TABLE OF CONTENTS

				Page
ARTICLE 1		DEFINITIONS		2
1.01		Certain Definitions		2
1.02		Other Definitions and Interpretative Provisions		10
ARTICLE 2		PURCHASE AND SALE		11
2.01		[Intentionally omitted]		11
2.02		Purchase and Sale of the Purchased Assets		11
2.03		Excluded Assets		13
2.04		Assumed Liabilities		14
2.05		Excluded Liabilities		14
2.06		Consent of Third Parties; Further Assurances.		16
2.07		Purchase Price; Escrow		17
2.08		Closing		17
2.09		Net Working Capital and Net Other Assets and Liabilities Adjustments		18
ARTICLE 3		REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS		21
3.01		Corporate Existence and Power		21
3.02		Corporate Authorization		21
3.03		Governmental Authorization		22
3.04		Noncontravention		22
3.05		Required Consents		22
3.06		[Intentionally omitted]		22
3.07		Business Financial Statements		23
3.08		SEC Filings; Financial Statements; Disclosure Controls.		23
3.09		Absence of Certain Changes		25
3.10		No Undisclosed Liabilities		25
3.11		Assets		25
3.12		Personal Property		25
3.13		Sufficiency of Purchased Assets		25
3.14		Material Contracts		25
3.15		Solvency		28
3.16		Change of Control		28
3.17		Litigation		28
3.18		No Violation of Law		29
3.19		Governmental Approvals/Consents		29
3.20		Properties; Liens		30
3.21		Inventories		31
3.22		Intellectual Property		31
3.23		Systems and Software		32
3.24		Banks; Powers of Attorney		33
3.25		Finders’ Fees		33
3.26		Employee Benefit Plans		33
3.27		Employee and Labor Matters		35
3.28		Environmental Matters		36

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3.29		Insurance		37
3.30		Customer and Supplier Relationships		37
3.31		Accounts Receivable		38
3.32		Accounts Payable		38
3.33		Earn-Out Payments		38
3.34		Related Party and Affiliate Transactions		39
3.35		Business Records		39
3.36		Fairness Opinion		39
3.37		Foreign Authorized Agents		39
3.38		Product Warranty		39
ARTICLE 4		REPRESENTATIONS AND WARRANTIES OF BUYER		39
4.01		Corporate Existence and Power		39
4.02		Corporate Authorization		40
4.03		Governmental Authorization		40
4.04		Noncontravention		40
4.05		[Intentionally omitted]		40
4.06		Litigation		40
4.07		Finder’s Fees		40
ARTICLE 5		ADDITIONAL COVENANTS OF SELLERS		41
5.01		Seller Stockholders’ Approval; Proxy Statement.		41
5.02		Conduct of Business; Notification of Certain Matters		42
5.03		No Solicitation of Transactions.		44
5.04		Investigation		46
5.05		Consents		48
5.06		Notice to Customers and Vendors		48
5.07		Non-Competition		48
5.08		Confidentiality		49
5.09		CellStar, etc. Names		49
5.10		Insurance		49
5.11		Intercompany Receivables and Payables		49
5.12		SEC Investigation		49
5.13		Pre-Closing Tax Returns		49
5.14		Form 8-K Obligations		50
5.15		Restrictions on Sellers’ Liquidation and Dissolution and Other Actions.		50
5.16		Non-Competition and Confidentiality Covenants.		51
ARTICLE 6		COVENANTS OF BUYER AND SELLERS		51
6.01		Reasonable Best Efforts; Further Assurance		51
6.02		Certain Filings; Consents		52
6.03		Cooperation on Tax Matters		52
6.04		Public Announcements		52
6.05		Notices of Certain Events		52
6.06		WARN Act		53
6.07		Non-Solicitation.		53

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6.08		Accounts Receivable, Mail, Checks, Etc		53
6.09		No Obligation of Buyer to Maintain Plans, etc		54
6.10		Information Supplied		54
ARTICLE 7		TAX MATTERS		54
7.01		Tax Matters		54
7.02		Tax Reporting and Allocation of Consideration.		55
7.03		General.		56
ARTICLE 8		PERSONNEL MATTERS		57
8.01		Business Employees		57
8.02		Employee Communications		58
8.03		Acknowledgement		58
8.04		No Third-Party Beneficiaries		59
ARTICLE 9		CONDITIONS TO CLOSING		59
9.01		Conditions to Obligations of Buyer and Sellers		59
9.02		Conditions to Obligation of Buyer		59
9.03		Conditions to Obligation of Sellers		62
ARTICLE 10		INDEMNIFICATION; SURVIVAL		63
10.01		Indemnification by Sellers		63
10.02		Indemnification by Buyer		64
10.03		Third Party Claims		64
10.04		Assistance		65
10.05		Survival of Representations, Warranties and Covenants		65
10.06		Limitations on Indemnification		65
10.07		Matters Relating to Factoring Arrangements		66
10.08		Exclusive Remedy		66
ARTICLE 11		TERMINATION		66
11.01		Termination		66
11.02		Effect of Termination.		67
ARTICLE 12		MISCELLANEOUS		68
12.01		Notices		68
12.02		Amendments and Waivers.		69
12.03		Expenses		69
12.04		Successors and Assigns		70
12.05		Governing Law		70
12.06		Counterparts; Effectiveness; No Third Party Beneficiaries		70
12.07		Entire Agreement		70
12.08		Bulk Sales Laws		71
12.09		Severability		71
12.10		Specific Performance		71

 

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EXHIBIT LIST

EXHIBIT A	Form of Assignment and Assumption Agreement
EXHIBIT B-1	Form of License Agreement (Mexico)
EXHIBIT B-2	Form of License Agreement (Chile)
EXHIBIT C	Form of Escrow Agreement
EXHIBIT D	Form of Transition Services Agreement
EXHIBIT E	Form of Certification Statement
EXHIBIT F	Form of Opinion of Sellers’ Counsel
EXHIBIT G	Form of Opinion of Buyer’s Counsel

 

SCHEDULE LIST

Schedule 1.01(a)(i)	Additional Employees
Schedule 1.01(a)(ii)	Business
Schedule 1.01(a)(iii)	Business Employees
Schedule 1.01(a)(iv)	Contract and Other Personnel
Schedule 1.01(a)(v)	Leased Real Property
Schedule 1.01(a)(vi)	Retained Businesses
Schedule 2.02	Purchased Assets
Schedule 2.02(b)	Personal Property
Schedule 2.02(d)	Contract Rights
Schedule 2.02(i)	Excluded Insurance
Schedule 2.02(p)	Other Assets
Schedule 2.03	Excluded Assets
Schedule 2.03(j)	Intercompany Receivables
Schedule 2.04	Assumed Liabilities
Schedule 2.05(a)	Other Excluded Liabilities
Schedule 2.05(f)	Certain Retained Employee Liabilities
Schedule 2.07	Purchase Price Allocation
Schedule 2.09(a)(i)	Excluded Payable for Net Working Capital
Schedule 2.09(a)(ii)	Net Working Capital Accounting Principles
Schedule 2.09(a)(iii)	Treatment of Certain Intercompany Balances
Schedule 2.09(a)(iv)	Net Working Capital Illustration
Schedule 2.09(b)	Estimated Net Working Capital
Schedule 2.09(c)(i)	Net Other Assets and Liabilities Accounting Principles
Schedule 2.09(c)(iii)	Net Other Assets and Liabilities Illustration
Schedule 3.01	Subsidiaries

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Schedule 3.04	Noncontravention
Schedule 3.05	Required Consents
Schedule 3.07	Business Financial Statements
Schedule 3.08(a)	Seller SEC Documents
Schedule 3.08(b)	Seller Financial Statements
Schedule 3.08(c)	Controls
Schedule 3.09	Absence of Certain Changes
Schedule 3.11	Assets
Schedule 3.14	Material Contracts
Schedule 3.15	Solvency
Schedule 3.16	Change of Control
Schedule 3.17	Litigation
Schedule 3.19	Governmental Approvals/Consents
Schedule 3.22	Intellectual Property
Schedule 3.23	Systems and Software
Schedule 3.24	Banks; Powers of Attorney
Schedule 3.26	Employee Benefit Plans
Schedule 3.27(b)	Employee and Labor Matters
Schedule 3.27(d)	COBRA and Related Matters
Schedule 3.28	Environmental Matters
Schedule 3.29	Insurance
Schedule 3.30	Customer and Supplier Relationships
Schedule 3.31	Accounts Receivable
Schedule 3.32	Accounts Payable
Schedule 3.33	Earn-Out Payments
Schedule 3.34	Related Party and Affiliate Transactions
Schedule 3.37	Foreign Authorized Agents
Schedule 3.38	Product Warranty
Section  5.02(ix)	Permitted Liquidations
Schedule 5.07	Non-Competition
Schedule 6.07	Employees – Non-Solicitation
Schedule 7.01	Tax Matters
Schedule 8.01(i)	Employee Liabilities (to be paid by CellStar)
Schedule 8.01(ii)	Employee Liabilities (to be paid by Buyer)
Schedule 9.01(b)	Governmental Approvals
Schedule 9.02(c)	Third Party Consents
Schedule 9.02(m)	Key Employees

 

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ASSET PURCHASE AGREEMENT

AGREEMENT (this “ Agreement ”) dated December 18, 2006, by and among 2601 Metropolis Corp., an Indiana corporation (“ Buyer ”), CellStar Corporation, a Delaware corporation (“ CellStar ”), National Auto Center, Inc., a Delaware corporation (“ NAC ”), CellStar, Ltd., a Texas limited partnership (“ CellStar, Ltd .”), and CellStar Fulfillment, Ltd., a Texas limited partnership (“ CellStar Fulfillment ”; with each of CellStar, NAC, CellStar, Ltd. and CellStar Fulfillment being herein referred to individually as a “ Seller ” and collectively as the “ Sellers ”).  Sellers and Buyer are herein referred to as a “ Party ” and, collectively as the “ Parties .”

