

 

1

 

WHEREAS, Audiovox and Toshiba Corporation, a Japanese
corporation, acting through its Mobile Communications Company (“Toshiba”)
in their capacity as the sole shareholders of ACC have approved and adopted
this Agreement and the transactions contemplated hereby;

 

WHEREAS, as an inducement to the Purchaser to enter
into this Agreement, the Seller shall facilitate the transfer of, and hiring by
the Purchaser as of the Closing, certain of the employees employed by the
Seller in connection with the Business;

 

WHEREAS, ACCC and UTStarcom Canada are parties to this
Agreement solely for purposes of the transfer of the Canadian assets of the
Business;

 

WHEREAS, as an inducement to the Purchaser to enter
into this Agreement, concurrently with the execution of this Agreement, Philip
Christopher has entered into an employment agreement with the Purchaser (the “Employment
Agreement”);

 

WHEREAS, concurrently with the consummation of the
transactions contemplated hereby, Audiovox and the Purchaser will enter into a
Trademark License Agreement substantially in the form attached hereto as
Exhibit 5.21, pursuant to which, among other things, Audiovox will license to the
Purchaser certain rights in and to the Audiovox trademark, upon the terms and
subject to the conditions set forth in the Trademark License Agreement; and

 

WHEREAS, Audiovox and Toshiba are direct or indirect
stockholders of the Seller.

 

NOW, THEREFORE, in consideration of the promises and
the mutual agreements and covenants hereinafter set forth, and intending to be
legally bound, the Seller, Audiovox and the Purchaser hereby agree as follows:

 

ARTICLE I

DEFINITIONS

 

SECTION 1.01. 
Certain Defined Terms.  For
purposes of this Agreement:

 

“ACC Internal Reporting Controls” means a
process of internal financial reporting controls, including certain control
matrices, to provide reasonable assurance regarding the reliability of
financial reporting of the Business and the preparation of financial statements
of the Business in accordance with GAAP, including the Reporting Policies and
Procedures, in compliance with Section 404 and, in each case, designed to work
within the policies and procedures constituting the UTSI’s Internal Reporting
Controls upon the consummation of the transactions contemplated by this
Agreement.

 

“Accounts Payable” means any and all accounts
payable, notes and other amounts payable to third parties, including vendors
and employees, arising from the conduct of the Business, whether or not in the
ordinary course, together with any unpaid financing charges accrued thereon as
determined in accordance with GAAP.

 

2

 

“Accrued Expenses” means expenses of the
Business, other than Excluded Accrued Expenses, that have been incurred, but
not yet paid for as determined in accordance with GAAP.

 

“Accrued Sales Incentives” means any and all
amounts owed to customers under various sales incentives programs offered to
the customers of the Business as determined in accordance with GAAP.

 

“Acquisition Documents” means this Agreement,
the Ancillary Agreements and the certificates delivered pursuant to Sections
2.05(h) and 2.05(i).

 

“Action” means any claim, action, suit,
arbitration, inquiry, proceeding or investigation by or before any Governmental
Authority.

 

“Affiliate” means, with respect to any
specified Person, any other Person that directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with, such specified Person; with respect to the Seller, such other Person
shall include Audiovox but expressly exclude Toshiba.

 

“Ancillary Agreements” means the Bill of Sale,
each Assignment of Lease, the Assignment of Intellectual Property, the
Trademark License Agreement, the Assumption Agreement, the Transition Services
Agreement and the Escrow Agreement.

 

“Assignment of Intellectual Property” means the
assignment of Intellectual Property to be executed by the Seller at the
Closing, substantially in the form of Exhibit 1.01(a).

 

“Assignment of Lease” means the Assignment of
Lease to be executed by the Seller at the Closing with respect to each parcel
of Leased Real Property listed on Section 3.16(b) of the Disclosure Schedule,
in a form to be mutually agreed by the Seller and the Purchaser.

 

“Assumption Agreement” means the Assumption
Agreement to be executed by the Purchaser and the Seller at the Closing,
substantially in the form of Exhibit 1.01(c).

 

“Bill of Sale” means the Bill of Sale and
Assignment to be executed by the Seller at the Closing, substantially in the
form of Exhibit 1.01(d).

 

“Business Day” means any day that is not a
Saturday, a Sunday or other day on which banks are required or authorized by
Law to be closed in The City of New York.

 

“CERCLA” means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended through the
Closing.

 

“Claims” means any and all administrative,
regulatory or judicial actions, suits, petitions, appeals, demands, demand
letters, claims, liens, notices of noncompliance or violation, investigations,
proceedings, consent orders or consent agreements.

 

3

 

“Closing Statement of Inventories” means the
Statement of Inventories prepared by the Seller setting forth the amount of
Inventories, net of reserves, of the Business as of 5:30 p.m. EST on the date
of the Closing, which Inventories, for purposes of the Closing Statement of
Inventories, the Preliminary Net Working Capital Balance and the Final Net
Working Capital Balance shall be determined in accordance with the rules set
forth in Exhibit A attached hereto.

 

“Closing Statement of Net Assets” means the
statement of Net Assets of the Business to be prepared pursuant to
Section 2.07(a) and to be dated as of the close of business on the date of
the Closing.

 

“Closing Statement of Receivables” means a
statement certified by an officer of the Seller, including the information
constituting the Receivables Listing and setting forth the Receivables Reserve.

 

“Code” means the Internal Revenue Code of 1986,
as amended through the date hereof.

 

“Confidentiality Agreement” means the
non-disclosure agreement, dated February 11, 2004, among the Purchaser, Audiovox
and the Seller.

 

“Control” (including the terms “controlled
by” and “under common control with”), with respect to the
relationship between or among two or more Persons, means the possession,
directly or indirectly or as trustee, personal representative or executor, of
the power to direct or cause the direction of the affairs or management of a
Person, whether through the ownership of voting securities, as trustee,
personal representative or executor, by contract, credit arrangement or
otherwise.

 

“Conveyance Taxes” means all sales, use, value
added, transfer, stamp, stock transfer, real property transfer or gains and
similar Taxes, including, without limitation, Canadian GST and PST.

 

“Copyrights” means mask works, rights of
publicity and privacy, and copyrights in works of authorship of any type,
including Software, registrations and applications for registration thereof
throughout the world, all rights therein provided by international treaties and
conventions, all  common law rights
thereto, and all other rights associated therewith.

 

“Customer” means the party on the Receivables
Listing owing a Receivable to the Seller.

 

“Determination of Satisfactory Controls” means
a determination by the Purchaser made reasonably and in good faith that the
Seller has developed and implemented the ACC Internal Reporting Controls and
that the ACC Internal Reporting Controls are prepared for the commencement of
outside auditor testing of compliance with Section 404.

 

“Developed Software” means Software created by,
or for the use of, the Seller or Audiovox for use in the Business that is used
in conjunction with third-party Software and hardware.

 

4

 

“Disclosure Schedule” means the Disclosure
Schedule attached hereto, dated as of the date hereof, delivered by the Seller
to the Purchaser in connection with this Agreement.

 

“Documentary Acceptances” means amounts owed by
the Business for borrowed money under unsecured lines of credit with suppliers
used to finance inventory purchases.

 

“Encumbrance” means any security interest,
pledge, hypothecation, mortgage, lien (including environmental and tax liens),
violation, charge, lease, license, encumbrance, servient easement, adverse
claim, reversion, reverter, preferential arrangement, restrictive covenant,
condition or restriction of any kind, including any restriction on the use,
voting, transfer, receipt of income or other exercise of any attributes of
ownership.

 

“Environment” means surface waters,
groundwaters, soil, subsurface strata and ambient air.

 

“Environmental Claims” means any Claims
relating in any way to any Environmental Law or any Environmental Permit,
including (a) any and all Claims by Governmental Authorities for enforcement,
cleanup, removal, response, remedial or other actions or damages pursuant to
any applicable Environmental Law and (b) any and all Claims by any Person
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the Environment.

 

“Environmental Laws” means all Laws, now or
hereafter in effect and as amended, and any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent
decree or judgment, relating to the environment, health, safety, natural
resources or Hazardous Materials, including CERCLA; the Resource Conservation
and Recovery Act, 42 U.S.C. §§ 6901 et  seq.; the Hazardous
Materials Transportation Act, 49 U.S.C. §§ 6901 et  seq.; the
Clean Water Act, 33 U.S.C. §§ 1251 et  seq.; the Toxic Substances
Control Act, 15 U.S.C. §§ 2601 et  seq.; the Clean Air Act, 42
U.S.C. §§ 7401 et  seq.; the Safe Drinking Water Act, 42 U.S.C. §§
300f et  seq.; the Atomic Energy Act, 42 U.S.C. §§ 2011 et  seq.;
the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §§ 136 et
seq.; and the Federal Food, Drug and Cosmetic Act, 21 U.S.C. §§ 301 et
seq.

 

“Environmental Permits” means all permits,
approvals, identification numbers, licenses and other authorizations required
under or issued pursuant to any applicable Environmental Law.

 

“ERISA Affiliate” of any Person means any other
Person that is a member of the same controlled group of such Person for
purposes of Section 4001(a)(14) of ERISA.

 

“Escrow Agent” means J.P. Morgan-Chase.

 

“Escrow Amount” means an amount equal to 5% of
the Purchase Price.

 

“Escrow Fund” means the Escrow Amount deposited
with the Escrow Agent as such sum may be increased or decreased as provided in
the Escrow Agreement.

 

5

 

“Excluded Accrued Expenses” means payroll,
divisional bonuses, FICA, withholding taxes, unemployment taxes, disability
taxes, the Employee Stock Purchase Plan, amounts due under 401(k) plan,
officer’s salaries, travel & entertainment reimbursement accrual, long term
disability and life insurance, dental expense accrual, medical insurance, sales
tax, GST, sales commissions payable and accrued professional fees.

 

“Excluded Taxes”
means (i) all Income Taxes owed by the Seller or any of its Affiliates for any
period; (ii) all Taxes relating to the Excluded Assets or Excluded Liabilities
for any period; (iii) all Taxes relating to the Purchased Assets, the Business
or the Assumed Liabilities for any Pre-Closing Tax Period; (iv) all Taxes of
Seller or any other Person by reason of being a member of a consolidated,
combined, unitary or affiliated group that includes the Seller or any of its
present or past Affiliates prior to the Closing, by reason of a tax sharing,
tax indemnity or similar agreement entered into by the Seller or any of its
present or past Affiliates prior to the Closing (other than this Agreement) or
by reason of transferee or successor liability arising in respect of a transaction
undertaken by the Seller or any of its present or past Affiliates prior to the
Closing; and (v) Taxes imposed on Purchaser as a result of any breach of
warranty or misrepresentation under Section 3.25 hereof, or breach by the
Seller of any covenant relating to Taxes. 
For purposes of this Agreement, in the case of any Straddle Period, (i)
Property Taxes relating to the Purchased Assets allocable to the Pre-Closing
Tax Period shall be equal to the amount of such Property Taxes for the entire
Straddle Period multiplied by a fraction, the numerator of which is the number
of days during the Straddle Period that fall within the Pre-Closing Tax Period
and the denominator of which is the number of days in the entire Straddle
Period, and (ii) Taxes (other than Property Taxes) relating to the Purchased
Assets for the Pre-Closing Tax Period shall be computed as if such taxable
period ended as of the close of business on the date of the Closing.

 

“Final Net Working Capital Balance” means the
Net Working Capital Balance as reflected on the Closing Statement of Net Assets
that is deemed final pursuant to Section 2.07(c), as adjusted so that the value
of the Inventory shall be as set forth on the Closing Statement of Inventory
that is deemed final pursuant to Section 2.07(c).

 

“GAAP” means United States generally accepted
accounting principles applied on a basis consistent with past practices and
procedures for interim and year end financial statements of the Seller (for
avoidance of doubt, in connection with the preparation of the Closing Statement
of Net Assets, the accountants, in preparing such statement in accordance with
GAAP, shall have the ability to consider events and circumstances occurring
subsequent to the Closing (but only if those events or circumstances occurred
prior to the date of the report of the Seller’s Accountants delivered pursuant
to Section 2.07(a)).

 

“Governmental Authority” means any federal,
national, supranational, state, provincial, local, or similar government,
governmental, regulatory or administrative authority, agency or commission or
any court, tribunal, or judicial or arbitral body.

 

“Governmental Order” means any order, writ,
judgment, injunction, decree, stipulation, determination or award entered by or
with any Governmental Authority.

 

6

 

“Hazardous Materials” means (a) petroleum and
petroleum products, radioactive materials, asbestos-containing materials, urea
formaldehyde foam insulation, transformers or other equipment that contain polychlorinated
biphenyls and radon gas, (b) any other chemicals, materials or substances
defined as or included in the definition of “hazardous substances”, “hazardous
wastes”, “hazardous materials”, “extremely hazardous wastes”, “restricted
hazardous wastes”, “toxic substances”, “toxic pollutants”, “contaminants” or
“pollutants”, or words of similar import, under any applicable Environmental
Law, and (c) any other chemical, material or substance which is regulated
by any Environmental Law.

 

“HSR Act” means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.

 

“Income Taxes”
means Taxes imposed on or measured by reference to gross or net income or
receipts, and franchise, net worth, capital or other doing business Taxes.

 

“Indebtedness” means, with respect to any
Person, (a) all indebtedness of such Person, whether or not contingent,
for borrowed money, (b) all obligations of such Person for the deferred
purchase price of property or services, (c) all obligations of such Person
evidenced by notes, bonds, debentures or other similar instruments,
(d) all indebtedness created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) all obligations of such Person as lessee under leases that
have been or should be, in accordance with GAAP, recorded as capital leases,
(f) all obligations, contingent or otherwise, of such Person under
banker’s acceptance, letter of credit or similar facilities, (g) all
obligations of such Person to purchase, redeem, retire, defease or otherwise
acquire for value any capital stock of such Person or any warrants, rights or
options to acquire such capital stock, valued, in the case of redeemable
preferred stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) all Indebtedness of
others referred to in clauses (a) through (g) above guaranteed directly or
indirectly in any manner by such Person, or in effect guaranteed directly or
indirectly by such Person through an agreement (i) to pay or purchase such
Indebtedness or to advance or supply funds for the payment or purchase of such
Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to or in
any other manner invest in the debtor (including any agreement to pay for
property or services irrespective of whether such property is received or such
services are rendered) or (iv) otherwise to assure a creditor against
loss, and (i) all Indebtedness referred to in clauses (a) through (g)
above secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Encumbrance on property
(including accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness.

 

“Indemnified Party” means a Purchaser
Indemnified Party or a Seller Indemnified Party, as the case may be.

 

“Indemnifying Party” means the Seller and
Audiovox, on a joint and several basis, pursuant to
Section 8.02 or the Purchaser pursuant to Section 8.03, as the case may be.

 

7

 

“Intellectual Property” means (a) Patents,
(b) Trademarks, (c) Copyrights, (d) Trade Secrets and
(e) Software.

 

“Inter-company Payables” means amounts owed by
the Seller to Audiovox or any subsidiaries, divisions, or affiliates of
Audiovox as determined in accordance with GAAP.

 

“Interim Milestones” means (i) the development
of the written policies and procedures, including the control matrices based on
the Purchaser’s standard template for such matrices, constituting the ACC
Internal Reporting Controls, (ii) the preliminary testing/walk-through by the
Purchaser’s Reporting Controls Advisors of the implemented ACC Internal
Reporting Controls, (iii) the remediation of any ACC Internal Reporting
Controls not in compliance with Section 404 and (iv) the subsequent
testing/walk-through by the Purchaser’s Reporting Controls Advisors of the
implemented ACC Internal Reporting Controls.

 

“Interim Statement Date” means February 29,
2004.

 

“Interim Statement of Net Assets” means the
statement of Net Assets (including a calculation of the Net Working Capital
Balance) of the Business, dated as of February 29, 2004, a copy of which is set
forth in Section 3.04(a)(i) of the Disclosure
Schedule.

 

“Inventories” means all inventory, merchandise,
finished goods, raw materials, packaging, labels, supplies and other personal
property used in the Business and maintained, held or stored by or for the
Seller, and any prepaid deposits for any of the same.  Inventories are valued at the lower of the
actual cost to purchase (primarily on a weighted moving average basis) and/or
the current estimated market value of the inventory less expected costs to sell
the inventory, as determined in accordance with GAAP.

 

“IRS” means the Internal Revenue Service of the
United States.

 

“Law” means any federal, national,
supranational, state, provincial, local or similar statute, law, ordinance,
regulation, rule, code, order, requirement or rule of law (including common
law).

 

“Leased Real Property” means the real property
used in the Business leased by the Seller, as tenant, together with, to the
extent leased by the Seller and used in the Business, all buildings and other
structures, facilities or improvements located thereon, all fixtures, systems,
equipment and items of personal property of the Seller attached or appurtenant
thereto and all easements, licenses, rights and appurtenances relating to the
foregoing.

 

“Liabilities” means any and all debts,
liabilities and obligations, whether accrued or fixed, absolute or contingent,
matured or unmatured or determined or determinable, including those arising
under any Law (including any Environmental Law), Action or Governmental Order
and those arising under any contract, agreement, arrangement, commitment or
undertaking.

 

“Licensed Intellectual Property” means
Intellectual Property licensed to the Seller pursuant to the Transferred IP
Agreements.

 

8

 

“Material Adverse Effect” means any
circumstance, change in or effect on the Business or the Seller that,
individually or in the aggregate with all other circumstances, changes in or
effects on the Business or the Seller is or is reasonably likely to be
materially adverse to the business, operations, assets or liabilities (including
contingent liabilities), results of operations or the financial condition of
the Business; provided, however, that (v) effects attributable to
general or industry specific economic conditions, except those effects that
adversely affect the Business or the Seller to a materially greater extent than
they affect other entities operating in such industries, (w) a termination of
the supply arrangement between the Seller and Curitel, (x) a decline in the
market price of Audiovox common stock, in itself, (y) the failure, in itself,
to achieve estimated or projected results of the Business (provided, that, any
circumstances, change or effect on the Business giving rise to such failure to
achieve estimated or projected results may constitute a Material Adverse
Effect) and (z) changes resulting from the permitted disclosure of this
Agreement or the transactions contemplated hereby, in each case, shall not
constitute a Material Adverse Effect.

 

“Net Assets” means the difference between (a)
the sum of  Inventories,
Prepaids and other Current Assets, Property, Plant and Equipment, and Other
Long-Term Assets included in the Purchased Assets and (b) the sum of third
party Accounts Payable, Accrued Expenses, Accrued Sales Incentives, Documentary
Acceptances and Other Long-Term Liabilities (excluding long-term notes payable
to Toshiba), other than the Excluded Liabilities, as determined in accordance
with GAAP.

 

“Net Working Capital Balance” means the
difference between (a) the sum of Inventories and Prepaids and other Current
Assets, and (b) the sum of third-party Accounts Payable, Accrued Expenses,
Accrued Sales Incentives and Documentary Acceptances, of the Business.

 

“Other Long-Term Assets” means the value of
non-cash assets of the Business not due within one year as determined in
accordance with GAAP.

 

“Other Long-Term Liabilities” means notes and
other amounts payable to third parties, including vendors, arising from the
conduct of the Business, whether or not in the ordinary course, together with
any unpaid financing charges accrued thereon not due within one year as
determined in accordance with GAAP.

 

“Owned Intellectual Property” means
Intellectual Property owned by the Seller and used in the Business as set forth
in Section 3.15(a) of the Disclosure Schedule.

 

“Owned Real Property” means the real property
in which the Seller has fee title (or equivalent) interest that is used in the
Business, together with all buildings and other structures, facilities or
improvements currently or hereafter located thereon, all fixtures, systems,
equipment and items of personal property of the Seller that are used in the
Business attached or appurtenant thereto and all easements, licenses, rights
and appurtenances relating to the foregoing.

 

“Patents” means United States, foreign and
international patents, patent applications and statutory invention
registrations, including reissues, divisions, continuations,

 

9

 

continuations-in-part,
extensions and reexaminations thereof, and all rights therein provided by
international treaties and conventions.

 

“Per Customer Amount” means the aggregate
amount of Receivables owed by each Customer to the Seller, net of the
Receivables Reserve for such Customer.

 

“Permitted Encumbrances” means such of the
following as to which no enforcement, collection, execution, levy or
foreclosure proceeding shall have been commenced and as to which the Seller is
not otherwise subject to civil or criminal liability due to its existence:  (a) liens for Taxes not yet due and
payable, for which adequate reserves have been maintained in accordance with
GAAP, (b) Encumbrances imposed by Law, such as materialmen’s, mechanics’,
carriers’, workmen’s and repairmen’s liens and other similar liens arising in
the ordinary course of business securing obligations that (i) are not
overdue for a period of more than 30 days and (ii) are not in excess of
$5,000 in the case of a single property or $50,000 in the aggregate at any
time; (c) pledges or deposits to secure obligations under workers’
compensation laws or similar legislation or to secure public or statutory
obligations; and (d) minor survey exceptions, reciprocal easement
agreements and other customary encumbrances on title to real property that
(i) were not incurred in connection with any Indebtedness, (ii) do
not render title to the property encumbered thereby unmarketable and
(iii) do not, individually or in the aggregate, materially adversely
affect the value of or the use of such property for its current purposes.

 

“Person” means any individual, partnership,
firm, corporation, limited liability company, association, trust,
unincorporated organization or other entity, as well as any syndicate or group
that would be deemed to be a person under Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended.

 

 “Post-Closing Tax Period” means any
taxable period (or portion thereof) beginning after the date of the Closing.

 

“Pre-Closing Tax
Period” means any taxable period (or portion thereof) ending on or prior to
the date of the Closing.

 

“Preliminary Net
Working Capital Balance” means the difference between (a) the sum of
Inventories and Prepaids and other Current Assets, and (b) the sum of
third-party Accounts Payable, Accrued Expenses, Accrued Sales Incentives and Documentary
Acceptances, of the Business.

 

“Preliminary Statement
of Net Assets” means the statement of Net Assets of the Business as of the
close of business on the date of the Closing, which shall include the
Preliminary Net Working Capital Balance, prepared in good faith by the Seller
in consultation with the Seller’s Accountants and certified by an officer of
the Seller.

 

“Prepaids and other
Current Assets” means either (i) pre-payments made
to vendors of the Business related to operating costs, which have not been used
and (ii) the value of non-cash assets used in the Business due within one year
as determined in accordance with GAAP.

 

10

 

“Property, Plant and
Equipment” means physical assets including, without limitation, furniture,
fixtures, displays, machinery and equipment, computer hardware and software and
automobiles, owned by the Seller and used in the Business, as determined in
accordance with GAAP.

 

“Property Taxes”
means real and personal ad valorem property Taxes and any other Taxes imposed
on a periodic basis and measured by the value of any item.

 

“Purchase Price Bank Account” means a bank
account in the United States to be designated by the Seller in a written notice
to the Purchaser at least two Business Days before the Closing.

 

“Purchaser Material Adverse Effect” means any
circumstance, change in or effect on the Purchaser that, individually or in the
aggregate with all other circumstances, changes in or effects on the
Purchaser is or is reasonably likely to be materially adverse to the
business, operations, assets or liabilities (including contingent liabilities),
results of operations or the financial condition of the Purchaser; provided,
however, that (x) effects attributable to general or industry specific
economic conditions, except those effects that adversely affect the Purchaser
to a materially greater extent than they affect other entities operating in
such industries, (y) a decline in the market price of the Purchaser common
stock, in itself, (z) changes resulting from the permitted disclosure of this
Agreement or the transactions contemplated hereby, in each case, shall not
constitute a Purchaser Material Adverse Effect.

 

“Purchaser’s Accountants” means
PricewaterhouseCoopers LLP, independent accountants of the Purchaser.

 

“Purchaser’s Reporting Controls Advisors” means
a West-Coast based team of advisors from Deloitte & Touche LLP.

 

“Receivables” means any and all accounts
receivable, notes and other amounts receivable from third parties, including
Vendors, customers and employees, arising from the conduct of the Business,
whether or not in the ordinary course, together with any unpaid financing
charges accrued thereon, as determined in accordance with GAAP.

 

“Receivables Listing” means a computer file
containing a list setting forth all outstanding Receivables of the Business as
of 5:30 p.m. EST on the date of the Closing, including the name of the Customer
that owes the Receivable to the Seller, the Per Customer Amount owed by each Customer
and an invoice number or other information identifying each Receivable
thereon.  The Receivables Listing shall
not include any Vendor Receivables.

 

“Receivables Reserve” means the reserve for the
Receivables on a Customer-by-Customer basis set forth in the Receivables
Listing, determined in accordance with GAAP, which amount shall be deemed to be
the amount of the Receivables Reserve set forth on the Receivables Listing,
unless and until such amount is determined to be otherwise in accordance with Section
2.07(c).

 

11

 

“Regulations” means the Treasury Regulations
(including Temporary Regulations) promulgated by the United States Department
of Treasury with respect to the Code or other federal tax statutes.

 

“Release” means disposing, discharging,
injecting, spilling, leaking, leaching, dumping, emitting, escaping, emptying,
seeping, placing and the like into or upon any land or water or air or
otherwise entering into the Environment.

 

“Remedial Action” means all action to
(a) clean up, remove, treat or handle in any other way Hazardous Materials
in the Environment; (b) prevent the Release of Hazardous Materials so that
they do not migrate, endanger or threaten to endanger public health or the Environment;
or (c) perform remedial investigations, feasibility studies, corrective
actions, closures and post-remedial or post-closure studies, investigations,
operations, maintenance and monitoring.

 

“Reporting Policies and Procedures” means
policies and procedures that (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Purchaser or the Business, as applicable (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP, and that
receipts and expenditures of the Purchaser or the Business, as applicable, are
being made only in accordance with authorizations of management and directors
of the Purchaser or of the Seller, as applicable and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the assets of the Purchaser or the Business, as
applicable, that could have a material effect on the financial statements.

 

“SEC” means the Securities and Exchange
Commission.

 

“Section 404” means Section 404 of the
Sarbanes-Oxley Act of 2002.

 

“Seller’s Accountants” means Grant Thornton
LLP, independent accountants of the Seller.

 

“Seller’s Prior Accountants” means KPMG LLP,
prior independent accountants of the Seller.

 

“Seller’s Reporting Controls Advisors” means an
East-Coast based team of advisors from Deloitte & Touche LLP.

 

“Shared MIS Systems” means the Software and
hardware owned or licensed by Audiovox and which is used by the Seller in the
operation of the Business, as set forth in Section 1.01 of the Disclosure
Schedule.

 

“Software” means computer software, programs
and databases in any form, including Internet web sites, web content and links,
source code, object code, operating systems and specifications, data,
databases, database management code, utilities, graphical user interfaces,
menus, images, icons, forms, methods of processing, software engines, platforms
and

 

12

 

data
formats, all versions, updates, corrections, enhancements and modifications
thereof, and all related documentation, developer notes, comments and
annotations.

 

“Straddle Period”
means any taxable period beginning on or prior to and ending after the date of
the Closing.

