Exhibit 10.103

 

Execution Version

 

UNIT PURCHASE AGREEMENT

 

by and among

 

NAOMI L. BALCOMBE,
ROBERT G. WHITTEL
 

and

 

TWINLAB CONSOLIDATION CORPORATION

 

dated as of

 

September 2, 2014

 

 

 

 

TABLE OF CONTENTS

 

ARTICLE I Definitions 2       ARTICLE II Purchase and Sale 10       Section 2.01
Purchase and Sale 10       Section 2.02 Purchase Price. 11       ARTICLE III
Closing 13       Section 3.01 Closing 13       Section 3.02 Closing Deliverables
13       ARTICLE IV Representations and warranties of sellerS 14       Section
4.01 Authorization 14       Section 4.02 Capitalization. 14       Section 4.03
No Conflicts; Consents 15       Section 4.04 Organization, Authority and
Qualification of the Company and each Subsidiary 15       Section 4.05 Financial
Statements 16       Section 4.06 Undisclosed Liabilities 16       Section 4.07
Absence of Certain Changes 16       Section 4.08 Material Contracts. 19      
Section 4.09 Title to Assets 21       Section 4.10 Condition and Sufficiency of
Assets 22       Section 4.11 Real Property. 22       Section 4.12 Intellectual
Property. 24       Section 4.13 Inventory. 25       Section 4.14 Accounts
Receivable 25       Section 4.15 Customers and Suppliers; Orders. 26      
Section 4.16 Insurance 26       Section 4.17 Legal Proceedings; Governmental
Orders. 27       Section 4.18 Compliance with Laws 27       Section 4.19
Environmental Matters. 28       Section 4.20 Employee Benefit Matters. 30

 

  i 

 

 

Section 4.21 Employment Matters. 32       Section 4.22 Taxes. 33       Section
4.23 Permits 35       Section 4.24 Brokers 36       Section 4.25 Product
Warranty 36       Section 4.26 Products Liability 36       Section 4.27
Affiliate Interests 36       Section 4.28 NO OTHER REPRESENTATIONS OR WARRANTIES
37       ARTICLE V Representations and warranties of buyer 37       Section 5.01
Organization of Buyer 37       Section 5.02 Authority of Buyer 37       Section
5.03 No Conflicts; Consents 38       Section 5.04 Brokers 38       Section 5.05
Legal Proceedings 38       Section 5.06 Independent Review 38       ARTICLE VI
Covenants 39       Section 6.01 Conduct of Business Prior to the Closing 39    
  Section 6.02 Access to Information 41       Section 6.03 No Solicitation of
Other Bids. 41       Section 6.04 Notice of Certain Events. 42       Section
6.05 Confidentiality 42       Section 6.06 Non-competition; Non-solicitation 43
      Section 6.07 Governmental Approvals and Consents 44       Section 6.08
Books and Records. 45       Section 6.09 Public Announcements 46       Section
6.10 Physical Inventory 46       Section 6.11 Additional Covenants of Sellers 46
      Section 6.12 Further Assurances 47       Section 6.13 Product Liability
Insurance 47       Section 6.14 Supplemental Disclosure 47       Section 6.15
Excluded Assets. 48

 

  ii 

 

 

ARTICLE VII Tax matters 48       Section 7.01 Tax Covenants. 48       Section
7.02 Termination of Existing Tax Sharing Agreements 49       Section 7.03 Tax
Indemnification 49       Section 7.04 Straddle Period 50       Section 7.05
Refunds and Tax Benefits 50       Section 7.06 Amendments to Returns; Refund
Claims 50       Section 7.07 Contests 50       Section 7.08 Cooperation and
Exchange of Information 51       Section 7.09 Tax Treatment. 51       Section
7.10 Survival 52       Section 7.11 Overlap 52       ARTICLE VIII Conditions to
closing 52       Section 8.01 No Obligation on Buyer to Close 52       Section
8.02 Conditions to Obligations of Sellers 53       ARTICLE IX Indemnification 54
      Section 9.01 Survival 54       Section 9.02 Indemnification By Sellers 54
      Section 9.03 Indemnification By Buyer 55       Section 9.04 Certain
Limitations 55       Section 9.05 Indemnification Procedures 57       Section
9.06 Payments 59       Section 9.07 Tax Treatment of Indemnification Payments 60
      Section 9.08 Effect of Investigation 60       Section 9.09 Exclusive
Remedies 61       Section 9.10 Set Off Against Buyer Stock. 61       ARTICLE X
Termination 61       Section 10.01 Termination 61       Section 10.02 Effect of
Termination 62       ARTICLE XI Miscellaneous 62       Section 11.01 Expenses 62

 

  iii 

 

 

Section 11.02 Notices 62       Section 11.03 Interpretation 63       Section
11.04 Headings 64       Section 11.05 Severability 64       Section 11.06 Entire
Agreement 64       Section 11.07 Successors and Assigns 64       Section 11.08
No Third-party Beneficiaries 65       Section 11.09 Amendment and Modification;
Waiver 65       Section 11.10 Governing Law; Submission to Jurisdiction; Waiver
of Jury Trial. 65       Section 11.11 Specific Performance 66       Section
11.12 Counterparts 66       Section 11.13 Effectiveness 66

 

  iv 

 

 

UNIT PURCHASE AGREEMENT

 

This Unit Purchase Agreement (this “Agreement”), dated as of September 2, 2014,
which shall be effective as of the Option Exercise Date, subject to Section
11.13, is entered into by and among Naomi L. Balcombe and Robert Whittel (each a
“Seller” and collectively “Sellers”), and TWINLAB CONSOLIDATION CORPORATION, a
Delaware corporation (“Buyer”).

 

RECITALS

 

WHEREAS, Sellers collectively own all of the issued and outstanding Units in
Organic Holdings LLC, a Delaware limited liability company (the “Company”),
other than (i) any Units issued pursuant to the exercise of any Mezzanine
Warrants, (ii) the Management Incentive Units and (iii) any Units issued after
the date hereof as permitted by Section 8(a)(i) of the Option Agreement and
Section 6.01 of this Agreement;

 

WHEREAS, each entity set forth on Schedule A attached hereto is wholly owned by
the Company (each a “Subsidiary” and collectively the “Subsidiaries”);

 

WHEREAS, the Company through its Subsidiaries is engaged in the business of
developing and selling (a) nutritional supplements, which for purposes hereof
includes both dietary supplements and functional foods, such as protein shakes,
bars and meal replacements, but specifically excluding conventional foods and
(b) vitamins (the “Business”);

 

WHEREAS, Sellers, the Company and Buyer have entered into an Option Agreement,
dated of even date herewith (the “Option Agreement”), pursuant to which Buyer
shall have an option (the “Option”) to purchase all of the outstanding Units
pursuant to and in accordance with the terms set forth in this Agreement and the
Option Agreement;

 

WHEREAS, Sellers wish to sell to Buyer, and Buyer wishes to purchase from
Sellers, all the Units owned by Sellers, and Buyer wishes to purchase all other
Units, including “cashing out” the Management Incentive Units, subject to the
terms and conditions set forth herein; and

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

 

 

 

ARTICLE I

Definitions

 

The following terms have the meanings specified or referred to in this ARTICLE
I:

 

“Action” means any claim, charge, action, hearing, cause of action, demand,
lawsuit, arbitration, complaint, audit, notice of violation (which shall include
any notice required by Law to be given prior to filing a lawsuit), proceeding,
litigation, citation, summons, subpoena, or investigation, whether at law or in
equity, by or before any Governmental Authority.

 

“Affiliate” of a Person means any other Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such Person. The term “control” (including the terms
“controlled by” and “under common control with”) means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.

 

“Business Day” means any day except Saturday, Sunday or any other day on which
commercial banks located in New York are authorized or required by Law to be
closed for business.

 

“Buyer Stock” means the common stock, par value $0.0001 per share, of Buyer, and
any equity into which such common stock is converted or exchanged by operation
of law or otherwise.

 

“Buyer’s Accountants” means Tanner LLC.

 

“CERCLA” means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.

 

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

 

“Contracts” means all written or binding oral contracts, leases, mortgages,
licenses, instruments, notes, commitments, undertakings, indentures, joint
ventures and other agreements and commitments, in each case to the extent
constituting legally binding arrangements.

 

“Disclosure Schedules” means, for purposes of this Agreement, the Disclosure
Schedules delivered by Sellers pursuant to the Option Agreement and this
Agreement.

 

“Dollars or $” means the lawful currency of the United States.

 

 2 

 

 

“Encumbrance” means any charge, claim, pledge, equitable interest, lien
(statutory or other), option, security interest, mortgage, or other similar
encumbrance.

 

“Environmental Claim” means any Action, Governmental Order, lien, fine, penalty,
or, as to each, any settlement or judgment arising therefrom, by or from any
Person alleging liability of whatever kind or nature (including liability or
responsibility for the costs of enforcement proceedings, investigations,
cleanup, governmental response, removal or remediation, natural resources
damages, property damages, personal injuries, medical monitoring, penalties,
contribution, indemnification and injunctive relief) arising out of, based on or
resulting from: (a) the presence, Release of, or exposure to, any Hazardous
Materials; or (b) any non-compliance with any Environmental Law or term or
condition of any Environmental Permit.

 

“Environmental Law” means any applicable Law or Governmental Order: (a) relating
to pollution (or the cleanup thereof) or the protection of human health or
safety, or the environment (including ambient air, soil, surface water or
groundwater, or subsurface strata); or (b) concerning the presence of, exposure
to, or the management, manufacture, use, containment, storage, recycling,
reclamation, reuse, treatment, generation, discharge, transportation,
processing, production, disposal or remediation of any Hazardous Materials. The
term “Environmental Law” includes the following (including their implementing
regulations and any state analogs): the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976,
as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§
6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the
Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control
Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air
Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§
7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29
U.S.C. §§ 651 et seq.

 

“Environmental Notice” means any written directive, written notice of violation
or infraction, or other written notice respecting any Environmental Claim
relating to actual or alleged non-compliance with any Environmental Law or any
term or condition of any Environmental Permit.

 

“Environmental Permit” means any Permit, letter, clearance, consent, waiver or
exemption required or issued under any Environmental Law.

 

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

 

 3 

 

 

“ERISA Affiliate” means, with respect to any Person, any other Person that,
together with such first Person, would be treated as a single employer within
the meaning of Section 414(b), (c), (m) or (o) of the Code.

 

“Escrow Agent” means the entity designated to serve as escrow agent under the
Escrow Agreement.

 

“Escrow Agreement” means the Escrow Agreement among Buyer, Sellers and the
Escrow Agent, dated as of September 2, 2014, and attached hereto as Exhibit A.

 

“Escrow Amount” means the sum of Seven Hundred Fifty Thousand Dollars
($750,000.00) to be deposited with the Escrow Agent and held in escrow pursuant
to the Escrow Agreement.

 

“Fee Agreement” means that certain letter agreement, dated as of May 28, 2014,
between the Company and Buyer that relates to the payment by Buyer of certain of
the Company’s and Sellers’ legal fees and expenses.

 

“GAAP” means United States generally accepted accounting principles in effect
from time to time.

 

“Governmental Authority” means any federal, state, local or foreign government
or political subdivision thereof, or any agency or instrumentality of such
government or political subdivision, or any self-regulated organization or other
non-governmental regulatory authority or quasi-governmental authority (to the
extent that the rules, regulations or orders of such organization or authority
have the force of Law), or any arbitrator, court or tribunal of competent
jurisdiction.

 

“Governmental Order” means any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority.

 

“Hazardous Materials” means: (a) any material, substance, chemical, waste,
product, derivative, compound, mixture, solid, liquid, mineral or gas, in each
case, whether naturally occurring or manmade, that is hazardous, acutely
hazardous, toxic, or words of similar import or regulatory effect under
Environmental Laws; and (b) any petroleum or petroleum-derived products, radon,
radioactive materials or wastes, asbestos in any form, lead or lead-containing
materials, urea formaldehyde foam insulation and polychlorinated biphenyls.

 

 4 

 

 

“Intellectual Property” means all intellectual property rights pursuant to the
Laws of any jurisdiction throughout the world, whether registered or
unregistered, including any and all: (a) trademarks, service marks, trade names,
brand names, logos, trade dress, design rights and other similar designations of
source, together with the goodwill associated therewith, and all registrations,
applications and renewals for any of the foregoing; (b) internet domain names,
web addresses, websites and related content, accounts with Twitter, Facebook and
other social media companies and the content found thereon and related thereto,
and URLs; (c) works of authorship, expressions, designs and design
registrations, whether or not copyrightable, including copyrights, author,
performer, moral and neighboring rights, and all registrations, applications for
registration and renewals of such copyrights; (d) inventions, discoveries, trade
secrets, product specifications, formulas, formularies, business and technical
information and know-how; (e) patents (including all reissues, divisionals,
provisionals, continuations and continuations-in-part, re-examinations,
renewals, substitutions and extensions thereof), patent applications, unpatented
inventions and other patent rights; and (f) software and firmware, including
data files, source code, object code, application programming interfaces,
architecture, files, records, schematics, computerized databases and other
related specifications and documentation.

 

“Intellectual Property Agreements” means all material licenses, sublicenses,
consent to use agreements, settlements, coexistence agreements, covenants not to
sue, permissions and other Contracts (including any right to receive or
obligation to pay royalties or any other consideration) relating to any
Intellectual Property that is used in the conduct of the Business as currently
conducted to which the Company or any Subsidiary is a party (other than
Contracts relating to unmodified, commercially available off-the-shelf
software).

 

“Intellectual Property Assets” means all Intellectual Property owned by the
Company or any of its Subsidiaries.

 

“Intellectual Property Registrations” means all Intellectual Property Assets
that are subject to any issuance, registration, application or other filing by,
to or with any Governmental Authority or authorized private registrar in any
jurisdiction, including registered trademarks, domain names and copyrights,
issued and reissued patents and pending applications for any of the foregoing.

 

“Knowledge of Buyer” or “Buyer’s Knowledge” or any other similar knowledge
qualification, means the actual knowledge of Richard H. Neuwirth, F. Peter
Brechter, Mark Jaggi and Tom Tolworthy.

 

“Knowledge of Sellers” or “Sellers’ Knowledge” or any other similar knowledge
qualification, means the actual knowledge of Sellers and Robert Maru.

 

“Law” means any statute, law, ordinance, regulation, rule, code, order,
constitution, common law, judgment, decree, other requirement or rule of law of
any Governmental Authority.

 

 5 

 

 

“Liabilities” means liabilities, obligations or commitments of any nature
whatsoever, asserted or unasserted, known or unknown, absolute or contingent,
accrued or unaccrued, matured or unmatured or otherwise.

 

“Losses” means losses, damages, liabilities, deficiencies, judgments, interest,
awards, penalties, fines, fees, charges, assessments, costs or expenses of
whatever kind and reasonable attorneys’ fees and expenses (including expenses of
investigation, court costs, and reasonable fees and expenses of accountants and
other experts).

 

“Management Incentive Units” has the meaning ascribed thereto in the Company LLC
Agreement.

 

“Material Adverse Effect” means any event, occurrence, fact, condition or change
that is, or is reasonably expected to become, individually or in the aggregate,
materially adverse to (a) the business, results of operations, condition
(financial or otherwise) or assets of the Business, (b) the value of the
Company’s and the Subsidiaries’ assets taken as a whole, or (c) the ability of
each Seller to consummate the transactions contemplated hereby on a timely
basis; provided, however, that “Material Adverse Effect” shall not include the
effect of any event, occurrence, fact, condition or change resulting from or
relating to: (i) applicable economic or market conditions, including as related
to the industry in which the Business operates, (ii) the announcement of the
transactions contemplated by this Agreement, (iii) (A) the execution of,
compliance with the terms of, or the taking of any action required by this
Agreement or (B) the consummation of the transactions contemplated by this
Agreement, (iv) any change in GAAP or any change in applicable Laws or the
interpretation thereof, (v) changes in national or international political or
social conditions, including the engagement by the United States in hostilities,
whether or not pursuant to the declaration of a national emergency or war, or
the occurrence of any military or terrorist attack, (vi) general financial or
capital market conditions, including interest rates or market prices, or changes
therein or (vii) Buyer’s efforts to obtain financing; provided, however, that
any event, occurrence, fact, condition or change that is disclosed to Buyer
pursuant to the Disclosure Schedules or a supplement to the Disclosure Schedules
and is cured prior to the Closing Date shall not be considered a Material
Adverse Effect.

 

“Mezzanine Debt” means the Secured Note and Security Agreement issued under the
Mezzanine Note and Warrant Purchase Agreement.

 

“Mezzanine Note and Warrant Purchase Agreement” means that certain Note and
Warrant Purchase Agreement, dated as of December 28, 2012, by and between Penta
Mezzanine SBIC Fund I, L.P. and the Company.

 

 6 

 

 

“Mezzanine Warrants” means all warrants to purchase “Membership Interests” of
the Company held by Penta Mezzanine SBIC Fund I, L.P. or any of its Affiliates.
For the avoidance of doubt, references to “Membership Interests” in both the
Membership Interest Purchase Warrant W-1, dated December 28, 2012, issued by the
Company to Penta Mezzanine SBIC Fund I, L.P. (“Penta”), and the Membership
Interest Purchase Warrant W-2, dated July 1, 2013, issued by the Company to
Penta, are intended to mean “Units” as defined hereunder.

 

“Option Agreement Disclosure Schedules” shall have the meaning set forth in the
Option Agreement.

 

“Option Exercise Date” shall have the meaning set forth in the Option Agreement.

 

“Option Notice” shall have the meaning set forth in the Option Agreement.

 

“Organizational Documents” means (a) in the case of a Person that is a
corporation, its articles or certificate of incorporation and its by-laws,
regulations or similar governing instruments required by the laws of its
jurisdiction of formation or organization; and (b) in the case of a Person that
is a limited liability company, its articles or certificate of formation or
organization, and its limited liability company agreement or operating
agreement.

 

“Permits” means all permits, licenses, franchises, approvals, authorizations,
registrations, certificates, variances and similar rights obtained, or required
to be obtained, from Governmental Authorities.

 

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

 

“Post-Closing Tax Period” means any taxable period beginning after the Closing
Date and, with respect to any taxable period beginning before and ending after
the Closing Date, the portion of such taxable period beginning after the Closing
Date.

 

“Pre-Closing Tax Period” means any taxable period ending on or before the
Closing Date and, with respect to any taxable period beginning before and ending
after the Closing Date, the portion of such taxable period ending on and
including the Closing Date.

 

“Pre-Closing Taxes” means Taxes of the Company and each Subsidiary for any
Pre-Closing Tax Period.

 

“Purchase Expiration Date” shall have the meaning set forth in the Option
Agreement.

 

 7 

 

 

“Release” means any actual release, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing into or through the environment (including ambient air (indoor or
outdoor), surface water, groundwater, land surface or subsurface strata or
within any building, structure, facility or fixture).

 

“Representative” means, with respect to any Person, any and all managers,
directors, officers, employees, consultants, financial advisors, counsel,
accountants and other agents of such Person.

 

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

 

“Sellers’ Accountants” means Cross, Fernandez & Riley LLP.

 

“Senior Debt” means the senior debt of the Company, excluding any interest
accrued thereon, but including any prepayment or similar penalties and expenses
payable in connection with the prepayment of such debt.

 

“Specified Seller Liabilities” means those Liabilities set forth on Schedule B.

 

“Tax” and “Taxes” means all federal, state, local, foreign and other income,
gross receipts, sales, use, production, ad valorem, transfer, documentary,
franchise, registration, profits, license, lease, service, service use,
withholding, payroll, employment, unemployment, estimated, excise, severance,
environmental, stamp, occupation, premium, property (real or personal), real
property gains, windfall profits, customs, duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest,
additions or penalties with respect thereto and any interest in respect of such
additions or penalties.

 

“Tax Return” means any return, declaration, report, claim for refund,
information return or statement or other document relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof.

 

“Territory” means worldwide.