W I T N E S S E T H:

WHEREAS, CellStar is, directly and indirectly through certain of its Subsidiaries, engaged in the Business (as defined in Section 1.01);

WHEREAS, it is the intention of the Parties that Buyer acquire (i) all of the assets owned, directly or indirectly, by CellStar which are necessary or appropriate for the operation of the Business and (ii) all of the intellectual property rights owned, directly or indirectly, by CellStar;

WHEREAS, CellStar owns 100% of the outstanding capital stock of NAC, which in turn owns 100% of the outstanding capital stock of NAC Holdings, Inc., a Nevada corporation (“ NAC Holdings ”);

WHEREAS, CellStar, Ltd. is a limited partnership, the general partner of which is NAC and the limited partner of which is NAC Holdings;

WHEREAS, CellStar Fulfillment is a limited partnership, the general partner of which is CellStar Fulfillment, Inc. and the limited partner of which is NAC Holdings;

WHEREAS, CellStar, NAC, CellStar, Ltd. and CellStar Fulfillment (the “ Asset Selling Entities ”) own, directly or indirectly, the Purchased Assets (as defined in Section 2.02); and

WHEREAS, the Parties desire that, at the Closing (as defined in Section 1.01), each Asset Selling Entity shall sell and transfer to Buyer, and Buyer shall purchase from each Asset Selling Entity, all of the Purchased Assets owned by such Asset Selling Entity and shall assume only the Assumed Liabilities (as defined in Section 2.04), upon such terms and conditions set forth herein.

NOW THEREFORE, in consideration of the premises, representations, warranties, covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound hereby, the Parties agree as follows:

 

ARTICLE 1
DEFINITIONS

1.01         Certain Definitions .  (a) As used herein, the following terms have the meanings set forth below:

“ Additional Employees ” means the employees of CellStar and certain of its Subsidiaries whose primary job responsibilities are not related to the operation of the Business and who are named in Schedule 1.01(a)(i ) annexed hereto .

“ Affiliate ” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such other Person.  For purposes hereof, (i) “ control ” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “ controlling ” and “ controlled ” have correlative meanings, (ii) each officer and director of CellStar and/or any of its Subsidiaries shall be deemed an Affiliate of CellStar and (iii) an owner of 5% or more of the outstanding shares of common stock of CellStar shall be deemed an Affiliate hereunder if such owner is, and has for the past 12 months been, otherwise affiliated with CellStar under clause (ii) above.

“ Applicable Law ” means, with respect to any Person, any federal, state, local or foreign law (statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgment, determination, decree, ruling or other similar requirement enacted, adopted, promulgated or applied by a Governmental Authority that is binding upon or applicable to such Person, as amended (unless expressly specified otherwise).

“ Assignment and Assumption Agreement ” means an Assignment and Assumption Agreement in substantially the form attached hereto as Exhibit A with such changes as Buyer and CellStar may agree upon .

“ Balance Sheet Date ” means November 30, 2005.

“ Business ” means the North American and Miami business described on Schedule 1.01(a)(ii) annexed hereto, it being acknowledged that, for the purpose of this Agreement, however, the Business shall be deemed to not include: (i) the business conducted by CellStar and its Subsidiaries in Mexico and Chile, (ii) CellStar’s corporate headquarters operations, (iii) CellStar’s and any of its Subsidiaries’ discontinued operations or (iv) CellStar’s 19% ownership in CellStar de Colombia Ltda. (other than the Technical Service Agreement and the Supply Agreement).

“ Business Day ” means any day, other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by Applicable Law to close.

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“ Business Employee ” means any employee of NAC or CellStar, Ltd., whose primary job responsibilities are related to the Business; for the avoidance of doubt, the individuals named in Schedule 1.01(a)(iii) annexed hereto (with such Schedule to be updated as of a date within ten (10) days prior to the Closing Date) comprise all of the Business Employees, and the individuals named in Schedule 1.01(a)(iv) annexed hereto are not Business Employees.

“ Closing Date ” means the date on which the Closing occurs.  The “ Closing ” shall be deemed to occur at 12:01 a.m. on the date that is the Closing Date.  The Closing shall be held at the offices of Blank Rome LLP, 405 Lexington Avenue, New York, New York.

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

“ Competition Laws ” means statutes, rules, regulations, orders, decrees, administrative and judicial doctrines, and other laws, in all applicable jurisdictions, that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization, lessening of competition or restraint of trade.

“ Consent ” means any authorization, approval, order, license, qualification, permit, franchise, certification, waiver or other consent of any third Person or any Governmental Authority.

“ Contract ” means any written or binding oral note, bond, mortgage, indenture, guaranty, agreement, contract, sub-contract, or lease (which, for the avoidance of doubt, does not include any employee benefit or health or welfare arrangement).

“ DGCL ” means the Delaware General Corporation Law.

“ Employee Plan ” means any “employee benefit plan”, as defined in Section 3(3) of ERISA, any “voluntary employees’ beneficiary association” within the meaning of Section 501(c)(9) of the Code, and any employment, severance or similar contract, plan, arrangement or policy and each other plan or arrangement providing for cash or equity compensation, profit-sharing, incentive or deferred compensation, vacation benefits, insurance (including any self-insured arrangements), health or medical benefits, disability or sick leave benefits and post-employment or retirement, or other benefits, in each case which is maintained, sponsored, administered, contributed to or to which there is an obligation to contribute by CellStar or any Subsidiary of CellStar (or any ERISA Affiliate of CellStar or any Subsidiary of CellStar) and covers any current or former employee.

“ Environmental Laws ” means any and all Applicable Laws relating to (i) the environment; (ii) the use, handling, manufacture, generation, transportation, treatment, release, disposal or presence of, or exposure to, pollutants, contaminants, wastes, chemicals or chemical containing substances or materials; or (iii) to public or workplace health or safety.

“ Environmental Liabilities ” means any and all Liabilities or commitments of CellStar and its Subsidiaries or any Person for whose conduct CellStar or its Subsidiaries is or may be held responsible, including those arising in connection with or relating

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to the Business (as currently or previously conducted), the Purchased Assets, or any activities or operations occurring or conducted at the Real Property, or any other real property formerly owned, leased or operated, including real property owned or leased by any former direct or indirect Subsidiary or any Person for whose conduct they are or may be held responsible, which arise under or relate to any Environmental Law, including without limitation a contractual undertaking relating to environmental matters.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.

“ ERISA Affiliate ” of any entity means any other entity which, together with such entity, would be treated as a single employer under Section 414 of the Code.

“ Escrow Agreement ” means an Escrow Agreement between Buyer and CellStar in substantially the form attached hereto as Exhibit C with such changes as Buyer and CellStar may agree upon.

“ Estimated Net Working Capital Adjustment Amount ” shall mean and be equal to the difference between the Estimated Net Working Capital and the Baseline Net Working Capital, whether such difference is a positive or a negative number.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“ GAAP ” means generally accepted accounting principles in the United States.

“ Governmental Authority ” means any transnational, domestic or foreign federal, state or local, governmental authority, department, court, tribunal, agency or official, including any political subdivision thereof and any arbitral body the decrees of which have the force of law.

“ Hazardous Materials ” means any and all materials, pollutants, contaminants, wastes, chemicals or substances listed, defined, designated, classified, considered or regulated as dangerous, special, hazardous, toxic or radioactive under any Environmental Law, including petroleum and any derivative or by-product thereof, asbestos and asbestos-containing materials and PCBs.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“ Indebtedness ” means (i) all obligations for borrowed money, (ii) all obligations evidenced by notes, bonds, debentures or other instruments, (iii) all obligations under any hedging or swap obligation or other similar arrangement, (iv) all obligations secured by a Lien on Purchased Assets, (v) all obligations for the deferred purchase price of property or services (other than current liabilities incurred in the ordinary course of business), (vi) all commitments by which a Person assures a creditor against loss (including contingent reimbursement obligations regarding letters of credit), (vii) all obligations under capitalized

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leases, (viii) all guarantees (other than product warranties made in the ordinary course of business), including guarantees of any items set forth in clauses (i) through (vii), (ix) all outstanding prepayment premiums, if any, and accrued interest and fees; (x) all obligations arising out of or relating to consignment agreements or other arrangements involving CellStar or any Subsidiary thereof; and (xi) all obligations for the deferred purchase price of products or services and expenses related to any of the items set forth in clauses (i) through (x).

“ Intellectual Property Rights ” means any and all intellectual property rights and industrial property rights (throughout the universe, in all media, now existing or created in the future, and for the entire duration of such rights) arising under statutory or common law, contract, or otherwise, and whether or not perfected, including all (a) rights associated with Patents, including all priority rights resulting from Patent applications, (b) rights associated with works of authorship, including copyrights, moral rights, and rights to prepare derivative works, and rights in copyright registrations and applications, (c) rights relating to the protection of trade secrets and confidential information, (d) rights in trademarks, service marks, trade names, logos, symbols, certification marks, collective membership marks, and the like and registrations and applications therefor, and (e) rights analogous to those set forth in this definition and any and all other proprietary rights relating to intangible property.

“ IRS ” means the United States Internal Revenue Service.

“Kaiser Employment Agreement” means the Amended and Restated Employment Agreement effective as of May 1, 2004, by and between CellStar, Ltd., CellStar and Robert A. Kaiser, as amended by the First Amendment to Amended and Restated Employment Agreement dated May 2, 2005.

“ Knowledge of Sellers ,” “ Sellers’ Knowledge ” or any other similar knowledge qualification in this Agreement means to the actual knowledge of Robert A. Kaiser, Michael J. Farrell, Raymond L. Durham, Elaine Flud Rodriguez, Ana Lusia Marmol, Maria Hernandez, Efrain Vega Morales or Juan Martinez.  With respect to the actual knowledge of Ana Lusia Marmol, Maria Hernandez, Efrain Vega Morales or Juan Martinez, it is acknowledged by the Parties that the knowledge of any such individual shall not be imputed to any other individual.

“ Leased Real Property ” means all of CellStar’s and its Subsidiaries’ right, title and interest in all leases, subleases, licenses, concessions and other agreements (the ” Leases ”), pursuant to which CellStar or one of its Subsidiaries holds a leasehold or subleasehold estate in, or is granted the right to use or occupy, any land, buildings, structures, improvements, fixtures or other interest in real property used or held for use by the Business, including the right to all security deposits and other amounts and instruments deposited by or on behalf of CellStar or one of its Subsidiaries thereunder, all of which is described on Schedule 1.01(a)(v) annexed hereto.

“ Leasehold Improvements ” means all buildings, structures, improvements and fixtures located on any Leased Real Property which are owned by CellStar or one of its Subsidiaries, regardless of whether title to such buildings, structures, improvements or

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fixtures are subject to reversion to the landlord or other third party upon the expiration or termination of the Lease for such Leased Real Property.

