MEMBERSHIP INTEREST PURCHASE AGREEMENT

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

This Membership Interest Purchase Agreement dated as of April 8, 2005 (the "Agreement") is made by and between Crystalix Group International, Inc., a Nevada corporation (the "Buyer"), Laser Design International, LLC, a California limited liability company (the "Company") and Members of the Company (individually and collectively, the "Sellers"). The Buyer, the Company and the Sellers are sometimes referred to herein collectively as the "Parties" and individually as a "Party"

 

RECITALS

 

The Members of the Company own all of the equity interests (the "Membership Interests”) of Laser Design International, LLC.

 

The Buyer desires to purchase from the Sellers, and the Sellers desire to sell to the Buyer, fifty-one percent (51%) of the Membership Interests in the Company, in return for cash paid by the Buyer to Sellers and on the terms and subject to the conditions set forth in this Agreement.

 

AGREEMENT

 

In consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the Parties agree as follows:

 

SECTION 1

Definitions

 

In addition to other words and terms defined elsewhere in this Agreement, the following words and terms shall have the meanings set forth below

 

"Accredited Investor" has the meaning set forth in Regulation D promulgated under the Securities Act.

 

"Adjusted Working Capital" as of any date shall be determined by subtracting (a) the sum of the accounts payable and accrued expenses and taxes of the Company from (b) the sum of the cash, accounts receivable, inventory and prepaid expenses of the Company as of such date.

 

"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act.

 

"Affiliated Group" has the meaning set forth in Section 1504(a) of the Code.

 

 

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"Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act or transaction that forms or could form the basis for any specified consequence.

 

"Buyer Indemnitees" means Buyer and its Affiliates.

 

"Buyer's CPA" means Kevin Pickard.

 

"Closing" has the meaning set forth in Section 2.3.

 

"Closing Date" has the meaning set forth in Section 2.3.

 

"Code" means the Internal Revenue Code of 1986, as amended.

 

"Confidential Information" means any information concerning the business and affairs of the Company specifically identified by the Company as being confidential.

 

"Controlled Group of Businesses" means a controlled group of corporations, as defined in Section 414(b) of the Code or a group of trades or businesses under common control as defined in Section 414(c) of the Code.

 

"Deferred Intercompany Transaction" has the meaning set forth in Treasury Regulation Section 1.1502-13.

 

"Disclosure Schedule" has the meaning set forth in Section 3.

 

"Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program.

 

"Employee Pension Benefit Plan" has the meaning set forth in Section 3(2) of ERISA.

 

"Employee Welfare Benefit Plan" has the meaning set forth in Section 3(1) of ERISA.

 

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

 

"Excess Loss Account" has the meaning set forth in Treasury Regulation Section 1.1502-19.

 

 

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"Extremely Hazardous Substance" has the meaning set forth in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.

 

"Fiduciary" has the meaning set forth in Section 3(21) of ERISA.

 

"Financial Statements" has the meaning set forth in Section 3.5.

 

"GAAP" means United States generally accepted accounting principles.

 

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

 

"Indemnified Party" has the meaning set forth in Section 8.4.

 

"Indemnifying Party" has the meaning set forth in Section 8.4.

 

"Intellectual Property" means all (a) patents, patent applications, patent disclosures and improvements thereto, (b) trademarks, service marks, trade dress, logos, trade names and corporate names and registrations and applications for registration thereof (c) copyrights and registrations and applications for registration thereof, (d) mask works and registrations and applications for registration thereof, (e) computer software, data and documentation, (f) trade secrets and confidential business information (including ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information, (g) other proprietary rights, and (h) copies and tangible embodiments thereof (in whatever form or medium).

 

"Knowledge" when used with reference to the Knowledge of the Members of the Company, means actual knowledge after due inquiry of the following people: Richard Heath, Arlene Heath, Brian Liddicoat (individually and as General Partners of the Heath-Liddicoat Partnership); the Krogfoss Family Trust, Ralph J. & Eleanor Krogfoss, Trustees; the William A. Humphrey and Edna L. Humphrey Family trust dated 2/10/93, William A. Humphrey, Trustee; the Schepman Family 1990 Trust dated 5/11/90, Berne A. & Grace J. Schepman, Trustees; Richard and Arlene Heath as joint tenants; Russian Technology Group, Berne Schepman, Authorized Representative; Brian D. Liddicoat; Paul Hirsch; the Auer Family Trust, Ralph Auer, Trustee; Professor Fedor Lebedev; and Professor Alexander Erokhin.