 

“Tax” or “Taxes” means any and all
taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind
(together with any and all interest, penalties, additions to tax and additional
amounts imposed with respect thereto) imposed by any government or taxing
authority, including taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers’ compensation,
unemployment compensation, or net worth; taxes or other charges in the nature
of excise, withholding, ad valorem, stamp, transfer, value added, or gains
taxes; license, registration and documentation fees; and customs’ duties,
tariffs, and similar charges.

 

“Tax Return” means any return, declaration,
report, election, claim for refund or information return or other statement or
form filed or required to be filed with any Governmental Authority relating to
Taxes, including any schedule or attachment thereto or any amendment thereof.

 

“Trade Secrets” means trade secrets, know-how
and other confidential or proprietary technical, business and other
information, including manufacturing and production processes and techniques,
research and development information, technology, drawings, specifications,
designs, plans, proposals, technical data, financial, marketing and business
data, pricing and cost information, business and marketing plans, customer and
supplier lists and information, and all rights in any jurisdiction to limit the
use or disclosure thereof.

 

“Trademarks” means trademarks, service marks,
trade dress, logos, trade names, corporate names, URL addresses, domain names
and symbols, slogans and other indicia of source or origin, including the
goodwill of the business symbolized thereby or associated therewith, common law
rights thereto, registrations and applications for registration thereof
throughout the world, all rights therein provided by international treaties and
conventions, and all other rights associated therewith.

 

“Transferred IP Agreements” means
(a) licenses of Owned Intellectual Property by the Seller to third
parties, (b) licenses of Intellectual Property by third parties to the
Seller and used in the Business (c) agreements between the Seller and third
parties relating to the development or use of Intellectual Property, the
development or transmission of data, or the use, modification, framing, linking
advertisement, or other practices with respect to Internet web sites, in each
case, that are used in the Business and (d) consents, settlements, decrees,
orders, injunctions, judgments or rulings governing the use, validity or
enforceability of Owned Intellectual Property, 
as set forth in Section 3.15(a) of the Disclosure Schedule.

 

“UTSI’s Internal Reporting Controls” means the
process of internal financial reporting controls, including certain control
matrices, developed by and in the process of being implemented by the Purchaser
to provide reasonable assurance regarding the reliability of

 

13

 

financial
reporting and the preparation of financial statements for external purposes in
accordance with GAAP, including the Reporting Policies and Procedures, in
compliance with Section 404.

 

“Vendors” means any and all
vendors who are unaffiliated with the Seller and who supply raw
materials, components, spare parts, supplies, goods, merchandise or services to
the Seller (as such relate to the Business).

 

SECTION 1.02. 
Definitions.  The following terms have the meanings set
forth in the Sections set forth below:

 

	
  Definition

  	
   

  	
  Location

  
	
   

  	
   

  	
   

  
	
  “555 Wireless
  Sublease”

  	
   

  	
  7.02(i)(i)

  
	
  “AAA”

  	
   

  	
  10.09

  
	
  “Additional Reserved
  Receivables”

  	
   

  	
  2.07(d)

  
	
  “Adjusted Target NWCB”

  	
   

  	
  2.07(c)(i)(B)

  
	
  “Agreement”

  	
   

  	
  Preamble

  
	
  “Allocation”

  	
   

  	
  2.03(b)

  
	
  “Ancillary Lease
  Documents”

  	
   

  	
  3.16(d)

  
	
  “Assumed Contracts”

  	
   

  	
  2.01(a)(xi)

  
	
  “Assumed Liabilities”

  	
   

  	
  2.02(a)

  
	
  “Audiovox Board”

  	
   

  	
  3.30(a)

  
	
  “Audiovox Recommendation”

  	
   

  	
  5.19(b)

  
	
  “Audiovox
  Stockholders’ Meeting”

  	
   

  	
  5.19(a)

  
	
  “Audiovox Triggering
  Event”

  	
   

  	
  9.01

  
	
  “Business”

  	
   

  	
  Recitals

  
	
  “Cerritos Lease”

  	
   

  	
  7.02(i)(ii)

  
	
  “Change in the
  Audiovox Recommendation”

  	
   

  	
  5.06(c)

  
	
  “Claims”

  	
   

  	
  2.01(a)(ix)

  
	
  “Closing”

  	
   

  	
  2.04

  
	
  “Collection Period”

  	
   

  	
  2.09(d)

  
	
  “Competing
  Transaction”

  	
   

  	
  5.06(d)

  
	
  “Consent Costs”

  	
   

  	
  5.04(e)

  
	
  “Disputed Receivable”

  	
   

  	
  2.09(a)

  
	
  “Employee Amounts”

  	
   

  	
  6.02

  
	
  “Employment
  Agreements”

  	
   

  	
  Recitals

  
	
  “ERISA”

  	
   

  	
  3.21(a)

  
	
  “Escrow Agreement”

  	
   

  	
  2.08

  
	
  “Excluded Assets”

  	
   

  	
  2.01(b)

  
	
  “Excluded
  Intellectual Property”

  	
   

  	
  2.01(b)(vii)

  
	
  “Excluded
  Liabilities”

  	
   

  	
  2.02(b)

  
	
  “Expense
  Reimbursement”

  	
   

  	
  9.01(b)

  
	
  “Expenses”

  	
   

  	
  9.03(a), (c)

  
	
  “Fee”

  	
   

  	
  9.03(b)

  
	
  “Financial
  Statements”

  	
   

  	
  3.04(a)(ii)

  

 

14

 

	
  Definition

  	
   

  	
  Location

  
	
   

  	
   

  	
   

  
	
  “Independent
  Accounting Firm”

  	
   

  	
  2.07(b)(ii)

  
	
  “Initial Termination
  Date”

  	
   

  	
  9.01(b)

  
	
  “Interim Financial
  Statements”

  	
   

  	
  3.04(a)(iii)

  
	
  “Key Employees”

  	
   

  	
  7.02(g)

  
	
  “Lease”

  	
   

  	
  3.16

  
	
  “Loss”

  	
   

  	
  8.02

  
	
  “Material Contracts”

  	
   

  	
  3.14(a)

  
	
  “Notice of Superior
  Proposal”

  	
   

  	
  5.06(c)

  
	
  “Options”

  	
   

  	
  3.16(c)

  
	
  “Plans”

  	
   

  	
  3.21(a)

  
	
  “PRC Antitrust
  Approvals”

  	
   

  	
  7.01(b)

  
	
  “Proxy Statement”

  	
   

  	
  5.19(a)

  
	
  “Preliminary
  Purchase Price Increase”

  	
   

  	
  2.07(C)(i)(B)

  
	
  “Preliminary
  Purchase Price Reduction”

  	
   

  	
  2.07(C)(i)(K)

  
	
  “Purchase Price”

  	
   

  	
  2.03(a)

  
	
  “Purchased Assets”

  	
   

  	
  2.01(a)

  
	
  “Purchaser”

  	
   

  	
  Preamble

  
	
  “Purchaser
  Indemnified Party”

  	
   

  	
  8.02

  
	
  “Replication Service”

  	
   

  	
  5.22

  
	
  “Restricted Period”

  	
   

  	
  5.08(a)

  
	
  “Seller”

  	
   

  	
  Preamble

  
	
  “Seller Indemnified
  Party”

  	
   

  	
  8.03

  
	
  “Stockholder”

  	
   

  	
  Recitals

  
	
  “Superior Proposal”

  	
   

  	
  5.06(e)

  
	
  “Tangible Personal
  Property”

  	
   

  	
  3.17(a)

  
	
  “Target NWCB”

  	
   

  	
  2.07(C)(i)

  
	
  “Third Party Claim”

  	
   

  	
  8.05(b)

  
	
  “Trademark License
  Agreement”

  	
   

  	
  5.20

  
	
  “Transferred
  Employee”

  	
   

  	
  6.01

  
	
  “Transition Services
  Agreement”

  	
   

  	
  5.13

  
	
  “Voting Agreement”

  	
   

  	
  Recitals

  

 

SECTION 1.03. 
Interpretation and Rules of Construction.  In this Agreement, except to the extent
otherwise provided or that the context otherwise requires:

 

(a)                                  when a reference is made in this Agreement to an Article,
Section, Exhibit or Schedule, such reference is to an Article or Section of, or
a Schedule or Exhibit to, this Agreement unless otherwise indicated;

 

(b)                                 the
table of contents and headings for this Agreement are for reference purposes
only and do not affect in any way the meaning or interpretation of this
Agreement;

 

(c)                                  whenever
the words “include,” “includes” or “including” are used in this Agreement, they
are deemed to be followed by the words “without limitation”;

 

15

 

(d)                                 the words “hereof,” “herein” and “hereunder” and words of
similar import, when used in this Agreement, refer to this Agreement as a whole
and not to any particular provision of this Agreement;

 

(e)                                  all terms defined in this Agreement have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto, unless otherwise defined therein;

 

(f)                                    the definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms;

 

(g)                                 any
Law defined or referred to herein or in any agreement or instrument that is
referred to herein means such Law or statute as from time to time amended,
modified or supplemented, including by succession of comparable successor Laws;

 

(h)                                 references to a Person are also to its successors and
permitted assigns; and

 

(i)                                     the use of “or” is not intended to be exclusive unless
expressly indicated otherwise.

 

ARTICLE II

PURCHASE AND SALE

 

SECTION 2.01. 
Purchase and Sale of Purchased Assets.  (a) 
Upon the terms and subject to the conditions of this Agreement, at the
Closing, the Seller shall sell, assign, transfer, convey and deliver, or cause
to be sold, assigned, transferred, conveyed and delivered, to the Purchaser,
and the Purchaser shall purchase from the Seller, the Seller’s right, title and
interest at the Closing in and to the following (the assets to be purchased by
the Purchaser, together with the covenants contained in Section 5.08, being
referred to as the “Purchased Assets”):

 

(i)                                     all rights in respect of the Leased Real Property;

 

(ii)                                  all Property, Plant and Equipment;

 

(iii)                               all vehicles and rolling stock used  in the Business;

 

(iv)                              all Inventories;

 

(v)                                 all
books of account, general, financial, and personnel records, invoices, shipping
records, supplier lists, correspondence and other documents, records and files
and any rights thereto which are owned, or employed by the Seller primarily in
connection with the Business except for (x) organization documents, minute and
stock record books, stock certificates and the corporate seal of the Seller and
(y) those relating to the Excluded Assets or the Excluded Liabilities
(including all records relating to Taxes);

 

(vi)                              the goodwill relating to the Business;

 

16

 

(vii)                           all
the Seller’s right, title and interest in, to and under the Owned Intellectual
Property and the Licensed Intellectual Property, copies and tangible
embodiments thereof in whatever form or medium, and all rights to sue and
recover damages for past, present and future infringement, dilution,
misappropriation, violation, unlawful imitation or breach thereof;

 

(viii)                        all
claims, causes of action, choses in action, rights of recovery and rights of
setoff of any kind (including rights to insurance proceeds and rights under and
pursuant to all warranties, representations and guarantees made by suppliers of
products, materials, or equipment, or components thereof), related to the
Business pertaining to, arising out of and inuring to the benefit of the Seller
(“Claims”) including those reasonably necessary or desirable to enforce
such rights against third parties or to defend against those seeking to enforce
the Assumed Liabilities; except those Claims which are related to the Excluded
Liabilities or the Excluded Assets;

 

(ix)                                all sales and promotional literature, customer lists and
other sales-related materials of the Seller used in the Business;

 

(x)                                   all
rights of the Seller under the contracts, licenses, sublicenses, agreements,
leases, commitments, and sales and purchase orders, and under all bids and
offers related to the Business set forth on Section 2.01(a)(x) of the
Disclosure Schedule (the “Assumed Contracts”);

 

(xi)                                all
municipal, state and federal franchises, permits, licenses, agreements, waivers
and authorizations held or used by the Seller in connection with, or required
for, the Business, to the extent transferable;

 

(xii)                             all
the Seller’s right, title and interest at the Closing in, to and under all
other assets, rights and claims of every kind and nature directly or indirectly
owned by the Seller or to which the Seller is directly or indirectly entitled,
in each case, used in the operation of, or residing with, the Business;

 

(xiii)                          Prepaids
and Other Current Assets;

 

(xiv)                         Other
Long-Term Assets;

 

(xv)                            All
Audiovox’s rights, title and interest in the Shared MIS Systems; and

 

(xvi)                         All the Seller’s
or Audiovox’s rights, title and interest in the replicated copy of the
Developed Software replicated in accordance with Section 5.22.

 

(b)                                 Notwithstanding
anything in Section 2.01(a) to the contrary, the Purchased Assets shall exclude
the following assets and properties owned by the Seller (the “Excluded
Assets”):

 

(i)                                     cash and marketable securities and all bank accounts of the
Seller relating to the Business;

 

17

 

(ii)                                  the Purchase Price Bank Account;

 

(iii)                               all rights of the Seller under this Agreement and the
Ancillary Agreements;

 

(iv)                              Tax
Returns of the Seller (and related workpapers);

 

(v)                                 except as provided in Section 5.18(a), all Tax refunds of
the Seller;

 

(vi)                              Trademarks
owned by Audiovox or Toshiba, or their respective employees, Affiliates (other
than the Seller), successors or assigns;

 

(vii)                           The
Intellectual Property set forth in Section 2.01(b)(vii)
of the Disclosure Schedule (the “Excluded Intellectual Property”);

 

(viii)                        all Receivables of the Business as of 5:30 p.m. EST on the
date of the Closing;

 

(ix)                                all furniture and other tangible property used by, and in
the office of, John Shalam on the date of Closing;

 

(x)                                   all
Claims, including Claims arising under insurance policies, related to the
Excluded Liabilities or Excluded Assets, including those reasonably necessary
or desirable to enforce rights against third parties or defend against those
seeking to enforce Excluded Liabilities;

 

(xi)                                all rights against Compal Electronics, Inc. relating to
actions occurring prior to Closing;

 

(xii)                             any rights, software or other license or practices with
respect to websites, internet addresses or domain names used in connection with
the Business;

 

(xiii)                          the equity interests in the Seller and those entities set
forth in Section 3.01(c) of the Disclosure Schedule;

 

(xiv)                         organization
documents, minute and stock record books, stock certificates and the corporate
seal of the Seller and those entities set forth in Section 3.01(c) of the
Disclosure Schedule; and

 

(xv)                            all books of account, general, financial and personnel
records, invoices, correspondence and other documents relating exclusively to
the Excluded Assets and the Excluded Liabilities (including all records
relating to Taxes).

 

SECTION 2.02. 
Assumption and Exclusion of Liabilities.  (a) 
Upon the terms and subject to the conditions of this Agreement, at the
Closing, the Purchaser shall assume and shall agree to pay, perform and
discharge the following Liabilities of the Seller, except for the Excluded
Liabilities (the “Assumed Liabilities”):

 

18

 

(i)                                     all Liabilities reflected or reserved against on the Closing
Statement of Net Assets (other than Tax Liabilities);

 

(ii)                                  all
Liabilities of the Seller arising under the Assumed Contracts (other than
Liabilities or obligations attributable to (A) any failure by the Seller to
comply with the terms thereof prior to the Closing, (B) products liability or
personal injury claims arising prior to the Closing and (C) intellectual
property infringement claims arising prior to the Closing); and

 

(iii)                               product warranties and claims thereunder relating to the
products of the Business.

 

(b)                                 Notwithstanding
subsection (a) above, the Seller shall retain, and shall be responsible for
paying, performing and discharging when due, and the Purchaser shall not assume
or have any responsibility for, all Liabilities of the Seller as of the Closing
other than the Assumed Liabilities (the “Excluded Liabilities”),
including, without limitation:

 

(i)                                     all Excluded Taxes;

 

(ii)                                  all Liabilities relating to or arising out of the Excluded
Assets;

 

(iii)                               claims arising prior to the Closing made by employees of the
Seller (including the Transferred Employees) relating to their employment with
the Seller;

 

(iv)                              all Inter-company Payables;

 

(v)                                 all
Liabilities or obligations attributable to (A) any failure by the Seller to
comply with the terms of any Assumed Contract prior to the Closing, (B)
products liability or personal injury claims arising prior to the Closing and
(C) intellectual property infringement claims arising prior to the Closing; and

 

(v)                                 all
Liabilities pursuant to Environmental Law arising from or related to any
action, event, circumstance or condition related to the Business or the Leased
Real Property, in each case occurring or existing on or before the Closing,
including:  (A) any Release of any
Hazardous Material into the Environment on or before the Closing at, to or from
the Leased Real Property or any property formerly owned, leased, used or
occupied by the Business (and any additional migration of such Hazardous
Material after the Closing); (B) any transportation, disposal or
discharge, or the arrangement for such activities, on or before the Closing, of
any Hazardous Material originating at the Leased Real Property or any property
formerly owned, leased, used or occupied by the Business to or at any location
(and any additional transportation, disposal or discharge of such Hazardous
Material after the Closing); and (C) any noncompliance with or violation
of any applicable Environmental Law or Environmental Permit relating in any way
to the Business on or before the Closing (and any continuation of such
noncompliance or violation after the Closing).

 

19

 

SECTION 2.03. 
Purchase Price; Allocation of Purchase Price.  (a) 
Subject to the adjustments set forth in Section 2.07, the purchase price
for the Purchased Assets shall be $165,100,000 (the “Purchase Price”).

 

(b)                                 The
Purchaser and the Seller shall, in good faith, use reasonable commercial
efforts to, within 120 days after the date of Closing, reach an agreement as to
the allocation of the sum of the Purchase Price and the Assumed Liabilities
among the Purchased Assets (including the assets in Canada) (the “Allocation”).  Any subsequent adjustments to the sum of the
Purchase Price and Assumed Liabilities shall be reflected in the Allocation in
a manner consistent with Section 1060 of the Code and the Regulations
thereunder.  If the Purchaser and the
Seller have agreed on an Allocation, then the Purchaser and the Seller shall
each file IRS Form 8594 consistent with the Allocation and neither the Seller
nor the Purchaser will take any position inconsistent therewith in any Tax Return,
in any refund claim, in any litigation, or otherwise.  If the Purchaser and the Seller cannot agree
on an Allocation, each party may report an Allocation that, in its sole
discretion, is consistent with Section 1060 of the Code and the Regulations thereunder.

 

SECTION 2.04. 
Closing. 
Subject to the terms and conditions of this Agreement, the sale and
purchase of the Purchased Assets and the assumption of the Assumed Liabilities
contemplated by this Agreement shall take place at a closing (the “Closing”)
to be held at the offices of Shearman & Sterling LLP, 599 Lexington Avenue,
New York, New York at 1:30 P.M. New York time on the second Business Day
following the satisfaction or waiver of all conditions to the obligations of
the parties set forth in Section 7.01 and Section 7.02 (other than conditions
with respect to actions the respective parties will take at the Closing itself,
but subject to the satisfaction of those conditions) or at such other place or
at such other time or on such other date as the Seller and the Purchaser may
mutually agree upon in writing.

 

SECTION 2.05. 
Closing Deliveries by the Seller.  At the Closing, Audiovox (as to items (e),
(g) and (i)) or the Seller shall deliver or cause to be delivered to the
Purchaser:

 

(a)                                  the
Assumption Agreement, the Bill of Sale, the Assignment of Intellectual
Property, each Assignment of Lease, the Trademark License Agreement and such
other instruments, in form and substance reasonably satisfactory to the
Purchaser, as may be reasonably requested by the Purchaser to transfer the
Purchased Assets to the Purchaser or evidence such transfer on the public
records, which request shall be provided to the Seller at least five (5) days
before the Closing;

 

(b)                                 executed counterparts of each Ancillary Agreement to which
the Seller is a party other than the Ancillary Agreements delivered pursuant to
Section 2.05(a);

 

(c)                                  a receipt for the Purchase Price less the Escrow Amount;

 

(d)                                 a
true and complete copy, certified by the Secretary or an Assistant Secretary of
the Seller, of the resolutions duly and validly adopted by the Board of
Directors of the Seller evidencing its authorization of the execution and
delivery of this Agreement and the Ancillary Agreements and the consummation of
the transactions contemplated hereby and thereby;

 

20

 

(e)                                  true
and complete copies, certified by the Secretary or an Assistant Secretary of
Audiovox of the resolutions duly and validly adopted by the Board of Directors
of Audiovox, evidencing its authorization of the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby;

 

(f)                                    a
certificate of the Secretary or an Assistant Secretary of the Seller certifying
the names and signatures of the officers of the Seller authorized to sign this
Agreement and the Ancillary Agreements and the other documents to be delivered
hereunder and thereunder;

 

(g)                                 certificates of the Secretary or an Assistant Secretary of
Audiovox certifying the names and signatures of the officers of Audiovox
authorized to sign this Agreement and the other documents to be delivered
hereunder;

 

(h)                                 a certificate of a duly authorized officer of the Seller
certifying as to itself as to the matters set forth in Section 7.02(a);

 

(i)                                     a certificate of a duly authorized officer of Audiovox
certifying as to itself as to the matters set forth in Section 7.02(a); and

 

(j)                                     a certificate of non-foreign status (in a form reasonably
acceptable to Purchaser) pursuant to section 1.1445-2(b)(2) of the Regulations.

 

SECTION 2.06. 
Closing Deliveries by the Purchaser.  (a)  At
the Closing, the Purchaser shall deliver to the Seller:

 

(i)                                     the Purchase Price and the $70,000 contemplated by Section
5.22 hereof, less the Escrow Amount, by wire transfer in immediately available
funds to the Purchase Price Bank Account;

 

(ii)                                  executed counterparts of the Assumption Agreement, each
Assignment of Lease, the Assignment of Intellectual Property and the Trademark
License Agreement;

 

(iii)                               executed
counterparts of each Ancillary Agreement (other than the Ancillary Agreements
delivered pursuant to Section 2.06(a)(ii)) to which the Purchaser is a party;

 

(iv)                              a
true and complete copy, certified by the Secretary or an Assistant Secretary of
the Purchaser, of the resolutions duly and validly adopted by the Board of
Directors of the Purchaser evidencing its authorization of the execution and
delivery of this Agreement and the Ancillary Agreements to which it is a party
and the consummation of the transactions contemplated hereby and thereby;

 

(v)                                 a
certificate of the Secretary or an Assistant Secretary of the Purchaser
certifying the names and signatures of the officers of the Purchaser authorized
to sign this Agreement and the Ancillary Agreements and the other documents to
be delivered hereunder and thereunder; and

 

21

 

(vi)                              a certificate of a duly authorized officer of the Purchaser
certifying as to the matters set forth in Section 7.01(a).

 

(b)                                 At
the Closing, the Purchaser shall deliver to the Escrow Agent, in accordance
with the Escrow Agreement, the Escrow Amount by wire transfer in immediately
available funds to the accounts designated therefore in the Escrow Agreement.

 

SECTION 2.07. 
Post-Closing Adjustment of Purchase Price.  The Purchase Price shall be subject to
adjustment after the Closing as specified in this Section 2.07:

 

(a)                                  Preliminary
and Closing Statements of Net Assets. 
(i) On or before the date that is 25 calendar days following the
Closing, the Seller shall deliver to the Purchaser the Preliminary Statement of
Net Assets.

 

(ii)                                  As
promptly as practicable, after the date that is 90 calendar days following the
Closing, the Seller shall deliver to the Purchaser the Closing Statement of Net
Assets, together with the report thereon of the Seller’s Accountants, stating
that the Closing Statement of Net Assets fairly presents Net Assets of the
Business as of the close of business on the date of the Closing in accordance
with GAAP.

 

(b)                                 Disputes.  (i) 
Subject to clause (ii) of this Section 2.07(b), the Closing
Statement of Net Assets, the Closing Statement of Inventories and the
Receivables Reserve set forth on the Closing Statement of Receivables delivered
by the Seller to the Purchaser shall be final, binding and conclusive on the
parties hereto.

 

(ii)                                  The
Purchaser may dispute any amounts reflected on (A) the Closing Statement of Net
Assets, but only on the basis that the amounts reflected on the Closing
Statement of Net Assets were not arrived at in accordance with GAAP (it being
understood that any adjustments, estimates, accruals and calculations made on
the Closing Statement of Net Assets that are made on the same basis as similar
items on the Interim Statement of Net Assets shall be deemed to be made in
accordance with GAAP) or were arrived at based on mathematical or clerical
error, (B) the Closing Statement of Inventories but only on the basis that the
amounts reflected on the Closing Statement of Inventories was not calculated in
accordance with the rules set forth on Exhibit A hereto or that they were
arrived at based on mathematical or clerical error and (C) the Receivables
Reserve, but only on the basis that the Receivables Reserve was not arrived at
in accordance with GAAP (it being understood that any adjustments, estimates,
accruals and calculations made in respect of the Receivables Reserve that are
made on the same basis as similar items on the Interim Statement of Net Assets
shall be deemed to be made in accordance with GAAP) or were arrived at based on
mathematical or clerical error; provided, however, that the Purchaser shall
have notified the Seller and the Seller’s Accountants in writing of each
disputed item, specifying the estimated amount thereof in dispute and setting
forth, in reasonable detail, the basis for such dispute, within 30 Business
Days of the Seller’s delivery of the Closing Statement of Net Assets to the
Purchaser.  In the event of such a
dispute, the Seller’s Accountants and the Purchaser’s Accountants shall attempt
to reconcile their differences, and any resolution by them as to any disputed
amounts shall be final, binding and conclusive on the parties hereto.  If any

 

22

 

such resolution by the
Seller’s Accountants and the Purchaser’s Accountants regarding the Closing
Statement of Net Assets or the Closing Statement of Inventories leaves in
dispute amounts the net effect of which in the aggregate would not affect the
Final Net Working Capital Balance, all such amounts remaining in dispute shall
then be deemed to have been resolved in favor of the Closing Statement of Net
Assets or the Closing Statement of Inventories, as applicable, delivered by the
Seller to the Purchaser.  If the Seller’s
Accountants and the Purchaser’s Accountants are unable to reach a resolution
with such effect within 20 Business Days after the receipt by the Seller and
the Seller’s Accountants of the Purchaser’s written notice of dispute, the
Seller’s Accountants and the Purchaser’s Accountants shall submit the items
remaining in dispute for resolution to Deloitte & Touche LLP (or, if such
firm shall decline or is unable to act or is not, at the time of such
submission, independent of the Seller and the Purchaser, to another independent
accounting firm of international reputation mutually acceptable to the Seller
and the Purchaser) (either Deloitte & Touche LLP or such other accounting
firm being referred to herein as the “Independent Accounting Firm”),
which shall, within 30 Business Days after such submission, determine and
report to the Seller and the Purchaser upon such remaining disputed items, and
such report shall be final, binding and conclusive on the Seller and the
Purchaser.  The fees and disbursements of
the Independent Accounting Firm shall be allocated between the Seller and the
Purchaser in the same proportion that the aggregate amount of such remaining
disputed items so submitted to the Independent Accounting Firm that is
unsuccessfully disputed by each such party (as finally determined by the
Independent Accounting Firm) bears to the total amount of such remaining
disputed items so submitted.

