ASSET PURCHASE AGREEMENT

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THIS ASSET PURCHASE AGREEMENT (“ Agreement ”) is made as of the Effective Date provided for below between CLEARONE COMMUNICATIONS, INC. , a Utah corporation (the “ Company ”), and KEN-A-VISION MFG. CO., INC. , a Missouri corporation (the “ Buyer ”), who agree as follows:

 

1.   Sale of Assets .

 

a.  Subject to the representations, warranties and agreements of the parties hereto and the terms and conditions herein set forth, the Company agrees that, at the Closing (as herein defined), the Company shall sell, transfer and deliver to the Buyer, for the consideration hereinafter provided, the following assets and property owned by Company and used by it in the conduct, as presently operated, of its Camera Business (as defined in Section 15 below) (excluding, however, the “Excluded Assets” described below) (collectively, the “ Assets ”):

 

1. All of the Company’s machinery, equipment, tools and other tangible personal property described on Schedule 1.a.1 attached hereto (“ Equipment ”);

 

2. All of the Company’s rights, benefit, interest and obligations (collectively, the “ Warranty Obligations ”) with respect to the warranties (“ Warranties ”) issued by the Company with respect to the Products (as such term is defined immediately below). The obligations of the Buyer with respect to the Warranties are subject to the terms of Section 2.b. below.

 

3. All of the Company’s (i) customer lists, records and files, (ii) production records, (iii) technical drawings, specifications and manuals and other information related to the production of the products (“ Product ” or “ Products ”) produced and sold as a part of the Camera Business, (iv) marketing plans and reports, (v) supplier and vendor lists, contacts and information (vi) sales records, (vii) pricing sheets, (viii) customer proposals and bids, (ix) records pertaining to product warranty inquiries concerning Warrantied Products (as defined in Section 2.b.i. below) and (x) other pertinent and material sales information and records, insofar as the items referenced in clauses (i) - (x) relate solely to the Camera Business (such items referenced in clauses (i) - (x) being hereinafter collectively referred to as the “ Camera Business Records ”);

 

4. Subject to Section 1.d below, all of the Company’s inventories (raw and finished), work in process and sub-assemblies held for sale, consumption or otherwise used in the operation of the Camera Business, as selected by the Buyer in its sole discretion, provided that there shall be no adjustment to the Purchase Price hereunder in respect of any available inventories not so selected by the Buyer; and

 

5. All of the Company’s computer software utilized solely in the Camera Business (“ Software ”), including but not limited to, drivers for the Products, and the Intellectual Property, all as listed on Schedule 1.a.5 , but subject to the provisions of Section 1.e. below (as so qualified and together with the Software, the “ Conveyed Intellectual Property ”).

 

b.  To avoid doubt, the following assets of the Company (collectively, the “ Excluded Assets ”), among others, shall be retained by the Company, and are not being sold or assigned to the Buyer hereunder:

 

1. All corporate names and trade names, trademarks or service marks that are used in connection with any of the Company’s businesses other than the Camera Business;

 

2. All taxpayer and other identification numbers and minute books, stock transfer books, tax returns, corporate seals and all other documents relating to the organization, maintenance and existence of the Company as a corporation;

 

3. The Company’s rights under this Agreement, the agreements to be executed by the Company in connection herewith and any agreements relating to the Camera Business, including any rights with respect to rebates and market development funds under certain agreements between the Company and its customers;

 

4. All cash and cash equivalents of the Company;

 

5. The name and mark “ClearOne” and all combinations or derivations thereof;

 

6. The Company’s accounts receivable as of the Closing Date, but including in all events any amount owing on account of Products shipped by the Company prior to Closing or in connection with Open Purchase Orders (as defined in Section 1.d.);

 

7. Copies of such Camera Business related records as it deems appropriate;

 

8. Any telephone numbers; and

 

9. Any websites.

 

c.  The sale of the Assets shall be made free and clear of all liabilities, obligations, security interests, and other encumbrances or liens of any and every kind and nature whatsoever except (i) the Security Interest referenced in Section 2.a.2. below, (ii) the Assumed Liability referenced in Section 2.b. below, (iii) the Permitted Encumbrances, and (iv) Buyer’s Assumed Tax Liability (as referenced below).

