Exhibit 10.1

 

Execution Version

STOCK PURCHASE AGREEMENT

 

This Stock Purchase Agreement (this “Agreement”) is entered into as of July 27,
2015, by and among Bacterin International Holdings, Inc., a Delaware corporation
(“Purchaser”), X-spine Systems, Inc., an Ohio corporation (the “Company”), David
L. Kirschman, M.D. (“Kirschman”), the K. Hemmelgarn 1998 Trust, the B.
Hemmelgarn 1998 Trust, the K. Hemmelgarn 2010 Trust, and the B. Hemmelgarn 2010
Trust. Kirschman, the K. Hemmelgarn 1998 Trust, the B. Hemmelgarn 1998 Trust,
the K. Hemmelgarn 2010 Trust, and the B. Hemmelgarn 2010 Trust are each referred
to herein as a “Seller,” and collectively as the “Sellers.” Unless otherwise
specified, all capitalized terms used in this Agreement shall have the meanings
set forth in Exhibit A.

 

Recitals:

 

A.           Sellers directly own 100% of the issued and outstanding shares of
capital stock of the Company (the “Outstanding Shares”).

 

B.           Sellers desire to transfer to Purchaser, and Purchaser desires to
acquire from Sellers, the Outstanding Shares on the terms and conditions and as
more specifically provided in this Agreement (the “Purchase”).

 

NOW, THEREFORE, in consideration of the promises and the mutual representations,
warranties, covenants and agreements contained herein, and the other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Purchaser, the Company and Sellers, intending to be legally bound,
agree as follows:

 

ARTICLE 1
THE PURCHASE

 

Section 1.1           Purchase and Sale of Outstanding Shares. Subject to the
terms and conditions of this Agreement, at the Closing, Sellers shall sell,
convey, transfer and assign to Purchaser, and Purchaser shall purchase and
acquire, all right, title and interest in and to the Outstanding Shares, free
and clear of all Liens.

 

Section 1.2           Purchase Price. The aggregate purchase price for the
Outstanding Shares (the “Purchase Price”) shall be, subject to any adjustments
(positive or negative) made in accordance with this Section 1.2 and Section 1.3,
the Purchase Consideration, which shall be payable by Purchaser in accordance
with the terms hereof.

 

(a)          For purposes of this Agreement:

 

(i)          “Cash Consideration” means cash in an amount of $60,000,000, plus
or minus the Working Capital Adjustment, minus the Deductions;

 

(ii)         “Deductions” means the sum of the Paid Transaction Costs, the
Escrowed Cash, and the costs and expenses of the Tail Policies;

 

 

 

 

(iii)        “Net Purchase Consideration” means the Purchase Consideration,
minus each of (1) the Indebtedness Pay-Off Amount, (2) the Paid Transaction
Costs, (3) the Escrowed Amount, and (4) all costs and expenses for the Tail
Policies;

 

(iv)        “Ownership Interest Share” of each Seller means the amount,
expressed as a percentage, each Seller is entitled to receive of that portion of
the Purchase Consideration paid to Sellers;

 

(v)         “Purchase Consideration” means $90,000,000, plus or minus the
Working Capital Adjustment, if any; and

 

(vi)        “Purchaser Stock Consideration” means the Purchase Consideration,
minus the Cash Consideration, minus the Indebtedness Pay-Off Amount, in shares
of Purchaser Common Stock valued at $4.00 per share.

 

(b)          The Purchase Consideration shall be paid at the Closing as provided
in Sections 2.2(a) and 2.2(b)(i).

 

(c)          Disclosure Schedule 1.2(c) sets forth a list of Sellers and their
respective Ownership Interest Shares. The Purchase Consideration shall be
allocated among Sellers in proportion to their Ownership Interest Shares and to
each Seller as directed by Sellers in the Flow of Funds Memorandum.

 

Section 1.3           Working Capital.

 

(a)          At least five Business Days prior to the Closing Date, the Company
shall deliver to Purchaser and Sellers an estimated consolidated balance sheet
of the Company as of the Closing Date (the “Closing Balance Sheet”), which shall
set forth a good faith estimate of the components of the Working Capital Amount
(“Closing Working Capital”) to enable Purchaser to calculate the Working Capital
Adjustment. The Closing Balance Sheet shall be prepared by the Company in
accordance with GAAP and in a manner consistent with the preparation of the
audited Financial Statements, including any year-end accounting adjustments, and
specifically shall give effect to the payment of the Indebtedness Pay-Off
Amount, the Paid Transaction Costs and the Tail Policies costs and expenses by
or on behalf of the Company on or immediately prior to the Closing. If such
Closing Balance Sheet is not acceptable to Purchaser, Purchaser shall promptly
submit its comments on the Closing Balance Sheet to the Company, and the Company
and Purchaser shall endeavor in good faith to promptly resolve such comments so
as not to delay the Closing. The Purchase Consideration shall be adjusted by the
amount of the Working Capital Adjustment as provided in Section 1.2(a).

 

(b)          Within 60 days after the Closing Date, Purchaser shall prepare and
deliver to Sellers a consolidated balance sheet of the Company as of the Closing
Date (the “Final Balance Sheet”), which shall set forth the components of the
Working Capital Amount. The Final Balance Sheet shall be calculated in the same
way, using the same accounting principles, practices, methodologies and
policies, as the line items comprising Current Assets and Current Liabilities
included in the Closing Balance Sheet and that are consistent with GAAP and all
accounting principles, practices, methodologies and policies historically used
in the preparation of the Financial Statements. Following the delivery of the
Final Balance Sheet to Sellers, Purchaser shall afford Sellers and their
representatives the opportunity to examine the Final Balance Sheet, and such
supporting schedules, analyses, workpapers and other underlying records or
documentation as are reasonably necessary and appropriate. Purchaser shall
cooperate promptly, as reasonably requested, with Sellers and their
representatives in such examination.

 

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(c)          If within ten days following delivery of the Final Balance Sheet,
Sellers have not delivered to Purchaser written notice of its objections to the
Final Balance Sheet (the “Objection Notice”), then the Working Capital Amount as
set forth in the Final Balance Sheet shall be deemed final and conclusive. If
Sellers deliver the Objection Notice within such ten-day period, then Purchaser
and Sellers shall endeavor in good faith to resolve the objections, for a period
not to exceed 15 days from the date of delivery of the Objection Notice.

 

(d)          If at the end of the 15-day period described in Section 1.3(c)
there are any objections that remain in dispute, then the remaining objections
in dispute shall be submitted for resolution to a nationally recognized
accounting firm that has not been hired by either the Company or Purchaser in
the last five years to be selected jointly by Sellers and Purchaser (the
“Neutral Firm”). The Neutral Firm shall determine any unresolved items of the
Working Capital Amount within 30 days after the objections that remain in
dispute are submitted to it. If any remaining objections are submitted to the
Neutral Firm for resolution, (i) each party shall furnish to the Neutral Firm
such workpapers and other documents and information relating to such objections
as the Neutral Firm may request and are available to that party, and shall be
afforded the opportunity to present to the Neutral Firm any material relating to
the determination of the matters in dispute and to discuss such determination
with the Neutral Firm, (ii) to the extent that a value has been assigned to any
objection that remains in dispute, the Neutral Firm shall not assign a value to
such objection that is greater than the greatest value for such objection
claimed by either party or less than the smallest value for such objection
claimed by either party, and (iii) the determination by the Neutral Firm of the
unresolved items of the Working Capital Amount, as set forth in a written notice
delivered to Purchaser and Sellers by the Neutral Firm, shall be made in
accordance with this Agreement and shall be binding and conclusive on the
parties and shall constitute an arbitral award that is final, binding and
non-appealable and upon which a judgment may be entered by a court having
jurisdiction thereof. The fees and expenses of the Neutral Firm shall be paid by
the party whose calculation of the Working Capital Amount in the Final Balance
Sheet deviated the most from the Working Capital Amount in the Final Balance
Sheet as determined by the Neutral Firm.

 

(e)          To the extent that the Final Working Capital, as determined
pursuant to Section 1.3(c) or (d), is less than the Closing Working Capital
(such deficit, a “Final Adjustment Deficiency”), and the Final Adjustment
Deficiency exceeds $50,000, Purchaser and Sellers shall instruct the Escrow
Agent to release from the escrow to Purchaser the aggregate amount of the Final
Adjustment Deficiency, first from the Escrowed Cash, and if the Escrowed Cash is
insufficient for this purpose, then from the Escrowed Shares (such Escrowed
Shares valued at $4.00 per share, As Adjusted). If the amount of the Final
Adjustment Deficiency exceeds the total amount of Escrowed Cash and Escrowed
Shares (as valued in accordance with the previous sentence), then the shortfall
shall be promptly paid by Sellers in cash in proportion to their Ownership
Interest Shares to Purchaser. To the extent that the Final Working Capital, as
determined pursuant to Section 1.3(c) or (d), exceeds the Closing Working
Capital (such excess, a “Final Adjustment Surplus”), and the Final Adjustment
Surplus exceeds $50,000, Purchaser shall promptly pay to Sellers, in proportion
to their Ownership Interest Shares, an aggregate amount of cash equal to the
amount of the Final Adjustment Surplus. For the avoidance of doubt, if the Final
Adjustment Deficiency or the Final Adjustment Surplus, as the case may be, does
not exceed $50,000, then no payment shall be made pursuant to this Section 1.3.

 

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(f)          For all Tax purposes, any payment under this Section 1.3 shall be
treated by Purchaser, Sellers and their respective Affiliates as an adjustment
to the Purchase Consideration.

 

Section 1.4           Withholding Rights. Purchaser shall be entitled to deduct
and withhold from any consideration otherwise payable to any Person pursuant to
this Agreement such amounts as it is required to deduct and withhold with
respect to the making of such payment under the Code or any provision of
Applicable Law. To the extent that such amounts are so withheld or paid over to
or deposited with the relevant Governmental Entity, such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to the
applicable Person in respect to which such deduction and withholding was made.

 

Section 1.5           Adjustments. In the event of any stock split, reverse
stock split, stock dividend (including any dividend or distribution of
securities convertible into capital stock), reorganization, reclassification,
combination, recapitalization or other like change with respect to the Company
or Purchaser occurring after the date hereof and prior to the Closing, all
references in this Agreement to specified numbers of shares of any class or
series affected thereby, and all calculations provided for that are based upon
numbers of shares of any class or series (or trading prices therefor) affected
thereby, shall be equitably adjusted to the extent necessary to provide the
parties the same economic effect as contemplated by this Agreement prior to such
stock split, reverse stock split, stock dividend, reorganization,
reclassification, combination, recapitalization or other like change.

 

Section 1.6           Escrow. On the Closing Date, the Indemnifying Sellers,
Purchaser and the Escrow Agent shall enter into the Escrow Agreement. $6,000,000
of the cash portion of the Purchase Consideration (the “Escrowed Cash”) and all
of the shares of Purchaser Common Stock comprising a portion of the Purchase
Consideration (the “Escrowed Shares,” and together with the Escrowed Cash, the
“Escrowed Amount”) shall be deducted from the Purchase Consideration and
deposited in escrow at Closing and shall be held in escrow pursuant to the terms
of this Agreement and the Escrow Agreement. All fees due to the Escrow Agent
shall be borne by Purchaser.

 

ARTICLE 2
CLOSING

 

Section 2.1           Closing. Unless this Agreement shall have been terminated
pursuant to Article 6, and subject to the satisfaction or waiver of the
conditions set forth in Article 5, the Closing shall take place on a date not
later than the second Business Day following satisfaction or waiver of the
conditions set forth in Article 5, at the offices of the Company, 452
Alexandersville Road, Miamisburg, Ohio 45342, unless another date, time or place
is mutually agreed to in writing by Purchaser, Sellers and the Company.

 

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Section 2.2           Actions to Occur at Closing.

 

(a)          Payments of the Indebtedness Pay-Off Amount and the Deductions from
the Purchase Consideration by Purchaser. At the Closing, the Indebtedness
Pay-Off Amount and the Deductions shall be paid as follows:

 

(i)          Purchaser shall pay to each creditor of the Company under an
Indebtedness Agreement the amount of the outstanding Indebtedness due to such
creditor as specified in such creditor’s Payoff Letter (collectively, the sum of
such Indebtedness amounts for all such creditors being hereinafter referred to
as the “Indebtedness Pay-Off Amount”), by wire transfer of immediately available
funds to the account designated by such creditor in the Payoff Letter;

 

(ii)         Purchaser shall pay any Transaction Costs that remain outstanding
as of the Closing Date and for which the Company has received a Payoff Letter
(collectively, the sum of such payments for all payees of Transaction Costs
being hereinafter referred to as the “Paid Transaction Costs”), by wire transfer
of immediately available funds to the account designated by such Person in the
applicable Payoff Letter; and

 

(iii)        Purchaser shall submit the Escrowed Cash to the Escrow Agent by
wire transfer of immediately available funds to the account designated by the
Escrow Agent, and shall submit the Escrowed Shares to the Escrow Agent.

 

(b)          Deliveries by Purchaser. At the Closing, Purchaser shall deliver
the following in accordance with the applicable provisions of this Agreement:

 

(i)          the Net Purchase Consideration shall be delivered, as applicable,
to the Escrow Agent and to Sellers, in accordance with the Flow of Funds
Memorandum;

 

(ii)         a counterpart of the Escrow Agreement, executed by Purchaser, shall
be delivered to the Indemnifying Sellers and the Escrow Agent;

 

(iii)        a certificate of Purchaser, duly executed by an officer of
Purchaser, certifying in his or her capacity as an officer and not in his or her
capacity as an individual, the satisfaction of the conditions set forth in
Sections 5.3(a), (b) and (d), shall be delivered to Sellers;

 

(iv)        resolutions of Purchaser’s Board authorizing the appointment of the
Appointee Director to Class II of Purchaser’s Board effective on the Closing
Date shall be delivered to Sellers; and

 

(v)         a counterpart of the Employment Agreements for each Key Employee
identified by Purchaser, executed by the Company (under Purchaser’s control),
shall be delivered to each Key Employee who is a party thereto.

 

(c)          Deliveries by the Company and Sellers. At or prior to the Closing,
the Company and Sellers shall deliver the following in accordance with the
applicable provisions of this Agreement:

 

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(i)          original stock certificates for the Outstanding Shares, together
with stock powers from the respective Sellers duly endorsed in blank;

 

(ii)         a counterpart of the Escrow Agreement, executed by the Indemnifying
Sellers, shall be delivered to Purchaser and the Escrow Agent;

 

(iii)        a certificate of the Company, duly executed by an officer of the
Company, certifying in his or her capacity as an officer and not in his or her
capacity as an individual, the satisfaction of the conditions set forth in
Sections 5.2(a), (b) and (c) as they relate to the Company, shall be delivered
to Sellers and to Purchaser;

 

(iv)        a certificate of each Seller, duly executed by such Seller,
certifying the satisfaction of the conditions set forth in Sections 5.2(a) and
(b) as they relate to such Seller, shall be delivered to Purchaser;

 

(v)         a good standing certificate for the Company and the Subsidiary as
issued by the Secretary of State, or other appropriate agency, of the state or
other jurisdiction of the Company’s or the Subsidiary’s domicile, each dated
within ten days of the Closing Date, shall be delivered to Purchaser;

 

(vi)        the Consents set forth on Disclosure Schedule 3.2(e), in a form
reasonably satisfactory to Purchaser, shall be delivered to Purchaser;

 

(vii)       the resignations of the members of the board of directors of the
Company and the Subsidiary and of those officers of the Company and the
Subsidiary whose resignations are requested by Purchaser shall be delivered to
Purchaser;

 

(viii)      a counterpart of the Employment Agreements, executed by each Key
Employee identified by Purchaser, shall be delivered to Purchaser;

 

(ix)         the Payoff Letters shall be delivered to Purchaser;

 

(x)          a certificate of the Company, duly executed by an officer of the
Company, certifying in his or her capacity as an officer and not in his or her
capacity as an individual, specifying the amounts of each of the Indebtedness
Pay-Off Amount and Paid Transaction Costs (the “Deductions Certificate”), shall
be delivered to Purchaser;

 

(xi)         certificates with respect to each of the Company’s and the
Subsidiary’s status as a “United States real property holding corporation,”
dated not more than 30 days prior to the Closing Date, as described in Treasury
Regulations Sections 1.897-2(h) and 1.1445-2(c)(3), and proof of delivery to the
Internal Revenue Service of the required notice, as described in Treasury
Regulations Section 1.897-2(h)(2), shall be delivered to Purchaser;

 

(xii)        a counterpart of the Seller Non-Compete Agreements, in the forms
attached hereto as Exhibit B-1 and Exhibit B-2, executed by each Indemnifying
Seller and Kenneth J. Hemmelgarn, Jr., and Brian J. Hemmelgarn, as applicable,
shall be delivered to Purchaser;

 

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(xiii)       a counterpart of the Lock-Up Agreement, in the form attached as
Exhibit C, executed by each Indemnifying Seller, shall be delivered to
Purchaser;

 

(xiv)      a counterpart of the Guaranty, in the form attached as Exhibit D,
executed by each of Kenneth J. Hemmelgarn, Jr., and Brian J. Hemmelgarn;

 

(xv)       a termination of the Amended and Restated Close Corporation
Agreement, effective as of the Closing Date; and

 

(xvi)      the Company and Sellers shall deliver to Purchaser such other
documents and instruments as Purchaser may reasonably request to carry out the
purpose and intent of this Agreement.