 

(iii)                               In
acting under this Agreement, the Seller’s Accountants, the Purchaser’s
Accountants and the Independent Accounting Firm shall be entitled to the
privileges and immunities of arbitrators.

 

(c)                                  Purchase
Price Adjustments.  (i) Preliminary
Purchase Price Adjustment.  (A)  In the event that the Preliminary Net Working
Capital Balance set forth on the Preliminary Statement of Net Assets is less
than $40,000,000 (the “Target NWCB”), then there shall be a preliminary
downward adjustment of the Purchase Price in an amount equal to such
deficiency, the Purchaser shall deliver written notice to the Escrow Agent
specifying the amount of such preliminary downward adjustment of the Purchase
Price, and the Escrow Agent shall, within three Business Days of its receipt of
such notice and in accordance with the terms of the Escrow Agreement, pay an
amount (the “Preliminary Purchase Price Reduction”) equal to seventy-five
percent (75%) of such deficiency to the Purchaser out of the Escrow Fund by
wire transfer in immediately available funds. 
In the event that the Escrow Fund is insufficient to cover the amount of
the Preliminary Purchase Price Reduction, then the Escrow Agent shall
distribute the entire Escrow Fund to the Purchaser as provided above and the
Seller or Audiovox, on behalf of the Seller, shall pay, on or prior to the same
date as the Escrow Agent distributes the Escrow Fund to the Purchaser, an
amount to the Purchaser, by wire transfer in immediately available funds, equal
to the amount of such deficiency.  No
failure of the Purchaser to deliver a notice of the type specified in the
immediately preceding sentence shall relieve the Seller of the obligation to
pay the amount of such deficiency to the Purchaser.

 

23

 

(B)                                In
the event that the Preliminary Net Working Capital Balance exceeds the Target
NWCB, then there shall be a preliminary upward adjustment of the  Purchase Price in an amount equal to
such excess and the Purchaser shall pay on or before the date that is 30 days
following the date of the Closing an amount (the “Preliminary Purchase Price
Increase”) equal to seventy-five percent (75%) of such excess to the Seller
by wire transfer in immediately available funds.  Following the preliminary purchase price
adjustments described in this Section 2.07(c)(i), the
Target NWCB shall be adjusted to (1) subtract any Preliminary Purchase Price
Reduction previously paid to the Purchaser by the Escrow Agent or the Seller or
(2) add any Preliminary Purchase Price Increase previously paid to the Seller
by the Purchaser (as so adjusted, the “Adjusted Target NWCB”)

 

(ii)                                  Final
Purchase Price Adjustment.  Each of
the Closing Statement of Net Assets, the Closing Statement of Inventories and
the Receivables Reserve shall be deemed final for the purposes of this
Section 2.07 upon the earliest of (x) the failure of the Purchaser to
notify the Seller of a dispute within 30 Business Days of the Seller’s delivery
of the Closing Statement of Net Assets to the Purchaser, (y) the
resolution of all disputes, pursuant to Section 2.07(b)(ii), by the
Seller’s Accountants and the Purchaser’s Accountants and (z) the resolution
of all disputes, pursuant to Section 2.07(b)(ii), relating to the Closing
Statement of Net Assets the Closing Statement of Inventories or the Receivables
Reserve, as applicable, by the Independent Accounting Firm.  Within five Business Days of both the Closing
Statement of Net Assets and the Closing Statement of Inventories being deemed
final, the Seller’s Accountants shall, with the agreement of the Purchaser’s
Accountants, calculate the Final Net Working Capital Balance and the Purchase
Price shall be finally adjusted as follows:

 

(A)                              In
the event that the Final Net Working Capital Balance is less than the Adjusted
Target NWCB, then the Purchaser shall deliver written notice to the Escrow
Agent and the Seller specifying the amount of such shortfall and the Escrow Agent
shall, within three Business Days of its receipt of such notice and in
accordance with the terms of the Escrow Agreement, pay to the Purchaser the
amount of such shortfall out of the Escrow Fund by wire transfer in immediately
available funds.  In the event that the
Escrow Fund is insufficient to cover the amount of such shortfall, then the
Escrow Agent shall distribute the entire Escrow Fund to the Purchaser as
provided above and the Seller or Audiovox, on behalf of the Seller, shall pay,
on or prior to the same date as the Escrow Agent distributes the Escrow Fund to
the Purchaser, an amount to the Purchaser, by wire transfer in immediately
available funds, equal to the amount of such deficiency.  No failure of the Purchaser to deliver a
notice of the type specified in the immediately preceding sentence shall
relieve the Seller of the obligation to pay the amount of such deficiency to
the Purchaser.

 

(B)                                In
the event that the Final Net Working Capital Balance exceeds the Adjusted
Target NWCB, then the Purchaser shall pay within three Business Days of the
Final Net Working Capital Balance being calculated by the Seller’s

 

24

 

Accountants, with the agreement of the Purchaser’s Accountants, the
amount of such excess to the Seller by wire transfer in immediately available
funds.

 

(d)                                 Until
the Closing Statement of Net Assets is deemed final pursuant to Section
2.07(c), the Purchaser shall respond to and process warranty claims in
substantially the same manner in which the Seller responded to and processed
warranty claims prior to the Closing, including using the same third party
service providers used by the Seller and charging actual costs for in-house
repairs (which costs shall be calculated consistently with how they were
calculated by the Seller).

 

SECTION 2.08. 
Escrow. 
Prior to the Closing, the Seller and the Purchaser shall enter into an
Escrow Agreement with the Escrow Agent substantially in the form of
Exhibit 2.08 (the “Escrow Agreement”).  In accordance with the terms of the Escrow
Agreement, the Purchaser shall deposit the Escrow Amount at the Closing, in an
account to be managed and paid out by the Escrow Agent in accordance with the
terms of the Escrow Agreement.

 

SECTION 2.09. 
Receivables.

 

(a)                                  On
or prior to 5:30 p.m. EST on the Business Day immediately following the date on
which the Closing occurs, the Seller shall deliver to the Purchaser the Closing
Statement of Receivables.  Any amounts
paid by any Customer (or any of its wholly owned Subsidiaries) to the Purchaser
(or any of its wholly-owned Subsidiaries), whether in respect of a Receivable
listed on the Receivables Listing or otherwise, shall, no later than (i) in the
case of a Receivable paid by wire transfer, the Business Day following the day
on which payment was received and (ii) in the case of a Receivable paid other
than by wire transfer, the third Business Day following the day on which
payment was received, be paid by wire transfer of immediately available funds
to the Seller; provided, however that (i) Purchaser shall have no obligation to
pay over amounts received by a particular Customer once the aggregate amount
paid to the Seller and the Purchaser by such Customer beginning on the Business
Day following the Closing equals the Per Customer Amount and (ii) if a Customer
has given notice to the Seller or the Purchaser that such Customer is disputing
its obligation to pay any amount of the Receivable listed on the Receivables
Listing as being owed by the Customer (to the extent such Receivable is
disputed, a “Disputed Receivable”) or if a Receivable is deemed to be a
Disputed Receivable (as described below), the Purchaser shall not be obligated
to pay over amounts received from such Customer in excess of such Customer’s
Per Customer Amount less the amount any Disputed Receivable.  Any Receivable not fully paid by a Customer
by the date that is 25 days after the date that such Receivable is due may be
deemed by the Seller or the Purchaser, upon written notice thereof, to the
other party to be a Disputed Receivable.

 

(b)                                 Each
of the Purchaser and the Seller shall give prompt written notice to the other
that it has received notice of a Disputed Receivable.  The Seller shall not initiate, or threaten to
initiate, any legal proceedings against a Customer who is the obligor of a
Disputed Receivable to collect such Disputed Receivable until at least 15
Business Days following the date of the notice of the Disputed Receivable.  If, at the end of such 15 Business Day
period, such Disputed Receivable has not been paid to the Seller (either by the
Customer or by the Purchaser on behalf of such Customer), the Seller may take
any and all legal actions it believes are desirable to cause such Disputed
Receivable to be paid to it.

 

25

 

(c)                                  Prior
to 6 p.m. EST on each Business Day during the Collection Period (as hereinafter
defined), the Purchaser and the Seller shall inform each other by email of the
amount of payments that it has received from each Customer on such Business
Day; provided, however that no information need be given with respect to any
Customer once the Seller has received from such Customer the full amount of
such Customer’s Per Customer Amount.  All
amounts paid by a Customer, whether paid to the Seller directly or remitted to
the Purchaser and then paid to the Seller shall be credited against such
Customer’s Per Customer Amount.  In the event that, during the
120 day period following the Closing, a Customer gives notice that a Receivable
set forth on the Receivables Listing is a Disputed Receivable and, had such
notice been given at an earlier date, the Purchaser would not have been
obligated to pay to the Seller an amount pursuant to this Section 2.09 that the
Purchaser has paid over to the Seller, then the Seller shall pay back to
the Purchaser the full amount disputed by such Customer within three Business
Days by wire transfer of immediately available funds.  For 120 days after the Closing, the Purchaser
shall direct and instruct its relevant employees to reasonably cooperate with
the Seller in promptly collecting all Receivables and in resolving Disputed
Receivables, in each case, in a manner consistent with the past practices of
the Business.

 

(d)                                 From
and after the Closing until the earlier of (x) the 90th Business Day following
the Closing and (y) the date on which the Seller has received full payment of
all Receivables reflected on the Receivables Listing, net of the aggregate
Receivables Reserve and any Disputed Receivables (such period, the “Collection
Period”), the Purchaser shall not, and it shall cause its Affiliates and
representatives not to, take any action that would reasonably be expected to
interfere with the Seller’s ability to promptly collect any Receivable
reflected on the Receivables Listing, including, without limitation, by
suggesting or telling any Customer that for any reason it should not pay, or
that it should delay paying, the full amount of its Receivable reflected on the
Receivables Listing.

 

(e)                                  In
the event that the Receivables Reserve is adjusted upward pursuant to Section
2.07(c), the Purchaser shall give written notice to the Seller of any Per
Customer Amounts paid over to the Seller by the Purchaser in accordance with
this Section 2.09 prior to the Receivables Reserve having been finally
determined that would be reduced by virtue of such adjustment and the Seller
shall pay back to the Purchaser such excess Per Customer Amounts (net of any
amounts that the Purchaser would be required to pay to the Seller pursuant to
this Section 2.09(e)) within two Business Days following such adjustment by
wire transfer of immediately available funds. 
In the event that the Receivables Reserve is adjusted downward pursuant
to Section 2.07(c), the Purchaser shall pay over to the Seller within two
Business Days following such adjustment any amounts that the Purchaser would
have been required to pay to the Seller had the Receivables Reserve been so
adjusted immediately following the Closing (net of any amounts that the Seller  would be
required to pay back to the Purchaser pursuant to this Section 2.09(e)).

 

SECTION 2.10. 
Inventories.  On the day immediately following the date of
the Closing, the Seller shall deliver to the Purchaser the Closing Statement of
Inventories.

 

26

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES

OF THE SELLER

 

As an inducement to the Purchaser to enter into this
Agreement, the Seller and Audiovox (only as to itself with respect to the
matters set forth in Sections 3.01, 3.02, 3.11(b) and 3.30) hereby represent
and warrant to the Purchaser as follows:

 

SECTION 3.01. 
Organization, Authority and Qualification and Corporate Power of the
Seller and Audiovox . 
(a)  Each of the Seller and
Audiovox is a corporation duly organized, validly existing, and in good
standing under the Laws of its jurisdiction of incorporation, has the requisite
corporate power and authority to carry on its business as it is now being
conducted and to own and operate the properties and assets now owned and
operated by it.  The Seller is duly
licensed or qualified to do business and is in good standing in each
jurisdiction which the properties leased by it or the operation of its business
makes such licensing or qualification necessary except where the failure to be
so qualified or in good standing will not result in a Material Adverse Effect.

 

(b)                                 Each
of the Seller and Audiovox has the requisite corporate power and authority to
execute, deliver and, subject to receipt of the vote of the Audiovox
stockholders contemplated in Section 3.30(b) and the approval of the Seller’s
stockholders, which has been obtained, perform this Agreement and each of the
Ancillary Agreements to be executed, delivered and performed in connection with
this Agreement, and except as set forth in Sections 3.02 and 3.03, each of the
Seller and Audiovox has all requisite power and authority to transfer the
Purchased Assets to the Purchaser.  The
execution, delivery and performance of this Agreement and each of the Ancillary
Agreements to which the Seller and Audiovox is a party, and the consummation of
the transactions contemplated hereby and thereby, have been duly authorized by
all necessary action (corporate or otherwise) on the part of the Seller and
Audiovox (other than the vote of the Audiovox stockholders contemplated in
Section 3.30(b) and the approval of the Seller’s stockholders, which has been
obtained).  This Agreement has been, and
upon their execution and delivery the Ancillary Agreements shall have been,
duly and validly executed and delivered by the Seller and Audiovox, and
(assuming due authorization, execution and delivery by the Purchaser) this
Agreement constitutes, and upon their execution and delivery the Ancillary
Agreements shall constitute, the legal, valid and binding obligation of the
Seller and Audiovox, enforceable against the Seller and Audiovox in accordance
with their respective terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws affecting the
enforcement of creditors’ rights generally. 
No other corporate proceedings on the part of the Seller or Audiovox are
necessary to authorize this Agreement and the Ancillary Agreements (other than
the vote of the Audiovox stockholders contemplated in Section 3.30(b) and the
approval of the Seller’s stockholders, which has been obtained).

 

(c)                                  There
are no subsidiaries or Affiliates of Audiovox, other than ACC, Quintex and
ACCC, which own, lease or have the legal right to use, or which are a party to and
enjoy the right to the benefits of the Assumed Contracts and other arrangements
which constitute, the Purchased Assets. 
Section 3.01(c) of the Disclosure Schedule sets forth the

 

27

 

subsidiaries
of ACC other than Quintex and ACCC.  None
of the entities set forth in Section 3.01(c) of the Disclosure Schedule have
any assets.  The liabilities of GLM
Wireless Communications, Inc. exceed its assets.

 

SECTION 3.02. 
No Conflict.  The
execution, delivery and performance of this Agreement and the Ancillary
Agreements by each of the Seller and Audiovox do not and will not (a) violate,
conflict with or result in the breach of any provision of the certificate of
incorporation or by-laws (or similar organizational documents) of the Seller or
Audiovox, as the case may be, (b) conflict with or violate any material Law or
Governmental Order applicable to the Seller or Audiovox, as the case may be, or
any of its assets, properties or businesses, including the Business (except as
may result from any facts or circumstances relating solely to the Purchaser),
or (c) except as set forth in Section 3.02(c) of the Disclosure Schedule,
conflict with, result in any breach of, constitute a default (or event which
with the giving of notice or lapse of time, or both, would become a default)
under, require any consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation or cancellation of, or result
in the creation of any Encumbrance on any of the Purchased Assets pursuant to,
any material note, bond, mortgage or indenture, contract, agreement, lease,
sublease, license, permit, franchise or other instrument or arrangement to
which the Seller or Audiovox is a party or by which any of the Purchased Assets
is bound or affected.  The Seller knows
of no reason (except as may result from any facts or circumstances relating
solely to the Purchaser) why all consents set forth in Section 3.02(c) of the
Disclosure Schedule will not be received.

 

SECTION 3.03. 
Governmental Consents and Approvals.  The execution, delivery and performance of
this Agreement and each Ancillary Agreement by the Seller do not and will not
require any material consent, approval, authorization or other order of, action
by, filing with or notification to, any Governmental Authority applicable to
the Seller or Audiovox, except (a) as described in Section 3.03 of the
Disclosure Schedule and (b) the pre-merger notification and waiting period
requirements of the HSR Act.  The Seller
knows of no reason why all the consents, approvals and authorizations necessary
for the consummation of the transactions contemplated by this Agreement will
not be received.

 

SECTION 3.04. 
Financial Information; Books and Records.  (a) 
True and complete copies of (i) the Interim Statement of Net Assets
as set forth in Section 3.04 of the Disclosure Schedule, (ii) the audited
balance sheet of the Seller for each of the two fiscal years ended as of
November 30, 2003 and 2002 respectively, and the related audited statements of
income, stockholders’ equity and cashflows of the Seller, together with all
related notes and schedules thereto, accompanied by the reports thereon of the
Seller’s Accountants and Seller’s Prior Accountants (collectively referred to herein
as the “Financial Statements”) and (iii) the unaudited balance
sheet of the Seller as of February 29, 2004, and the related statements of
income, stockholders’ equity and cashflows of the Seller (collectively referred
to herein as the “Interim Financial Statements”) have been delivered by
the Seller to the Purchaser.  The Interim
Statement of Net Assets (i) was prepared in accordance with the books of
account and other financial records of the Seller, (ii) presents fairly,
in all material respects, the Net Assets of the Business as of the date thereof
(except that it excludes the Excluded Assets and Excluded Liabilities),
(iii) has been prepared in accordance with GAAP, and (iv) includes
all adjustments that are necessary for a fair presentation of the financial
condition of the Business as of the date thereof.  The Financial Statements and the Interim
Financial Statement (i) were prepared in

 

28

 

accordance with the books
of account and other financial records of the Seller, (ii) present fairly,
in all material respects, the financial condition and results of operations of
the Business as of the dates thereof or for the periods covered thereby,
(iii) have been prepared in accordance with GAAP and (iv) in the case
of the Interim Statement of Net Assets, include all adjustments (consisting
only of normal recurring accruals) that are necessary for a fair presentation
of the financial condition of the Business and the results of the operations of
the Business as of the dates thereof or for the periods covered thereby.

 

(b)                                 The
books of account and other financial records of the Seller in all material
respects:  (i) reflect all items of
income and expense and all assets and Liabilities required to be reflected therein
in accordance with GAAP, (ii) are complete and correct, and do not contain
or reflect any material inaccuracies or discrepancies and (iii) have been
maintained in accordance with good business and accounting practices.

 

(c)                                  The
Sellers have the parts that it believes are reasonably necessary to fulfill its
contractual obligations to repair products sold by the Business prior to the
Closing.  There are no material
liabilities relating to obligations under the Assumed Contracts for the
provision of training or technical support, other than liabilities that are
reflected on the Interim Statement of Net Assets and will be reflected on the
Closing Statement of Net Assets.

 

SECTION 3.05. 
Absence of Undisclosed Liabilities.  There are no material Liabilities of the
Business, other than Liabilities (i) reflected or reserved against on the
Interim Statement of Net Assets, (ii) set forth in Section 3.05 of the
Disclosure Schedule, (iii) incurred since the date of the Interim Statement of
Net Assets in the ordinary course of business, consistent with past practice,
of the Seller and which do not and could not have a Material Adverse Effect or
(iv) arising out of the Assumed Contracts.

 

SECTION 3.06. 
Receivables.  Section 3.06 of the Disclosure Schedule
is an aged list of the Receivables as of the Interim Statement Date showing
separately those Receivables that as of such date had been outstanding for
(a) 30 days or less, (b) 31 to 60 days, (c) 61 to 90 days, and
(d) more than 90 days.  Except to
the extent, if any, reserved for on the Interim Statement of Net Assets, all
Receivables reflected on the Interim Statement of Net Assets arose from, and
the Receivables existing as of the Closing will have arisen from, the sale of
Inventory or services to Persons not affiliated with the Seller and in the
ordinary course of business consistent with past practice and, except as
reserved against on the Interim Statement of Net Assets, constitute or will
constitute, as the case may be, only valid, undisputed claims of the Seller not
subject to valid claims of setoff or other defenses or counterclaims other than
normal cash discounts and warranty claims and customary reserves required by
GAAP accrued in the ordinary course of business consistent with past practice.

 

SECTION 3.07. 
Inventories.  (a) 
Subject to amounts reserved therefor on the Interim Statement of Net
Assets, the values at which all Inventories are carried on the Interim
Statement of Net Assets is consistent with the last sentence of the definition
of “Inventories” herein.  Except as set
forth in Section 3.07(a)(i) of the Disclosure
Schedule, the Seller has good and marketable title to the Inventories free and
clear of all Encumbrances.  Except as set
forth in Section 3.07(ii) of the Disclosure Schedule, the Inventories do not
consist of, in any material amount, items that are obsolete, defective or
slow-moving.  The Inventories do not
consist of any

 

29

 

items
held on consignment.  The Seller is not
under any obligation or liability with respect to accepting returns of items of
Inventory or merchandise in the possession of their customers other than in the
ordinary course of business consistent with past practice or except as set
forth in Section 3.07(a)(iii) of the Disclosure
Schedule.  No clearance or extraordinary
sale of the Inventories has been conducted since the Interim Statement
Date.  The Seller has not acquired or
committed to acquire Inventory for sale which is not of a quality and quantity
usable in the ordinary course of business within a reasonable period of time
and consistent with past practice, nor has the Seller changed the price of any
Inventory except for (i) price reductions to reflect any reduction in the
cost thereof to the Seller, (ii) reductions and increases responsive to
normal competitive conditions and consistent with the Seller’s past sales
practices, (iii) increases to reflect any increase in the cost thereof to
the Seller and (iv) increases and reductions made with the written consent
of the Purchaser.

 

(b)                                 Section 3.07(b)
of the Disclosure Schedule includes a complete list of the addresses of all
warehouses and other facilities in which the Inventories are located.

 

SECTION 3.08. 
Assumed Contracts.  Each description of an Assumed Contract or
category of Assumed Contracts described in Part II of Section 2.01(a)(x) of the Disclosure Schedule is accurate in all material
respects.

 

SECTION 3.09. 
Sales and Purchase Order Backlog.  (a)  As
of the Business Day immediately preceding the date hereof, open sales orders
accepted by the Seller and relating to the Business totaled $244,768,080.  Section 3.09(a) of the Disclosure Schedule
lists all sales orders exceeding $100,000 per order which have been accepted by
the Seller (related to the Business), and which were open as of the date
hereof.

 

(b)                                 As
of the Business Day immediately preceding the date hereof, open purchase orders
issued by the Seller and relating to the Business, totaled $737,911,285.  Section 3.09(b) of the Disclosure Schedule
lists all purchase orders exceeding $100,000 per order which have been issued
by the Seller (related to the Business) and which were open as of the date
hereof.

 

SECTION 3.10. 
Conduct in the Ordinary Course; Absence of Certain Changes, Events
and Conditions.  Except as set forth
in Section 3.10 of the Disclosure Schedule, since the Interim Statement Date,
and, except with respect to clause (x) below (which speaks as of the date
hereof and, pursuant to Section 7.02(a), as of the date of the Closing), prior
to the date hereof, the Business has been conducted in the ordinary course and
consistent with past practice.  As
amplification and not limitation of the foregoing, since the Interim Statement
Date, the Seller has not:

 

(a)                                  permitted or allowed any of the Purchased Assets to be
subjected to any Encumbrance, other than Permitted Encumbrances and
Encumbrances that will be released at or prior to the Closing;

 

(b)                                 except in the ordinary course of business consistent with
past practice and payments under contracts entered into prior to the date
hereof as disclosed in Section 3.14 of the Disclosure Schedule, discharged or
otherwise obtained the release of any

 

30

 

Encumbrance
related to the Business, or paid or otherwise discharged any Liability related
to the Business, other than current liabilities reflected on the Interim  Statement of
Net Assets and current liabilities incurred in the ordinary course of business
consistent with past practice since the Interim Statement Date;

 

(c)                                  written
down or written up (or failed to write down or write up in accordance with GAAP
consistent with past practice) the value of any Inventories or Receivables or
revalued any of the Purchased Assets other than in the ordinary course of business
consistent with past practice and in accordance with GAAP;

 

(d)                                 made
any change in any method of accounting or accounting practice or policy used by
the Seller and relating to the Business, other than such changes required by
GAAP;

 

(e)                                  amended, terminated,
cancelled or compromised any material claims of the Seller (related to the
Business) or waived any other rights of substantial value to the Seller
(related to the Business), other than with respect to the Excluded Assets;

 

(f)                                    sold,
transferred, leased, subleased, licensed or otherwise disposed of any
properties or assets, real, personal or mixed (including leasehold interests
and intangible property) of the Seller (related to the Business), other than
the sale of Inventories in the ordinary course of business consistent with past
practice, other than with respect to the Excluded Assets;

 

(g)                                 merged
with, entered into a consolidation with or acquired an interest of 5% or more
in any Person engaged in a business relating to the Business or acquired a substantial
portion of the assets or business of any Person engaged in a business relating
to the Business or any division or line of business thereof, or otherwise
acquired any material assets relating to the Business other than in the
ordinary course of business consistent with past practice;

 

(h)                                 made any capital expenditure or commitment for any capital
expenditure , in each case relating to the Business, in excess of $500,000
individually or $2,000,000 in the aggregate;

 

(i)                                     except
in the ordinary course of business consistent with past practice, issued any
sales orders or otherwise agreed to make any purchases, in each case relating
to the Business, involving exchanges in value in excess of $5,000,000
individually or $10,000,000 in the aggregate;

 

(j)                                     made any material changes in the customary methods of
operations of the Business, including those relating to purchasing,
Inventories, marketing, booking sales or Receivables, selling and pricing;

 

(k)                                  made, revoked or changed any Tax election or method of Tax
accounting, or settled or compromised any liability with respect to Taxes, in
each case relating to the Business or the Purchased Assets;

 

31

 

(l)                                     incurred any material Indebtedness relating to the Business,
other than Inter-company Payables incurred in the ordinary course of business
consistent with past practice;

 

(m)                               made any loan to, guaranteed any Indebtedness of or
otherwise incurred any Indebtedness on behalf of any Person in connection with
the Business, except for any amount that will be discharged prior to the
Closing;

 

(n)                                 failed to pay any
creditor of the Business any material amount owed to such creditor when due
unless such amount was disputed in good faith and subject to customary
adjustments;

 

(o)                                 except
in the ordinary course of business consistent with past practice or as required
by Law (i) granted any increase, or announced any increase, in the wages,
salaries, compensation, bonuses, incentives, pension or other benefits payable
by the Seller to any of its employees to whom offers of employment will be made
pursuant to Section 6.01, including any increase or change pursuant to any
Plan, or (ii) established or increased or promised to increase any
benefits under any Plan;

 

(p)                                 entered into any
agreement, arrangement or transaction relating to the Business with any of its
directors, officers, employees or stockholders (or with any relative,
beneficiary, spouse or Affiliate of such Persons);

 

(q)                                 terminated,
discontinued, closed or disposed of any plant, facility or other business
operation used in the Business, or laid off any employees employed in
connection with the Business (other than layoffs in the ordinary course of
business consistent with past practice) or implemented any early retirement,
separation or program providing early retirement window benefits within the
meaning of Section 1.401(a)-4 of the Regulations or announced or planned any
such action or program for the future;

 

(r)                                    disclosed
any secret or confidential Intellectual Property relating to the Business
(except by way of issuance of a patent) or permitted to lapse or become
abandoned any Intellectual Property relating to the Business (or any
registration or grant thereof or any application relating thereto) to which, or
under which, the Seller has any right, title, interest or license;

 

(s)                                  allowed any Permit or Environmental Permit relating to the
Business to lapse or terminate or failed to renew any insurance policy, Permit
or Environmental Permit relating to the Business that is scheduled to terminate
or expire within 45 calendar days of the Closing;

 

(t)                                    failed to maintain the plant, property and equipment
included in the Purchased Assets in good repair and operating condition,
ordinary wear and tear excepted;

 

(u)                                 suffered any casualty loss or damage with respect to any of
the Purchased Assets which in the aggregate have a replacement cost of more
than $100,000, whether or not such loss or damage shall have been covered by
insurance;

 

32

 

(v)                                 amended, modified or
consented to the termination of any Material Contract or the Seller’s rights
thereunder;

 

(w)                               (i)
abandoned, sold, assigned, or granted any security interest in or to any item
of the Owned Intellectual Property, Licensed Intellectual Property or
Transferred IP Agreements, including failing to perform or cause to be
performed all applicable filings, recordings and other acts, and pay or caused
to be paid all required fees and taxes, to maintain and protect its interest in
such Intellectual Property, (ii) granted to any third party any license
with respect to any Owned Intellectual Property or Licensed Intellectual
Property, other than licenses of Transferred Software to the customers of the
Business in the ordinary course of its business, (iii) developed, created
or invented any Intellectual Property jointly with any third party (other than
such joint development, creation or invention with a third party that is in
progress prior to Interim Statement Date) or (iv) disclosed, or allow to be
disclosed, any confidential Intellectual Property, unless such Intellectual
Property is subject to a confidentiality or non-disclosure covenant protecting
against disclosure thereof;

 

(x)                                   suffered any Material Adverse Effect;

 

(y)                                 agreed,
whether in writing or otherwise, to take in a legally enforceable manner any of
the actions specified in this Section 3.10 or granted any options to purchase,
rights of first refusal, rights of first offer or any other similar rights or
commitments with respect to any of the actions specified in this Section 3.10,
except as expressly contemplated by this Agreement and the Ancillary
Agreements;

 

(z)                                   terminated the employment nor received the resignation of
any Key Employees;

 

(aa)                            issued
a notice of intention to terminate the employment of any Key Employees nor received a notice
of intention to resign by any Key
Employees; or

 

(bb)                          settled, or agreed to settle,
any action, suit or proceeding relating to the Business or the Purchased Assets
other than in the ordinary course of business consistent with past practice.