“ Liability ” means any liability, debt or obligation of any kind, character, or description, and whether known or unknown, accrued or unaccrued, absolute or contingent, disputed or undisputed, liquidated or unliquidated, secured or unsecured or otherwise, and regardless of when asserted or by whom and whether or not the same is required to be accrued in the financial statements.

“ License Agreement (Chile) ” means the License Agreement in the form attached hereto as Exhibit B-2 .

“ License Agreement (Mexico) ” means the License Agreement in the form attached hereto as Exhibit B-1 .

“ Lien ” means, with respect to any property or asset, any mortgage, deed of trust, lien, pledge, hypothecation, charge, claim, judgment, decree, order, stipulation, assessment, use, condition, restriction, security interest, option, right of first refusal, right of first offer or encumbrance of any kind in respect of such property or asset.

“ Material Adverse Effect ” means any change, effect or circumstance that is materially adverse to the Business, Purchased Assets, Liabilities, obligations, operations, condition (financial or otherwise) or results of operations or the conduct of the Business, except for any such change, effect or circumstances (x) to the extent relating solely to any Excluded Asset or Excluded Liability and for which Buyer and its Subsidiaries will have no Liability following the Closing in accordance with the terms of this Agreement or (y) results from or arises in connection with (A) changes, effects or circumstances affecting generally the industries in which the Business operates or (B) changes in economic, regulatory or political conditions generally, laws, GAAP, the accounting rules and regulations of the SEC or publicly announced general interpretations thereof after the date hereof; provided that the changes or effects described in clauses (A) and (B) shall be disregarded only to the extent that the effect or change is not disproportionately adverse to the Business compared to other Persons operating in the industries in which the Business operates.   For purposes hereof, (i) a criminal indictment or criminal information or similar proceeding against CellStar or any of its Subsidiaries or any of their respective officers or directors, (ii) an SEC enforcement action in respect of CellStar, any of its Subsidiaries or any of their respective officers or directors relating to actions within the scope of the Business, (iii) receipt by CellStar or any of its Subsidiaries or any of their respective officers or directors of a Wells Notice, or other similar document indicating or threatening the initiation or recommendation by any Governmental Authority of a proceeding against any such Person who is named in this Agreement as being an individual whose knowledge is treated as “Sellers’ Knowledge” for purposes hereof, or is a Business Employee or Additional Employee, for violation of securities laws, or (iv) any restatement of earnings, accounting fraud or internal investigation of possible accounting fraud involving CellStar or any of its Subsidiaries, or any public announcement that it is or may be contemplating any action in respect thereof, will in each case be deemed to constitute a Material Adverse Effect, if it is materially adverse to the Business, Purchased Assets, Liabilities, obligations, operations, condition (financial or otherwise) or results of operations or the conduct of the Business.

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“ Material Contracts ” means the Contracts required to be set forth in Schedule 3.14 annexed hereto in accordance with Section 3.14(a) hereof.

“ Owned Real Property ” means all land, together with all buildings, structures, improvements and fixtures located thereon, and all easements and other rights and interests appurtenant thereto owned by CellStar or one of its Subsidiaries and used or held for use by the Business or subject to contract or commitment to purchase.

“ Patents ” means any and all U.S. and non-U.S. patents, patent applications, and industrial design applications, together with any and all continuations, continuations in-part reissues, renewals, re-examinations, or divisional applications thereof, and all patents and industrial design registrations issuing thereon.

“ Person ” means an individual, corporation, partnership, limited liability company, association, joint venture, trust or other entity or organization, including a Governmental Authority.

“ Pre-Closing Tax Period ” means (i) any Tax period ending on or before the Closing Date and (ii) with respect to a Tax period that commences before but ends after the Closing Date, the portion of such period up to and including the Closing Date.

“ Representative ” means, with respect to any Person, such Person’s directors, officers, employees, counsel, financial advisors, auditors, agents and other authorized representatives.

“ Retained Businesses ” means the businesses as set forth on Schedule 1.01(a)(vi ) annexed hereto which includes the name, business purpose and location of each such Retained Business.

“ SEC ” means the United States Securities and Exchange Commission.

“ SEC Investigation ” means the matters relating to or arising under the investigation commenced by the SEC which investigation was publicly disclosed by CellStar in its Quarterly Report on Form 10-Q filed on April 10, 2006.

“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“ Subsidiary ” with respect to any Person, means any other Person, with respect to whom 50% of more of the equity interest (or debt or other interest convertible into an equity interest) is owned directly or indirectly by such Person.

“ Supply Agreement ” means the Supply Agreement by and between NAC and Mobile Technologies Services, S.A., dated May 2004 and any successor or subsequent similar agreement or arrangement in respect of Sellers’ Colombia business.

“ Tax ” means (a) any foreign, federal, state or local income, earnings, profits, gross receipts, franchise, capital stock, net worth, sales, use, value added, occupancy,

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general property, real property, personal property, intangible property, transfer, fuel, excise, escheat, unclaimed property,  payroll, withholding, unemployment compensation, social security, retirement, environmental (including any Taxes imposed under Section 59A of the Code) or other tax of any nature; (b) any foreign, federal, state or local organization fee, qualification fee, annual report fee, filing fee, occupation fee, assessment, sewer rent or other fee or charges of any nature; or (c) any deficiency, interest or penalty imposed with respect to any of the foregoing.

“ Tax Law ” means a statute, regulation or administrative rule or judicial opinion enacted, issued or promulgated for the determination, imposition, assessment or collection of any Tax.

“ Tax Return ” means any return (including any information return), report, statement, schedule, notice, form, declaration, claim for refund or other document or information filed with or submitted to, or required to be filed with or submitted to, any governmental body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any law relating to any Tax, including any amendment thereto.

“ Taxing Authority ” shall mean any domestic, foreign, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising tax regulatory authority.

“ Technical Service Agreement ” shall mean the Technical Service Agreement by and between NAC and Mobile Technologies Services S.A. and any successor or subsequent similar agreement or arrangement in respect of Sellers’ Colombia business.

“ Transaction Documents ” means this Agreement, the Schedules and Exhibits hereto, the Escrow Agreement, the Assignment and Assumption Agreement, the License Agreement (Mexico), License Agreement (Chile) and the Transition Services Agreement, and the Guaranty, dated the date hereof, by Brightpoint, Inc. in favor of CellStar, and all other documents to be executed and delivered pursuant to this Agreement.

“ Transition Services Agreement ” means a Transition Services Agreement in substantially the form attached hereto as Exhibit D with such changes as Buyer and CellStar may agree upon.

“ Treasury Regulations ” shall mean the income tax regulations issued under the Code.

For purposes of this Agreement, any references to the “United States” used herein in connection with the Sellers’ Business or financial information shall mean “North American”.

(b)           Each of the following additional terms is defined in the Section set forth opposite such term:

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Term		Section
Acceptance Notice		2.09(e)
Acquisition Proposal		5.03(c)
Agreement		Preamble
Applicable Period		5.15(a)
Asset Selling Entities		Preamble
Asset Selling Entities Inventory		3.21
Assumed Liabilities		2.04
Auditors		5.14
Baseline Net Working Capital		2.09(a)
Basket		10.06
Business Covered Employees		6.07(a)
Business Financial Statements		3.07
Buyer		Preamble
Buyer Indemnified Parties		10.01
Buyer Net Working Capital and Net Other Assets and Liabilities		2.09(d)
CellStar Employer Payment Obligations		9.02(t)
CellStar, Ltd.		Preamble
Closing		2.08(a)
Confidentiality Agreement		5.04(a)
Environmental Permits		3.28(b)
Employee Liabilities		8.01
Escrow Account		2.07
Escrow Amount		2.07
Estimated Net Working Capital		2.09(b)
Excluded Assets		2.03
Excluded Foreign Intangibles		2.03(f)
Excluded Liabilities		2.05
Factoring Arrangements		3.31
Indemnity Cap		10.06
Independent Accounting Firm		2.09(e)
Insolvent		3.15(a)
Insurance Policies		3.29
Intellectual Property		3.22
Interest		2.09(f)
Losses		10.01
Material Seller Intangibles		3.22
Material Seller Intellectual Property		3.22
Minimum Cash		5.15
NAC Holdings		Preamble
Net Other Assets and Liabilities		2.09(c)
Net Other Assets and Liabilities Accounting Principles		2.09(c)
Net Other Assets and Liabilities Adjustment Amount		2.09(c)
Net Working Capital		2.09(a)
Non-Assignable Assets		2.06(a)
Net Working Capital Accounting Principles		2.09(a)

 

9

 

 

Term		Section
Net Working Capital Adjustment Amount		2.09(a)
Objection Notice		2.09(e)
Participate In		5.07
Parties		Preamble
Party		Preamble
Permitted Liens		3.20(d)
Proceedings		3.22
Proposed Regulations		3.26(i)
Proxy Statement		5.01(b)
Purchase Price		2.07
Purchased Assets		2.02
Real Property		3.20(a)
Registrations		3.22
Required Consents		3.05
Retention Program		9.02(n)
Sarbanes-Oxley Act		2.05(l)
Sellers		Preamble
Seller Board		5.03(a)
Seller Financial Statements		3.08(b)
Seller Intangibles		3.22
Seller Recommendation		5.01(a)
Seller SEC Documents		3.08(a)
Seller Stockholders’ Approval		5.01(a)
Seller Stockholders’ Meeting		5.01(a)
Seller Web Site		3.23
Settlement Date		2.09(c)
Specified Policy		5.10
Statement of Allocation		7.02(a)
Stockholder Payments		5.15(a)
Superior Proposal		5.03(d)
Survival Period		10.05
Systems		3.23
System Lease		3.23
Termination Fee		11.02(a)
Transferred Employees		8.01
Transferred Employees (U.S.)		8.01
User Information		3.23
WARN Act		6.06
Web		3.23

 

1.02         Other Definitions and Interpretative Provisions .  The words “ hereof ”, “ herein ” and “ hereunder ” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.  The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.  References to Articles,

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Sections, Exhibits and Schedules are to Articles, Sections, Exhibits and Schedules of or to this Agreement unless otherwise specified.  All Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein.  Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning as defined in this Agreement.  Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular.  Whenever the words “ include ”, “ includes ” or “ including ” are used in this Agreement, they shall be deemed to be followed by the words “ without limitation ”, whether or not they are in fact followed by those words or words of like import.  When the words “ not to be unreasonably withheld ” are used in this Agreement, they shall be deemed to be followed by the phrase, “ conditioned or delayed ” , whether or not they are in fact followed by that phrase or a phrase of like import.  “ Writing ”, “ written ” and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form.  References to any agreement or contract are to that agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.  References to any Person include the successors and permitted assigns of that Person. References from or through any date mean, unless otherwise specified, from and including or through and including, respectively.  References to “ law ” or “ laws ” shall be deemed to include any and all Applicable Law.