 

 

d.  The Buyer acknowledges that the Company, to the extent possible, is depleting raw inventory and finished goods relating to the Camera Business. Accordingly, the Company has been and will be seeking to obtain purchase orders from its customers for the Products up to the date of Closing. In regard to all such purchase orders that are obtained prior to the Closing and not filled as of the Closing (“ Open Purchase Orders ”), the Buyer agrees that (i) inventory required to fill such purchase orders (but only so much inventory as is so required) will comprise part of the Excluded Assets and will be retained by the Company and not sold to the Buyer, and (ii) inventory on order and in process required to fill such purchase orders will be completed and delivered to the Company. The Company agrees to fill such purchase orders and deliver the Products required thereunder within a commercially reasonable time. If the Company receives a cancellation of an Open Purchase Order subsequent to Closing, the Company shall promptly deliver the Products subject to such Open Purchase Orders to the Buyer F.O.B. Buyer’s facility in Raytown, Missouri.

 

e.  The Company shall continue to use its best efforts to obtain the consent of ArcSoft, Inc. (“ ArcSoft ”) to the assignment to the Buyer of the License Agreement (the “ ArcSoft Agreement ”) between the Company and ArcSoft pertaining to the ArcSoft Software (as defined in Schedule 1.a.5. hereto). The Company maintains the position that the ArcSoft Agreement is valid and in force, but has been notified by ArcSoft that ArcSoft considers the agreement to be expired. Buyer acknowledges that the Company may be unable to obtain ArcSoft’s consent to the assignment of the ArcSoft Agreement and that ArcSoft may insist that the Buyer enter into a new license agreement with respect to the ArcSoft Software and that, in either case, any rights of the Company to the ArcSoft Software will not comprise part of the Assets being sold and conveyed hereunder.

 

2.   Purchase Price .

 

a.   Payment of Purchase Price . The purchase price which the Buyer shall pay to the Company for the assets to be sold and transferred to the Buyer hereunder (“ Purchase Price ”) shall be Seven Hundred and Fifty Thousand Dollars ($750,000.00), subject to being adjusted as provided in Schedule 2.a attached hereto (the “ Price Adjustment ”), to be paid as follows, plus the assumption of the Assumed Liability and Buyer’s Assumed Tax Liability:

 

1. Delivery at the Closing of the sum of Three Hundred Seventy-Five Thousand Dollars ($375,000.00), subject to the Price Adjustment, by immediately available funds payable to the Company (the “Down Payment”); and

 

2. Delivery at the Closing of the Buyer’s promissory note (the “ Note ”) in the form attached as Exhibit “A” , in the principal amount of Thousand Dollars ($375,000.00), subject to the Price Adjustment, bearing interest at the rate of eight percent (8%) per annum and, subject to the Price Adjustment, payable in twenty-four (24) monthly installments of $16,960.23 to be secured by a first lien security interest in all of the Assets (the “ Security Interest ”), as provided in that certain Security Agreement in the form attached as Exhibit “B ,” to also be delivered to the Company at Closing.

 

 

 

b.   Assumed Liability .

 

