AGREEMENT AND PLAN OF MERGER
BETWEEN
LION CAPITAL HOLDINGS, INC.,
AND
DeFi MOBILE LTD.
DATED AS OF JULY 10, 2009
MERGER AGREEMENT
This Agreement and Plan of Merger,
dated as of June __, 2009 (this “ Agreement ”),
is by and among Lion Capital Holdings, Inc., a Delaware corporation
(“ Parent ”), DeFi Mobile, Ltd, a Delaware
corporation (the “ Company ”), and Jeff Rice and
David Thomas, in their capacity as Joint
Representatives.
WHEREAS , the respective Boards of Directors of Parent
and the Company have determined that it is advisable and would be
fair to and in the best interests of their respective shareholders
to consummate the merger of Company with and into the Parent, upon
the terms and subject to the conditions set forth herein (“
Merger ”); and
WHEREAS , Parent and the Company desire to
make certain representations, warranties, covenants and agreements
in connection with the Transactions contemplated hereby and also to
prescribe various conditions to the Transactions contemplated
hereby; and
WHEREAS , the Board of Directors of the Company have
approved the Transactions contemplated by this Agreement in
accordance with the Delaware General Company Law (the “
DGCL ”); and
NOW, THEREFORE
, in consideration of the foregoing
premises and the mutual covenants, promises, representations,
warranties and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I.
Definitions
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Definitions . Certain terms used in this
Agreement are defined in Exhibit A attached
hereto.
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ARTICLE II.
The Merger, Effective Time; Merger
Consideration
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The Merger . This Agreement contemplates a
tax-free merger of the Company with and into the Buyer in a
reorganization pursuant to Code §368(a)(1)(A). The Target
Stockholders will receive capital stock in the Buyer in exchange
for their capital stock in the Target. Subject to the terms and
conditions hereof and in accordance with the DGCL, at the Effective
Time:
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(a) The
Company shall be merged with and into Parent and the separate
existence of the Company shall cease.
(b) The
Parent, as the surviving corporation in the Merger (the “
Surviving Company ”), (i) shall continue its corporate
existence under the laws of the State of Delaware, (ii) shall
change its name to “DeFi Mobile, Ltd.”, and (iii) shall
succeed to all public and private rights, privileges, powers,
assets, liabilities and obligations of the Company in accordance
with the DGCL.
(c) The
Certificate of Incorporation and Bylaws of the Parent in effect
immediately prior to the Effective Time shall remain the
Certificate of Incorporation and Bylaws of the Surviving
Company.
(d) The
Merger shall have all the effects provided by applicable
law.
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Effective Time of the Merger
. As soon as practicable
after the Closing Date the parties shall cause the Merger to be
consummated by filing the appropriate documents with the Secretary
of State of Delaware, in such form as required by, and executed in
accordance with the relevant provisions of, the DGCL (the “
Certificate of Merger ”). The Merger shall
become effective at 11:59 p.m. on the day of filing of the
Certificate of Merger with the Secretary of State of Delaware in
accordance with the DGCL or such later date or time as may be
agreed upon by Parent and the Company and set forth therein (the
“ Effective Time ”).
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Aggregate Merger Consideration
. Exhibit B lists
the Company’s Securityholders on the date of this Agreement,
the amount and type of Company Securities held by each
Securityholder, the percentage and the amount of the Merger
Consideration to be received by each Securityholder and the Closing
Share Consideration allocated to each
Securityholder. Subject to Section 2.8 , the
aggregate consideration to be received by the Securityholders in
connection with the Merger shall be the following (collectively,
the “ Merger Consideration ”):
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(a) each
Company Share (other than any Dissenting Share) shall be converted
into the right to receive one share of common stock of Parent, no
par value (“ Parent Common Stock ”) (the ratio
of one parent Shares to one Parent Share is referred to herein as
the "Conversion Ratio"), which Parent Common Stock shall be
allocated among the Securityholders as provided in Exhibit B
(the “ Share Consideration ”); (B)
each Dissenting Share shall be converted into the right to receive
payment from the Surviving Corporation with respect thereto in
accordance with the provisions of the Delaware General Corporation
Law; provided, however, that the Conversion Ratio shall be subject
to equitable adjustment in the event of any stock split, stock
dividend, reverse stock split, or other change in the number of
Target Shares outstanding. No Target Share shall be deemed to be
outstanding or to have any rights other than those set forth above
in this §2(d)(v) after the Effective Time. [The Share
Consideration shall be subject to a 18 month lock-up period of
beginning at the Closing ending 18 months from the date of Closing
(the “Lock-up Period”). During the Lock-Up Period, the
Share Consideration may not be sold by the Security Holder and the
lock-up requirements may be waived by the Parent in its sole
discretion.]
(b) Warrants
in the amount and terms as provided in Exhibit B and in the
form set forth in Exhibit C (the “ Warrants
”) to purchase shares of Parent Common Stock at an exercise
price per share set forth therein (the “ Warrant
Consideration ”), which Warrants shall be issued to such
persons as designated in writing by the Founders prior to
Closing.
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No Fractional Shares . No fractional shares of Parent
Common Stock shall be issued as Share Consideration. In
lieu thereof, cash in the amount equal to the value of such
fractional shares will be paid to the Securityholders.
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Section 2.5.
Conversion and Cancellation of Securities . At
the Effective Time:
(a)
Company Common Stock . Each share of Company
Common Stock issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the
Merger Consideration set forth in Section 2.3 .
(b)
Company Preferred Stock . Each share of Company
Preferred Stock issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the
right to receive the Merger Consideration set forth in Section
2.3 .
(c)
Treasury Shares . Each share of Company Common
Stock held in the treasury of the Company immediately prior to the
Effective Time, shall by virtue of the Merger and without any
action on the part of any Person, be automatically canceled and
retired and cease to exist, and no cash, securities or other
property shall be payable in respect thereof.
