May 27, 2010
May 27,
2010
Board of
Directors
Innolog
Holdings Corp
0000
Xxxxxx Xxxxx
Suite
830
Fair
Oaks, VA 22033
To the
Board of Directors,
This
letter agreement (the “Letter Agreement”) will specify our understanding of the
terms and conditions under which Emerging Companies LLC (“Advisor”) is
exclusively engaged (the “Engagement”) by Innolog Holdings Corp (the “Company”)
for the purposes of providing certain merchant banking and corporate advisory
services in connection with setting and achieving strategic business
objectives. As a part of this engagement, Emerging Companies LLC will
also provide corporate advisory services and is consequently simultaneously
engaged. This agreement is to confirm our understanding with respect
to our engagement.
As used in this letter, the term
“Investment Transaction” means the infusion of funds in the form of equity or
debt investments or a combination thereof by one or more parties into the
Company for the purposes of capitalization of all or part of the
Company. The term “Sales Transaction” means, whether in one or a
series of transactions, (a) any merger, consolidation, joint venture or other
business combination pursuant to which the business of the Company is combined
with that of another person (any such person, together with its affiliated, a
“Purchaser”); (b) the acquisition, directly or indirectly, by a Purchaser by way
of negotiated purchase or any other means of a majority of the capital stock of
the Company; and (c) the acquisition by a Purchaser, directly or indirectly, of
a majority of the assets, properties and/or businesses of, the Company by way of
a direct or indirect purchase, lease, license, exchange, joint venture or other
means. The term “Acquisition Transaction” means (a) any merger,
consolidation, joint venture or other business combination pursuant to which the
business of the Company is combined with that of another person (any such
person, together with its affiliates, a “Seller”); (b) the acquisition, directly
or indirectly, of a Seller by way of negotiated purchase or any other means of a
majority of the capital stock of the Company; and (c ) the acquisition by a
Seller, directly or indirectly, of a majority of the assets, properties and/or
businesses of, the Company by way of a direct or indirect purchase, lease,
license, exchange, joint venture or other means.
The
Advisor team will be led by Xxxxxxx X. Xxxxxxxxxx, Xxxxxxx Xxxx, and will also
include other members of Advisor’s staff and advisors as we deem appropriate
from time to time. Advisor will report directly to the board of directors of
Innolog Holdings Corp (the “Board”); Xx. Xxxxxxxxxx will retain the position of
Executive Chairman and Xx. Xxxx will remain Treasurer and Secretary
and both will continue to serve as members of the Board.
I.
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Services
to be Provided
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Advisor
will use its best professional efforts to assist the Company in analyzing,
structuring and affecting the proposed Investment Transaction in accordance with
the terms and conditions of this Agreement. Advisor proposes to
undertake the following activities on your behalf, including, but not limited
to, the following:
1
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A.
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On
best efforts basis, to identify and facilitate the closing of an
Investment Transaction in the form of a debt or
equity.
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B.
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On
best efforts basis, to identify and facilitate the closing of an
Acquisition Transaction;
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C.
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Assist
the Company in evaluating a prospective Investment Transaction or Sales
Transaction;
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X.
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Xxxxxxxxx
a supportable range of value for the Company in an Investment Transaction
or Sales Transaction;
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E.
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Assist
the Company in identifying and evaluating alternative capital structures
for the Company to fund the strategic business
plan;
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F.
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Identify
potential sources of financing/investment for the
Company;
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G.
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Identify
issues germane to each alternative financing and capital
structure;
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X.
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Assist
and advise the Company in developing strategy and tactics for negotiating
an Investment Transaction.
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I.
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Manage
presentations and administrative functions with selected candidates for
the proposed Investment
Transaction;
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J.
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Coordinate
the Company’s internal and external corporate communications
program;
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X.
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Xxxxxx
such other advise and services as corporate finance advisors as agreed
upon by Advisor and the Company from time to
time;
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L.
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Advise the Board of Directors of
the Company in any and all corporate matters as requested by the Board of
Directors.
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M.
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Act
as liaison to lead placement agreement, coordinating the activities of
other placement agents.
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N.
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To
coordinate and execute the Corporate Communications
strategy.
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O.
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To
assist the Company in the listing of a public
exchange.
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In essence
Advisor will act as the exclusive Investment Banker to the Company on all
capital markets transactions.
II.
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Fees
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During
the three (3) year Engagement, Advisor agrees not to accept any monthly retainer
fees or success fees in the first year of the management.