 

 

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"Leased Real Property" has the meaning assigned to such term in Section 3.12(b).

 

"Liability" means any liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated and whether due or to become due).

 

"Losses" means all damages, charges, complaints, actions, suits, proceedings, hearings, investigations, claims, demands, judgments, orders, decrees, stipulations, injunctions, damages, dues, penalties, fines, costs, indebtedness, Liabilities, obligations, Taxes, liens, expenses and fees, including all attorneys' fees and court costs.

 

"Latest Balance Sheet" has the meaning assigned to such term in Section 3.5.

 

"Material Adverse Effect" shall mean, with respect to a Person or group of Persons, any material adverse effect on the business, properties, assets, liabilities, financial condition, results of operations, cash flows, or prospects of such Person or group of Persons individually or taken as a whole.

 

"Membership Interests" has the meaning set forth in the Recitals.

 

"Members of the Company" shall mean Richard Heath, Arlene Heath, Brian Liddicoat, (economic interest of the Heaths and Liddicoat having been assigned to the Heath-Liddicoat Partnership, Richard Heath, Arlene Heath, Brian Liddicoat, Partners; all other interest being retained by Brian Liddicoat on the one hand and Richard and Arlene Heath as joint tenants on the other hand); the Krogfoss Family Trust, Ralph J. & Eleanor Krogfoss, Trustees; the William A. Humphrey and Edna L. Humphrey Family trust dated 2/10/93, William A. Humphrey, Trustee; the Schepman Family 1990 Trust dated 5/11/90, Berne A. & Grace J. Schepman, Trustees; Russian Technology Group, Berne Schepman, Authorized Representative; Paul Hirsch; the Auer Family Trust, Ralph Auer, Trustee; Professor Fedor Lebedev; and Professor Alexander Erokhin.

 

"Most Recent Fiscal Year End" means the date of the Company's most recent fiscal year ended December 31, 2004.

 

"Multiemployer Plan" has the meaning set forth in Section 3(37)(A) of ERISA.

 

"Ordinary Course of Business" means the usual, regular and ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency).

 

 

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"Owned Real Property" shall mean all of the real property owned by the Company, and all easements and other rights appurtenant thereto.

 

"PBGC" means the Pension Benefit Guaranty Corporation.

 

"Person" shall mean any corporation, limited liability company, partnership, limited partnership, joint venture, proprietorship, individual, trust or other entity.

 

"Prohibited Transaction" has the meaning set forth in Section 406 of ERISA and Section 4975 of the Code.

 

"Purchase Price" has the meaning set forth in Section 2.2.

 

"Real Property" means the Owned Real Property and the Leased Real Property.

 

"Reportable Event" has the meaning set forth in Section 4043 of ERISA.

 

"Securities Act" means the Securities Act of 1933, as amended.

 

"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended.

 

"Security Interest" means any mortgage, pledge, security interest, encumbrance, charge or other lien, other than (a) mechanic's, materialmen's and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings, (c) liens arising under worker's compensation, unemployment insurance, social security, retirement and similar legislation, (d) liens arising in connection with sales of foreign receivables, (e) liens on goods in transit incurred pursuant to documentary letters of credit, (f) purchase money liens and liens securing rental payments under capital lease arrangements, and (g) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money.

 

"Sellers' CPA" means Elwood Espina LLP.

 

"Subsidiary" means any corporation or other entity a majority of the outstanding voting securities of which another corporation or other entity owns beneficially directly or indirectly.

 

"Tax" means any federal, state, local or foreign income, gross receipts, Membership Interest, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, stamp, excise, occupation, sales, use, transfer, value added, alternative minimum, estimated or

 

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other tax, including any interest, penalty or addition thereto, whether disputed or not.

 

"Transaction Documents" means this Agreement

 

SECTION 2.