 

“Transaction Documents” means this Agreement, the Option Agreement, the N.
Balcombe Employment Agreement, the Escrow Agreement and the other agreements,
instruments and documents required to be delivered at the Closing.

 

“Units” has the meaning ascribed thereto in the Company LLC Agreement. For the
avoidance of doubt, the term “Units” includes the Management Incentive Units,
and the “Membership Interests” issuable as Units pursuant to the Mezzanine
Warrants, unless expressly stated otherwise, and excludes the Mezzanine
Warrants.

 

 8 

 

 

“WARN Act” means the federal Worker Adjustment and Retraining Notification Act
of 1988, and similar state, local and foreign laws related to plant closings,
relocations, mass layoffs and employment losses.

 

The following terms are defined in the following Sections of, or other locations
in, this Agreement:

 

Term   Section/Location         Acquisition Proposal     6.03(a) Agreement    
Preamble Audited Financial Statements     4.05 Balance Sheet     4.05 Balance
Sheet Date     4.05 Basket     9.04(a) Benefit Plan     4.20(a) Business    
Recitals Buyer     Preamble Buyer Closing Certificate     8.02(g) Buyer
Indemnitees     9.02 Buyer’s Secretary Certificate     8.02(h) Cap     9.04(c)
Cash Payment     2.02(a)(i) CFO Payment     2.02(a)(i)(D) Closing     3.01
Closing Date     3.01 Company     Recitals Company LLC Agreement    
2.02(a)(i)(C) Direct Claim     9.05(c) Drag Along Right     4.02(a) FDA    
4.18(c) Financial Statements     4.05 FIRPTA Certificate     6.11(f) FTC    
4.18(c) Fundamental Representations     9.01 Gainesville Lease     4.11(d)
Gainesville Premises     4.11(d) Gainesville Termination Date     4.11(d)
Indemnification Value     9.06(b) Indemnified Party     9.05 Indemnifying Party
    9.05 Independent Accountant     7.01(c) Initial Buyer Stock Value    
9.06(b) Insurance Policies     4.16 Interim Balance Sheet     4.05 Interim
Balance Sheet Date     4.05

 

 9 

 

  

Interim Financial Statements     4.05 Inventory     4.13(a) Lease and Leases    
4.11(a) Material Contracts     4.08(a) Material Customers     4.15(a) Material
Suppliers     4.15(b) Mezzanine Debt Payment     2.02(a)(i)(A) Mezzanine
Warrants Payment     2.02(a)(i)(E) MIU Payment     2.02(a)(i)(C) Multiemployer
Plan     4.20(c) N. Balcombe Employment Agreement     3.02(a)(iii) Option    
Recitals Option Agreement     Recitals Organics Management     4.11(d) Other
Authorities     4.18(c) Permitted Encumbrances     4.09 Physical Inventory    
6.10 Purchase Price     2.02(a) Qualified Benefit Plan     4.20(c) Real Property
    4.11(a) Restricted Period     6.06(a) Seller and Sellers     Preamble
Sellers’ Closing Certificate     6.11(a) Seller Indemnitees     9.03 Senior Debt
Payment     2.02(a)(i)(B) Special Environmental Losses     9.01 Straddle Period
    7.04 Subsidiary and Subsidiaries     Preamble Tax Claim     7.07 Third Party
Claim     9.05(a) Union     4.21(b)

  

ARTICLE II

Purchase and Sale

 

Section 2.01         Purchase and Sale. Subject to the exercise by Buyer of the
Option, and subject to the terms and conditions set forth herein, for the
consideration specified in Section 2.02, at the Closing (a) Sellers shall sell
to Buyer, and Buyer shall purchase from Sellers, all of Sellers’ right, title
and interest in and to the Units (including “cashing out” the Management
Incentive Units) owned by Sellers, free and clear of all Encumbrances, other
than the Encumbrances described in Section 7(b)(1) of the Option Agreement
Disclosure Schedules, and (b) Sellers shall cause the other holders of
Management Incentive Units, and the holders of any other Units, to sell (or,
with respect to the Management Incentive Units, to “cash out”) to Buyer, and
Buyer shall purchase (or “cash out”) from such holders of Management Incentive
Units and such other Units, all of their right, title and interest in and to the
Management Incentive Units and such other Units, free and clear of all
Encumbrances, other than the Encumbrances described in Section 7(b)(1) of the
Option Agreement Disclosure Schedules.

 

 10 

 

 

Section 2.02         Purchase Price.

 

(a)          The aggregate consideration for the purchase of the outstanding
Units shall be Thirty-Seven Million Dollars ($37,000,000.00) (the “Purchase
Price”). The Purchase Price shall consist of the following:

 

(i)          Thirty-Seven Million Dollars ($37,000,000.00) less

 

(A)         the total amount necessary to pay, in full, the Mezzanine Debt
(inclusive of principal, interest and any other amounts payable in respect of
the Mezzanine Debt outstanding on the Closing Date), in an amount up to and not
exceeding Five Million Dollars ($5,000,000) (the “Mezzanine Debt Payment”);

 

(B)         the amount in excess of Two Million Five Hundred Thousand Dollars
($2,500,000.00) (such $2,500,000.00 being the “Senior Debt Payment”) necessary
to satisfy all of the Company’s obligations regarding the Senior Debt in full;

 

(C)         the amount required to be paid to purchase or “cash out” each
outstanding Management Incentive Unit (vested or unvested) granted pursuant to
the Organic Holdings LLC Limited Liability Company Agreement, dated October 1,
2009 (the “Company LLC Agreement”), in accordance with the terms of the Company
LLC Agreement and the applicable award agreement relating to each such
Management Incentive Unit (the “MIU Payment”);

 

(D)         any amount payable to Stephen Winslett, the former Chief Financial
Officer of the Company, to the extent not paid prior to the Closing and in
excess of Two Hundred Ten Thousand Dollars ($210,000) (the “CFO Payment”);

 

(E)         the amount to be paid to the holders of the Mezzanine Warrants in
consideration of the cancellation of the Mezzanine Warrants or the repurchase of
any equity interests issued with regard to the Mezzanine Warrants prior to the
Closing Date in an amount up to and not exceeding One Million Five Hundred
Thousand Dollars ($1,500,000) (the “Mezzanine Warrants Payment”), which amount
shall include all prepayment penalties associated with the payment thereof; and

 

 11 

 

  

(F)         any Specified Seller Liabilities not otherwise referred to in this
Section 2.02(a)(i);

 

the amount remaining after such deductions being the “Cash Payment”, which shall
be paid (less the Escrow Amount), as set forth in Section 2.02(b); and

 

(ii)         Buyer shall provide notice to Sellers at least three (3) Business
Days prior to the Closing Date if it elects to assume the Mezzanine Debt. The
Mezzanine Debt Payment shall be deducted from the Purchase Price pursuant to
Section 2.02(a)(i) regardless of whether Buyer assumes the Mezzanine Debt.

 

(b)          On the Closing Date, Buyer shall deliver the Purchase Price as
follows:

 

(i)          Buyer shall deliver to Sellers the Cash Payment (less the Escrow
Amount), to such account designated in writing by Sellers, by wire transfer of
immediately available funds;

 

(ii)         Buyer shall deliver to the Escrow Agent the Escrow Amount to be
held and distributed in accordance with the terms of the Escrow Agreement;

 

(iii)        Buyer shall deliver the Mezzanine Debt Payment to the holders of
the Mezzanine Debt, to such account designated in writing by the holders of the
Mezzanine Debt, by wire transfer of immediately available funds, unless Buyer
elects to assume the Mezzanine Debt in accordance with Section 2.02(a)(ii);

 

(iv)        Buyer shall deliver to the holder of the Senior Debt, to such
account designated in writing by the holder of the Senior Debt, by wire transfer
of immediately available funds, the amount, if any, in excess of the Senior Debt
Payment, that is required to be paid to satisfy all of the Company’s obligations
regarding the Senior Debt;

 

(v)         Buyer shall deliver the MIU Payment to the holders of the Management
Incentive Units, to such accounts designated in writing by the holders of the
Management Incentive Units, by wire transfer of immediately available funds;

 

(vi)        Buyer shall deliver the CFO Payment, if any, to the account
designated in writing by the Company, by wire transfer of immediately available
funds; and

 

(vii)       Buyer shall deliver the amount of any Specified Seller Liabilities
outstanding at the Closing and not otherwise referred to in this Section
2.02(b), to the holders thereof, to such accounts as they may designate in
writing, in immediately available funds.

 

 12 

 

  

(c)          At the Closing, Buyer shall deliver to the holder of the Senior
Debt, to such account designated in writing by the holder of the Senior Debt, by
wire transfer of immediately available funds, the Senior Debt Payment.

 

(d)          At the Closing, Buyer shall deliver (i) the Mezzanine Warrants
Payment and (ii) any additional amount to be paid to the holders of the
Mezzanine Warrants in consideration of the cancellation of the Mezzanine
Warrants or the repurchase of any equity interests issued with regard to the
Mezzanine Warrants prior to the Closing Date in excess of the Mezzanine Warrants
Payment, in each case, to the holders of the Mezzanine Warrants, to such
accounts designated in writing by the holders of the Mezzanine Warrants, by wire
transfer of immediately available funds.

 

ARTICLE III

Closing

 

Section 3.01         Closing. Subject to the terms and conditions of this
Agreement, the consummation of the transactions contemplated by this Agreement
shall take place at a Closing (the “Closing”) to be held at the offices of Wilk
Auslander LLP, 1515 Broadway, New York, New York 10036, at 12:00 pm, EST time,
on the third Business Day after all of the conditions to Closing set forth in
ARTICLE VIII are either satisfied or waived (other than conditions which, by
their nature, are to be satisfied on the Closing Date, but subject to the
satisfaction or waiver of such conditions), or at such other time, date or place
as Sellers and Buyer may mutually agree upon in writing. The date on which the
Closing is to occur is herein referred to as the “Closing Date”.

 

Section 3.02         Closing Deliverables.

 

(a)          At the Closing, Sellers shall deliver to Buyer (unless delivered
previously) the following:

 

(i)          duly executed assignments of the outstanding Units other than the
Management Incentive Units;

 

(ii)         a FIRPTA Certificate for each Seller;

 

(iii)        an Employment Agreement in the form of Exhibit B hereto (the “N.
Balcombe Employment Agreement”), duly executed by Naomi L. Balcombe; and

 

(iv)        the Sellers’ Closing Certificate from Sellers.

 

(b)          At the Closing, Buyer shall deliver to Sellers the following:

 

(i)          the Cash Payment (in accordance with Section 2.02);

 

(ii)         the N. Balcombe Employment Agreement, duly executed by Buyer;

 

(iii)        the Buyer Closing Certificate; and

 

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(iv)        the Buyer’s Secretary Certificate.

 

ARTICLE IV
Representations and warranties of sellerS

 

Each Seller jointly and severally represents and warrants to Buyer as follows,
except as provided in the Disclosure Schedules:

 

Section 4.01         Authorization. Each Seller has the full and absolute legal
right, capacity and power to (i) execute and deliver this Agreement and all
other agreements contemplated hereby to which either Seller is a party and (ii)
to perform his or her obligations hereunder and thereunder. This Agreement
constitutes the valid and legally binding obligation of Sellers, enforceable
against Sellers in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium, and similar laws
affecting creditors’ rights and remedies generally, and, as to enforceability,
to general principles of equity regardless of whether enforcement is sought in a
proceeding at law or in equity.

 

Section 4.02         Capitalization.

 

(a)          Sellers are the record and beneficial owners of, and have good and
valid title to all of the outstanding Units other than (i) the Management
Incentive Units, (ii) any Units issued pursuant to the exercise of any Mezzanine
Warrants and (iii) any Units issued after the date hereof as permitted by
Section 8(a)(i) of the Option Agreement and Section 6.01 of this Agreement, free
and clear of all Encumbrances, other than the Encumbrances described in Section
7(b)(1) of the Option Agreement Disclosure Schedules. The outstanding equity of
the Company consists of (A) the Units owned by Sellers, (B) the Management
Incentive Units owned by the holders thereof and (C) any Units issued after the
date hereof as permitted by Section 8(a)(i) of the Option Agreement and Section
6.01 of this Agreement, as described in Section 4.02(a) of the Disclosure
Schedules, and the Mezzanine Warrants. The Sellers have the contractual right to
require each other holder of outstanding Units to sell such Units to Buyer (the
“Drag Along Right”). All outstanding Units have been duly authorized and are
validly issued, fully-paid and non-assessable. Upon consummation of the
transactions contemplated by this Agreement, Buyer shall own all of the Units,
free and clear of all Encumbrances.

 

(b)          All outstanding Units were issued in compliance with applicable
Laws. No outstanding Units were issued in violation of the Organizational
Documents of the Company or any other agreement, arrangement or commitment to
which Sellers or the Company are a party and are not subject to or in violation
of any preemptive or similar rights of any Person.

 

 14 

 

 

(c)          Other than the Mezzanine Warrants and the Management Incentive
Units described in Section 4.02(a) of the Disclosure Schedules, there are no
outstanding or authorized options, warrants, convertible securities or other
rights, agreements, arrangements or commitments of any character relating to any
Units or other interests in the Company or any Subsidiary or obligating Sellers,
the Company or any Subsidiary to issue or sell any Units, or any other interest,
in the Company or any Subsidiary. Other than the Organizational Documents, there
are no voting trusts, proxies or other agreements or understandings in effect
with respect to the voting or transfer of any of the outstanding Units or any
other interests in the Company or any Subsidiary.

 

Section 4.03         No Conflicts; Consents. The execution, delivery and
performance by each Seller of this Agreement and the other Transaction Documents
to which such Seller is a party, and the consummation of the transactions
contemplated hereby and thereby, do not and will not: (a) conflict with or
result in a violation or breach of, or default under, any provision of the
organizational documents of the Company or any Subsidiary; (b) conflict with or
result in a violation or breach of any provision of any Law or Governmental
Order applicable to either Seller, the Company or any Subsidiary; (c) require
notice to, or the consent, or other action by any Person under, conflict with,
result in a violation or breach of, constitute a default or an event that, with
or without notice or lapse of time or both, would constitute a default under,
result in the acceleration of or create in any Person the right to accelerate,
terminate, modify or cancel any Material Contract or Permit to which either
Seller, the Company or any Subsidiary is a party or by which either Seller, the
Company or any Subsidiary is bound; or (d) result in the creation or imposition
of any Encumbrance on any of the assets of the Company or any Subsidiary, other
than Permitted Encumbrances. No consent, approval, Permit, Governmental Order,
declaration or filing with, or notice to, any Governmental Authority is required
by or with respect to either Seller, the Company or any Subsidiary in connection
with the execution and delivery of this Agreement or any of the other
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby.

 

Section 4.04         Organization, Authority and Qualification of the Company
and each Subsidiary. The Company and each Subsidiary is a limited liability
company duly organized, validly existing and in good standing under the Laws of
the state of Delaware and has full limited liability company power and authority
to own, operate or lease the properties and assets now owned, operated or leased
by it and to carry on the Business as currently conducted. Section 4.04 of the
Disclosure Schedules sets forth each jurisdiction in which the Company and each
Subsidiary is licensed or qualified to do business, and the Company and each
Subsidiary is duly licensed or qualified to do business and is in good standing
in each jurisdiction in which the properties and assets owned or leased by it or
the operation of the Business as currently conducted makes such licensing or
qualification necessary. All limited liability company actions taken by the
Company and each Subsidiary in connection with this Agreement and the other
Transaction Documents will be duly authorized on or prior to the Closing. The
Company LLC Agreement is valid and binding on the parties thereto, has not been
supplemented or amended, and is in full force and effect.

 

 15 

 

 

Section 4.05         Financial Statements. Complete copies of the consolidated
audited financial statements of the Company and each Subsidiary consisting of a
balance sheet (a) if the Option Exercise Date occurs prior to April 1, 2015, as
at December 31, 2013 or (b) if the Option Exercise Date occurs on or after April
1, 2015, as at December 31, 2014, and, in either case, the related statements of
income and cash flow for the year then ended (the “Audited Financial
Statements”) have been made available to Buyer, and the consolidated unaudited
financial statements of the Company and each Subsidiary consisting of a balance
sheet as at the last day of the month that ends three (3) complete months prior
to the Option Exercise Date (for example, if the Option Exercise Date is
November 15, 2014, such balance sheet would be as at July 31, 2014) and the
related statements of income for the year-to-date period then ended (the
“Interim Financial Statements”) are included in Section 4.05 of the Disclosure
Schedules (the Interim Financial Statements, together with the Audited Financial
Statements, being the “Financial Statements”). The Financial Statements have
been prepared in accordance with GAAP applied on a consistent basis throughout
the period involved, except as otherwise noted therein, subject, in the case of
the Interim Financial Statements, to normal and recurring year-end adjustments
and the absence of notes. The Financial Statements are based on the books and
records of the Company and each Subsidiary, and fairly present in all material
respects the consolidated financial condition of the Company and each Subsidiary
as of their respective dates and the results of the operations of the Company’s
and the Subsidiaries’ Business for the periods indicated. The consolidated
balance sheet of the Company and each Subsidiary included in the Audited
Financial Statements is referred to herein as the “Balance Sheet” and the date
thereof as the “Balance Sheet Date” and the consolidated balance sheet of the
Company and each Subsidiary as of the last day of the month that ends three (3)
complete months prior to the Option Exercise Date is referred to herein as the
“Interim Balance Sheet” and the date thereof as the “Interim Balance Sheet
Date”.

 

Section 4.06         Undisclosed Liabilities. Neither the Company nor any
Subsidiary has any Liabilities, except (a) those which are adequately reflected
or reserved against on the Balance Sheet, (b) those which have been incurred in
the ordinary course of business consistent with past practice since the Balance
Sheet Date, (c) those liabilities arising under this Agreement and the Option
Agreement, and (d) those liabilities which do not, individually or in the
aggregate, exceed $100,000.00.