 

Section 2.3           Appointment to Purchaser Board. Prior to the Closing,
Purchaser shall take such actions as are necessary to appoint Kirschman (the
“Appointee Director”) at the Closing to Class II of Purchaser’s Board.

 

ARTICLE 3
REPRESENTATIONS AND WARRANTIES

 

Section 3.1           Representations and Warranties Relating to Each Seller.
Each Indemnifying Seller, severally and not jointly with the other Indemnifying
Sellers, hereby represents and warrants to Purchaser as follows, except that
Kirschman only, and not the K. Hemmelgarn 1998 Trust or the B. Hemmelgarn 1998
Trust, makes the representation and warranty set forth in Section 3.1(j)
(Kirschman HSR Act Compliance), and provided that the K. Hemmelgarn 1998 Trust
and the B. Hemmelgarn 1998 Trust make the following representations and
warranties, jointly and severally with each other, as to all of the Hemmelgarn
Sellers:

 

(a)          Authority; Due Execution and Binding Effect. Such Seller has the
requisite power and authority to execute and deliver this Agreement and each
other Transaction Document to which it is a party, to consummate the
transactions contemplated hereby and thereby and to perform its obligations
under this Agreement and each other Transaction Document to which it is a party.
This Agreement has been, and each other Transaction Document to which such
Seller is a party will be, duly and validly executed and delivered by such
Seller. Assuming the due authorization, execution and delivery by the other
parties hereto, this Agreement constitutes the valid and binding obligation of
such Seller, enforceable against such Seller in accordance with its terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar Applicable Laws
affecting the enforcement of creditors rights generally and by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in law or equity).

 

(b)          No Conflict. Neither the execution and delivery of this Agreement
by such Seller, nor the performance by such Seller of its obligations hereunder
shall, directly or indirectly: (i) contravene, conflict with, or result in (with
or without notice or lapse of time) a violation or breach of any Applicable Law
or order to which such Seller is subject; (ii) violate, conflict with or result
in the breach of any provision of the organizational documents of such Seller,
if such Seller is not an individual; or (iii) conflict in any material respect
with, result in a material breach of, constitute a material default (or event
which with the giving of notice or lapse of time, or both, would become a
material breach or default) under, require any Consent under, or give to others
any right of termination, amendment, acceleration, suspension, revocation or
cancellation of, or result in the creation of any Lien pursuant to, any Contract
to which such Seller is a party or by which any of its respective assets or
properties are bound or affected.

 

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(c)          Litigation. There is no Action pending against, or to the knowledge
of such Seller, threatened against or affecting such Seller before any court or
arbitrator or any Governmental Entity which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the transactions contemplated hereby.

 

(d)          Government Approvals. No consents or approvals of, or filings,
declarations or registrations with, any Governmental Entity are necessary for
the execution and delivery of this Agreement by such Seller or the consummation
by such Seller of the transactions contemplated hereby, other than such consents
or approvals, filings, declarations or registrations that, if not obtained, made
or given, could not, individually or in the aggregate, reasonably be expected to
impair in any material respect the ability of such Seller to perform its
obligations hereunder, or prevent or materially impede, interfere with, hinder
or delay the consummation of the Purchase.

 

(e)          Title to Outstanding Shares. Such Seller is the record and
beneficial owner of, and holds good and valid title to the Outstanding Shares of
the Company set forth on Disclosure Schedule 1.2(c), free and clear of any and
all Liens. Such Seller has the sole power and authority to sell, transfer,
assign and deliver the Outstanding Shares of such Seller set forth in Disclosure
Schedule 1.2(c) as provided in this Agreement, and upon delivery of and payment
for such Outstanding Shares, Purchaser will acquire at Closing good and valid
title to all such Outstanding Shares, free and clear of any and all Liens, which
Outstanding Shares are as of the date hereof, and will be at and immediately
after Closing, 100% of the Outstanding Shares of the Company. Such Seller is not
a party to any voting trust or other voting agreement with respect to any of its
Outstanding Shares or to any agreement relating to the issuance, sale,
redemption, acquisition, registration, transfer or other disposition of its
Outstanding Shares, except for the Amended and Restated Close Corporation
Agreement. Such Seller has not granted to any Person, other than Purchaser
hereunder, any preferential right or option to purchase any of the Outstanding
Shares of such Seller, except as set forth in the Amended and Restated Close
Corporation Agreement.

 

(f)          Brokers. Except for Cockrell Group, whose fees and expenses will be
paid by Sellers, no broker, finder or agent is entitled to any brokerage fees,
finder’s fees or commissions in connection with this Agreement or the
transactions contemplated hereby based upon agreement, arrangement or
understanding made by or on behalf of such Seller, provided that the K.
Hemmelgarn 1998 Trust and the B. Hemmelgarn 1998 Trust represent and warrant
that no Hemmelgarn Seller has engaged any such broker, and they make no
representation or warranty as to any such broker that may have been engaged by
Kirschman or any other Person.

 

(g)          Foreign Corrupt Practices Act. Such Seller has not, directly or
indirectly, taken any action which would cause it to be in violation of the
FCPA, used any corporate funds for unlawful contributions, gifts, entertainment
or other unlawful expenses relating to political activity, made, offered or
authorized any unlawful payment to foreign or domestic government officials or
employees, whether directly or indirectly, or made, offered or authorized any
bribe, rebate, payoff, influence payment, kickback or other similar unlawful
payment, whether directly or indirectly.

 

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(h)          Securities Laws Compliance. Such Seller is an Accredited Investor.
Such Seller acknowledges that the Purchaser Stock Consideration has not been
registered under the Securities Act in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act and Regulation D
promulgated thereunder. The Purchaser Stock Consideration is being acquired by
such Seller for such Seller’s own account without a view to public distribution
or resale, and such Seller has no contract, undertaking, agreement or
arrangement to sell or otherwise transfer or dispose of the Purchaser Stock
Consideration or any portion thereof to any other Person. Such Seller will not
sell or otherwise transfer or dispose of the Purchaser Stock Consideration or
any portion thereof unless the transfer is made in accordance with the
Securities Act.

 

(i)          Seller HSR Act Compliance. There is no Contract by which any
Person, including any Seller, or any combination of Sellers who are Affiliates,
has the contractual power and authority to designate 50% or more of the
directors of the Company within the meaning of the HSR Act.

 

(j)          Kirschman HSR Act Compliance. Kirschman’s total assets held,
whether foreign or domestic, within the meaning of the HSR Act, do not exceed
$152,500,000.

 

Section 3.2           Representations and Warranties Relating to the Company.
The Indemnifying Sellers hereby represent and warrant to Purchaser as set forth
in this Section 3.2. The following representations and warranties are made
severally by Kirschman, on the one hand, and the K. Hemmelgarn 1998 Trust and
the B. Hemmelgarn 1998 Trust, on the other hand, and by the K. Hemmelgarn 1998
Trust and the B. Hemmelgarn 1998 Trust jointly and severally with each other.
Further, the Hemmelgarn Knowledge Representations and Warranties are made
jointly and severally by the K. Hemmelgarn 1998 Trust and the B. Hemmelgarn 1998
Trust to the Knowledge of the Hemmelgarn Sellers, and the representations and
warranties of the K. Hemmelgarn 1998 Trust and the B. Hemmelgarn 1998 Trust in
Sections 3.2(p) (Foreign Corrupt Practices Act), 3.2(s) (FDA and Regulatory
Matters) and 3.2(dd) (Warranty) are made jointly and severally by the K.
Hemmelgarn 1998 Trust and the B. Hemmelgarn 1998 Trust with each other to the
Knowledge of the Hemmelgarn Sellers.

 

(a)          Organization and Qualification. The Company and the Subsidiary are
corporations duly organized, validly existing and in good standing under the
Applicable Laws of the states of their formation, and each has all requisite
corporate power and authority to own, lease and operate its properties and to
conduct the Business. The Company is not licensed or qualified to do business as
a foreign corporation in any jurisdiction other than the State of Ohio. The
Subsidiary is not licensed or qualified to do business as a foreign corporation
in any jurisdiction other than the State of Nevada. The Company has delivered or
made available to Purchaser true and complete copies of the currently effective
articles of incorporation and bylaws of the Company and the Subsidiary (such
instruments and documents, the “Charter Documents”), and the minute books and
stock ledgers of the Company and the Subsidiary. Neither the Company nor the
Subsidiary is in violation of its Charter Documents. The minute books contain
all minutes and consents adopted by the Company’s board of directors and
Sellers.

 

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(b)          Subsidiary. Except for X-spine Sales Corporation (the
“Subsidiary”), neither the Company nor the Subsidiary owns or controls, directly
or indirectly, any interest in any Person. The Company is the record and
beneficial owner of all of the outstanding equity interests of the Subsidiary,
free and clear of all Liens, and such equity interests are duly authorized,
validly issued fully paid and nonassessable. There are no outstanding options,
warrants, call rights, rights of conversion or other rights, agreements,
arrangements or commitments of any kind or character relating to the equity
ownership interests of the Subsidiary to which the Company or Subsidiary is a
party, or by which either is bound, obligating the Subsidiary to issue, deliver
or sell, or cause to be issued, delivered or sold, any of its equity interests
or any right to acquire any such equity interests.

 

(c)          Capitalization. The authorized capital of the Company consists of
1,500 shares of common stock, no par value, of which 1,000 shares are designated
Class A Voting Common Shares and 500 shares are designated Class B Non-Voting
Common Shares (collectively, the “Company Stock”). On the date of this Agreement
there are 250 shares of Company Stock (200 shares of Class A Voting Common
Shares and 50 shares of Class B Non-Voting Common Shares) issued and
outstanding, held by each Seller as described in Disclosure Schedule 3.2(c).
There are no outstanding options, warrants, call rights, rights of conversion or
other rights, agreements, arrangements or commitments of any kind or character
relating to the capital stock of the Company to which the Company is a party, or
by which it is bound, obligating the Company to issue, deliver or sell, or cause
to be issued, delivered or sold, any Company Stock or other equity interests of
the Company or any right to acquire any such equity interests. No Person shall
be entitled to receive a portion of the Purchase Consideration other than
Sellers. All Outstanding Shares are duly authorized and validly issued, fully
paid and nonassessable, have been issued in accordance with all Applicable Laws
and have not been issued in violation of any preemptive right. Disclosure
Schedule 1.2(c) is accurate in all respects and, without limiting the foregoing,
the allocation of the Purchase Consideration as provided in Disclosure Schedule
1.2(c) is in accordance with the provisions of the Company’s Charter Documents.
There are no Contracts to which the Company or the Subsidiary is a party
relating to the registration, sale or transfer (including Contracts relating to
rights of first refusal, co sale rights or “drag-along” rights) of any equity
interests of the Company other than the Amended and Restated Close Corporation
Agreement, which will be terminated by the Company and Sellers as of the Closing
Date. As a result of the Purchase, Purchaser will be the sole record and
beneficial holder of the Outstanding Shares. The directors and officers of the
Company and Subsidiary are set forth in Disclosure Schedule 3.2(c).

 

(d)          Authority; Due Execution and Binding Effect. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and each other Transaction Document to which it is a party, to consummate the
transactions contemplated hereby and thereby and perform its obligations
hereunder and thereunder. The Company’s entry into and performance of its
obligations under this Agreement and each other Transaction Document to which
the Company is a party have been approved by the board of directors of the
Company and will be duly authorized by all necessary corporate action of the
Company. This Agreement has been, and each other Transaction Document to which
the Company is a party will be, duly and validly executed and delivered by the
Company. Assuming the due authorization, execution and delivery by Purchaser,
this Agreement constitutes the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium or similar Applicable Laws affecting the
enforcement of creditors rights generally and by general principles of equity
(regardless of whether enforcement is considered in a proceeding in law or
equity).

 

10

 

 

(e)          No Conflict. Except as set forth in Disclosure Schedule 3.2(e), the
execution and delivery of, and the performance by the Company of its obligations
under, this Agreement and each other Transaction Document to which it is a
party, will not, directly or indirectly: (i) contravene, conflict with, or
result in (with or without notice or lapse of time) a violation or breach of any
Applicable Law or order to which the Company or Subsidiary is subject;
(ii) violate, conflict with or result in the breach of any provision of any
Charter Document of the Company or Subsidiary; (iii) require the Company or
Subsidiary to obtain any approval of, observe any waiting period imposed by, or
make any filing with or notice to, any Governmental Entity; or (iv) conflict in
any respect with, result in a breach of, constitute a default (or event which
with the giving of notice or lapse of time, or both, would become a breach or
default) under, require any Consent under, or give to others any right of
termination, amendment, acceleration, suspension, revocation or cancellation of,
or result in the creation of any Lien (other than a Permitted Lien) pursuant to,
any Contract to which the Company or Subsidiary is a party or by which any of
their assets or properties are bound or affected.

 

(f)          Financial Statements. The Company has prepared, or caused to be
prepared, and has provided to Purchaser and attached in Disclosure Schedule
3.2(f), the (i) audited, consolidated financial statements of the Company and
the Subsidiary, including the consolidated balance sheets as of December 31,
2013 and 2014 and the related consolidated statements of operations, changes in
shareholders’ equity and cash flows for the years ended December 31, 2013 and
2014, and (ii) unaudited, consolidated financial statements of the Company and
the Subsidiary, including the consolidated balance sheet as of May 31, 2015 and
the related consolidated statements of operations, changes in shareholders’
equity and cash flows for the five months ended May 31, 2015 (collectively, the
“Financial Statements”). The Financial Statements have been prepared from, and
are in accordance with, the books and records of the Company and the Subsidiary
and prepared in accordance with GAAP applied on a consistent basis throughout
the periods indicated therein and with each other (except that the unaudited
Financial Statements do not contain all of the notes required by GAAP). The
Financial Statements present fairly, in all material respects, the financial
position, results of operations and cash flows of the Company and the Subsidiary
as of the respective dates and during the respective periods indicated therein,
subject in the case of the unaudited Financial Statements to normal recurring
year-end adjustments which will not, individually or in the aggregate, be
material. The books and records of the Company and the Subsidiary have been, and
are being, maintained in all material respects in accordance with GAAP and any
other applicable legal and accounting principles.

 

(g)          No Undisclosed Liabilities. The Company has no Liabilities except
as (i) reflected in, reserved against or disclosed in the Financial Statements,
(ii) incurred in the ordinary course of business since the Latest Balance Sheet
Date and not as a result of a breach of Contract, violation of Applicable Law or
tort, or (iii) set forth in Disclosure Schedule 3.2(g). All Transaction Costs
other than the Paid Transaction Costs will have been paid in full prior to the
Closing. The aggregate amount of Indebtedness as of the Latest Balance Sheet
Date was $12,508,140 and the aggregate amount of Indebtedness as of the date of
this Agreement is not more than $13,100,000.

 

11

 

 

(h)          Accounts Receivable; Accounts Payable; Inventory.

 

(i)          All of the accounts receivable of the Company and the Subsidiary
are valid and, to the Knowledge of the Company, are not subject to set-off or
counterclaim except for customary allowances and reserves in the ordinary course
of business. Since the Latest Balance Sheet Date, the Company and the Subsidiary
have collected their respective accounts receivable in the ordinary course of
business and in a manner which is consistent with past practices and have not
accelerated any such collections. Set forth in Disclosure Schedule 3.2(h)(i) is
an aging report with respect to the accounts receivable of the Company and the
Subsidiary as of May 31, 2015.

 

(ii)         Neither the Company nor the Subsidiary has any notes receivable.

 

(iii)        All accounts payable of the Company and the Subsidiary arose in
bona fide arm’s length transactions in the ordinary course of business. Since
the Latest Balance Sheet Date, the Company and the Subsidiary have paid their
respective accounts payable in the ordinary course of their business and in a
manner which is consistent with their past practices and have not delayed the
payment of any accounts payable. Set forth in Disclosure Schedule 3.2(h)(iii) is
a list of the accounts payable of the Company and the Subsidiary as of May 31,
2015.

 

(iv)        The Company and the Subsidiary have good and marketable title to
their respective inventories, free and clear of Liens other than Permitted
Liens. The inventories are in good and merchantable condition, and are suitable
and usable for the purposes for which they are intended.