Purchase and Sale of Membership Interests

 

2.1                  Basic Transaction. On and subject to the terms and conditions of this Agreement, the Buyer shall purchase from the Sellers, and the Sellers shall sell to the Buyer, the Membership Interests for the consideration specified in this Section 2.

 

2.2                  Purchase Price Payable in Installments. The Buyer shall pay to the Sellers as the aggregate purchase price for the fifty-one percent (51%) Membership Interest $[*] minus $[*] paid to date (“Purchase Price"). The Purchase Price shall be paid as follows: At the time of Closing, $[*] shall be paid by delivery of cash payable by certified or cashier's check or wire transfer of immediately available funds to such accounts as shall be designated by the Sellers. The $[*] and the $[*] paid to date shall be divided amongst the Sellers per the amounts shown on the attached exhibit entitled “Allocation of Funds”. At, or before, the time of closing, the Buyer shall pay $[*] to Norwood Operating Company, LLC (d/b/a/ Norwood Promotional Products) (“Norwood”) as partial payment of past legal fees and costs owed by the Company to Norwood. The remaining $[*] of the Purchase Price of $[*] shall be paid in installments over a two year period commencing April 8, 2005 and continuing until April 8, 2007 as set forth below.

 

Payment Date	Payment Amount
December 31, 2005	$[*]
April 30, 2006	$[*]
August 31, 2006	$[*]
December 31, 2006	$[*]
April 8, 2007	$[*]

 

2.2(a)             Default. Should Buyer fail to make a required installment payment on or before the date set forth above, the Buyer shall have thirty (30) days from receiving written notice from Sellers to make the required payment. Failure by the Buyer to make the required payment within the thirty (30) day time period shall cause Buyer to be in default of this Agreement, such that the Sellers, unanimously and at their sole discretion, may opt to terminate this Agreement or re-negotiate the payment due dates of any installment payments still pending. Upon the Sellers’ unanimous election to terminate this Agreement, Buyer shall forfeit its 51% membership interest in the Company and the Buyers will deliver to the Sellers the certificates representing fifty-one percent (51%) of the outstanding Membership Interests. Sellers shall not be obligated to return any funds received

 

[*] Confidential Treatment is Requested

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prior to their election to terminate under this section nor shall Buyer be obligated to pay any installment payments due subsequent to Sellers’ election to terminate this Agreement. Notwithstanding the foregoing, a dispute between the Sellers and the Buyer whether or not an installment payment has been made shall not be grounds for the Sellers to terminate this Agreement.

      

2.3               The Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Crystalix Group International at 5275 South Arville St., Suite B-116, Las Vegas, Nevada commencing at 3:00 pm, local time on April 25, 2005 or, if later, on the second business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby or such other date as the Parties may mutually determine (the "Closing Date").

 

2.4                  Deliveries at the Closing. At the Closing, (1) the Sellers will deliver to the Buyer the various certificates, instruments and documents referred to in Section 7.1; (2) the Buyer will deliver to the Sellers the various certificates, instruments and documents referred to in Section 7.2; (3) the Sellers will deliver to the Buyer certificates representing fifty-one percent (51%) of the outstanding Membership Interests, accompanied by duly executed assignment documents; and (4) the Buyer will deliver to the Sellers the consideration specified in Section 2.1.

 

2.5                  Right of First Refusal. Sellers agree to offer Buyer right of first refusal on the sale of any membership interests from the remaining 49% membership interests during the two year period commencing on April 8, 2005 and ending April 8, 2007. Upon receiving written notice from any Seller or Sellers of a pending sale of membership interests, Buyer shall have fifteen (15) days to purchase the membership interests at the price they are offered to the third party or at the price the Buyer purchased its 51% interest, whichever is higher.  

 

SECTION 3.

Representations and Warranties of the Sellers

 

The Sellers, jointly and severally, represent and warrant to the Buyer that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3). The listing (or inclusion of a copy) of a contract, lease, sublease, license, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, Tax report or return, property, insurance policy, judgment, order, decree, stipulation, injunction, charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand, notice, Employee Benefit Plan or other document or item in the Disclosure Schedule shall not, without more, be deemed

 

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to modify, qualify or disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence or nonexistence of the document or item itself).