 

Section 4.07         Absence of Certain Changes. Since December 31, 2013, there
has not been with respect to the Company or any Subsidiary any:

 

(a)           event, occurrence or development that has had, or could reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect;

 

(b)           amendment of the Organizational Documents of the Company or any
Subsidiary;

 

(c)           split, combination or reclassification of any Units or other
interests in the Company or any Subsidiary;

 

 16 

 

 

(d)           issuance, sale or other disposition (in any such case by Sellers,
the Company or any Subsidiary) of, or creation of any Encumbrance, on any Units
or other interests in the Company or any Subsidiary, or grant of any options,
warrants or other rights to purchase or obtain (including upon conversion,
exchange or exercise) any currently outstanding or to be issued Units or other
interests in the Company or any Subsidiary;

 

(e)           declaration or payment of any distributions on or in respect of
any Units or other interests in the Company or any Subsidiary or redemption,
purchase or acquisition of any of the Company’s or any Subsidiary’s outstanding
Units or other interests, other than Tax distributions to the equity holders of
the Company (with regard to taxable income attributable to them from the Company
or any Subsidiary) in the ordinary course of business;

 

(f)            material change in any method of accounting or accounting
practice of Sellers, except as required by GAAP or as disclosed in the notes to
the Financial Statements;

 

(g)           material change in cash management practices and policies,
practices and procedures with respect to collection of accounts receivable,
establishment of reserves for uncollectible accounts receivable, accrual of
accounts receivable, inventory control, prepayment of expenses, payment of trade
accounts payable, accrual of other expenses, deferral of revenue and acceptance
of customer deposits, except as required by GAAP;

 

(h)           incurrence, assumption or guarantee of any indebtedness for
borrowed money except unsecured current obligations and Liabilities incurred in
the ordinary course of business consistent with past practice;

 

(i)            transfer, assignment, sale or other disposition of assets which,
individually or in the aggregate, is material to the Company, except for cash
and the sale of Inventory in the ordinary course of business;

 

(j)            cancellation of any debts or claims or amendment, termination or
waiver of any rights of the Company or any Subsidiary;

 

(k)           transfer, assignment or grant of any license or sublicense of any
rights under or with respect to any Intellectual Property Assets;

 

(l)            material damage, destruction or loss of any assets of the Company
or any Subsidiary, whether or not covered by insurance;

 

(m)          acceleration, termination, or modification of any Material Contract
or Permit;

 

(n)          capital expenditures greater than $50,000 individually or greater
than $200,000 in the aggregate;

 

(o)          imposition of any Encumbrance upon any asset of the Company or any
Subsidiary other than Permitted Encumbrances;

 

 17 

 

 

(p)          (i) grant of any bonuses, whether monetary or otherwise, or
increase in any wages, salary, severance, pension or other compensation or
benefits in respect of any employees, officers, directors, independent
contractors or consultants, other than as provided for in any written
agreements, required by applicable Law or in the ordinary course of business
consistent with past practice, or (ii) action to accelerate the vesting or
payment of any compensation or benefit for any employee, officer, director,
consultant or independent contractor;

 

(q)          hiring or promoting any person other than in the ordinary course of
business;

 

(r)          adoption, modification or termination of any: (i) employment,
severance, retention or other Contract with any current or former employee,
officer, director, independent contractor or consultant, (ii) Benefit Plan, or
(iii) collective bargaining or other agreement with a Union;

 

(s)          any loan to (or forgiveness of any loan to), or entry into any
other transaction with, any of its members or current or former managers,
officers and employees, except for salary, employee benefits and bonuses in the
ordinary course of business;

 

(t)          entry into a new line of business outside the scope of the
Business, or abandonment or discontinuance of any material part of the Business;

 

(u)          adoption of any plan of merger, consolidation, reorganization,
liquidation or dissolution or filing of a petition in bankruptcy under any
provisions of federal or state bankruptcy Law or consent to the filing of any
bankruptcy petition against it under any similar Law;

 

(v)         purchase, lease or other acquisition of the right to own, use or
lease any property or assets for an amount in excess of $50,000 individually (in
the case of a lease, per annum) or $200,000 in the aggregate (in the case of a
lease, for the entire term of the lease, not including any option term), except
for purchases of Inventory or supplies in the ordinary course of business
consistent with past practice;

 

(w)          acquisition by merger or consolidation with, or by purchase of a
substantial portion of the assets, stock or other equity of, or by any other
manner, any business or any Person or any division thereof;

 

(x)          action by the Company or any Subsidiary to make, change or rescind
any Tax election, amend any Tax Return or take any position on any Tax Return
(except to the extent consistent with past practice), or enter into any
transaction (excluding any transaction entered into in the ordinary course of
business), in each case that would have the effect of increasing the Tax
liability or reducing any Tax asset of Buyer in respect of any Post-Closing Tax
Period; or

 

 18 

 

 

(y)          any Contract to do any of the foregoing, or any action or omission
that would result in any of the foregoing.

 

Section 4.08         Material Contracts.

 

(a)          Section 4.08(a) of the Disclosure Schedules lists each of the
following Contracts by which the Company, or any of the Subsidiaries, or any of
the Company’s or its Subsidiaries’ assets are bound (such Contracts, together
with all Contracts relating to Intellectual Property set forth in Section
4.12(b) of the Disclosure Schedules, being “Material Contracts”):

 

(i)          all Contracts involving any capital expenditures or series of
related capital expenditures in excess of $50,000;

 

(ii)         all Contracts that provide for the indemnification by the Company
or any Subsidiary of any Person, other than in the ordinary course of business,
or the assumption of any (A) Tax Liability, (B) environmental Liability or (C)
other Liability of any Person, solely with respect to clause (C), other than in
the ordinary course of business;

 

(iii)        all Contracts that relate to the acquisition or disposition of any
business, a material amount of equity or assets of any other Person (whether by
merger, sale of stock, sale of assets or otherwise) pursuant to which the
Company or any Subsidiary has any continuing obligations, or any continuing
indemnification, “earn-out” or other liabilities (fixed, contingent or
otherwise);

 

(iv)        all broker, distributor, dealer, manufacturer’s representative,
franchise, agency, sales promotion, market research, marketing consulting, and
public relations and advertising Contracts that provide for payment or receipt
by the Company or any Subsidiary in connection with the Business in excess of
$100,000 on an annual basis;

 

(v)         all Contracts with (A) managers, directors, officers or employees or
(B) independent contractors or consultants that, solely with respect to clause
(B), provide for payments in excess of $50,000 individually;

 

(vi)        all Contracts relating to indebtedness or the granting of security
for indebtedness, and all guaranties;

 

(vii)       all Contracts with any Governmental Authority;

 

(viii)      all Contracts that limit or purport to limit the ability of the
Company or any Subsidiary, to compete or engage in any line of business or with
any Person or in any geographic area or during any period of time;

 

(ix)         all joint venture, partnership or similar Contracts;

 

 19 

 

 

(x)          all Contracts for the sale of assets (excluding Inventory, but
including any master agreements, regarding Inventory, with customers whose
purchases of Inventory were at least $50,000 for the twelve (12) months prior to
the Option Exercise Date) of the Company or any Subsidiary involving the receipt
by the Company or any Subsidiary or for the grant to any Person of any option,
right of first refusal or preferential or similar right to purchase any assets
(excluding Inventory, but including any master agreements, regarding Inventory,
with customers whose purchases of Inventory were at least $50,000 for the twelve
(12) months prior to the Option Exercise Date) of the Company or any Subsidiary,
in each case other than in the ordinary course of business;

 

(xi)         all powers of attorney;

 

(xii)        all collective bargaining agreements or Contracts with any Union;

 

(xiii)       all Contracts for the purchase or lease of real estate;

 

(xiv)      all Contracts for the acquisition of services, supplies, equipment,
Inventory, or other personal property individually involving more than $50,000,
other than purchase orders for Inventory in the ordinary course of business (but
including any master agreements, regarding Inventory, with customers whose
purchases of Inventory were at least $50,000 for the twelve (12) months prior to
the Option Exercise Date);

 

(xv)       all Contracts with a member or other equity holder of the Company or
any Subsidiary, or any Affiliate of the Company or Subsidiary;

 

(xvi)      all Contracts that relate to the settlement of any Action that
occurred during the three (3) years prior to the Option Exercise Date or involve
any material continuing obligations;

 

(xvii)     all Contracts with respect to the return of Inventory in the
possession of customers by reason of alleged overshipment, defective merchandise
or otherwise where the customer has requested such return but the return has not
yet been fulfilled.

 

(b)          Each Material Contract is valid and binding on the Company or the
applicable Subsidiary in accordance with its terms and is in full force and
effect. Neither the Company nor any Subsidiary or, to Sellers’ Knowledge, any
other party thereto is in breach of or default under (or is alleged to be in
breach of or default under), or has provided or received any notice of any
intention to terminate, any Material Contract, except for such breaches or
defaults that would not be material to such Material Contract. No event or
circumstance has occurred that, with notice or lapse of time or both, would
constitute an event of default under any Material Contract or result in a
termination thereof or would cause or permit the acceleration or other changes
of any right or obligation or the loss of any benefit thereunder, except for
such defaults, events or circumstances that would not constitute a material
default under any such Material Contract. Complete and correct copies of each
Material Contract (including all modifications, and supplements thereto and
waivers thereunder) have been made available to Buyer by Sellers. There are no
material disputes pending, or to Sellers’ Knowledge, threatened, under any
Material Contract.

 

 20 

 

 

Section 4.09         Title to Assets. The Company and the Subsidiaries
collectively have good and valid title to, or a valid leasehold interest in, all
personal property, Real Property and other assets reflected in the Audited
Financial Statements as owned or leased by the Company or any of its
Subsidiaries or acquired by the Company or any of its Subsidiaries after the
Balance Sheet Date. All such property and assets are free and clear of
Encumbrances except for the following (collectively referred to as “Permitted
Encumbrances”):

 

(a)          those items set forth in Section 4.09 of the Disclosure Schedules;

 

(b)          Encumbrances related to the Mezzanine Debt, the Mezzanine Warrants
or the Senior Debt;

 

(c)          Encumbrances imposed by Law for Taxes not yet due and payable or
that are being properly contested and for which appropriate reserves have been
established (to the extent required) in accordance with GAAP;

 

(d)          statutory Encumbrances of landlords not yet due and payable or that
are being properly contested and for which appropriate reserves have been
established (to the extent required) in accordance with GAAP;

 

(e)          pledges and deposits made in the ordinary course of business in
compliance with workers’ compensation, unemployment insurance and other social
security Laws;

 

(f)          deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety, indemnity and appeal of bonds,
performance and return-of-money and fiduciary bonds and other obligations of a
like nature, in each case in the ordinary course of business;

 

(g)          easements, zoning restrictions, rights-of-way, licenses, covenants,
conditions, minor defects, encroachments or irregularities in title and similar
encumbrances on or affecting any real property that do not secure any monetary
obligations and do not unreasonably interfere with the conduct of the Business
in the ordinary course at any real property subject to such Encumbrances;

 

(h)          any (i) interest or title of a lessor or sublessor, or lessee or
sublessee, under any lease, (ii) restriction or Encumbrance that the interest or
title of such lessor or sublessor, or lessee or sublessee, may be subject to or
(iii) subordination of the interest of the lessee or sublessee under such lease
to any restrictions or Encumbrances referred to in the preceding clause (ii);

 

(i)          Encumbrances on goods held by suppliers in the ordinary course of
business for sums not yet delinquent or being contested in good faith;

 

 21 

 

 

(j)          with respect to the Real Property, any defect or Encumbrance caused
by or arising out of the failure to record the lease or a memorandum thereof in
the applicable real property records in the jurisdiction where such real
property is located;

 

(k)          the effect of any moratorium, eminent domain or condemnation
proceedings; and

 

(l)          mechanics’, carriers’, workmen’s, repairmen’s or other like liens
arising or incurred in the ordinary course of business consistent with past
practice for amounts that are not delinquent by more than thirty (30) days or
that are being properly contested and which are not, individually or in the
aggregate, material to the Business.

 

Section 4.10         Condition and Sufficiency of Assets. The buildings, plants,
structures, furniture, fixtures, machinery, equipment, vehicles and other items
of tangible personal property of the Company and each Subsidiary are in good
operating condition and repair, ordinary wear and tear excepted, and are
adequate for the uses to which they are being put, and none of such buildings,
plants, structures, furniture, fixtures, machinery, equipment, vehicles and
other items of tangible personal property is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost. The buildings, plants, structures, furniture, fixtures,
machinery, equipment, vehicles and other items of tangible personal property
currently owned or leased by the Company and each Subsidiary, together with all
other properties and assets of the Company and each Subsidiary, are sufficient
for the continued conduct of the Business after the Closing in substantially the
same manner as conducted by the Company and each Subsidiary prior to the Closing
and constitute all of the rights, property and assets necessary to conduct the
Business as currently conducted by the Company and each Subsidiary.

 

Section 4.11         Real Property.

 

(a)          Neither the Company nor any Subsidiary owns any real property.
Section 4.11(a) of the Disclosure Schedules sets forth each parcel of real
property leased and/or subleased by the Company and by each Subsidiary
(collectively, the “Real Property”), and a true and complete list of all leases,
subleases, consents, licenses, concessions and other agreements (whether written
or oral), including all amendments, extensions, and other agreements with
respect thereto, pursuant to which the Company or any Subsidiary holds any Real
Property (each, a “Lease” and collectively, the “Leases”). Sellers have
delivered to Buyer a complete and correct copy of each Lease. With respect to
each Lease:

 

(i)          the Company and each Subsidiary (as applicable) has a valid
leasehold interest in the Leases, the Leases are in full force and effect, and
the Company or the applicable Subsidiary enjoys peaceful and undisturbed
possession of the Real Property;

 

 22 

 

 

(ii)         neither the Company nor any Subsidiary is in breach or default
under such Lease, and no event has occurred or circumstance exists which, with
the delivery of notice, passage of time or both, would constitute such a breach
or default, and the Company or the applicable Subsidiary has paid all rent due
and payable under such Lease, except for such breaches, defaults, events or
circumstances that would not be material to the Business;

 

(iii)        neither the Company nor any Subsidiary has received nor given any
notice of any default or event that with notice or lapse of time, or both, would
constitute a default by the Company or the applicable Subsidiary under such
Lease and, to the Knowledge of Sellers, no other party is in default thereof,
and, neither the Company nor any Subsidiary has, and to the Knowledge of Sellers
no other party to any Lease has, exercised any termination rights with respect
thereto except for the Gainesville Lease, except for such defaults or events
that would not be material to the Business;

 

(iv)        neither the Company nor any Subsidiary has subleased, assigned or
otherwise granted to any Person the right to use or occupy such Real Property or
any portion thereof; and

 

(v)         neither the Company nor any Subsidiary has pledged, mortgaged or
otherwise granted an Encumbrance other than a Permitted Encumbrance on its
leasehold interest in any Real Property.

 

(b)          Neither the Company nor any Subsidiary has received any written
notice of (i) violations of building codes or zoning ordinances or other
governmental or regulatory Laws affecting the Real Property, (ii) condemnation
proceedings affecting the Real Property, or (iii) other matters which could
reasonably be expected to adversely affect the ability to operate the Real
Property as currently operated. Neither the whole nor any material portion of
the Real Property has been damaged or destroyed by fire or other casualty.

 

(c)          The Real Property is sufficient for the continued conduct of the
Business after the Closing in substantially the same manner as conducted by the
Company and each Subsidiary prior to the Closing and constitutes all of the real
property necessary to conduct the Business as currently conducted by the Company
and each Subsidiary.

 

(d)          With respect to that certain office lease agreement dated as of May
10, 2010, as amended (the “Gainesville Lease”), between PK%, LLC, successor to
Boca Gainesville, LLC, as landlord, and Organics Management LLC, as Tenant
(“Organics Management”), with respect to premises located at 2627 N.W. 43rd
Street, Gainesville, FL (the “Gainesville Premises”), Organics Management has
terminated the Gainesville Lease and vacated and surrendered possession of the
Gainesville Premises on or before March 31, 2014 (the “Gainesville Termination
Date”) in accordance with the terms of the Gainesville Lease, and to the
Knowledge of Sellers, (i) there are no outstanding claims against Organics
Management by the landlord thereunder or any third party resulting from, or
arising in connection with, the Gainesville Lease and/or Organics Management’s
tenancy thereunder, and (ii) Organics Management paid all rent and other amounts
due and performed all other obligations under the Gainesville Lease through the
Gainesville Termination Date.

 

 23 

 

 

Section 4.12         Intellectual Property.

 

(a)          Section 4.12(a) of the Disclosure Schedules lists all (i)
Intellectual Property Registrations, and (ii) trademarks, service marks and
trade names that are not registered but that are material to the operation of
the Business. For those Intellectual Property Assets for which the Company or
any Subsidiary has obtained Intellectual Property Registrations, all filings and
fees related to the Intellectual Property Registrations and required to be filed
or paid prior to the Closing have been timely filed with and paid to the
relevant Governmental Authorities and authorized registrars, and all
Intellectual Property Registrations are in good standing.

 

(b)          Section 4.12(b) of the Disclosure Schedules lists all Intellectual
Property Agreements. Sellers have provided Buyer with true and complete copies
of all such Intellectual Property Agreements, including all modifications
thereto and waivers thereunder.

 

(c)          The Company and the Subsidiaries are the sole and exclusive record
and beneficial owner of all right, title and interest in and to the Intellectual
Property Assets, and, to the Knowledge of Sellers, have the valid right to use
all other Intellectual Property used in the conduct of the Business as currently
conducted by the Company and each Subsidiary, in each case, free and clear of
Encumbrances other than Permitted Encumbrances. Sellers own no Intellectual
Property that is used by the Company.

 

(d)          The Intellectual Property Assets and Intellectual Property licensed
under the Intellectual Property Agreements are all of the material Intellectual
Property necessary to operate the Business as presently conducted by the Company
and each Subsidiary; provided, however, that the foregoing representation and
warranty in this Section 4.12(d) shall not constitute or be deemed or construed
as any representation or warranty with respect to infringement or violation of
any Intellectual Property (which is addressed in Section 4.12(f)). The
consummation of the transactions contemplated hereunder will not result in the
loss or impairment of or payment of any additional amounts with respect to, nor
require the consent of any other Person in respect of, the Buyer’s right to own,
use or hold for use any Intellectual Property as owned, used or held for use in
the conduct of the Business as currently conducted by the Company and each
Subsidiary.

 

(e)          The Company’s and each Subsidiary’s (as applicable) rights in the
Intellectual Property Assets are valid, subsisting and enforceable. The Company
and the Subsidiaries have collectively taken commercially reasonable steps
common in their industry to maintain the Intellectual Property Assets and to
protect and preserve the confidentiality of all trade secrets included in the
Intellectual Property Assets.

 

 24 

 

 

(f)          The conduct of the Business as currently conducted by the Company
and the Subsidiaries, and the Intellectual Property Assets and Intellectual
Property licensed under the Intellectual Property Agreements do not infringe or
otherwise violate, the Intellectual Property or other rights of any Person. To
Sellers’ Knowledge, no Person is currently infringing or otherwise violating any
Intellectual Property Assets.

 

(g)          There are no Actions (including any oppositions, interferences or
re-examinations) pending or to Sellers’ Knowledge, threatened (including in the
form of written offers to obtain a license): (i) alleging any infringement or
other violation of the Intellectual Property of any Person by the Company or any
Subsidiary, (ii) challenging the validity, enforceability, registrability or
ownership of any Intellectual Property Assets or the Company’s or any
Subsidiary’s rights with respect to any Intellectual Property Assets; or (iii)
by the Company or any Subsidiary or any other Person alleging any infringement
or other violation by any Person of any Intellectual Property Assets. Neither
the Company nor any Subsidiary is subject to any outstanding or prospective
Governmental Order that does or would restrict or impair the use of any
Intellectual Property Assets.

 

Section 4.13         Inventory.

 

(a)          Section 4.13 of the Disclosure Schedules contains a complete and
correct list of the Company’s and each Subsidiary’s inventory, including
finished goods, raw materials, works in progress, packaging, supplies, parts and
other inventories (“Inventory”), as of the Option Exercise Date, and the value
thereof in accordance with GAAP applied on a consistent basis with the Financial
Statements. All Inventory is owned by the Company and the Subsidiaries free and
clear of all Encumbrances other than Permitted Encumbrances, and no Inventory is
held on a consignment basis. Except as set forth in Section 4.13 of the
Disclosure Schedules, to Sellers’ Knowledge all of the products included in such
Inventory substantially comply with current FDA and FTC requirements and the
requirements of Other Authorities.

 

(b)          Expired, damaged or defective inventory (net of reserves) included
within the Inventory will not materially and adversely impact the Company and
its Subsidiaries.

 

Section 4.14         Accounts Receivable. Section 4.14 of the Disclosure
Schedules contains a complete and current list of the Company’s and the
Subsidiaries’ accounts receivable, and an aging schedule thereof, as of the
Option Exercise Date. The accounts receivable reflected on the Interim Balance
Sheet and the accounts receivable arising after the date thereof (a) have arisen
from bona fide transactions entered into by the Company and the Subsidiaries
involving the sale of goods or the rendering of services in the ordinary course
of business, and on customary payment terms, consistent with past practice; and
(b) constitute only valid, undisputed claims of the Company and the Subsidiaries
not subject to claims of set-off or other defenses or counterclaims other than
normal discounts accrued in the ordinary course of business consistent with past
practice. The reserve for bad debts shown on the Interim Balance Sheet or, with
respect to accounts receivable arising after the Interim Balance Sheet Date, on
the accounting records of the Company and the Subsidiaries have been determined
in accordance with GAAP, consistently applied, subject to normal year-end
adjustments and the absence of disclosures normally made in footnotes. This
representation is not a guarantee of collectability of accounts receivable of
the Company or the Subsidiaries.

 

 25 

 

 

Section 4.15         Customers and Suppliers; Orders.