 

(i)          Litigation. Except as set forth in Disclosure Schedule 3.2(i),
there are no (i) Actions by or against the Company or the Subsidiary, or any
directors, officers or employees of the Company or Subsidiary in their
capacities as such, or affecting the Company’s or the Subsidiary’s assets
pending, or to the Knowledge of the Company, threatened; or (ii) Judgments or
orders outstanding by any court or Government Entity to which the Company or
Subsidiary, or any of their assets, are subject. Without limiting the generality
of the foregoing, except as set forth in Disclosure Schedule 3.2(i), there are
no Actions against the Company or Subsidiary pending, or, to the Knowledge of
the Company, threatened relating to any alleged hazard or alleged defect in
design, manufacture, materials or workmanship, including any failure to warn or
alleged breach of express or implied warranty or representation, relating to any
Company Product. There is no investigation, audit, or other proceeding pending
or, to the Knowledge of the Company, threatened, against the Company, the
Subsidiary, any of their respective assets or any of their respective directors,
officers or employees by or before any Governmental Entity, nor to the Knowledge
of the Company is there any reasonable basis therefor. No Governmental Entity
has at any time challenged or questioned the legal right of the Company or the
Subsidiary to conduct its operations as presently or previously conducted or as
currently contemplated to be conducted. There is no Action pending against, or
to the Knowledge of the Company, threatened against or affecting, the Company
before any court or arbitrator or any Governmental Entity which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated hereby.

 

12

 

 

(j)          Taxes.

 

(i)          The Company and the Subsidiary have each timely filed, or have
caused to be timely filed, all Tax Returns relating to Taxes required to be
filed by or on behalf of the Company and the Subsidiary except for Tax Returns
for which the Company and Subsidiary have recorded a liability under ASC 740
(relating to uncertain tax positions). All such Tax Returns are true and
complete, and all Taxes due and payable by the Company or Subsidiary shown to be
due on such Tax Returns have been fully and timely paid.

 

(ii)         The Company has delivered to Purchaser correct and complete copies
of all material Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by the Company since January 1, 2008.

 

(iii)        The Company and the Subsidiary have complied with all requirements
under Applicable Law relating to the payment, reporting and withholding of
Taxes, including with respect to the Company’s and the Subsidiary’s employees,
and with respect to payments made to any non-U.S. person.

 

(iv)        Neither the Company nor the Subsidiary has been delinquent in the
payment of any Tax, nor is there any Tax deficiency outstanding or assessed
against the Company or Subsidiary.

 

(v)         The Company has been a validly electing S corporation within the
meaning of Code Sections 1361 and 1362 at all times since its formation, and the
Company will be an S corporation up to and including the Closing Date.

 

(vi)        The Subsidiary is an "Interest Charge Domestic International Sales
Corporation" within the meaning of Code Sections 991 and 992, and has been and
will be a qualified Interest Charge Domestic International Sales Corporation at
all times since its formation up to and including the Closing Date. The
Subsidiary has had since its date of formation a valid election to be treated as
an "Interest Charge Domestic International Sales Corporation" within the meaning
of Code Section 992, and has at all times since its formation met the
requirements to be qualified as an "Interest Charge Domestic International Sales
Corporation" under Code Section 992 and the Treasury Regulations thereunder. All
commissions paid by the Company to the Subsidiary, and all agreements with
respect thereto, have complied with the intercompany pricing rules under Code
Section 994 and the Treasury Regulations thereunder.

 

(vii)       Neither the Company nor the Subsidiary has, in the past ten years,
(A) acquired assets from another corporation in a transaction in which Company's
Tax basis for the acquired assets was determined, in whole or in part, by
reference to the Tax basis for the acquired assets (or any other property) in
the hands of the transferor, or (B) acquired the stock of any corporation that
is a qualified subchapter S subsidiary, except for the formation of the
Subsidiary as an Interest Charge Domestic International Sales Corporation.

 

13

 

 

(viii)      There is no (A) claim that a Tax Return should have been filed, or
for Taxes that has been asserted against the Company or Subsidiary, (B) Lien
against the property of the Company or Subsidiary, other than Permitted Liens,
(C) extension of any statute of limitations on the assessment of any Taxes
granted by the Company or Subsidiary currently in effect, or (D) agreement to
any extension of time for filing any Tax Return which has not been filed.

 

(ix)         No audit or other examination of any Tax Return of the Company or
Subsidiary by any taxing authority is presently in progress, nor to the
Knowledge of the Company is there any threatened audit or other examination by
any Governmental Entity in respect of any Taxes of the Company or Subsidiary.

 

(x)          Neither the Company nor the Subsidiary has been notified by a
taxing authority in any jurisdiction in which the Company or the Subsidiary does
not pay Taxes or file Tax Returns asserting that the Company or the Subsidiary
is or may be required to pay Taxes or file Tax Returns in such jurisdiction,
which has not been resolved prior to the date of this Agreement.

 

(xi)          The Latest Balance Sheet reflects all Liabilities for unpaid Taxes
of the Company and the Subsidiary for periods (or portions of periods) through
the Latest Balance Sheet Date. Neither the Company nor the Subsidiary has any
Liability for unpaid Taxes accruing after the Latest Balance Sheet Date except
for Taxes arising in the ordinary course of business subsequent to the Latest
Balance Sheet Date. Neither the Company nor the Subsidiary has any Liability for
Taxes for any periods or portions of the periods prior to the Closing Date that
are not included in the calculation of the Closing Working Capital.

 

(xii)        Neither the Company nor the Subsidiary (A) has been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was the Company), or (B) has any liability for
the Taxes of any Person (other than the Company or the Subsidiary) under Treas.
Reg. Section 1.1502-6 (or any similar provision of state, local, or non-U.S.
law), as a transferee or success, by contract, or otherwise. Neither the Company
nor Subsidiary is a party to or bound by any Tax sharing, Tax indemnity, or Tax
allocation agreement.

 

(xiii)       Neither the Company nor the Subsidiary is, or has been, a “United
States real property holding corporation” (as defined in Section 897(c)(2) of
the Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of
the Code.

 

(xiv)      Disclosure Schedule 3.2(j)(xiv) lists all jurisdictions (whether
foreign or domestic) to which any Tax has been paid by the Company or the
Subsidiary. No claim in writing has ever been made by a Tax authority in a
jurisdiction where the Company or the Subsidiary does not file Tax Returns that
the Company or the Subsidiary is or may be subject to Tax in that jurisdiction.
Neither the Company nor the Subsidiary has, or has ever had, a permanent
establishment in any foreign country.

 

14

 

 

(xv)       Neither the Company nor the Subsidiary has been (A) the subject of an
IRS private letter ruling (or similar Tax ruling under state, local or foreign
Law) that has continuing effect; (B) the subject of a “closing agreement” as
that term is defined in Section 7121 of the Code (or any comparable agreement
under state, local or foreign Law) with any Tax authority that has continuing
effect; or (C) granted a power of attorney with respect to any Tax matters that
continues in effect.

 

(xvi)      Neither the Company nor the Subsidiary will be required to include
any item of income in, or exclude any item of deduction from, taxable income for
any taxable period (or portion thereof) ending after the Closing Date as a
result of any (A) installment sale or open transaction disposition made on or
prior to the Closing Date, or (B) prepaid amount received on or prior to the
Closing Date. There are no requests for rulings or determinations in respect of
any Tax pending between the Company and any governmental authority.

 

(xvii)     Neither the Company nor the Subsidiary has ever been either a
“controlled corporation” or a “distributing corporation” (within the meaning of
Section 355(a)(1)(A) of the Code) with respect to a transaction that was
described in, or intended to qualify as a tax-free transaction pursuant to
Section 355 of the Code. Neither the Company nor the Subsidiary has made or
agreed to make any adjustment under Section 481(a) of the Code (or any
corresponding provision of state, local or foreign Tax law) by reason of a
change in accounting method or otherwise. Neither the Company nor the Subsidiary
has participated in an international boycott as defined in Section 999 of the
Code. Neither the Company nor the Subsidiary owns, directly or indirectly, any
interests in an entity that is or has been a “passive foreign investment
company” within the meaning of Section 1297 of the Code or a “controlled foreign
corporation” within the meaning of Section 957 of the Code.

 

(xviii)    Neither the Company nor the Subsidiary is a party to any contract or
plan (including any Company stock rights) that has resulted or would result,
separately or in the aggregate, in the payment of (A) any “excess parachute
payments” within the meaning of Section 280G of the Code (without regard to the
exceptions set forth in Sections 280G(b)(4) and 280G(b)(5) of the Code) or (B)
any amount for which a deduction would be disallowed or deferred under Section
162 or Section 404 of the Code.

 

(xix)       Each plan, program, arrangement or agreement which constitutes in
any part a nonqualified deferred compensation plan within the meaning of Section
409A of the Code is identified as such on Disclosure Schedule 3.2(j)(xix). Since
December 31, 2004, each plan, program, arrangement or agreement of the Company
or Subsidiary has been operated and maintained in accordance with the
requirements of Section 409A of the Code.

 

(k)          Title to Property and Assets.

 

(i)          Neither the Company nor the Subsidiary owns or has ever owned any
real property.

 

15

 

 

(ii)         Disclosure Schedule 3.2(k)(ii) sets forth the address of each
parcel of real property in which the Company has a leasehold interest (the
“Leased Real Property”). Each parcel of Leased Real Property is leased under a
valid and subsisting lease. Each lease relating to the Leased Real Property is
in full force and effect. With respect to the Leased Real Property: (A) to the
Knowledge of the Company, there are no pending or threatened condemnation
proceedings, suits or administrative actions relating to any such parcel or
other matters affecting adversely the current use, occupancy or value thereof;
(B) the operation of the Leased Real Property in the manner in which it is now
operated comply with all zoning, building, use, safety or other similar Laws;
(C) all improvements are in good operating condition, ordinary wear and tear
excepted, and are supplied with utilities and other services necessary for the
operation of the Business as currently conducted; (D) neither the Company nor
the Subsidiary has received any notice of any special Tax, levy or assessment
for benefits or betterments that affect any parcel of Leased Real Property and,
to the Knowledge of the Company, no such special Taxes, levies or assessments
are pending or contemplated; and (E) there are no Contracts to which the Company
is a party granting to any third party or parties the right of use or occupancy
of the Leased Real Property, and there are no third parties (other than the
Company) in possession of any of the Leased Real Property. The Company is not a
party to any Contract or option to purchase any real property or any portion
thereof or interest therein. True and complete copies of any lease or agreement
to lease relating to the Leased Real Property have been provided or made
available to Purchaser.

 

(iii)        Each of the Company and the Subsidiary has good and marketable
title to, or a valid leasehold interest or license in, the properties and assets
(tangible and intangible) used by it, located on its premises or shown on the
Latest Balance Sheet or acquired after the date thereof (other than inventory
sold in the ordinary course of business), free and clear of all Liens, except
for Permitted Liens. The assets, properties and rights owned by the Company or
Subsidiary are all the assets, properties and rights used by the Company and the
Subsidiary in the operation of the Business or necessary to operate the Business
consistent with past practice.

 

(iv)        The buildings, machinery, equipment and other tangible assets that
the Company or the Subsidiary owns and leases (A) are, to the Knowledge of the
Company, free from material defects (patent and latent), and (B) have been
maintained in accordance with normal industry practice, and are in good
operating condition and repair (subject to normal wear and tear).

 

(l)          Intellectual Property.

 

(i)          Disclosure Schedule 3.2(l)(i) contains a true and complete list of
all Company Registered Intellectual Property and all Company Licensed
Intellectual Property that is exclusively licensed to the Company or Subsidiary.
The Company or Subsidiary, as applicable, owns all rights in, or has valid and
enforceable rights to use, the Company Intellectual Property, free and clear of
all Liens except Permitted Liens.

 

(ii)         Except as set forth in Disclosure Schedule 3.2(l)(ii) and claims
that have been fully resolved: (A) to the Knowledge of the Company, the Company
Intellectual Property has not been infringed, misappropriated or otherwise
violated in any material respect by any Person, including any employee or former
employee of the Company or Subsidiary; (B) since January 1, 2012, no Action has
been brought against the Company or Subsidiary (and neither the Company nor the
Subsidiary has received any notice, or any threat) that involves a claim of
infringement, misappropriation or other violation of any Intellectual Property
of any third party or that contests the validity, ownership or right of the
Company or Subsidiary to exercise any Intellectual Property right; (C) since
January 1, 2012, neither the Company nor the Subsidiary has brought any Action
for infringement, misappropriation or other violation of any Intellectual
Property or breach of any Contract relating to the Company Intellectual
Property; and (D) neither the Company nor the Subsidiary has received any
unresolved written notice of any alleged invalidity with respect to any of the
Company Intellectual Property in connection with the normal conduct of the
Business.

 

16

 

 

(iii)        Neither the Company nor the Subsidiary has transferred ownership of
any Intellectual Property that is or was Company Owned Intellectual Property, to
any third party, or granted any third party any exclusive rights with respect to
any Company Intellectual Property, or to the Knowledge of the Company, permitted
the Company’s rights in any Intellectual Property that is or was Company Owned
Intellectual Property to enter the public domain.

 

(iv)        All fees, annuities, royalties, honoraria and other payments that
are due from the Company on or before the date of this Agreement for any of the
Company Intellectual Property and agreements related to the Company Intellectual
Property have been paid. Disclosure Schedule 3.2(l)(iv) sets forth a list of all
fees, annuities, royalties, honoraria and other payments that are due from the
Company within one year of the Closing Date for any of the Company Intellectual
Property and agreements related to the Company Intellectual Property existing as
of date of this Agreement.

 

(v)         All registration, maintenance and renewal fees currently due in
connection with the Company Registered Intellectual Property have been paid and
all documents, recordations and certificates in connection with such Company
Registered Intellectual Property currently required to be filed have been filed
with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case may be, for the purposes of
prosecuting, maintaining and perfecting such Company Registered Intellectual
Property and recording the Company’s and the Subsidiary’s ownership interests
therein.

 

(vi)        Each of the Company and the Subsidiary has secured from all of its
consultants, employees and independent contractors who independently or jointly
contributed to the conception, reduction to practice, creation or development of
any Company Owned Intellectual Property, unencumbered and unrestricted exclusive
ownership of all such third party’s Intellectual Property in such contribution
that the Company or Subsidiary does not already own by operation of law and such
third party has not retained any rights or licenses with respect thereto.

 

(vii)       The Company and the Subsidiary have taken commercially reasonable
steps to protect and preserve the confidentiality of all confidential or
non-public information included in the Company Intellectual Property.

 

17

 

 

(viii)      No “open source software,” “free software” or other materials
licensed under similar licensing or distribution terms have been incorporated
into, combined with, used by, or distributed with the Company Intellectual
Property or Company Products.

 

(ix)         Neither the Company nor the Subsidiary nor, to the Knowledge of the
Company, any other Person then acting on their behalf has disclosed, delivered
or licensed to any Person, agreed to disclose, deliver or license to any Person,
or permitted the disclosure or delivery to any escrow agent or other Person of,
any software source code. No event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time, or both) will,
or would reasonably be expected to, result in the disclosure, delivery or
license by the Company or Subsidiary or any Person then acting on their behalf
to any Person of any software source code.

 

(x)          No (A) government funding, or (B) facilities of a university,
college, other educational institution or research center was used in the
development of the Company Owned Intellectual Property. To the Knowledge of the
Company, there are no usage rights, march-in rights, manufacturing restrictions,
or other rights of any Governmental Entity or any academic institution in or to
any of the Company Owned Intellectual Property.

 

(xi)         Neither the Company nor the Subsidiary is now or has ever been a
member or promoter of, or a contributor to, any industry standards body or any
similar organization that could reasonably be expected to require or obligate
the Company or Subsidiary to grant or offer to any other Person any license or
right to any Company Owned Intellectual Property. Neither the Company nor the
Subsidiary has a present obligation to grant or offer to any other Person any
license or right to any Company Owned Intellectual Property by virtue of the
Company’s or any other Person’s membership in, promotion of, or contributions to
any industry standards body or any similar organization.

 

(xii)        The Company has taken all reasonable steps to protect and preserve
the confidentiality of all trade secrets, know-how, source code, databases,
customer lists, schematics, ideas, algorithms and processes and all use,
disclosure or appropriation thereof by or to any Person has been pursuant to the
terms of a written agreement between such third party and the Company. The
Company has complied in all material respects with all of its confidentiality
obligations under each Contract to which the Company is a party.

 

(xiii)       Except as set forth on Disclosure Schedule 3.2(l)(xiii), to the
Knowledge of the Company, (A) the Company Intellectual Property is all of the
Intellectual Property necessary for the conduct of the Business as currently
conducted, (B) the operation of the Business as currently conducted does not
infringe, misappropriate or otherwise violate the Intellectual Property of any
third party, (C) each item of Company Registered Intellectual Property is
validly registered and subsisting, (D) all Company Products sold, licensed,
leased, provided or delivered by the Company or Subsidiary to customers on or
prior to the Closing Date conform as to applicable contractual commitments and
warranties and conform to and perform in accordance with applicable packaging,
advertising and marketing materials, specifications or documentation, and
neither the Company nor the Subsidiary has any liability for replacement or
repair thereof or other damages in connection therewith in excess of any
reserves therefor reflected in, reserved against or disclosed in the Financial
Statements, and (E) with respect to Company Products sold, licensed, leased,
provided or delivered by the Company or Subsidiary to customers on or prior to
the Closing Date with respect to which obligations of any kind on the part of
the Company or such customer remain outstanding, such Company Products have been
so sold, licensed, leased, provided or delivered pursuant to the Company’s
standard form of distribution agreement or pursuant to one of the Company’s
standard forms of customer agreement, which forms have been made available to
Purchaser, and which forms are valid and enforceable.