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Closing of Transfer Books
. From and after the
Effective Time, the stock transfer books of the Company shall be
closed and no transfer shall thereafter be made. From
and after the Effective Time, the holders of Certificates
evidencing ownership of Company Securities immediately prior to the
Effective Time shall cease to have any rights with respect to such
securities, except as otherwise provided for in this Agreement or
in accordance with any Legal Requirements.
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Allocation of Merger Consideration for Tax
Purposes . The Merger Consideration shall be
allocated for tax purposes as determined by Parent in its sole
discretion in the manner set forth in writing and delivered to the
Company at least 15 days before Closing (the “
Allocation ”). After the Closing, the
parties shall make consistent use of the allocation, fair market
value and useful lives specified in the Allocation for all Tax
purposes and in all filings, declarations and reports with the IRS
in respect thereof, including the reports required to be filed
under Section 1060 of the Code. Parent shall prepare and
deliver IRS Form 8594 to the Securityholders within forty-five (45)
days after the Closing Date to be filed with the IRS. In
any Proceeding related to the determination of any Tax, neither
Parent nor the Securityholders shall contend or represent that such
allocation is not a correct allocation.
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(a) The
parties acknowledge that the Company's Securityholders are entitled
to appraisal rights under Section 262 of the DGCL. The
Company shall comply with all Legal Requirements including those
set forth in Section 262 of the DGCL, including the notice
provision of Section 262(d) of the DGCL.
(b) Notwithstanding
anything to the contrary contained in this Agreement, any shares of
capital stock of the Company for which, as of the Company
Shareholders’ meeting called to approve the Merger (the
“ Company Shareholders’ Meeting ”), the
holder thereof has demanded an appraisal of their value in
accordance with applicable law (“ Dissenting Shares
”)
shall not be converted into or
represent the right to receive the applicable Merger Consideration
in accordance with Section 2.3 and the holder or holders of
such shares shall be entitled only to such rights as may be granted
to such holder or holders under applicable law; provided,
however , that if the status of any such shares as Dissenting
Shares shall not be perfected in accordance with applicable law, or
if any such shares shall lose their status as Dissenting Shares
then, as of the later of the Effective Time or the time of the
failure to perfect such status or the loss of such status, such
shares shall automatically be converted into and shall represent
only the right to receive (upon the surrender of the certificate or
certificates representing such shares) the applicable Merger
Consideration in accordance with Section 2.3 . In
the event of any Dissenting Shares, the aggregate Merger
Consideration will be deemed to be reduced by the proportional
share of the Merger Consideration that the holders of such
Dissenting Shares would be entitled to receive absent the
appraisal.
(c) The
Company shall give Parent (i) prompt notice of any written demand
received by the Company at or prior to the Company
Shareholders’ Meeting to require the Company to purchase
Dissenting Shares pursuant to applicable law and of any other
demand, notice or instrument delivered to the Company prior to the
Effective Time pursuant to the DGCL, and (ii) the opportunity to
participate in all negotiations and proceedings with respect to any
such demand, notice or instrument. The Company shall not
make any payment or settlement offer prior to the Effective Time
with respect to any such demand unless Parent shall have consented
in writing to such payment or settlement offer.
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Delivery and Share Consideration and Warrant
Consideration . At the Closing, Parent shall
deliver or cause to be delivered the Closing Share
Consideration to a trust company designated by Parent (the “
Exchange Agent ”) for payment through the Exchange
Agent to the Securityholders in accordance with this ARTICLE
II.
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Delivery and Share Consideration.
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(a) Prior
to the Effective Time, the Company shall deliver to each record
holder of Company Securities (A) a letter of transmittal, which
shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent, and which shall also contain
representations and warranties with respect to the
Securityholder’s status as an “accredited
investor” as defined in Section 501(a) of Regulation D of the
Securities Act, and which letter shall be substantially in the form
attached as Exhibit D hereto (the “ Letter of
Transmittal ”) and (B) instructions for effecting the
surrender of such Certificates in exchange for the consideration
such Merger Consideration that the Securityholder has the right to
receive under this ARTICLE II , as applicable.
(b) The
Closing Share Consideration received by the Exchange Agent pursuant
to Section 2.9 , shall be deposited by the Exchange Agent in
an account (the “ Exchange Account ”)
established for the benefit of the Securityholders. The
Exchange Agent shall deliver out of the Exchange Account, to each
Securityholder holding a Certificate that immediately prior to the
Effective Time represented Company Securities, promptly upon
receipt by the Exchange Agent of a completed and duly executed
Letter of Transmittal and the Certificate, an amount equal to the
Closing Share Consideration set forth opposite that
Securityholder’s name on Exhibit B .
(c) Each
Securityholder who delivers a completed and duly executed Letter of
Transmittal and a Certificate for cancellation to the Exchange
Agent at the Closing shall be entitled to receive in exchange
therefore the Merger Consideration such Stockholder has the right
to receive under this ARTICLE II , as applicable.
(d) The
Surviving Corporation shall be entitled to deduct and withhold from
the Closing Share Consideration otherwise payable to any
Securityholder pursuant to this Article II any amount of
shares of Parent Common Stock as the Surviving Corporation is
required to deduct and withhold with respect to payment under any
provision of federal, state or local income Tax law and the number
of shares of Parent Common Stock so deducted shall be equal to the
amount of any such Tax divided by the Issuance Price. If
the Surviving Corporation so withholds amounts, such amounts shall
be treated for all purposes of this Agreement as having been paid
to the Securityholders in respect of which the Surviving
Corporation made such deduction or withholding. No
interest shall accrue or be paid on the consideration payable upon
the delivery of Certificates.