 

(a)          Section 4.15(a) of the Disclosure Schedules sets forth for the
years 2013 and 2014 (i) each customer who paid aggregate consideration to the
Company and the Subsidiaries for goods or services rendered in an amount greater
than $100,000 (collectively, the “Material Customers”); and (ii) the amount of
consideration paid by each Material Customer during such year. Neither the
Company nor any Subsidiary has received any written notice, nor do Sellers have
any Knowledge, that any of the Material Customers have ceased, or intend to
cease after the Closing, to purchase goods or services from the Company or any
of the Subsidiaries or to otherwise terminate or materially reduce its
relationship with the Company or any of the Subsidiaries.

 

(b)          Section 4.15(b) of the Disclosure Schedules sets forth for the
years 2013 and 2014 (i) each supplier to whom the Company and the Subsidiaries
paid consideration for goods or services rendered in an amount greater than
$100,000 (collectively, the “Material Suppliers”); and (ii) the amount of
purchases from each Material Supplier during such year. Neither the Company nor
any Subsidiary has received any written notice that any of the Material
Suppliers will cease to supply goods or services to the Company or any of the
Subsidiaries or to otherwise terminate its relationship with the Company or any
of the Subsidiaries.

 

(c)          The Company’s and the Subsidiaries’ pending orders arose from bona
fide orders.

 

Section 4.16         Insurance. Section 4.16 of the Disclosure Schedules sets
forth (a) a true and complete list of all current policies or binders of fire,
liability, product liability, umbrella liability, real and personal property,
workers’ compensation, vehicular, fiduciary liability and other casualty and
property insurance maintained by the Company and each Subsidiary (collectively,
the “Insurance Policies”); and (b) a list of all pending claims and the claims
history for the Company and each Subsidiary during the three (3) years prior to
the Option Exercise Date. There are no claims pending under any such Insurance
Policies as to which coverage has been questioned or denied or in respect of
which there is an outstanding reservation of rights. Neither the Company nor any
Subsidiary has received any written notice of, nor do Sellers have any Knowledge
of, any cancellation of, premium increase with respect to, or alteration of
coverage under, any of such Insurance Policies. All premiums due on such
Insurance Policies have been paid. All such Insurance Policies (x) are in full
force and effect and enforceable in accordance with their terms; and (y) have
not been subject to any lapse in coverage. Neither the Company nor any
Subsidiary is in default under, or has otherwise failed to comply with, in any
material respect, any provision contained in any such Insurance Policy. True and
complete copies of the Insurance Policies have been made available to Buyer.

 

 26 

 

 

Section 4.17         Legal Proceedings; Governmental Orders.

 

(a)          There are no Actions pending or, to Sellers’ Knowledge, threatened
(a) against or by the Company or any Subsidiary; or (b) that challenge or seek
to prevent, enjoin or otherwise delay the transactions contemplated by this
Agreement, and, to Sellers’ Knowledge, no event has occurred or circumstances
exist that may give rise to, or serve as a basis for, any such Action.

 

(b)          There are no outstanding Governmental Orders and no unsatisfied
judgments, penalties or awards against, relating to or affecting the Company or
any Subsidiary. The Company and each Subsidiary is in compliance in all material
respects with the terms of each Governmental Order set forth in Section 4.17(b)
of the Disclosure Schedules. To Sellers’ Knowledge, no event has occurred or
circumstances exist that may constitute or result in (with or without notice or
lapse of time) a violation in any material respect of any such Governmental
Order.

 

Section 4.18         Compliance with Laws.

 

(a)          Except with regard to the matters described in Section 4.18(b), to
which the representations and warranties in Section 4.18(b), rather than the
representations and warranties set forth in this sentence, shall be applicable,
the Company and its Subsidiaries for the last three (3) years have substantially
complied, and are now in substantial compliance, with all applicable Laws
(including applicable occupational health and safety laws and regulations).
Neither the Company nor any Subsidiary has been charged or threatened in writing
with any charge by any Governmental Authority concerning any violation of any
provision of any Law. Neither the Company nor any Subsidiary is subject to any
Governmental Order of any Governmental Authority. Without limiting the
generality of the foregoing, there have been no product recalls, withdrawals or
seizures with respect to any products developed, sold, licensed or delivered by
the Company or any Subsidiary.

 

(b)          For the last three (3) years, the Company and its Subsidiaries have
endeavored, by conducting their operations in accordance with customary industry
practices, to be in substantial compliance, and the Company and its Subsidiaries
are now endeavoring in the same manner to be in substantial compliance, with the
Federal Food, Drug and Cosmetic Act, the Federal Trade Commission Act, the Fair
Packaging and Labeling Act, Consumer Products Safety Commissions Poison
Prevention Act and the Safe Drinking Water and Toxic Enforcement Act of 1986 or
“Proposition 65.” The Company and its Subsidiaries endeavor to be in substantial
compliance with all applicable regulations and requirements of the FDA, the FTC
and Other Authorities relating to the Company’s and its Subsidiaries’ products,
including any good manufacturing or handling practices, requirements for
demonstrating and maintaining the safety and efficacy of the products, export or
import requirements, certificates of export, requirements for investigating
customer complaints and inquiries, labeling requirements and protocols.

 

 27 

 

 

(c)          Neither the Company, any Subsidiary nor Sellers are in receipt of
notice of, or subject to, any adverse inspection, finding of deficiency, finding
of non-compliance, compelled or voluntary recall, investigation, penalty, fine,
sanction, assessment, request for corrective or remedial action or other
compliance or enforcement action, relating to any of the Company’s or any
Subsidiary’s products or the ingredients thereof or to the facilities in which
such products are designed, manufactured, merchandised, serviced, distributed,
sold, delivered or handled, whether issued by the Food and Drug Administration
(the “FDA”), the Federal Trade Commission (the “FTC”) or by any other federal,
state, local or foreign authority having or asserting responsibility for the
regulation of such products (“Other Authorities”).

 

(d)          Neither the Company nor any Subsidiary has knowingly made any false
statement in, or omission from, the applications, approvals, reports or other
submissions to the FDA, the FTC or the Other Authorities, or in or from any
report, study or other documentation prepared in connection therewith, or any
other records and documentation prepared or maintained to comply with the
requirements of the FDA, the FTC or Other Authorities relating to its products.

 

(e)          Neither the Company nor any Subsidiary has directly or indirectly
made or offered any payment, gratuity or other thing of value that is prohibited
by any Law, including to personnel of the FDA, the FTC or Other Authorities in
connection with the approval or regulatory status of the facilities in which its
products are designed, manufactured, merchandised, serviced, distributed, sold,
delivered or handled.

 

(f)          Neither the Company nor any Subsidiary has received any written
notification, or to Sellers’ Knowledge any oral notification, which remains
unresolved as of the Option Exercise Date, from the FDA, the FTC, or Other
Authorities indicating that the Company’s or any Subsidiary’s products are
adulterated, unsafe or ineffective for their intended use, or have shipped or
sold (or permitted to be shipped or sold) any products into any jurisdictions
without first having obtained all requisite approvals, registrations and
permissions from the FDA, the FTC and Other Authorities.

 

Section 4.19         Environmental Matters.

 

(a)          The operations of the Company and each Subsidiary are currently and
have been for the three (3) years prior to the Option Exercise Date in
compliance in all material respects with all Environmental Laws. Neither
Sellers, the Company, nor any Subsidiary has received from any Person any: (i)
Environmental Notice or Environmental Claim; or (ii) written request for
information pursuant to Environmental Law, which, in each case, either remains
pending or unresolved, or is the source of ongoing obligations or requirements
as of the Option Exercise Date.

 

 28 

 

 

(b)          The Company and each Subsidiary has obtained and is in material
compliance with all Environmental Permits (each of which is disclosed in Section
4.19(b) of the Disclosure Schedules) necessary for the conduct of the Business
as currently conducted by the Company and each Subsidiary or the ownership,
lease, operation or use of the assets of the Company and the Subsidiaries and
all such Environmental Permits are in full force and effect, and Sellers have no
Knowledge of any condition, event or circumstance that might prevent or impede,
after the Closing Date, the conduct of the Business as currently conducted by
the Company and each Subsidiary or the ownership, lease, operation or use of the
assets of the Company and each Subsidiary. Neither Sellers, the Company nor any
Subsidiary has received any Environmental Notice or other written communication
regarding any material adverse change in the status or terms and conditions of
the same.

 

(c)          There has been no Release of Hazardous Materials in contravention
of Environmental Law on any real property currently (or formerly, while occupied
by the Company or any Subsidiary) leased or operated by the Company or any
Subsidiary, and neither the Company, any Subsidiary nor Sellers have received an
Environmental Notice that any real property currently (or formerly, while
occupied by the Company or any Subsidiary) leased or operated by the Company or
any Subsidiary has been contaminated with any Hazardous Material.

 

(d)          Section 4.19(d) of the Disclosure Schedules contains a complete and
accurate list of all off-site Hazardous Materials treatment, storage, or
disposal facilities or locations used by the Company and each Subsidiary and any
predecessors as to which the Company or any Subsidiary may retain liability, and
none of these facilities or locations has been placed or proposed for placement
on the National Priorities List (or CERCLIS) under CERCLA, or any similar state
list, and neither the Company, any Subsidiary nor Sellers has received any
Environmental Notice regarding potential liabilities with respect to such
off-site Hazardous Materials treatment, storage, or disposal facilities or
locations used by the Company or any Subsidiary.

 

(e)          Neither the Company, any Subsidiary nor Sellers has retained or
assumed, by contract or operation of Law, any liabilities or obligations of any
other Person that remain in effect, valid or enforceable with respect to any
material liability under any Environmental Law.

 

(f)          The Company and each Subsidiary has provided or otherwise made
available to Buyer and listed in Section 4.19(d) of the Disclosure Schedules all
environmental reports and other similar documents with respect to any real
property currently (or formerly, while occupied by the Company or any
Subsidiary) leased or operated by the Company or any Subsidiary which are in
their possession or under their reasonable control.

 

 29 

 

 

Section 4.20         Employee Benefit Matters.

 

(a)          Section 4.20(a) of the Disclosure Schedules contains a true and
complete list of each material pension, benefit, retirement, compensation,
profit-sharing, deferred compensation, incentive, performance award, phantom
equity, change in control, retention, severance, vacation, paid time off,
fringe-benefit, and other similar agreement, plan, policy, program or
arrangement (and any amendments thereto), and each equity or equity-based
agreement, plan, policy, program or arrangement (and any amendments thereto), in
each case whether or not reduced to writing and whether funded or unfunded,
including each “employee benefit plan” within the meaning of Section 3(3) of
ERISA, whether or not tax-qualified and whether or not subject to ERISA, which
is or has within the last six (6) years been maintained, sponsored, contributed
to, or required to be contributed to by the Company or any Subsidiary for the
benefit of any current or former employee, officer, director, retiree,
independent contractor or consultant of the Company or any Subsidiary or any
spouse or dependent of such individual, or under which the Company or any
Subsidiary has any Liability, or with respect to which Buyer or any of its
Affiliates would reasonably be expected to have any Liability, contingent or
otherwise (as listed on Section 4.20(a) of the Disclosure Schedules, each, a
“Benefit Plan”).

 

(b)          With respect to each Benefit Plan, Sellers have made available to
Buyer accurate and complete copies of each of the following: (i) where the
Benefit Plan has been reduced to writing, the plan document together with all
amendments; (ii) where the Benefit Plan has not been reduced to writing, a
written summary of all material plan terms; (iii) copies of any summary plan
descriptions, summaries of material modifications, employee handbooks and any
other material written communications relating to any Benefit Plan; (iv) in the
case of any Benefit Plan that is intended to be qualified under Section 401(a)
of the Code, a copy of the most recent determination, opinion or advisory letter
from the Internal Revenue Service; (v) in the case of any Benefit Plan for which
a Form 5500 is required to be filed, a copy of the most recently filed Form
5500, with schedules attached; (vi) reports related to any Benefit Plans with
respect to the most recently completed fiscal years; and (vii) copies of
material notices, letters or other correspondence from the Internal Revenue
Service, Department of Labor or Pension Benefit Guaranty Corporation relating to
the Benefit Plan.

 

 30 

 

 

(c)          Each Benefit Plan (other than any multiemployer plan within the
meaning of Section 3(37) of ERISA (each a “Multiemployer Plan”)) has been
established, administered and maintained in all material respects in accordance
with its terms and in material compliance with all applicable Laws (including
ERISA and the Code). Each Benefit Plan that is intended to be qualified and that
the Plan and the trust related thereto are exempt from federal income taxes
under Sections 401(a) and 501(a), respectively, of the Code (a “Qualified
Benefit Plan”) is so qualified and has received a favorable and current
determination letter from the Internal Revenue Service, or with respect to a
prototype plan, can rely on an opinion letter from the Internal Revenue Service
to the prototype plan sponsor, to the effect that such Qualified Benefit Plan is
so qualified and that the Plan and the Trust related thereto are exempt from
Federal income taxes under Sections 401(a) and 501(a) of the Code, and, to the
Knowledge of Sellers, nothing has occurred that could reasonably be expected to
cause the revocation of such determination letter from the Internal Revenue
Service or the unavailability of reliance on such opinion letter from the
Internal Revenue Service, as applicable, nor has such revocation or
unavailability been threatened in writing. To the Knowledge of Sellers, nothing
has occurred with respect to any Seller Benefit Plan that has subjected or could
reasonably be expected to subject the Company or any Subsidiary or, with respect
to any period on or after the Closing Date, Buyer or any of its Affiliates, to a
penalty under Section 502 of ERISA or to tax or penalty under Section 4975 of
the Code. All benefits, contributions and premiums relating to each Benefit Plan
have been timely paid in accordance in all material respects with the terms of
such Benefit Plan and all applicable Laws and accounting principles, and all
benefits accrued under any unfunded Benefit Plan have been paid, accrued or
otherwise adequately reserved to the extent required by, and in accordance with,
GAAP.

 

(d)          Neither the Company, any Subsidiary nor any of the Company’s or any
Subsidiary’s ERISA Affiliates have (i) incurred or reasonably expect to incur,
either directly or indirectly, any material Liability under Title I or Title IV
of ERISA or related provisions of the Code relating to employee benefit plans;
(ii) withdrawn from any Benefit Plan; or (iii) engaged in any transaction which
would give rise to liability under Section 4069 or Section 4212(c) of ERISA.

 

(e)          With respect to each Benefit Plan (i) no such plan is a
Multiemployer Plan, (ii) no such plan is a “multiple employer plan” within the
meaning of Section 413(c) of the Code or a “multiple employer welfare
arrangement” (as defined in Section 3(40) of ERISA); (iii) no Action has been
initiated by the Pension Benefit Guaranty Corporation to terminate any such plan
or to appoint a trustee for any such plan; (iv) no such plan is subject to the
minimum funding standards of Section 302 of ERISA or Section 412 of the Code;
and (v) no “reportable event,” as defined in Section 4043 of ERISA, has occurred
with respect to any such plan.

 

(f)          Other than as required under Section 601 et. seq. of ERISA or other
applicable Law, no Benefit Plan or other arrangement provides post-termination
or retiree welfare (including medical) benefits to any individual for any
reason.

 

(g)          There is no pending or, to Sellers’ Knowledge, threatened Action
relating to a Benefit Plan (other than routine claims for benefits), and no
Benefit Plan has been or is the subject of an examination or audit by a
Governmental Authority or the subject of an application or filing under, or is a
participant in, an amnesty, voluntary compliance, self-correction or similar
program sponsored by any Governmental Authority.

 

 31 

 

 

 

(h)          There has been no amendment to, announcement by the Company or any
Subsidiary relating to, or change in employee participation or coverage under,
any Benefit Plan that would materially increase the annual expense of
maintaining such plan above the level of the expense incurred for the most
recently completed fiscal year. Neither the Company nor any Subsidiary has any
commitment or obligation or has made any representations, whether or not legally
binding, to adopt, amend or modify any Benefit Plan or any collective bargaining
agreement.

 

(i)          Each Benefit Plan that is subject to Section 409A of the Code has
been operated in compliance in all material respects with such section and all
applicable regulatory guidance (including, notices, rulings and proposed and
final regulations).

 

(j)          Neither the execution of this Agreement nor any of the transactions
contemplated by this Agreement will (either alone or upon the occurrence of any
additional or subsequent events): (i) entitle any current or former manager,
director, officer, employee, independent contractor or consultant of the Company
or any Subsidiary to severance pay or any other payment; (ii) accelerate the
time of payment, funding or vesting, or increase the amount of compensation due
to any such individual; (iii) increase the amount payable under or result in any
other material obligation pursuant to any Benefit Plan; or (iv) result in
“excess parachute payments” within the meaning of Section 280G(b) of the Code.

 

Section 4.21         Employment Matters.

 

(a)          Section 4.21(a) of the Disclosure Schedules contains a list of all
persons who are employees, independent contractors or consultants of the Company
or any Subsidiary as of the Option Exercise Date, and sets forth for each such
individual the following: (i) name; (ii) title or position (including whether
full or part time); (iii) hire date; (iv) current annual base compensation rate;
(v) commission, bonus or other incentive-based compensation; (vi) a description
of the fringe benefits provided to each such individual as of the Option
Exercise Date; and (vii) such individual’s accrued and unused paid time off. As
of the Option Exercise Date, all compensation, including wages, commissions and
bonuses payable to the Company’s and each Subsidiary’s employees, independent
contractors or consultants for services performed on or prior to the Option
Exercise Date have been paid in full and there are no outstanding agreements,
understandings or commitments of the Company or any Subsidiary with respect to
any compensation, commissions or bonuses.

 

(b)          Neither the Company nor any Subsidiary is, nor has been, a party
to, bound by, or negotiating any collective bargaining agreement or other
Contract with a union, works council or labor organization (collectively,
“Union”), and there is not, and has not been, any Union representing or
purporting to represent any employee of the Company or any Subsidiary, and, to
Sellers’ Knowledge, no Union or group of employees is seeking or has sought to
organize employees for the purpose of collective bargaining. There has never
been, nor, to Seller’s Knowledge, has there been any threat of, any strike,
slowdown, work stoppage, lockout, concerted refusal to work overtime or other
similar labor disruption or dispute affecting the Company, any Subsidiary or any
employees of the Company or any Subsidiary. Neither the Company nor any
Subsidiary has a duty to bargain with any Union.

 

 32 

 

  

(c)          The Company and each Subsidiary is in compliance in all material
respects with the terms of the Contracts listed on Section 4.21(b) of the
Disclosure Schedules, if any, and all applicable Laws pertaining to employment
and employment practices, including all Laws relating to labor relations, equal
employment opportunities, fair employment practices, employment discrimination,
harassment, retaliation, reasonable accommodation, disability rights or
benefits, immigration, wages, hours, overtime compensation, child labor, hiring,
promotion and termination of employees, working conditions, meal and break
periods, privacy, health and safety, workers’ compensation, leaves of absence
and unemployment insurance. All individuals characterized and treated by the
Company or any Subsidiary as consultants or independent contractors of Sellers
are properly treated as independent contractors under all applicable Laws. All
employees of the Company or any Subsidiary classified as exempt under the Fair
Labor Standards Act and state and local wage and hour laws are properly
classified. There are no Actions against the Company or any Subsidiary pending,
or to Sellers’ Knowledge, threatened to be brought or filed, by or with any
Governmental Authority or arbitrator in connection with the employment of any
current or former applicant, employee, consultant, volunteer, intern or
independent contractor of the Company or any Subsidiary, including any claim
relating to unfair labor practices, employment discrimination, harassment,
retaliation, equal pay, wages and hours or any other employment related matter
arising under applicable Laws.

 

(d)          Neither the Company nor any Subsidiary is subject to the WARN Act
with respect to the transactions contemplated by this Agreement.

 

Section 4.22         Taxes.

 

(a)          All income Tax Returns and all material non-income Tax Returns
required to be filed on or before the Closing Date by the Company and each
Subsidiary for any Pre-Closing Tax Period have been, or will be, timely filed.
Such Tax Returns are, or will be, complete and correct in all material respects.
All material Taxes due and required to be paid on or before the Closing Date by
the Company and each Subsidiary (whether or not shown on any Tax Return) have
been, or will be, timely paid.