 

18

 

 

(m)          Business Continuity. None of the software, computer hardware
(whether general or special purpose), telecommunications capabilities (including
all voice, data and video networks), data storage, and other similar or related
items of automated, computerized, and/or software systems and any other networks
or systems and related services that are used by or relied on by the Company in
all material respects in the conduct of its Business (collectively, the
“Systems”) have experienced bugs, failures, breakdowns, breaches, unauthorized
access, or continued substandard performance in the past 24 months that has
caused or reasonably could be expected to cause any substantial disruption or
interruption in or to the use of any such Systems by the Company or the
Subsidiary.

 

(n)          Information Privacy and Data Security.

 

(i)          The Company’s practices concerning collection, use, analysis,
retention, storage, protection, security, transfer, disclosure and disposal of
Personal Information comply with, and have not violated, any (A) Contract,
including any business associate agreement with a client, or (B) Privacy Laws.

 

(ii)         The Company (A) is not now and has not been in the last ten years
under investigation by any Governmental Entity for an actual or alleged
violation of any Privacy Law, (B) has not received any notices from the United
States Department of Health and Human Services Office for Civil Rights,
Department of Justice, Federal Trade Commission, Attorney General of any state
or territory of the United States, or any other Governmental Entity, relating to
any such actual or alleged violations, (C) has not received any complaints,
notices or other written or oral communications from any Person alleging a
violation of any Privacy Law, and (D) is not aware of any incident that would
trigger an obligation to notify any Person under any Privacy Laws or business
associate agreement as that term is defined under HIPAA.

 

(iii)        The Company has implemented reasonable administrative, physical and
technical safeguards to protect the Personal Information processed by the
Company. The Company maintains, and has remained in compliance with, written
policies and procedures concerning the (A) protection of Personal Information,
(B) the protection of the systems, technology and networks that process such
Personal Information, and (C) prevention, detection, containment, and correction
of security violations respecting its information systems. The Company has
provided Purchaser with true and accurate copies of all such written and
procedures. Each Company employee and agent has received training regarding
information security that is relevant to each such employee’s or agent’s role
and responsibility within the Company. The Company has deployed industry
standard encryption on all portable devices and information systems containing
Sensitive Personal Information.

 

19

 

 

(iv)        To the extent the Company collects Personal Information of Persons
who reside outside of the United States, the Company has implemented mechanisms
to comply with Privacy Laws restricting the transfers of Personal Information
from such Persons’ home country to any other country.

 

(v)         The Company has implemented commercially reasonable administrative,
physical and technical safeguards to protect the Personal Information processed
by the Company.

 

(vi)        To the extent necessary or required by HIPAA, the Company has
entered into a business associate agreement that complies with HIPAA and HITECH
in each case in which the Company’s counterparty is acting as Covered Entity or
a Business Associate or the Company provides access to Protected Health
Information to its agents, subcontractors or vendors. There have not been any
material violations of any such business associate agreements by the Company.

 

(vii)       The Company has made available or provided Purchaser with true and
accurate copies of all Contracts with each third-party service provider, vendor
and business partner that has access (including storage) to Sensitive Personal
Information, including payment processors, advertising and marketing agencies,
cloud storage vendors and outsourced technology or human resource functions.

 

(o)          Compliance with Applicable Laws; Permits.

 

(i)          Each permit, license, approval, franchise, order, consent,
authorization, registration, qualification or other right and privilege from any
Governmental Entity (A) pursuant to which the Company or Subsidiary currently
operates or holds any interest in any of its properties or (B) which is required
for the operation of the Company’s and the Subsidiary’s business or the holding
of any such interest (collectively, “Permits”) has been issued or granted to the
Company or the Subsidiary. As of the date of this Agreement, the Permits held by
or issued to the Company or Subsidiary are in full force and effect, and the
Company and the Subsidiary are in compliance with each such Permit in all
material respects.

 

(ii)         Except as set forth in Disclosure Schedule 3.2(o)(ii), since June
30, 2012, each of the Company and the Subsidiary has complied in all material
respects with all Applicable Laws and is not in violation of, and has not
received any written notices of suspected, potential or actual violation with
respect to, any Applicable Laws.

 

(iii)        Except as set forth in Disclosure Schedule 3.2(o)(iii), during the
five year period ending on the date of this Agreement, the Company has not had
any product or manufacturing site subject to a Governmental Entity shutdown or
import or export prohibition, nor received any Governmental Entity notice of
inspectional observations, “warning letters,” “untitled letters,” or similar
correspondence or written notice from any Governmental Entity alleging or
asserting noncompliance with any Applicable Law, Permit or such correspondence
or notice from any Governmental Entity, and, to the Knowledge of the Company, no
Governmental Entity is considering such action.

 

20

 

 

(p)          Foreign Corrupt Practices Act. Without limiting the generality of
Section 3.2(o), neither the Company nor the Subsidiary (including any of their
respective directors, officers, employees, agents or other Person associated
with or acting on their behalf) has, directly or indirectly, taken any action
which would cause it to be in violation of the Foreign Corrupt Practices Act of
1977, as amended, or any rules or regulations thereunder (the “FCPA”), used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, made, offered or authorized
any unlawful payment to foreign or domestic government officials or employees,
whether directly or indirectly, or made, offered or authorized any bribe,
rebate, payoff, influence payment, kickback or other similar unlawful payment,
whether directly or indirectly.

 

(q)          Export Control Laws. Without limiting the generality of Section
3.2(o), each of the Company and the Subsidiary has at all times conducted its
export transactions in accordance with (i) all applicable U.S. export and re
export controls, including the United States Export Administration Act and
Regulations and Foreign Assets Control Regulations and (ii) all other applicable
import/export controls in other countries in which the Company or Subsidiary
conducts business. Without limiting the foregoing:

 

(i)          each of the Company and the Subsidiary has obtained all export
licenses, license exceptions and other consents, notices, waivers, approvals,
orders, authorizations, registrations, declarations and filings with any
Governmental Entity required for (A) the export and re export of products,
services, software and technologies and (B) releases of technologies and
software to foreign nationals located in the United States and abroad (“Export
Approvals”);

 

(ii)         each of the Company and the Subsidiary is in compliance with the
terms of all applicable Export Approvals;

 

(iii)        there are no pending or, to the Knowledge of the Company,
threatened claims against the Company or Subsidiary with respect to such Export
Approvals; and

 

(iv)        to the Knowledge of the Company, there are no actions, conditions or
circumstances pertaining to the Company’s or the Subsidiary’s export
transactions that may give rise to any future claims.

 

(r)          Environmental Matters. The Company and the Subsidiary have obtained
all Environmental Permits necessary for the conduct of Business and each is in
compliance with the requirements of such Environmental Permits and with all
applicable Environmental Laws. Except as set forth in Disclosure Schedule
3.2(r), (i) to the Knowledge of the Company no (A) underground storage tanks,
(B) polychlorinated biphenyls or equipment containing polychlorinated biphenyls,
or (C) asbestos or asbestos-containing materials are present at the Leased Real
Property, and (ii) the operations of the Company and the Subsidiary have not
resulted in any release of Hazardous Materials on the Leased Real Property in
violation of Applicable Laws. The Company has not received any written or oral
notice, report or other information regarding any actual or alleged violation of
Environmental Laws, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations, relating to the Company, its
current or former facilities or the Leased Real Property arising under
Environmental Laws.

 

21

 

 

(s)          FDA and Regulatory Matters.

 

(i)          Except as set forth on Disclosure Schedule 3.2(s)(i), each of the
Company and the Subsidiary is, and since its incorporation or organization has
been, in compliance with all Healthcare Laws applicable to the Company, the
Subsidiary and the Company Products, or by which any property or other asset of
the Company or the Subsidiary is bound or affected. The design, manufacture,
testing, and distribution of Company Products by or on behalf of the Company is
being, and has been since its incorporation or organization, as applicable,
conducted in compliance with all applicable Healthcare Laws, including the FDA’s
current good manufacturing practice regulations at 21 C.F.R. Part 820 for
medical device products. The Company and the Subsidiary and, to the Knowledge of
the Company, any contract manufacturers assisting in the manufacture of the
Company Products are, and at all times have been, in compliance with FDA’s
registration and listing requirements to the extent required by applicable
Healthcare Laws. Neither the Company nor the Subsidiary has received
notification of any pending or threatened Action from any Governmental Entity,
including the FDA, the Centers for Medicare & Medicaid Services, and the U.S.
Department of Health and Human Services Office of Inspector General, or any
comparable state or federal Governmental Entity alleging potential or actual
non-compliance by, or Liability of, the Company or the Subsidiary under any
Healthcare Law.

 

(ii)         The Company and the Subsidiary hold such Permits of Governmental
Entities from the United States government or government agencies required for
the conduct of its Business as currently conducted, including those Permits
necessary to permit the design, development, pre-clinical and clinical testing,
manufacture, labeling, sale, shipment, distribution and promotion of the Company
Products in jurisdictions where it currently conducts such activities (the
“Activities to Date”) with respect to each Company Product (collectively, the
“Company Licenses”). The Company has fulfilled and performed all of its
obligations in all material respects with respect to each Company License and is
in compliance in all material respects with all terms and conditions of each
Company License, and, to the Knowledge of the Company, no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other impairment of the rights of the
holder of any Company License. Neither the Company nor the Subsidiary has
received any information or notification from the FDA or any other Governmental
Entity with jurisdiction over the testing, marketing, sale, use, handling and
control, safety, efficacy, reliability, or manufacturing of medical devices
regarding the denial of any application for marketing approval or clearance
currently pending before the FDA or any other Governmental Entity.

 

(iii)        All filings, reports, documents, claims, submissions and notices
required to be filed, maintained, or furnished to FDA, state, other federal
equivalent agencies by the Company have been so filed, maintained or furnished
and were complete and correct in all material respects on the date filed (or
were corrected in or supplemented by a subsequent filing), including adverse
event reports and medical device reports, with regard to the Company Products.
Disclosure Schedule 3.2(s)(iii) sets forth a list of all adverse event reports
related to the Company Products, including any Medical Device Reports required
in accordance with 21 C.F.R. Part 803. Set forth on Disclosure Schedule
3.2(s)(iii) are complaint review and analysis reports of the Company and the
Subsidiary, including information regarding complaints by product, which reports
are complete and correct in all material respects. All applications,
notifications, submissions, information, claims, reports, filings, and other
data and conclusions derived therefrom utilized as the basis for or submitted in
connection with any and all requests for a Company License from the FDA or other
Governmental Entity relating to the Company, the Subsidiary or the Business, or
the Company Products, when submitted to the FDA or any other Governmental
Entity, whether oral, written or electronically delivered, were true, accurate
and complete as of the date of submission. Any necessary or required updates,
changes, corrections or modifications to such applications, notifications,
submissions, information, claims, reports, filings, and other data have been
submitted to the FDA or other Governmental Entity and as so updated, changed,
corrected or modified remain true, accurate and complete, and do not materially
misstate any of the statements or information included therein, or omit to state
a material fact necessary to make the statements therein not misleading.

 

22

 

 

(iv)        Neither the Company nor the Subsidiary has received any notice or
other communication from the FDA or any other Governmental Entity contesting the
pre-market clearance or approval of, the uses of or the labeling and promotion
of any of the Company Products. No manufacturing site which assists in the
manufacture of the Company Products (whether Company-owned or operated, or, to
the Knowledge of the Company, that of a contract manufacturer for the Products)
has been subject to a Governmental Entity (including FDA) shutdown or import or
export prohibition. Neither the Company nor, to the Knowledge of the Company,
any manufacturing site which assists in the manufacture of the Products (whether
Company-owned or operated, or that of a contract manufacturer for the Products)
has received any FDA Form 483 or other Governmental Entity notice of
inspectional observations or adverse findings, “warning letters,” “untitled
letters” or similar correspondence or notice from the FDA or other Governmental
Entity alleging or asserting noncompliance with any applicable Healthcare Laws
or Company Licenses or alleging a lack of safety from the FDA or any other
Governmental Entity, and there is no action or proceeding pending or, to the
Knowledge of the Company, threatened.

 

(v)         Except as set forth on Disclosure Schedule 3.2(s)(v), there have
been no recalls (either voluntary or involuntary), field notifications, field
corrections, market withdrawals or replacements, warnings, “dear doctor”
letters, investigator notices, safety alerts or other notices of action relating
to an alleged lack of safety, efficacy, or regulatory compliance of any Company
Product, or seizures ordered or adverse regulatory actions taken (or, to the
Knowledge of the Company, threatened) by the FDA or any other Governmental
Entity with respect to any of the Company Products or any facilities where any
such Company Products are tested, produced, processed, packaged or stored. The
FDA has not mandated that the Company do a recall of any of the Company
Products. There are no recalls of any of the Company Products contemplated or
pending.

 

(vi)        No preclinical or clinical trials have been completed, or are being
conducted as of the date hereof, by or on behalf of, or sponsored by, the
Company.

 

23

 

 

(vii)       Neither the Company, nor, to the Knowledge of the Company, any
director, officer or employee of the Company, nor any agent acting on behalf of
or for the benefit of any of the Company, has directly or indirectly in
connection with the Company: (A) offered or paid any remuneration, in cash or in
kind, to or made any financial arrangements with, any past, present or potential
customers, past or present suppliers, patients, contractors or employees of
private third party payors or government programs in return for or to induce
business or payments from such persons other than in the ordinary course of
business; (B) given or agreed to give, any gift or gratuitous payment of any
kind, nature or description (whether in money, property or services) to any
customer or potential customer, supplier or potential supplier, contractor,
private third party payor or any other person other than in connection with
promotional or entertainment activities in the ordinary course of business and
in compliance with the Company’s compliance program; or (C) made any false
entries on any of the Company’s books or records for any purpose prohibited by
Applicable Law.

 

(viii)      The Company has delivered to Purchaser true, correct and complete
copies of all of its material written communications with the FDA.

 

(ix)         The Company is not the subject of any pending or, to the Knowledge
of the Company, threatened investigation regarding the Company or the Company
Products, by the FDA pursuant to its “Fraud, Untrue Statements of Material
Facts, Bribery, and Illegal Gratuities” Final Policy set forth in 56 Fed. Reg.
46,191 (September 10, 1991) and any amendments thereto (“FDA Fraud Policy”), or
otherwise. Neither the Company nor to the Knowledge of the Company, any officer,
employee, agent or distributor of the Company has made an untrue statement of
material fact to the FDA or any other Governmental Entity, failed to disclose a
material fact required to be disclosed to the FDA or any other Governmental
Entity, or committed an act, made a statement or failed to make a statement
that, at the time such disclosure was made, would reasonably be expected to
provide a basis for the FDA or any other Governmental Entity to invoke the FDA
Fraud Policy or any similar policy. Neither the Company nor, to the Knowledge of
the Company, any officer, employee, agent or distributor of the Company, has
been convicted of any crime or engaged in any conduct for which such Person
could be excluded from participating in the federal health care programs under
Section 1128 of the Social Security Act of 1935, as amended, or any similar Law.
No claims, actions, proceedings or investigation that would reasonably be
expected to result in a material debarment or exclusion are pending or, to the
Knowledge of the Company, threatened, against the Company or, to the Knowledge
of the Company, any of its directors, officers, employees or agents.

 

(t)          Health Care Professionals. Except as set forth on Disclosure
Schedule 3.2(t), no Seller is a Health Care Professional. The Company and the
applicable Sellers acknowledge that Purchaser shall be entitled to disclose
information regarding payments and other related items provided to any Sellers
who are or may be Health Care Professionals to the public and various government
agencies as Purchaser deems appropriate for the purpose of providing disclosure
of and transparency with respect to interactions with Health Care Professionals
(including information regarding the name of such Seller and the purpose and
amount of any such payments), whether or not required by Applicable Law and
regulations and regardless of whether such information is actively sought by the
public or any applicable government agencies.

 

24

 

 

(u)          Restrictions on Business Activities. Except as set forth in
Disclosure Schedule 3.2(u), there is no Contract (non-competition or otherwise),
commitment, Judgment, injunction, order or decree to which the Company or
Subsidiary is a party or otherwise binding upon the Company or Subsidiary which
prohibits or impairs any business practice of the Company or Subsidiary, the
conduct of business by the Company or Subsidiary, or otherwise limiting the
freedom of the Company to engage or participate in any line of business, market
or geographic area, or to conduct any business activities, or to compete with
any Person.

 

(v)         Brokers. Except for Cockrell Group, whose fees and expenses will be
paid by Sellers, no broker, finder or agent is entitled to any brokerage fees,
finder’s fees or commissions in connection with this Agreement or the
transactions contemplated hereby based upon agreement, arrangement or
understanding made by or on behalf of the Company or the Subsidiary; provided,
the K. Hemmelgarn 1998 Trust and the B. Hemmelgarn 1998 Trust represent and
warrant that no Hemmelgarn Seller has engaged any such broker on behalf of the
Company or the Subsidiary, and they make no representation or warranty as to any
such broker that may have been engaged by Kirschman or any other Person on
behalf of the Company or the Subsidiary.