 

SECTION 3.11. 
Litigation.  (a) Except as set forth in Section 3.11 of
the Disclosure Schedule (which, with respect to each Action set forth therein,
sets forth the parties and the date and method commenced), there are no
material Actions by or against the Seller or any Affiliate thereof and relating
to the Business or affecting any of the Purchased Assets or the Business
pending before any Governmental Authority (or, to the best knowledge of the
Seller, threatened to be brought by or before any Governmental Authority).  The Seller is not subject to any Action
relating to the Business that has a Material Adverse Effect or is reasonably
likely to affect the legality, validity or enforceability of this Agreement,
any Ancillary Agreement or the consummation of the transactions contemplated
hereby or thereby.  Neither the Seller
nor any of the Seller’s assets or properties, including the Purchased Assets,
is subject to any Governmental Order (nor, to the best knowledge of the Seller,
are there any such Governmental Orders threatened to be imposed by any
Governmental Authority) which has a Material Adverse Effect

 

33

or could affect
the legality, validity or enforceability of this Agreement, any Ancillary
Agreement or the consummation of the transactions contemplated hereby or
thereby.

 

(b) Audiovox is not subject to any Action relating to
the Business that has a Material Adverse Effect or is reasonably likely to
affect the legality, validity or enforceability of this Agreement, any
Ancillary Agreement or the consummation of the transactions contemplated hereby
or thereby.  Audiovox is not subject to
any Governmental Order (nor, to the best knowledge of Audiovox, are there any
such Governmental Orders threatened to be imposed by any Governmental
Authority) which has a Material Adverse Effect or could affect the legality,
validity or enforceability of this Agreement, any Ancillary Agreement or the
consummation of the transactions contemplated hereby or thereby.

 

SECTION 3.12. 
Compliance with Laws. 
(a)  The Seller has conducted and
continues to conduct the Business in accordance with all material Laws and
Governmental Orders applicable to the Seller or any of its properties or
assets, including the Purchased Assets, and the Seller is not in material
violation, or the Seller has not been in material violation during the last
three years, of any such Law or Governmental Order, except as set forth in
Section 3.12 (a) of the Disclosure Schedule.

 

(b)                                 Section
3.12(b) of the Disclosure Schedule sets forth a brief description of each
Governmental Order applicable to the Seller (related to the Business) or any of
its properties or assets, including the Purchased Assets, or the Business and
no such Governmental Order has or has had a Material Adverse Effect or is
reasonably likely to affect the legality, validity or enforceability of this
Agreement, any Ancillary Agreement or the consummation of the transactions
contemplated hereby or thereby.

 

SECTION 3.13. 
Environmental and Other Permits and Licenses; Related Matters.  (a)  Except as set forth in Section 3.13(a) of
the Disclosure Schedule:

 

(i)                                     The
Seller (as it relates to the Business) is in material compliance with all
applicable Environmental Laws and all Environmental Permits.

 

(ii)                                  There
has been no material Release of any Hazardous Material on any of the Leased
Real Property or, during the period of the Seller’s ownership, lease, use or
occupancy thereof, on any property formerly owned, leased, used or occupied by
the Seller.

 

(iii)                               There
are no Environmental Claims pending or, to the best knowledge of the Seller,
threatened against the Seller (relating to the Business) or the Leased Real
Property, and to the Seller’s best knowledge there are no circumstances that
can reasonably be expected to form the basis of any such Environmental Claim.

 

(iv)                              The
Seller has no actual or alleged material liability, whether fixed or contingent,
relating to the Business under any Environmental Law.

 

(b)                                 Neither
the execution of this Agreement or the Ancillary Agreements nor the
consummation of the transactions contemplated hereby or thereby will require
any Remedial

 

34

 

Action or notice
to or consent of Governmental Authorities or third parties pursuant to any
applicable Environmental Law or Environmental Permit.

 

SECTION 3.14. 
Material Contracts. 
(a)  Section 3.14(a) of the
Disclosure Schedule lists each of the following contracts and agreements
(including, without limitation, oral agreements and informal arrangements) of
the Seller relating to the Business (collectively, the “Material Contracts”):

 

(i)                                     each
contract, agreement, invoice, purchase order and other arrangement, for the
purchase of Inventory, spare parts, other materials or personal property, with
any supplier or for the furnishing of services to the Seller or otherwise
related to the Business under the terms of which the Seller:  (A) is reasonably likely to pay or
otherwise give consideration of more than $500,000 in the aggregate during the
fiscal year ending November 30, 2004, (B) is reasonably likely to pay or
otherwise give consideration of more than $120,000 in the aggregate over the
remaining term of the contract, or (C) cannot be cancelled by the Seller
without penalty or further payment and without more than 30 days’ notice and is
reasonably likely to pay or otherwise give consideration of more than $120,000
in the aggregate over the remaining term of the contract;

 

(ii)                                  each
contract, agreement, invoice, sales order and other arrangement, for the sale
of Inventory or other personal property, or for the furnishing of services by
the Seller which:  (A) is likely to
involve consideration of more than $100,000 in the aggregate during the fiscal
year ending November 30, 2004, (B) is likely to involve consideration of
more than $500,000 in the aggregate over the remaining term of the contract or
(C) cannot be cancelled by the Seller without penalty or further payment
and without more than 30 days’ notice and is likely to involve consideration of
more than $500,000 in the aggregate during the remaining term of the contract;

 

(iii)                               all
broker, distributor, dealer, manufacturer’s representative, franchise, agency,
sales promotion, market research, marketing, consulting and advertising
contracts and agreements to which the Seller is a party and which would require
a payment in 2004 in excess of $120,000;

 

(iv)                              all
management contracts and contracts with independent contractors or consultants
(or similar arrangements) to which the Seller is a party and which are not
cancelable without penalty or further payment and without more than 30 days’
notice and which would require a payment in 2004 in excess of $120,000;

 

(v)                                 all
contracts and agreements relating to Indebtedness of the Seller;

 

(vi)                              all
contracts and agreements with any Governmental Authority to which the Seller is
a party;

 

(vii)                           all
contracts and agreements that limit or purport to limit the ability of the
Seller to compete in any line of business or with any Person or in any
geographic area or during any period of time;

 

35

 

(viii)                        all
contracts and agreements between or among the Seller and any Affiliate of the
Seller;

 

(ix)                                all
contracts and agreements providing for employee benefits under any Plan listed
in Section 3.21 of the Disclosure Schedule;

 

(x)                                   all
employment contracts, written or oral, with any officer, consultant, director
or employee of the Business;

 

(xi)                                all
contracts and agreements relating to restrictions on competition of the
employees of the Seller;

 

(xii)                             all joint venture contracts or arrangements
or other arrangements involving sharing of profits;

 

(xiii)                          all agreements relating to the disposition
or acquisition of assets or any interest in any business enterprise other than
those entered into in the ordinary course and consistent with past practice;

 

(xiv)                         all settlements of administrative, judicial,
mediation or arbitration proceedings;

 

(xv)                            all
leases or subleases of Leased Real Property;

 

(xvi)                         all
leases or subleases of Tangible Personal Property which require a payment in
2004 in excess of $100,000;

 

(xvii)                      all
Transferred IP Agreements; and

 

(xviii)                   all
other contracts and agreements, whether or not made in the ordinary course of
business, which are material to the Seller or the conduct of the Business, or
the absence of which would have a Material Adverse Effect.

 

(b)                                 Except
as set forth in Section 3.14(b) of the Disclosure Schedule, each Material
Contract is valid and binding on the Seller thereto and is in full force and
effect.  The Seller is not in material
breach of, or default under, any Material Contract.

 

(c)                                  To
the best knowledge of the Seller, no other party to any Material Contract is in
material breach thereof or default thereunder and the Seller has not received
any notice of termination, cancellation, breach or default under any Material
Contract.

 

(d)                                 The
Seller has made available to the Purchaser true and complete copies of all
Material Contracts, including all amendments, supplements and modifications
thereto or waivers currently in effect thereunder.

 

(e)                                  Except
as set forth in Section 3.14(e) of the Disclosure Schedule, there is no contract,
agreement or other arrangement granting any Person any preferential right to

 

36

 

purchase,
other than in the ordinary course of business consistent with past practice,
any of the Purchased Assets.

 

SECTION 3.15. 
Intellectual Property. 
(a)  Section 3.15(a) of the
Disclosure Schedule sets forth a true and complete list of (i) all patents and
patent applications, registered trademarks and trademark applications, and
registered copyrights and copyright applications, and domain names included in
the Owned Intellectual Property, (ii) all Transferred IP Agreements and (iii)
all other Owned Intellectual Property (other than trade secrets) material to
the Business.

 

(b)                                 Except
as set forth in Section 3.15(b) of the Disclosure Schedule to the best
knowledge of the Seller, the operation of the Business as currently conducted
or as contemplated to be conducted, the use of the Owned Intellectual Property,
the Licensed Intellectual Property, the Shared MIS Systems and the Developed
Software in connection therewith and the Seller’s transmission, use, linking
and other practices related to the operation of their web sites in connection
with the Business, the content thereof and the advertisements contained
therein, do not, in any material respects, conflict with, infringe,
misappropriate or otherwise violate the Intellectual Property or other
proprietary rights, including rights of privacy, publicity and endorsement, of
any third party, and no Actions or Claims are pending or, to the best knowledge
of the Seller, threatened against the Seller alleging any of the foregoing.

 

(c)                                  The
Seller is the exclusive owner of the entire and unencumbered right, title and
interest in and to the Owned Intellectual Property and the Transferred IP
Agreements, and the Seller has a valid right to use the Owned Intellectual
Property and Licensed Intellectual Property in the ordinary course of the
Business as currently conducted or as contemplated to be conducted subject only
to the terms of the Transferred IP Agreements in the case of Licensed
Intellectual Property.

 

(d)                                 No
Owned Intellectual Property or Developed Software, or to the best knowledge of
Seller, any Licensed Intellectual Property, is subject to any outstanding
decree, order, injunction, judgment or ruling restricting the use of such
Intellectual Property or that would impair the validity or enforceability of
such Intellectual Property.

 

(e)                                  Except
for the Excluded Intellectual Property, the Owned Intellectual Property and the
Licensed Intellectual Property include all of the Intellectual Property used in
the ordinary day-to-day conduct of the Business, and there are no other items
of Intellectual Property that are material to the ordinary day-to-day conduct
of the Business.  The Owned Intellectual
Property and the Developed Software and, to the best knowledge of the Seller,
the Licensed Intellectual Property, are subsisting, valid and enforceable, and
have not been adjudged invalid or unenforceable in whole or part.

 

(f)                                    Except
as set forth in Section 3.15(f) of the Disclosure Schedule, no material Actions
or Claims have been asserted or are pending or, to the best knowledge of the
Seller, are threatened against the Seller (i) based upon or challenging or
seeking to deny or restrict the use by the Seller of any of the Owned
Intellectual Property, the Licensed Intellectual Property, the Shared MIS
Systems and the Developed Software, (ii) alleging that any services provided
by, processes used by, or products manufactured or sold by the Seller (in
connection with the Business) infringe or misappropriate any Intellectual
Property right of any third party or

 

37

 

(iii) alleging that the Licensed Intellectual
Property is being licensed or sublicensed in conflict with the terms of any
license or other agreement.

 

(g)                                 To
the best knowledge of the Seller, no Person is engaging in any activity that
infringes the Owned Intellectual Property or Licensed Intellectual
Property.  Except as set forth in Section
3.15(g) of the Disclosure Schedule, the Seller has not granted any license or
other right to any third party with respect to the Owned Intellectual Property
or Licensed Intellectual Property.

 

(h)                                 There
is no Software (i) material to the operation of the Business or
(ii) manufactured, distributed, sold, licensed to a third party or
marketed by the Seller in connection with the Business, other than, in each
case, the Excluded Intellectual Property.

 

(i)                                     The
Seller has taken reasonable steps in accordance with normal industry practice
to maintain the confidentiality of the trade secrets and other confidential
Intellectual Property used in the Business. 
To the best knowledge of the Seller, (i) there has been no misappropriation
of any Trade Secrets used in the Business by any Person; (ii) no employee,
independent contractor or agent of the Seller has misappropriated any Trade
Secrets of any other Person in the course of performance as an employee,
independent contractor or agent of the Business; and (iii) no employee,
independent contractor or agent of the Seller is in material default or
material breach of any term of any written employment agreement, nondisclosure
agreement, assignment of invention agreement or similar agreement or contract
relating in any way to the protection, ownership, development, use or transfer
of Intellectual Property.

 

(j)                                     The
Shared MIS Systems and the Developed Software, together with the Owned
Intellectual Property and the Licensed Intellectual Property, includes all of
the Software necessary to enable the Business to become a fully operational
entity with all current functionality and appropriate controls to protect the
Business from any non-Business access. 
Upon Closing, the Purchaser shall own or otherwise have a valid right to
use (on the same terms and conditions that the Seller or Audiovox previously
had such right to use) all Shared MIS Systems and Developed Software.

 

SECTION 3.16. 
Real Property.  (a)  There are no parcels of Owned Real Property
used in the Business or included in the Purchased Assets.

 

(b)                                 The
Seller has not leased or subleased any parcel or any portion of any parcel of
Leased Real Property to any other Person and no other Person has any rights to
the use, occupancy or enjoyment thereof pursuant to any lease, sublease,
license, occupancy or other agreement, nor has the Seller assigned its interest
under any lease or sublease of any parcel or any portion of any parcel of
Leased Real Property to any third party.

 

(c)                                  Section 3.16(c)
of the Disclosure Schedule sets forth a true and complete list of all leases
and subleases relating to the Leased Real Property and any and all material
ancillary documents pertaining thereto (including all material amendments,
modifications, supplements, exhibits, schedules, addenda and restatements
thereto and thereof and all consents, including consents for alterations,
assignments and sublets, documents recording variations, memoranda of lease,
options, rights of expansion, extension, first refusal and first offer and

 

38

 

evidence of
commencement dates and expiration dates) (such leases, subleases and ancillary
documents being the “Lease Documents”). 
The Seller has made available to the Purchaser copies of all written
Lease Documents.  With respect to each
of such leases and subleases, the Seller has not exercised or given any notice
of exercise, nor has any lessor or landlord exercised or received any notice of
exercise by a lessor or landlord of, any option, right of first offer or right
of first refusal contained in any such lease or sublease, including any such
option or right pertaining to purchase, expansion, renewal, extension or
relocation (collectively, “Options”).

 

(d)                                 Except
as disclosed in Section 3.16(d) of the Disclosure Schedule, the interests of
Seller in the Leased Real Property to be transferred pursuant to this Agreement
are sufficient for the continued conduct of the Business after the Closing in
substantially the same manner as conducted prior to the Closing.

 

(e)                                  To
the best knowledge of the Seller, all the Leased Real Property is occupied
under a valid and current certificate of occupancy or similar permit.

 

(f)                                    The
rental set forth in each lease or sublease of the Leased Real Property is the
actual rental being paid, and there are no separate agreements or
understandings with respect to such rental.

 

(g)                                 Except
as set forth in Schedule 3.16(g) of the Disclosure Schedule, the Seller has the
full right to exercise any Option contained in the leases and subleases
pertaining to the Leased Real Property on the terms and conditions contained
therein and upon due exercise would be entitled to enjoy the full benefit of
such Options with respect thereto.

 

(h)                                 To
the best knowledge of the Seller, none of the Leased Real Property to be
transferred pursuant to this Agreement is the subject of any official complaint
or notice of violation of any applicable Law, zoning ordinance, building code
or regulation governing land use, and no such violation exists which detracts from
or interferes with the present use of such properties or impairs the operations
thereon; and there is no Law, zoning ordinance, building code, use or occupancy
restriction or condemnation action or proceeding pending, or, to the best
knowledge of the Seller, threatened with respect to any such Leased Real
Property which would detract from, or interfere with the present use of, such
property or impair the operations thereon, as presently conducted.

 

For purposes of this Section 3.16 and Sections 3.17
and 3.18, the term “lease” shall include any and all leases, subleases,
sale/leaseback agreements or similar arrangements.

 

SECTION 3.17. 
Tangible Personal Property. 
(a)  Section 3.17(a) of the
Disclosure Schedule lists (as of the end of the most recent calendar month for
which such data is available preceding the date of this Agreement) each item or
distinct group of machinery, equipment, tools, supplies, furniture, fixtures,
personalty, vehicles, rolling stock and other tangible personal property (the “Tangible
Personal Property”) used in the Business.

 

(b)                                 The
Seller has the full right to exercise any renewal options contained in the
leases and subleases pertaining to the Tangible Personal Property on the terms
and conditions contained therein and upon due exercise would be entitled to
enjoy the use of each item of leased Tangible Personal Property for the full
term of such renewal options.

 

39

 

SECTION 3.18. 
Assets.  (a)  The Seller owns, leases or has the legal
right to use all the properties and assets, including the Owned Intellectual
Property, the Licensed Intellectual Property, the Transferred IP Agreements,
the Leased Real Property and the Tangible Personal Property, used in the
conduct of the Business, and, with respect to contract rights, is a party to
and enjoys the right to the benefits of all such contracts, agreements and
other arrangements used by the Seller (as such relate to the Business) or in or
relating to the conduct of the Business, all of which properties, assets and
rights constitute Purchased Assets (subject to obtaining the third party
consents and approvals) except for the Excluded Assets.  The Seller has good and marketable title to,
or, in the case of leased or subleased Purchased Assets, valid and subsisting
leasehold interests in, all the Purchased Assets, free and clear of all
Encumbrances, except Permitted Encumbrances.

 

(b)                                 The
Purchased Assets constitute all the properties, assets and rights forming a
part of, used or held in, and all such properties, assets and rights as are
necessary in the conduct of, the Business other than the Excluded Intellectual
Property.

 

(c)                                  Following
the consummation of the transactions contemplated by this Agreement and the
execution of the instruments of transfer contemplated by this Agreement (and
subject to the receipt of required consents and approvals), the Purchaser will
own, with good, valid and marketable title, or lease, under valid and
subsisting leases, or otherwise acquire the interests of the Seller in the
Purchased Assets, free and clear of any Encumbrances, other than Permitted
Encumbrances, and without incurring any penalty or other adverse consequence,
including any increase in rentals, royalties, or license or other fees imposed
as a result of, or arising from, the consummation of the transactions
contemplated by this Agreement.

 

SECTION 3.19. 
Customers.  Listed in
Section 3.19 of the Disclosure Schedule are the names and addresses of the
ten largest customers (by revenue) of the Business for the twelve-month period
ended February 29, 2004 and the amount for which each such customer was
invoiced during such period.  Except as
set forth in Section 3.19 of the Disclosure Schedule, the Seller as of the date
hereof has not received any notice and has no reason to believe that any such
significant customer of the Business has ceased, or will cease, to use the
products, equipment, goods or services of the Business, or has substantially
reduced, or will substantially reduce, the use of such products, equipment,
goods or services at any time except for reasons which may be attributable to
the Purchaser.

 

SECTION 3.20. 
Suppliers.  Listed in
Section 3.20 of the Disclosure Schedule are the names and addresses of
each of the ten largest suppliers of raw materials, supplies, merchandise and
other goods for the Business for the twelve-month period ended February 29,
2004 and the amount for which each such supplier invoiced the Seller during
such period.  Except as set forth in
Section 3.20 of the Disclosure Schedule, as of the date hereof the Seller has
not received any notice and has no reason to believe that any such supplier
will not sell raw materials, supplies, merchandise and other goods to the
Purchaser at any time after the Closing on terms and conditions substantially
similar to those used in its current sales to the Business, subject only to
general and customary price increases except for reasons which may be
attributable to the Purchaser.  Except
as set forth in Section 3.20 of the Disclosure Schedule, none of the raw
materials, supplies, merchandise or other goods supplied to the Business are
such that they are not generally available in the market from more than one
source.

 

40

 

SECTION 3.21.  Employee Benefit Matters. 
(a)  Plans and Material
Documents.  Section 3.21(a) of
the Disclosure Schedule lists (i) all employee benefit plans (as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”)) and all bonus, stock option, stock purchase,
restricted stock, incentive, deferred compensation, retiree medical or life
insurance, supplemental retirement, severance or other benefit plans, programs
or arrangements, and all employment, termination, severance or other contracts
or agreements, whether legally enforceable or not, to which the Seller is a
party, with respect to which the Seller has any obligation or which are
maintained, contributed to or sponsored by the Seller, in each case, for the
benefit of any current or former employee, officer or director of the Business,
(ii) each employee benefit plan for which the Seller could incur liability
under Section 4069 of ERISA in the event such plan has been or were to be
terminated, (iii) any plan in respect of which the Seller could incur
liability under Section 4212(c) of ERISA, and (iv) any contracts,
arrangements or understandings between the Seller or any of its Affiliates and
any employee of the Business, including any contracts, arrangements or
understandings relating to the sale of the Purchased Assets (collectively, the
“Plans”); provided, that there shall be no obligation to list in Section
3.21(a) of the Disclosure Schedule any Plan that is not material.  The Seller has furnished to the Purchaser a
complete and accurate copy of each Plan that is in writing and a complete and
accurate copy of each material document prepared in connection with each such
Plan, including a copy of (i) each trust or other funding arrangement,
(ii) each summary plan description and summary of material modifications,
(iii) the most recently filed IRS Form 5500, (iv) the most
recently received IRS determination letter for each such Plan, and (v) the
most recently prepared actuarial report and financial statement in connection
with each such Plan.  Except as set
forth in Section 3.21(a) of the Disclosure Schedule or as permitted to be
excluded from the definition of Plan, there are no other employee benefit
plans, programs, arrangements or agreements, whether formal or informal, whether
in writing or not, to which the Seller is a party, with respect to which the
Seller has any obligation or which are maintained, contributed to or sponsored
by the Seller, in each case, for the benefit of any current or former employee,
officer or director of the Business. 
The Seller has no express or implied commitment, whether legally
enforceable or not, to (i) create or incur liability with respect to or
cause to exist any other employee benefit plan, program or arrangement,
(ii) to enter into any contract or agreement to provide compensation or
benefits to any individual, or (iii) to modify, change or terminate any
Plan, other than with respect to a modification, change or termination required
by ERISA or the Code, in each of the foregoing cases, for the benefit of any
current or former employee, officer or director of the Business.

 

(b)                                 Absence
of Certain Types of Plans.  None of
the Plans is subject to Title IV of ERISA or Section 412 of the Code and none
of the Company, ACC or any of their ERISA Affiliates currently contributes to,
or during any time during the last six years had an obligation to contribute
to, or has any liability to a plan subject to Title IV of ERISA or Section 412
of the Code.  Except as set forth in
Section 3.21(b) of the Disclosure Schedule, none of the Plans provides for the
payment of separation, severance, termination or similar-type benefits to any
Person or obligates the Seller to pay separation, severance, termination or
similar-type benefits solely as a result of any transaction contemplated by
this Agreement or as a result of a change in control.  Except as set forth in Section 3.21(b) of the Disclosure
Schedule, none of the Plans provides for or promises retiree medical, disability
or life insurance benefits to any current or former employee, officer or
director of the Business, other than COBRA continuation coverage.

 

41

 

Except as set
forth in Section 3.21(b) of the Disclosure Schedule, each of the Plans is
subject only to the Laws of the United States or a political subdivision
thereof.

 

(c)                                  Compliance
with Applicable Law.  Each Plan has
been operated in all material respects in accordance with the requirements of
all applicable Law, including ERISA and the Code, and the Seller and, to the
knowledge of the Seller after discharging its fiduciary duty to satisfy any due
inquiry, all Persons who participate in the operation of such Plans and all
Plan “fiduciaries” (within the meaning of Section 3(21) of ERISA) have acted
in all material respects  in accordance
with the provisions of all applicable Law, including ERISA and the Code.  The Seller has performed all obligations
required to be performed by it under, is not in any respect in default under or
in violation of, and has no knowledge of any default or violation by any party
to, any Plan, in each case as would not result in any material liability to the
Seller or the Business.  No Action is
pending or, to the best knowledge of the Seller, threatened with respect to any
Plan (other than claims for benefits in the ordinary course) and, to the
knowledge of the Seller, no fact or event exists that could give rise to any
such Action.