After the
first year, Xxxxxxx agrees to pay Advisor for its Corporate Advisory Services as
follows:
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A.
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Investment
Transaction Fees:
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Investment
Transaction Fees shall be due and payable to Advisor as follows:
Advisor
will be responsible for coordinating an Investment Transaction and with the
raising of capital. Investment Transaction, Fees will be paid based
upon the type of capital raised as follows:
Equity – Seven percent (7%) of funds
raised.
Convertible
Debt or Convertible Preferred Shares – Five percent (5%) of funds
raised.
Non-Convertible
Debt – Three percent (3%) of funds raised.
Investment
Transaction Fees shall be paid to Advisor when investment funds identified by
Advisor are made available to the company and shall be paid by wire transfer
upon distribution to the Company. In the event that more than one of
the foregoing might be applicable to an Investment and/or Sales Transaction,
such fee, shall be the higher of the two.
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X.
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Xxxxxxx
and Acquisition Advisory Fee:
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Company
agrees to pay to Advisor a Merger & Acquisition Advisory Fee (“M&A Fee”)
if the Company merges or is acquired by a party identified and/or introduced by
Advisor, or for any Acquisition Transaction which is structured or negotiated by
Advisor. This M&A Fee will be equal to five percent (5%) of the
value of the Transaction (or serves as the valuation and/or exchange price for a
merger or stock swap, the “Purchase Price”) any party. As used
herein, the Purchase Price shall equal the total consideration given or used as
a valuation measuring amount relating to the sale, merger or acquisition of the
Company by another party, and shall include cash, stock, notes, contracts, net
liabilities and/or funded debt assumed and future payments of any kind,
contingent or otherwise. The Transaction may include all forms of
equity and/or debt instruments, regardless of the percent of equity ownership
involved.
2
C.
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Acquisition
Fee:
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Company
agrees to pay to Advisor an Acquisition Fee if the Company acquires a firm
identified and/or introduced by Advisor, or for any Acquisition Transaction
which is structured or negotiated by Advisor. This Acquisition Fee
will be equal to five percent (5%) of the Purchase Price paid (or serves as the
valuation and/or exchange price for a merger or stock swap, the “Purchase
Price”) any party. As used herein, the Purchase Price shall equal the
total consideration given or used as a valuation measuring amount relating to
the sale, merger or acquisition of the Company by another party, and shall
include cash, stock notes, contracts, net liabilities and/or funded debt assumed
and future payments of any kind, contingent or otherwise. The
Transaction may include all forms of equity and/or debt instruments, regardless
of the percent of equity ownership involved.
D.
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Warrants:
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Upon the
successful completion after year one (1) of an identified transaction (see
Section I), Advisor will receive Warrants in an amount specified by the
Board. The Company agrees to pay the Advisor five hundred
thousand (500,000) warrants priced at fifty cents per warrant. The
warrants will be exercisable for a total of five years.
III.
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Expenses
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Company
will reimburse Advisor for all expense fees documented and
submitted. The Company shall be responsible for all of its own
expenses relating to any Investment Transaction, Sales Transaction, or
Acquisition Transaction including but not limited to printing, accounting and
legal fees.
IV.
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Term
of Contract and Termination
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This
agreement shall begin on June 1, 2010 and expire on June 1, 2013. The
Company or Advisor may terminate this Agreement, with or without cause, after
the first sixty (60) days from the date of execution of this Agreement,
effective thirty (30) days following receipt by the non-terminating party of
written notice of such termination. Any such termination shall not (except as
otherwise provided herein) affect the reimbursement or compensation or
indemnification provisions set forth herein, all of which will remain in full
force and effect. In the event the Advisor uncovers a material fact
about the Company during the course of this engagement, which in the sole
opinion of the Advisor would negatively impact the Company if disclosed, then
the Advisor, at its sole discretion, may terminate this agreement immediately
upon written notice of such termination (“Termination Notice”). The
expiration of the term of the Agreement shall not (except as otherwise provided
herein) affect the reimbursement or compensation or indemnification provisions
set forth herein, all of which will remain in full force and effect. The Advisor
may terminate the agreement with thirty-days written notice.
In
addition, the Company agrees to provide a right of first refusal to contract
with the Advisor as its sole Advisor for ongoing Advisory services and any
recommendation resulting from engagement for a period of eight months from the
date of contract termination.
V.