ARTICLE 2
PURCHASE AND SALE

2.01          [ Intentionally omitted ]

2.02          Purchase and Sale of the Purchased Assets .  Except as otherwise provided below, upon the terms and subject to the conditions of this Agreement, CellStar agrees to cause each Asset Selling Entity to, and each Asset Selling Entity shall, sell, convey, assign, deliver and transfer to Buyer (or one or more of its permitted assignees), and Buyer shall (or shall cause one or more of its permitted assignees to) purchase, acquire and accept from each Asset Selling Entity, free and clear of all Liens (except in favor of Raymond Leasing Corporation and Wells Fargo Financial Leasing Inc. in respect of leased equipment referred to Schedule 3.11 ), all of such Asset Selling Entity’s right, title and interest in, to and under all of the assets, rights, properties and business, of every kind and description, owned, held or used in the conduct of the Business by the Asset Selling Entities as the same shall exist on the Closing Date, except for the Excluded Assets (the “ Purchased Assets ”).  Schedule 2.02 (including, for purposes hereof, all subschedules annexed hereto which include references to “2.02” in the captions thereof) sets forth a list of the Purchased Assets, including the name of the applicable Seller, location and book value as of a recent practicable date.  The Purchased Assets include the Seller Intangibles, Registrations and Intellectual Property Rights of the Sellers, except as otherwise provided in Section 2.03(f) in respect of the Excluded Foreign Intangibles; and all right, title and interest of Sellers to and under the following that are owned, held or used in the conduct of the Business:

(a)           the Leased Real Property (including all right and interest, if any, in and to all Leasehold Improvements thereon) listed in Schedule 1.01(a)(v) annexed hereto;

(b)           all personal property and interests therein (including machinery, equipment, tools, spare parts, furniture, office furnishings and vehicles) located at (i) the Leased

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Real Property described in clause (a) above or (ii) that portion of any facility used by the Business other than such Leased Real Property, all as set forth in Schedule 2.02(b) ;

(c)           all raw materials, work-in-process, finished goods, supplies, spare parts, packaging and other inventories, wherever located including inventories in transit to Sellers’ facilities or otherwise;

(d)           all rights (including rights in respect of non-performance or breach) under all Contracts relating primarily to the Business, including all purchase orders of the Asset Selling Entities relating primarily to the Business, including, for the avoidance of doubt, all rights of NAC under the Technical Service Agreement and the Supply Agreement, and all rights of the Sellers to sell and distribute products and services into Colombia on the same terms and conditions as are applicable to Sellers on the date hereof (with all of the Contracts that individually (or, if related, in the aggregate) involve the payment, to or from CellStar or any of its Subsidiaries, of in excess of $50,000 since November 30, 2005 being identified as such on Schedule 2.02(d) annexed hereto);

(e)           all third party trade accounts or notes receivable and other receivables and all schedules, records and other documentation related to such receivables;

(f)            all prepaid assets and claims for refunds or deposits;

(g)           all licenses, permits, qualifications or other governmental authorizations transferable without consent of any Governmental Authority and such other licenses, permits, qualifications, or other governmental authorizations for which consent to transfer is obtained on or prior to (or, pursuant to Section 2.06, after) the Closing Date;

(h)           all books, records, files and papers, whether in hard copy or computer format, including any information relating to any Tax imposed on the Purchased Assets;

(i)            except as set forth on Schedule 2.02(i) , all insurance benefits, including rights and proceeds payable on or after the Closing Date;

(j)            goodwill associated with the Purchased Assets, including the Registrations, the Seller Intangibles (whether or not material to the Business as presently conducted or as proposed to be conducted), and the Business;

(k)           all rights and claims under any and all transferable warranties extended by suppliers, vendors, contractors, manufacturers and licensors in relation to any of the equipment, Seller Intangibles and the software and hardware assets described in this Section 2.02;

(l)            to the extent permitted by Applicable Law, the personnel records (including all human resources and other records) of Transferred Employees;

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(m)          advertising, sales and promotional literature, other sales and marketing-related materials and customer, vendor, supplier, contractor and service provider lists relating to the Business;

(n)           all claims, causes of action, judgments, reimbursements and demands, whether known or unknown, contingent or otherwise related to either (i) the Purchased Assets, including the right to sue for past infringement of any Seller Intangibles or Intellectual Property Rights, or (ii) Assumed Liabilities;

(o)           [ Intentionally omitted ] ;

(p)           all other assets listed on Schedule 2.02(p) ; and

(q)           all assets, including without limitation ideas, concepts, methods, processes, discoveries, software or other intangible assets of any nature, directly and indirectly relating to any business or prospective business, including without limitation CellStar Financo, Inc. involving the lease or sale of equipment (other than handsets and accessories), and/or the modification of handsets and related devices.

2.03          Excluded Assets .  Notwithstanding any provision of this Agreement to the contrary, Buyer expressly understands and agrees that the following assets and properties of CellStar and its Subsidiaries (the “ Excluded Assets ”), all of which are described on Schedule 2.03 (including, for purposes hereof, all subschedules annexed hereto which include references to “2.03” in the captions thereof) annexed hereto, shall be excluded from the Purchased Assets:

(a)           all of CellStar’s and its Subsidiaries’ cash and cash equivalents on hand and in banks;

(b)           the Tax records (including Tax Returns and supporting work papers) covering any period or transaction of any Asset Selling Entity occurring prior to the Closing Date (provided that Buyer shall be entitled to copies of any such Tax Returns and other documents to the extent specifically provided in Article 8 hereof);

(c)           Sellers’ Mexico operations that reside exclusively within Mexico and Sellers’ Chile operations that reside exclusively within Chile;

(d)           CellStar’s 19% ownership interest in CellStar Colombia Ltda. (excluding the Technical Service Agreement and the Supply Agreement);

(e)           the promissory notes held by CellStar in connection with the sale of its Asia, Peru and Colombia operations;

(f)            Sellers’ right, title, and interest in and to the (i) trademarks and/or service marks (including stylized and design marks) “Celular Express”, “Celular Express Mucho Mas Que Telefonia Celular”, “Inovacion y Tecnologia Movil”, “Celex” and “Pin Virtual”, and all registrations and applications therefor; (ii) the domain names “celularexpress.com.mx” and “celex.com.mx”; and (iii) the company names “Celular Express S.A. de C.V.”, “Communicacion

13

 

Inalambrica Inteligente, S.A. de C.V.”, and “Celular Express Management S.A. de C.V.” in Mexico ( “Excluded Foreign Intangibles” );

(g)           any claims which may exist against third parties related to CellStar’s Asia operations;

(h)           all rights of CellStar or any of its Subsidiaries arising under the Transaction Documents or the transactions contemplated thereby;

(i)            the right to use Suite 172 at Texas Stadium in Irving, Texas and all related rights in respect thereof;

(j)            all intercompany receivables listed on Schedule 2.03(j) ; and

(k)           any rights of CellStar under that certain Stock Purchase Agreement dated November 11, 2004, and associated Deed of Option dated November 19, 2004, in respect of CellStar’s former Singapore operations.

2.04          Assumed Liabilities .  Upon the terms and subject to the conditions of this Agreement, Buyer agrees, effective at the time of the Closing, to assume only the Liabilities of CellStar or any of its Subsidiaries exclusively relating to or arising out of the Purchased Assets or the conduct of the Business (the “ Assumed Liabilities ”) which are listed on Schedule 2.04 (including, for purposes hereof, all subschedules annexed hereto which include references to “2.04” in the captions thereof), which Schedule shall be updated with respect to the amount of such Liabilities by mutual written agreement of the Parties within ten (10) days prior to the Closing Date.

2.05          Excluded Liabilities .  Buyer is assuming only the Assumed Liabilities from CellStar and its Subsidiaries and is not assuming any other Liability of CellStar or any of its Subsidiaries of whatever nature, whether presently in existence or arising hereafter.  All such other Liabilities of CellStar or its Subsidiaries shall be retained by and remain Liabilities of CellStar or its Subsidiaries, as applicable (all such Liabilities of CellStar or its Subsidiaries not being assumed being herein referred to as the “ Excluded Liabilities ”), including without limitation, the following (which shall be Excluded Liabilities):

(a)           all Liabilities to the extent arising out of or relating to the operation or conduct by CellStar or any of its Subsidiaries of any Retained Businesses, including, without limitation, any outstanding checks of CellStar or any of its Subsidiaries, and those Liabilities set forth on Schedule 2.05(a) ;

(b)           all Liabilities to the extent arising out of or relating to any Excluded Asset;

(c)           all Liabilities and commitments of CellStar and its Subsidiaries in respect of Taxes, other than those Liabilities and commitments for which Buyer is responsible pursuant to Section 7.02;

14

 

(d)           any compensation or benefits payable to present or past employees of CellStar or any of its Subsidiaries, including without limitation, any Liabilities arising under any Employee Plan or other employee benefit plan and any of CellStar’s or its Subsidiaries’ obligations for vacation, holiday or sick pay, including obligations thereof for vacation or holiday pay accrued prior to Closing for employees who are not Transferred Employees;

(e)           subject to the provisions of Article 8 hereof (including Schedule 8.01(i) and Schedule 8.01(ii) ), any obligations under any employment, consulting or non-competition agreement, change of control agreement, indemnity agreement, any retention or performance-based bonus or other compensation agreement, and any similar agreements, whether written or oral, and any liabilities or obligations arising out of the termination by CellStar of any of its employees in anticipation or as a consequence of, or following, consummation of the transactions contemplated by the Transaction Documents;

(f)            except as otherwise provided in Article 8 hereof (including Schedule 8.01(i) and Schedule 8.01(ii) ), all Liabilities and commitments relating to (i) current or former employees of CellStar or any of its Subsidiaries, (ii) current or former employees (A) that are expressly retained by CellStar pursuant to Article 8 or Schedule 2.05(f) annexed hereto or (B) for which a specific prepaid asset (e.g., an insurance policy), if any, is not sold, conveyed, transferred, assigned or delivered to Buyer, subject to the terms and conditions of the applicable Employee Plan (in the case of a Liability or commitment relating to an Employee Plan); (iii) employees who, as of the Closing Date, are on a leave of absence resulting from a reduction in force or a “bridging” of age and/or service credit for purposes of an Employee Plan; (iv) compensation deferred by employees prior to the Closing Date; and (v) stock option and other equity-based compensation plans of CellStar;