 

(w)          Employees; Compensation; Labor Matters.

 

(i)          Disclosure Schedule 3.2(w) contains a complete list of all current
employees and consultants of the Company, showing for each: (A) name, (B) hire
date, (C) current job title, (D) actual base salary, bonus, commission or other
remuneration paid during 2014, (E) 2015 base salary level and 2015 target bonus
(if any), and (F) indicating whether there has been any increase in
compensation, bonus, incentive, or service award or any grant of any severance
or termination pay or any other increase in benefits or any commitment to do any
of the foregoing since January 1, 2015.

 

(ii)         The Company has provided Purchaser with complete and correct copies
of (A) all existing severance, accrued vacation or other leave agreement,
policies or retiree benefits of any such employee or consultant, (B) all
employee or consultant trade secret, non-compete, non-disclosure and invention
assignment agreements and (C) all manuals and handbooks applicable to any
current or former officer, employee or consultant of the Company. The employment
or consulting arrangement of each officer, employee, agent or consultant of the
Company is, subject to Applicable Laws involving the wrongful termination of
employees, terminable at will (without the imposition of penalties or damages)
by the Company and the Company does not have any severance obligations if any
such manager, officer, employee, agent or consultant is terminated. To the
Knowledge of the Company, no executive or Key Employee of the Company or any
group of employees of the Company has any plans to terminate employment with the
Company.

 

(iii)        The Company has not experienced (nor, to the Knowledge of the
Company, has it been threatened with) any strike, slow down, work stoppage or
material grievance, claim of unfair labor practices, or other collective
bargaining dispute within the past three years. The Company has not committed
any material unfair labor practice. To the Knowledge of the Company, there is no
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Company. The Company has paid in
full to all of its employees and independent contractors all wages, salaries,
commissions, bonuses, benefits and other compensation due and payable to such
employees and independent contractors.

 

25

 

 

(iv)        All individuals who have performed services for the Company or who
otherwise have claims for compensation from the Company have been properly
classified as an employee or an independent contractor and as exempt or
non-exempt pursuant to all Applicable Laws, including the Code and ERISA.

 

(x)          Employee Benefit Plans.

 

(i)          Disclosure Schedule 3.2(x)(i) contains a list, as of the date of
this Agreement, of all “employee benefit plans” within the meaning of §3(3) of
ERISA, all bonus, equity option, equity purchase, equity, incentive, deferred
compensation, supplemental retirement, severance, change in control, fringe
benefit and other employee benefit plans, programs or arrangements, and all
employment or compensation agreements, whether or not subject to ERISA, in each
case for the benefit of, or relating to, current employees and/or former
employees of the Company or Subsidiary, sponsored by, contributed to or
maintained by the Company or Subsidiary, or under which the Company or
Subsidiary has any present or future Liability, other than those plans, programs
and arrangements sponsored or mandated by a Governmental Entity (collectively,
the “Employee Plans”).

 

(ii)         Each Employee Plan has been established and administered in
compliance in all material respects with its terms and the requirements
prescribed by Applicable Laws, and the Company and the Subsidiary, as
applicable, has performed all obligations required to be performed by it under,
and is not in violation of the terms of, any of the Employee Plans. To the
extent applicable, the Company has made available to Purchaser copies of:
(A) each Employee Plan and applicable amendments; (B) the most recent IRS Form
5500, if any, prepared for each Employee Plan (including all schedules thereto);
(C) the most recent determination letter; (D) any trust agreement or other
funding instrument related to such Employee Plan; and (E) any summary plan
description.

 

(iii)        The execution of this Agreement and the consummation of the
transactions contemplated by this Agreement shall not constitute an event under
any Employee Plan that shall result in or cause (A) any payment (whether of
severance pay or otherwise), (B) forgiveness of indebtedness or accelerated
vesting with respect to any current employees or former employees of the Company
or Subsidiary, (C) any limitation or restriction on the right of Purchaser to
merge, amend or terminate any of the Employee Plans, or (D) payments under any
of the Employee Plans that would not be deductible under Section 280G of the
Code.

 

(iv)        Neither the Company nor the Subsidiary nor any of their ERISA
Affiliates maintains, contributes to or is obligated to contribute to, or has
any Liability or responsibility with respect to any Employee Plan that is
subject to Title IV of ERISA, including any multi-employer plan (as defined in
Section 3(37) of ERISA).

 

(v)         Neither the Company nor the Subsidiary has any Liability or
obligation under any Employee Plan to provide post-termination life insurance or
medical or health benefits to any employee or dependent other than as required
by Part 6 of Title I of ERISA. No nonexempt “prohibited transaction” (as such
term is defined in Section 406 of ERISA and Section 4975 of the Code) has
occurred with respect to any Employee Plan.

 

26

 

 

(y)          Material Contracts. Disclosure Schedule 3.2(y) sets forth a list of
the Material Contracts, true and complete copies of which have been provided or
made available to Purchaser. The Material Contracts are not in default by the
Company or Subsidiary, are not in default by any other party thereto to the
Knowledge of the Company, and no circumstance exists that (with or without
notice, the passage of time or both) would constitute a default under any
Material Contract by the Company or Subsidiary or, to the Knowledge of the
Company, by any other party thereto. Except as set forth in Disclosure Schedule
3.2(y), neither the Company nor the Subsidiary has received any notice of
default or intention to cancel or modify with respect to a Material Contract.

 

(z)          Transactions with Affiliates. Except as set forth in Disclosure
Schedule 3.2(z), none of Sellers or the directors or officers of the Company or
any of their respective Affiliates or family members:

 

(i)          owns, directly or indirectly, any ownership interest or investment
in any Person that is engaged in the Business or is a competitor, supplier,
customer, lessor or lessee of the Company; provided, however, that the foregoing
representation shall be deemed not to be made as to the ownership of not more
than five percent of the securities of any such Person that has securities
registered pursuant to Section 13 or Section 15 of the Exchange Act;

 

(ii)         has any claim against or owes any amount to, or is owed any amount
by, the Company;

 

(iii)        has any interest in or owns any assets, properties or rights used
in the conduct of the Business of the Company;

 

(iv)        is a party to any Contract to which the Company is a party or which
otherwise benefits the Business of the Company; or

 

(v)         is involved in any business relationship with the Company.

 

(aa)         Absence of Changes. Since the Latest Balance Sheet Date, the
Company and the Subsidiary have conducted the Business only in the ordinary
course consistent with past practice and, except as set forth in Disclosure
Schedule 3.2(aa), there has not been:

 

(i)          any material change in the assets, liabilities, financial
condition, properties, business or operations of the Company or the Subsidiary,
other than changes occurring in the ordinary course of business consistent with
past practices;

 

(ii)         any Lien placed on any of the properties of the Company or the
Subsidiary, other than Permitted Liens;

 

(iii)        any damage, destruction or loss, whether or not covered by
insurance, to any material property or right of the Company or Subsidiary;

 

27

 

 

(iv)        any declaration, setting aside or payment of any distribution by the
Company, or the making of any other distribution, in respect of the shares of
Company Stock (other than tax distributions in accordance with past practice),
or any direct or indirect redemption, purchase or other acquisition by the
Company of its capital stock;

 

(v)         any resignation, termination or removal of any officer of the
Company or the Subsidiary, material loss of personnel of the Company or the
Subsidiary, or change in the terms and conditions of the employment of the
Company’s or the Subsidiary’s officers or Key Employees;

 

(vi)        any amendment or termination of, or waiver under, any Material
Contract, except as otherwise contemplated by this Agreement;

 

(vii)       any acquisition or disposition of property for a purchase or sale
price in excess of $50,000, other than sales of Company Products in the ordinary
course of business;

 

(viii)      any sale, disposition, transfer or license to any Person of any
Company Intellectual Property (other than in the ordinary course of business
consistent with past practice); or any acquisition or license from any Person of
any Intellectual Property (other than “shrink wrap” and similar generally
available commercial end-user licenses to software that is not redistributed
with the Company Products);

 

(ix)         any material change in the manner in which the Company or
Subsidiary extends discounts, credits or warranties to customers or otherwise
deals with its customers; or

 

(x)          any agreement or understanding whether in writing or otherwise, for
the Company or the Subsidiary to take any of the actions specified in paragraphs
(i) through (ix).

 

(bb)         Insurance. Disclosure Schedule 3.2(bb) sets forth the following
information with respect to each insurance policy (including policies providing
property, casualty, liability, director & officer, and workers’ compensation
coverage and bond and surety arrangements) with respect to which the Company or
Subsidiary is a party, a named insured, or otherwise the beneficiary of coverage
(collectively, the “Insurance Policies”): (A) the name of the insurer, (B) the
policy number and the period of coverage; and (C) a description of any
retroactive premium adjustments or other material loss-sharing arrangements.
Except as set forth in Disclosure Schedule 3.2(bb), there is no claim by the
Company or any other Person pending under any such policies and bonds as to
which coverage has been questioned, denied or disputed. All premiums due and
payable under all such policies and bonds have been paid. The Company has not
received any threatened terminations of any of such policies or bonds.
Disclosure Schedule 3.2(bb) sets forth a list of all claims made under the
Insurance Policies, or under any other insurance policy, bond or agreement
covering the Company or its operations since January 1, 2014. Since January 1,
2012, the Company has maintained insurance policies with coverage and policy
limits that are substantially similar to the coverage and policy limits provided
by the Insurance Policies.

 

28

 

 

(cc)         Customers and Suppliers 

.

 

(i)          Disclosure Schedule 3.2(cc) sets forth a correct and complete list
of the ten largest suppliers (by dollar volume) of products or services to the
Company, and the 20 largest customers (by revenue dollar volume) of the Company
each during calendar year 2014 and the five months ended May 31, 2015.
Disclosure Schedule 3.2(cc) also sets forth, for each such supplier and
customer, the aggregate payments from and to such Person by the Company during
such periods. There are no outstanding disputes with any of such suppliers or
customers.

 

(ii)         Since December 31, 2014, none of the suppliers listed on Disclosure
Schedule 3.2(cc) has indicated that it shall stop, materially decrease the rate
of, or materially change the pricing of, supplying materials, products or
services to the Company, or otherwise materially change the terms of its
relationship with the Company. The Company has no reason to believe that any
supplier listed on Disclosure Schedule 3.2(cc) will stop, materially decrease
the rate of, or materially change the pricing of, supplying products or services
to the Company or otherwise materially change the terms of its relationship with
the Company after, or as a result of, the consummation of any transactions
contemplated by this Agreement or that any such supplier is threatened with
bankruptcy or insolvency. The Company knows of no fact, condition or event which
would adversely affect the relationship of the Company with any such supplier.

 

(iii)        Since December 31, 2014, none of the customers listed on Disclosure
Schedule 3.2(cc) has indicated that it shall stop, materially decrease the rate
of, or materially change the pricing of, buying products or services from the
Company or otherwise materially change the terms of its relationship with the
Company. The Company has no reason to believe that any customer listed on
Disclosure Schedule 3.2(cc) will stop, materially decrease the rate of, or
materially change the pricing of, buying products or services from the Company
or otherwise materially change the terms of its relationship with the Company
after, or as a result of, the consummation of any transactions contemplated by
this Agreement or that any such customer is threatened with bankruptcy or
insolvency. The Company knows of no fact, condition or event which would
adversely affect the relationship of the Company with any such customer. Since
December 31, 2014, to the Knowledge of the Company, no Person who has been a
customer or client of the Company has indicated that it shall stop, materially
decrease the rate of, or materially change the pricing of, buying products or
services from the Company or otherwise materially change the terms of its
relationship with the Company.

 

(dd)         Warranty. To the Knowledge of the Company, each Company Product or
service, provided, sold, leased, or delivered by the Company is and has been
provided, sold, or delivered in conformity with all applicable contractual
commitments and all express and implied warranties. Disclosure Schedule 3.2(dd)
includes copies of the standard terms and conditions of service, sale or lease
for the Company (containing applicable guaranty, warranty, and indemnity
provisions). To the Knowledge of the Company, no Company Product or service
sold, leased, or delivered by the Company is subject to any material guaranty,
warranty, or other indemnity beyond the applicable standard terms and conditions
of sale or lease set forth in Disclosure Schedule 3.2(dd), except for any
guaranty, warranty or other indemnity that is imposed by law.

 

29

 

 

(ee)         Disclosure. Neither this Agreement nor any agreement, attachment,
schedule, exhibit, certificate or other statement delivered pursuant to this
Agreement or in connection with the transactions contemplated hereby omits to
state a material fact necessary in order to make the statements and information
contained herein or therein, not misleading. The Company is not aware of any
information necessary to enable a prospective purchaser of the Company Stock or
the Business of the Company to make an informed decision with respect to the
purchase of such Company Stock or Business that has not been expressly disclosed
herein. Purchaser has been provided full and complete copies of all documents
referred to on the Disclosure Schedules.

 

Section 3.3           Representations and Warranties of Purchaser. Purchaser
represents and warrants to Sellers as follows:

 

(a)          Organization; Authority; Due Execution and Binding Effect.
Purchaser is a corporation duly organized, validly existing and in good standing
under the Applicable Laws of the State of Delaware, and has all requisite
corporate power and authority to own, lease and operate its properties and to
conduct its business. Purchaser has the requisite power and authority to execute
and deliver this Agreement and each other Transaction Document to which it is a
party, to consummate the transactions contemplated hereby and thereby and to
perform its obligations under this Agreement and each other Transaction Document
to which it is a party. This Agreement has been, and each other Transaction
Document to which Purchaser is a party will be, duly and validly executed and
delivered by Purchaser. Assuming the due authorization, execution and delivery
by the other parties hereto, this Agreement constitutes the valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar
Applicable Laws affecting the enforcement of creditors rights generally and by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in law or equity).

 

(b)          Purchaser Common Stock. The authorized capital stock of Purchaser
consists of 95,000,000 shares of common stock, par value $0.000001 per share, of
which 7,044,426 shares are issued and outstanding at April 13, 2015, and
5,000,000 shares of preferred stock, par value $0.000001 per share, none of
which are issued or outstanding at April 13, 2015. All outstanding shares of
Purchaser Common Stock are validly issued, fully paid, nonassessable and not
subject to any preemptive rights, or to any agreement to which Purchaser is a
party or by which Purchaser may be bound that would conflict with the
obligations of Purchaser under this Agreement, the other Transaction Documents
to which Purchaser is a party or the transactions contemplated hereby or
thereby. The shares of Purchaser Common Stock to be issued pursuant to the terms
of this Agreement are validly authorized and reserved for issuance and, when
such shares of Purchaser Common Stock have been duly delivered pursuant to the
terms of this Agreement, will not have been issued in violation of any
preemptive or similar right of any shareholder or other Person. When the shares
of Purchaser Common Stock have been duly delivered pursuant to the terms of this
Agreement, such shares of Purchaser Common Stock will be validly issued, fully
paid and non-assessable.

 

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(c)          No Conflict. Neither the execution and delivery of this Agreement
by Purchaser, nor the performance by Purchaser of its obligations hereunder
shall, directly or indirectly: (i) contravene, conflict with, or result in (with
or without notice or lapse of time) a violation or breach of any Applicable Law
or order to which Purchaser is subject; (ii) violate, conflict with or result in
the breach of any provision of the organizational documents of Purchaser; or
(iii) conflict in any material respect with, result in a material breach of,
constitute a material default (or event which with the giving of notice or lapse
of time, or both, would become a material breach or default) under, require any
Consent under, or give to others any right of termination, amendment,
acceleration, suspension, revocation or cancellation of, or result in the
creation of any Lien pursuant to, any Material Contract to which Purchaser is a
party or by which any of its respective assets or properties are bound or
affected.

 

(d)          Litigation. There is no Action pending against, or to the knowledge
of Purchaser, threatened against or affecting, Purchaser before any court or
arbitrator or any Governmental Entity which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the transactions contemplated hereby.

 

(e)          Purchaser SEC Documents. Since January 1, 2011, Purchaser has
timely filed all Purchaser SEC Documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Exchange Act.  Purchaser has made
available to the Company an accurate and complete copy of each communication
mailed by Purchaser to its stockholders since the time of filing of the Form
10-K for the year ending December 31, 2014.  No such Purchaser SEC Document or
communication, at the time filed or communicated (or, if amended prior to the
date of this Agreement, as of the date of such amendment), contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements made therein, in
light of the circumstances in which they are made, not misleading.  As of their
respective dates, all Purchaser SEC Documents complied as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto.  To the knowledge of Purchaser, none of the Purchaser SEC
Documents is the subject of any ongoing review or investigation by the SEC or
any Governmental Entity and there are no unresolved SEC comments with respect to
any of such documents.