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Information
Provided to Advisor
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The
Company will furnish Advisor with such information as Advisor reasonably
requests for this assignment (all such information so furnished being the
“Information”). This includes any information necessary to complete
background checks on the principals of the Company. The Company
recognizes and confirms that Advisor (i) will use and rely primarily on the
Information provided by the Company as well as Information
available from generally recognized public sources in performing services
contemplated by this letter without having independently verified the same, (ii)
does not assume responsibility for the accuracy or completeness of the
Information and (iii) will not make an evaluation or appraisal of any assets of
the Company.
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VI.
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Confidentiality
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Advisor
will require any third party to sign a confidentiality agreement in form and
substance satisfactory to the Company prior to furnishing any Information to
such third party.
VII.
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Observation
Rights
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Advisor
will receive observation rights to attend and participate in all meetings and
special meetings of the Company during the period of engagement.
VIII.
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Exclusivity
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During
the Engagement, Advisor shall have the right to initiate, continue and conduct
contacts, negotiations or other discussions on behalf of the Company and to
serve as the Company’s Advisor, with respect to this Engagement. The
Company warrants and represents, as mutually agreed upon in writing by the
Company and Advisor, that it has granted only Advisor the right to act as
Advisor with respect to Advisory Services and that there is no other person that
is entitled to a finder’s fee or any type of brokerage
compensation.
IX.
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Miscellaneous
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Notwithstanding
this Agreement, Advisor and the Company agree not to quote or refer to this
Agreement in any document, release or communication prepared, issued or
transmitted without the express written consent of the other party (including
any entity controlled by, or under common control with, the Company and any
director, officer, employee or agent thereof). The engagement
letter shall expire if it is not fully accepted by May 28, 2010 at 5PM
EST.
This
Agreement shall be binding upon the Company and Advisor and their respective
successors and assigns and shall be governed by and construed in accordance with
the laws of the Commonwealth of Virginia without giving effect to the conflicts
of laws principles thereof. The Company will file application and be
approved for Directors’ and Officers’ liability (D&O) Insurance to meet with
Advisor’s acceptance within thirty-days from signing of this Engagement
Letter.
If the
foregoing correctly sets forth our understanding, please so indicate by
executing this letter, together with the enclosed duplicate originals, in the
space indicated and returning one (1) of these originals for our
files. By so doing, the Company represents and warrants that it has
obtained, or within 15 calendar days will obtain, Board of Directors' or other
approval of this agreement necessary to cause this Agreement to be duly
authorized, executed and delivered by the Company.
Regards,
Accepted
and agreed to, as of the date of this letter:
Emerging
Companies, LLC
By:
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Xxxxxxx
Xxxxxxx
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Managing
Director
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Xxx
Xxxxxx
By:
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On
behalf of the Board of
Directors
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4
Exhibit
A
Indemnification
Agreement
The
following provisions regarding indemnification are an integral part of the
Agreement (the "Agreement") to which they are attached between Emerging
Companies LLC, ("Emerging”) and the Company named
therein. Capitalized terms used but not defined below have the
meanings given to them in the Agreement.
Indemnification
by the Company
In
connection with the services which Emerging have agreed to render to
the Company in the Agreement, the Company shall indemnify Emerging, each of its
directors, officers, employees, and agents and each person, if any, who controls
Emerging within the meaning of Section 15 of the Securities Act of 1933, as
amended (the "Act") ( Emerging), and hold Emerging harmless to the fullest
extent permitted by law against any and all losses, claims, damages, and
liabilities (and actions in respect thereof) to which Emerging may become
subject in connection with (i) Emerging's use of information contained in the
Memorandum that is materially inaccurate or alleged to be materially inaccurate
in any respect (as a result of misrepresentation, omission, failure to update or
otherwise) that is provided to Emerging by the Company or its representatives,
agents, or Emerging’s, regardless of whether Emerging knew or should have known
of such inaccuracy, (ii) the breach of any representation, warranty or covenant
of the Company contained in the Agreement, or (iii) any other aspect of the
rendering by Emerging of services under the Agreement, unless it is finally
judicially determined that losses, claims, damages, or liabilities relating
thereto were incurred solely as a result of the bad faith, intentional
wrongdoing, gross negligence or willful misconduct of
Emerging. Notwithstanding the foregoing, the Company shall not be
required to indemnify Emerging for matters for which the Company is indemnified
by Emerging hereafter.