 

3.1                  Binding Agreement; Noncontravention. Each Seller has full power and authority to execute and deliver this Agreement and the other Transaction Documents to which that Seller is a party, and to perform its obligations hereunder and thereunder. This Agreement and other Transaction Documents to which any Seller is a party each constitutes a valid and binding obligation of that Seller, enforceable in accordance with its terms. Neither the execution and the delivery of this Agreement or the other Transaction Documents to which any Seller is a party, nor the consummation of the transactions contemplated hereby or thereby, will (1) conflict with, result in a breach of, constitute a default under, result in the acceleration of, or require the payment of any amounts under, or create in any party the right to accelerate, terminate, modify or cancel or require any notice under any contract, lease, sublease, license, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest or other obligation to which the Company is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security interest upon any of its assets) or (2) violate any provision of the charter, bylaws or other organizational documents of the Company, or any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge or other restriction of any government, governmental agency or court to which the Company is subject. No notice to, filing with or authorization, consent or approval of any government or governmental agency by any of the Sellers and the Company is necessary for the consummation by the Sellers of the transactions contemplated by this Agreement and the other Transaction Documents to which any Seller is a party.

 

3.2                  Organization, Qualification and Corporate Power. The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of California. To the best of seller’s knowledge the Company is duly qualified to conduct business as a foreign corporation and is in good standing under the laws of the jurisdictions specified in Schedule 3.2 of the Disclosure Schedule, which are all the jurisdictions in which the nature of its business or the ownership or leasing of its property requires such qualification. The Company has full power and authority and all authorizations, licenses and permits necessary to carry on the business in which it is engaged or in which it presently proposes to engage and to own and use the properties owned and used by it. Schedule 3.2 of the Disclosure Schedule lists the directors and officers of the Company. The Sellers have delivered to the Buyer correct and complete copies of the certificate or articles of organization and operating agreement of the Company, including all amendments thereto. The file containing the records of meetings of the Members, and the membership record file of the Company are correct and complete in all material respects and the Sellers have previously furnished the Buyer with true and complete copies of

 

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such membership record files, which accurately reflect the ownership of all of the outstanding Membership Interests of the Company. The Company has no minute books or records of meetings. All material actions taken by the Company since its organization have been duly authorized and/or subsequently ratified as necessary. The Company is not in default under or in violation of any provision of its charter, operating agreement or other organizational documents.

 

3.3                  Capitalization. All of the issued and outstanding Membership Interests have been duly authorized, are validly issued, fully paid and non-assessable and are held of record by the Sellers. There are no outstanding or authorized options, warrants, rights, contracts, calls, puts, rights to subscribe, conversion rights or other agreements or commitments to which the Company is a party or which are binding upon the Company providing for the issuance, transfer, disposition or acquisition of any of the Membership Interests. There are no outstanding or authorized equity appreciation or similar rights with respect to the Company. There are no voting trusts, proxies or any other agreements or understandings with respect to the voting of the Membership Interests of the Company. Upon consummation of the Closing, the Buyer will own fifty-one percent (51%) equity interest in the Company and the Company will not have any securities convertible into or exchangeable for any Membership Interests, nor will it have outstanding any rights, options, agreements or arrangements to subscribe for or to purchase its Membership Interests or any securities convertible into or exchangeable for its Membership Interests.

 

3.4                  Subsidiaries. Except for the Erokhin Company, a Russian corporation, the Company has no Subsidiaries and the Company does not control directly or indirectly or have any direct or indirect equity participation in any corporation, partnership, trust, joint venture, limited liability company or other business association.

 

3.5                  Financial Statements. The Sellers have delivered to the Buyer the following financial statements of the Company (collectively the "Financial Statements"):

 

(a)	The Company has no audited financial statements.

 

(b)               Balance sheets as of December 2002, December 2003 and December 2004, statements of income and retained earnings, and cash flows for the periods then-ended for the Company. The Company's balance sheet as of December 2004 is referred to as the "Latest Balance Sheet". The Financial Statements have not been prepared in accordance with GAAP but were cash basis financial statements, subject in the case of the financial statements to the lack of footnote disclosure and changes resulting from normal year-end adjustments (none of which would, alone or in the aggregate, be materially adverse to the financial condition, operating results, assets, operations or business prospects of the Company), are correct and complete and are

 

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consistent with the books and records of the Company (which books and records are correct and complete).