 

(b)          The Company and each Subsidiary has withheld and paid each Tax
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, customer, member, shareholder
or other party, and complied with all information reporting and backup
withholding provisions of applicable Law.

 

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(c)          No claim has been made by any taxing authority in any jurisdiction
where the Company or any Subsidiary does not file Tax Returns that it is, or may
be, subject to Tax by that jurisdiction.

 

(d)          No extensions or waivers of statutes of limitations have been given
or requested with respect to any Taxes of the Company or any Subsidiary.

 

(e)          The amount of the Company’s and each Subsidiary’s Liability for
unpaid Taxes for all periods ending on or before the most recent Financial
Statements does not, in the aggregate, exceed the amount of accruals for Taxes
(excluding reserves for deferred Taxes) reflected on such Financial Statements.
The amount of the Company’s and each Subsidiary’s Liability for unpaid Taxes for
all periods through the Closing Date shall not, in the aggregate, exceed the
amount of accruals for Taxes (excluding reserves for deferred Taxes) as adjusted
for the passage of time in accordance with the past custom and practice of the
Company and the Subsidiaries (and which accruals shall not exceed comparable
amounts incurred in similar periods in prior years).

 

(f)          To the Knowledge of Sellers, Section 4.22(f) of the Disclosure
Schedules sets forth (i) those years for which examinations by the taxing
authorities have been completed with respect to sales Taxes of the Company and
the Subsidiaries and (ii) those taxable years for which examinations are
presently being conducted with respect to sales Taxes of the Company and the
Subsidiaries.

 

(g)          All deficiencies asserted, or assessments made, against the Company
or any Subsidiary as a result of any examinations by any taxing authority have
been fully paid, accrued on the Audited Financial Statements, or finally
settled.

 

(h)          Neither the Company nor any Subsidiary is a party to any Action by
any taxing authority. There are no Actions pending, or to Sellers’ Knowledge,
threatened, by any taxing authority against the Company or any Subsidiary.

 

(i)          Sellers have delivered to Buyer copies of all federal, state, local
and foreign income, franchise and similar Tax Returns, examination reports, and
statements of deficiencies assessed against, or agreed to by, the Company or by
any Subsidiary for all Tax periods ending after December 31, 2009.

 

(j)          There are no Encumbrances for Taxes upon any of the Company’s or
any Subsidiary’s assets nor, to any Sellers’ Knowledge, is any taxing authority
in the process of imposing any Encumbrances for Taxes on any of the Company’s or
any Subsidiary’s assets (other than for current Taxes not yet due and payable).

 

(k)          Neither the Company nor any Subsidiary is a party to, or bound by,
any Tax indemnity, Tax-sharing or Tax allocation agreement.

 

(l)          No private letter rulings, technical advice memoranda or similar
agreement or rulings have been requested, entered into or issued by any taxing
authority with respect to the Company or any Subsidiary.

 

 34 

 

  

(m)          Neither the Company nor any Subsidiary has been a member of an
affiliated, combined, consolidated or unitary Tax group for Tax purposes.
Neither the Company nor any Subsidiary has any Liability for Taxes of any Person
(other than the Company) under Treasury Regulations Section 1.1502-6 (or any
corresponding provision of state, local or foreign Law), as transferee or
successor, by contract or otherwise.

 

(n)          The Company, together with its Subsidiaries, has been treated as a
partnership for US federal income tax purposes in all Tax years since the date
of formation. Neither the Company nor any Subsidiary is, or has ever made an
election to be treated as, a corporation for U.S. federal, state, local or
foreign tax purposes.

 

(o)          Neither the Company nor any Subsidiary will be required to include
any item of income in, or exclude any item or deduction from, taxable income for
any taxable period or portion thereof ending after the Closing Date as a result
of:

 

(i)          any change in a method of accounting under Section 481 of the Code
(or any comparable provision of state, local or foreign Tax Laws), or use of an
improper method of accounting, for a taxable period ending on or prior to the
Closing Date;

 

(ii)         an installment sale or open transaction occurring on or prior to
the Closing Date;

 

(iii)        a prepaid amount received on or before the Closing Date;

 

(iv)        any closing agreement under Section 7121 of the Code, or similar
provision of state, local or foreign Law; or

 

(v)         any election under Section 108(i) of the Code.

 

(p)          Neither the Company, any Subsidiary nor either Seller is a “foreign
person” as that term is used in Treasury Regulations Section 1.1445-2.

 

(q)          Neither the Company, any Subsidiary nor either Seller is, nor has
been, a party to, or a promoter of, a “reportable transaction” within the
meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section
1.6011 4(b).

 

(r)          None of the assets of the Company or any Subsidiary is property
that the Company or any Subsidiary is required to treat as being owned by any
other person pursuant to the so-called “safe harbor lease” provisions of former
Section 168(f)(8) of the Code.

 

(s)          None of the assets of the Company or any Subsidiary is tax-exempt
use property within the meaning of Section 168(h) of the Code.

 

Section 4.23         Permits. All Permits required for the Company and each
Subsidiary to carry on its operations as presently conducted have been obtained
by the Company and such Subsidiary and are valid and in full force and effect,
except, in each case, where the failure to have a particular Permit would not be
material to the Company’s and the Subsidiaries’ Business. All fees and charges
due and payable with respect to such Permits as of the Option Exercise Date have
been paid in full. Section 4.23 of the Disclosure Schedules lists all current
material Permits issued to the Company and each Subsidiary, including the names
of such Permits and their respective dates of issuance and expiration. To
Sellers’ Knowledge, no event has occurred that, with or without notice or lapse
of time or both, would reasonably be expected to result in the revocation,
suspension, lapse or limitation of any Permit set forth in Section 4.23 of the
Disclosure Schedules.

 

 35 

 

  

Section 4.24         Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement or any other Transaction Document
based upon arrangements made by or on behalf of Sellers.

 

Section 4.25         Product Warranty. Each product manufactured, sold, leased,
or delivered by the Company and each Subsidiary has been in conformity in all
material respects with all applicable contractual commitments and all express
and implied warranties, and neither the Company nor any Subsidiary has any
Liability (and there is no basis for any present or future Action, against the
Company or any Subsidiary giving rise to any Liability) for replacement thereof
or other damages in connection therewith, subject only to the reserve for
product warranty claims set forth on the Interim Balance Sheet as adjusted for
the passage of time through the Closing Date in accordance with the past custom
and practice of the Company and each Subsidiary. Section 4.25 of the Disclosure
Schedules includes copies of the standard terms and conditions of sale of the
Company and each Subsidiary (containing applicable guaranty, warranty, and
indemnity provisions). No product manufactured, sold, leased, or delivered by
the Company or any Subsidiary is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of sale set forth
in Section 4.25 of the Disclosure Schedules.

 

Section 4.26         Products Liability. Neither the Company nor any Subsidiary
has any Liability (and, to the Knowledge of Sellers, there is no basis for any
present or future Action or charge against any of them giving rise to any
Liability) arising out of any injury to individuals or property as a result of
the ownership, possession, or use of any product manufactured, sold or delivered
by the Company or any Subsidiary, except for Liabilities that would not be
material to the Company’s and the Subsidiaries’ Business, provided, that
“Serious Adverse Event Reports” would be considered material.

 

Section 4.27         Affiliate Interests. Neither Sellers nor any manager,
officer or director of the Company or any Subsidiary:

 

(a)          owns any interest in any Person which is a competitor, supplier or
customer of the Company or any Subsidiary;

 

(b)          owns, in whole or in part, any property, asset or right used in
connection with the Business;

 

 36 

 

  

(c)          has an interest in any Contract pertaining to the Company or any
Subsidiary;

 

(d)          has any contractual arrangements with the Company or any
Subsidiary; or

 

(e)          owes any money to, or is owed any money by, the Company or any
Subsidiary, other than for current wages, benefits, and compensation paid and
provided in the ordinary course of business.

 

Section 4.28         NO OTHER REPRESENTATIONS OR WARRANTIES. SELLERS MAKE NO
REPRESENTATION OR WARRANTY TO BUYER WITH RESPECT TO, AND BUYER WILL NOT BE
ENTITLED TO RELY ON:

 

(a)          ANY PROJECTIONS, ESTIMATES OR BUDGETS HERETOFORE DELIVERED TO OR
MADE AVAILABLE TO BUYER OR ANY INFORMATION REGARDING FUTURE REVENUES, EXPENSES
OR RESULTS OF OPERATIONS OF THE BUSINESS; OR

 

(b)          EXCEPT AS EXPRESSLY COVERED BY A REPRESENTATION AND WARRANTY
CONTAINED IN THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, ANY OTHER
INFORMATION OR DOCUMENTS (FINANCIAL OR OTHERWISE) MADE AVAILABLE TO BUYER OR ITS
COUNSEL, ACCOUNTANTS OR ADVISERS WITH RESPECT TO THE COMPANY OR THE BUSINESS.

 

EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT AND
THE OTHER TRANSACTION DOCUMENTS, SELLERS MAKE NO REPRESENTATIONS OR WARRANTIES
IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

ARTICLE V
Representations and warranties of buyer

 

Buyer represents and warrants to Sellers as follows:

 

Section 5.01         Organization of Buyer. Buyer is a corporation duly
organized, validly existing and in good standing under the Laws of the state of
Delaware, and has the corporate power and authority to own, lease and operate
its properties and assets and to carry on its business as now being conducted.

 

Section 5.02         Authority of Buyer. Buyer has full corporate power and
authority to enter into this Agreement and the other Transaction Documents to
which Buyer is a party, to carry out its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by Buyer of this Agreement and any other Transaction
Document to which Buyer is a party, the performance by Buyer of its obligations
hereunder and thereunder and the consummation by Buyer of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
corporate action on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer, and constitutes a legal, valid and binding obligation of
Buyer enforceable against Buyer in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, and similar laws affecting creditors’ rights and remedies generally,
and, as to enforceability, to general principles of equity regardless of whether
enforcement is sought in a proceeding at law or in equity. When each other
Transaction Document to which Buyer is or will be a party has been duly executed
and delivered by Buyer, such Transaction Document will constitute a legal and
binding obligation of Buyer enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, and similar laws affecting creditors’ rights and
remedies generally, and, as to enforceability, to general principles of equity
regardless of whether enforcement is sought in a proceeding at law or in equity.

 

 37 

 

  

Section 5.03         No Conflicts; Consents. The execution, delivery and
performance by Buyer of this Agreement and the other Transaction Documents to
which it is a party, and the consummation of the transactions contemplated
hereby and thereby, do not and will not: (a) conflict with or result in a
violation or breach of, or default under, any provision of the certificate of
incorporation or by-laws of Buyer; (b) conflict with or result in a violation or
breach of any provision of any Law or Governmental Order applicable to Buyer; or
(c) require the consent, notice or other action by any Person under, violate
conflict with or result in a default (or any event which, with notice or lapse
of time or both, would constitute a default) under, or give rise to any right of
termination, cancellation or acceleration under any Contract to which Buyer is a
party or by which Buyer or any of its assets may be bound. No consent, approval,
Permit, Governmental Order, declaration or filing with, or notice to, any
Governmental Authority is required by or with respect to Buyer in connection
with the execution and delivery of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby.

 

Section 5.04         Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement or any other Transaction Document
based upon arrangements made by or on behalf of Buyer.

 

Section 5.05         Legal Proceedings. There are no Actions pending or, to
Buyer’s Knowledge, threatened (a) against or by Buyer, or (b) that challenge or
seek to prevent, enjoin or otherwise delay the transactions contemplated by this
Agreement, and no event has occurred or circumstances exist that may give rise
or serve as a basis for any such Action.

 

Section 5.06         Independent Review. Buyer has conducted its own independent
review and analysis of the Business and its condition, cash flow and prospects,
and acknowledges that Buyer has been provided access to the properties, premises
and records of the Company and the Subsidiaries for this purpose. In entering
into this Agreement, Buyer has relied upon its own investigation and analysis
and the representations and warranties contained herein, and Buyer:

 

 38 

 

  

(a)          acknowledges that it has had the opportunity to visit with the
Company and the Subsidiaries and meet with its officers and other
representatives to discuss the Business and its condition, cash flow and
prospects;

 

(b)          acknowledges that it has undertaken such due diligence (including a
review of the assets, liabilities, books, records and Contracts of the Company
and the Subsidiaries) as Buyer deems adequate;

 

(c)          acknowledges that, except as set forth in ARTICLE IV, neither
Sellers, nor any of the Company’s or its Subsidiaries’ respective officers,
employees, Affiliates, agents or representatives, make any representation or
warranty, either express or implied, as to the accuracy or completeness of any
of the information provided or made available to Buyer or its agents or
representatives prior to the execution of this Agreement; and

 

(d)          agrees, to the fullest extent permitted by Law and except as set
forth in ARTICLE IX, that Sellers shall not have any liability or responsibility
whatsoever to Buyer on any basis (including in contract or tort or otherwise)
based upon any information provided or made available, or statements made, to
Buyer prior to the execution of this Agreement.

 

Notwithstanding the foregoing, nothing in this Section 5.06, nor Buyer’s
investigation, analysis, due diligence review, nor any information received by
Buyer, shall (w) operate as a waiver or otherwise diminish any of Sellers’
representations and warranties and agreements given or made by Sellers in this
Agreement or any of the other Transaction Documents, (x) be deemed to amend or
supplement the Disclosure Schedules; (y) be deemed to be an acknowledgment or
agreement on the part of Buyer that Sellers’ representations and warranties, or
the Disclosure Schedules, are complete and correct; or (z) mean that Buyer’s
Knowledge includes any facts or circumstances not expressly set forth in
Sellers’ representations and warranties or in the Disclosure Schedules. Sellers
agree that Buyer had no obligation to conduct any greater investigation,
analysis or due diligence than it conducted.

 

ARTICLE VI
Covenants

 

Section 6.01         Conduct of Business Prior to the Closing. From the Option
Exercise Date until the Closing Date, except as otherwise provided in this
Agreement or consented to in writing by Buyer, Sellers shall cause the Company
and each Subsidiary to (x) conduct the Business in the ordinary course of
business consistent with past practice; and (y) use reasonable best efforts to
maintain and preserve intact its current business organization, operations and
franchise and to preserve the rights, goodwill and relationships of its
employees, customers, lenders, suppliers, regulators and others having
relationships with the Company and the Subsidiaries. Without limiting the
foregoing, from the Option Exercise Date until the Closing Date, Sellers shall
use their reasonable best efforts to cause the Company and each Subsidiary to:

 

 39 

 

  

(a)          preserve and maintain all Permits required for the conduct of the
Business as currently conducted and as conducted during the period between the
Option Exercise Date and the Closing, by the Company and the Subsidiaries and
the ownership and use of the Company’s and the Subsidiaries assets;

 

(b)          pay its debts, Taxes and other obligations when due, unless
diligently contested in good faith by appropriate proceedings;

 

(c)          continue to collect accounts receivable in a manner consistent with
past practice;

 

(d)          maintain the physical properties and assets owned by the Company
and each Subsidiary in a state of repair and condition that is consistent with
the requirements and normal use of such properties and assets;

 

(e)          continue in full force and effect without modification all
Insurance Policies, except as requested by applicable Law;

 

(f)          perform all of its obligations under all Contracts in all material
respects;

 

(g)          maintain the books and records of the Company and its Subsidiaries
in accordance with past practice;

 

(h)          comply in all material respects with all applicable Laws; and

 

(i)          not take or permit any action that would cause any of the changes,
events or conditions described in Section 4.07 to occur.

 

Notwithstanding anything herein to the contrary, (A) nothing in this Section
6.01 or Section 4.07 shall prevent the Company from issuing Units or granting
options, warrants or other rights to purchase or obtain (including upon
conversion, exchange or exercise) any currently outstanding or to-be-issued
Units in the Company, (1) so long as the prospective purchasers of such Units,
options, warrants or other rights are not competitors of the Company or its
Subsidiaries and agree to be bound by, and sell such Units in accordance with,
the terms of the Option Agreement, this Agreement (other than Section 6.06),
customary confidentiality restrictions and such issuance or grant does not
increase the Purchase Price to be paid by Buyer pursuant to this Agreement for
all outstanding Units, or (2) in connection with the Mezzanine Warrants and any
Units issued upon the exercise thereof, and (B) the Company’s repayment of all
or a portion of the Senior Debt prior to the Closing from the Company’s cash
generated from its ordinary course operations shall not be a breach of this
Section 6.01, provided that such payment does not directly or indirectly cause,
and is not directly or indirectly related to, a breach of this Section 6.01.

 

 40 

 

  

Section 6.02         Access to Information. Subject to the restrictions of any
applicable Law or contractual undertaking disclosed in Section 4.08(a) of the
Disclosure Schedules, from the Option Exercise Date until the Closing, Sellers
shall cause the Company and each Subsidiary to (a) upon reasonable advance
notice received from Buyer, afford Buyer and its Representatives reasonable
access to and the right to inspect all of the Real Property, properties, assets,
premises, books and records of the Company and the Subsidiaries, Contracts and
other documents and data of the Company and the Subsidiaries; (b) furnish Buyer
and its Representatives with such financial, operating and other data and
information of the Company and the Subsidiaries as Buyer or any of its
Representatives may reasonably request; and (c) instruct the Representatives of
the Company and each Subsidiary to cooperate with Buyer in its reasonable
investigation of the Company and the Subsidiaries. Any investigation pursuant to
this Section 6.02 shall be conducted during normal business hours under the
supervision of the Company’s or each Subsidiary’s (as applicable) personnel and
in such manner as to maintain the confidentiality of this Agreement and the
transactions contemplated hereby and not to interfere unreasonably with the
Company’s and the Subsidiaries’ conduct of the Business.

 

Section 6.03         No Solicitation of Other Bids.

 

(a)          From the date hereof until the earlier of (x) the Closing and (y)
the termination of this Agreement, Sellers, the Company and each Subsidiary
shall not, and shall not authorize or permit any of their respective Affiliates
or Representatives to, directly or indirectly, (i) encourage, solicit, initiate,
facilitate or continue inquiries regarding an Acquisition Proposal; (ii) enter
into discussions or negotiations with, or provide any information to, any Person
concerning a possible Acquisition Proposal; or (iii) enter into any agreements
or other instruments (whether or not binding) regarding an Acquisition Proposal.
Sellers, the Company and each Subsidiary shall immediately cease and cause to be
terminated, and shall cause their respective Affiliates and Representatives to
immediately cease and cause to be terminated, all existing discussions or
negotiations with any Persons conducted heretofore with respect to, or that
could lead to, an Acquisition Proposal. For purposes hereof, “Acquisition
Proposal” means any inquiry, proposal or offer from any Person (other than Buyer
or any of its Affiliates) relating to the direct or indirect disposition,
whether by sale, merger or otherwise, of all or any material portion of the
Company’s or any Subsidiary’s equity, Business or assets (other than the sale of
assets in the ordinary course of the Business consistent with past practice).

 

(b)          In addition to the other obligations under this Section 6.03,
Sellers, the Company and each Subsidiary shall promptly (and in any event within
two (2) Business Days after receipt thereof by such Seller, its Representatives,
the Company or any Subsidiary) advise Buyer orally and in writing of any
Acquisition Proposal, any request for information with respect to any
Acquisition Proposal, or any inquiry with respect to or which could reasonably
be expected to result in an Acquisition Proposal, the material terms and
conditions of such request, Acquisition Proposal or inquiry, and the identity of
the Person making the same.

 

 41 

 

  

(c)          Sellers agree that the rights and remedies for noncompliance with
this Section 6.03 shall include having such provision specifically enforced by
any court having equity jurisdiction, without Buyer being required to post any
bond or other security, it being acknowledged and agreed that any such breach or
threatened breach shall cause irreparable injury to Buyer and that money damages
would not provide an adequate remedy to Buyer.

 

Section 6.04         Notice of Certain Events.