i.  At the Closing, the Buyer will assume and perform the Company’s Warranty Obligations under the Warranties issued by the Company with respect to Products sold within two (2) years prior to the Closing Date, along with any Products sold pursuant to Open Purchase Orders (all of which Products are collectively referred to hereinafter as “ Warrantied Products ”), provided that the cost of such performance (as the term “cost” is referenced below) shall not exceed $100,000 in the 730-day period following the Closing Date, the Company hereby agreeing to be responsible, to pay or reimburse the Buyer and to indemnify and hold the Buyer harmless to the extent that all costs of performing the Company’s obligations under the Warranties with respect to the Warrantied Products exceed $100,000 in the 730-day period following the Closing Date (the obligation of the Buyer under this Section 2.b being referred to herein as the “ Assumed Liability ”). For the absence of doubt, the Company will only reimburse for costs that exceed One Hundred Thousand Dollars ($100,000.00) during the 730-day period, which costs shall be strictly limited to the sum of a) repair costs at the Buyer’s normal and customary labor charges and b) reasonable cost of material that need to be purchased subsequent to the Closing Date in order to permit the Buyer to perform the referenced Warranty obligations hereunder. A description of the Company’s standard warranty terms is set forth in Schedule 2.b . From the date hereof until Closing, the Company will continue to process warranty claims and inquiries in accordance with its historical practice and in the normal course of its business. At the Closing, the Company will deliver, as part of the Camera Business Records, records pertaining to inquiries received by the Company pertaining to Warrantied Products. Within ten (10) days of the Closing Date, the Company will deliver to the Buyer a list of Warrantied Products sold within the two years prior to and including the Closing Date to which the Warranty provisions of this paragraph shall apply; and so long as any Open Purchase Orders remain to be filled, the Company will update the Buyer on a weekly basis with information pertaining to Products shipped pursuant to such Open Purchase Orders.

 

ii.  The foregoing notwithstanding, to the extent that the cost of the Buyer’s performance pursuant to this Section 2.b. in the 365-day period following the Closing Date (see "First Year") exceeds $50,000, the Buyer shall be entitled to set-off such excess against the monthly payments next due to the Company under the Note until the full amount of such excess has been set-off or the First Year shall have elapsed, whichever is the first to occur, and interest shall cease to accrue under the Note with respect to all such amounts so offset onto the end of the First Year. In the event of any such set-off, the unpaid balance of the Note shall be reamortized effective with the thirteenth (13 ^th) monthly payment due thereunder so as to be repaid in full in twelve (12) monthly installments with interest thereon at the rate of eight percent (8%) per annum from and after the first to day the following the end of the First Year.

 

iii.  The Company agrees to use its reasonable best efforts, without spending money or making any binding agreements or commitments, to forward all customer contacts concerning Warranty Obligations to the Buyer. Without limiting the generality of the foregoing, the Company shall use its reasonable best efforts to cause all telephone contacts received by it concerning the Warrantied Products to be forwarded and referred to the Buyer at (800) 627-1953 and shall, within ten (10) business days of Closing, alter its website to include hot links from the sale and warranty sections of the website to the Buyer’s website with respect to such Warrantied Products.

 

 

 

c.   Assumed Tax Liability . The Company will pay all personal property taxes due and payable with respect to the Assets as of the Closing. At the Closing, the Buyer shall assume and be liable to timely pay the pro-rated portion of personal property taxes not yet due and payable with respect to Assets acquired by it hereunder. All personal property taxes with respect to Assets acquired hereunder shall be pro-rated as of the Closing Date between the Company and the Buyer (“ Buyer’s Assumed Tax Liability ”).

 

d.   Allocation of Purchase Price . One Hundred Fifty Thousand Dollars ($150,000.00) of the purchase price for the Assets shall be allocated to the non-compete agreement set forth below and the balance of the purchase price shall be allocated among the Assets in accordance with the Form 8594 attached hereto as Exhibit “C ”, and the parties will report the same accordingly for tax purposes.

 