(e) The
Exchange Agent will, promptly upon receipt thereof, deliver to
Parent surrendered Certificates received by it, and, within five
(5) Business Days after the 180th day following the Closing Date,
return to Parent any portion of the Closing Share Consideration
remaining to be paid to Securityholders pursuant to this ARTICLE
II who have not yet surrendered their Certificates
(“ Non-Performing Securityholders
”). Subject to the following sentence, any
Non-Performing Securityholders shall thereafter be entitled to look
only to the Surviving Corporation for payment of their claims for
the consideration set forth in this ARTICLE II , without
interest thereon. In the event any Non-Performing
Securityholders subsequently surrender their Certificates, as the
case may be, the Exchange Agent shall send notice to Parent and the
Surviving Corporation of such surrender, and the Surviving
Corporation shall be responsible for delivery to such
Non-Performing Securityholders of any Merger Consideration payable
to such Non-Performing Securityholders returned to the Surviving
Corporation pursuant to this Section 2.10(e) .
(f) None
of Parent, the Surviving Corporation or the Exchange Agent shall be
liable to any Person in respect of any Parent Common Stock, cash,
dividends or distributions from the Exchange Account properly
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificates
shall not have been surrendered prior to five (5) years after the
Effective Time (or immediately prior to such earlier date on which
any Merger Consideration payable to Securityholders pursuant to
this ARTICLE II in respect of such Certificate would
otherwise escheat to or become the property of any Governmental
Body), any Merger Consideration delivered in respect of such
Certificate shall, to the extent permitted by
applicable Legal Requirement, become
property, free and clear of all claims or Encumbrances of any
Person previously entitled thereto.
(g) If
any portion of the Merger Consideration pursuant to this ARTICLE
II is to be paid to a Person other than the Person in whose
name the surrendered Certificate is registered, it shall be a
condition to such payment that (i) either such Certificate shall be
properly endorsed or shall otherwise be in proper form for
transfer; (ii) there shall be an opinion of counsel acceptable to
Parent that such transfer is not in violation of the Securities Act
or any other Legal Requirement; and (iii) the Person requesting
such payment shall pay to the Exchange Agent any transfer or other
Taxes required as a result of such payment to a Person other than
the registered holder of such Certificate or establish to the
reasonable satisfaction of the Exchange Agent that such Tax has
been paid or is not payable.
(h) If
any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed, the Surviving
Corporation or the Exchange Agent, as applicable, will issue in
exchange for such lost, stolen or destroyed Certificate the
consideration otherwise payable pursuant to this ARTICLE II
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(i) Any
amount of Merger Consideration delivered to the Exchange Agent for
the benefit of a Securityholder that is attributable to a
Dissenting Share shall be available to pay the fair value of such
Dissenting Share for which appraisal rights are perfected pursuant
to Section 262 of the DGCL.
ARTICLE III.
Representations and Warranties of the
Company
Except as set forth in the Company
Disclosure Schedules (with specific reference to the particular
Section or subsection of this Agreement to which the information
set forth in such disclosure schedule relates; provided, however,
that any information set forth in one section of such disclosure
schedule shall be deemed to apply to each other Section or
subsection thereof or hereof to which its relevance is readily
apparent on its face) delivered by the Company to Parent prior to
the execution of this Agreement, the Company represents and
warrants that the following are true and correct as of the date
hereof and will be true and correct through the Closing Date as if
made on that date:
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Organization and Good Standing;
Qualification . The Company is a corporation duly
organized, validly existing and in good standing under the laws of
its state of incorporation, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own
the properties it owns, to execute and deliver this Agreement and
to consummate the Transactions. The Company is duly
qualified and licensed to do business and is in good standing in
all jurisdictions where the nature of its business makes such
qualification necessary, which jurisdictions are listed in
Section 3.1 of the Company Disclosure Schedules , except
where the failure to be qualified or licensed would not have a
Material Adverse Effect on the Company. The Company does
not have any assets, employees or offices in any state other than
the states listed in Section 3.1 of the Company Disclosure
Schedules .
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Section 3.2.
Capitalization . The authorized capital stock of
the Company is set forth in Section 3.2 of the Company
Disclosure Schedules and includes, but is not limited to,
common stock, par value $0.001 per share (“ Company Common
Stock ”) and Series A preferred stock, par value $0.001
per share (the “ Company Preferred Stock
”). Except as set forth in Section 3.2 of the
Company Disclosure Schedules , there exist no options,
warrants, convertible notes, subscriptions or other rights to
purchase, or securities convertible into or exchangeable for, the
capital stock of the Company. Except as set forth in
Section 3.2 of the Company Disclosure Schedules , neither
the Company nor any Subsidiary is a party to or bound by, nor does
it have any Knowledge of, any agreement, instrument, arrangement,
contract, obligation, commitment or understanding of any character,
whether written or oral, express or implied, relating to the sale,
assignment, encumbrance, conveyance, transfer or delivery of any
capital stock of the Company or any Subsidiary. No
shares of capital stock of the Company have been issued or disposed
of in violation of the preemptive rights of any of the
Company’s shareholders. All accrued dividends on
the capital stock of the Company, whether or not declared, have
been paid in full. No shares of capital stock of the
Company have been issued or disposed of in violation of the
Securities Act of 1933, as amended (the “ Securities
Act ”), or any other Legal Requirements or in violation
of any preemptive rights and all shares of capital stock of the
Company were issued in compliance with Regulation D of the
Securities Act.
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Corporate Records . The copies of the Certificate of
Incorporation and all amendments thereto and the Bylaws of the
Company that have been delivered to Parent are true, correct and
complete copies thereof, as in effect on the date
hereof. The minute books of the Company, copies of which
have been delivered to Parent, contain accurate minutes of all
meetings of, and accurate consents to all actions taken without
meetings by, the Board of Directors (and any committees thereof)
and the shareholders of the Company since the formation of the
Company.