 

(a)          From the Option Exercise Date until the Closing, Sellers shall
promptly notify Buyer in writing of:

 

(i)          any fact or circumstances, the existence of which (A) has had, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, or (B) has resulted in, or could reasonably be expected
to result in, any representation, warranty or covenant or agreement made by a
Seller hereunder or under any other Transaction Document to be in breach as of
the Option Exercise Date or the Closing Date;

 

(ii)         any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement;

 

(iii)        any notice or other communication from any Governmental Authority
relating to the transactions contemplated by this Agreement; and

 

(iv)        any Actions commenced or, to Sellers’ Knowledge, threatened against,
relating to or involving or otherwise affecting the Business, the assets of the
Company or any Subsidiary that, if pending on the Option Exercise Date, would
have been required to have been disclosed pursuant to Section 4.17, or that
relates to the consummation of the transactions contemplated by this Agreement.

 

(b)          Buyer’s receipt of information pursuant to this Section 6.04 shall
not (i) operate as a waiver or otherwise diminish any representation, warranty,
covenant or agreement given or made by any Seller in this Agreement or any of
the other Transaction Documents, (ii) be deemed to amend or supplement the
Disclosure Schedules; or (iii) cure any breach of any such representation,
warranty, covenant or agreement hereunder or under any other Transaction
Document.

 

Section 6.05         Confidentiality. From and after the Closing until the
fourth (4th) anniversary of the Closing, each Seller shall, and shall cause its
respective Affiliates to, hold, and shall use reasonable best efforts to cause
its respective Representatives to hold, in confidence any and all information,
whether written or oral, concerning the Company, each Subsidiary, the Business
and the assets of the Company and each Subsidiary, except to the extent that a
Seller can show that such information is generally available to and known by the
public through no fault of either Seller or any of his or her Affiliates or
Representatives; or is required to be disclosed by Law or judicial or legal
process. If either Seller, or any of their respective Affiliates or
Representatives are compelled to disclose any such information by judicial or
administrative process or by other requirements of Law, such Seller shall
promptly notify Buyer in writing and shall disclose only that portion of such
information which such compelled party is advised by its counsel in writing is
legally required to be disclosed, provided, that such compelled party shall use
reasonable best efforts to obtain an appropriate protective order or other
reasonable assurance that confidential treatment will be accorded such
information. Neither Seller, and no Affiliate thereof (except as expressly
permitted in the N. Balcombe Employment Agreement), shall directly or indirectly
use, or directly or indirectly assist any other Person in using, whether or not
for compensation, any Confidential Information.

 

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Section 6.06         Non-competition; Non-solicitation. Except as set forth on
Exhibit C hereto, Sellers and Buyer hereby agree as follows:

 

(a)          For a period of four (4) years commencing on the Closing Date (the
“Restricted Period”), each Seller shall not, and shall not permit any of his or
her Affiliates to, directly or indirectly, and whether or not for compensation,
(i) engage in or assist others in engaging in the Business in the Territory;
(ii) have an interest in any Person that engages directly or indirectly in the
Business in the Territory in any capacity, including as a partner, shareholder,
member, officer, director, employee, principal, agent, trustee or consultant; or
(iii) cause, induce or encourage any customer, supplier or licensor of the
Company or any Subsidiary that was a customer, supplier or licensor of the
Company or any Subsidiary during the two (2) year period prior to the Closing or
becomes a customer, supplier or licensor of the Company or any Subsidiary during
the one (1) year period after the Closing, or any other Person who has a
material business relationship with the Company or any Subsidiary during the two
(2) year period prior to the Closing or during the one (1) year period after the
Closing, to terminate or modify any such relationship. Notwithstanding the
foregoing, Sellers collectively may own, directly or indirectly, solely as an
investment, securities of any Person traded on any national securities exchange
if neither Seller is a controlling Person of, or a member of a group which
controls, such Person and Sellers collectively do not, directly or indirectly,
own three percent (3%) or more of any class of securities of such Person.

 

(b)          During the Restricted Period, each Seller shall not, and shall not
permit any of its Affiliates to, directly or indirectly, hire or solicit any
person who is or was employed in the Business by Buyer during the Restricted
Period, or encourage any such employee to leave such employment or hire any such
employee who has left such employment, except pursuant to a general solicitation
which is not directed specifically to any such employees.

 

 43 

 

 

(c)          Each Seller acknowledges that a breach or threatened breach of this
Section 6.06 would give rise to irreparable harm to Buyer, for which monetary
damages would not be an adequate remedy, and hereby agrees that in the event of
a breach or a threatened breach by a Seller of any such obligations, Buyer
shall, in addition to any and all other rights and remedies that may be
available to it in respect of such breach, be entitled to equitable relief,
including a temporary restraining order, an injunction, specific performance and
any other relief that may be available from a court of competent jurisdiction
(without any requirement to post bond or other security).

 

(d)          Each Seller acknowledges that the restrictions contained in this
Section 6.06 are reasonable and necessary to protect the legitimate interests of
Buyer and constitute a material inducement to Buyer to enter into this Agreement
and consummate the transactions contemplated by this Agreement. In the event
that any covenant contained in this Section 6.06 should ever be adjudicated to
exceed the time, geographic, product or service or other limitations permitted
by applicable Law in any jurisdiction, then any court is expressly empowered to
reform such covenant, and such covenant shall be deemed reformed, in such
jurisdiction to the maximum time, geographic, product or service or other
limitations permitted by applicable Law. The covenants contained in this Section
6.06 and each provision hereof are severable and distinct covenants and
provisions. The invalidity or unenforceability of any such covenant or provision
as written shall not invalidate or render unenforceable the remaining covenants
or provisions hereof, and any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such covenant or
provision in any other jurisdiction.

 

(e)          Sellers’ ownership of the Buyer Stock shall not be considered a
breach or violation of any of the covenants in this Section 6.06.

 

Section 6.07         Governmental Approvals and Consents. Following the Option
Exercise Date:

 

(a)          Sellers shall, as promptly as possible, (i) make, or cause or be
made, all filings and submissions required under any Law applicable to Sellers,
the Company or any Subsidiaries or any of their Affiliates; and (ii) use
reasonable best efforts to obtain, or cause to be obtained, all consents,
authorizations, orders and approvals from all Governmental Authorities that, in
each case, are necessary for its execution and delivery of this Agreement and
the other Transaction Documents and the performance of their obligations
pursuant to this Agreement and the other Transaction Documents. Sellers shall
cooperate fully with Buyer and its Affiliates in promptly seeking to obtain all
such consents, authorizations, orders and approvals. Sellers shall not willfully
take any action that will have the effect of delaying, impairing or impeding the
receipt of any required consents, authorizations, orders and approvals.

  

(b)          Sellers shall, and Sellers shall cause the Company and each
Subsidiary to, use reasonable best efforts to give all notices to, and obtain
all consents from, all third parties to which notice is required to be given or
from which consent is required to be obtained that are described in Section 4.03
of the Disclosure Schedules.

 

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(c)          Without limiting the generality of Sellers’ undertakings pursuant
to subsections (a) and (b) above, Sellers shall, and Sellers shall cause the
Company and each Subsidiary to, use reasonable best efforts to:

 

(i)          respond to any inquiries by any Governmental Authority regarding
antitrust or other matters with respect to the transactions contemplated by this
Agreement or any other Transaction Document;

 

(ii)         avoid the imposition of any order or the taking of any action that
would restrain, alter or enjoin the transactions contemplated by this Agreement
or any other Transaction Document; and

 

(iii)        in the event any Governmental Order adversely affecting the ability
of the parties to consummate the transactions contemplated by this Agreement or
any other Transaction Document has been issued, to have such Governmental Order
vacated or lifted.

 

(d)          All analyses, appearances, meetings, discussions, presentations,
memoranda, briefs, filings, arguments, and proposals made by or on behalf of a
party (or by the Company or any Subsidiary, which shall be deemed made on behalf
of Sellers) before any Governmental Authority, in connection with the
transactions contemplated hereunder (but not including any interactions between
a Seller with Governmental Authorities in the ordinary course of business, and
any disclosure which is not permitted by Law) shall be, except if prohibited or
otherwise required by Law, disclosed to the other parties hereunder in advance
of any filing, submission or attendance, it being the intent that the parties
will consult and cooperate with one another, and consider in good faith the
views of one another, in connection with any such analyses, appearances,
meetings, discussions, presentations, memoranda, briefs, filings, arguments, and
proposals. Buyer and Sellers shall give notice to the other with respect to any
meeting, discussion, appearance or contact with any Governmental Authority or
the staff or regulators of any Governmental Authority and shall give to the
other a summary of such meeting promptly following its occurrence, except if
prohibited by Law.

 

Section 6.08         Books and Records.

 

(a)          For a period of six (6) years after the Closing, Buyer shall cause
the Company and each Subsidiary to:

 

(i)          retain the books and records (including personnel files) of the
Company and its Subsidiaries relating to periods prior to the Closing; and

 

(ii)         upon reasonable notice, afford Sellers reasonable access (including
the right to make, at Sellers’ expense, photocopies), during normal business
hours, to such books and records.

 

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(b)          Buyer shall not be obligated to provide Sellers with access to any
books or records (including personnel files) pursuant to this Section 6.08 where
such access would violate any Law or Contract.

 

Section 6.09         Public Announcements. Unless otherwise required by
applicable Law (based upon the reasonable advice of counsel), no party to this
Agreement shall make any public announcements or other disclosure or otherwise
communicate with any news media in respect of this Agreement, the Option
Agreement or the transactions contemplated hereby or thereby. If any
announcement, disclosure or other communication is determined to be required by
applicable Law (based upon the reasonable advice of counsel), the parties shall
reasonably cooperate as to the timing and contents of any such announcement,
disclosure or other communication.

 

Section 6.10         Physical Inventory. Buyer shall have the right to notify
Sellers that Buyer desires to take a physical count and inspection of the
Inventory (the “Physical Inventory”). If so requested by Buyer, the Physical
Inventory shall be conducted jointly by one or more representatives of Sellers
and one or more representatives of Buyer, no later than five (5) days prior to
the Closing Date. Any costs incurred by Buyer in taking the Physical Inventory
shall be borne by Buyer.

 

Section 6.11         Additional Covenants of Sellers. At or prior to the
Closing, Sellers shall:

 

(a)          deliver to Buyer a certificate, dated the Closing Date and signed
by Sellers (the “Sellers’ Closing Certificate”), certifying that (i) the
representations and warranties of Sellers contained in this Agreement, the other
Transaction Documents and any certificate or other writing delivered pursuant
hereto are complete and correct in all respects (in the case of any
representation or warranty qualified by materiality or Material Adverse Effect)
or in all material respects (in the case of any representation or warranty not
qualified by materiality or Material Adverse Effect) at and as if made on the
Closing Date; (ii) each Seller, the Company and each Subsidiary has duly
performed and complied in all material respects with all agreements, covenants
and conditions required by this Agreement and each of the other Transaction
Documents to be performed or complied with by him, her or it prior to or on the
Closing Date; and (iii) attached thereto are complete and correct copies of the
Company’s Organizational Documents.

 

(b)          deliver to Buyer duly executed counterparts to the Transaction
Documents (other than this Agreement) and such other documents and deliveries
set forth in Section 3.02(a);

 

(c)          deliver to Buyer written evidence, in form and substance reasonably
satisfactory to Buyer, of the release in full of all Encumbrances relating to
the assets of the Company and each Subsidiary, other than Permitted
Encumbrances;

 

(d)          deliver to Buyer payoff letters from the holders of the Mezzanine
Debt and the Mezzanine Warrants evidencing the amount of the Mezzanine Debt and
Mezzanine Warrants outstanding as of the Closing Date (including any interest
accrued thereon and any prepayment or similar penalties and expenses associated
with prepayment or cancellation thereof on the Closing Date) and an agreement
that, if such aggregate amount so identified is paid to such holder on the
Closing Date, the Mezzanine Debt and Mezzanine Warrants shall be repaid or
cancelled in full and that all Encumbrances (except for Permitted Encumbrances)
affecting any real or personal property of the Company or any of the
Subsidiaries will be released;

 

 46 

 

  

(e)          deliver to Buyer written evidence in form and substance reasonably
satisfactory to Buyer confirming that upon payment of the respective amounts
specified in such documentation Brookwood Associates, L.L.C. shall be paid in
full with regard to the transaction contemplated by this Agreement and the other
Transaction Documents;

 

(f)          deliver to Buyer a duly executed certificate from each Seller
pursuant to Treasury Regulations Section 1.1445-2(b) (the “FIRPTA Certificate”)
that such Seller is not a foreign person within the meaning of Section 1445 of
the Code;

 

(g)          take all appropriate actions to exercise the Drag Along Right; and

 

(h)          deliver to Buyer such other documents or instruments as Buyer
reasonably requests and are reasonably necessary to consummate the transactions
contemplated by this Agreement.

 

Section 6.12         Further Assurances. Following the Closing, each of the
parties hereto shall, and shall cause their respective Affiliates to, execute
and deliver such additional documents, instruments, conveyances and assurances
and take such further actions as may be reasonably required to carry out the
provisions hereof and give effect to the transactions contemplated by this
Agreement and the other Transaction Documents.

 

Section 6.13         Product Liability Insurance. Following the Closing, Buyer
shall maintain product liability insurance coverage with terms and conditions
substantially similar to the Company’s insurance coverage as of the Option
Exercise Date for a period of eighteen (18) months following the Closing that
covers periods prior to the Closing.

 

Section 6.14         Supplemental Disclosure. Sellers may, from time to time
prior to or at the Closing, by notice in accordance with the terms of this
Agreement, supplement or amend the Disclosure Schedules in order to add
information or correct previously supplied information. It is specifically
agreed that the Disclosure Schedules may be amended to add immaterial, as well
as material, items thereto. If the Closing occurs, then any such supplement or
amendment will be effective to cure and correct for all other purposes any
breach of any representation, warranty or covenant that would have existed if
Sellers had not made such supplement or amendment, and all references to any of
the Disclosure Schedules that are supplemented or amended as provided in this
Section 6.14 shall for all purposes after the Closing be deemed to be a
reference to such Disclosure Schedules as so supplemented or amended.

 

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Section 6.15         Excluded Assets. Immediately prior to the Closing, the
Company will transfer to either Seller or an Affiliate of either Seller the
website “naomiwhittel.com”.

 

ARTICLE VII
Tax matters

 

Section 7.01         Tax Covenants.

 

(a)          Without the prior written consent of Buyer, Sellers (and, prior to
the Closing, the Company, the Subsidiaries, their Affiliates and their
respective Representatives) shall not make, change or rescind any Tax election,
amend any Tax Return or take any position on any Tax Return (except to the
extent consistent with past practices), or enter into any transaction (excluding
any transaction entered into in the ordinary course of business), in each case
that would have the effect of increasing the Tax liability or reducing any Tax
asset of Buyer, the Company or any Subsidiary in respect of any Post-Closing Tax
Period.

 

(b)          All transfer, documentary, sales, use, stamp, registration, value
added and other such Taxes and fees (including any penalties and interest)
incurred in connection with this Agreement and the other Transaction Documents
(including any real property transfer Tax and any other similar Tax) shall be
borne and paid by Buyer when due. Buyer shall, at its own expense, timely file
any Tax Return or other document with respect to such Taxes or fees (and Sellers
shall cooperate with respect thereto as necessary).

 

(c)          Buyer shall prepare, or cause to be prepared, all Tax Returns
required to be filed by the Company after the Closing Date with respect to a
Pre-Closing Tax Period, except for income Tax Returns which Sellers shall
prepare or cause to be prepared. Any such Tax Return shall be prepared in a
manner consistent with past practice (unless otherwise required by Law) and
without a change of any election or any accounting method and shall be submitted
by the preparing party to the other party (together with schedules, statements
and, to the extent requested by the other party, supporting documentation) at
least forty-five (45) days prior to the due date (including extensions) of such
Tax Return. If Sellers or Buyer, as applicable, object to any item on any such
Tax Return, the objecting party shall, within fifteen (15) days after delivery
of such Tax Return, notify the preparing party in writing that they so object,
specifying with particularity any such item and stating the specific factual or
legal basis for any such objection. If a notice of objection shall be duly
delivered, Buyer and Sellers shall negotiate in good faith and use their
reasonable best efforts to resolve such items. If Buyer and Sellers are unable
to reach such agreement within five (5) days after receipt of such notice, the
disputed items shall be resolved by the New York office of Deloitte & Touche LLP
or, if Deloitte & Touche is unable to serve, Buyer and Sellers shall appoint by
mutual agreement the office of an impartial nationally recognized firm of
independent certified public accountants other than Sellers’ Accountants or
Buyer’s Accountants (the “Independent Accountant”) and any determination by the
Independent Accountant shall be final. The Independent Accountant shall resolve
any disputed items within twenty (20) days of having the item referred to it
pursuant to such procedures as it may require. If the Independent Accountant is
unable to resolve any disputed items before the due date for such Tax Return,
the Tax Return shall be filed as prepared by Buyer or Sellers, as applicable,
and then amended, if necessary, to reflect the Independent Accountant's
resolution. The costs, fees and expenses of the Independent Accountant shall be
borne 50/50 by Buyer and Sellers. The preparation and filing of any Tax Return
of the Company and the Subsidiaries that does not relate to a Pre-Closing Tax
Period shall be exclusively within the control of Buyer.

 

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Section 7.02         Termination of Existing Tax Sharing Agreements. Any and all
existing Tax sharing agreements (whether written or not) binding upon the
Company or any Subsidiary shall be terminated as of the Closing Date. After such
date neither the Company, the Subsidiaries, Sellers nor any of Sellers’
Affiliates or their respective Representatives shall have any further rights or
liabilities thereunder.

 

Section 7.03         Tax Indemnification. Subject to Section 9.04(c), Sellers
shall jointly and severally indemnify the Company, each Subsidiary, Buyer, and
each Buyer Indemnitee and hold them harmless from and against (a) any Loss
attributable to any breach of or inaccuracy in any representation or warranty
made in Section 4.22; (b) any Loss attributable to any breach or violation of,
or failure to fully perform, any covenant, agreement, undertaking or obligation
of Sellers in this ARTICLE VII; (c) all interest and penalties related to Taxes
of the Company and each Subsidiary for all Pre-Closing Tax Periods to the extent
such Taxes were required to have been paid by the Company or its Subsidiaries
prior to the Closing and were not paid by the Company or any of its Subsidiaries
prior to the Closing; (d) all Taxes of any member of an affiliated,
consolidated, combined or unitary group of which the Company and each Subsidiary
(or any predecessor of the Company or each Subsidiary) is or was a member on or
prior to the Closing Date by reason of a liability under Treasury Regulation
Section 1.1502-6 or any comparable provisions of foreign, state or local Law;
and (e) any and all Taxes of any person imposed on the Company or any Subsidiary
arising under the principles of transferee or successor liability or by
contract, relating to an event or transaction occurring before the Closing Date,
provided, however, that Sellers shall not have any liability for any Taxes
resulting from any transaction engaged in by the Company or any Subsidiary of
the Company not in the ordinary course of business on the Closing Date after
Buyer’s purchase of all the outstanding Units. In each of the above cases,
together with any reasonable out-of-pocket fees and expenses (including
reasonable attorneys’ and accountants’ fees) incurred in connection therewith,
Sellers shall jointly and severally reimburse Buyer for any Taxes of the Company
or any Subsidiary that are the responsibility of Sellers pursuant to this
Section 7.03 within ten (10) Business Days after payment of such Taxes by Buyer,
the Company or any Subsidiary.

 

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Section 7.04         Straddle Period. In the case of Taxes that are payable with
respect to a taxable period that begins before and ends after the Closing Date
(each such period, a “Straddle Period”), the portion of any such Taxes that are
treated as Pre-Closing Taxes for purposes of this Agreement shall be:

 

(a)          in the case of Taxes (i) based upon, or related to, income,
receipts, profits, wages, capital or net worth, (ii) imposed in connection with
the sale, transfer or assignment of property, or (iii) required to be withheld
from any payment, deemed equal to the amount which would be payable if the
taxable year ended on the Closing Date; and

 

(b)          in the case of other Taxes, deemed to be the amount of such Taxes
for the entire period multiplied by a fraction the numerator of which is the
number of days in the period ending on the Closing Date and the denominator of
which is the number of days in the entire period.