 

(d)                                 Qualification
of Certain Plans.  Each Plan that is
intended to be qualified under Section 401(a) of the Code or
Section 401(k) of the Code has received a favorable determination letter
from the IRS that it is so qualified, and each trust established in connection
with any Plan that is intended to be exempt from federal income taxation under
Section 501(a) of the Code has received a determination letter from the
IRS that it is so exempt, and, to the knowledge of the Seller, no fact or event
has occurred since the date of such determination letter from the IRS to
adversely affect the qualified status of any such Plan or the exempt status of
any such trust.  Each trust maintained
or contributed to by the Seller or any of its ERISA Affiliates that is intended
to be qualified as a voluntary employees’ beneficiary association and that is
intended to be exempt from federal income taxation under Section 501(c)(9)
of the Code has received a favorable determination letter from the IRS that it
is so qualified and so exempt, and, to the knowledge of the Seller, no fact or
event has occurred since the date of such determination by the IRS to adversely
affect such qualified or exempt status.

 

(e)                                  Absence
of Certain Liabilities and Events. 
The Seller has engaged in no, and, to the knowledge of the Seller, there
has been no, prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) with respect to any Plan.  Neither the Seller nor any of its ERISA
Affiliates has incurred any liability for any penalty or tax arising under Section 4971,
4972, 4980, 4980B or 6652 of the Code or any liability under Section 502
of ERISA, and, to the knowledge of the Seller, no fact or event exists that
could give rise to any such liability.

 

SECTION 3.22. 
Labor Matters.  The Seller
is not a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by the Seller in connection with the
Business, and to the best knowledge of the Seller currently there are no
organizational campaigns, petitions or other unionization activities seeking
recognition of a collective bargaining unit which could affect the
Business.  There are no strikes,
slowdowns, work stoppages or material controversies pending or, to the best
knowledge of the Seller, threatened between the Seller and any employees of the
Business, and the Seller has not experienced any such strike, slowdown or work
stoppage or material controversies within the past three years.  There are no unfair labor practice
complaints pending against the Seller before

 

42

 

the National Labor
Relations Board or any other Governmental Authority or any current union
representation questions involving Persons employed by or, to the best
knowledge of the Seller, otherwise providing services for the Seller in
connection with the Business.  The
Seller with respect to the Business is currently in material compliance with
all applicable Laws relating to the employment of labor, including those
related to wages, hours, collective bargaining and the payment and withholding
of Taxes and other sums as required by the appropriate Governmental Authority
and has withheld and paid to the appropriate Governmental Authority or is
holding for payment not yet due to such Governmental Authority all material
amounts required to be withheld from employees of the Business and is not
liable for any material arrears of wages, Taxes, penalties or other sums for
failure to comply with any of the foregoing. 
The Seller has in all material respects paid in full to all the Persons
employed by or otherwise performing services for the Business or adequately
accrued for in accordance with GAAP all wages, salaries, commissions, bonuses,
benefits and other compensation due to or on behalf of such Persons.  There is no material claim with respect to
payment of wages, salary or overtime pay that has been asserted or is now
pending or, to the best knowledge of the Seller, threatened, in each case,
before any Governmental Authority with respect to any current or former
employee of the Business.  The Seller is
not a party to, or otherwise bound by, any consent decree with, or citation by,
any Governmental Authority relating to employees or employment practices with
respect to the Business.  Except as set
forth in Section 3.22 of the Disclosure Schedule, there is no charge or
proceeding with respect to a material violation of any occupational safety or
health standard that has been asserted or is now pending or, to the best
knowledge of the Seller, threatened with respect to the Business.  Except as set forth in Section 3.22 of the
Disclosure Schedule, there is no charge of discrimination in employment or
employment practices with respect to the Business, for any reason, including
age, gender, race, religion or other legally protected category, which has been
asserted or is now pending before the United States Equal Employment
Opportunity Commission, or any other Governmental Authority in any jurisdiction
in which the Seller has employed or currently employs any Person in connection
with the Business nor, to the best knowledge of the Seller has any such charge
been threatened.  Except as set forth in
Section 3.22 of the Disclosure Schedule, to the best knowledge of the Seller,
the Seller has not used, in connection with the Business, the services of
workers provided by third party contract labor suppliers, temporary employees,
“leased employees” (as that term is defined in Section 414(n) of the Code), or
Persons who have provided services as independent contractors, to an extent
that could reasonably be expected to result in the disqualification of any Plan
under applicable Law, or the imposition of penalties or excise Taxes with
respect to any Plan by the IRS, the U.S. Department of Labor or any other
Governmental Authority, or a claim by such Person for participation or eligibility
for benefits under any Plan.

 

SECTION 3.23. 
Key Employees.  (a)  Section 3.23 of the Disclosure Schedule
lists, for each employee of the Business, the name, title, place of employment,
hire date, actual W-2 compensation for 2002 and 2003 and annualized
compensation for 2004, accrued vacation and sick leave and paid time off as of
the date of this Agreement and a description of the position and job function
of each current salaried employee of the Seller who is employed or retained in
connection with the Business and whose annual compensation exceeded (or, in
2004, is expected to exceed) $75,000.

 

(b)                                 Except
as set forth in Section 3.23(b) of the Disclosure Schedule, no director,
officer, management employee or technical and professional Person who is
employed

 

43

 

by or who
otherwise perform services for the Seller in connection with the Business are
under written obligation to the Seller to maintain in confidence all
confidential or proprietary information acquired by them in the course of their
employment and to assign to the Seller all inventions made by them within the
scope of their employment during such employment and for a reasonable period
thereafter.

 

SECTION 3.24. 
Certain Interests.  Except
as set forth in Section 3.24 of the Disclosure Schedule, to the best
knowledge of the Seller, no stockholder, officer or director of the Seller and
no relative or spouse (or relative of such spouse) who resides with, or is a
dependent of, any such stockholder, officer or director:

 

(a)                                  has
any direct or indirect material financial interest in any competitor, supplier
or customer of the Business; provided, however, that the
ownership of securities representing no more than one percent of the
outstanding voting power of any competitor, supplier or customer and that are
also listed on any national securities exchange, shall not be deemed to be a
“financial interest” so long as the Person owning such securities has no other
connection or relationship with such competitor, supplier or customer;

 

(b)                                 owns,
directly or indirectly, in whole or in part, or has any other interest in any
tangible or intangible property that the Seller uses in the conduct of the
Business; or

 

(c)                                  has
outstanding any Indebtedness to the Seller.

 

SECTION 3.25. 
Taxes.  Except as set
forth in Section 3.25 of the Disclosure Schedule, (a) all Tax Returns required
to be filed by or with respect to the Seller, the Purchased Assets or the
Business (including any consolidated, combined or unitary Tax Return that
includes the Seller) have been timely filed, and taxes in connection therewith
have been timely paid; (b) all such Tax Returns are true, correct and
complete in all material respects; (c) no adjustment relating to such Tax
Returns has been proposed formally or informally by any Governmental Authority
and, to the best knowledge of the Seller, no basis exists for any such
adjustment; (d) there are no pending or, to the best knowledge of the Seller,
threatened Actions for the assessment or collection of Taxes against the
Seller, the Purchased Assets or the Business or any Person that was included in
the filing of a Tax Return with the Seller on a consolidated, combined or
unitary basis; (e) there are no
Tax liens on any of the Purchased Assets; (f) there are no requests for
information outstanding that could affect the Taxes relating to the Purchased
Assets or the Business; (g) the Seller has not received any notice or inquiry
from any jurisdiction where the Seller does not currently file Tax Returns to
the effect that such filings may be required with respect to the Purchased
Assets or the Business or that the Purchased Assets or the Business may
otherwise be subject to taxation by such jurisdiction; (h) the Seller has
properly and timely withheld, collected or deposited all amounts required to be
withheld, collected or deposited in respect of Taxes and (i) to the best
knowledge of the Seller, there are no Tax investigations, inquiries or audits
by any Tax authority in progress relating to the Purchased Assets or the
Business, nor has the Seller received any written notice indicating that a
Governmental Authority intends to conduct such an audit or investigation.

 

SECTION 3.26. 
Insurance.  Set forth in
Section 3.26 of the Disclosure Schedule is a list of all material insurance
policies related to the Business, which policies cover all material

 

44

 

assets, properties and
reasonably anticipated risks of the Business. 
All such policies are in full force and effect, all premiums due thereon
have been paid and the Seller has complied in all material respects with the
provisions of such policies.  No
proceeding is pending or, to the best knowledge of the Seller, threatened to
revoke or cancel or limit such policies and no notice of cancellation of any
such policies has been received by the Seller.

 

SECTION 3.27. 
Certain Business Practices. 
Except as set forth in Section 3.27 of the Disclosure Schedule, neither
the Seller nor any of its directors, officers, agents, representatives or
employees (in their capacity as directors, officers, agents, representatives or
employees) has:  (a) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity in respect of the Business; (b) directly or
indirectly, paid or delivered any fee, commission or other sum of money or item
of property, however characterized, to any finder, agent, or other party acting
on behalf of or under the auspices of a governmental official or Governmental
Authority, in the United States or any other country, which is in any manner
illegal under any Law of the United States or any other country having
jurisdiction; or (c) made any payment to any customer or supplier of the Seller
or any officer, director, partner, employee or agent of any such customer or
officer, director, partner, employee or agent for the unlawful reciprocal
practice, or made any other unlawful payment or given any other unlawful
consideration to any such customer or supplier or any such officer, director,
partner, employee or agent, in respect of the Business.

 

SECTION 3.28. 
INTENTIONALLY OMITTED.

 

SECTION 3.29. 
Brokers.  Except for
Jefferies & Company, Inc., no broker, finder or investment banker is
entitled to any brokerage, finder’s or other fee or commission in connection
with the transactions contemplated by this Agreement or the Ancillary
Agreements based upon arrangements made by or on behalf of the Seller or its
Affiliates.  The Seller is solely
responsible for the fees and expenses of Jefferies & Company, Inc.

 

SECTION 3.30. 
Board Approval; Vote Required. 
(a)  The Board of Directors of
Audiovox (the “Audiovox Board”), by resolutions duly adopted by
unanimous vote of those voting at a meeting duly called and held and not
subsequently rescinded or modified in any way, has duly (i) determined
that this Agreement and the transactions contemplated hereby are fair to and in
the best interests of Audiovox and its stockholders, (ii) approved this
Agreement and the transactions contemplated hereby and declared their
advisability and (iii) recommended that the stockholders of Audiovox
approve and adopt this Agreement and approve the transactions contemplated
hereby and directed that this Agreement and the transactions contemplated
hereby be submitted for consideration by Audiovox’s stockholders at the
Audiovox Stockholders’ Meeting (as hereinafter defined).

 

(b)                                 The
only vote of the holders of any class or series of capital stock of Audiovox
necessary to approve this Agreement and the transactions contemplated hereby is
the affirmative vote of the holders of a majority of the votes under the
outstanding shares of Class A common stock and Class B common stock of Audiovox
voting as a single class in favor of the approval and adoption of this
Agreement.

 

45

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

OF THE PURCHASER

 

As an inducement to the Seller to enter into this
Agreement, the Purchaser hereby represents and warrants to the Seller as
follows:

 

SECTION 4.01. 
Organization and Authority of the Purchaser.  The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all necessary corporate power and
authority to enter into this Agreement and the Ancillary Agreements to which it
is a party, to carry out its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby.  The execution and delivery by the Purchaser
of this Agreement and the Ancillary Agreements to which it is a party, the
performance by the Purchaser of its obligations hereunder and thereunder and
the consummation by the Purchaser of the transactions contemplated hereby and
thereby have been duly authorized by all requisite corporate action on the part
of the Purchaser.  This Agreement has
been, and upon their execution the Ancillary Agreements to which the Purchaser
is a party shall have been, duly executed and delivered by the Purchaser, and
(assuming due authorization, execution and delivery by the Seller) this
Agreement constitutes, and upon their execution the Ancillary Agreements to
which the Purchaser is a party shall constitute, legal, valid and binding
obligations of the Purchaser, enforceable against the Purchaser in accordance
with their respective terms.

 

SECTION 4.02. 
No Conflict.  Assuming
compliance with the pre-merger notification and waiting period requirements of
the HSR Act and the making and obtaining of all filings, notifications,
consents, approvals, authorizations and other actions referred to in
Section 4.03, except as may result from any facts or circumstances
relating solely to the Seller, the execution, delivery and performance by the
Purchaser of this Agreement and the Ancillary Agreements to which it is a party
do not and will not (a) violate, conflict with or result in the breach of
any provision of the Certificate of Incorporation or By-laws of the Purchaser,
(b) conflict with or violate any material Law or Governmental Order
applicable to the Purchaser or (c) conflict with, or result in any breach
of, constitute a default (or event which with the giving of notice or lapse of
time, or both, would become a default) under, require any consent under, or give
to others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, any material note, bond, mortgage or indenture,
contract, agreement, lease, sublease, license, permit, franchise or other
instrument or arrangement to which the Purchaser is a party, which would
adversely affect the ability of the Purchaser to carry out its obligations
under, and to consummate the transactions contemplated by, this Agreement or
the Ancillary Agreements.

 

SECTION 4.03. 
Governmental Consents and Approvals.  The execution, delivery and performance by the Purchaser of this
Agreement and each Ancillary Agreement to which the Purchaser is a party do not
and will not require any material consent, approval, authorization or other
order of, action by, filing with, or notification to any Governmental Authority
applicable to the Purchaser, except (a) as described in a writing given to
the Seller by the Purchaser on the

 

46

 

date of this Agreement,
(b) the pre-merger notification and waiting period requirements of the HSR
Act and (c) the applicable antitrust approvals in the Peoples Republic of
China.

 

SECTION 4.04. 
Financing.  The Purchaser
has, and at the Closing will have, all funds necessary to consummate all the
transactions contemplated by this Agreement and the Ancillary Agreements.

 

SECTION 4.05. 
Litigation.  Except as set
forth in a writing given to the Seller by the Purchaser on the date of this
Agreement, no Action by or against the Purchaser is pending or, to the best
knowledge of the Purchaser, threatened, which would materially and adversely
affect the legality, validity or enforceability of this Agreement, any
Ancillary Agreement or the consummation of the transactions contemplated hereby
or thereby.

 

SECTION 4.06. 
Brokers.  Except for
Merrill Lynch, Pierce, Fenner & Smith Incorporated, no broker, finder or
investment banker is entitled to any brokerage, finder’s or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Purchaser.  The Purchaser shall be solely responsible
for payment of the fees and expenses of Merrill Lynch, Pierce, Fenner &
Smith Incorporated.

 

SECTION 4.07. 
UTStarcom Canada. 
UTStarcom Canada is registered in Canada and in the Province of Ontario
and is eligible to apply for the certificates necessary to exempt either the
Seller or the Purchaser from paying GST and PST taxes in Canada and in the
Province of Ontario as a result of the transactions contemplated by this
Agreement.

 

ARTICLE V

ADDITIONAL AGREEMENTS

 

SECTION 5.01. 
Conduct of Business Prior to the Closing.  (a) 
The Seller covenants and agrees that, except as described in
Section 5.01(a) of the Disclosure Schedule, between the date hereof and
the time of the Closing, the Seller shall not conduct the Business other than
in the ordinary course and consistent with the Seller’s prior practice.  Without limiting the generality of the
foregoing, except as described in Section 5.01(a) of the Disclosure
Schedule, the Seller shall (as it relates to the Business) (i) continue
its advertising and promotional activities, and pricing and purchasing
policies, in accordance with past practice and good business judgment;
(ii) not shorten or lengthen the customary payment cycles for any of its
payables or receivables; (iii) use its reasonable commercial efforts to
(A) preserve intact the business organization of the Business,
(B) keep available to the Purchaser (without any obligation to increase
their compensation) the services of the employees of the Seller to whom offers
of employment are to be made pursuant to Section 6.01, (C) continue in
full force and effect without material modification all existing policies or
binders of insurance currently maintained in respect of the Business and
(D) preserve its current relationships with the customers and suppliers of
the Business and other persons with which the Business has had significant
business relationships; (iv) exercise, but only after notice to the
Purchaser and receipt of the Purchaser’s prior written approval (not to be
unreasonably withheld), any rights of renewal pursuant to the terms of any of
the leases or subleases set forth in Section 3.16(c) of the

 

47

 

Disclosure Schedule which
by their terms would otherwise expire; and (v) except in accordance with
Section 5.06 or Article IX, not engage in any practice, take any action, fail
to take any action or enter into any transaction which would render it unable
to satisfy the condition set forth in Section 7.02(a).

 

(b)                                 Except
as described in Section 5.01(b) of the Disclosure Schedule, the Seller
covenants and agrees that, between the date hereof and the time of the Closing,
without the prior written consent of the Purchaser (not to be unreasonably
withheld), the Seller will not take any of the actions enumerated in the second
sentence of Section 3.10 and all clauses thereof (other than clauses (k),
(u), (x), (z) and (aa), which shall be excluded).

 

SECTION 5.02. 
Access to Information. 
(a)  From the date hereof until
the Closing, subject to applicable limitations under confidentiality agreements
to which the Seller is bound, upon reasonable notice, the Seller shall cause
its officers, directors, employees, agents, representatives, accountants and
counsel to:  (i) afford the
officers, employees, agents, accountants, counsel, financing sources and
representatives of the Purchaser reasonable access, during normal business
hours, to the offices, properties, plants, other facilities, and books and
records of the Seller relating to the Business and to those officers,
directors, employees, agents, accountants and counsel of the Seller who have
any knowledge relating to the Business and (ii) furnish to the officers,
employees, agents, accountants, counsel, financing sources and representatives
of the Purchaser such additional financial and operating data and other
information regarding the assets, properties, liabilities and goodwill of the
Business (or legible copies thereof) that are reasonably available to the
Seller as the Purchaser may from time to time reasonably request.  All information disclosed hereunder shall be
subject to the Confidentiality Agreement.

 

(b)                                 In
order to facilitate the resolution of any claims made against or incurred by
the Seller, the making of any necessary filing by Audiovox or the Seller or for
any other reasonable purpose, for a period of seven years after the Closing,
the Purchaser shall (i) retain the books and records relating to the
Business relating to periods prior to the Closing in a manner reasonably
consistent with the prior practice of the Seller, (ii) authorize, direct and
instruct its employees with knowledge of such claims to reasonably cooperate
and assist the Seller in connection with such claims and (iii) upon
reasonable notice, afford the officers, employees, agents and representatives
of Audiovox or the Seller reasonable access (including the right to make, at
the Seller’s expense, photocopies), during normal business hours, to such books
and records.

 

(c)                                  In
order to facilitate the resolution of any claims made by or against or incurred
by the Purchaser after the Closing or for any other reasonable purpose, for a
period of seven years following the Closing, the Seller shall (i) retain
the books and records of the Seller which relate to the Business and its
operations for periods prior to the Closing and which shall not otherwise have
been delivered to the Purchaser, (ii) authorize, direct and instruct its employees
with knowledge of such claims to reasonably cooperate and assist the Purchaser
in connection with such claims and (iii) upon reasonable notice, afford
the officers, employees, agents and representatives of the Purchaser reasonable
access (including the right to make photocopies, at the Purchaser’s expense),
during normal business hours, to such books and records.

 

48

 

SECTION 5.03. 
Confidentiality.  Subject
to the Seller’s rights with respect to the Excluded Assets and the Excluded
Liabilities, the Seller agrees to, and shall cause its agents, representatives,
Affiliates, employees, officers and directors to:  (i) treat and hold as confidential (and not disclose or
provide access to any Person to) all information relating to trade secrets,
processes, patent applications, product development, price, customer and
supplier lists, pricing and marketing plans, policies and strategies, details
of client and consultant contracts, operations methods, product development
techniques, business acquisition plans, new personnel acquisition plans and all
other confidential or proprietary information with respect to the Business,
(ii) in the event that the Seller or any such agent, representative,
Affiliate, employee, officer or director becomes legally compelled to disclose
any such information, provide the Purchaser with prompt written notice of such
requirement so that the Purchaser may seek a protective order or other remedy
or waive compliance with this Section 5.03, and (iii) in the event
that such protective order or other remedy is not obtained, or the Purchaser
waives compliance with this Section 5.03, furnish only that portion of
such confidential information which is legally required to be provided and
exercise its reasonable commercial efforts to obtain assurances that
confidential treatment will be accorded such information; provided, however,
that this sentence shall not apply to any information that, (x) at the time of
disclosure, is available publicly and was not disclosed in breach of this
Agreement by the Seller, its agents, representatives, Affiliates, employees,
officers or directors, (y) the Seller reasonably believes is necessary or
advisable in connection with any claim against the Seller or for which the
Seller is purportedly responsible, whether by a third party or otherwise or (z)
the performance by the Seller of its obligations, or the assertion by the
Seller of any of its rights or remedies, under any Acquisition Document; and provided
further that, with respect to Intellectual Property, specific
information shall not be deemed to be within the foregoing exception merely
because it is embraced in general disclosures in the public domain.  In addition, with respect to Intellectual
Property, any combination of features shall not be deemed to be within the
foregoing exception merely because the individual features are in the public
domain unless the combination itself and its principle of operation are in the
public domain.  Notwithstanding the
foregoing, the Seller and its Affiliates may make such disclosures as are
required under applicable securities or state law or regulation or national
stock exchange rules or regulations. 
The Seller agrees and acknowledges that remedies at law for any breach
of its obligations under this Section 5.03 are inadequate and that in addition
thereto the Purchaser shall be entitled to seek equitable relief, including
injunction and specific performance, in the event of any such breach.

 

SECTION 5.04. 
Regulatory and Other Authorizations; Notices and Consents.  (a) 
The Seller shall use its reasonable commercial efforts to obtain all
authorizations, consents, orders and approvals of all third parties, including
all Governmental Authorities and officials that may be or become reasonably
necessary for its execution and delivery of, and the performance of its
obligations pursuant to, this Agreement and the Ancillary Agreements and will
cooperate fully with the Purchaser in promptly seeking to obtain all such
authorizations, consents, orders and approvals.  Each party hereto agrees to make an appropriate filing, if
necessary, pursuant to the HSR Act with respect to the transactions
contemplated by this Agreement within ten (10) Business Days of the date hereof
and to supply as promptly as practicable to the appropriate Governmental
Authorities any additional information and documentary material that may be
requested pursuant to the HSR Act.  The
filing fee for such HSR Act filing shall be borne by the Purchaser.

 

49

 

(b)                                 The
Seller shall cooperate and use its reasonable commercial efforts to obtain or
assist the Purchaser in obtaining such third party consents and estoppel
certificates as may be reasonably necessary or desirable in connection with the
transactions contemplated by this Agreement.

 

(c)                                  The
Purchaser shall cooperate and use all reasonable efforts to assist the Seller
in giving such notices and obtaining such consents and estoppel certificates; provided,
however, that the Purchaser shall have no obligation to give any
guarantee or other consideration of any nature in connection with any such
notice, consent or estoppel certificate or to consent to any change in the
terms of any agreement or arrangement which the Purchaser in its sole
discretion may deem adverse to the interests of the Purchaser or the Business.

 

(d)                                 The
Seller and the Purchaser agree that, in the event that any consent, approval or
authorization reasonably necessary or desirable to preserve for the Business
any right or benefit under any Assumed Contract is not obtained prior to the
Closing, the Seller will, subsequent to the Closing, cooperate with the
Purchaser in attempting to obtain such consent, approval or authorization as
promptly thereafter as is reasonably practicable.  If such consent, approval or authorization cannot be obtained,
the Seller shall use its reasonable commercial efforts to provide the Purchaser
with, or cause to be provided to the Purchaser, the rights and benefits of the
affected Assumed Contract for the term of such Assumed Contract.  To the extent that any Assumed Contract is
not capable of being assigned, transferred, subleased or sublicensed without
the consent or waiver of the other party thereto or any third party including a
government or governmental unit, or if such assignment, transfer, sublease or
sublicense or attempted assignment, transfer, sublease or sublicense would
constitute a breach thereof or a violation of any law, decree, order,
regulation, or other governmental edict, this Agreement shall not constitute an
assignment, transfer, sublease or sublicense thereof, or an attempted
assignment, transfer, sublease or sublicense of any such Assumed Contract.

 

(e)                                  In
using its reasonable commercial efforts to obtain any authorization, order,
consent, approval, assignment, estoppel certificate or waiver hereunder, the
Seller shall not be obligated to incur costs, expenses (including third-party
legal fees) and (collectively, “Consent Costs”) which, along with all
other Consent Costs incurred by the Seller, (x) exceed $500,000 in the
aggregate and (y) are other than one-time costs to be paid in connection with
obtaining such authorization, order, consent, approval, assignment or
waiver.  For the sake of clarity,
Audiovox shall not have any obligation to incur Consent Costs.

 

SECTION 5.05. 
Notice of Developments. 
Prior to the Closing, the Seller shall promptly notify the Purchaser (a)
in writing of all events, circumstances, facts and occurrences arising
subsequent to the date of this Agreement which could reasonably be expected to
result in a failure to satisfy the condition set forth in Section 7.02(a) and
(b) all other material and adverse developments affecting the Purchased Assets,
Liabilities, business, financial condition, operations, results of operations,
customer or supplier relations, employee relations, projections or prospects of
the Business.

 

SECTION 5.06. 
No Solicitation or Negotiation. 
(a) Each of the Seller and Audiovox agrees that neither it nor any of
its directors, officers or employees will, and that it will cause its agents,
advisors and other representatives (including, without limitation, any
investment

 

50

 

banker, attorney or
accountant retained by it), not to, directly or indirectly, (i) solicit,
initiate or encourage (including by way of furnishing nonpublic information),
or take any other action to facilitate, any inquiries or the making of any
proposal or offer (including, without limitation, any proposal or offer to
the  stockholders of Audiovox) that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction (as hereinafter defined), or (ii) enter into or maintain or
continue discussions or negotiations with any person or entity in furtherance
of such inquiries or to obtain a proposal or offer for a Competing Transaction,
or (iii) agree to, approve, endorse or recommend any Competing Transaction or
enter into any letter of intent or other contract, agreement or commitment
contemplating or otherwise relating to any Competing Transaction.  The Seller or Audiovox, as applicable, shall
notify the Purchaser as promptly as practicable (and in any event within two
(2) days after the Seller or Audiovox, as applicable, attains knowledge thereof),
orally and in writing, if any proposal or offer, or any inquiry or contact with
any person with respect thereto, regarding a Competing Transaction is made,
specifying the material terms and conditions thereof and the identity of the
party making such proposal or offer or inquiry or contact (and the Seller or
Audiovox, as applicable, shall notify the Purchaser concerning any material
amendments to such proposal or offer). 
Audiovox shall provide the Purchaser with forty-eight (48) hours prior
notice (or such lesser prior notice as is provided to the members of the
Audiovox Board) of any meeting of the Audiovox Board at which the Audiovox
Board is reasonably expected to consider any Competing Transaction.  The Seller and Audiovox immediately shall
cease and cause to be terminated all existing discussions or negotiations with
any parties conducted heretofore with respect to a Competing Transaction.  The Seller and Audiovox agree not to,
without the prior written consent of the Purchaser, release any Person from, or
waive any provision of, any confidentiality or standstill agreement (unless the
Audiovox Board, in order to comply with its fiduciary obligations to Audiovox
and its stockholders under applicable Law, must waive the standstill provisions
so that such Person may make a proposal or offer which may reasonably be
expected to lead to a Superior Proposal) to which the Seller and Audiovox is a
party relating to Audiovox, the Seller or the Purchased Assets.