 

(f)          Government Approvals. Except for (i) compliance with applicable
requirements of the Securities Act, the Exchange Act and the rules of the OTCQX
Exchange, and (ii) filings required under and compliance with other Applicable
Laws, no consents or approvals of, or filings, declarations or registrations
with, any Governmental Entity are necessary for the execution and delivery of
this Agreement by Purchaser or the consummation by Purchaser of the transactions
contemplated hereby, other than such consents or approvals, filings,
declarations or registrations that, if not obtained, made or given, could not,
individually or in the aggregate, reasonably be expected to impair in any
material respect the ability of Purchaser to perform its obligations hereunder,
or prevent or materially impede, interfere with, hinder or delay the
consummation of the Purchase.

 

(g)          Financial Statements. The financial statements of Purchaser and its
subsidiaries included (or incorporated by reference) in the Purchaser SEC
Documents (including the related notes, where applicable) (i) have been prepared
from, and are in accordance with, the books and records of Purchaser and the
subsidiaries; (ii) fairly present in all material respects the consolidated
results of operations, cash flows, change in stockholders’ equity and
consolidated financial position of Purchaser and its subsidiaries for the
respective fiscal periods or as of the respective dates therein set forth
(subject in the case of their unaudited statements to recurring year-end audit
adjustments normal in nature and amount); (iii) complied, as of their respective
dates of filing with the SEC, in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto; and (iv) have been prepared in accordance with GAAP
consistently applied during the periods involved, except in each case, as
indicated in such statements or in the notes thereto. The books and records of
Purchaser and its subsidiaries have been, and are being, maintained in all
material respects in accordance with GAAP and any other applicable legal and
accounting principles.

 

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(h)          Absence of Certain Changes or Events. Except as disclosed in the
Purchaser SEC Documents: (i) since December 31, 2014, no event or events have
occurred or condition or conditions have existed that have had or would
reasonably be expected to have, either individually or in the aggregate, a
material adverse effect on the operations, business, financial condition or
results of operations of Purchaser and its subsidiaries, taken as a whole; and
(ii) since December 31, 2014 through and including the date of this Agreement,
Purchaser and its subsidiaries have carried on their respective businesses in
all material respects in the ordinary course of business consistent with their
past practice.

 

(i)          Compliance with Applicable Laws. Purchaser and each of its
subsidiaries hold all permits, licenses, franchises and authorizations necessary
for the lawful conduct of their respective businesses, are in compliance in all
material respects with all Applicable Laws and have not received any written
notices from a Governmental Entity alleging a violation of Applicable Laws that
remain unresolved.

 

(j)          Brokers. Except for William Blair & Co., L.L.C., whose fees and
expenses will be paid by Purchaser, no broker, finder or agent is entitled to
any brokerage fees, finder’s fees or commissions in connection with this
Agreement or the transactions contemplated hereby based upon agreement,
arrangement or understanding made by or on behalf of Purchaser.

 

ARTICLE 4
COVENANTS

 

Section 4.1           Additional Agreements. Each of the parties shall use its
commercially reasonable efforts to take, or cause to be taken, all appropriate
action, do or cause to be done all things necessary, proper or advisable under
Applicable Laws, and execute and deliver such documents and other papers, as may
reasonably be required to carry out the provisions of this Agreement and
consummate and make effective the transactions contemplated hereby. Without
limiting the generality of the foregoing, the Company and Sellers shall use
their commercially reasonable efforts to obtain the Consents set forth in
Disclosure Schedule 3.2(e) in form reasonably acceptable to Purchaser.

 

Section 4.2           Conduct of Business. Except as specifically permitted
under this Agreement or to the extent that Purchaser shall otherwise consent in
writing, from the date of this Agreement until the Closing Date, Sellers
covenant and agree with Purchaser that the Company and the Subsidiary shall (i)
conduct their business only in the ordinary course of business and in a manner
consistent with past practice and (ii) conduct their business in compliance in
all material respects with all Applicable Laws, and shall not:

 

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(a)          take or authorize any of the actions set forth in Section 3.2(aa);

 

(b)          issue or sell any stock or other equity interest in the Company or
the Subsidiary, or issue or sell any equity interests convertible into, or
options with respect to, or warrants to purchase or rights to subscribe to, any
stock or other equity interest in the Company or the Subsidiary, or make any
commitment to issue or sell any such equity interest;

 

(c)          change the Company’s or the Subsidiary’s Charter Documents;

 

(d)          change the salary, bonus, wage rates, fringe benefits or other
compensation of any employee or consultant;

 

(e)          waive or release any right or claim of the Company or the
Subsidiary, other than in the ordinary course of business;

 

(f)          commence any lawsuit or settle any lawsuit or threat of a lawsuit,
except for collection actions in the ordinary course of business;

 

(g)          enter into any Contract that would be a Material Contract, except
in the ordinary course of business consistent with past practice, or terminate
or waive any of the material terms of any Material Contract;

 

(h)          sell, dispose, transfer or license to any Person any Company
Intellectual Property (other than in the ordinary course of business consistent
with past practice); or abandon or permit to lapse any Company Registered
Intellectual Property; or acquire or license from any Person any Intellectual
Property (other than “shrink wrap” and similar generally available commercial
end-user licenses to software that is not redistributed with the Company
Products);

 

(i)          make any material change in the manner in which the Company or the
Subsidiary extends discounts, credits or warranties to customers or otherwise
deals with its customers; or

 

(j)          agree or commit to do or authorize any of the foregoing.

 

Section 4.3           Access.

 

(a)          General. From the date of this Agreement until the Closing Date,
the Company and Sellers shall provide Purchaser and its representatives
reasonable access during normal business hours to (i) all of the premises,
properties, books, Contracts, documents and records of the Company and the
Subsidiary, (ii) all other information concerning the business, properties and
personnel (subject to restrictions imposed by Applicable Law) of the Company and
the Subsidiary as Purchaser may reasonably request, and (iii) all employees,
customers or suppliers of the Company or the Subsidiary as identified by
Purchaser.

 

(b)          Financial Information. From the date of this Agreement until the
Closing Date, the Company shall provide to Purchaser and its accountants,
counsel and other representatives copies of internal financial statements
(including Tax Returns and supporting documentation) promptly upon request

 

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(c)          Environmental Investigations. Purchaser and Sellers shall cause to
be conducted, at Sellers’ expense, a Phase I environmental investigation of the
Leased Real Property. Further, Purchaser shall have the right to cause to be
conducted a Phase II environmental investigation of the Leased Real Property if
the results of the Phase I environmental investigation indicate that a Phase II
investigation is necessary or desirable. In the event that Purchaser concludes
that a Phase II environmental investigation of the Leased Real Property is
necessary or desirable, Sellers will allow reasonable access to Purchaser and
its consultants to such Leased Real Property for the purposes of conducting such
an investigation. Such access shall be granted in accordance with an access
agreement in standard form to be agreed upon by the parties.

 

(d)          No Limitation of Remedies. No information discovered through the
access afforded by this Section 4.3 shall (i) limit or otherwise affect any
remedies available to Purchaser, (ii) constitute an acknowledgment or admission
of a breach of this Agreement, or (iii) be deemed to amend or supplement the
Disclosure Schedules or prevent or cure any misrepresentations, breach of
warranty or breach of covenant.

 

Section 4.4           Tail Insurance Policies. Purchaser shall maintain in
effect (a) a director’s and officers’ liability insurance policy covering, for a
period of three years from the Closing Date, those persons who are currently
covered by the Company’s director’s and officers’ liability insurance policy
with coverage in amount and scope at least as favorable as the Company’s
existing coverage, and (b) a tail product liability insurance policy in the
amount of at least $20,000,000 covering, for a period of seven years from the
Closing Date, product liability claims based on events occurring before the
Closing Date (together, the “Tail Policies”). All costs and expenses associated
with the Tail Policies required to be purchased and maintained pursuant to this
Section 4.4 shall be Transaction Costs paid out of the Purchase Consideration.

 

Section 4.5           Disclosure Schedules. From time to time prior to the
Closing, Sellers shall have the right to supplement or amend the Disclosure
Schedules with respect to any matter hereafter arising or discovered after the
delivery of the Disclosure Schedules pursuant to this Agreement; provided,
however, that such supplements or amendments to the Disclosure Schedules shall
not be deemed to amend or otherwise modify the Disclosure Schedules delivered on
the date of this Agreement or the representations and warranties of Sellers
contained herein or otherwise have any effect on the satisfaction of the
conditions to Purchaser’s obligations to close hereunder or on Sellers’
indemnity obligations hereunder.

 

Section 4.6           Tax Matters.

 

(a)          No Revocation of S Election. Prior to the Closing Date, the Company
and Sellers shall not revoke the Company's election to be taxed as an S
corporation within the meaning of Code Sections 1361 and 1362. The Company and
Sellers shall not take or allow any action that would result in the termination
of the Company's status as a validly electing S corporation within the meaning
of Code Sections 1361 and 1362.

 

(b)           Tax Returns. Purchaser shall prepare and timely file (taking into
account extensions granted), or cause to be prepared and timely filed, any Tax
Returns for the Company and the Subsidiary that are required to be filed after
the Closing Date. All such Tax Returns for tax periods ending on the closing
date, and in the case of Straddle Periods, for the pre-Closing portion of such
Straddle Period shall be prepared in a manner consistent with the Tax Returns of
the Company and the Subsidiary for preceding Tax periods, unless a different
treatment is required by Applicable Law. All Taxes relating to Tax periods
ending on the Closing Date or the portion of Straddle Periods ending on the
Closing Date shall be paid to Purchaser from the Escrowed Amount pursuant to
Section 7.6.

 

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(c)          Straddle Period. For purposes of Section 4.6(b), in the case of
Taxes that are payable with respect to any Straddle Period, the portion of any
such Tax that is attributable to the portion of the Straddle Period ending on
and including the Closing Date shall be:

 

(i)          in the case of Taxes that are either (A) based upon or related to
income or receipts, or (B) imposed in connection with any sale or other transfer
or assignment of property (real or personal, tangible or intangible), deemed
equal to the amount that would be payable if the Taxable period of the Company
and the Subsidiary ended with, and included, the Closing Date; and

 

(ii)         in the case of Taxes that are imposed on a periodic basis with
respect to the assets of the Company and the Subsidiary, deemed to be the amount
of such Taxes for the entire Straddle Period, or, in the case of such Taxes
determined on an arrears basis, the amount of such Taxes for the immediately
preceding period, multiplied by a fraction, the numerator of which is the number
of calendar days in the portion of the Straddle Period ending on and including
the Closing Date, and the denominator of which is the number of calendar days in
the entire Straddle Period.

 

(d)          Refunds and Credits. Any refunds or credits of Taxes that are paid
or credited in respect of any period ending on or prior to the Closing Date, and
in the case of Straddle Periods, for the pre-Closing portion of such Straddle
Period, shall be for the account of Sellers (except to the extent included as a
Current Asset on the Final Balance Sheet in the calculation of the Final Working
Capital or attributable to the carryback of a Tax attribute incurred after the
Closing Date) and Purchaser shall pay the amount of any such refunds or credits
that it receives to Sellers in proportion to their Ownership Interest Shares as
soon as reasonably practicable following the receipt thereof. Any refund or
credits of Taxes not described in the preceding sentence shall be for the
account of Purchaser. Purchaser shall prepare and file, or cause to be prepared
and filed, at the sole cost and expense of Sellers, any amended Tax Returns or
other filings necessary for the Company and/or the Subsidiary to claim any
refunds or credits that Sellers would be entitled to and that Sellers reasonably
request; provided that Purchaser determines in its reasonable discretion that
the taking of any such action is not inconsistent with Purchaser’s, the
Company’s or the Subsidiary’s Tax reporting positions and/or Tax Returns, as the
case may be, following the Closing.

 

(e)          Tax Proceedings. If Purchaser becomes aware of any assessment,
official inquiry, examination or proceeding (a “Tax Proceeding”) that could
result in an official determination with respect to any Purchaser Indemnified
Tax, Purchaser shall promptly so notify Sellers; provided, however, that the
failure to so notify Sellers shall not relieve Sellers of their obligations with
respect to such Purchaser Indemnified Tax unless, and only to the extent that,
such failure results in actual material prejudice to Sellers. If any Seller
becomes aware of any Tax Proceeding that could result in an official
determination with respect to Taxes related to the Subsidiary, Sellers shall
promptly so notify Purchaser; provided, however, that the failure to so notify
Purchaser shall not relieve Purchaser of its obligation under this Section 4.6
unless, and only to the extent that, such failure results in actual material
prejudice to Purchaser.

 

35

 

 

(f)          Control. Purchaser shall have the right to exercise control over
the contest and/or settlement of any issue raised in any Tax Proceeding with
respect to Taxes related to the Subsidiary; provided, however, that
(i) Purchaser shall keep Sellers informed of all material developments with
respect to such Tax Proceeding if it relates to any Purchaser Indemnified Taxes,
and (ii) Purchaser shall not settle or compromise any such Tax Proceeding that
relates to any Tax for which Sellers could be liable, except after good faith
consultation with Sellers concerning such settlement or compromise. Any
reasonable expenses incurred in connection therewith shall be paid by Purchaser
to the extent that such expenses relate to a Tax that is not a Purchaser
Indemnified Tax. To the extent that such expenses relate to a Tax that is a
Purchaser Indemnified Tax, Purchaser shall have the right to make a claim for
indemnification pursuant to Section 7.6 and the Escrow Agreement in the amount
of any Purchaser Indemnified Taxes.

 

(g)          Cooperation. Sellers and Purchaser shall provide each other with
any information reasonably necessary to prepare and file complete and accurate
Tax Returns.

 

(h)          Transfer Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with the transactions contemplated by this
Agreement shall be paid by Sellers when due, and Sellers will, at their own
expense, file all necessary Tax Returns and other documentation with respect to
all such transfer, documentary, sales, use, stamp, registration and other Taxes
and fees, and, if required by Applicable Law, Purchaser will join in the
execution of any such Tax Returns and other documentation. If required by
Applicable Law, the amount paid to any Person pursuant to this Agreement will be
reduced by the amount of Taxes payable by such Person pursuant to this
Section 4.6(h). Any amount so withheld will be promptly remitted to the
appropriate Tax authority.

 

Section 4.7           Exclusivity.

 

(a)          From the date of this Agreement until termination of this Agreement
or the Closing Date, Sellers and the Company shall not (and shall cause the
Subsidiary and the directors, officers, Key Employees, consultants, members,
agents, advisors, attorneys, accountants, and representatives (collectively,
“Company’s Representatives”) of the Company and the Subsidiary to not) directly
or indirectly, take any of the following actions with any party other than
Purchaser: (i) solicit, initiate, encourage or facilitate in any inquiry,
negotiations or discussions, or enter into any Contract, with respect to any
offer or proposal to acquire all or any part of the Business, properties, any of
the technologies or assets of the Company or of the Subsidiary, or any amount of
the equity ownership of the Company, (ii) disclose or furnish any information
not customarily disclosed to any person concerning the Business, technologies or
properties or assets of the Company or the Subsidiary, or afford to any Person
access to its properties, technologies, books or records, not customarily
afforded such access, (iii) assist or cooperate with any Person to make any
proposal to purchase all or any part of the capital stock of the Company or
assets of the Company or Subsidiary, or (iv) enter into any Contract with any
Person providing for the acquisition of the Company or of the Subsidiary (other
than inventory in the ordinary course of business), whether by merger, purchase
of assets, license, tender offer or otherwise. Sellers and the Company shall,
and shall cause the Subsidiary and the Company’s Representatives to immediately
cease and cause to be terminated any such negotiations, discussion or agreements
(other than with Purchaser) that are the subject matter of the preceding
sentence.

 

36

 

 

(b)          In the event that Sellers, the Company, the Subsidiary or any of
the Company’s Representatives shall receive any offer, proposal, or request,
directly or indirectly, of the type referenced in clause (i), (iii), or (iv) of
Section 4.7(a), or any request for disclosure or access as referenced in clause
(ii) of Section 4.7(a), Sellers and the Company shall (i) not engage in any
discussions with such offeror or party with regard to such offers, proposals, or
requests and (ii) immediately thereafter, notify Purchaser thereof, which notice
shall contain the pricing, terms, conditions and other material provisions of
such proposed transaction.

 

(c)          The parties hereto agree that irreparable damage would occur in the
event that the provisions of this Section 4.7 were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
by the parties hereto that Purchaser shall be entitled to an immediate
injunction or injunctions, without the necessity of proving the inadequacy of
money damages as a remedy and without the necessity of posting any bond or other
security, to prevent breaches of the provisions of this Section 4.7 and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which Purchaser may be entitled at law or in equity. Without limiting
the foregoing, it is understood that any violation of the restrictions set forth
above by any of the Company Representatives shall be deemed to be a breach of
this Agreement by Sellers and the Company.

 

Section 4.8           Release of Liens. In connection with the Closing, Sellers
and the Company shall file, or shall have filed, all Contracts, instruments,
certificates and other documents, in form and substance reasonably satisfactory
to Purchaser, that are necessary or appropriate to effect the release of all
Liens set forth in Disclosure Schedule 4.8.