(g)           all Indebtedness and capital lease obligations of CellStar and its Affiliates and Subsidiaries;

(h)           all obligations to any broker, finder or agent for any investment banking or brokerage fees, finders fees or commission relating to the transactions contemplated by this Agreement and any other fees and expenses for which CellStar is responsible pursuant to Section 12.03;

(i)            all indemnification obligations owed to any Person who is or was an officer or director of CellStar or any Subsidiary prior to the Closing in respect of actions or omissions occurring prior to the Closing;

(j)            all Environmental Liabilities including with respect to any release of Hazardous Materials after the Closing Date to the extent said Environmental Liabilities arise from or in connection with conditions, events or circumstances occurring on or before the Closing Date, including without limitation the migration of Hazardous Materials which were released on or prior to the Closing Date;

(k)           all Liabilities arising out of intentional violations of Applicable Law that are punishable by a material criminal fine or imprisonment;

15

 

(l)            any Liabilities of CellStar or any of its Affiliates relating to or arising out of state and federal securities laws, rules, and regulations, fiduciary duties, the Sarbanes-Oxley Act of 2002, as amended (the “ Sarbanes-Oxley Act ”), the listing requirements of the over-the-counter market, Pink Sheets or other national securities exchange or other automated interdealer quotation system on which the shares or debt securities of CellStar or any Subsidiary thereof are or have been listed, or in connection with any investigation by the National Association of Securities Dealers, Inc. or any criminal investigation by any state, federal or foreign authority;

(m)          any Liabilities of CellStar, its Subsidiaries or current or former Affiliates thereof, if any, other than the Assumed Liabilities;

(n)           all Liabilities to the extent arising out of or relating to any right, title, or interest in or to (i) the trademarks and/or service marks (including stylized and design marks) “Celular Express”, “Celular Express Mucho Mas Que Telefonia Celular”, “Inovacion y Tecnologia Movil”, “Celex” and “Pin Virtual”, and all registrations and applications therefor; (ii) the domain names “celularexpress.com.mx” and “celex.com.mx”; and (iii) the company names “Celular Express S.A. de C.V.”, “Celular Express Management S.A. de C.V.”, “Communicacion Inalambrica Inteligente, S.A. de C.V.”; and

(o)           all Liabilities which are indicated on a Schedule hereto as being excluded liabilities.

2.06          Consent of Third Parties; Further Assurances .

(a)           Sellers and Buyer shall execute and deliver, or cause to be executed and delivered by their respective Subsidiaries and Affiliates, such additional instruments of conveyance and transfer as Buyer or Sellers may reasonably request or as may be otherwise necessary to fully convey or transfer to, and vest in, Buyer and put Buyer in possession of, the Purchased Assets and for Buyer to assume any part of the Assumed Liabilities and for Buyer to succeed to the Business.  Nothing in this Agreement shall be construed as an attempt or agreement to assign any asset, Contract, permit, license or other right or obligation which would otherwise be included in the Purchased Assets or Assumed Liabilities, as appropriate, but which is by its terms or by law non-assignable without the consent of the other party or parties thereto or any Governmental Authority unless such consent shall have been given, or as to which all the remedies for the enforcement thereof enjoyed by any Seller or the Business would not, as a matter of law, pass to Buyer as an incident of the assignments provided for by this Agreement (the “ Non-Assignable Assets ”).  Prior to Closing, and, if Buyer determines in its sole discretion to waive the condition to Closing set forth in Section 9.02(c) with respect to any such Non-Assignable Asset, then for a one (1) year period after the Closing (or such shorter period as specified elsewhere in this Agreement with respect to specific types of Purchased Assets or Assumed Liabilities or, if earlier, the liquidation or dissolution of CellStar), Sellers agree to use their reasonable best efforts to obtain any such consents promptly.  At such time as any Non-Assignable Asset is properly assigned to Buyer, such Non-Assignable Asset shall cease to be a Non-Assignable Asset and become a Purchased Asset.

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(b)           Following the Closing for an indefinite period and until such time as such Non-Assignable Assets may be properly assigned to Buyer, or, if earlier, the liquidation or dissolution of CellStar, such Non-Assignable Assets shall be held by CellStar (or the related Subsidiary or Affiliate of CellStar) in trust for Buyer and the covenants and obligations thereunder shall be performed by Buyer in the name of CellStar (or the related Subsidiary or Affiliate of CellStar) and all benefits and obligations existing thereunder shall be for the account of Buyer.  During such period, Sellers shall take or cause to be taken such action in their name or otherwise as Buyer may reasonably request so as to provide Buyer with the benefits of the Non-Assignable Assets and to effect collection of money or other consideration to become due and payable under the Non-Assignable Assets, and Sellers shall promptly pay over to Buyer all money or other consideration received by them (or their Affiliates or Subsidiaries) in respect of all Non-Assignable Assets.  Following the Closing, Sellers shall be deemed to have authorized Buyer to the extent permitted by Applicable Law and the terms of the Non-Assignable Assets, to perform all of the obligations and receive all of the benefits under the Non-Assignable Assets and hereby appoints Buyer its attorney-in-fact to act in their name on their behalf (and on behalf of its Subsidiaries and Affiliates) with respect thereto.

2.07          Purchase Price; Escrow .  (a) In consideration of the sale and transfer of the Purchased Assets and the assumption of the Assumed Liabilities, Buyer agrees to purchase the Purchased Assets from Sellers for the aggregate purchase price (the “ Purchase Price ”) of $88,000,000 (Eighty Eight Million Dollars).  The Purchase Price shall be paid in cash as provided in Section 2.08(b) and shall be subject to adjustment as provided in Sections 2.08 and 2.09.  CellStar shall be treated as receiving a portion of the Purchase Price as agent for its Affiliates actually selling the Purchased Assets consistent with the allocation of the Purchase Price agreed to by CellStar and Buyer prior to the Closing Date in accordance with Schedule 2.07 annexed hereto, which Schedule shall set forth the allocations in respect of the respective Sellers.

(b)           At the Closing, Buyer shall deposit $8,800,000 (Eight Million Eight Hundred Thousand Dollars) of the Purchase Price amount (the “ Escrow Amount ”) into an Escrow Account (the “ Escrow Account ”), pursuant to the terms of the Escrow Agreement as security for the indemnification obligations of CellStar pursuant to Section 10.01 for a period of six months from the Closing Date ( “Escrow Period ”).  The Escrow Amount shall be held and disbursed from the Escrow Account in the manner set forth in the Escrow Agreement, it being acknowledged by the Parties that the escrow arrangements contemplated hereby, including the Escrow Agreement, shall be available as a non-exclusive remedy for any claim for a breach of the representations, warranties and covenants contained in this Agreement, including any claim under Article 10 hereof.

2.08          Closing .  (a)  The closing (the “ Closing ”) of the purchase and sale of the Purchased Assets and the assumption of the Assumed Liabilities hereunder shall take place at the offices of Blank Rome LLP, 405 Lexington Avenue, New York, New York, as soon as possible, but in no event later than five (5) Business Days, after satisfaction (or, to the extent permitted by Applicable Law, waiver) of the conditions set forth in Article 9 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or, to the extent permitted by Applicable Law, waiver of those conditions), or at such other time or place as Buyer and CellStar may agree.

17

 

(b)            At the Closing:

(i)            Buyer shall deliver to CellStar, in immediately available funds by wire transfer to an account or accounts designated by CellStar by notice to Buyer (such notice to be delivered to Buyer not later than two (2) Business Days prior to the Closing Date), an amount equal to the Purchase Price, minus the Escrow Amount, (A) plus the Estimated Net Working Capital Adjustment Amount, as an adjustment to the Purchase Price, if Estimated Net Working Capital exceeds Baseline Net Working Capital, or (B) minus the Estimated Net Working Capital Adjustment Amount, as an adjustment to the Purchase Price, if Baseline Net Working Capital exceeds Estimated Net Working Capital;

(ii)           The Sellers and Buyer shall enter into the Transaction Documents such Parties are to be a party thereto (other than this Agreement);

(iii)          The Sellers shall deliver certificates, in form and substance reasonably satisfactory to Buyer, from CellStar and its relevant Subsidiaries, duly executed and acknowledged, certifying that the transactions contemplated by this Agreement are exempt from withholding under Section 1445 of the Code;

(iv)          The Sellers shall deliver to Buyer such deeds, bills of sale, assignments of all Seller Intangibles (including all Intellectual Property Rights in respect thereof but not including the Excluded Foreign Intangibles), endorsements, Consents, assignments and other good and sufficient instruments of conveyance and assignment in form and substance reasonably satisfactory to Buyer, as the Parties and their respective counsel shall deem reasonably necessary to vest in Buyer all right, title and interest in, to and under the Purchased Assets and to evidence Buyer’s assumption of the Assumed Liabilities free and clear of all Liens, other than Permitted Liens; and

(v)           Buyer and CellStar shall deliver or shall cause to be delivered such other documents as may be required pursuant to Article 9 hereof.

2.09          Net Working Capital and Net Other Assets and Liabilities Adjustments .  The Purchase Price shall be subject to adjustment as determined pursuant to this Section 2.09.

(a)           If Net Working Capital exceeds the Estimated Net Working Capital, then Buyer shall pay to CellStar an amount equal to the Net Working Capital Adjustment Amount (as defined below) in accordance with the provisions of this Section 2.09.  If Net Working Capital is less than the Estimated Net Working Capital, then CellStar shall pay to Buyer the Net Working Capital Adjustment Amount in accordance with the provisions of this Section 2.09.  “ Net Working Capital ” shall mean and be, with respect to the Business and reflected in the Business Financial Statements as of the Closing Date, (x) the value of the accounts receivable and inventories, less (y) the accounts payable (excluding that certain payable referred to on Schedule 2.09(a)(i) ) and deferred revenue (to the extent that deferred revenue is in excess of $350,000 (Three Hundred Fifty Thousand Dollars)), of the Asset Selling Entities.  Net Working Capital (and its components) will: (a) be determined in accordance with GAAP, consistently applied, as modified by, and otherwise prepared in accordance with, the net working capital accounting principles set forth on Schedule 2.09(a)(ii) (the “ Net Working Capital

18

 

Accounting Principles ”), (b) be calculated separately for the United States and Miami businesses, (c) exclude all intercompany balances outstanding between CellStar and its Affiliates and Subsidiaries and (d) exclude all Excluded Assets and Excluded Liabilities.  For purposes hereof, (i) “ Baseline Net Working Capital ” shall be $36,350,000 (Thirty Six Million Three Hundred Fifty Thousand Dollars), as such amount may be reduced in accordance with Section 9.02(o) hereof and (ii) “ Net Working Capital Adjustment Amount ” shall mean and be equal to the difference between Net Working Capital and the Estimated Net Working Capital, whether such difference is a positive or a negative number.  Schedule 2.09 ( a )( iv ) annexed hereto sets forth, for illustrative purposes only, an example of the calculation of Net Working Capital as of September 30, 2006.