 

(b)                                 Notwithstanding
anything to the contrary in Section 5.06, the Audiovox Board may furnish
information to, and enter into discussions with, a Person who has made an
unsolicited, written, bona fide proposal or offer regarding a Competing
Transaction, and the Audiovox Board has (i) determined, in its good faith
judgment (after having received the advice of a financial advisor of nationally
recognized reputation), that such proposal or offer constitutes, or may be
reasonably expected to lead to, a Superior Proposal (as hereunder defined),
(ii) determined, in its good faith judgment after consultation with independent
legal counsel (who may be Audiovox’s regularly engaged independent legal
counsel), that, in light of such proposal or offer, the furnishing of such
information or entering into discussions is required to comply with its
fiduciary obligations to Audiovox and its stockholders under applicable Law,
(iii) provided written notice to the Purchaser of its intent to furnish
information or enter into discussions with such person, and (iv) obtained from
such person an executed confidentiality agreement on terms no less favorable to
Audiovox than those contained in the Confidentiality Agreement (it being
understood that such confidentiality agreement and any related agreements shall
not include any provision calling for any exclusive right to negotiate with
such party or having the effect of prohibiting Audiovox from satisfying its
obligations under this Agreement).

 

51

 

(c)                                  Except
as set forth in this Section 5.06(c), neither the Audiovox Board nor any
committee thereof shall withdraw or modify, or propose to withdraw or modify,
in a manner adverse to the Purchaser, the Audiovox Recommendation (a “Change
in the Audiovox Recommendation”) or approve or recommend, or cause or
permit Audiovox to enter into any letter of intent, agreement or obligation
with respect to, any Competing Transaction. 
Notwithstanding the foregoing, if the Audiovox Board determines, in its
good faith judgment prior to the time of the Audiovox Stockholders’ Meeting and
after consultation with independent legal counsel (who may be Audiovox’s
regularly engaged independent legal counsel), that it is required to make a
Change in the Audiovox Recommendation to comply with its fiduciary obligations
to Audiovox and its stockholders under applicable Law, the Audiovox Board may
make a Change in the Audiovox Recommendation to recommend a Superior Proposal,
but only (i) after providing written notice to the Purchaser (a “Notice of
Superior Proposal”) advising Audiovox that the Audiovox Board has received
a Superior Proposal, specifying the material terms and conditions of such
Superior Proposal and identifying the person making such Superior Proposal and
indicating that the Audiovox Board intends to effect a Change in the Audiovox
Recommendation and the manner in which it intends (or may intend) to do so, and
(ii) if the Purchaser does not, within three (3) business days of Purchaser’s
receipt of the Notice of Superior Proposal, make an offer that the Audiovox
Board determines, in its good faith judgment (after having received the advice
of a financial advisor of nationally recognized reputation) to be at least as
favorable to Audiovox’s stockholders as such Superior Proposal.  Any disclosure that the Audiovox Board may
determine that it is compelled to make with respect to the receipt of a
proposal or offer for a Competing Transaction or otherwise in order to comply
with its fiduciary obligations to Audiovox and its stockholders under
applicable Law, including under Rule 14d-9 or 14e-2 of the rules promulgated
under the Securities Exchange Act of 1934, as amended, will not constitute a
violation of this Agreement.

 

(d)                                 A
“Competing Transaction” means any of the following (other than the
transactions contemplated by this Agreement): 
(i) any merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or other similar transaction
involving Audiovox or the Seller; (ii) any sale, lease, exchange, transfer or
other disposition of all or a substantial part of the assets of Audiovox or the
Seller (other than a disposition of the assets of Audiovox that do not comprise
the Purchased Assets); (iii) any sale, exchange, transfer or other disposition
of 15% or more of any class of equity securities of Audiovox or of the Seller;
(iv) any tender offer or exchange offer that, if consummated, would result in
any person beneficially owning 15% or more of any class of equity securities of
Audiovox or of the Seller; or (v) any solicitation in opposition to approval
and adoption of this Agreement by Audiovox’s stockholders.

 

(e)                                  A
“Superior Proposal” means an unsolicited written bona fide offer made by
a third party to consummate any of the following transactions:  (i) a merger, consolidation, share exchange,
business combination or other similar transaction involving Audiovox or the
Seller pursuant to which the stockholders of Audiovox or the Seller, as the
case may be, immediately preceding such transaction would hold less than 50% of
the equity interest in the surviving or resulting entity of such transaction;
(ii) the acquisition by any person or group (including by means of a tender
offer or an exchange offer or a two-step transaction involving a tender offer
followed with reasonable promptness by a cash-out merger involving Audiovox),
directly or indirectly, of ownership of 51% of the then outstanding shares of
stock of Audiovox

 

52

 

or 90% of the
then outstanding shares of stock of the Seller, or (iii) an acquisition of 85%
of the assets of the Seller, in each case on terms (including conditions to
consummation of the contemplated transaction) that the Audiovox Board
determines, in its good faith judgment (after having received the advice of a
financial advisor of nationally recognized reputation), to be more favorable to
Audiovox stockholders than transactions contemplated by this Agreement; provided,
however, that any such offer shall not be deemed to be a “Superior
Proposal” if any financing required to consummate the transaction contemplated
by such offer is not committed and is not likely in the good faith judgment of
the Audiovox Board (after having received the advice of a financial advisor of
nationally recognized reputation) to be obtained by such third party on a
timely basis.

 

SECTION 5.07. 
Use of Intellectual Property. 
From and after the Closing, neither the Seller nor any of its Affiliates
shall use any of the Owned Intellectual Property or any of the Licensed
Intellectual Property, except for the Excluded Assets.

 

SECTION 5.08. 
Non-Competition.  (a)  For a period of five years after the Closing
(the “Restricted Period”), neither the Seller nor Audiovox shall
conduct, directly or indirectly, the Business or, without the prior written
consent of the Purchaser, directly or indirectly, own an interest in, manage,
operate, control, as a partner, stockholder or otherwise, any Person that
conducts the Business; provided, however, that, (x) for the
purposes of this Section 5.08, ownership of securities having no more than five
percent of the outstanding voting power of any such Person shall not be deemed
to be in violation of this Section 5.08 as long as the Person owning such
securities has no other material connection or relationship with, and no
express ability to effect the management of, such other Person and (y)
ownership of a Person hereafter acquired by the Seller or Audiovox that
conducts the Business shall not be deemed a violation of this Section 5.08,
provided, that (1) such Person is not engaged primarily in conducting the
Business, (2) if Audiovox or the Seller, as the case may be, causes that Person
to cease conducting the Business within six months of Audiovox or the Seller
becoming the owner of such Person and (3) such Person shall not use the
Audiovox name to promote the Business during such period of ownership by
Audiovox or the Seller; and provided, further, that the ownership
interests described in Section 5.08(a) of the Disclosure Schedule shall not be
deemed to be in violation of this Section 5.08.

 

(b)                                 As
a separate and independent covenant, the Seller agrees with the Purchaser that,
for a period of five years following the Closing, neither the Seller nor
Audiovox will in any way, directly or indirectly, materially interfere with or
attempt to materially interfere with any officers, employees, representatives
or agents of the Business or solicit or attempt to solicit any employee of the
Purchaser to leave the employ of the Purchaser or violate the terms of their
contracts, or any employment arrangements, with the Purchaser; provided,
however, that the foregoing will not prohibit a general solicitation to
the public.

 

(c)                                  The
Restricted Period shall be extended by the length of any period during which
the Seller or Audiovox is in breach of the terms of this Section 5.08.

 

(d)                                 The
Seller acknowledges that the covenants of the Seller set forth in this Section
5.08 are an essential element of this Agreement and that, but for the agreement
of the Seller to comply with these covenants, the Purchaser would not have
entered into this

 

53

 

Agreement.  The Seller acknowledges that this Section
5.08 constitutes an independent covenant that shall not be affected by
performance or nonperformance of any other provision of this Agreement by the
Purchaser.  The Seller has independently
consulted with its counsel and after such consultation agrees that the
covenants set forth in this Section 5.08 are reasonable and proper.

 

SECTION 5.09. 
INTENTIONALLY OMITTED.

 

SECTION 5.10. 
Bulk Transfer Laws.  The
Purchaser hereby waives compliance by the Seller with any applicable bulk sale
or bulk transfer laws of any jurisdiction in connection with the sale of the
Purchased Assets to the Purchaser (other than any obligations with respect to
the application of the proceeds therefrom). 
The Seller agrees to indemnify the Purchaser in accordance with Article
VIII against any and all liabilities (including any liabilities for Taxes of
Seller as a transferee or otherwise) which may be asserted by third parties
against the Purchaser as a result of the Seller’s noncompliance with any such
law.

 

SECTION 5.11. 
Inter-company Arrangements. 
Prior to the Closing, the Seller shall cause any contract or arrangement
that is disclosed (or should have been disclosed) in Section 3.14(a)(viii) of
the Disclosure Schedule, other than the Inter-company Payables and those
contracts or arrangements set forth in Section 5.11 of the Disclosure Schedule,
to be terminated.

 

SECTION 5.12. 
Payments on Behalf of Affiliates.  Payments made or received by the Purchaser pursuant to Article
II, this Article V or Article VIII hereof shall, in appropriate circumstances,
be made on behalf of, or received in trust for the benefit of, the relevant
Affiliate of the Purchaser.  The
Purchaser may direct in writing any such payment to be made by or to the
appropriate Affiliate, and the Seller shall comply with any such direction
received at least two Business Days prior to the date such payment is due.

 

SECTION 5.13. 
Transition Services. 
Following the Closing, the Seller shall provide, or cause to be
provided, to the Business certain services that are currently provided by the
Seller and its Affiliates to the Business, all in accordance with the
transition services agreement substantially in the form attached hereto as
Exhibit 5.13 (the “Transition Services Agreement”) to be entered into by
the Seller and the Purchaser as of the Closing.

 

SECTION 5.14. 
Tax Cooperation and Exchange of Information.  Upon the terms set forth in Section 5.02 of
this Agreement, the Seller and the Purchaser shall provide each other with such
cooperation and information as either of them reasonably may request of the
other in filing any Tax Return, amended Tax Return or claim for refund,
determining a liability for Taxes or a right to a refund of Taxes,
participating in or conducting any audit or other proceeding in respect of
Taxes.  Such cooperation and information
shall include providing copies of relevant Tax Returns or portions thereof,
together with accompanying schedules, related work papers and documents in
their possession relating to rulings or other determinations by Tax
authorities.  The Seller and the
Purchaser shall make themselves (and shall direct and instruct their respective
employees to be) available on a basis mutually convenient to both parties to
provide explanations of any documents or information provided under this
Section 5.14.  Each of the Seller and
the Purchaser shall retain all Tax Returns, schedules and work papers, records
and other documents

 

54

 

in its possession (or in
the possession of its Affiliates) relating to Tax matters relevant to the
Purchased Assets or the Business for each taxable period first ending after the
Closing and for all prior taxable periods until the later of (a) the
expiration of the statute of limitations of the taxable periods to which such
Tax Returns and other documents relate, without regard to extensions except to
the extent notified by the other party in writing of such extensions for the
respective Tax periods, or (b) six years following the due date (without
extension) for such Tax Returns.  After
such time, before the Seller or the Purchaser shall dispose of any such
documents in its possession (or in the possession of its Affiliates), the other
party shall be given the opportunity, after 90 days’ prior written notice, to
remove and retain all or any part of such documents as such other party may
select (at such other party’s expense). 
Any information obtained under this Section 5.14 shall be kept
confidential in accordance with Section 5.03, except as may be otherwise
necessary in connection with the filing of Tax Returns or claims for refund or
in conducting an audit or other proceeding.

 

The Purchaser shall, in accordance with Section
5.02(b), make available the Transferred Employees and direct and instruct such
Transferred Employees to cooperate with the Seller in the resolution of any Tax
claims made against or incurred by the Seller prior to the Closing.

 

SECTION 5.15. 
Conveyance Taxes.  The
Seller shall be liable for and shall hold the Purchaser harmless against any
Conveyance Taxes which become payable in connection with the transactions
contemplated by this Agreement.  The
Seller, after the review and consent by the Purchaser, shall file such
applications and documents as shall permit any such Conveyance Tax to be
assessed and paid on or prior to the Closing in accordance with any available
pre-sale filing procedure.  The
Purchaser shall execute and deliver all instruments and certificates necessary
to enable the Seller to comply with the foregoing.  The Purchaser shall complete and execute resale or other
exemption certificates, if available, with respect to the Purchased Assets
acquired hereunder, and shall provide the Seller with executed copies
thereof.  The Purchaser will use its
reasonable commercial efforts to cooperate with the Seller to take all actions
reasonably necessary or desirable in order to exempt the transactions
contemplated by this Agreement from any GST and PST taxes in Canada and in the
Province of Ontario.

 

SECTION 5.16. 
Further Action.  (a)  If, after the Closing, the Seller becomes
aware of, or the Purchaser brings to the attention of the Seller, any assets of
the Seller that should have been transferred as of the Closing but were not so
transferred, then such assets shall be transferred to the Purchaser (or to one
or more Affiliates of the Purchaser designated by the Purchaser) as soon as
possible.  This provision, however,
shall not limit, in any way, the rights and remedies of the Purchaser under
this Agreement.

 

(b)                                 Each
of the parties hereto shall use all reasonable efforts to take, or cause to be
taken, all appropriate action, do or cause to be done all things reasonably
necessary under applicable Law, and to execute and deliver such documents and
other papers, as may be required to carry out the provisions of this Agreement
and the Ancillary Agreements to which it is a party and consummate and make
effective the transactions contemplated hereby and thereby.

 

SECTION 5.17. 
INTENTIONALLY OMITTED.

 

55

 

SECTION 5.18. 
Proration of Taxes and Certain Charges.  (a)  Except as provided in
Section 5.15, all Property Taxes levied with respect to the Purchased Assets
for any Straddle Period, whether imposed or assessed in the Pre-Closing Tax
Period or Post-Closing Tax Period, shall be prorated between the Seller and the
Purchaser as of 12:01 A.M. on the day after the date of the Closing.  If any Taxes subject to proration are paid
by Purchaser, on the one hand, or Seller, on the other hand, the proportionate
amount of such Taxes paid (or in the event a refund of any portion of such
Taxes previously paid is received, such refund) shall be paid promptly by (or
to) the other after the payment of such Taxes (or promptly following the
receipt of any such refund).

 

(b)                                 Except
as otherwise provided in this Agreement, all installments of special assessments
or other charges on or with respect to the Purchased Assets payable by the
Seller for any period in which the Closing shall occur, including, without
limitation, base rent, common area maintenance, royalties, all municipal,
utility or authority charges for water, sewer, electric or gas charges, garbage
or waste removal, and cost of fuel, shall be apportioned as of the Closing and
each party shall pay its proportionate share promptly upon the receipt of any
bill, statement or other charge with respect thereto.  If such charges or rates are assessed either based upon time or
for a specified period, such charges or rates shall be prorated between the
Seller and the Purchaser as of the 12:01 A.M. on the day after the date of the
Closing.  If such charges or rates are
assessed based upon usage of utility or similar services, such charges shall be
prorated based upon meter readings taken on the date of the Closing.

 

(c)                                  All
refunds, reimbursements, installments of base rent, additional rent, license
fees or other use related revenue receivable by any party to the extent
attributable to the operation of the Business for any period in which the
Closing shall occur shall be prorated so that the Seller shall be entitled to
that portion of any such installment applicable to any period from and after
the day after the date of the Closing, and if Purchaser or Seller, as the case
may be, shall receive any such payments after the date of the Closing, they
shall promptly remit to such other parties their share of such payments.

 

(d)                                 The
prorations pursuant to this Section 5.18 may be calculated after the Closing,
as each item to be prorated (including without limitation any such Tax,
obligation, assessment, charge, refund, reimbursement, rent installment, fee or
revenue) accrues or comes due, provided that, in any event, any such proration
shall be calculated not later than thirty (30) days after the party requesting
proration of any item obtains the information required to calculate such
proration.

 

SECTION 5.19. 
Proxy Statement.  (a)  As promptly as practicable after the
execution of this Agreement, Audiovox shall prepare and file with the SEC the
proxy statement to be sent to the stockholders of Audiovox relating to the
meeting of the Audiovox stockholders (the “Audiovox Stockholders’ Meeting”)
to be held to consider approval and adoption of this Agreement or any
information statement to be sent to such stockholders, as appropriate (such
proxy statement or information statement, as amended or supplemented, being referred
to herein as the “Proxy Statement”).  
The Seller shall furnish all information concerning the Seller as
Audiovox may reasonably request in connection with such actions and the
preparation of the Proxy Statement.  As
promptly as practicable after the execution of this Agreement, Audiovox shall
mail the Proxy Statement to its stockholders.

 

56

 

(b)                                 Except
as provided in Section 5.06(c), Audiovox covenants that none of the Audiovox
Board or any committee thereof shall withdraw or modify, or propose to withdraw
or modify, in a manner adverse to the Purchaser, the approval or recommendation
by the Audiovox Board or any committee thereof of this Agreement, or the
transactions contemplated by this Agreement and the Proxy Statement shall
include, the recommendation to the stockholders of Audiovox in favor of
approval and adoption of this Agreement and approval of the transactions
contemplated by this Agreement (the “Audiovox Recommendation”).

 

(c)                                  Audiovox
will advise the Purchaser, promptly after it receives notice thereof, of any
request by the SEC for amendment of the Proxy Statement or comments thereon and
responses thereto or requests by the SEC for additional information.

 

(d)                                 Audiovox
represents that the information in the Proxy Statement shall not, at (i) the
time the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to the stockholders of Audiovox, (ii) the time of the
Audiovox Stockholders’ Meeting and (iii) the Closing, contain any untrue
statement of a material fact or fail to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. All documents
that Audiovox is responsible for filing with the SEC in connection with this
Agreement or the transactions contemplated by this Agreement will comply as to
form and substance in all material respects with the applicable requirements of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder.

 

SECTION 5.20. 
Audiovox Stockholders’ Meeting. 
Audiovox shall, subject only to such delays as are necessary to enable
the Audiovox Board to discharge its fiduciary obligations in determining
whether any unsolicited offer or proposal regarding a Competing Transaction
constitutes a Superior Proposal in accordance with Section 5.06 hereof, (i)
call and hold the Audiovox Stockholders’ Meeting as promptly as practicable for
the purpose of voting upon the approval and adoption of this Agreement and
Audiovox shall use its reasonable best efforts to hold the Audiovox
Stockholders’ Meeting as soon as practicable after the date of this Agreement
and (ii) use its reasonable best efforts to solicit from its stockholders
proxies in favor of the approval and adoption of this Agreement and shall take
all other action necessary or advisable to secure the required vote or consent
of its stockholders.

 

SECTION 5.21.  Trademark
License Agreement. 
Concurrently with the Closing, Audiovox and the Purchaser shall enter
into a trademark license agreement substantially in the form attached hereto as
Exhibit 5.21 (the “Trademark License Agreement”).

 

SECTION 5.22.  Replication
Service.  On or prior to the
Closing, Audiovox and the Seller shall replicate, for the Purchaser, all
Developed Software, which, together with the Shared MIS Systems, Owned
Intellectual Property and Licensed Intellectual Property, will enable the
Business to become a fully operational entity with all current functionality
and appropriate controls to protect the Business from any non-Business access
(the “Replication Service”).  All
hardware brands and configurations used in the Replication Service shall be
approved by the Purchaser prior to such use. 
The Purchaser shall pay $70,000 for the Replication Service but in no
event shall the Purchaser be obligated to make any other payments in respect of
the Replication Service or the resulting replicated environment.

 

57

 

SECTION 5.23.  Limited
Updating of Disclosure Schedules. 
At the Closing, the Seller shall, to the extent necessary, update
Sections 3.07(b), 3.12(b), 3.14(a), 3.14(b), 3.15(a), 3.16(c), 3.17(a) and 3.26
of the Disclosure Schedule (provided, that, in the case of Section 3.14(b) of
the Disclosure Schedule, the Seller may only update the disclosure as to
contracts which are no longer in full force and effect due to their expiration
or termination in accordance with their terms) to reflect information arising
after the date of this Agreement and the updating of such Sections of the
Disclosure Schedule shall not be deemed to be a breach of the representations
and warranties which such disclosures modify except to the extent that (i) the
actions giving rise to such updating constitute a breach of Section 5.01 hereof
or (ii) the additional information disclosed would have a Material Adverse
Effect.

 

SECTION 5.24.  Leases.  Audiovox and the Purchaser shall use
reasonable commercial efforts to negotiate and agree upon the form of the 555
Wireless Sublease within 45 days after the date of this Agreement.  The Purchaser shall use reasonable
commercial efforts to negotiate and agree upon the form of the Cerritos Lease
within 45 days after the date of this Agreement.

 

SECTION 5.25.  Section
404 Compliance.  (a)  Promptly after the date of this Agreement,
the Seller shall retain the Seller’s Reporting Controls Advisors, as outside
advisors, to work with the Seller to develop and implement the ACC Internal
Reporting Controls and to satisfy the Interim Milestones.  The Seller shall use its best efforts to (i)
satisfy the Interim Milestones and (ii) develop and implement the ACC Internal
Reporting Controls prior to September 30, 2004.  The Purchaser and the Purchaser’s Reporting Controls Advisors
shall work cooperatively with the Seller and the Seller’s Reporting Controls
Advisors to provide necessary information on a timely basis to the Seller
concerning the UTSI Internal Reporting Controls to enable the Seller to develop
and implement the ACC Internal Reporting Controls, meet the Interim Milestones
and satisfy the condition set forth in Section 7.02(j).  All costs and expenses of the Seller and the
Seller’s Reporting Controls Advisors relating to the development and
implementation of the ACC Internal Reporting Controls shall be borne by the
Seller.

 

(b)                                 In
the event that the Purchaser shall not have made the Determination of
Satisfactory Controls by September 30, 2004, the Purchaser and the Seller agree
that the Seller shall no longer be obligated hereunder to develop and implement
the ACC Internal Reporting Controls.

 

ARTICLE VI

EMPLOYEE MATTERS

 

SECTION 6.01. 
Offer of Employment.  As
of the Closing, the Purchaser shall offer employment to each of the then-current
employees of the Seller listed on Section 6.01 of the Disclosure Schedule
providing for employee benefits (other than equity compensation arrangements)
on terms that are no less favorable than the terms and conditions applicable to
similarly situated employees of the Purchaser, it being understood that such
employees shall receive credit for all prior periods of service with the Seller
for purposes of participation in compensation and employee benefit plans,
programs or arrangements of the Purchaser; provided, however,
that such crediting of service shall not operate to duplicate any benefit or
the funding

 

58

 

of any such benefit.  At Closing, Purchaser shall hire all
employees who accept such offer of employment. 
As used herein, “Transferred Employee” shall mean each employee
who accepts such offer.  In addition,
the Purchaser agrees to (i) credit each of the Transferred Employees with a
number of paid vacation, sick leave and personal days immediately following the
date of Closing equal to the number of such days each such Transferred Employee
has accrued but not used as of the date of Closing under the applicable
policies of the Seller as in effect immediately prior to the date of Closing,
and (ii) allow each of the Transferred Employees to use such days following the
date of Closing in accordance with the applicable policies of the Purchaser as
are in effect from time to time.  The
Purchaser and Seller shall undertake in good faith to consider the preparation
and filing of employment tax reports with respect to the Transferred Employees
using the alternative procedure set forth in Revenue Procedure 96-60 under the
Code.

 

ARTICLE VII

CONDITIONS TO CLOSING

 

SECTION 7.01. 
Conditions to Obligations of the Seller and Audiovox.  The obligations of the Seller and Audiovox
to consummate the transactions contemplated by this Agreement shall be subject
to the fulfillment or written waiver by Audiovox or the Seller, at or prior to
the Closing, of each of the following conditions:

 

(a)                                  Representations,
Warranties and Covenants.  The
representations and warranties of the Purchaser contained in this Agreement
shall have been true and correct when made and shall be true and correct at and
as of the Closing (disregarding for these purposes any materiality or corollary
qualifications contained therein), except to the extent that any failures of
such representations and warranties to be so true and correct would not have a
Purchaser Material Adverse Effect, except to the extent such representations
and warranties are as of another date, in which case, such representations and
warranties shall be true and correct as of that date with the same force and
effect as if made as of the Closing except to the extent that any failures of
such representations and warranties to be true and correct that would not have
a Purchaser Material Adverse Effect, and the covenants and agreements contained
in this Agreement to be complied with by the Purchaser on or before the Closing
shall have been complied with in all material respects;

 

(b)                                 HSR
Act.  Any waiting period (and any
extension thereof) under the HSR Act applicable to the purchase of the
Purchased Assets contemplated by this Agreement shall have expired or shall
have been terminated and the applicable approvals and/or clearances with
respect to the antitrust review in the Peoples Republic of China (the “PRC
Antitrust Approvals”) have been received;

 

(c)                                  No
Proceeding or Litigation.  No Action
shall have been commenced by or before any Governmental Authority against any
of Audiovox, the Seller or the Purchaser, seeking to restrain or materially and
adversely alter the transactions contemplated by this Agreement which, in the
reasonable, good faith determination of the Seller, is likely to render it
impossible or unlawful to consummate such transactions;

 

59

 

provided,
however, that the provisions of this Section 7.01(c) shall not
apply if the Seller has directly or indirectly solicited or encouraged any such
Action; and

 

(d)                                 Audiovox
Stockholders’ Approval.  This
Agreement and the transactions contemplated by this Agreement have been
approved and adopted by the requisite affirmative vote of the stockholders of
Audiovox in accordance with the General Corporation Law of Delaware, and
Audiovox’s certificate of incorporation, and such approval shall not have been
rescinded, revoked or otherwise withdrawn.