 

3.6                  Absence of Certain Developments. Except as disclosed in Schedule 3.6 of the Disclosure Schedule, there has not been any material adverse change in the assets, Liabilities, business, financial condition, operations, results of operations or business prospects of the Company since the date of its Latest Balance Sheet. Without limiting the generality of the foregoing, and except as disclosed on Schedule 3.6, since the date of the Latest Balance Sheet:

 

(a)                the Company has not sold, leased, transferred or assigned any of its assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business;

 

(b)               the Company has not entered into any contract, lease, sublease or license (or series of related contracts, leases, subleases and licenses) involving more than $5,000.00;

 

(c)                No party (including the Company) has accelerated, terminated, modified or canceled any contract, lease, sublease or license (or series of related contracts, leases, subleases and licenses) involving more than $5,000.00 to which the Company is a party or by which it is bound;

 

(d)               the Company has not imposed any mortgage or pledge of, or subjection to any lien, charge, Security Interest or encumbrance of any kind on any of its assets, tangible or intangible;

 

(e)                the Company has not made any capital expenditure (or series of related capital expenditures) involving more than $5,000.00;

 

(f)                the Company has not made any capital investment in, any loan to or any acquisition of the securities or assets of any other person (or series of related capital investments, loans and acquisitions) involving more than $5,000.00;

 

(g)                the Company has not created, incurred, assumed or guaranteed any indebtedness (including capitalized lease obligations) involving more than $5,000.00 in the aggregate;

 

(h)                the Company has not canceled, delayed or postponed (beyond its normal practice) the payment of accounts payable and other Liabilities;

 

 

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(i)                the Company has not canceled, compromised, waived or released any right or claim (or series of related rights and claims) involving more than $5,000.00 in the aggregate;

 

(j)                the Company has not granted any license of any rights under or with respect to any Intellectual Property;

 

(k)                There has been no change made or authorized in the charter, operating agreement or other organizational documents of the Company, other than the Amended and Restated Operating Agreement executed on or about November 1, 2004;

 

(l)                the Company has not issued, sold or otherwise disposed of any of the Membership Interests or other equity securities, or granted any options, warrants or other rights to purchase or obtain (including upon conversion or exercise) any of the Membership Interests;

 

(m)              the Company has not declared, set aside or paid any distribution with respect to the Membership Interests or redeemed, purchased or otherwise acquired any of the Membership Interests;

 

(n)                the Company has not experienced any damage, destruction or loss (whether or not covered by insurance) materially adversely affecting its property or business;

 

(o)               the Company has not made any loan to, or entered into any other transaction with, any of its Members, Managers, and employees (outside the Ordinary Course of Business) giving rise to any claim or right on its part against the person or on the part of the person against it;

 

(p)               the Company has not entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement;

 

(q)               the Company has not granted any increase outside the Ordinary Course of Business in the base compensation, fringe benefits, or other compensation of, or paid any bonus or special payment of any kind to any of its Members, Managers, or employees;

 

(r)                the Company has not adopted any (1) bonus, (2) profit-sharing, (3) incentive compensation, (4) pension, (5) retirement, (6) medical, hospitalization, life or other insurance, (7) severance, or (8) other plan, contract or commitment for any of its directors and officers, or employees, or modified or terminated any such existing plan, contract or commitment;

 

 

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(s)                the Company has not made any charitable or other capital contribution outside the Ordinary Course of Business;

 

(t)                 There has not been any other occurrence, commitment, event, incident, action, failure to act or transaction outside the Ordinary Course of Business involving the Company; and

 

(u)	the Company has not committed to do any of the foregoing.

 

3.7                  Undisclosed Liabilities. The Company does not have any Liability (and there is no Basis for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim or demand against the Company giving rise to any Liability) except for (1) Liabilities set forth on the face of the Company's Latest Balance Sheet (rather than in any notes thereto), (2) Liabilities which have arisen after the date of the Latest Balance Sheet in the Ordinary Course of Business (none of which relates to any breach of contract, breach of warranty, tort, infringement or violation of law or arose out of any charge, complaint, action, suit, proceeding, hearing, investigation, claim or demand), and (3) Liabilities set forth as such in the Disclosure Schedule. As of the Closing Date, The Company has paid all costs incurred during the investigation, negotiation, preparation, drafting, review and revision leading to the execution of this Agreement.

