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.
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"Buyer
Indemnitees" means Buyer and its Affiliates.
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"Buyer's CPA"
means Kevin Pickard.
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"Closing" has the
meaning set forth in Section 2.3.
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"Closing Date" has
the meaning set forth in Section 2.3.
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"Code" means the
Internal Revenue Code of 1986, as amended.
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"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.
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"Disclosure
Schedule" has the meaning set forth in Section 3.
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"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.
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"Fiduciary" has
the meaning set forth in Section 3(21) of ERISA.
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"Financial
Statements" has the meaning set forth in Section 3.5.
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"GAAP" means
United States generally accepted accounting principles.
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"HSR Act" means
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
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"Indemnified
Party" has the meaning set forth in Section 8.4.
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"Indemnifying
Party" has the meaning set forth in Section 8.4.
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"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.
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"Membership
Interests" has the meaning set forth in the Recitals.
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"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.
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"PBGC" means the
Pension Benefit Guaranty Corporation.
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"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.
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"Purchase Price"
has the meaning set forth in Section 2.2.
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"Real Property"
means the Owned Real Property and the Leased Real
Property.
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"Reportable Event"
has the meaning set forth in Section 4043 of ERISA.
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"Securities Act"
means the Securities Act of 1933, as amended.
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"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.
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"Sellers' CPA"
means Elwood Espina LLP.
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"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.
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"Transaction
Documents" means this Agreement
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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 $[*] shall
be paid in installments over a two year period commencing April 8,
2005 and continuing until April 8, 2007 as set forth
below.
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Payment Date
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Payment Amount
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December 31, 2005
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$[*]
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April 30, 2006
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$[*]
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August 31, 2006
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$[*]
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December 31, 2006
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$[*]
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April 8, 2007
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$[*]
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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"):
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(a)
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The Company has no audited
financial statements.
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(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
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(u)
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the Company has not committed
to do any of the foregoing.
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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.
13
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.
(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.
14
(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 Pr