 

SECTION 7.02. 
Conditions to Obligations of the Purchaser.  The obligations of the Purchaser to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment or written waiver by the Purchaser, at or prior to the Closing,
of each of the following conditions:

 

(a)                                  Representations,
Warranties and Covenants.  The
representations and warranties of the Seller and Audiovox contained in this
Agreement shall have been true and correct when made and shall be true and
correct at and as of the Closing (disregarding for these purposes any
materiality, Material Adverse Effect or corollary qualifications contained
therein), except to the extent that any failures of such representations and
warranties to be so true and correct would not have a Material Adverse Effect,
except to the extent such representations and warranties are as of another
date, in which case, such representations and warranties shall be true and
correct as of that date with the same force and effect as if made as of the
Closing except to the extent that any failures of such representations and
warranties to be true and correct that would not have a Material Adverse
Effect, and the covenants and agreements contained in this Agreement to be
complied with by the Seller and Audiovox on or before the Closing shall have
been complied with in all material respects;

 

(b)                                 HSR
Act.  Any waiting period (and any
extension thereof) under the HSR Act applicable to the purchase of the
Purchased Assets contemplated by this Agreement shall have expired or shall
have been terminated and the PRC Antitrust Approvals have been received];

 

(c)                                  No
Proceeding or Litigation.  No Action
shall have been commenced by or before any Governmental Authority against any
of Audiovox, the Seller or the Purchaser, seeking to restrain or materially and
adversely alter the transactions contemplated by this Agreement which, in the
reasonable, good faith determination of the Purchaser, is likely to render it
impossible or unlawful to consummate such transactions or which is reasonably
likely to have a Material Adverse Effect; provided, however, that
the provisions of this Section 7.02(c) shall not apply if the Purchaser
has directly or indirectly solicited or encouraged any such Action;

 

(d)                                 Governmental
Consents and Approvals.  The
Purchaser and the Seller shall have received, each in form and substance
reasonably satisfactory to the Purchaser, (i) all authorizations, consents,
orders and approvals of all Governmental Authorities and officials which are
necessary for the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements;

 

60

 

(e)                                  Third
Party Consents and Approvals. With respect to each agreement listed in
Section 7.02(e)(i) of the Disclosure Schedule, the Purchaser or Seller shall
have received either (x) consent that such agreement may be assigned to the
Purchaser in connection with the transactions contemplated by this Agreement or
(y) the opportunity to enter into a new agreement that is, in the aggregate,
not materially less favorable to Purchaser than, on the date of the Closing, is
the agreement that it is replacing. 
With respect to three of the five agreements listed in Section
7.02(e)(ii) of the Disclosure Schedule, the Purchaser or Seller shall have
received (x) consent that such agreement may be assigned to the Purchaser in
connection with the transactions contemplated by this Agreement or (y) the
opportunity to enter into a new agreement that is, in the aggregate, not
materially less favorable to Purchaser than, on the date of the Closing, is the
agreement that it is replacing.

 

(f)                                    Employment
Agreements.  The Employment
Agreement shall have been validly entered into and shall be in full force and
effect and Philip Christopher shall, as of Closing, become an employee of the
Purchaser; and

 

(g)                                 Key
Employees.  At least 80% of the key
employees listed in Section 7.02(g) of the Disclosure Schedule (“Key
Employees”) to whom the Purchaser extended offers of employment prior to
the Closing shall have accepted the Purchaser’s offer of employment and shall,
as of Closing, become employees of the Purchaser.

 

(h)                                 Audiovox
Stockholders’ Approval.  This
Agreement and the transactions contemplated by this Agreement have been
approved and adopted by the requisite affirmative vote of the stockholders of
Audiovox in accordance with the General Corporation Law of Delaware, and
Audiovox’s certificate of incorporation, and such approval shall not have been
rescinded, revoked or otherwise withdrawn.

 

(i)                                     Leases.  (i) Audiovox and the
Purchaser shall have entered into a sublease agreement (the “555 Wireless
Sublease”) for space at 555 Wireless Blvd., Hauppauge, New York in a form
mutually agreed by the parties on the terms set forth in Exhibit 7.02(i)(i)
and (ii) Marquardt Associates and the Purchaser shall have entered into a lease
agreement (the “Cerritos Lease”) for space at 16820 Marquardt Avenue,
Cerritos, California in a form mutually agreed by the parties on the terms set
forth in Exhibit 7.02(i)(ii).

 

(j)                                     Section
404 Compliance.  The Purchaser shall
have made the Determination of Satisfactory Controls on or before September 30,
2004; provided, that, from and after January 1, 2005, this
Section 7.02(j) shall no longer be a condition to the Purchaser’s obligation to
consummate the transactions contemplated by this Agreement

 

ARTICLE VIII

INDEMNIFICATION

 

SECTION 8.01. 
Survival of Representations and Warranties.  (a) 
The representations and warranties of the Seller and Audiovox contained
in this Agreement and the

 

61

 

Ancillary Agreements
shall survive the Closing until the second anniversary of the Closing; provided,
however, that (i) the representations and warranties made pursuant
to Sections 3.01 and 3.29 shall survive indefinitely and (ii) the
representations and warranties dealing with Tax matters shall survive until 120
days after the expiration of the relevant statute of limitations for the Tax
liabilities in question.  Neither the
period of survival nor the liability of the Seller and Audiovox with respect to
the Seller’s and Audiovox’s representations and warranties shall be reduced by
any investigation made at any time by or on behalf of the Purchaser.  If written notice of a claim has been given
prior to the expiration of the applicable representations and warranties by the
Purchaser to the Seller and Audiovox, then the relevant representations and
warranties shall survive as to such claim, until such claim has been finally
resolved.

 

(b)                                 The
representations and warranties of the Purchaser contained in this Agreement and
the Ancillary Agreements shall survive the Closing until the second anniversary
of the Closing.  Neither the period of
survival nor the liability of the Purchaser with respect to the Purchaser’s
representations and warranties shall be reduced by any investigation made at
any time by or on behalf of the Seller. 
If written notice of a claim has been given prior to the expiration of
the applicable representations and warranties by the Seller to the Purchaser,
then the relevant representations and warranties shall survive as to such
claim, until such claim has been finally resolved.

 

SECTION 8.02. 
Indemnification by the Seller and Audiovox.  If the Closing shall occur, the Purchaser
and its Affiliates, officers, directors, employees, agents, successors and
assigns (each a “Purchaser Indemnified Party”) shall be indemnified and
held harmless by the Seller and Audiovox, on a joint and several basis, for and
against any and all Liabilities, losses, damages, claims, costs and expenses,
interest, awards, judgments and penalties (including attorneys’ and
consultants’ fees and expenses) actually suffered or incurred by them
(including any Action brought or otherwise initiated by any of them)
(hereinafter a “Loss”), arising out of or resulting from:

 

(a)                                  the breach of any
representation or warranty made by the Seller contained in the Acquisition Documents;

 

(b)                                 the
breach of any covenant or agreement by the Seller contained in the Acquisition
Documents;

 

(c)                                  any
claim or cause of action of any third party relating to any action, inaction,
event, condition, liability or obligation of the Seller occurring or existing
prior to the Closing (other than the Assumed Liabilities); and

 

(d)                                 the
Excluded Liabilities.

 

To the extent that the Seller’s or Audiovox’s
undertakings set forth in this Section 8.02 may be unenforceable, the
Seller or Audiovox, as the case may be, shall contribute the maximum amount
that it is permitted to contribute under applicable Law to the payment and
satisfaction of all Losses incurred by the Purchaser Indemnified Parties,
provided, that, in no event shall the Seller’s or Audiovox’s liability exceed
the amounts set forth in Section 8.04 hereof.

 

62

 

SECTION 8.03. 
Indemnification by the Purchaser.  If the Closing shall occur, the Seller and its Affiliates,
officers, directors, employees, agents, successors and assigns (each a “Seller
Indemnified Party”) shall be indemnified and held harmless by the Purchaser
for and against any and all Losses, arising out of or resulting from:

 

(a)                                  the
breach of any representation or warranty made by the Purchaser contained in the
Acquisition Documents;

 

(b)                                 the
breach of any covenant or agreement by the Purchaser contained in the
Acquisition Documents;

 

(c)                                  Liabilities,
whether arising before or after the Closing, that are expressly assumed by the
Purchaser pursuant to this Agreement, including the Assumed Liabilities;

 

(d)                                 Taxes,
other than the Excluded Taxes, relating to the Purchased Assets, the Business
or the Assumed Liabilities for any Post-Closing Tax Period;

 

(e)                                  claims
arising after the Closing made by Transferred Employees relating to their
employment with the Purchaser; and

 

(f)                                    any
claim or cause of action by any third party relating to any action, inaction, event,
condition, liability or obligation relating to the operation of the Business
from and after the Closing.

 

To the extent that the
Purchaser’s undertakings set forth in this Section 8.03 may be
unenforceable, the Purchaser shall contribute the maximum amount that it is
permitted to contribute under applicable Law to the payment and satisfaction of
all Losses incurred by the Seller Indemnified Parties, provided, that, in no
event shall the Purchaser’s liability exceed the amounts set forth in Section 8.04
hereof.

 

SECTION 8.04. 
Limitation on Obligation to Indemnify.  Notwithstanding anything to the contrary contained in this
Agreement:

 

(a)                                  an
Indemnifying Party shall be liable for any claim for indemnification pursuant
to Section 8.02(a) or 8.02(b) hereof, as applicable, only to the extent, and
for the amount, that the aggregate amount of indemnifiable Losses are in excess
of $500,000; provided that, in determining the amount of such indemnifiable
Losses (but not the breach thereof giving rise to indemnification) each
representation shall be read without regard to any materiality, Material
Adverse Effect or corollary qualifications contained therein;

 

(b)                                 in
no event shall the obligations of all Indemnifying Parties, in the aggregate,
to indemnify the Indemnified Party pursuant to this Article VIII exceed: (i)
30% of the Purchase Price with respect to Losses arising from breaches of any
representation or warranty made by the Indemnifying Party contained in the
Acquisition Documents and (ii) 50% of the Purchase Price with respect to all
Losses (including those covered in clause (i) above); and

 

63

 

(c)                                  the
amount of Losses for which the Indemnifying Party shall be obligated to
indemnify the Indemnified Party pursuant to this Article VIII shall be reduced
by any amount received under any insurance policy by the Indemnified Party with
respect to such Losses.

 

SECTION 8.05. 
Notice of Loss; Third Party Claims.  (a)  An Indemnified Party shall give the Indemnifying
Party notice of any matter which an Indemnified Party has determined has given
or could give rise to a right of indemnification under this Article VIII,
promptly, but in any event, within 20 days of such determination, stating the
amount of the Loss, if known, and method of computation thereof, and containing
a reference to the provisions of this Agreement in respect of which such right
of indemnification is claimed or arises; provided, however, that
the failure to provide such notice shall not release the Indemnifying Party
from any of its obligations under this Article VIII except to the extent that
the Indemnifying Party is materially prejudiced by such failure and shall not
relieve the Indemnifying Party from any other obligation or Liability that it may
have to any Indemnified Party otherwise than under this Article VIII.

 

(b)                                 If
an Indemnified Party shall receive notice of any Action, audit, demand or
assessment (each, a “Third Party Claim”) against it or which may give
rise to a claim for Loss under this Article VIII, promptly, but in any event,
within 20 days of the receipt of such notice, the Indemnified Party shall give
the Indemnifying Party notice of such Third Party Claim; provided, however,
that the failure to provide such notice shall not release the Indemnifying
Party from any of its obligations under this Article VIII except to the extent
that the Indemnifying Party is materially prejudiced by such failure and shall
not relieve the Indemnifying Party from any other obligation or Liability that
it may have to any Indemnified Party otherwise than under this Article
VIII.  If the Indemnifying Party
acknowledges in writing its obligation to indemnify the Indemnified Party
hereunder against any Losses that may result from such Third Party Claim, then
the Indemnifying Party shall be entitled to assume and control the defense of
such Third Party Claim at its expense and through counsel of its choice if it
gives notice of its intention to do so to the Indemnified Party within five
days of the receipt of such notice from the Indemnified Party; provided,
however, that if there exists or is reasonably likely to exist a
conflict of interest that, in the opinion of the Indemnified Party’s counsel (a
copy of which shall be given to the Indemnifying Party), would make it
inappropriate in the reasonable judgment of the Indemnified Party for the same
counsel to represent both the Indemnified Party and the Indemnifying Party,
then the Indemnified Party shall be entitled to retain its own counsel in each
jurisdiction for which the Indemnified Party determines counsel is required, at
the expense of the Indemnifying Party. 
In the event that the Indemnifying Party exercises the right to
undertake any such defense against any such Third Party Claim as provided
above, the Indemnified Party shall cooperate with the Indemnifying Party in
such defense and make available to the Indemnifying Party, at the Indemnifying
Party’s expense, all witnesses, pertinent records, materials and information in
the Indemnified Party’s possession or under the Indemnified Party’s control
relating thereto as is reasonably required by the Indemnifying Party.  Similarly, in the event the Indemnified
Party is, directly or indirectly, conducting the defense against any such Third
Party Claim, the Indemnifying Party shall cooperate with the Indemnified Party
in such defense and make available to the Indemnified Party, at the
Indemnifying Party’s expense, all such witnesses, records, materials and
information in the Indemnifying Party’s possession or under the Indemnifying
Party’s control relating thereto as is reasonably required by the Indemnified
Party.  No such Third Party Claim may be
settled by the Indemnifying Party

 

64

 

without the
prior written consent of the Indemnified Party which shall not be unreasonably
withheld unless such settlement shall involve only the payment of money with no
admission of wrongdoing.  In no event
may an Indemnified Party settle any Third Party Claim without the prior written
consent of the Indemnifying Party.

 

SECTION 8.06. 
Distributions from Escrow Fund. 
The Escrow Agent shall deliver to the Purchaser from the Escrow Fund any
amount determined to be owed to the Purchaser under this Article VIII in
accordance with the Escrow Agreement. 
For the purposes of clarity, to the extent that there is a shortfall
between the amount owed by the Seller to the Purchaser in respect of the
indemnification amount and the Escrow Fund, the Seller and Audiovox, jointly
and severally, shall be obligated to pay the Purchaser any such shortfall from
its own account, subject to the limitations of this Article VIII.

 

SECTION 8.07. 
Other Provisions.  The
indemnification provided in this Article VIII shall be, except in the case of
fraudulent misrepresentation, the sole and exclusive remedy for any of the
matters set forth in Sections 8.02 and 8.03. 
In no event shall the Seller or the Purchaser be liable for loss of
profits or consequential damages incurred by the Purchaser or the Seller, respectively,
or any of its respective Affiliates. 
Upon making any payment to an Indemnified Party for any indemnification
claim under this Agreement or any Acquisition Document, the Indemnifying Party
shall be subrogated, to the extent of such payment, to any rights which the
Indemnifying Party or its Affiliates may have against other Persons (including
under any insurance policies) with respect to the subject matter underlying
such indemnification claim.  The
Indemnified Party and its Affiliates shall cooperate with the Indemnifying
Party in pursuit of such rights and shall promptly turn over to the
Indemnifying Party any payments received in respect of such rights.

 

SECTION 8.08. 
Tax Treatment.  The Seller
and the Purchaser agree that all payments made by any of the Seller and
Audiovox on the one hand and the Purchaser on the other hand to or for the
benefit of the other under this Article VIII, under other indemnity provisions
of this Agreement and for any misrepresentations or breaches of warranties or
covenants shall be treated as adjustments to the Purchase Price for Tax
purposes and that such treatment shall govern for purposes hereof except to the
extent that the Laws of a particular jurisdiction provide otherwise, in which
case such payments shall be made in an amount sufficient to indemnify the
relevant party on an after-Tax basis.

 

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

 

SECTION 9.01. 
Termination.  This
Agreement may be terminated at any time prior to the Closing:

 

(a)                                  by
(i) the Purchaser if between the date hereof and the Closing any
representations, warranties or covenants of the Seller contained in this
Agreement shall have become untrue or incorrect such that Section 7.02(a) could
not be satisfied or (ii) by the Seller or Audiovox if, between the date hereof
and the Closing any representations,

 

65

 

warranties or
covenants of the Purchaser contained in this Agreement shall have become untrue
or incorrect such that Section 7.01(a) could not be satisfied;

 

(b)                                 by
either the Seller or the Purchaser if the Closing shall not have occurred by
December 15, 2004 (as such date shall be extended to January 15, 2005, solely
in the event that the condition set forth in Section 7.02(j) shall fail to have
been satisfied or waived) (either such date being, as applicable, the “Initial
Termination Date); provided, however, that the right to
terminate this Agreement under this Section 9.01(b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement shall
have been the cause of, or shall have resulted in, the failure of the Closing
to occur on or prior to such date; provided, further, that at any
time after the Initial Termination Date, if the PRC Antitrust Approvals have
not been received, and at such time the Seller and Audiovox have satisfied
their conditions to Closing and are otherwise in all respects prepared to close
the transactions contemplated by this Agreement, then (i) the Seller may
terminate this Agreement and within two Business Days following such
termination the Purchaser shall pay to the Seller by wire transfer of
immediately available funds $1,000,000 as reimbursement for the Seller’s
expenses (the “Expense Reimbursement”) and (ii) the Purchaser may not
terminate this Agreement; provided, further, that, at any time
after February 15, 2005, the Purchaser may terminate this Agreement if on the
date of such termination the Purchaser shall pay to the Seller by wire transfer
of immediately available funds the Expense Reimbursement.

 

(c)                                  by
either the Seller or the Purchaser in the event that any Governmental Authority
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and nonappealable;

 

(d)                                 by
the Purchaser if an Audiovox Triggering Event (as defined below) shall have
occurred;

 

(e)                                  by
the Purchaser or Audiovox or the Seller if this Agreement shall fail to receive
the requisite vote for approval at the Audiovox Stockholders’ Meeting;
provided, that neither Audiovox nor the Seller shall be entitled to terminate
this Agreement pursuant to this clause (e) if the Stockholder shall have breached
the Voting Agreement; or

 

(f)                                    by
Audiovox or the Seller if the Audiovox Board shall have recommended a Superior
Proposal in accordance with Section 5.06(c) or in order to enter into a
definitive agreement relating to a Superior Proposal; or

 

(g)                                 by
the mutual written consent of the Seller and the Purchaser.

 

For purposes of this Agreement, an “Audiovox
Triggering Event” shall be deemed to have occurred if:  (i) the Audiovox Board makes a Change in the
Audiovox Recommendation; (ii) the Audiovox Board shall have recommended to
the stockholders of Audiovox a Competing Transaction or shall have resolved to
do so; (iii) Audiovox shall have failed to include in the

 

66

 

Proxy Statement the Audiovox Recommendation; (iv) the
Audiovox Board fails to reaffirm the Audiovox Recommendation within seven
Business Days after the Purchaser reasonably requests in writing that such
recommendation be reaffirmed;  or (v)
Audiovox shall have intentionally breached its obligations under Section 5.06.

 

SECTION 9.02. 
Effect of Termination.  In
the event of termination of this Agreement as provided in Section 9.01,
this Agreement shall forthwith become void and there shall be no liability on
the part of either party hereto except (a) as set forth in
Sections 5.03 and 9.03, (b) that nothing herein shall relieve any
party from liability for any breach of this Agreement and (c) the Purchaser
shall promptly return or destroy (and cause its agents and representatives to
return or destroy) all documents (and copies thereof) relating to the Business
that were furnished to the Purchaser and all excerpts therefrom and notes
related thereto.

 

SECTION 9.03. 
Expenses.  (a)  Except as otherwise specified in this
Agreement, all costs and expenses, including fees and disbursements of counsel,
financial advisors and accountants, incurred in connection with this Agreement
(“Expenses”) and the transactions contemplated by this Agreement shall
be paid by the party incurring such Expenses, whether or not the Closing shall
have occurred.

 

(b)                                 Audiovox
agrees that:

 

(i)                                     if
the Purchaser shall terminate this Agreement pursuant to Section 9.01(d); or

 

(ii)                                  if
Audiovox or the Seller shall terminate this Agreement pursuant to Section
9.01(f).

 

then Audiovox shall pay to the Purchaser promptly (but
in any event no later than one business day after the first of such events
shall have occurred) a fee of 3.5% of the Purchase Price (the “Fee”),
which amount shall be payable in immediately available funds, plus an amount
equal to the amount of the Purchaser’s Expenses, up to a maximum of $1,000,000.

 

(c)                                  Audiovox
acknowledges that the agreements contained in this Section 9.03 are an
integral part of the transactions contemplated by this Agreement.  In the event that Audiovox shall fail to pay
the Fee or any Expenses when due, the term “Expenses” shall be deemed to
include the costs and expenses actually incurred or accrued by the Purchaser
(including, without limitation, fees and expenses of counsel) in connection with
the collection under and enforcement of this Section 9.03, together with
interest on such unpaid Fee and Expenses, commencing on the date that the Fee
or such Expenses became due, at a rate equal to the rate of interest publicly
announced by Citibank, N.A., from time to time, in The City of New York, as
such bank’s Prime Rate plus 1.00 %. 
Payment of the fees and expenses described in this Section 9.03
shall not be in lieu of any damages incurred in the event of willful or
intentional breach of this Agreement.

 

SECTION 9.04. 
Amendment.  This Agreement
may not be amended or modified except (a) by an instrument in writing
signed by, or on behalf of, the Seller, Audiovox and the Purchaser or
(b) by a waiver in accordance with Section 9.05.

 

67

 

SECTION 9.05. 
Waiver.  Any term or
condition to this Agreement may be waived, or the time for the performance of
any of the obligations may be extended, at any time by the party that is
entitled to the benefit thereof.  Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party to be bound thereby.  Any waiver of any term or condition shall not be construed as a
waiver of any subsequent breach or a subsequent waiver of the same term or
condition, or a waiver of any other term or condition of this Agreement.  The failure of any party hereto to assert
any of its rights hereunder shall not constitute a waiver of any of such
rights.  Except as otherwise set forth
in this Agreement, all rights and remedies existing under this Agreement are
cumulative to, and not exclusive of, any rights or remedies otherwise
available.

 

ARTICLE X

 

GENERAL PROVISIONS

 

SECTION 10.01.  Notices.  All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given or made (and shall be deemed
to have been duly given or made upon receipt) by delivery in person, by an
internationally recognized overnight courier service, by facsimile or
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties hereto at the following addresses (or at such other address
for a party as shall be specified in a notice given in accordance with this
Section 10.01):

 

	
  (a)

  	
   

  	
  if to the Seller:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Audiovox Communications Corp.

  
	
   

  	
   

  	
  555 Wireless Blvd.

  
	
   

  	
   

  	
  Hauppauge, NY  11788

  
	
   

  	
   

  	
  Attention:  Philip Christopher

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Levy, Stopol & Camelo,
  LLP

  
	
   

  	
   

  	
  190 EAB Plaza

  
	
   

  	
   

  	
  East Tower-14th fl.

  
	
   

  	
   

  	
  Uniondale, NY 11556

  
	
   

  	
   

  	
  Attention:  Robert S. Levy

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (b)

  	
   

  	
  if to Audiovox:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Audiovox Corporation

  
	
   

  	
   

  	
  150 Marcus Blvd.

  
	
   

  	
   

  	
  Hauppauge, NY 11788

  
	
   

  	
   

  	
  Attention:  Charles M. Stoehr

  

 

68

 

	
   

  	
   

  	
  with a copy to:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Levy, Stopol & Camelo,
  LLP

  	
   

  
	
   

  	
   

  	
  190 EAB Plaza

  	
   

  
	
   

  	
   

  	
  East Tower-14th fl.

  	
   

  
	
   

  	
   

  	
  Uniondale, NY 11556

  	
   

  
	
   

  	
   

  	
  Attention:  Robert S. Levy

  	
   

  
	
   

  	
   

  	
   

  	 

	
  (c)

  	
   

  	
  if to the Purchaser:

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  UTStarcom Inc.

  	 

	
   

  	
   

  	
  1275 Harbor Bay Parkway

  	 

	
   

  	
   

  	
  Alameda, CA  94502

  	 

	
   

  	
   

  	
  Telecopy:  (510) 864-8802

  	 

	
   

  	
   

  	
  Attention:  General Counsel

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  with a copy to:

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Shearman & Sterling LLP

  	 

	
   

  	
   

  	
  1080 Marsh Road

  	 

	
   

  	
   

  	
  Menlo Park, CA  94025

  	 

	
   

  	
   

  	
  Telecopy:  (650) 838-3699

  	 

	
   

  	
   

  	
  Attention:  Carmen Chang, Esq.

  	 

 

SECTION 10.02.  Public Announcements.  Unless otherwise required by securities
exchange rule or regulation or the rules and regulations of any national stock
exchange, none of the parties hereto shall make, or cause to be made, any press
release or public announcement in respect of the Acquisition Documents,
including this Agreement and the Ancillary Agreements, or the transactions
contemplated hereby and thereby or otherwise communicate with any news media
without prior written consent of the other parties, and the parties hereto
shall cooperate as to the timing and contents of any such press release, public
announcement or communication.

 

SECTION 10.03.  Severability.  If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect for so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to either party hereto.  Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.

 

SECTION 10.04.  Entire Agreement.  This Agreement and the Ancillary Agreements
constitute the entire agreement of the parties hereto with respect to the
subject

 

69

 

matter hereof and thereof
and supersede all prior agreements and undertakings, both written and oral,
among the parties with respect to the subject matter hereof and thereof.

 

SECTION 10.05.  Assignment.  This Agreement may not be assigned by operation of law or
otherwise without the express written consent of the Seller and the Purchaser
(which consent may be granted or withheld in the sole discretion of the Seller
or the Purchaser); provided, however, that the Purchaser may
assign this Agreement or any of its rights and obligations hereunder to one or
more Affiliates of the Purchaser without the consent of the Seller but,
notwithstanding such assignment, the Purchaser shall remain fully liable
hereunder.

 

SECTION 10.06.  No Third Party Beneficiaries.  Except for the provisions of
Article VIII relating to indemnified parties, this Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
respective successors and permitted assigns and nothing herein, express or
implied, is intended to or shall confer upon any other Person, including any
union or any employee or former employee of the Seller, any legal or equitable
right, benefit or remedy of any nature whatsoever, including any rights of
employment for any specified period, under or by reason of this Agreement.

 

SECTION 10.07.  Governing Law.  This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State.

 

SECTION 10.08.  Waiver of Jury Trial.  Each of the parties hereto hereby waives to
the fullest extent permitted by applicable law any right it may have to a trial
by jury with respect to any litigation directly or indirectly arising out of,
under or in connection with this Agreement or the transactions contemplated by
this Agreement.  Each of the parties
hereto hereby (a) certifies that no representative, agent or attorney of the
other party has represented, expressly or otherwise, that such other party
would not, in the event of litigation, seek to enforce the foregoing waiver and
(b) acknowledges that it has been induced to enter into this Agreement and the
transactions contemplated by this Agreement and the Acquisition Agreements, as
applicable, by, among other things, the mutual waivers and certifications in
this Section 10.08.