e.   Escrow Agreement . Following Closing, if the Buyer reasonably believes in good faith that there has been a misrepresentation or breach of a warranty, agreement or covenant under this Agreement, other than with respect to the warranties (“ Product Warranties ”) set forth in the first sentence of Section 3.e. (a “ Breach ”), having a Material Adverse Effect (as defined in Section 15.e.), then in addition to all other rights and remedies of the Buyer hereunder, but subject to the terms of Section 12, (i) if the amount of all losses, damages, costs and expenses reasonably anticipated to be incurred by the Buyer as a result of the Breach (“ Loss Estimate Amount ”) is $5000.00 or less, the Buyer shall be entitled, upon written notice to the Company of such Breach (a “Set-Off Notice”) to retain and set-off such Loss Estimate Amount (the “ Set-Off Remedy ”) against any of the amounts owed by the Buyer under the Note, provided, however, that if the Breach resulting in a Set-Off Remedy is subsequently cured by the Company, then the Buyer shall promptly pay to the Company any amount by which a Set-Off Remedy amount exceeds any loss, damages, costs or expenses actually incurred by the Buyer with respect to the Breach; and provided further that, upon receipt of a Set-Off Notice, the Company may give written notice that it disputes such Set-Off Remedy (“Dispute Notice”), in which case the Buyer shall pay the relevant Loss Estimate Amount in respect of such Set-Off Remedy into the Escrow Account under the Escrow Agreement; and (ii) if the Loss Estimate Amount is more than $5000.00 (alone or in the aggregate with all prior Loss Estimate Amounts not previously claimed in a Set-Off Remedy under this section), the Buyer may elect to (a) give written notice (an “ Escrow Notice ”) to Company of such Breach and of the amount of the Loss Estimate Amount reasonably anticipated to be incurred by the Buyer as a result of such Breach and (b) thereafter pay into the Escrow Account referenced in the Escrow Agreement attached as Exhibit “D ” and to be executed simultaneously herewith, amounts otherwise falling due under the Note, but in no event to exceed the Loss Estimate Amount. Thereafter, any dispute between the parties with respect to any Loss Estimate Amount paid into the Escrow Account shall be resolved as provided in the Escrow Agreement and Section 13 below (collectively, the “ Escrow Agreement Remedy ”). As to Product Warranties, the Buyer shall be liable, notwithstanding any breach by Company of the first sentence of Section 3.e., or anything herein to the contrary, to honor the Warranties as set forth in Section 2.b., and the Company shall have no further liability in connection therewith except as provided in Section 2.b.

 

 

3.   Representations and Warranties . The Company represents and warrants as follows:

 

a.  The Company is a corporation duly organized, validly existing and legally operating in the State of Utah and has all requisite power and authority to (1) own its properties, including the Assets; (2) make, execute and perform this Agreement and all documents to be executed in connection herewith; and (3) conduct the Camera Business as and where now being conducted; however, without limiting any other representation or warranty made by the Company in this Agreement, the Company does not hereby make any representation or warranty that it is not in violation of any third-party patents, trade secret or know-how in the production or manufacture of the Products.

 

b.  The execution and delivery of this Agreement and the sale contemplated hereby have been duly authorized by the Company.

 

c.  Except as otherwise described in Section 1.e. and Schedule 3.f, the Company has, and as of the Closing Date will have, good and marketable title to all of its properties and assets which are being sold, transferred, and conveyed hereunder, subject to no mortgage, pledge, lien, encumbrance, security interest, agreement, claim, covenant, easement, restriction, reservation, exceptions or charge, other than with respect to the Assumed Liability, the Security Interest, the Permitted Encumbrances and the Buyer’s Assumed Tax Liability.

 

d.  There has been no person employed or retained by the Company, or who is entitled to be paid under any agreement, express or implied, with it, as a finder or broker in connection with the transactions contemplated hereunder, and the Company will indemnify and hold harmless the Buyer from and against any liability for any claim, demand, or payment of any broker’s or finder’s commission, fee, or expenses in connection with this Agreement claimed under alleged agreement with the Company.

 

e.  Other than with respect to repair or other work the Company is performing arising out of its obligations with respect to Product Warranties, each of the Products has been manufactured, sold or delivered by the Company in conformity with all applicable contractual commitments, all express and implied representations and warranties, all Product literature, all applicable laws, regulations and other governmental requirements, excluding any of the same governing patents, copyrights or trade secrets, and to the Company’s Knowledge, all applicable laws, regulations and other governmental requirements governing patents, copyrights or trade secrets. With respect to contractual restrictions, the Products are subject only to the Warranties and the Company’s standard terms and conditions of sale.   The Company’s standard terms and conditions of sale for each of the Products are as set forth in the attached Schedule 3.e .