 

Section 7.05         Refunds and Tax Benefits. Any Tax refunds that are received
by Buyer, the Company or any Subsidiary of the Company, and any amounts credited
against Taxes to which Buyer, the Company or any Subsidiary of the Company
becomes entitled (including any interest paid or credited with respect thereto),
that relate to Tax periods or portions thereof ending on or before the Closing
Date shall be for the account of Buyer, provided that any amount payable by
Sellers pursuant to Section 7.03 shall be reduced by the amount of any such
refund or credit actually received or taken by Buyer. If Sellers make any
payments to Buyer pursuant to Section 7.03 and Buyer subsequently receives a Tax
refund related to such payment by Sellers, then Buyer shall promptly refund
Sellers for any such payment to the extent of the Tax refund received and
related to such payment.

 

Section 7.06         Amendments to Returns; Refund Claims. Unless required by
any taxing authority, in which case Buyer shall promptly provide written notice
to Sellers, following the Closing, Buyer shall not file an amended Tax Return
for the Company or any Subsidiary of the Company for a Tax period ending on or
before the Closing Date without the prior written consent of Sellers.

 

Section 7.07         Contests. Buyer agrees to give written notice to Sellers of
the receipt of any written notice by the Company, each Subsidiary, Buyer or any
of Buyer’s Affiliates which involves the assertion of any claim, or the
commencement of any Action, in respect of which an indemnity may be sought by
Buyer pursuant to this ARTICLE VII (a “Tax Claim”); provided, that failure to
comply with this provision shall not affect Buyer’s right to indemnification
hereunder except to the extent Sellers are materially prejudiced thereby. Except
as provided in the following sentence, Buyer shall control the contest or
resolution of any Tax Claim; provided, however, that Buyer shall obtain the
prior written consent of Sellers (which consent shall not be unreasonably
withheld or delayed) before entering into any settlement of a claim or ceasing
to defend such claim; and, provided further, that Sellers shall be entitled to
participate in the defense of such claim and to employ counsel of their choice
for such purpose, the fees and expenses of which separate counsel shall be borne
solely by Sellers. Sellers shall control the contest or resolution of any Tax
Claim relating exclusively to a Pre-Closing Tax Period of the Company or any
Subsidiary of the Company; provided, however, that if such Tax Claim could have
the effect of increasing the Tax liability or reducing any Tax asset of Buyer in
respect of any Post-Closing Tax Period, then Sellers shall obtain the prior
written consent of Buyer (which consent shall not be unreasonably withheld or
delayed) before entering into any settlement of such Tax Claim or ceasing to
defend such Tax Claim and Buyer shall be entitled to participate in the defense
of such Tax Claim and to employ counsel of its choice for such purpose, the fees
and expenses of which separate counsel shall be borne solely by Buyer.

 

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Section 7.08         Cooperation and Exchange of Information. Sellers and Buyer
shall provide each other with such cooperation and information as either of them
reasonably may request of the other in filing any Tax Return pursuant to this
ARTICLE VII or in connection with any audit or other proceeding in respect of
Taxes of the Company or any Subsidiary. Such cooperation and information shall
include providing copies of relevant Tax Returns or portions thereof, together
with accompanying schedules, related work papers and documents relating to
rulings or other determinations by tax authorities. Sellers and Buyer shall
retain all Tax Returns, schedules and work papers, records and other documents
in its possession relating to Tax matters of the Company or any Subsidiary for
any taxable period beginning before the Closing Date until the expiration of the
statute of limitations of the taxable periods to which such Tax Returns and
other documents relate, without regard to extensions except to the extent
notified by the other party in writing of such extensions for the respective Tax
periods. Prior to transferring, destroying or discarding any Tax Returns,
schedules and work papers, records and other documents in its possession
relating to Tax matters of the Company or any Subsidiary for any taxable period
beginning before the Closing Date, Sellers or Buyer (as the case may be) shall
provide the other party with reasonable written notice and offer the other party
the opportunity to take custody of such materials.

 

Section 7.09         Tax Treatment.

 

(a)          Any indemnification payments pursuant to this ARTICLE VII shall be
treated as an adjustment to the Purchase Price by the parties for Tax purposes,
unless otherwise required by Law.

 

(b)          The parties hereto acknowledge that the sale of the outstanding
Units to Buyer shall be treated for U.S. federal income tax purposes (i) as to
each Seller, as a sale of the Seller’s partnership interest in the Company and
(ii) as to Buyer, as a deemed distribution of all of the Company’s assets to the
Sellers followed immediately thereafter by the purchase by Buyer of such assets,
in each case in accordance with Revenue Ruling 99-6.

 

(c)          The parties hereto acknowledge that the sale of the outstanding
Units to Buyer will result in the termination of the Company as a partnership
for federal income tax purposes under Code Section 708(b)(1)(A). As a result of
such termination, the taxable year of the Company will end for U.S. federal
income tax purposes (and any applicable state and local income tax purposes) on
the Closing Date, and all income, gain, expense, loss, deduction or credit for
the period from January 1 of the year in which the Closing occurs up to and
including the Closing Date, which shall be determined using the closing of the
books method, will be included on the final federal (and any applicable state
and local) income Tax Returns of the Company.

 

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(d)          Buyer shall prepare an allocation of the Purchase Price (plus any
additional amounts treated as consideration under Treasury Regulations Section
1.1060-1(c)) among the assets of the Company and its Subsidiaries. Such
allocation shall be completed by Buyer in accordance with the requirements of
Section 1060 of the Code and the Treasury Regulations thereunder.  Buyer agrees
to complete such allocation within ninety (90) days after the Closing Date and
shall submit such allocation in writing to Sellers.  If Sellers object to any
item on such allocation, they shall, within ten (10) days after delivery of such
allocation, notify Buyer in writing of their objection including the reasons
therefor. If a notice of objection shall be duly delivered, Buyer and Sellers
shall negotiate in good faith and use their reasonable best efforts to resolve
such items. If Buyer and Sellers are unable to reach such agreement within ten
(10) days after receipt by Buyer of such notice, the disputed items shall be
resolved by the Independent Accountant in accordance with the procedures set
forth in Section 7.01(c). Buyer and Sellers covenant and agree to use the final
allocation under this Section 7.09(d) in reporting the Tax consequences of the
transactions contemplated by this Agreement.  Neither Buyer nor any Seller shall
take any position (whether in connection with audits, Tax Returns or otherwise)
that is inconsistent with such allocations, except as may be required pursuant
to a “determination” within the meaning of Section 1313(a) of the Code (or
similar provision of State, local or foreign Tax law).

 

Section 7.10         Survival. Notwithstanding anything in this Agreement to the
contrary, the provisions of Section 4.22 and this ARTICLE VII shall survive for
the full period of all applicable statutes of limitations (giving effect to any
waiver, mitigation or extension thereof) plus sixty (60) days.

 

Section 7.11         Overlap. To the extent that any obligation or
responsibility pursuant to ARTICLE IX may overlap with an obligation or
responsibility pursuant to this ARTICLE VII, the provisions of this ARTICLE VII
shall govern with respect to Tax matters.

 

ARTICLE VIII
Conditions to closing

 

Section 8.01         No Obligation on Buyer to Close. Sellers acknowledge and
agree that under no circumstances shall Buyer be obligated to close on the
transactions contemplated by this Agreement.

 

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Section 8.02         Conditions to Obligations of Sellers. The obligations of
Sellers to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment or Sellers’ waiver, at or prior to the Closing, of
each of the following conditions:

 

(a)          No Governmental Authority shall have issued any Governmental Order
which is in effect and has the effect of making the transactions contemplated by
this Agreement illegal, otherwise restraining or prohibiting consummation of
such transactions or causing any of the transactions contemplated hereunder to
be rescinded following completion thereof.

 

(b)          No Action shall have been commenced against either Seller seeking
to prevent the Closing.

 

(c)          All material consents of, or registrations, declarations or filings
with, any Governmental Authority legally required for the consummation of the
transactions contemplated by this Agreement shall have been obtained or filed.

 

(d)          The representations and warranties of Buyer contained in this
Agreement, the other Transaction Documents and any certificate or other writing
delivered pursuant hereto shall be complete and correct in all respects (in the
case of any representation or warranty qualified by materiality or Material
Adverse Effect) or in all material respects (in the case of any representation
or warranty not qualified by materiality or Material Adverse Effect) at and as
if made on the Closing Date.

 

(e)          Buyer shall have duly performed and complied in all material
respects with all agreements, covenants and conditions required by this
Agreement and each of the other Transaction Documents to be performed or
complied with by it prior to or on the Closing Date, including payment of the
Purchase Price on the terms and conditions provided herein.

 

(f)          Buyer shall have delivered to Sellers duly executed counterparts to
the Transaction Documents (other than this Agreement) and such other documents
and deliveries set forth in Section 3.02(b).

 

(g)          Sellers shall have received a certificate, in form and substance
reasonably satisfactory to Sellers, dated the Closing Date and signed by a duly
authorized officer of Buyer, that each of the conditions set forth in Section
8.02(d) and Section 8.02(e) have been satisfied (the “Buyer Closing
Certificate”).

 

(h)          Sellers shall have received a certificate in form and substance
reasonably acceptable to Sellers (“Buyer’s Secretary Certificate”) executed by
the secretary of Buyer attaching and certifying true and correct copies of
(i) Buyer’s Certificate of Incorporation, (ii) Buyer’s Bylaws, and (iii) the
resolutions of Buyer’s Board of Directors approving this Agreement and the
transactions contemplated hereby.

 

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(i)          Buyer shall have delivered to Sellers such other documents or
instruments as Sellers reasonably request and are reasonably necessary to
consummate the transactions contemplated by this Agreement.

 

(j)          Buyer shall have exercised the Option pursuant to the Option
Agreement.

 

ARTICLE IX
Indemnification

 

Section 9.01         Survival. Subject to the limitations and other provisions
of this Agreement, the representations and warranties contained herein shall
survive the Closing and shall remain in full force and effect until the eighteen
(18) month anniversary of the Closing Date; provided, that the representations
and warranties in Section 4.01, Section 4.02, Section 4.04, the first sentence
of Section 4.09 and Section 4.24 (the “Fundamental Representations”), Section
5.01, and Section 5.02 shall survive indefinitely, and the representations and
warranties set forth in Section 4.19(d) as to those claims asserted by Buyer
after such eighteen (18) month period, of which the Sellers have Knowledge as of
the Closing but did not disclose to Buyer prior to the Closing through the
Disclosure Schedules or a supplement to the Disclosure Schedules and for which
Losses exceed One Hundred Thousand Dollars ($100,000.00) per claim (“Special
Environmental Losses”), shall survive for the full period of all applicable
statutes of limitations (giving effect to any waiver, mitigation or extension
thereof) that would apply to Third Party Claims regarding the subject matter of
such representations and warranties plus sixty (60) days. All covenants and
agreements of the parties contained herein shall survive the Closing for the
period explicitly specified therein or if no period is explicitly specified, the
period provided by the applicable statutory statute of limitations.
Notwithstanding the foregoing, any claims asserted in good faith with reasonable
specificity (to the extent known at such time) and in writing by notice from the
non-breaching party to the breaching party prior to the expiration date of the
applicable survival period shall not thereafter be barred by the expiration of
the relevant representation or warranty and such claims shall survive until
finally resolved; provided, that no claim may be asserted against any party
unless written notice of such claim is received by such party, describing in
reasonable detail the facts and circumstances with respect to the subject matter
of such claim, on or prior to the date (a) on which the representation or
warranty on which such claim is based ceases to survive as set forth or (b) that
is twelve (12) months following the date by which such covenant or agreement is
required to be performed.

 

Section 9.02         Indemnification By Sellers. Subject to the other terms and
conditions of this ARTICLE IX, Sellers shall jointly and severally indemnify and
defend Buyer and its Affiliates (including the Company and the Subsidiaries
after the Closing) and their respective Representatives (collectively, the
“Buyer Indemnitees”) against, and shall hold each of them harmless from and
against, and shall pay and reimburse each of them for, any and all Losses
incurred or sustained by, or imposed upon, the Buyer Indemnitees based upon,
arising out of, with respect to or by reason of:

 

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(a)          any inaccuracy in or breach of any of the representations or
warranties of Sellers contained in this Agreement or in any certificate or
instrument delivered by or on behalf of either Seller pursuant to this
Agreement;

 

(b)          any breach or non-fulfillment of any covenant, agreement or
obligation to be performed by either Seller pursuant to this Agreement or any
certificate or instrument delivered by or on behalf of either Seller pursuant to
this Agreement; or

 

(c)          any Specified Seller Liabilities.

 

Section 9.03         Indemnification By Buyer. Subject to the other terms and
conditions of this ARTICLE IX, Buyer shall indemnify and defend each Seller and
its respective Affiliates and Representatives (collectively, the “Seller
Indemnitees”) against, and shall hold each of them harmless from and against,
and shall pay and reimburse each of them for, any and all Losses incurred or
sustained by, or imposed upon, the Seller Indemnitees based upon, arising out
of, with respect to or by reason of:

  

(a)          any inaccuracy in or breach of any of the representations or
warranties of Buyer contained in this Agreement or any other Transaction
Documents, or in any certificate or instrument delivered by or on behalf of
Buyer pursuant to this Agreement, or any other Transaction Documents; or

 

(b)          any breach or non-fulfillment of any covenant, agreement or
obligation to be performed by Buyer pursuant to this Agreement.

 

Section 9.04         Certain Limitations. The indemnification provided for in
Section 9.02 and Section 9.03 shall be subject to the following limitations:

 

(a)          Except as otherwise expressly set forth herein, Sellers shall not
be liable to the Buyer Indemnitees for indemnification under Section 9.02(a) or
9.02(b) until the aggregate amount of all Losses in respect of indemnification
under Section 9.02(a) or 9.02(b) exceeds $250,000.00 (the “Basket”), in which
event Sellers shall only be liable for any such Losses in excess of the Basket.
Representations and warranties in ARTICLE IV that are qualified by the terms
“material” or “Material Adverse Effect”, or other terms of similar impact or
effect, other than the representations and warranties in Section 4.13(b) in
which such terms shall remain in effect and shall not be read as if such words
were deleted, shall be read without regard to such terms (i.e., as if such words
were deleted from such representation or warranty), and if the Losses in respect
of any breach of any such representation and warranty (as so modified) do not
exceed $25,000.00, such Losses will not count toward the Basket or otherwise be
indemnified; provided that, if the aggregate amount of all such Losses exceeds
$100,000.00, then only such Losses in excess of $100,000.00 shall count toward
the Basket, and towards indemnification of Losses once the Basket is exceeded.
Notwithstanding anything in this Agreement to the contrary, Losses arising from
Seller’s breach of any Fundamental Representation or Section 4.22, or Section
6.06, or Buyer’s payment of a Specified Seller Liability, or which arise as a
result of any Special Environmental Losses, shall not be subject to the Basket
or any other limitation set forth in this Section 9.04(a).

 

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(b)          Buyer shall not be liable to the Seller Indemnities for
indemnification under Section 9.03(a) until the aggregate amount of all Losses
in respect of indemnification under Section 9.03(a) with regard to breaches of
the representations set forth in Sections 5.03 and 5.05 exceeds the Basket, in
which event Buyer shall only be liable for any such Losses in excess of the
Basket.

 

(c)          Except as otherwise expressly set forth herein, the aggregate
amount of Losses required to be paid by Sellers pursuant to Section 7.03 and
Sections 9.02(a) and 9.02(b) shall not exceed an aggregate amount equal to (i)
the Escrow Amount plus (ii) the Buyer Stock that was issued to Health KP, LLC
pursuant to the Securities Purchase Agreement, dated August 1, 2014, between
Health KP, LLC and Buyer (the “Cap”). Notwithstanding the foregoing, Losses
arising from either Seller’s breach of any Fundamental Representation or Section
6.06, or Buyer’s payment of a Specified Seller Liability, shall not be subject
to the Cap.

 

(d)          For all purposes of this ARTICLE IX, Losses shall be net of any
third party insurance proceeds or any indemnity, contributions or other similar
payment actually paid to the Indemnified Party or its Affiliates in connection
with the facts giving right to the right of indemnification. For the avoidance
of doubt, an Indemnified Party shall be under no obligation to mitigate such
Indemnified Party’s Losses.

 

(e)          In any case where a Buyer Indemnitee recovers from third Persons
any amount in respect of a matter with respect to which Sellers have made an
indemnification payment to such Buyer Indemnitee pursuant to this Agreement,
such Buyer Indemnitee shall promptly pay over to Sellers the amount so recovered
(after deducting therefrom the full amount of the expenses incurred by the Buyer
Indemnitee in procuring such recovery), and any amount expended by Sellers in
pursuing or defending any claim arising out of such matter, but not in excess of
the amount of the indemnification payment previously paid by Sellers to or on
behalf of such Buyer Indemnitee in respect of such matter.

 

(f)          Notwithstanding anything herein to the contrary, if after the six
(6) month anniversary of the Closing Date, Buyer continues to use any
advertising, labeling or other marketing materials that are substantially the
same as any advertising, labeling or other marketing materials used by the
Company or its Subsidiaries prior to the Closing, Buyer shall not have the right
to bring any indemnification claim or other claim in respect of such
advertising, labeling or other marketing materials.

 

(g)          No party shall have any liability under any provision of this
Agreement for any punitive, consequential or special damages (including loss of
profit or revenue or any multiple of earnings or revenue), except to the extent
such damages are payable pursuant to a Third Party Claim.

 

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(h)          For the purposes of clarity, to the extent that Sellers do not
deliver to Buyer 100% of their outstanding Units and Management Incentive Units,
Buyer’s sole remedy shall be as set forth in Section 8(c) of the Option
Agreement.

 

Section 9.05         Indemnification Procedures. The party making a claim under
this ARTICLE IX is referred to as the “Indemnified Party”, and the party against
whom such claims are asserted under this ARTICLE IX is referred to as the
“Indemnifying Party”.

 

(a)          Third Party Claims. If any Indemnified Party receives notice of the
threat, assertion or commencement of any Action made or brought by any Person
who is not a party to this Agreement or an Affiliate of a party to this
Agreement or a Representative of the foregoing (a “Third Party Claim”) against
such Indemnified Party with respect to which an Indemnifying Party is obligated
to provide indemnification under this Agreement, the Indemnified Party shall
give the Indemnifying Party prompt written notice thereof, provided that the
failure to so notify the Indemnifying Party shall not relieve the Indemnifying
Party of its indemnification obligations, except and only to the extent that the
Indemnifying Party is materially adversely affected by such failure. Such notice
by the Indemnified Party shall describe the Third Party Claim in reasonable
detail, shall include copies of all material written evidence thereof (to the
extent in the possession of the Indemnified Party) and shall indicate the
estimated amount, if reasonably practicable, of the Loss that has been or may be
sustained by the Indemnified Party. The Indemnifying Party shall have the right
to participate in, or by giving written notice to the Indemnified Party within
thirty (30) days following the Indemnifying Party’s receipt of notice of a Third
Party Claim, to assume the defense of any Third Party Claim at the Indemnifying
Party’s expense and by the Indemnifying Party’s own counsel, and the Indemnified
Party shall cooperate in good faith in such defense; provided, that if the
Indemnifying Party is a Seller, such Indemnifying Party shall not have the right
to defend or direct the defense of any such Third Party Claim that seeks an
injunction or other equitable relief against the Indemnified Party. In the event
that the Indemnifying Party assumes the defense of any Third Party Claim,
subject to Section 9.05(b), it shall have the right to take such action as it
deems necessary to dispute, defend, appeal or make counterclaims pertaining to
any such Third Party Claim in the name and on behalf of the Indemnified Party.
The Indemnified Party shall have the right to participate in the defense of any
Third Party Claim with counsel selected by it subject to the Indemnifying
Party’s right to control the defense thereof. The fees and disbursements of such
counsel shall be at the expense of the Indemnified Party, provided, that if in
the reasonable opinion of counsel to the Indemnified Party, (A) there are legal
defenses available to an Indemnified Party that are different from or additional
to those available to the Indemnifying Party; or (B) there exists a conflict of
interest between the Indemnifying Party and the Indemnified Party that cannot be
waived, the Indemnifying Party shall be liable for the reasonable fees and
expenses of counsel to the Indemnified Party, provided, however, that the
Indemnifying Party will not be required to pay the fees and expenses of more
than one counsel for all Indemnified Parties in any jurisdiction in any single
Third Party Claim. If the Indemnifying Party elects not to compromise or defend
such Third Party Claim, fails to notify the Indemnified Party in writing within
the 30-day period noted above of its election to defend as provided in this
Agreement, the Indemnified Party may, subject to Section 9.05(b), pay,
compromise, defend such Third Party Claim and seek indemnification for any and
all Losses based upon, arising from or relating to such Third Party Claim. In
any Third Party Claim with respect to which indemnification is being sought
hereunder, the Indemnified Party or the Indemnifying Party, whichever is not
assuming the defense of such Third Party Claim, shall have the right to
participate in such matter and to retain its own counsel at such party’s own
expense. The Indemnified Party and the Indemnifying Party shall cooperate with
each other in all reasonable respects in connection with the defense of any
Third Party Claim, including making available (subject to the provisions of
Section 6.05) records relating to such Third Party Claim and furnishing, without
expense (other than reimbursement of actual out-of-pocket expenses) to the
defending party, management employees of the non-defending party as may be
reasonably necessary for the preparation of the defense of such Third Party
Claim and shall at all times use reasonable best efforts to keep the other party
reasonably apprised of the status of any matter the defense of which they are
maintaining.