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Authorization and Validity
. The execution, delivery
and performance by the Company of Transaction Documents, and the
consummation of the Transactions, have been duly authorized by the
Company assuming the accuracy of the representations and warranties
of Parent in Section 4.07 and provided, however, that the
Company cannot consummate the Merger unless and until it receives
the approval the Security holders. The Transaction
Documents have been or will be as of the Closing Date duly executed
and delivered by the Company and Security holders and constitute or
will constitute legal, valid and binding obligations of the Company
and Security holders, enforceable against the Company and Security
holders in accordance with their respective terms, except as may be
limited by applicable bankruptcy, insolvency or similar laws
affecting creditors’ rights generally or the availability of
equitable remedies. To the Knowledge of the Company, the
Transactions will not impair the ability or authority of the
Company to carry on its business after the Closing as now conducted
in any respect.
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Subsidiaries . The Company does not own, directly
or indirectly, any of the capital stock of any other corporation or
any equity, profit sharing, participation or other interest in any
corporation, partnership, joint venture or other entity, except the
Subsidiaries listed in Section 3.5 of the Company Disclosure
Schedules . Each Subsidiary is duly organized and
validly existing in good standing under the laws of the state in
which it is incorporated, and is duly qualified to do business and
in good standing in all
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jurisdictions where the nature of
its business makes such qualification necessary, except where the
failure to be qualified or licensed would not have a Material
Adverse Effect on that Subsidiary or the Company. The
Company has delivered to Parent true, complete and correct copies
of the Certificate of Incorporation and Bylaws of each Subsidiary,
as in effect on the date hereof. The authorized capital
of each Subsidiary is set forth in Section 3.5 of the Company
Disclosure Schedules . All issued and outstanding
shares of capital stock of each Subsidiary are duly authorized and
validly issued and outstanding, fully paid and non assessable and
are owned by the Company free and clear of all
Encumbrances. There are in existence no options,
warrants or similar rights granted by any Subsidiary, or any
agreements to which any Subsidiary is a party, for the issuance or
sale by it of any securities except to the Company. Each
Subsidiary has obtained or duly applied for all such material
licenses, permits and certificates from government agencies and
authorities as are necessary to the conduct of its business, and to
the Knowledge of the Company, the consummation of the Transactions
will not result in the loss or impairment of, or any default under,
any such license, permit or certificate, except where the failure
to give notice, to file, or to obtain any authorization, consent,
or approval would not have a Material Adverse Effect on the Company
and its Subsidiaries taken as a whole or on the ability of the
Parties to consummate the transactions contemplated by this
Agreement.
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No Violation . To the Knowledge of the Company,
neither the execution, delivery or performance of this Agreement or
the other Transaction Documents nor the consummation of the
Transactions will (i) conflict with, or result in a violation or
breach of the terms, conditions or provisions of, or constitute a
default under, the Certificate of Incorporation or Bylaws of the
Company or any agreement, indenture or other instrument under which
the Company is bound or to which the Company Securities or any of
the assets of the Company or any Subsidiary are subject, or result
in the creation or imposition of any Encumbrance upon the Company
Securities or any of the assets of the Company or any Subsidiary,
or (ii) violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over
the Company, the Company Securities or the assets of the Company or
any Subsidiary, except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation,
failure to give notice, or Encumbrance would not have a Material
Adverse Effect on the financial condition of the Company and its
Subsidiaries taken as a whole or on the ability of the Parties to
consummate the transactions contemplated by this
Agreement. To the Knowledge of the Company, the Company
and each of the Subsidiaries has complied with all Legal
Requirements and has filed with the proper authorities all
necessary statements and reports, except where the failure to give
notice, to file, or to obtain any authorization, consent, or
approval would not have a Material Adverse Effect on the Company
and its Subsidiaries taken as a whole or on the ability of the
Parties to consummate the transactions contemplated by this
Agreement.
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Consents . Except as set forth in Section
3.7 of the Company Disclosure Schedules , no consent,
authorization, approval, permit or license of, or filing with, any
Governmental Body, any lender or lessor or any other person or
entity is required to authorize, or is required in connection with,
the execution, delivery and performance of this Agreement or the
other Transaction Documents on the part of the Company or Security
holders, except where the failure to give notice, to file, or to
obtain any authorization, consent, or approval would not have a
Material Adverse Effect on the
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Company and its Subsidiaries taken
as a whole or on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
(a) The
Company has delivered to Parent the following financial statements
(the “ Company Financial Statements
”):
(i) audited
consolidated balance sheets of the Company as at December 31 in
each of the years 2007 and 2008, and the related consolidated
audited statements of income, changes in stockholders’
equity, and cash flow for each of the fiscal years then ended,
together with the report thereon of Chisholm, Pier, Wolf, Nelson
& Morrill, LLC, independent certified public accountants;
and
(ii) an
unaudited consolidated balance sheet of the Company as at April 30,
2009 (the “ Balance Sheet ”) and the
related unaudited consolidated statements of income, changes in
stockholders’ equity, and cash flow.
(b) The
Company Financial Statements fairly present the financial condition
and the results of operations, changes in stockholders’
equity, and cash flow of the Company as at the respective dates of
and for the periods referred to in the Company Financial
Statements, all in accordance with GAAP; provided, however, the
interim statements are subject to normal year-end audit
adjustments. The Company Financial Statements reflect
the consistent application of such accounting principles throughout
the periods involved, except as disclosed in the notes to such
financial statements, and subject, in the case of unaudited
statements, to normal year-end audit adjustments. No
financial statements of any Person other than the Company and
Subsidiaries are required by GAAP to be included in the
consolidated financial statements of the Company.
(c) The
Company Financial Statements were prepared in all material respects
in accordance with the books and records of the
Company. The books and records of the Company: (i) are
complete and correct in all material respects; and (ii) have been
maintained in accordance with good business and accounting
practices and applicable law.