 

3.8                  Tax Matters. The Company has duly filed or caused to be filed all Tax reports and returns that it was required to file. All such reports and returns were correct and complete in all respects. The Company is not currently the beneficiary of any extension of time within which to file any Tax return. No claim has ever been made by an authority in a jurisdiction where the Company does not file Tax returns that it is or may be subject to taxation by that jurisdiction. All Taxes owed by the Company have been fully paid or fully reserved against in its Latest Balance Sheet. The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor or other third party, including any amounts required to be withheld pursuant to Sections 1441 or 1442 of the Code. Neither the Sellers nor any director or officer (or employee responsible for Tax matters) of the Company expects any authority to assess any additional Taxes for any period for which returns have been filed. There is no dispute or claim concerning any Tax Liability of the Company either (1) claimed or raised by any authority in writing or (2) as to which the Sellers or any of the directors or officers (and employees responsible for Tax mailers) of the Company has any Knowledge. Schedule 3.8 of the Disclosure Schedule lists all federal, state, local and foreign income Tax returns filed with respect to the Company for taxable periods ended on or after January 1, 2004 indicates those returns that have been audited and indicates those returns that currently are the subject of audit. The Sellers have delivered to the Buyer correct and complete copies of all federal, state and local Tax returns, examination reports and statements of deficiencies

 

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assessed against or agreed to by the Company since January 1, 2004. The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. The Company has not filed a consent under Section 341(f) of the Code concerning collapsible corporations. There are no Security Interests on any of the Company's assets that arose in connection with any failure (or alleged failure) to pay any Tax. The Company has not made any payments, and is not obligated to make any payments, that will not be deductible under Section 280G of the Code. The Company has disclosed on its federal income Tax returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section 6661 of the Code. The Company has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. The Company is not a party to any Tax allocation or sharing agreement. The Company never has been (nor has any Liability for unpaid Taxes because it once was) a member of an Affiliated Group during any part of any consolidated return year within any part of which consolidated return year any corporation other than the Company also was a member of the Affiliated Group. Schedule 3.8 of the Disclosure Schedule sets forth the following information with respect to the Company as of its Most Recent Fiscal Year End: (1) its Tax basis in its assets; (2) the amount of any net operating loss, net capital loss, unused investment credit, unused foreign Tax or excess charitable contribution allocable to it; and (3) the amount of any deferred gain or loss allocable to it arising out of any Deferred Intercompany Transaction. The unpaid Taxes of the Company do not exceed the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Latest Balance Sheet (rather than in any notes thereto) as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company in filing its Tax returns.

 

3.9                  Accounts and Notes Receivable. Except as disclosed on the attached Schedule 3.9, all Company accounts receivable, notes and other claims for money due are reflected properly on the books and records of the Company, are valid receivables, are not subject to any defenses, setoffs or counterclaims except as disclosed, are presently current and are collectible and will be collected in accordance with their terms at their recorded amounts, subject only to the reserve for bad debts set forth on the face of the Company's Latest Balance Sheet (rather than in any notes thereto) as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company

 

3.10               Inventories.The Company has no material inventories as of the Closing Date.

 

 

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3.11               Other Tangible Personal Property. The Company has good and marketable title to, or a valid leasehold interest in, each item of tangible personal property used by it or reflected on its books and records as owned by it, including all automobiles, aircraft, machinery and equipment and all physical inventories, free and clear of any Security Interest or other encumbrance. Each fixture, machine, piece of equipment and other tangible asset used or owned by the Company is free from material defects (patent and, to the Sellers' Knowledge, latent), has been maintained in accordance with normal industry practice, is in good operating condition and repair subject to normal wear and tear, and is suitable for the purposes for which it is presently used. The Company owns or leases all fixtures, machinery, equipment and other tangible assets necessary for the conduct of its business as presently conducted.