 

Section 4.9           General Release. Notwithstanding anything contained herein
to the contrary, effective as of the Closing Date, in consideration of the
mutual agreements contained herein, including the Purchase Price to be received
by Sellers, Sellers, for themselves and all of their Affiliates (other than the
Company), heirs, executors, administrators, and assigns (collectively, the
“Releasors”), hereby irrevocably release and forever discharge Purchaser, the
Company, and their respective past, present and future subsidiaries, divisions,
Affiliates and parents, and their respective current and former officers,
directors, employees, agents, shareholders, and/or owners, and their respective
successors, and assigns and any other Person jointly or severally liable with
Purchaser, the Company or any of the aforementioned Persons (all of the
foregoing, collectively, the “Released Parties”), from any and all manner of
actions and causes of action, suits, debts, dues, accounts, bonds, covenants,
contracts, agreements, Judgments, charges, claims, and demands whatsoever which
the Releasor and its, his or her heirs, executors, administrators, and assigns
have, had, or may hereafter have, against the Released Parties or any of them of
any nature, including by reason of or relating to or arising from the fact of
the Releasor’s employment and/or service with the Company or the Releasor’s
direct or indirect ownership interest in the Company, and any and all matters
arising under any employment-related federal, state, or local statute, rule, or
regulation, or principle of contract law or common law, in each case whether
known, or unknown, suspected or unsuspected, to the extent relating to facts,
actions, events, circumstances or conditions arising, occurring or failing to
occur in the period on or prior to the Closing; provided, however, that nothing
contained herein shall operate to release any claims, liabilities or obligations
on account of, arising out of, or relating to the Releasor’s rights under this
Agreement or any of the Transaction Documents.

 

37

 

 

Section 4.10         Financing. Upon request of Purchaser from time to time
prior to the Closing, Sellers and the Company shall provide reasonable
cooperation and assistance to Purchaser in connection with the arrangement of
appropriate financing (and in connection with any closing conditions and/or
post-closing covenants contained in the definitive documentation for such
financing); provided, that such requested cooperation and assistance does not
unreasonably interfere with the Business. The foregoing cooperation of Sellers
and the Company shall include: (a) as promptly as practicable, responding to and
complying with reasonable requests of Purchaser for information about the
Company and the Subsidiary and their respective business operations, assets,
properties and condition (financial or otherwise), (b) granting Purchaser and
its representatives full and complete reasonable access to (and copies of) the
books, contracts, commitments and records of the Company and to senior
management knowledgeable about such books, contracts, commitments and records as
set forth in Section 4.3; provided that such representatives agree to be bound
by the provisions of the Confidentiality Agreement, (c) using commercially
reasonable efforts to furnish to Purchaser necessary financial and operational
information for interim periods ending subsequent to May 31, 2015, and prior to
the Closing in connection with such financing, (d) using commercially reasonable
efforts to obtain landlord estoppel certificates, in form and substance
reasonably acceptable to the lenders providing the financing, and (e) causing
the Company and the Subsidiary to execute and deliver any definitive financing
documents, including any guaranties, pledge documents, security documents and
other definitive financing documents (including any certificates and instruments
required pursuant to such definitive financing documents), such documents to be
effective immediately prior and subject to the Closing, and otherwise
facilitating the pledge, grant, recordation and perfection of security interests
to be granted to the lenders under such definitive financing documents in any
and all assets of the Company and the Subsidiary.

 

ARTICLE 5
CONDITIONS PRECEDENT

 

Section 5.1           Conditions to Each Party’s Obligation. The respective
obligations of Purchaser, the Company, and Sellers to effect the transactions
contemplated hereby are subject to the satisfaction on or prior to the Closing
Date of the following conditions:

 

(a)          Governmental Approvals. Any authorizations or approvals of a
Governmental Entity necessary for the consummation of the transactions
contemplated by this Agreement shall have been obtained.

 

(b)          No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction, or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement or any other
Transaction Document shall be in effect.

 

38

 

 

(c)          No Legal Prohibition. No Applicable Law shall be enacted, issued or
enforced by any Governmental Entity that would have the effect of making the
transactions contemplated by this Agreement illegal or would otherwise restrain
or prohibit the consummation of such transactions.

 

Section 5.2           Conditions to Obligation of Purchaser. The obligations of
Purchaser to effect the transactions contemplated hereby are subject to the
satisfaction of the following conditions unless waived, in whole or in part, by
Purchaser:

 

(a)          Representations and Warranties. The representations and warranties
of Sellers set forth in Section 3.1 and the Company set forth in Section 3.2
shall have been be true and correct in all material respects (without giving
effect to any limitation as to “materiality” or “Material Adverse Effect” set
forth therein) on the date they were made and shall be true and correct in all
material respects (without giving effect to any limitation as to “materiality”
or “Material Adverse Effect” set forth therein) on and as of the Closing Date as
though such representations and warranties were made on and as of such date
(other than the representations and warranties of the Seller and the Company as
of a specified date, which shall be true and correct in all material respects
(without giving effect to any limitation as to “materiality” or “Material
Adverse Effect” set forth therein) as of such date) in all cases without giving
effect to any supplements or amendments to the Disclosure Schedules pursuant to
Section 4.5.

 

(b)          Performance of Covenants. The Company and Sellers shall have
performed and complied with, in all material respects, all covenants and
agreements required by this Agreement to be performed or complied with by them
at or prior to the Closing.

 

(c)          No Material Adverse Effect. There shall not have occurred any
Material Adverse Effect subsequent to the date of this Agreement that is
continuing.

 

(d)          Closing Deliveries. All documents, instruments, certificates or
other items required to be delivered by the Company and Sellers pursuant to
Section 2.2(c) shall have been delivered.

 

(e)          Fairness Opinion. Purchaser shall have received a fairness opinion
from William Blair & Co., L.L.C., in a form reasonably satisfactory to
Purchaser, opining as to the fairness of the Purchase and the other transactions
contemplated by this Agreement.

 

(f)          Financing. Purchaser shall have obtained financing for the Purchase
in such amount and on such terms satisfactory to Purchaser in its sole
discretion.

 

(g)          Litigation. There shall be no action, suit, claim, order,
injunction or proceeding of any nature pending, or overtly threatened, against
Purchaser, the Company, or Sellers, their respective properties or any of their
respective officers, directors, or subsidiaries (i) by any Person arising out
of, or in any way connected with, the Purchase or the other transactions
contemplated by the terms of this Agreement, or that could give rise to material
damages, or (ii) by any Governmental Entity arising out of, or in any way
connected with, the Purchase or the other transactions contemplated by the terms
of this Agreement, or that could give rise to material damages.

 

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(h)          Compliance with Rule 506. Purchaser shall have reasonably concluded
in good faith that the issuance of the Purchaser Stock Consideration can be
completed in compliance with Rule 506 of Regulation D promulgated by the SEC
under the Securities Act.

 

Section 5.3           Conditions to Obligations of the Company and Sellers. The
obligation of the Company and Sellers to effect the transactions contemplated
hereby is subject to the satisfaction of the following conditions unless waived,
in whole or in part, by the Company and Sellers.

 

(a)          Representations and Warranties. The representations and warranties
of Purchaser contained in Section 3.3 shall have been be true and correct in all
material respects (without giving effect to any limitation as to “materiality”
or “Material Adverse Effect” set forth therein) on the date they were made and
shall be true and correct in all material respects (without giving effect to any
limitation as to “materiality” or “Material Adverse Effect” set forth therein)
on and as of the Closing Date as though such representations and warranties were
made on and as of such date (other than the representations and warranties of
the Company as of a specified date, which shall be true and correct in all
material respects (without giving effect to any limitation as to “materiality”
or “Material Adverse Effect” set forth therein) as of such date).

 

(b)          Performance of Covenants. Purchaser shall have performed and
complied with, in all material respects, all covenants and agreements required
by this Agreement to be performed or complied with by Purchaser on or prior to
the Closing.

 

(c)          Closing Deliveries. All documents, instruments, certificates or
other items required to be delivered by Purchaser pursuant to Sections 2.2(a)
and (b) shall have been delivered.

 

(d)          No Material Adverse Effect. There shall not have occurred any
material adverse effect on the operations, business, financial condition or
results of operations of Purchaser and its subsidiaries, taken as a whole,
subsequent to the date of this Agreement that is continuing.

 

(e)          Appointment to Board. The Appointee Director shall be approved for
appointment to Class II of Purchaser’s Board on the Closing Date.

 

ARTICLE 6
TERMINATION, AMENDMENT AND WAIVER

 

Section 6.1           Termination.

 

(a)          Subject to Section 6.1(b), this Agreement may be terminated on
written notice:

 

(i)          By either Purchaser, on the one hand, and the Company and Sellers,
on the other hand, if such terminating party is not then in breach of this
Agreement, in the event of a breach by the other party of its material
obligations under this Agreement which remains uncured after notice and
opportunity to cure as provided in Section 6.1(b);

 

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(ii)         By Purchaser, if any of the conditions in Sections 5.1 and 5.2 have
not been satisfied in all material respects by August 31, 2015, or if
satisfaction of a condition is or becomes impossible (other than through the
failure of Purchaser to comply with its obligations under this Agreement) and
Purchaser has not waived the condition on or before August 31, 2015; or

 

(iii)        By the Company and Sellers, if any of the conditions in Sections
5.1 and 5.3 have not been satisfied in all material respects by August 31, 2015,
or if satisfaction of a condition is or becomes impossible (other than through
the failure of the Company or Sellers to comply with their obligations under
this Agreement) and the Company and Sellers have not waived such condition on or
before August 31, 2015.

 

(b)          If noncompliance, nonperformance or breach by a party hereto occurs
or exists and can be cured or eliminated, the party wishing to terminate this
Agreement in accordance with Section 6.1(a) shall not terminate unless and until
(i) it has given the other party written notice that the noncompliance,
nonperformance or breach has occurred, specifying the nature thereof and the
action required to cure, and (ii) such noncompliance, nonperformance or breach
shall not have been cured or eliminated, or the party giving the notice shall
not have otherwise been held harmless from the consequences of the
noncompliance, nonperformance or breach to its satisfaction, within 30 days of
the receipt of such notice.

 

Section 6.2           Effect of Termination.

 

(a)          Upon termination of this Agreement, this Agreement shall forthwith
become null and void and there shall be no Liability on the part of any party
hereto, or their respective directors, officers, shareholders, employees, agents
or Affiliates; provided, however, that nothing herein shall relieve any party
from any Liability for any willful breach by such party of any of its
representations or warranties or for its breach of any of its covenants or
agreements set forth in this Agreement, and all rights and remedies of such
nonbreaching party under this Agreement in the case of such a breach, at law or
in equity, shall be preserved.

 

(b)          If the Closing does not occur, Purchaser shall not, and Purchaser
shall cause its Affiliates not to, directly or indirectly, (a) use any
Confidential Information for any purpose, (b) disclose any Confidential
Information to any Person, (c) keep or make copies of any documents, records or
property containing any Confidential Information, except that Purchaser may keep
one copy of Confidential Information in its archives, or (d) assist any other
Person in engaging in any of the foregoing, except to the extent necessary to
comply with the express terms of any written agreement between Purchaser and the
Company and except to the extent explicitly requested in writing by the Company.
Notwithstanding the foregoing, Purchaser may disclose Confidential Information
at such times, in such manner and to the extent such disclosure is (i) required
by Applicable Law, provided that Purchaser (A) provides the Company with prior
written notice thereof, (B) limits such disclosure to what is strictly required,
and (C) attempts to preserve the confidentiality of any Confidential Information
so disclosed, or (ii) is necessary for Purchaser to assert its rights under this
Agreement.

 

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(c)           If the Closing does not occur, Sellers shall not, and Sellers
shall cause their Affiliates not to, directly or indirectly, (a) use any
confidential information of Purchaser for any purpose, (b) disclose any
confidential information of Purchaser to any Person, (c) keep or make copies of
any documents, records or property containing any confidential information of
Purchaser, except that Sellers may keep one copy of Confidential Information in
their archives, or (d) assist any other Person in engaging in any of the
foregoing, except to the extent necessary to comply with the express terms of
any written agreement between Purchaser and the Company and except to the extent
explicitly requested in writing by Purchaser. Notwithstanding the foregoing,
Purchaser may disclose Confidential Information at such times, in such manner
and to the extent such disclosure is (i) required by Applicable Law, provided
that Purchaser (A) provides the Company with prior written notice thereof, (B)
limits such disclosure to what is strictly required and (C) attempts to preserve
the confidentiality of any Confidential Information so disclosed, or (ii) is
necessary for Sellers to assert their rights under this Agreement.

 

ARTICLE 7
INDEMNIFICATION

 

Section 7.1           Survival.

 

(a)          General. All representations, warranties, covenants and agreements
of the parties in this Agreement or any other certificate or document delivered
pursuant to this Agreement will survive the Closing. The right to
indemnification, payment of any Losses or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement, with respect to the accuracy or inaccuracy of or
compliance with, any such representation, warranty, covenant, or obligation.

 

(b)          Company Representations. Notwithstanding the generality of Section
7.1(a), the Indemnifying Sellers will have no liability with respect to any
claim under Section 7.2(a)(i) unless Purchaser notifies the Indemnifying Sellers
of such a claim on or before the date that is 15 months after the Closing Date;
provided, however, that:

 

(i)          any claim relating to any representation made in Sections 3.2(e)
(No Conflicts), 3.2(f) (Financial Statements), 3.2(g) (No Undisclosed
Liabilities), 3.2(i) (Litigation), 3.2(j) (Taxes), 3.2(k) (Title to Property and
Assets), 3.2(l) (Intellectual Property), 3.2(o) (Compliance with Applicable
Laws; Permits), 3.2(q) (Export Control Laws), 3.2(r) (Environmental Matters),
3.2(x) (Employee Benefit Plans) and 3.2(z) (Transactions with Affiliates)
(collectively, the “Interim Representations”) may be made at any time for a
period of 27 months after the Closing Date;

 

(ii)         any claim relating to any representation made in Sections 3.2(p)
(Foreign Corrupt Practices Act) and 3.2(s) (FDA and Regulatory Matters), may be
made at any time for a period of 48 months after the Closing Date;

 

(iii)        any claim relating to any representation made in Sections 3.2(a)
(Organization and Qualification), 3.2(b) (Subsidiary), 3.2(c) (Capitalization),
3.2(d) (Authority; Due Execution and Binding Effect), 3.2(j) (Taxes), and 3.2(v)
(Brokers) may be made at any time without any time limitation (collectively with
the representations set forth in Section 7.1(b)(ii) and Section 7.1(d)(i), the
“Fundamental Representations”); and

 

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(iv)        any claim related to intentional or fraudulent breaches of the
representations and warranties may be made at any time within any applicable
statute or period of limitations.

 

(c)          Company Covenants. Notwithstanding the generality of Section
7.1(a), any claim under Section 7.2(a)(ii) may be made at any time without
limitation unless the covenant breached or unfulfilled contains an express
expiration date, in which case, absence active concealment of a breach by
Sellers, the Indemnifying Sellers will have no liability with respect to any
such claim unless Purchaser notifies the Indemnifying Sellers of the claim on or
before the date such covenant expires.

 

(d)          Individual Seller Representations. Notwithstanding the generality
of Section 7.1(a), no Indemnifying Seller will have liability with respect to
any claim under Section 7.2(b)(i) unless Purchaser notifies such Indemnifying
Seller of such a claim on or before the date that is 15 months after the Closing
Date; provided, however, that (i) any claim relating to any representation made
in Sections 3.1(a) (Authority; Due Execution and Binding Effect), 3.1(e) (Title
to Outstanding Shares), and 3.1(f) (Brokers), may be made at any time without
any time limitation, and (ii) any claim related to intentional or fraudulent
breaches of the representations and warranties by such Indemnifying Seller may
be made at any time within any applicable statute or period of limitations.

 

(e)          Individual Seller Covenants. Notwithstanding the generality of
Section 7.1(a), any claim under Section 7.2(b)(ii) may be made at any time
without limitation unless the covenant breached or unfulfilled contains an
express expiration date, in which case, absence active concealment of a breach
by such Seller, such Indemnifying Seller will have no liability with respect to
any such claim unless Purchaser notifies such Indemnifying Seller of the claim
on or before the date such covenant expires.

 

(f)          Purchaser Representations. Notwithstanding the generality of
Section 7.1(a), Purchaser will have no liability with respect to any claim under
Section 7.2(c)(i) unless Sellers notify Purchaser of such a claim on or before
the date that is 15 months after the Closing Date; provided, however, that any
claim relating to any representation made in Sections 3.3(a) (Organization;
Authority; Due Execution and Binding Effect), 3.3(b) (Purchaser Common Stock),
and 3.3(j) (Brokers) (collectively, the “Purchaser Fundamental Representations”)
may be made at any time without any time limitation, and any claim related to
intentional or fraudulent breaches of the representations and warranties may be
made at any time within any applicable statute or period of limitations.

 

(g)           Purchaser Covenants. Notwithstanding the generality of Section
7.1(a), any claim under Section 7.2(c)(ii) may be made at any time without
limitation unless the covenant breached or unfulfilled contains an express
expiration date, in which case, absence active concealment of a breach by
Purchaser, Purchaser will have no liability with respect to any such claim
unless Sellers notify Purchaser of the claim on or before the date such covenant
expires.