(d) The
Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that with respect to the
business conducted by the Company: (i) the books and records of the
Company are maintained in reasonable detail and fairly reflect the
transactions and dispositions of the assets of the Company; (ii)
access to assets is permitted and transactions are executed only in
accordance with management’s general or specific
authorization; (iii) transactions are recorded as necessary to
permit preparation of financial statements of the Company in
conformity with GAAP and to maintain asset accountability; and (iv)
the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(e) Except
as set forth in Section 3.8(e) of the Company Disclosure
Schedules , since December 31, 2008, (a) there have not
been any changes in the Company’s internal control over
financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company’s
internal control over financial reporting; (b) all significant
deficiencies and material
weaknesses in the design or
operation of the Company’s internal control over financial
reporting which are reasonably likely to materially adversely
affect the Company’s ability to record, process, summarize
and report financial information have been disclosed to the
Company’s outside auditors and the audit committee of the
Company’s Board of Directors, and (c) to the Knowledge of the
Company, there has not been any fraud, whether or not
material, that involves management or other employees who have a
significant role in the Company’s internal control over
financial reporting.
(f) The
management of the Company has evaluated, with the participation of
the Company’s principal executive and principal financial
officers, or persons performing similar functions, (i) the
effectiveness, as of the end of each fiscal year, of the
Company’s internal control over financial reporting; and (ii)
any change in the Company’s internal control over financial
reporting that occurred during each of the Company’s fiscal
quarters that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over
financial reporting.
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Liabilities and Obligations
. Except as set forth in
Section 3.9 of the Company Disclosure Schedules , the
Financial Statements reflect all liabilities of the Company and the
Subsidiaries, accrued, contingent or otherwise (known or unknown
and asserted or unasserted), arising out of transactions effected
or events occurring on or prior to the date hereof. All
reserves shown in the Company Financial Statements are in
conformity with GAAP. Except as set forth in the Company
Financial Statements, neither the Company nor any Subsidiary is
liable upon or with respect to, or obligated in any other way to
provide funds in respect of or to guarantee or assume in any
manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or
other entity, and neither the Company nor any Subsidiary knows of
any basis for the assertion of any other claims or liabilities of
any nature or in any amount.
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Accounts Receivable . To the Knowledge of the Company,
all accounts receivable of the Company and the Subsidiaries that
are reflected on the Balance Sheet or on the accounting records of
the Company as of the Closing Date (collectively, the “
Accounts Receivable ”) represent or will represent
valid obligations arising from sales actually made or services
actually performed in the ordinary course of
business. Unless paid prior to the Closing Date, the
Accounts Receivable are or will be as of the Closing Date current
and collectible net of the respective reserves shown on the Balance
Sheet or on the accounting records of the Company as of the Closing
Date (which reserves are adequate and calculated consistent with
past practice and, in the case of the reserve as of the Closing
Date, will not represent a Material Adverse Effect in the
composition of such Accounts Receivable in terms of
aging). Subject to such reserves, each of the Accounts
Receivable either has been or will be collected in full, without
any set-off, within ninety days after the day on which it first
becomes due and payable. Except as set forth in
Section 3.10 of the Company Disclosure Schedules , there is
no contest, claim, or right of set-off, other than returns in the
ordinary course of business, under any Commitments with any obligor
of an Account Receivable relating to the amount or validity of such
Account Receivable.
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(a)
Cash Compensation. Section 3.11(a) of the
Company Disclosure Schedules contains a complete and accurate
list of the names, titles and cash compensation, including without
limitation wages, salaries, bonuses (discretionary and formula) and
other cash compensation (the “ Cash Compensation
”) of all employees of the Company and the
Subsidiaries. In addition, Section 3.11(a) of the
Company Disclosure Schedules contains a complete and accurate
description of (i) all increases in Cash Compensation of employees
of the Company and the Subsidiaries during the current and
immediately preceding fiscal years of the Company and (ii) any
promised increases in Cash Compensation of employees of the Company
and the Subsidiaries that have not yet been effected.
(b)
Compensation Plans . Section 3.11(b) of the Company
Disclosure Schedules contains a complete and accurate list of
all compensation plans, arrangements or practices (the “
Compensation Plans ”) sponsored by the Company or the
Subsidiaries or to which the Company or any Subsidiary contributes
on behalf of its employees, other than Employee Benefit Plans
listed in Section 3.12(a) of the Company Disclosure
Schedules . The Compensation Plans include without
limitation plans, arrangements or practices that provide for
severance pay, deferred compensation, incentive, bonus or
performance awards, and stock ownership or stock
options. The Company has provided Parent a copy of each
written Compensation Plan and a written description of each
unwritten Compensation Plan. Each of the Compensation
Plans can be terminated or amended at will by the
Company.
(c)
Employment Agreements. Section 3.11(c) of the Company
Disclosure Schedules contains a complete and accurate list of
all employment agreements (the “ Employment Agreements
”) to which the Company or any Subsidiary is a party with
respect to its employees. The Employment Agreements
include without limitation employee leasing agreements, employee
services agreements and non competition agreements. The
Company has provided Parent a copy of each written Employment
Agreement and a written description of each unwritten Employment
Agreement.
(d)
At Will Employment . Except as set forth in
Section 3.10(d) of the Company Disclosure Schedules , the
employment of each of the Company’s and each
Subsidiaries’ employees is terminable by the Company at
will. Except as set forth in Section 3.10(d) of the
Company Disclosure Schedules, no employee of the Company has
been granted the right to or is entitled to any compensation
following the termination of employment with the
Company.
(e)
Employee Policies and Procedures . The Company has provided
true and complete copies of all employee manuals, policies,
procedures and work-related rules (the “ Employee Policies
and Procedures ”) that apply to employees of the Company
or any Subsidiary. The Company has provided Parent a
copy of all written Employee Policies and Procedures and a written
description of all unwritten Employee Policies and
Procedures. Subject to applicable employment laws and
regulations, each of the Employee Policies and Procedures can be
amended or terminated at will by the Company or the appropriate
Subsidiary, as the case may be.