Indemnification
by Emerging
Emerging
shall indemnify the Company and each person, if any, who controls the Company
within the meaning of Section 15 of the Act, and hold such persons harmless to
the fullest extent permitted by law, against any and all losses, claims,
damages, and liabilities (and actions in respect thereof) to which such person
may become subject if such loss, claim, damage, liability or action arises out
of or is based upon (i) any untrue statement of a material fact contained in the
Memorandum (as amended or supplemented) or the omission to state therein a
material fact necessary to make the statements therein not misleading, but in
each case only to the extent that the untrue statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of Emerging specifically for inclusion therein, or (ii)
any known violation by Emerging of the provisions of Rule 502(c) of Regulation
D.
Notice
of Indemnification
Each
party hereto agrees that, upon the service of a summons or other initial legal
process upon it in any action or suit instituted against it, or upon receipt of
written notification of the commencement of any investigation or inquiry of, or
proceeding against, it in respect of which indemnity may be sought hereunder, it
will promptly give written notice (the "Notice") of such service or notification
to the party or parties from whom indemnification may be sought
hereunder. No indemnification otherwise provided for hereunder shall
be available to any party who shall fail so to give the Notice if the party to
whom such Notice was not given was unaware of the action, suit, investigation,
inquiry or proceeding to which the Notice would have related and was prejudiced
by the failure to give the Notice, but the omission so to notify such
indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement.
5
Defense
by Indemnifying Party
Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled,
if it so elects by giving written notice (the "Notice of Defense") to the
indemnified party within a reasonable time after receipt of the Notice, to
assume (alone or in conjunction with any other indemnifying party or parties)
the entire defense of such action, suit, investigation, inquiry or proceeding,
in which event such defense shall be conducted, at the expense of the
indemnifying party or parties, by counsel chosen by such indemnifying party or
parties and reasonably satisfactory to the indemnified party or parties;
provided, however, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interests of the indemnified party or parties, and (ii) in any
event, the indemnified party or parties shall be entitled to have counsel chosen
by such indemnified party or parties participate in, but not conduct,
the defense.
If,
within a reasonable time after receipt of the Notice, an indemnifying party
gives a Notice of Defense, and counsel chosen by the indemnifying party or
parties is reasonably satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(x) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the preceding paragraph, and (y) the indemnifying party or
parties shall bear such other expenses as it or they have authorized to be
incurred by the indemnified party or parties. If, within a reasonable
time after the receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or
proceeding. The indemnifying party shall not be liable for settlement
of any such action effected without its written consent, but if settled with its
written consent, or if there be a final judgment for the plaintiff in any such
action, the indemnifying party shall indemnify with respect to such settlement
or judgment.
Contribution
if Indemnification Not Available
If for
any reason the foregoing indemnity is unavailable to the indemnified party or
insufficient to hold the indemnified party harmless, then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of such claims, liabilities, losses, damages or expenses, in such
proportion as is appropriate to reflect not only the relative benefits received
by the indemnifying party, on the one hand, and the indemnified party, on the
other hand, but also the relative fault of the indemnifying party and the
indemnified party, as well as any relevant equitable
considerations. Notwithstanding any contrary provisions in this
agreement, the aggregate contribution of Emerging to all claims, liabilities,
losses, damages, and expenses shall not exceed the amount of fees actually
received by Emerging pursuant to its engagement by the Company. It is
hereby further agreed that the relative benefits to the Company, on the one
hand, and Placement Agent, on the other hand, with respect to the transaction
contemplated in the Agreement shall be deemed to be in the same proportion as
(i) the net proceeds actually received by the Company resulting from the sale of
the Securities bears to (ii) the fees paid to Placement Agent with respect to
such sale. The indemnifying party agrees that its indemnification
commitments herein set forth shall apply whether or not the indemnified party is
a formal party to any such actions or other proceedings, that such commitments
shall be in addition to any liability that the indemnifying party may have to
the indemnified party at common law or otherwise, and that such commitments
shall survive any termination of the Agreement.
6
Survival
and Effect
This
indemnity agreement and the representations and warranties of the parties
contained in the Agreement shall remain in full force and effect regardless of
any investigation made by or on behalf of Emerging, and shall survive any
termination of such Agreement or the issuance and delivery of the
Securities.
AGREED
AND ACCEPTED:
Emerging
Companies, LLC
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Xxxxxxx
Xxxxxxx
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Managing
Director
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Date________________________
Xxx
Xxxxxx
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On
behalf of the Board of
Directors
|
Date________________________
7