 

SECTION 10.09.  Arbitration.  All disputes arising out of or in connection
with this Agreement, the Acquisition Documents, and the transactions
contemplated hereby and thereby, which cannot be resolved through the
procedures described herein or therein shall be finally resolved solely and
exclusively by means of arbitration under the Commercial Arbitration Rules of the
American Arbitration Association (“AAA”) to be conducted in English in
the City of New York.  The arbitration
shall be conducted by three (3) arbitrators appointed by agreement of the
parties, or failing such agreement, under the Commercial Arbitration Rules of
the American Arbitration Association. 
The arbitration will proceed in accordance with the AAA’s Commercial
Arbitration Rules.  The decision of the
arbitrator shall be final, conclusive, and binding upon the parties, and a
judgment upon the award may be obtained and entered in any federal or state
court of competent jurisdiction.  The
parties agree that any arbitration shall be kept confidential and any element
of such arbitration (including but not limited to any pleadings, briefs or
other documents submitted or exchanged, any testimony or other oral
submissions, and any awards) shall not be disclosed beyond the arbitral
tribunal, the parties, their counsel and any person necessary to conduct the
arbitration, except as may be required in recognition and

 

70

 

enforcement proceedings,
if any, or in order to satisfy disclosure obligations imposed by any applicable
Law.  The parties agree to cooperate in
providing each other with all discovery, including but not limited to the
exchange of documents and depositions of parties and non-parties, reasonably
related to the issues in the arbitration. 
If the parties are unable to agree on any matter relating to such discovery,
any such difference shall be determined by the arbitrator.  The award of the arbitrator shall be final
and binding upon the parties, and shall not be subject to any appeal or
review.  The parties agree that such award
may be recognized and enforced in any court of competent jurisdiction.  The parties also agree to submit to the
non-exclusive personal jurisdiction of the federal and state courts sitting in
New York, New York, for the limited purpose of enforcing this arbitration
agreement (including, where appropriate, issuing injunctive relief) or any
award resulting from arbitration pursuant to this Section 10.09.  The parties agree that the arbitration
proceeding described in this Section 10.09 is the sole and exclusive manner in
which the parties may resolve disputes arising out of or in connection with
this Agreement and the Acquisition Documents. 
The arbitrator has the discretion to grant the prevailing party in any
arbitration attorneys’ fees and costs and make the non-prevailing party
responsible for all expenses of the arbitration.

 

SECTION 10.10.  Currency.  Unless otherwise specified in this Agreement, all references to
currency, monetary values and dollars set forth herein shall mean United States
(U.S.) dollars and all payments hereunder shall be made in United States
dollars.

 

SECTION 10.11.  Counterparts.  This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.

 

71

 

IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.

 

	
   

  	
  AUDIOVOX COMMUNICATIONS

  CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles M. Stoehr

  	
   

  
	
   

  	
   

  	
  Name:  Charles M. Stoehr

  	
   

  
	
   

  	
   

  	
  Title:  Vice President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  QUINTEX MOBILE COMMUNICATIONS

  CORPORATION

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles M. Stoehr

  	
   

  
	
   

  	
   

  	
  Name:  Charles M. Stoehr

  	
   

  
	
   

  	
   

  	
  Title:  Vice President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  AUDIOVOX COMMUNICATIONS

  CANADA CO.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles M. Stoehr

  	
   

  
	
   

  	
   

  	
  Name:  Charles M. Stoehr

  	
   

  
	
   

  	
   

  	
  Title:  Vice President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  UTSTARCOM, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael J. Sophie

  	
   

  
	
   

  	
   

  	
  Name:  Michael J. Sophie

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer
  and

  Senior Vice President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  UTSTARCOM CANADA COMPANY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael J. Sophie

  	
   

  
	
   

  	
   

  	
  Name:  Michael J. Sophie

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer
  and

  Senior Vice President

  	
   

  

 

72

 

	
   

  	
  (With respect to Sections 2.05, 2.07, 2.09, 3.01, 3.02, 3.11(b),
  3.30, 5.06, 5.08, 5.19, 5.20, 5.21, 5.22, 5.24 and Articles VII – X only)

  
	
   

  	
   

  
	
   

  	
  AUDIOVOX CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John J. Shalam

  	
   

  
	
   

  	
   

  	
  Name:  John J. Shalam

  	
   

  
	
   

  	
   

  	
  Title:  Chief Executive Officer

  	
   

  

 

73EXHIBIT
10.1

 

FIFTH
AMENDMENT TO AMENDED AND RESTATED

CREDIT AGREEMENT

 

This FIFTH AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT (this “Amendment”), made and entered into as of
August 13, 2004, is by and between MagStar Technologies, Inc. f/k/a Reuter
Manufacturing, Inc., a Minnesota corporation (the “Borrower”), and U.S. Bank
National Association, a national banking association (the “Lender”).

 

RECITALS

 

1.                                       The Lender and the Borrower entered into
a Amended and Restated Credit Agreement dated as of October 10, 2000, as
amended by that First Amendment to Amended and Restated Credit Agreement dated
as of November 30, 2001, as amended by that Second Amendment to Amended
and Restated Credit Agreement dated as of August 7, 2003, as amended by
that Third Amendment to Amended and Restated Credit Agreement dated as of
September 30, 2003 and as further amended by that Fourth Amendment to
Amended and Restated Credit Agreement dated as of January 6, 2004 (as
amended the “Credit Agreement”); and

 

2.                                       The Borrower desires to amend certain
provisions of the Credit Agreement, and the Lender has agreed to make such
amendments, subject to the terms and conditions set forth in this Amendment.

 

AGREEMENT

 

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby covenant and agree
to be bound as follows:

 

Section 1.
Capitalized Terms.  Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the Credit Agreement, unless the
context shall otherwise require.

 

Section 2.
Amendments. 
The Credit Agreement is hereby amended as follows:

 

2.1                               Definitions.  The definition of “Reference Rate in
Section 1.1 of the Credit Agreement is deleted in its entirety.

 

Section 1.1 of the Credit Agreement is
further amended to add the definitions of “EBITDA”, “Interest Expense”, “Prime
Rate” and “Slow Moving Inventory” in correct alphabetical order as follows:

 

“EBITDA”:  For any period of determination, without duplication, the net
income of the Borrower plus cash Interest Expense, income taxes, depreciation,
amortization, capital contributions, non-cash Interest Expense, deferred
equipment lease expense and deferred rent expense, minus gain on sale leaseback
of equipment, minus gain on sale 

 

 

leaseback of building, all as determined in accordance with GAAP

 

“Interest Expense”:  For any period of determination, the
aggregate amount, without duplication, of interest paid, accrued or scheduled
to be paid in respect of any indebtedness of the Borrower, including (a) all
but the principal component of payments in respect of conditional sale
contracts, capitalized leases and other title retention agreements, (b)
commissions, discounts and other fees and charges with respect to letters of
credit and bankers’ acceptance financings and (c) net costs under interest rate
protection agreements, in each case determined in accordance with GAAP.

 

“Prime Rate” The rate of interest from
time to time publicly announced by the Lender as its “prime rate.”  The Lender may lend to its customers at
rates that are at, above or below the Prime Rate.  For purposes of determining any interest rate hereunder or under any
Note which is based on the Prime Rate, such interest rate shall change as and
when the Prime Rate shall change.

 

“Slow Moving Inventory” any obsolete
Inventory, Inventory on the Borrower’s records or held by the Borrower for more
than one year, and any other Inventory deemed slow moving by the Lender,
excluding up to $5,000 for raw materials such as bar stock, metal rods,
extrusions, plates, sheeting, or billets which is mutually agreed by Borrower
and Lender.

 

2.2                               The
Commitments.  Section 2.1
of the Credit Agreement is amended to read in its entirety as follows:

 

Section 2.1  The
Commitments.  On the terms and
subject to the conditions hereof, the Lender agrees to make the following
lending facility available to the Borrower:

 

2.1 (a)  Revolving Credit.  A revolving loan (the “Revolving Loan”) to
the Borrower available as advances (“Advances”) at any time and from time to
time from the Closing Date to June 30, 2005 (the “Revolving Maturity
Date”), during which period the Borrower may borrow, repay and reborrow in
accordance with the provisions hereof, provided, that the unpaid principal
amount of  revolving Advances shall not
at any time exceed One Million Two Hundred Thousand Dollars ($1,200,000) (the
“Revolving Commitment Amount”); and provided, further, that no
revolving Advance will be made if, after giving effect thereto, the unpaid
principal amount of the Advances would exceed the Borrowing Base.

 

2.3                               Interest Rates,
Interest Payments and Default Interest.  Section 2.4 of the Credit Agreement is
amended to read in its entirety as follows:

 

Section 2.4
Interest Rates, Interest Payments and Default Interest.  Interest shall accrue and be payable on the
unpaid balance of the Advances at a floating rate per annum equal to the sum of
the Prime Rate plus 2.5% (the latter being the “Applicable Revolving Margin”);
provided, however, that upon the happening of any Event of Default, then, at
the option of the Lender, the Advances shall thereafter bear interest at a
floating rate equal to the sum of (a) the Prime Rate, plus (b) the
Applicable Revolving Margin, plus (c) 4%. 
Interest shall be payable monthly in arrears on the first day of each
month and upon final payment of the Advances.

 

2

 

2.4                               Borrowing Base and
Mandatory Payment. 
Section 2.5 of the Credit Agreement is amended to read in its
entirety as follows:

 

Section 2.5
Borrowing Base and Mandatory Prepayment.  The Borrowing Base shall be equal to the sum of (1) the
lesser of (x) 40% of the lower of cost or market value of raw material
Eligible Inventory; provided,  however that Slow Moving Inventory
shall not comprise more than $100,000 of Eligible Inventory on August 30,
2004 (the “Slow Moving Inventory Tolerance Level”), the Slow Moving Inventory
Tolerance Level shall be reduced by $5,000 on the last day of each month
commencing on September 30, 2004 and continuing on the last day of each
month until the Slow Moving Inventory Tolerance Level reaches $50,000 and all
amounts of Slow Moving Inventory that exceed the Slow Moving Inventory
Tolerance Level shall be excluded from the Borrowing Base; plus 30% of the
lower of cost (determined on a first in, first out basis) or market value of
finished good Eligible inventory or (y) $500,000, plus (2) 80%
of the face value of Eligible Accounts. 
The Borrower shall deliver borrowing base certificates in substantially
the form attached hereto (a “Borrowing Base Certificate”) to the Lender
contemporaneously with each Advance request and in any event not less than
weekly.  Each such certificate shall
state the amount of Eligible Accounts and the Borrowing Base as of the end of
the previous day and shall state the amount of Eligible Inventory and Slow
Moving Inventory as of the end of the most recent of the 15th day of
that month or as of the last day of the previous month.  Any limitations on advances or required
prepayments relating to the Borrowing Base shall be based on the latest
borrowing base certificate the Borrower shall have delivered to the
Lender.  If the principal balance of the
Advances at any time exceeds the Borrowing Base, the Borrower shall immediately
prepay the Advances by the amount of that excess.

 

2.5                               Minimum EBITDA.  Section 6.10 of the Credit Agreement is
amended to read in its entirety as follows:

 

Section 6.10
Minimum EBITDA.  The Borrower
shall not permit its cumulative year-to-date EBITDA after July 1, 2004 to
be less than (i) $40,000 as of September 30, 2004, (ii) $100,000 as of
December 31, 2004, (iii) $160,000 as of March 31, 2005 and (iv)
$220,000 as of June 30, 2005, provided, however, that in the
event the Borrower’s EBITDA is less than the amounts set forth in this
Section 6.10, the Borrower shall have thirty days after the end of the
applicable fiscal quarter to obtain capital injections to raise its EBITDA to
the levels set forth in this Section 6.10.

 

2.6                               Borrowing Base
Certificate. 
The Borrowing Base Certificate attached to the Credit Agreement is
hereby amended to read as set forth on Exhibit B attached to this Amendment.

 

2.7                               Compliance
Certificate. 
The Compliance Certificate attached to the Credit Agreement as Exhibit
5.1(c) is hereby amended to read as set forth on Exhibit 5.1(c) attached to
this Amendment.

 

3

 

Section 3.
Effectiveness of Amendments.  The amendments contained in this Amendment
shall become effective upon delivery by the Borrower of, and compliance by the
Borrower with, the following:

 

3.1                               This
Amendment duly executed by the Borrower.

 

An Amended and
Restated Note in the form of Exhibit A hereto.

 

Subordination
Agreements from Richard McNamara, Activar, Inc. and Activar Properties, Inc. in
form and substance satisfactory to the Lender.

 

A copy of the
resolutions of the Board of Directors of the Borrower authorizing the
execution, delivery and performance of this Amendment certified as true and
accurate by its Secretary or Assistant Secretary, along with a certification by
such Secretary or Assistant Secretary (i) certifying that there has been
no amendment to the Articles of Incorporation or Bylaws of the Borrower since
true and accurate copies of the same were delivered to the Lender with a
certificate of the Secretary of the Borrower dated October 10, 2000, and
(ii) identifying each officer of the Borrower authorized to execute this
Amendment and any other instrument or agreement executed by the Borrower in
connection with this Amendment 
(collectively, the “Amendment Documents”), and certifying as to
specimens of such officer’s signature and such 
officer’s incumbency in such offices as such officer holds.

 

The Borrower
shall have satisfied such other conditions as specified by the Lender,
including payment of all unpaid legal fees and expenses incurred by the Lender
through the date of this Amendment in connection with the Credit Agreement and
the Amendment Documents.

 

Section 4.  Representations, Warranties, Authority, No
Adverse Claim. 

 

4.1                                 Reassertion
of Representations and Warranties, No Default.  The Borrower hereby represents that on and as of the date hereof
and after giving effect to this Amendment (a) all of the representations
and warranties contained in the Credit Agreement are true, correct and complete
in all respects as of the date hereof as though made on and as of such date,
except for changes permitted by the terms of the Credit Agreement, and (b)
there will exist no Default or Event of Default under the Credit Agreement as
amended by this Amendment on such date which has not been waived by the Lender.

 

4.2                                 Authority,
No Conflict, No Consent Required. The Borrower represents and warrants that
the Borrower has the power and legal right and authority to enter into the
Amendment Documents and has duly authorized as appropriate the execution and
delivery of the Amendment Documents and other agreements and documents executed
and delivered by the Borrower in connection herewith or therewith by proper
corporate action, and none of the Amendment Documents nor the agreements
contained herein or therein contravenes or constitutes a default under any
agreement, instrument or indenture to which the Borrower is a party or a
signatory or a provision of the Borrower’s Articles of Incorporation, Bylaws or
any other agreement or requirement of law, or result in the imposition of any
Lien on any of its property under any agreement binding on or applicable to the
Borrower or any of its property except, if any, in favor of the Lender.  The Borrower represents and warrants that no
consent, approval or authorization of or registration or declaration with any
Person, including but not limited to any governmental authority, is required in
connection with the execution and delivery by the Borrower of the Amendment
Documents or other agreements and documents executed and delivered by the
Borrower in connection therewith or the performance of obligations of the
Borrower therein described, except for those which the Borrower has obtained or
provided and as to which the Borrower has delivered certified copies of
documents evidencing each such action to the Lender.

 

4.3                                 No
Adverse Claim. The Borrower warrants, acknowledges and agrees that no
events have been taken place and no circumstances exist at the date hereof
which would give the Borrower a basis to assert a defense, offset or
counterclaim to any claim of the Lender with respect to the Obligations.

 

4

 

Section 5. Affirmation of Credit
Agreement, Further References, Affirmation of Security Interest.  The Lender and the Borrower each acknowledge
and affirm that the Credit Agreement, as hereby amended, is hereby ratified and
confirmed in all respects and all terms, conditions and provisions of the
Credit Agreement, except as amended by this Amendment, shall remain unmodified
and in full force and effect.  All
references in any document or instrument to the Credit Agreement are hereby
amended and shall refer to the Credit Agreement as amended by this
Amendment.   The Borrower confirms to
the Lender that the Obligations are and continue to be secured by the security
interest granted by the Borrower in favor of the Lender under the Security
Agreement, and all of the terms, conditions, provisions, agreements,
requirements, promises, obligations, duties, covenants and representations of
the Borrower under such documents and any and all other documents and
agreements entered into with respect to the obligations under the Credit Agreement
are incorporated herein by reference and are hereby ratified and affirmed in
all respects by the Borrower.

 

Section 6. Merger and Integration,
Superseding Effect.  This Amendment, from and after the date hereof, embodies the
entire agreement and understanding between the parties hereto and supersedes
and has merged into this Amendment all prior oral and written agreements on the
same subjects by and between the parties hereto with the effect that this
Amendment, shall control with respect to the specific subjects hereof and
thereof.

 

Section 7. Severability.  Whenever possible, each provision of this
Amendment and the other Amendment Documents and any other statement, instrument
or transaction contemplated hereby or thereby or relating hereto or thereto
shall be interpreted in such manner as to be effective, valid and enforceable
under the applicable law of any jurisdiction, but, if any provision of this
Amendment, the other Amendment Documents or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto shall
be held to be prohibited, invalid or unenforceable under the applicable law,
such provision shall be ineffective in such jurisdiction only to the extent of
such prohibition, invalidity or unenforceability, without invalidating or
rendering unenforceable the remainder of such provision or the remaining
provisions of this Amendment, the other Amendment Documents or any other
statement, instrument or transaction contemplated hereby or thereby or relating
hereto or thereto in such jurisdiction, or affecting the effectiveness,
validity or enforceability of such provision in any other jurisdiction.

 

Section 8. Successors.  The Amendment Documents shall be binding
upon the Borrower and the Lender and their respective successors and assigns,
and shall inure to the benefit of the Borrower and the Lender and the
successors and assigns of the Lender.

 

Section 9. Legal Expenses.  As provided in Section 8.2 of the
Credit Agreement, the Borrower agrees to reimburse the Lender, upon execution
of this Amendment, for all reasonable out-of-pocket expenses (including
attorney’ fees and legal expenses of Dorsey & Whitney LLP, counsel for the
Lender) incurred in connection with the Credit Agreement, including in connection
with the negotiation, preparation and execution of the Amendment Documents and
all other documents negotiated, prepared and executed in connection with the
Amendment Documents, and in enforcing the obligations of the Borrower under the
Amendment Documents, and to pay and save the Lender harmless from all liability
for, any stamp or other taxes which may be payable with respect to the
execution or delivery of the Amendment Documents, which obligations of the
Borrower shall survive any termination of the Credit Agreement.

 

Section 10. Headings.  The headings of various sections of this
Amendment have been inserted for reference only and shall not be deemed to be a
part of this Amendment.

 

Section 11. Counterparts.  The Amendment Documents may be executed in several
counterparts as deemed necessary or convenient, each of which, when so
executed, shall be deemed an original, provided that all such counterparts
shall be regarded as one and the same document, and either party to the
Amendment Documents may execute any such agreement by executing a counterpart
of such agreement.

 

Section 12. Governing Law.  THE AMENDMENT DOCUMENTS SHALL BE GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT
OF LAW PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS, THEIR HOLDING COMPANIES AND THEIR AFFILIATES.

 

 

[Remainder of Page Intentionally Left Blank]

 

5

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.

 

	
  BORROWER:

  	
   

  
	
   

  	
  MAGSTAR
  TECHNOLOGIES, INC. F/K/A

  REUTER MANUFACTURING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James L.
  Reissner

  	
   

  
	
   

  	
  Title:

  	
  President, Chief
  Executive Officer And Director

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  LENDER:

  	
   

  
	
   

  	
  U.S. BANK
  NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John
  Phillipi

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
					

 

6

 

EXHIBIT
A

 

AMENDED AND RESTATED NOTE

 

	
  $1,200,000

  	
   

  	
  August 13, 2004

  
	
   

  	
   

  	
  Minneapolis, Minnesota

  

 

FOR VALUE RECEIVED, MAGSTAR
TECHNOLOGIES, INC. F/K/A REUTER MANUFACTURING, INC., a  corporation organized under the laws of the
State of Minnesota (the “Borrower”), hereby promises to pay to the order of
U.S. BANK NATIONAL ASSOCIATION (the “Lender”) at its main office in Minneapolis,
Minnesota, in lawful money of the United States of America in immediately
available funds the principal amount of ONE MILLION TWO HUNDRED THOUSAND
DOLLARS AND NO CENTS ($1,200,000), and to pay interest (computed on the basis
of actual days elapsed and a year of 360 days) in like funds on the unpaid
principal amount hereof from time to time outstanding.

 

The principal hereof and
interest hereon is payable on the Advances (as such term and each other
capitalized term used herein are defined in the Credit Agreement hereinafter
referred to) at the rates and times set forth in the Credit Agreement.  The Advances are payable in full on the
Revolving Maturity Date.

 

This note is the Amended
and Restated Note referred to in the Amended and Restated Credit Agreement
dated as of October 10, 2000 (as the same may be hereafter from time to
time amended, restated or modified, the “Credit Agreement”) between the
Borrower and the Lender.  This note is
secured, it is subject to certain permissive and mandatory prepayments and its
maturity is subject to acceleration, in each case upon the terms provided in
said Credit Agreement.  This note is
issued in substitution and replacement but not in payment of indebtedness owed
to the Lender by the Borrower under that Promissory Note dated as of
August 7, 2003 in the original principal amount of $1,750,000 from the
Borrower to the Lender.

 

In the event of default
hereunder, the undersigned agrees to pay all costs and expenses of collection,
including reasonable attorneys’ fees. 
The undersigned waives demand, presentment, notice of nonpayment,
protest, notice of protest and notice of dishonor.

 

THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS.

 

	
   

  	
  MAGSTAR
  TECHNOLOGIES, INC. F/K/A

  REUTER MANUFACTURING, INC.

  
	
   

  	
   

  
	
   

  	
  By 

  	
  EXHIBIT

  	
   

  
	
   

  	
  Title

  	
  EXHIBIT

  	
   

  
					

 

B-1

 

EXHIBIT B

 

BORROWING BASE CERTIFICATE

Magstar Technologies Inc.

 

Borrowing Base
Certificate for the period ended
                             
, 20     

 

This Borrowing Base
Certificate is delivered in accordance with the Credit Agreement dated as of
October 10, 2000 between U.S. Bank National Association (the “Lender”) and
Magstar Technologies Inc. (“the Borrower”). 
Capitalized terms used herein which are defined in the Credit Agreement
shall have the meanings set forth for such terms therein.  All amounts are as of the date shown above
except as otherwise stated herein.

 

I certify that the
following amounts were correctly determined according to the Credit Agreement:

 

	
  Total
  Receivables

  	
   

  	
   

  	
   

  	
  $

  	
  (A)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Receivables 90+ days

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Other Ineligible

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Ineligible

  	
   

  	
   

  	
   

  	
  $

  	
  (B)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eligible
  Receivables (A) - (B)

  	
   

  	
   

  	
   

  	
  $

  	
  (C)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eligible
  Receivables Borrowing Base (80% of (C))

  	
   

  	
   

  	
   

  	
  $

  	
  (D)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Raw
  Material Inventory

  	
   

  	
   

  	
   

  	
  $

  	
  (E)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ineligible Raw
  Material Inventory

  	
   

  	
   

  	
   

  	
  $

  	
  (F)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eligible Raw
  Material Inventory (E) - (F)

  	
   

  	
   

  	
   

  	
  $

  	
  (G)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Raw Material
  Inventory Subtotal Borrowing Base 40% of (G)

  	
   

  	
   

  	
   

  	
  $

  	
  (H)

  

 

B-1

 

	
  Slow Moving
  Inventory

  	
   

  	
   

  	
   

  	
  $

  	
  (I)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Slow Moving
  Inventory Tolerance Level

  	
   

  	
   

  	
   

  	
  $

  	
  (J)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deduction for
  Slow Moving Inventory (I) - (J)

  	
   

  	
   

  	
   

  	
  $

  	
  (K)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Raw Material
  Inventory Borrowing Base (H)-(K)

  	
   

  	
   

  	
   

  	
  $

  	
  (L)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Finished
  Goods Inventory

  	
   

  	
   

  	
   

  	
  $

  	
  (M)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ineligible
  Finished Goods Inventory

  	
   

  	
   

  	
   

  	
  $

  	
  (N)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eligible
  Finished Goods Inventory (M) - (N)

  	
   

  	
   

  	
   

  	
  $

  	
  (O)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Finished Goods
  Inventory Borrowing Base 30% of (O)

  	
   

  	
   

  	
   

  	
  $

  	
  (P)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Borrowing
  Base (D) + (L) + (P)

  	
   

  	
   

  	
   

  	
  $

  	
  (Q)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Outstanding
  Advances

  	
   

  	
   

  	
   

  	
  $

  	
  (R)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Availability (Q)
  - (R)

  	
   

  	
   

  	
   

  	
  $

  	
  (S)

  

 

I hereby certify that all payroll and
unemployment taxes are current as of this date.

 

B-2

 

For the purpose of
inducing the Lender to extend credit to the Borrower pursuant to the Credit
Agreement, the Borrower hereby certifies that the foregoing information is true
and correct in all respects.  The
Borrower further certifies that all amounts outstanding under the Note were
properly authorized for the benefit of the Borrower and constitute obligations
of the Borrower in accordance with the terms of the Credit Agreement.  The Borrower further certifies that no
circumstances or conditions exist at the date of the Borrowing Base Certificate
which constitute an Event of Default.

 

	
   

  	
  MAGSTAR
  TECHNOLOGIES INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Title

  	
   

  	
   

  
					

 

EXHIBIT 5.1(c) TO

CREDIT
AGREEMENT

 

[FORM OF COMPLIANCE CERTIFICATE]

 

To:          U.S. Bank National Association

 

THE UNDERSIGNED
HEREBY CERTIFIES THAT:

 

(1)  I am the duly elected chief financial
officer of REUTER MANUFACTURING, INC. (the “Borrower”);

 

(2)  I have reviewed the terms of the Amended and
Restated Credit Agreement dated as of October 10, 2000, as amended between
MAGSTAR TECHNOLOGIES, INC. F/K/A REUTER MANUFACTURING, INC., a corporation
organized under the laws of the State of Minnesota, (the “Borrower”), and U.S.
BANK NATIONAL ASSOCIATION  (the
“Lender”) (the “Credit Agreement”) and I have made, or have caused to be made
under my supervision, a detailed review of the transaction and conditions of
the Borrower during the accounting period covered by the Attachment hereto; and

 

(3)  The examination described in paragraph (2)
did not disclose, and I have no knowledge, whether arising out of such
examinations or otherwise, of the existence of any condition or event which
constitutes a Default or an Event of Default (as such terms are defined in the
Credit Agreement) during or at the end of the accounting period covered by
Attachment hereto or as of the date of this Certificate, except as described
below (or on a separate attachment to this Certificate).  The following exceptions set forth, in
detail, the nature of the condition or event, the period during which has
existed and the action which the Borrower has taken, is taking or proposes to
take with respect to each such condition or event.

 

B-3

 

The foregoing
certification, together with the computations in the Attachment hereto and the
financial statements delivered with this Certificate in support hereof, are made
and delivered this           
day of
                   ,
          , pursuant to
Section 5.1 (c) of the Credit Agreement.

 

	
   

  	
  MAGSTAR TECHNOLOGIES, INC. F/K/A

  
	
   

  	
  REUTER MANUFACTURING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
						

 

2

 

ATTACHMENT TO COMPLIANCE CERTIFICATE

AS OF
           ,

WHICH PERTAINS TO THE PERIOD

FROM       ,
            TO
          ,

FOR THE FISCAL YEAR ENDING
          ,

 

	
   

  	
   

  	
   

  	
  In Compliance

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum EBITDA (Minimum of $40,000 at September 30, 2004; (ii)
  $100,000 at December 31, 2004, (iii) $160,000 at March 31, 2005 and
  (iv) $220,000 at June 30, 2005) (Section 6.10)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Actual$

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  

 

3

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00070-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00070-of-00352.parquet"}]]