(f)
Unwritten Amendments . To the Knowledge of the Company,
no unwritten amendments have been made, whether by oral
communication, pattern of conduct or otherwise,
with respect to any Compensation
Plans, Employment Agreements or Employee Policies and
Procedures.
(g)
Labor Compliance . The Company and each
Subsidiary:
(i) has
been and is in compliance with all Legal Requirements respecting
employment and employment practices, terms and conditions of
employment and wages and hours, and (ii) is not liable for any
arrears of wages or penalties for failure to comply with any of the
foregoing. Neither the Company nor any Subsidiary has
engaged in any unfair labor practice or discriminated on the basis
of race, color, religion, sex, national origin, age or handicap in
its employment conditions or practices. To the Knowledge
of the Company, there are no (i) unfair labor practice charges or
complaints or racial, color, religious, sex, national origin, age
or handicap discrimination charges or complaints pending or
threatened against the Company or any Subsidiary before any
federal, state or local court, board, department, commission or
agency nor does any basis therefore exist or (ii) existing or
threatened labor strikes, disputes, grievances, controversies or
other labor troubles affecting the Company or any Subsidiary, nor
does any basis therefore exist.
(h)
Unions . Neither the Company nor any Subsidiary
has ever been a party to any agreement with any union, labor
organization or collective bargaining unit. No employees
of the Company or any Subsidiary are represented by any union,
labor organization or collective bargaining unit. To the
Knowledge of the Company, the employees of the Company and the
Subsidiaries have no intention to and have not threatened to
organize or join a union, labor organization or collective
bargaining unit.
(i)
Aliens . All employees of the Company and the
Subsidiaries are citizens of, or are authorized to be employed in,
the United States.
(a)
Identification . Section 3.12(a) of the Company
Disclosure Schedules contains a complete and accurate list of
all employee benefit plans (the “ Employee Benefit
Plans ”) (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
(“ ERISA ”)) sponsored by the Company or any
Subsidiary or to which the Company or any Subsidiary contributes on
behalf of its employees and all Employee Benefit Plans previously
sponsored or contributed to on behalf of its employees within the
three years preceding the date hereof. The Company has
provided Parent with copies of all plan documents, determination
letters, pending determination letter applications, trust
instruments, insurance contracts, administrative services
contracts, annual reports, actuarial valuations, summary plan
descriptions, summaries of material modifications, administrative
forms and other documents that constitute a part of or are incident
to the administration of the Employee Benefit Plans. In
addition, the Company has provided Parent a written description of
all existing practices engaged in by the Company or any Subsidiary
that constitute Employee Benefit Plans. Each of the
Employee Benefit Plans can be terminated or amended at will by the
Company or the appropriate Subsidiary, as the case may
be. No unwritten amendment exists with respect to any
Employee Benefit Plan.
(b)
Administration . To the Knowledge of the Company, each
Employee Benefit Plan has been administered and maintained in
compliance with all Legal Requirements.
(c)
Examinations . No Employee Benefit Plan is currently
the subject of an audit, investigation, enforcement action or other
similar proceeding conducted by any state or federal
agency.
(d)
Prohibited Transactions . No prohibited transactions
(within the meaning of Section 4975 of the Code) have occurred
with respect to any Employee Benefit Plan.
(e)
Claims and Litigation . No threatened or pending
claims, suits or other proceedings exist with respect to any
Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.
(f)
Qualification . The Company has received a
favorable determination letter or ruling from the Internal Revenue
Service for each Employee Benefit Plan intended to be qualified
within the meaning of Section 401(a) of the Code and/or
tax-exempt within the meaning of Section 501(a) of the
Code. No proceedings exist or have been threatened that
could result in the revocation of any such favorable determination
letter or ruling.
(g)
Funding Status . No accumulated funding deficiency
(within the meaning of Section 412 of the Code), whether
waived or unwaived, exists with respect to any Employee Benefit
Plan or any plan sponsored by any member of a controlled group
(within the meaning of Section 412(n)(6)(B) of the Code) in
which the Company or any Subsidiary is a member (a “
Controlled Group ”). With respect to each
Employee Benefit Plan subject to Title IV of ERISA, the assets of
each such plan are at least equal in value to the present value of
accrued benefits determined on an ongoing basis as of the date
hereof. With respect to each Employee Benefit Plan
described in Section 501(c)(9) of the Code, the assets of each
such plan are at least equal in value to the present value of
accrued benefits as of the date hereof.
(h)
Excise Taxes . Neither the Company nor any
Subsidiary or any member of a Controlled Group has, to their
Knowledge, any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or
ERISA.
(i)
Multiemployer Plans . Neither the Company nor any
Subsidiary nor any member of a Controlled Group is or ever has been
obligated to contribute to a multiemployer plan within the meaning
of Section 3(37) of ERISA.
(j)
PBGC . No facts or circumstances exist that would
result in the imposition of liability against Parent by the Pension
Benefit Guaranty Company as a result of any act or omission by the
Company, any Subsidiary or any member of a Controlled
Group. No reportable event (within the meaning of
Section 4043 of ERISA) for which the notice requirement has
not been waived has occurred with respect to any Employee Benefit
Plan subject to the requirements of Title IV of ERISA.
(k)
Retirees . Neither the Company nor any Subsidiary
has any obligation or commitment to provide medical, dental or life
insurance benefits to or on behalf of any of its
employees who may retire or any of
its former employees who have retired from employment with the
Company or any Subsidiary.