(b)           Within five (5) Business Days prior to the Closing, but in no event less than two (2) days prior to the Closing, CellStar shall deliver to Buyer a statement, certified (in the form annexed hereto as Exhibit E ) by the chief administrative officer and the chief financial officer of CellStar (in their executive capacities on behalf of CellStar but not in their individual capacities), reflecting CellStar’s good faith best estimate of Net Working Capital as of the Closing Date (the “ Estimated Net Working Capital ”), and the basis for such calculation, prepared in accordance with GAAP, consistently applied, as modified by, and otherwise prepared in accordance with, the Net Working Capital Accounting Principles, which Estimated Net Working Capital and statement shall be subject to the approval of Buyer in its sole and absolute discretion.  The Schedule reflecting the agreed upon Estimated Net Working Capital shall be attached hereto as Schedule 2.09 ( b ) .  Sellers shall (i) provide Buyer and its Representatives reasonable access during normal business hours to all relevant work papers, trial balances, employees, internal and external accountants and auditors, plants, offices, warehouses and other facilities, all books and records and other financial information to the extent necessary or useful to complete their analysis of Estimated Net Working Capital and the statement in respect thereof, (ii) cause CellStar and its Subsidiaries’ officers and advisors (including counsel, financial advisors and auditors) to furnish Buyer’s Representatives with such financial and operating data and other information with respect to the Business, properties and personnel of Sellers and their Subsidiaries as Buyer’s Representatives may from time to time reasonably request and (iii) cooperate with Buyer’s Representatives’ reasonable requests with respect to the review of Estimated Net Working Capital and the statement in respect thereof.

(c)           If Net Other Assets and Liabilities is a net liability of more than $3,000,000 (Three Million Dollars), then CellStar shall pay Buyer the amount by which the Net Other Assets and Liabilities is a net liability in excess of $3,000,000 (Three Million Dollars) (the ” Net Other Assets and Liabilities Adjustment Amount ”) in accordance with the provisions of this Section 2.09.  If Net Other Assets and Liabilities is either a net asset or a net liability of less than $3,000,000 (Three Million Dollars), there shall be no Net Other Assets and Liabilities Adjustment Amount.  “ Net Other Assets and Liabilities ” shall mean and be, with respect to the Business and reflected in the Business Financial Statements as of the Closing Date, (x) the value of all prepaid assets (referred to in the Business Financial Statements as Prepaid Expense which include Prepaid Value Added Tax and prepaid Other Expenses, plus net property and equipment (referred to in the Business Financial Statements as Net Fixed Assets), plus other non-current assets (referred to in the Business Financial Statements as Other Non-Current Assets) plus Seller’s corporate fixed assets as identified in Schedule 2.02(b) less (y) accrued expenses of the Asset Selling Entities (referred to in the Business Financial Statements as

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Accrued Other Expenses) and Seller’s corporate accrued expenses assumed by Buyer as set forth in Schedule 2.05(a) .  Net Other Assets and Liabilities (and its components) will: (a) be determined in accordance with GAAP, consistently applied, as modified by, and otherwise prepared in accordance with, the net other assets and liabilities principles set forth on Schedule 2.09(c)(i) (the “ Net Other Assets and Liabilities Accounting Principles ”), (b) be calculated separately for the United States, Miami and Seller’s corporate operations, (c) exclude all intercompany balances outstanding between CellStar and its Affiliates and Subsidiaries, and (d) exclude all Excluded Assets and Excluded Liabilities.  Schedule 2.09(c)(iii) annexed hereto sets forth, for illustrative purposes only, an example of the calculation of Net Other Assets and Liabilities and the Net Other Assets and Liabilities Adjustment Amount as of September 30, 2006.

(d)           As promptly as practicable after the Closing, Buyer shall deliver to CellStar a statement setting forth the calculation of Net Working Capital and Net Other Assets and Liabilities, which statement shall be audited by Ernst & Young LLP (or another independent registered public accounting firm retained by Buyer) and certified, in the manner contemplated by Section 2.09(b) hereof, by the chief financial officer of Buyer (in his executive capacity on behalf of Buyer but not in his individual capacity), as of the close of business New York City time on the day immediately preceding the Closing Date (the “ Buyer Net Working Capital and Net Other Assets and Liabilities ”) and the basis for such calculation prepared in accordance with GAAP, consistently applied, as modified by, and otherwise prepared in accordance with, the Net Working Capital Accounting Principles (such date of delivery, the “ Settlement Date ”).

(e)           As promptly as practicable, but in no event after thirty (30) days following the Settlement Date, CellStar shall deliver to Buyer a notice of acceptance (an “ Acceptance Notice ”) or a notice of objection (an “ Objection Notice ”) with respect to Buyer Net Working Capital and Net Other Assets and Liabilities.  If an Acceptance Notice is delivered to Buyer or if no Objection Notice is delivered to Buyer within such thirty (30) day period, such Buyer Net Working Capital and Net Other Assets and Liabilities shall be final and binding on the Parties as Net Working Capital and Net Other Assets and Liabilities and shall be used to calculate the Net Working Capital Adjustment Amount and the Net Other Assets and Liabilities Adjustment Amount, if any.  Any Objection Notice shall specify in reasonable detail the items in Buyer Net Working Capital and Net Other Assets and Liabilities disputed by CellStar and shall describe in reasonable detail the basis for the objection and all information in the possession of CellStar which forms the basis therefor, as well as the amount in dispute.  If an Objection Notice is given in accordance herewith, Buyer and CellStar shall consult with each other with respect to the objection and use their respective reasonable best efforts to reach agreement on the disputed items and amounts in order to agree on a calculation of Net Working Capital and Net Other Assets and Liabilities.  If Buyer and CellStar are unable to reach agreement within thirty (30) days after an Objection Notice has been given, and all unresolved disputed items shall be promptly referred to PricewaterhouseCoopers LLP or such other independent registered public accounting firm as shall be mutually agreed upon by the Parties (the “ Independent Accounting Firm ”).  Each Party agrees to execute, if requested by the Independent Accounting Firm, a reasonable engagement letter.  The Independent Accounting Firm shall act as an arbitrator to determine, based solely on the provisions of this Section 2.09, and the presentations by Sellers’ and Buyer’s respective Representatives, and not by independent review, only those issues still in dispute.  The Independent Accounting Firm’s determination shall be made within thirty (30) days

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of the dispute being submitted for their determination, shall be set forth in a written statement delivered to Sellers and Buyer.  Any resolution hereunder, whether by the parties, or the Independent Accounting Firm, as set forth above, shall be final, non-appealable and binding on the Parties hereto, absent actual fraud, intentional misrepresentation or manifest error.  A judgment of a court of competent jurisdiction may be entered upon the Independent Accounting Firm’s determination.  The Independent Accounting Firm shall have exclusive jurisdiction over, and resort to the Independent Accounting Firm provided in this Section 2.09 shall be the only recourse and remedy of the Parties against one another with respect to, any disputes arising out of or relating to the adjustments pursuant to this Section 2.09.  The fees, costs and expenses of the Independent Accounting Firm shall be borne by the Sellers, on the one hand and the Buyer, on the other, based upon the percentage which the portion of the contested amount not awarded to each Party bears to the amount actually contested by such Party.

(f)            The Net Working Capital Adjustment Amount and the Net Other Assets and Liabilities Adjustment Amount, if any, shall be paid by the appropriate Party in accordance with Section 2.09 within five (5) Business Days following the final determination of Net Working Capital and Net Other Assets and Liabilities by wire transfer of immediately available funds to a bank account designated in writing by the recipient prior thereto, together with interest thereon at an annual rate of ten percent (10%), based on a three hundred sixty (360) day year, from and including the day immediately following the Closing Date, and up to, but not including, the date of payment (“ Interest ”).

(g)           Buyer and CellStar agree that they will, and agree to cause their respective independent accountants to, reasonably cooperate and assist in the calculation of Net Working Capital and Net Other Assets and Liabilities and in the conduct of the procedures referred to in this Section 2.09, including without limitation, making available to the extent reasonably necessary books, records, work papers, trial balances, other financial information and personnel, including the execution of customary release or indemnification letters required by the Independent Accounting Firm or taking of physical inventory.

ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS

Sellers jointly and severally represent and warrant to, and covenant with, Buyer, as of the date hereof and as of the Closing, that:

3.01         Corporate Existence and Power .  Each Seller is a corporation duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on the Business as now conducted and to own or lease and operate its properties in the places where the Business is now conducted and such properties are now owned, leased or operated.  True, complete and correct copies of the formation documents, bylaws and other governance documents of each Seller have been delivered to Buyer prior to the date hereof.  Schedule 3.01 annexed hereto sets forth the name, outstanding equity ownership and business and other activities of each Subsidiary of CellStar.

3.02         Corporate Authorization .  The execution, delivery and performance by each Seller of the Transaction Documents to which it is a party and the consummation of the

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transactions contemplated thereby are within such Seller’s corporate powers and authority and have been duly authorized by all necessary corporate action on the part of such Seller, other than the Seller Stockholders’ Approval.  This Agreement and the other Transaction Documents to which the Sellers are a party, and the transaction contemplated hereby, and thereby have been approved by the unanimous vote of the Board of Directors of each Seller.  No other proceedings on the part of such Seller are necessary to approve or authorize the execution and delivery of the Transaction Documents, the performance of such Seller’s obligations thereunder or the consummation of the transactions contemplated thereunder, other than the Seller Stockholders’ Approval.  This Agreement has been duly and validly executed and delivered by each Seller and constitutes a valid and binding agreement of each Seller.  Each other Transaction Document will be duly and validly executed by each Seller party thereto at or prior to the Closing and, upon such execution and delivery by such Seller and the due and valid execution and delivery of such Transaction Document by each other party thereto, will constitute a valid and binding agreement of such Seller, enforceable against such Seller in accordance with its terms.