 

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(b)          Settlement of Third Party Claims. Notwithstanding any other
provision of this Agreement, the Indemnifying Party shall not enter into
settlement of any Third Party Claim without the prior written consent of the
Indemnified Party, except as provided in this Section 9.05(b). If a firm offer
is made to settle a Third Party Claim without leading to liability or the
creation of a financial or other obligation or restriction on the part of the
Indemnified Party and provides, in customary form, for the unconditional release
of each Indemnified Party from all liabilities and obligations in connection
with such Third Party Claim and the Indemnifying Party desires to accept and
agree to such offer, the Indemnifying Party shall give written notice to that
effect to the Indemnified Party. If the Indemnified Party fails to consent to
such firm offer within ten (10) days after its receipt of such notice, the
Indemnified Party may continue to contest or defend such Third Party Claim and
in such event, the maximum liability of the Indemnifying Party as to such Third
Party Claim shall not exceed the amount of such settlement offer. If the
Indemnified Party fails to respond to such firm offer within ten (10) days after
its receipt of notice and also fails to assume defense of such Third Party
Claim, the Indemnifying Party may settle the Third Party Claim upon the terms
set forth in such firm offer to settle such Third Party Claim. If the
Indemnified Party has assumed the defense pursuant to Section 9.05(a), it shall
not agree to any settlement without the written consent of the Indemnifying
Party (which consent shall not be unreasonably withheld or delayed).

 

(c)          Direct Claims. Any Action by an Indemnified Party on account of a
Loss which does not result from a Third Party Claim (a “Direct Claim”) shall be
asserted by the Indemnified Party giving the Indemnifying Party reasonably
prompt written notice thereof, provided that the failure to give such prompt
written notice shall not relieve the Indemnifying Party of its indemnification
obligations, except and only to the extent that the Indemnifying Party is
materially adversely affected by such failure. Such notice by the Indemnified
Party shall describe the Direct Claim in reasonable detail, shall include copies
of all material written evidence thereof (to the extent in the possession of the
Indemnified Party) and shall indicate the estimated amount, if reasonably
practicable, of the Loss that has been or may be sustained by the Indemnified
Party. The Indemnifying Party shall have thirty (30) days after its receipt of
such notice to respond in writing to such Direct Claim. The Indemnified Party
shall allow the Indemnifying Party and its professional advisors to investigate
the matter or circumstance alleged to give rise to the Direct Claim, and whether
and to what extent any amount is payable in respect of the Direct Claim and the
Indemnified Party shall assist the Indemnifying Party’s investigation by giving
such information and assistance (including access to the Indemnified Party’s
premises and personnel and the right to examine and copy any accounts, documents
or records) as the Indemnifying Party or any of its professional advisors may
reasonably request. If the Indemnifying Party does not so respond within such
thirty (30) day period, the Indemnifying Party shall be deemed to have accepted
such claim. If the Indemnifying Party rejects such claim, the Indemnified Party
shall be free to pursue such remedies as may be available to the Indemnified
Party on the terms and subject to the provisions of this Agreement.

 

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Section 9.06         Payments. Once a Loss is agreed to by the Indemnifying
Party or finally adjudicated to be payable pursuant to this ARTICLE IX:

 

(a)          If the Indemnifying Party is Buyer, Buyer shall satisfy its
obligations within fifteen (15) Business Days of such agreement or final,
non-appealable adjudication by wire transfer of immediately available funds. The
parties hereto agree that should Buyer not make full payment of any such
obligations within such fifteen (15) Business Day period, any amount payable
shall accrue interest from and including the date of agreement of Buyer or a
final, non-appealable adjudication to and including the date such payment has
been made at a rate per annum equal to ten percent (10%). Such interest shall be
calculated daily on the basis of a 365 day year and the actual number of days
elapsed, without compounding.

 

(b)          If the Indemnifying Party is a Seller, except as otherwise
expressly provided herein, such indemnification obligations shall be satisfied
solely from the Escrow Amount and by delivery by Health KP, LLC to Buyer of
shares of the Buyer Stock. Notwithstanding the foregoing, a Seller shall be
personally liable for Losses arising from such Seller’s breach of any
Fundamental Representation or Section 6.06, and Buyer’s payment (other than as a
reduction of the Purchase Price) of a Specified Seller Liability, to the extent
such Losses and payments exceed the then Escrow Amount and the Buyer Stock
valued at the greater of (the “Indemnification Value”) (i) $2.29 per share of
Buyer Stock, to be equitably adjusted as necessary to reflect the effect of any
forward or reverse stock split, stock dividend, recapitalization or other
similar change with respect to Buyer Stock which has an applicable record date
occurring during the period commencing on the date of the Option Agreement and
ending on the applicable date of valuation of such Buyer Stock (as adjusted, the
“Initial Buyer Stock Value”); or (ii) (x) at the 60 day volume weighted average
stock price of such Common Stock, provided that during such 60-day period, there
have been a minimum 45 days on which trading has occurred and the average daily
volume of trading over the 60 day period is at least 5% of the total number of
shares of Buyer Stock available for trading or (y) in the event the requirements
of the foregoing clause (x) are not met, the price per share of the Buyer Stock
sold by Buyer during the 90 days prior to Closing in any arms’ length PIPE
(private investment in public entity) financing transaction with proceeds of at
least Five Million Dollars ($5,000,000), and in the event there is more than one
such transaction, then the average price in such transactions; if there have
been no such transactions, and the requirements of the foregoing clause (x) are
not met, then the Indemnification Value shall be the Initial Buyer Stock Value.
Sellers’ indemnification obligations shall be satisfied first from any portion
of the Escrow Amount that is then being held in escrow pursuant to the Escrow
Agreement, and if the indemnifiable Losses exceed such portion of the Escrow
Amount (or if no part of the Escrow Amount is then being held in escrow), the
balance of the indemnifiable Losses shall be paid by delivery to Buyer of all or
a portion of the Buyer Stock, as determined pursuant to Section 9.10; and with
regard to Losses for which the Sellers have personal liability, any balance of
such indemnifiable Losses shall be paid by Sellers by wire transfer of
immediately available funds to an account designated by Buyer. Notwithstanding
anything else set forth herein, if Sellers do not make the payment provided for
in item 8 of Schedule B within five (5) days of the date on which such payment
is required to be made as provided in item 8 of Schedule B, such amount shall be
paid from the Escrow Amount, and within five (5) days after such payment Sellers
shall deliver to the Escrow Agent by wire transfer of immediately available
funds an amount equal to such payment, which amount shall become part of the
Escrow Amount and shall be held in escrow pursuant to the terms of this
Agreement and the Escrow Agreement.

 

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Section 9.07         Tax Treatment of Indemnification Payments. All
indemnification payments made under this Agreement shall be treated by the
parties as an adjustment to the Purchase Price for Tax purposes, unless
otherwise required by Law.

 

Section 9.08         Effect of Investigation. The representations, warranties
and covenants of the Indemnifying Party and the Indemnified Party’s right to
indemnification with respect to breaches thereof, shall not be affected or
deemed waived by reason of any investigation made by or on behalf of the
Indemnified Party (including by any of its Representatives) or by reason of the
fact that the Indemnified Party or any of its Representatives knew or should
have known that any such representation or warranty is, was or might be
inaccurate or by reason of the Indemnified Party’s waiver of any condition set
forth in Section 8.02, as the case may be; provided, that Sellers shall have no
liability for any breach of any representation or warranty in ARTICLE IV if
Buyer had Knowledge of such breach prior to the Option Exercise Date.

 

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Section 9.09         Exclusive Remedies. Subject to Section 6.06, Section 6.03
and Section 11.11, the parties acknowledge and agree that after the Closing
their sole and exclusive remedy with respect to any and all claims (other than
claims arising from fraud), for any breach of any representation, warranty,
covenant, agreement or obligation set forth herein, shall be pursuant to the
indemnification provisions set forth in this ARTICLE IX. Nothing in this Section
9.09 shall limit any Person’s right to seek and obtain any equitable relief
which any Person shall be entitled or to seek any remedy on account of any
party’s fraudulent misconduct.

 

Section 9.10         Set Off Against Buyer Stock. Any claim for Losses by Buyer
or a Buyer Indemnitee prior to the eighteen (18) month anniversary of the
Closing Date that is to be satisfied by delivery of shares of the Buyer Stock,
shall be satisfied by the delivery to Buyer from the escrowed Buyer Stock of
such number of shares that, multiplied by the Indemnification Value as of the
Closing Date, equals the amount of the Losses.

 

(b)          Any claim for Losses by Buyer or a Buyer Indemnitee on or after the
eighteen (18) month anniversary of the Closing Date that is to be satisfied by
delivery of shares of the Buyer Stock, shall be satisfied by Sellers’ delivery
to Buyer of such number of shares of the Buyer Stock that, multiplied by the
Indemnification Value as of the date on which the amount of such Losses is
finally determined, equals the amount of the Losses.

 

ARTICLE X
Termination

 

Section 10.01         Termination. This Agreement may be terminated at any time
prior to the Closing:

 

(a)          by the mutual written consent of Sellers and Buyer;

 

(b)          by Buyer, for any reason or no reason, by written notice to
Sellers;

 

(c)          by Sellers by written notice to Buyer if:

 

(i)          Neither Seller is in material breach of any provision of this
Agreement and there has been a breach, inaccuracy in or failure to perform any
representation, warranty, covenant or agreement made by Buyer pursuant to this
Agreement that would give rise to the failure of any of the conditions specified
in ARTICLE VIII and such breach, inaccuracy or failure has not been cured by
Buyer on or prior to the Purchase Expiration Date; or

 

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(ii)         any of the conditions set forth in Section 8.01 or Section 8.02
shall not have been, or if it becomes apparent that any of such conditions will
not be, fulfilled on or prior to the Purchase Expiration Date, unless such
failure shall be due to the failure of any Seller to perform or comply with any
of the covenants, agreements or conditions hereof to be performed or complied
with by it prior to the Closing;

 

(d)          by Buyer, or Sellers, in the event that (i) there shall be any Law
that makes consummation of the transactions contemplated by this Agreement
illegal or otherwise prohibited or (ii) any Governmental Authority shall have
issued a Governmental Order restraining or enjoining the transactions
contemplated by this Agreement, and such Governmental Order shall have become
final and non-appealable; or

 

(e)          if the Option has not been exercised by the end of the Option
Period (as defined in the Option Agreement), in which case this Agreement shall
terminate immediately.

 

Section 10.02         Effect of Termination. In the event of the termination of
this Agreement in accordance with this ARTICLE X, this Agreement shall forthwith
become void and there shall be no liability on the part of any party hereto
except:

 

(a)          as set forth in this ARTICLE X, Section 6.05 and Section 6.09 and
ARTICLE XI hereof; and

 

(b)          that nothing herein shall relieve any party hereto from liability
for any breach of any provision hereof.

 

ARTICLE XI
Miscellaneous

 

Section 11.01         Expenses. Except as otherwise expressly provided herein,
in the Option Agreement or in the Fee Agreement, all costs and expenses,
including fees and disbursements of counsel, financial advisors and accountants,
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses, whether or
not the Closing shall have occurred.

 

Section 11.02         Notices. All notices, requests, consents, claims, demands,
waivers and other communications hereunder shall be in writing and shall be
deemed to have been given (a) when delivered by hand (with written confirmation
of receipt); (b) when received by the addressee if sent by a nationally
recognized overnight courier (receipt requested); (c) on the date sent (if such
date is a Business Day at the recipient’s address, otherwise on the next
Business Day at the recipient’s address) by facsimile or e-mail of a PDF
document (with confirmation of receipt by recipient); in each case a party’s
refusal or willful avoidance of delivery shall be deemed to constitute delivery.
Such communications must be sent to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 11.02):

 

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If to Sellers (which shall constitute notice to both Sellers):

Robert Whittel
2255 Glades Road, Suite 342W
Boca Raton, FL 33432

Facsimile:         (531) 443-2821

E-mail:               Robert@whittel.com

 

with a copy to (which copy shall not constitute notice):

King & Spalding

1180 Peachtree Street, NE

Atlanta, GA 30309

Facsimile:       (404) 572-5100

E-mail:             rpatel@kslaw.com

Attention:        Rahul Patel, Esq.

 

If to Buyer:

Twinlab Consolidation Corporation

632 Broadway, Suite 201

New York, New York 10012

Facsimile:       (212) 505-5413

E-mail:             rneuwirth@twinlab.com

Attention:        General Counsel

    with a copy to (which copy shall not constitute notice):

Wilk Auslander LLP

1515 Broadway, 43rd Floor

New York, New York 10036

Facsimile:        (212) 752-6380

E-mail:             salbert@wilkauslander.com

Attention:        Stephen A. Albert, Esq.

  

Section 11.03         Interpretation. For purposes of this Agreement, (a) the
words “include,” “includes” and “including” shall be deemed to be followed by
the words “without limitation”; (b) the word “or” is not exclusive; and (c) the
words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this
Agreement as a whole. Unless the context otherwise requires, references herein:
(x) to Articles, Sections, Disclosure Schedules and Exhibits mean the Articles
and Sections of, and Disclosure Schedules and Exhibits attached to, this
Agreement; (y) to an agreement, instrument or other document means such
agreement, instrument or other document as amended, supplemented and modified
from time to time to the extent permitted by the provisions thereof and (z) to a
statute means such statute as amended from time to time and includes any
successor legislation thereto and any regulations promulgated thereunder. This
Agreement shall be construed without regard to any presumption or rule requiring
construction or interpretation against the party drafting an instrument or
causing any instrument to be drafted. The Disclosure Schedules and Exhibits
referred to herein shall be construed with, and as an integral part of, this
Agreement to the same extent as if they were set forth verbatim herein.

 

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Section 11.04         Headings. The headings in this Agreement are for reference
only and shall not affect the interpretation of this Agreement.

 

Section 11.05         Severability. If any term or provision of this Agreement
is invalid, illegal or unenforceable in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other term or provision of
this Agreement or invalidate or render unenforceable such term or provision in
any other jurisdiction. Except as provided in Section 6.06(d), upon such
determination that any term or other provision is invalid, illegal or
unenforceable, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the greatest
extent possible.

 

Section 11.06         Entire Agreement. This Agreement, the Option Agreement,
the Fee Agreement and the other Transaction Documents constitute the sole and
entire agreement of the parties to this Agreement with respect to the subject
matter contained herein and therein, and supersede all prior and contemporaneous
understandings and agreements, both written and oral, with respect to such
subject matter (except for that certain Confidentiality Agreement, dated
December 9, 2013, by and between the Company and Twinlab Corporation, which
shall continue and remain in full force and effect). In the event of any
inconsistency between the statements in the body of this Agreement and those in
the other Transaction Documents (other than the Option Agreement and the Fee
Agreement), the Exhibits and Disclosure Schedules (other than an exception
expressly set forth as such in the Disclosure Schedules), the statements in the
body of this Agreement will control.

 

Section 11.07         Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. None of the parties may assign its rights or
obligations hereunder without the prior written consent of the other parties;
provided, however, that prior to the Closing Date, Buyer may, without the prior
written consent of Sellers, assign all or any portion of its rights and
obligations under this Agreement to (a) one or more of its direct or indirect
wholly-owned subsidiaries, or (b) any Person who acquires Buyer or its Business
(whether by way of a sale of shares, a merger, the sale of all or substantially
all of Buyer’s assets, or otherwise); in the event of any such assignment, the
assignee shall be deemed to be “Buyer” for all purposes, with all of Buyer’s
rights and obligations, under this Agreement, the Option Agreement, the Fee
Agreement and the other Transaction Documents, including for purposes of
providing the Buyer Stock. No assignment shall relieve the assigning party of
any of its obligations hereunder.

 

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Section 11.08         No Third-party Beneficiaries. Except as provided in
ARTICLE IX, this Agreement is for the sole benefit of the parties hereto and
their respective successors and permitted assigns and nothing herein, express or
implied, is intended to or shall confer upon any other Person or entity any
legal or equitable right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.

 

Section 11.09         Amendment and Modification; Waiver. This Agreement may
only be amended or supplemented by an agreement in writing signed by each party
hereto. No waiver by any party of any of the provisions hereof shall be
effective unless explicitly set forth in writing and signed by the party so
waiving. No waiver by any party shall operate or be construed as a waiver in
respect of any failure, breach or default not expressly identified by such
written waiver, whether of a similar or different character, and whether
occurring before or after that waiver. No failure to exercise, or delay in
exercising, any right, remedy, power or privilege arising from this Agreement
shall operate or be construed as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.

 

Section 11.10         Governing Law; Submission to Jurisdiction; Waiver of Jury
Trial.

 

(a)          This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction).

 

(b)          ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON
THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES
OF AMERICA OR THE COURTS OF THE STATE OF NEW YORK IN EACH CASE LOCATED IN THE
CITY OF NEW YORK AND COUNTY OF NEW YORK, AND EACH PARTY IRREVOCABLY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR
PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO
SUCH PARTY'S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR
ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT. THE PARTIES
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF
ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND
AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

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(c)          EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO
REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF
A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER,
(C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION 11.10(c).

 

Section 11.11         Specific Performance. The parties agree that irreparable
damage would occur if any provision of this Agreement were not performed in
accordance with the terms hereof and that the parties shall be entitled to
specific performance of the terms hereof, in addition to any other remedy to
which they are entitled at law or in equity.

 

Section 11.12         Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall be deemed to be one and the same agreement. A signed copy of this
Agreement delivered by facsimile, e-mail or other means of electronic
transmission shall be deemed to have the same legal effect as delivery of an
original signed copy of this Agreement.

 

Section 11.13         Effectiveness. This Agreement shall not be considered
effective until the Option Exercise Date and no party will have any obligation
under this Agreement until the Option Exercise Date, provided, however, that
upon the Option Exercise Date, this Agreement shall be automatically effective
without any further action by any of the parties to this Agreement; provided
that the accuracy of the representations and warranties in ARTICLE IV shall be
subject in all respects to delivery of the Disclosure Schedules by Sellers.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.

 

SELLERS:           /s/ Naomi L. Balcombe   /s/ Robert Whittel Naomi L. Balcombe
  Robert Whittel           BUYER:           TWINLAB CONSOLIDATION CORPORATION  
        By: /s/ Thomas A. Tolworthy     Name:  Thomas A. Tolworthy    
Title:    CEO

 

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