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Absence of Certain Changes
. Except as set forth in
Section 3.13 of the Company Disclosure Schedules , since the
date of the Balance Sheet, neither the Company nor any Subsidiary
has
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(a) suffered
any Material Adverse Effect, whether or not caused by any
deliberate act or omission of the Company, any Subsidiary or any
Security holder;
(b) contracted
for the purchase of any capital assets having a cost in excess of
$50,000 or paid any capital expenditures in excess of
$50,000;
(c) incurred
or discharged any liabilities or obligations except in the ordinary
course of business;
(d) mortgaged,
pledged or subjected to any security interest, lien, lease or other
charge or encumbrance any of its properties or assets;
(e) suffered
any damage or destruction to or loss of any assets (whether or not
covered by insurance) that has materially and adversely affected,
or could materially and adversely affect, its business;
(f) acquired
or disposed of any assets except in the ordinary course of
business;
(g) written
up or written down the carrying value of any of its
assets;
(h) changed
the costing system or depreciation methods of accounting for its
assets;
(i) waived
any material rights or forgiven any material claims;
(j) lost
or terminated any employee, customer or supplier, the loss or
termination of which has materially and adversely affected, or
could materially and adversely affect, its business or
assets;
(k) increased
the compensation of any director or officer;
(l) increased
the compensation of any employee except in the ordinary course of
business;
(m) made
any payments to or loaned any money to any person or entity
referred to in Section 3.28 ;
(n) formed
or acquired or disposed of any interest in any corporation,
partnership, joint venture or other entity;
(o) redeemed,
purchased or otherwise acquired, or sold, granted or otherwise
disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or
securities, or agreed to change the terms and conditions of any
such rights;
(p) entered
into any agreement with any person or group, or modified or amended
in any material respect the terms of any such existing agreement
except in the ordinary course of business;
(q) entered
into, adopted or amended any Employee Benefit Plan; or
(r) entered
into any other commitment or transaction or experienced any other
event that is material to this Agreement or to any of the other
agreements and documents executed or to be executed pursuant to
this Agreement or to the Transactions contemplated, or that had or
could have, a Material Adverse Effect on the Company.
(a)
Real Property . Neither the Company and nor any
of its Subsidiaries owns, or has previously owned, in
fee any real property or interests in real property(collectively,
the “ Real Property ”) The leased
real property referred to in Section 3.14(b) constitute the
only real property used in the conduct of the business of the
Company and the Subsidiaries.
(b)
Property. Each of the Company and its Subsidiaries has
good and valid title to or valid leasehold or sublease interests or
other comparable contract rights in or relating to all of its real
properties and other tangible assets necessary for the conduct of
its business as presently conducted and as currently proposed by
its management to be conducted, except as have been disposed of in
the ordinary course of business and except for defects in title,
easements, restrictive covenants and similar encumbrances that
individually or in the aggregate have not materially interfered
with, and would not reasonably be expected to materially interfere
with, its ability to conduct its business as presently conducted
and as currently proposed by its management to be conducted. All
such properties and other assets, other than properties and other
assets in which the Company or any of its Subsidiaries has a
leasehold or sublease interest or other comparable contract right,
are free and clear of all Liens, except for Liens that individually
or in the aggregate have not materially interfered with, and would
not reasonably be expected to materially interfere with, the
ability of the Company or any of its Subsidiaries to conduct their
respective businesses as presently conducted and as currently
proposed by its management to be conducted.
(a)
Commitments; Defaults . Except as set forth in
Section 3.15 of the Company Disclosure Schedules , neither
the Company nor any Subsidiary has entered into, nor are the
Company Securities, the assets or the business of the Company or
any Subsidiary bound by, whether or not in writing, any
(i) partnership
or joint venture agreement;
(ii) deed
of trust or other security agreement;
(iii) guaranty
or suretyship, indemnification or contribution agreement or
performance bond;
(iv) employment,
consulting or compensation agreement or arrangement, including the
election or retention in office of any director or
officer;
(v) labor
or collective bargaining agreement;
(vi) debt
instrument, loan agreement or other obligation relating to
indebtedness for borrowed money or money lent or to be lent to
another;
(vii) deed
or other document evidencing an interest in or contract to purchase
or sell real property;
(viii) agreement
with dealers or sales or commission agents, public relations or
advertising agencies, accountants or attorneys;
(ix) lease
of real or personal property, whether as lessor, lessee, sublessor
or sublessee;
(x) agreement
between the Company and any affiliate of the Company;
(xi) agreement
relating to any material matter or transaction in which an interest
is held by a person or entity that is an affiliate of the
Company;
(xii) any
agreement for the acquisition of services, supplies, equipment or
other personal property and involving more than $50,000 in the
aggregate;
(xiii) powers
of attorney;
(xiv) contracts
containing non competition covenants;
(xv) any
other contract or arrangement that involves either an unperformed
commitment in excess of $50,000 or that terminates more than 30
days after the date hereof;
(xvi) agreement
relating to any material matter or transaction in which an interest
is held by any person or entity referred to in Section 3.26
;
(xvii) agreement
providing for the purchase from a supplier of all or substantially
all of the requirements of the Company or any Subsidiary of a
particular product or service; or
(xviii) any
other agreement or commitment not made in the ordinary course of
business or that is material to the business or financial condition
of the Company or any Subsidiary.
All of the foregoing are hereinafter
collectively referred to as the “ Commitments
.” True, correct and complete copies of the
written Commitments, and true, correct and complete written
descriptions of any material oral Commitments, have heretofore been
delivered or made available to Parent. There are no
existing defaults, events of default or events, occurrences,
acts
or omissions that, with the giving of notice or
lapse of time or both, would constitute defaults by the Company or
any Subsidiary, and no penalties have been incurred nor are
amendments pending, with respect to any material Commitments,
except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole
or on the ability of the Parties to consummate the transactions
contemplated by this Agreement and except as described in
Section 3.15 of the Company Disclosure Schedules
. The material Commitments are in full force and effect
and are valid and enforceable obligations of the parties thereto in
accordance with their respective terms, and no defenses, off-sets
or counterclaims have been asserted or, to the Knowledge of the
Company, may be made by any party thereto, nor has the Company or
any Subsidiary waived any rights thereunder, except as described in
Section 3.15 of the Company Disclosure Schedules
. Neither the Company nor any Subsidiary has received
notice of any default with respect to any material
Commitment.