3.03         Governmental Authorization .  The execution, delivery and performance by each Seller of the Transaction Documents to which it is a party and the consummation of the transactions contemplated thereby require no action by or in respect of, or filing with, any Governmental Authority other than compliance with any applicable requirements of the HSR Act, any other Competition Laws and the Exchange Act .

3.04         Noncontravention .  Except (i) as disclosed on Schedule 3.04 annexed hereto or (ii) as disclosed in writing to Buyer concurrently with the execution and delivery of this Agreement, the execution, delivery and performance by each Seller of the Transaction Documents to which it is a party and the consummation of the transactions contemplated thereby do not and will not (i) violate the certificate of incorporation or bylaws or other governing document of such Seller or any Subsidiary, (ii) result in a violation of any Applicable Law, (iii) violate or result in a breach of or constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation or to a loss of any benefit relating to the Business to which such Seller or any of its Subsidiaries is entitled under any provision of any agreement or other instrument binding upon such Seller or any of its Subsidiaries, or (iv) result in the creation or imposition of any Lien on any Purchased Asset, except for Permitted Liens.

3.05         Required Consents .  Schedule 3.05 annexed hereto sets forth each agreement required to be set forth in Schedule 3.14 or Schedule 2.02(d) requiring a consent, approval, authorization, notice, payment or other action by any Person as a result of the execution, delivery and performance of this Agreement (the “ Required Consents ”).  No other filing with or notice to and no Consent is necessary for the execution and delivery by Sellers of this Agreement, the performance of Sellers’ obligations hereunder, or the consummation of the transactions contemplated by the Transaction Documents, other than the Seller Stockholders’ Approval and compliance with any applicable requirements of the HSR Act, any other Competition Laws and the Exchange Act.

3.06         [Intentionally omitted]

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3.07         Business Financial Statements .   Schedule 3.07 annexed hereto sets forth a true, correct and complete copy of the unaudited statement of assets and liabilities of the Business as of November 30, 2005 and the related unaudited statement of revenue and expenses for the year ended November 30, 2005, and the unaudited interim statement of assets and liabilities as of September 30, 2006 and October 31, 2006 and the related unaudited interim statement of revenue and expenses for the ten (10) months ended September 30, 2006 and eleven (11) months ended October 31, 2006, respectively, for the Business (collectively, the “ Business Financial Statements ”).  The Business Financial Statements include separate financial statements in respect of the United States and Miami businesses.  The Business Financial Statements are derived from the books and records of CellStar and its Subsidiaries and the audited consolidated financial statements of CellStar and its Subsidiaries (which were prepared in accordance with GAAP) and fairly present the assets and liabilities of the Business as of the dates thereof, and the results of operations of the Business for the periods then ended.  The Business Financial Statements do not contain any untrue statement of a material fact or omit a material fact necessary to make each statement contained therein not misleading.

3.08         SEC Filings; Financial Statements; Disclosure Controls .

(a)           Except as set forth on Schedule 3.08 ( a ) annexed hereto , CellStar has timely filed with the SEC all forms, reports, schedules, statements and other documents required to be filed by it since January 1, 2003 under the Exchange Act or the Securities Act, including all such documents filed after the date hereof and prior to the Closing Date (as such documents have been amended since the time of their filing and all documents incorporated by reference therein, collectively, the “ Seller SEC Documents ”).  None of CellStar’s Subsidiaries is required to file any form, report, schedule, statement or other document with the SEC. As of their respective dates and if amended prior to the date hereof, as of the date of the last such amendment, Seller SEC Documents (i) did not, and all documents filed by CellStar with the SEC under the Exchange Act or the Securities Act between the date of this Agreement and the Closing Date will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were or will be made, not misleading, and (ii) complied, and all documents filed by CellStar with the SEC under the Exchange Act or the Securities Act between the date of this Agreement and the Closing Date will comply, in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, at such time of filing. As used in this Section 3.08, the term “file” shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available to the SEC.

(b)           Except as set forth on Schedule 3.08(b) annexed hereto, CellStar’s financial statements (including in each case, any related notes thereto), contained or reflected in Seller SEC Documents (the “ Seller Financial Statements ”) (i) were, and all Seller Financial Statements contained or reflected in documents filed by CellStar with the SEC under the Exchange Act or the Securities Act between the date of this Agreement and the Closing Date will be, prepared from the books and records of CellStar and its Subsidiaries; (ii) was, and all Seller Financial Statements contained or reflected in documents filed by CellStar with the SEC under the Exchange Act or the Securities Act between the date of this Agreement and the Closing Date will be, prepared in accordance with GAAP throughout the periods involved

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(except as may be indicated therein or in the notes thereto or, in the case of unaudited statements, except that such unaudited statements do not contain footnotes as permitted by Form 10-Q under the Exchange Act); (iii) complied in all material respects with all applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto as in effect on the date of filing; (iv) except with respect to the unaudited Seller Financial Statements contained in the Seller SEC Documents filed on Form 10-Q under the Exchange Act, was accompanied by unqualified reports from the independent auditor opining on the same as to the Seller Financial Statements contained therein; and (v) fairly present, and all Seller Financial Statements contained or reflected in documents filed by CellStar with the SEC under the Exchange Act or the Securities Act between the date of this Agreement and the Closing Date will fairly present, in all material respects, the consolidated financial position of CellStar and its Subsidiaries as of their respective dates and the consolidated results of their respective operations and cash flows for the periods indicated therein, except that the unaudited interim Seller Financial Statements were or will be subject to normal year end audit adjustments which were not and will not be expected to be material in the aggregate.

(c)           Except as set forth in Schedule 3.08(c) , (I) CellStar maintains a system of internal accounting controls sufficient to provide reasonable assurance in all material respects that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, and (iii) access to assets is permitted only in accordance with management’s general or specific authorization.  CellStar and each of its Subsidiaries, officers and directors are in compliance with, and have complied, in all material respects with the applicable provisions of the Sarbanes-Oxley Act and the related rules and regulations promulgated under such act and the Exchange Act; and (II) CellStar has (i) implemented disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) to ensure that material information relating to CellStar and its Subsidiaries is made known to the management of CellStar by others within such entities, and (ii) disclosed, based on its most recent evaluation, to CellStar’s outside auditors, the audit committee of the Seller Board (as defined in Section 5.03(a)), and Buyer (A) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that are reasonably likely to materially affect CellStar’s ability to record, process, summarize and report financial data, and (B) any fraud, whether or not material, known to management that involves management or other employees who, in each case, have a significant role in CellStar’s internal control over financial reporting.  Except as set forth in CellStar’s Annual Report on Form 10-K for the year ended November 30, 2005 and the Quarterly Reports on Form 10-Q thereafter filed by CellStar with the SEC, there have been no material changes in CellStar’s internal controls or in other factors that could significantly affect CellStar’s internal controls, or any significant deficiencies or material weaknesses in such internal controls.  CellStar has conducted its business in accordance with the terms of its internal accounting controls and procedures and has otherwise operated in compliance with the requirements under Rules 13a-15 and 15d-15 of the Exchange Act.  CellStar has made available to Buyer complete and correct copies of all written policies, manuals and other documents promulgating such internal accounting controls.

(d)           Except as disclosed in the Seller SEC Documents relating to the accounts receivable and revenue issues in CellStar’s Asia-Pacific region described in

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CellStar’s Annual Report on Form 10-K for the fiscal year ended November 30, 2004, none of CellStar, its Subsidiaries nor, to the Knowledge of Sellers, any of their respective auditors, accountants or representatives have received or otherwise had or obtained knowledge of any complaint, allegation, assertion or claim, whether written or, to the Knowledge of Sellers, oral, regarding the accounting or auditing practices, procedures, methodologies or methods of CellStar or any of its Subsidiaries or their respective internal accounting controls, including any complaint, allegation, assertion or claim that CellStar or any of its Subsidiaries has engaged in questionable accounting or auditing practices.

3.09         Absence of Certain Changes .  Except as disclosed on Schedule 3.09 annexed hereto, since the Balance Sheet Date, (a) the Business has been conducted in the ordinary course consistent with past practices; (b) there has not been any event, occurrence or development which, individually or in the aggregate, has had or would have a Material Adverse Effect; and (c) none of CellStar or any of its Subsidiaries has taken any of the actions listed in Section 5.02(a)(i) through Section 5.02(a)(xvi) as if such Sections had applied since the Balance Sheet Date.

3.10         No Undisclosed Liabilities .  There are no Liabilities of CellStar or its Subsidiaries relating to or arising out of the Purchased Assets, or the conduct of the Business, that in each case could constitute Assumed Liabilities at the Closing, of any kind, other than (a) Liabilities disclosed and/or reserved against in the Business Financial Statements, (b) Liabilities set forth in Schedule 2.04 or (c) Liabilities incurred since October 31, 2006 in the ordinary course of business consistent with past practices.

3.11         Assets .  Except as disclosed on Schedule 3.11 annexed hereto, (a) each of the Asset Selling Entities have good and marketable title to and is the sole lawful owner in every respect of, or has a valid leasehold interest in, all of the tangible Purchased Assets that it is selling hereunder, free and clear of any Liens (except for Permitted Liens), and, upon consummation of the transactions contemplated by this Agreement, Buyer will have good and marketable title to and be the sole lawful owner in every respect of, or have a valid leasehold interest in, all of the tangible Purchased Assets, free and clear of any Liens (other than the Non-Assignable Assets), except for the Permitted Liens and (b) each party assigning a Contract pursuant to this Agreement has good and marketable title to and is the sole owner of the associated right, title and interest in and to each such Contract.

3.12         Personal Property .  Each item of tangible personal property included in the Purchased Assets is in good operating condition, free of any defects (except those resulting from normal wear and operation), and is suitable for the purposes for which it is presently being used.

3.13         Sufficiency of Purchased Assets .  The Purchased Assets constitute all of the property and assets (tangible and intangible) used or held for use in the conduct of the Business as it is conducted as of the date hereof except for the Excluded Assets and are adequate for Buyer to conduct the Business as it is currently being conducted.