 

3.12	Real Property.

 

(a)                The Company neither owns nor leases any Real Property as of the Closing Date.

 

3.13	Intellectual Property.

 

(a)                The Company owns or has the right to use pursuant to license, agreement or permission all Intellectual Property necessary for the operation of its business. Each item of intellectual Property owned or used by the Company immediately prior to the Closing will be owned or available for use by the Company on identical terms and conditions immediately subsequent to the Closing. The Company has taken all reasonable action to protect each item of Intellectual Property that it owns or uses (and will maintain its rights in and to the item of Intellectual Property or the use thereof through the Closing so as not to affect adversely the validity or enforceability of those rights). Except for the litigation and cease & desist correspondence disclosed in the attached Schedules, the Company has not interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual property rights of third parties. Except for the litigation and cease & desist correspondence disclosed in the attached Schedules, none of the Sellers and the directors and officers (and employees with responsibility for Intellectual Property matters) of the Company has any knowledge of any interference with, infringement upon, misappropriation of, or other conflict with any Intellectual Property rights of third parties which will occur as a result of the continued operation of the business of the Company as conducted presently and as presently proposed to be conducted. None of the Sellers and the directors and officers (and employees with responsibility for Intellectual Property matters) of the Company has any Knowledge of any new products, inventions, procedures or methods of manufacturing or processing that any competitors or other third parties have developed which reasonably could be expected to supersede or make obsolete any product or process of the Company.

 

 

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(b)               Schedule 3.13(b) of the Disclosure Schedule lists each item of patentable or registrable Intellectual Property that the Company owns, identifies each patent or registration which has been issued to the Company with respect thereto, identifies each pending patent application or application for registration which the Company has made with respect thereto and identifies each license, agreement or other permission which the Company has granted to any third party with respect thereto (together with any exceptions). The Sellers have supplied the Buyer with correct and complete copies of all such patents, registrations, patent applications, applications for registration, licenses, agreements and permissions (as amended to date and presently in the possession of the Company). Except as disclosed in Schedule 3.13(b), with respect to each item of owned Intellectual Property:

 

(i)    the Company owns and possesses all right, title and interest in and to the item;

 

(ii)                  except for the litigation and cease & desist correspondence disclosed in the attached Schedules, no charge, complaint, action, suit, proceeding, hearing, investigation, claim or demand has been instituted, is pending or is threatened which challenges the legality, validity, enforceability, use or ownership of the item;

 

(iii)                except for the litigation and cease & desist correspondence disclosed in the attached Schedules, the item (A) does not interfere with, infringe upon, misappropriate or otherwise conflict with the rights of others, (B) is not being interfered with, infringed upon, misappropriated or violated by others and (C) is not subject to any outstanding judgment, order, decree, stipulation, injunction or charge;

 

(iv)                 except for the litigation and cease & desist correspondence disclosed in the attached Schedules, none of the Sellers (and employees with responsibility for Intellectual Property matters) of the Company has ever received any charge, complaint, claim or notice of interference, infringement, misappropriation or violation with respect to the item;

 

(v)   no license, sublicense, agreement or permission pertaining to the item has been granted by the Company;

 

(vi)                 except for the litigation and cease & desist correspondence disclosed in the attached Schedules, the Company has not ever agreed to indemnify any person or entity for or against any interference, infringement, misappropriation or violation with respect to the item; and

 

 

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(vii)               the Sellers have made available to the Buyer correct and complete copies of all written documentation evidencing ownership and prosecution (if applicable) of the item.

 

(c)                Schedule 3.13(c) of the Disclosure Schedule lists each item of patentable or registrable (including patented or registered) Intellectual Property that any third party owns and that the Company uses pursuant to license, agreement or permission. The Sellers have supplied the Buyer with correct and complete copies of all such licenses, agreements and permissions (as amended to date). Except as disclosed in Schedule 3.13(c), with respect to each item of used Intellectual Property:

 

(i)    The license, agreement or permission covering the item is legal, valid, binding, enforceable and in full force and effect;

 

(ii)                  the license, agreement or permission will continue to be legal, valid, binding, enforceable and in full force and effect on identical terms following the Closing;

 

(iii)                no party to the li