(b)
No Cancellation or Termination of Commitment
. Except as contemplated hereby, neither the Company nor
any Subsidiary has received notice of any plan or intention of any
other party to any material Commitment to exercise any right to
cancel or terminate any material Commitment or agreement, and
neither the Company nor any Subsidiary knows of any fact that would
justify the exercise of such a right. Neither the
Company nor any Subsidiary nor currently contemplates, or has
reason to believe any other person or entity currently
contemplates, any amendment or change to any material
Commitment. Except as listed in Section 3.15 of the
Company Disclosure Schedules , none of the material customers
or suppliers of the Company or any Subsidiary has refused, or
communicated that it will or may refuse, to purchase or supply
goods or services, as the case may be, or has communicated that it
will or may substantially reduce the amounts of goods or services
that it is willing to purchase from, or sell to, the Company or any
Subsidiary.
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Adverse Agreements . Neither the Company nor any
Subsidiary is a party to any agreement or instrument or subject to
any charter or other corporate restriction or any judgment, order,
writ, injunction, decree, rule or regulation that has, or could
have, a Material Adverse Effect on the Company.
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Insurance . The Company and the Subsidiaries
carries property, liability, workers’ compensation and such
other types of insurance as is customary in the industry of the
insured for an entity of the size and stage as the
Company. A list and brief description of all insurance
policies of the Company and the Subsidiaries are set forth in
Section 3.17 of the Company Disclosure Schedules
. All of such policies are valid and enforceable
policies, issued by insurers of recognized responsibility in
amounts and against such risks and losses as is customary in the
industry of the insured. Such insurance shall be
outstanding and duly in force without interruption up to and
including the Closing Date. True, complete and correct
copies of all such policies have been provided to Parent on or
prior to the date hereof
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Patents, Trademarks, Service Marks and
Copyrights.
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(a)
Section 3.18 of the Company Disclosure Schedules lists the
following with respect to Proprietary Rights of the Company or any
Subsidiary:
(i) all
of the Issued Patents, Registered Trademarks and Registered
Copyrights owned by the Company, setting forth in each case the
jurisdictions in which each has been issued or
registered;
(ii) all
Patent Applications and Trademark Applications owned by the
Company, setting forth in each case the jurisdictions in which each
has been filed; and
(iii) all
Proprietary Rights owned by any other Person and licensed by such
Person to the Company to make, use or sell the Company Products,
setting forth in each case any issued patents or registrations, any
application for registration, the jurisdictions in which the
foregoing have been issued or filed (as the case may be) and the
nature of the right, title or interest held by the Company;
and
(iv) any
unregistered Trademarks or Copyrights owned by the Company that are
material to the business of the Company or used in association with
any product or service of the Company.
(b) The
Company has good and valid title to all of the Issued Patents,
Patent Applications, Trademark Applications, Registered Trademarks
and Registered Copyrights identified in Section 3.18 of the
Company Disclosure Schedules , free and clear of all
Encumbrances.
(c) The
Company has provide true and complete copies or an accurate written
description of all oral or written contracts, agreements, licenses
and other arrangements relating to any Company Proprietary Rights
or any Company Product, as follows:
(i) (A)
any agreement granting any right to make, have made, manufacture,
use, sell, offer to sell, import, export, or otherwise distribute a
Company Product, with or without the right to sublicense the same,
on an exclusive basis; (B) any license of Proprietary Rights to or
from the Company, with or without the right to sublicense the same;
(C) development agreements of any type; (D) any agreement by which
the Company grants any ownership right to any Company Proprietary
Rights owned by the Company; (E) any agreement under which the
Company undertakes any ongoing cumulative royalty or payment
obligations with respect to a Company Proprietary Right, (F) any
agreement under which the Company grants an option relating to any
Company Proprietary Rights; (G) any agreement under which any party
is granted any right to access Company Source Code or to use
Company Source Code to create derivative works of Company Products;
(H) any agreement pursuant to which the Company has deposited or is
required to deposit with an escrow agent or any other Person any
Company Source Code; and (I) any agreement or other arrangement
limiting the Company’s ability to transact business in any
market, field or geographical area or with any Person, or that
restricts the use, transfer, delivery or licensing of Company
Proprietary Rights (or any tangible embodiment thereof);
(ii) all
licenses, sublicenses and other agreements, whether written or
oral, to which the Company is a party and pursuant to which the
Company is authorized to use any Proprietary Rights owned by any
Person, excluding standardized nonexclusive
licenses for “ off the
shelf ” or other software widely available through
regular commercial distribution channels on standard terms and
conditions and were obtained by the Company in the ordinary course
of business.
(iii) Except
as set forth in Section 3.18 of the Company Disclosure
Schedules , the Company has not entered into any written or
oral contract, agreement, license or other arrangement to indemnify
any other Person against any charge of infringement of any Company
Proprietary Rights, other than indemnification provisions contained
in standard sales or agreements to customers or end users arising
in the ordinary course of business, the forms of which have been
delivered to Parent or its counsel; and
(d) Except
as set forth in Section 3.18 of the Company Disclosure
Schedules :
(i) No
current or former officer, manager, director, Security holder,
member, employee, consultant or independent contractor of the
Company or other Person has any right, title or interest in, to or
under any Company Proprietary Rights in which the Company has (or
purports to have) any right, title or interest that has not been
assigned, transferred or exclusively licensed to
Company;
(ii) No
Person has asserted or to the Company’s Knowledge threatened
to assert a claim, which would adver
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