3.14         Material Contracts .  (a)  Except as set forth on Schedule 3.14 annexed hereto (including, for purposes hereof, all subschedules annexed hereto which include references

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to “3.14” in the captions thereof), with respect to the Business, no Asset Selling Entity is a party to or bound by any of the following types of Contracts, whether oral or written:

(i)            any lease (whether of real or personal property) requiring (A) annual rentals of $100,000 or more or (B) aggregate payments by or to any Asset Selling Entity of $50,000 or more, in the case of each of clauses (A) and (B) that cannot be terminated on not more than 120 days’ notice without payment by or on behalf of any Asset Selling Entity of any penalty;

(ii)           any lease or agreement under which any Asset Selling Entity is the lessor or permits any third party to hold or operate any personal property owned or controlled by any Asset Selling Entity;

(iii)          any agreement for the purchase of materials, supplies, goods, services, equipment or other assets, or any other agreement under which either (A) since January 1, 2006 there have been payments or other financial obligations (or requirements of payments or other financial obligations) to, by or on behalf of any Asset Selling Entity of $50,000 or more or (B) aggregate payments to or by any Asset Selling Entity of $50,000 or more are required, in each case that cannot be terminated on not more than 120 days’ notice without payment by any Asset Selling Entity of any penalty;

(iv)          any sales, distribution or other similar agreement providing for the sale to or by any Asset Selling Entity of materials, supplies, goods, services, equipment or other assets under which since January 1, 2006 there have been payments by, to or on behalf of any Asset Selling Entity of $50,000 or more;

(v)           any partnership, joint venture or other similar agreement or arrangement;

(vi)          any contract under which CellStar or any of its Subsidiaries has advanced or loaned any other Person any amount, other than trade credit extended in the ordinary course of business;

(vii)         any agreement relating to the acquisition or disposition of any business (whether by merger, sale of stock, sale of assets or otherwise) or any assets involving consideration in excess of $50,000, except for purchases of inventory, capital expenditures or sales of inventory or obsolete equipment, in each case in the ordinary course of business consistent with past practices;

(viii)        any agreement relating to the incurrence of Indebtedness in excess of $25,000;

(ix)           guaranty of any obligation in excess of $25,000;

(x)            any agreement relating to the Business between CellStar or any of its Affiliates on the one hand, and CellStar or any of its Affiliates, of CellStar, on the other hand, that will not be terminated at or prior to the Closing;

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(xi)           any employment, deferred compensation, severance, retirement or other similar agreement entered into with any employee except that severance agreements entered into with former employees prior to January 1, 2006 need not be included on Schedule 3.14 if no payments or other financial obligations are required to be made or committed to thereunder;

(xii)          any agreement relating to the requirement to extend credit or the making of loans to, or the making of an equity investment in, any Person, other than the creation of accounts receivable in the ordinary course of business;

(xiii)         any agreement that limits in any respect the freedom of the Business to compete in any line of business or with any Person or in any area;

(xiv)        any agreement that relates to any System Lease that is material to the Business as currently conducted or that relates to any Material Seller Intellectual Property; or

(xv)         any other agreement not required to be disclosed pursuant to clauses (i) through (xiv) above the termination or lapse of which would have a Material Adverse Effect.

(b)            Each Material Contract is valid, binding and enforceable against each Asset Selling Entity party thereto and, to the Knowledge of Sellers, against the other parties to the Material Contracts in accordance with their respective terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights, and as limited by general principles of equity that restrict the availability of equitable remedies.  CellStar and its Subsidiaries have performed all obligations required to be performed by them and are neither in default under nor in breach of nor in receipt of any claim of default or breach under any Material Contract, except as disclosed in writing to Buyer concurrently with the execution and delivery of this Agreement.  No event has occurred which with the passage of time or the giving of notice or both would result in a default, breach or event of noncompliance by the Asset Selling Entities or, to the Knowledge of Sellers, any other party under any Material Contract.  No Asset Selling Entity has received written notice of the intention of any party to cancel or terminate any Material Contract and, to the Knowledge of Sellers, there has not been any breach or anticipated breach by the other parties to any Material Contract.

(c)            CellStar has made available to Buyer a true and correct copy of all written Contracts which are disclosed on Schedule 3.14 or Schedule 2.02(d) annexed hereto, in each case together with all amendments, waivers, or other changes thereto (all of which are disclosed on Schedule 3.14 or Schedule 2.02(d) ).  Schedule 3.14 or Schedule 2.02(d) annexed hereto contains an accurate and complete description of all material terms of all oral Contracts referred to therein.

(d)            All of the Contracts that individually (or, if related, in the aggregate) involve the payment, to or from CellStar or any of its Subsidiaries, of in excess of $50,000 in any twelve month period are identified as such on Schedule 2.02(d) annexed hereto.

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3.15         Solvency .  (a) Neither CellStar nor its Subsidiaries is now insolvent (as defined below), and will not be rendered insolvent by any of the transactions contemplated by the Transaction Documents, except for the Subsidiaries listed on Schedule 3.15 which are deemed insolvent for purposes hereof only as a result of the intercompany liabilities and indebtedness to third parties described on Schedule 3.15 .  As used herein, “ insolvent ” means that the sum of each of CellStar’s and its Subsidiaries’ debts and other probable liabilities exceeds the present fair saleable value of the assets thereof.  Immediately after giving effect to the consummation of the transactions contemplated hereby, (i) CellStar and each of its Subsidiaries will be able to pay its liabilities as they become due in the usual course of CellStar’s or such Subsidiary’s business and will not incur debts that would be beyond CellStar’s and its Subsidiaries’ ability to pay such debts as they mature, (ii) neither CellStar nor any of its Subsidiaries will have unreasonably small capital with which to conduct its present or proposed business, (iii) CellStar and each of its Subsidiaries will have assets (calculated at fair market value) that exceed their liabilities, and (iv) taking into account all pending and threatened litigation, final judgments against CellStar or its Subsidiaries in actions for money damages are not reasonably anticipated to be rendered at a time when, or in amounts such that, CellStar or any of its Subsidiaries will be unable to satisfy any such judgments promptly in accordance with their terms (taking into account the maximum probable amount of such judgments in any such actions and the earliest reasonable time at which such judgments might be rendered) as well as all other obligations of CellStar and its Subsidiaries. The cash available to CellStar and each of its Subsidiaries, after taking into account all other anticipated uses of the cash, will be sufficient to pay all such debts and judgments promptly in accordance with their terms.

3.16         Change of Control .  Schedule 3.16 annexed hereto sets forth (i) all Contracts with any Seller, including but not limited to, severance plans, bonus plans, employment agreements, change of control agreements, indemnity agreements or other similar agreements, with respect to any retention or performance-based bonus or other compensation arrangement, pursuant to which a Liability is due or will become payable, in whole or in part, directly or indirectly as a result of the consummation of any of the transactions contemplated hereby, and (ii) the amount of any compensation, remuneration or other amounts which are or may be due or payable by any Seller as a result of the transactions contemplated hereby under such Contracts (including any such Liabilities which are or may be due or payable by any Seller assuming that each employee of any Seller that is a party to such Contract is terminated without cause immediately following the consummation of the transactions contemplated hereby).

3.17         Litigation .  Except as set forth on Schedule 3.17 annexed hereto, there are no claims, actions, suits, investigations, orders, judgments, decrees or proceedings pending by or against, or to the Knowledge of Sellers, threatened by or against or affecting any Seller, the Business or any Purchased Asset before any arbitrator or any Governmental Authority, and no Seller is bound by any outstanding order, injunction, judgment, arbitration award, or ruling.  Except as set forth on Schedule 3.17 , there are no judgments, orders, stipulations, injunctions, decrees or awards in effect which relate to any Seller or this Agreement, the transactions contemplated hereby, the Business, or any of the Purchased Assets, the effect of which is (a) to limit, restrict, regulate, enjoin or prohibit any business practice of any Seller in any area, or the acquisition by any Seller of any properties, assets or businesses, or (b) otherwise adverse to the Business or the Purchased Assets.  There are no pending or, to the Knowledge of Sellers, threatened material claims against any Seller with respect to export licenses or other approvals.

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There are no actions, conditions or circumstances pertaining to the export transactions of any Seller that may give rise to any future claims that are, individually or in the aggregate, material to any Seller.   To Sellers’ Knowledge, no basis exists for the commencement of any claims, suits or actions, or administrative, arbitration or other proceedings or investigations by any Governmental Authority against any Seller.  Neither the SEC Investigation, nor any other legal proceedings or governmental investigations, will or could reasonably be expected to result in a material Liability, penalty, payment, judgment or restriction affecting any Seller.  Except as set forth on Schedule 3.17 , there are no pending or, to the Knowledge of Sellers, threatened claims involving the alleged violation of any federal, state or local law, statute, ordinance or regulation, regulating the employment of any individual involved in the Business.

3.18         No Violation of Law .  Neither CellStar nor any of its Subsidiaries or Affiliates, nor, to the Knowledge of Sellers, any of the respective officers, directors, employees, agents or representatives thereof with respect to the Business are engaging in any activity or omitting to take any action as a result of which it is in violation of any Applicable Law in any material respects.  Without limiting the generality of the foregoing, each Asset Selling Entity has conducted their transactions in material compliance with applicable provisions of the export control laws of the United States and all other applicable jurisdictions, and each Asset Selling Entity has obtained all export licenses and other approvals required for the export of products, software and technologies from the United States and any other relevant jurisdiction; and each Asset Selling Entity is in material compliance with the terms of all applicable export licenses and other approvals.  No Seller nor any Subsidiaries or, to Sellers’ Knowledge, Affiliates thereof, nor, to Sellers’ Knowledge, any of their respective officers, directors, employees, agents or representatives with respect to the Business has made, directly or indirectly, any illegal political contributions or payments from corporate funds, that were falsely recorded on the books and records thereof, payments from corporate funds to governmental officials in their individual capacities for the purpose of affecting their action or the action of the government they represent to obtain special concessions, illegal payments from corporate funds to obtain or retain business or payments from corporate funds to third parties in their individual capacities for the purpose of affecting their action or the action of the persons or entities that they represent to obtain special concessions.  No Seller nor any of the Subsidiaries or, to Sellers’ Knowledge, Affiliates thereof, nor, to Sellers’ Knowledge, the officers, directors, employees, agents or representatives thereof with respect to the Business, have received any notice of violation by the staff of the SEC or any notice that the SEC will or intends to initiate an enforcement proceeding against CellStar or any Subsidiary or Affiliate thereof (including any Asset Selling Entities) or any of the respective officers, directors, employees, agent or representatives thereof.  CellStar has heretofore supplied Buyer with all co