 

 

f.   Schedule 1.a.5. sets forth a complete and correct list of the Intellectual Property used or held for use in the Camera Business. Except as set forth in Section 1.e. and in Schedule 3.f. attached hereto, the Company owns and possesses all right, title and interest in and to, or has a valid, enforceable and transferable license to use the Intellectual Property. Except as set forth in Schedule 3.f. attached hereto, no claim by any third party contesting the validity, enforceability, use or ownership of any of the Intellectual Property has been made or is currently outstanding or, to Company’s Knowledge, is threatened. Except as set forth in Schedule 3.f. attached hereto, the Company has not received any notices of and is not aware of any facts that indicate a likelihood of any infringement or misappropriation by, or conflict with, any Person with respect to the Intellectual Property, including any demand or request that Company license rights from, or make royalty payments to, any Person. Except as set forth in Schedule 3.f. attached hereto, to the Company’s Knowledge, the Company has not infringed, misappropriated or otherwise conflicted with any proprietary rights of any third parties and the Company is not aware of any infringement, misappropriation or conflict that will occur as a result of the continued operation of the Camera Business or the Assets.

 

g.  The Company is in compliance where it engages in the Camera Business, to the extent a failure to comply would have a Material Adverse Effect, with all applicable federal, state, local and international laws, ordinances and regulations relating to the Camera Business and the Assets, including, without limitation all environmental, labor, employment, health and safety and other laws, statutes and regulations, but excluding (i) Intellectual Property laws, rules and regulations which matters are the subject of a separate warranty hereunder, (ii) tax laws, rules and regulations, which matters are the subject of a separate warranty hereunder, (iii) the matters which are the subject of subsection 3.a., and (iv) current or planned ROHS environmental requirements imposed by the European Union. The Company will complete the process of updating existing compliance reports for FlexCam iCam and the DocCam Pro to the following reports: FCC Part 15, Subpart B; ICES-003; EN55022:1998; EN55024:1998; EN61000-3-2; EN61000-3-3; and IEC/EN 60950-1:2001 1st Edition.

 

h.  To the Company’s Knowledge and based on its understanding and interpretations of relevant law (the “ Tax Qualification ”), the Company has filed all tax returns, including, without limitation, estimated tax returns, withholding and quarterly sales/use tax returns required to be filed by it under the laws of the United States, the State of Utah and each other state or jurisdiction in which the Company is required to file tax returns. Subject to the Tax Qualification, the Company has paid and/or deposited all taxes for the periods covered by such returns and all taxes for which the laws of any state or other taxing jurisdiction impose successor liability. The Company's federal and state tax returns have not been audited by the Internal Revenue or any state department of revenue, no agreements are currently in effect by or on behalf of the Company for the extension of time for the assessment of any tax. There are no tax liens, whether imposed by any federal, state or local taxing authority, outstanding against any of the Assets.

 

4.   Representations and Warranties of the Buyer . The Buyer represents and warrants as follows:

 

 

a.  The Buyer is a corporation duly organized, validly existing and legally operating in the State of Missouri and has all requisite power and authority to make, execute and perform this Agreement and all documents to be executed in connection herewith; furthermore, neither the Buyer nor the Buyer’s principals are party to or subject to any non-competition agreement that would preclude or prohibit the Buyer’s operation of the Camera Business following Closing.

 

b.  The execution and delivery of this Agreement and the sale contemplated hereby have been duly authorized by the Buyer.

 

c.  There has been no person employed or retained by the Buyer or who is entitled to be paid under any agreement, express or implied, with it, as a finder or broker in connection with the transactions contemplated hereunder, and the Buyer will indemnify and hold harmless the Company from and against any liability for any claim, demand or payment of any broker’s or finder’s commission, fee or expenses in connection with this Agreement claimed under alleged agreement with the Buyer.

 

5.   Responsibility for Other Party’s Liabilities .

 

a.  Except for the Assumed Liability, the Security Interest, the Permitted Encumbrances, the Buyer’s Assumed Tax Liability and the Buyer’s indemnification obligations hereunder, the Buyer does not have, and will not have after the Closing Date, any liability or responsibility whatsoever for any liability or obligation of any nature, whether accrued, absolute, contingent, or otherwise, including, without limitation, tax deficiencies or other tax liabilities of the Company existing or accrued as of the Closing Date or thereafter arising from any transactions or events which shall have occurred prior to Cl