 

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(h)           Extension if Claim is Made. If Purchaser or Sellers, as
applicable, provides proper notice of a claim within the applicable time period
set forth above, then liability for such claim will continue until such claim is
resolved.

 

Section 7.2           Indemnification; Limitations.

 

(a)          By the Indemnifying Sellers. Upon the terms and subject to the
conditions set forth in this Article 7, Kirschman, on the one hand, and the K.
Hemmelgarn 1998 Trust and the B. Hemmelgarn 1998 Trust, on the other hand,
severally and not jointly, but with the K. Hemmelgarn 1998 Trust and the B.
Hemmelgarn 1998 Trust acknowledging and agreeing that they shall be jointly and
severally liable with each other as to all of the Hemmelgarn Sellers for the
Hemmelgarn Sellers’ aggregate Ownership Interest Share of Losses, shall
indemnify and hold harmless Purchaser and its directors, officers, employees and
Affiliates (collectively, the “Purchaser Indemnified Parties”), from and against
any and all Losses paid, payable, suffered or incurred that relate to or arise
out of (i) the inaccuracy or breach of any representation or warranty made by
the Indemnifying Sellers in Section 3.2, (ii) any nonfulfillment or breach by
the Company of any of the covenants set forth in this Agreement, (iii) any
inaccuracy in Disclosure Schedule 1.2(c), (iv) any inaccuracy of the
Indebtedness Pay-Off Amount or the Deductions Certificate, (v) (A) any fraud by
the Company or any of its directors, officers or Affiliates in connection with
this Agreement or the transactions contemplated hereby, or (B) any intentional
or willful breach of a representation or warranty of the Company set forth in
this Agreement (including the Disclosure Schedules) or in any certificate
delivered by the Company to Purchaser pursuant to this Agreement, (vi) any
Purchaser Indemnified Taxes, or (vii) any Pre-Closing Product Liability Claims.

 

(b)          By the Indemnifying Sellers for Individual Representations. Upon
the terms and subject to the conditions set forth in this Article 7, each
Indemnifying Seller, severally and not jointly with the other Indemnifying
Sellers, except that the K. Hemmelgarn 1998 Trust and the B. Hemmelgarn 1998
Trust shall be jointly and severally liable with each other as to all of the
Hemmelgarn Sellers for the Hemmelgarn Sellers’ aggregate Ownership Interest
Share of Losses, shall indemnify and hold harmless the Purchaser Indemnified
Parties from and against any and all Losses paid, payable, suffered or incurred
that relate to or arise out of (i) the inaccuracy or breach of any
representation or warranty made by such Indemnifying Seller in Section 3.1, (ii)
any nonfulfillment or breach by such Seller of any of such Seller’s covenants
set forth in this Agreement, or (iii) (A) any fraud by such Seller in connection
with this Agreement or the transactions contemplated hereby, or (B) any
intentional or willful breach of a representation or warranty of such Seller set
forth in this Agreement or in any certificate delivered by such Seller to
Purchaser pursuant to this Agreement.

 

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(c)          Limitations for Product Liability. For the avoidance of doubt, and
notwithstanding any other provision of this Agreement, except for Liability for
Pre-Closing Product Liability Claims, and except to the extent that a Seller had
actual knowledge prior to the Closing, no Seller shall have any indemnification
obligations or other liability to Purchaser in respect of (i) any Liabilities in
the nature of product liability, including any Liabilities for claims made for
injury to person, damage to property or other damage arising from, caused by or
arising out of the design, manufacture, assembly, installation, marketing, sale,
distribution, lease or license of any Company Product (whether or not any such
products are shipped before or after the Closing), (ii) any Liabilities arising
from, caused by or arising out of any defective or insufficient warnings,
labeling or instructions contained on or provided in connection with any Company
Product, or (iii) any Liabilities arising from, caused by or arising out of any
obligation to implement any replacement, field fix, retrofit, modification or
recall campaign with respect to any Company Product that was made, designed,
manufactured, assembled, installed, sold, leased or licensed (whether or not any
such products are shipped before or after the Closing).

 

(d)          By Purchaser. Upon the terms and subject to the conditions set
forth in this Article 7, Purchaser shall indemnify and hold harmless each Seller
and its respective Affiliates (collectively, the “Seller Indemnified Parties,”
and together with the Purchaser Indemnified Parties, each an “Indemnified
Party”), from and against any and all Losses paid, payable, suffered or incurred
and that relate to or arise out of (i) the inaccuracy or breach of any
representation or warranty made by Purchaser in Section 3.3, (ii) any
nonfulfillment or breach by Purchaser of any of the covenants set forth in this
Agreement, (iii)(A) any fraud by Purchaser or any of its officers, directors or
Affiliates in connection with this Agreement or the transactions contemplated
hereby, or (B) any intentional or willful breach of a representation or warranty
of Purchaser set forth in this Agreement or in any certificate delivered by
Purchaser pursuant to this Agreement, or (iv) the Post-Closing Operations.

 

(e)          Seller Deductible and Cap. The indemnification obligations of the
Indemnifying Sellers are subject to the following provisions:

 

(i)          The indemnification obligations set forth in Sections 7.2(a) and
7.2(b) for breaches of the Fundamental Representations, Purchaser Indemnified
Taxes, Pre-Closing Product Liability Claims and fraud or intentional or willful
breach of a representation or warranty in this Agreement or in any certificate
delivered hereunder shall, with respect to Kirschman, be limited to Kirschman’s
Ownership Interest Share of the Transaction Cap, and, with respect to the K.
Hemmelgarn 1998 Trust and the B. Hemmelgarn 1998 Trust, jointly and severally,
shall be limited to the Hemmelgarn Sellers’ aggregate Ownership Interest Share
of the Transaction Cap; provided that nothing in this Section 7.2(e)(i) alters
the joint and several liability of the K. Hemmelgarn 1998 Trust and the B.
Hemmelgarn 1998 Trust with respect to each other, and the K. Hemmelgarn 1998
Trust and the B. Hemmelgarn 1998 Trust shall be jointly and severally liable
with each other as to all of the Hemmelgarn Sellers for the Hemmelgarn Sellers’
aggregate Ownership Interest Share.

 

(ii)         The indemnification obligations set forth in Sections 7.2(a) and
7.2(b) for all matters other than those described in Section 7.2(e)(i) shall
apply only after the aggregate amount of claims for indemnification against the
Indemnifying Sellers under this Agreement exceeds $100,000 (the “Deductible”),
and thereafter the Indemnifying Sellers shall be liable for all indemnification
obligations in excess of the Deductible up to any applicable Cap.

 

(iii)        The aggregate amount of all indemnification obligations of the
Indemnifying Sellers pursuant to Sections 7.2(a) and 7.2(b) for the Basic
Representations shall not exceed the Escrowed Cash (the “Basic Cap”).

 

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(iv)        The aggregate amount of all indemnification obligations of the
Indemnifying Sellers pursuant to Sections 7.2(a) and 7.2(b) for the Interim
Representations shall not exceed the Escrowed Amount (the “Interim Cap”).

 

(v)         The aggregate amount of all other indemnification obligations of the
Indemnifying Sellers not subject to the Basic Cap or the Interim Cap shall not
exceed the Transaction Cap.

 

(vi)        Each Indemnifying Seller’s respective liability to the Purchaser
Indemnified Parties shall be limited to such Indemnifying Seller’s share of any
applicable Cap, pro rata based on the Sellers’ Ownership Interest Shares, except
that (A) the K. Hemmelgarn 1998 Trust and the B. Hemmelgarn 1998 Trust
acknowledge and agree that they shall be jointly and severally liable with each
other for all of the Hemmelgarn Sellers’ aggregate Ownership Interest Share, and
(B) if the K. Hemmelgarn 1998 Trust and the B. Hemmelgarn 1998 Trust avoid
liability due to their lack of Knowledge of a breach of any representation or
warranty qualified by Knowledge of the Hemmelgarn Sellers, then Kirschman shall
bear all liability for Losses attributable to such breach, but not more than
$13,500,000 in the aggregate (including the Escrowed Shares attributable to
Kirschman, valued as provided in Section 7.6(f)).

 

(f)          Purchaser Deductible and Cap. The indemnification obligations set
forth in Section 7.2(d) (other than for breaches of Purchaser Fundamental
Representations and for fraud or intentional or willful breach of a
representation or warranty or in any certificate delivered hereunder) shall
apply only after the aggregate amount of claims for indemnification against
Purchaser under this Agreement exceeds the Deductible, and thereafter Purchaser
shall be liable for all indemnification obligations in excess of the Deductible.
The aggregate amount of all indemnification obligations of Purchaser pursuant to
Section 7.2(d) shall not exceed an amount equal to the Escrowed Amount.

 

(g)          Escrow. Except as set forth below, any amounts payable by an
Indemnifying Seller(s) pursuant to Sections 7.2(a) and 7.2(b) shall be satisfied
(i) first against the Escrowed Cash in accordance with the terms of Section 7.6
and the Escrow Agreement, (ii) if and to the extent that a Purchaser Indemnified
Party is entitled to indemnification in amounts in excess of any then remaining
Escrowed Cash, next against the Escrowed Shares (such Escrowed Shares valued at
$4.00 per share, As Adjusted) in accordance with the terms of Section 7.6 and
the Escrow Agreement, and (iii) if and to the extent that a Purchaser
Indemnified Party is entitled to indemnification in amounts in excess of any
then remaining Escrowed Amount, then from each Indemnifying Seller as may be
applicable pro rata based on the Ownership Interest Shares for Losses under
Section 7.2(a) and from the Indemnifying Seller at issue for Losses under
Section 7.2(b).

 

(h)          Losses. For all purposes of and under this Agreement, “Losses”
shall mean (i) any loss, claim, demand, damage, deficiency, lost profits,
diminution in value, consequential or punitive damage, liability, Judgment,
fine, penalty, cost or expense (including reasonable attorneys’, consultants’
and experts’ fees and expenses), (ii) any and all reasonable fees and costs of
enforcing an Indemnified Party’s rights under this Agreement, and (iii) any and
all reasonable fees and costs defending any Third Party Actions. For purposes of
determining whether there has been any misrepresentation or breach of a
representation or warranty, and for purposes of determining the amount of Losses
resulting therefrom, all qualifications or exceptions in any representation or
warranty relating to or referring to the terms “material,” “materiality,” “in
all material respects,” “Material Adverse Effect” or any similar term or phrase
shall be disregarded, it being the understanding of the parties that for
purposes of determining liability under this Article 7, the representations and
warranties of the parties contained in this Agreement shall be read as if such
terms and phrases were not included in them.

 

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(i)          No Contribution Claims. No Seller will have or assert any claims or
rights to contribution or indemnity from the Company with respect to any amounts
paid by such Seller pursuant to this Section 7.2.

 

(j)          Insurance. Each Indemnified Party shall be obligated in connection
with any claim for indemnification under this Article 7 to use commercially
reasonable efforts to obtain any insurance proceeds available to such
Indemnified Party with regard to the applicable claims. The amount that any
Indemnifying Party is or may be required to pay to any Indemnified Party
pursuant to this Article 7 shall be reduced (retroactively, if necessary) by any
insurance proceeds or other amounts actually recovered by or on behalf of such
Indemnified Party in reduction of the related Losses, less the amount of any
deductible and other out-of-pocket costs to the Indemnified Party in seeking
such recovery. If an Indemnified Party shall have received the payment required
by this Agreement from the Indemnifying Party in respect of a Loss and shall
subsequently receive insurance proceeds or other amounts in respect of such
Loss, then such Indemnified Party shall promptly repay to the Indemnifying Party
a sum equal to the amount of such insurance proceeds or other amounts actually
received.

 

Section 7.3           Defense of Third Party Claims.

 

(a)          An Indemnified Party shall give prompt written notice to any Person
who is obligated to provide indemnification hereunder (an “Indemnifying Party”)
of the commencement or assertion of any action, proceeding, demand or claim by a
third party (collectively, a “Third Party Action”) in respect of which such
Indemnified Party shall seek indemnification hereunder. Any failure so to notify
an Indemnifying Party will not relieve such Indemnifying Party from any
Liability that it may have to such Indemnified Party under this Article 7 unless
the failure to give such notice materially and adversely prejudices such
Indemnifying Party. Other than with respect to a Third Party Action relating to
any Tax due from Purchaser, the Indemnifying Party shall have the right to
assume control of the defense of, settle, or otherwise dispose of such Third
Party Action on such terms as it deems appropriate; provided, however, that:

 

(i)          the Indemnified Party shall be entitled, at its own expense, to
participate in the defense of such Third Party Action; provided further that the
Indemnifying Party shall pay the reasonable attorneys’ fees of the Indemnified
Party if (A) the employment of separate counsel shall have been authorized in
writing by all Indemnifying Parties in connection with the defense of such Third
Party Action, (B) the Indemnifying Parties shall not have employed counsel
reasonably satisfactory to the Indemnified Party to have charge of such Third
Party Action, (C) the Indemnified Party shall have reasonably concluded that
there may be defenses available to such Indemnified Party that are different
from or additional to those available to the Indemnifying Party, or (D) the
Indemnified Party’s counsel shall have advised the Indemnified Party in writing,
with a copy delivered to the Indemnifying Party, that there is a conflict of
interest that could make it inappropriate under applicable standards of
professional conduct to have common counsel;

 

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(ii)         the Indemnifying Party shall obtain the prior written approval of
the Indemnified Party before entering into or making any settlement, compromise,
admission or acknowledgment of the validity of such Third Party Action or any
Liability in respect thereof if pursuant to or as a result of such settlement,
compromise, admission or acknowledgment, injunctive or other equitable relief
would be imposed against the Indemnified Party or if, in the reasonable opinion
of the Indemnified Party, such settlement, compromise, admission or
acknowledgment could have an adverse effect on its business;

 

(iii)        no Indemnifying Party shall consent to the entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to each Indemnified Party of a release
from all Liability; and

 

(iv)        the Indemnifying Party shall not be entitled to control (but shall
be entitled to participate at its own expense in the defense of), and the
Indemnified Party shall be entitled to have sole control over, the defense or
settlement, compromise, admission or acknowledgment of any Third Party Action
(A) relating to any Tax to be collected from a Purchaser Indemnified Party or an
Affiliate of a Purchaser Indemnified Party, (B) as to which the Indemnifying
Party fails to admit Liability in writing delivered to the Indemnified Party
and/or fails to assume the defense within a reasonable length of time, (C) to
the extent the Third Party Action seeks an order, injunction, or other equitable
relief against the Indemnified Party which, if successful, would materially
adversely affect the business, operations, assets or financial condition of the
Indemnified Party, or (D) for which the Liability may exceed the Cap; provided,
however, in the case of (B) and (C), that the Indemnified Party shall make no
settlement, compromise, admission or acknowledgment that would give rise to
Liability on the part of any Indemnifying Party without the prior written
consent of such Indemnifying Party, which shall not be unreasonably withheld,
and in the case of (D), the Indemnifying Party may control the defense of the
Third Party Action if it irrevocably in writing agrees to waive the Cap. For the
avoidance of doubt, any Third Party Action relating to any Tax shall be governed
by Section 4.6 to the extent provided therein.

 

(b)          The parties hereto shall extend reasonable cooperation in
connection with the defense of any Third Party Action pursuant to this Section
7.3 and, in connection therewith, shall furnish such records, information and
testimony and attend such conferences, discovery proceedings, hearings, trials
and appeals as may be reasonably requested.

 

Section 7.4           Direct Claims. In any case in which an Indemnified Party
seeks indemnification hereunder which is not subject to Section 7.3 because no
Third Party Action is involved, the Indemnified Party shall notify the
Indemnifying Party in writing of any matters which such Indemnified Party claims
are subject to indemnification under the terms hereof. The failure of the
Indemnified Party to exercise promptness in such notification shall not amount
to a waiver of such claim unless the resulting delay materially and adversely
prejudices the position of the Indemnifying Party with respect to such claim.

 

48

 

 

Section 7.5           Determination of Loss Amount. To the extent that a claim
for indemnification by Purchaser hereunder relates to a Liability incurred by
the Company and (a) there is an accrual on the Final Balance Sheet in respect of
such Liability, then the determination of Loss in respect of such claim shall be
net of such accrual, or (b) the Liability was a Current Liability taken into
account in the Working Capital Amount, then the determination of Loss in respect
of such claim shall be net of such Current Liability.

 

Section 7.6           Procedures for Claims Against, and Distributions of, the
Escrowed Amount.

 

(a)          Claims. Purchaser may make an indemnification claim on behalf of a
Purchaser Indemnified Party pursuant to Sections 7.2(a) or 7.2(b) (a “Claim”) by
delivering written notice of the Claim (the “Claim Notice”) to the Escrow Agent
and the Indemnifying Sellers. Any such Claim Notice shall include a brief
description of the Claim, and the amount (which may be a reasonable estimate) of
the Claim. Upon receipt of a Claim Notice, the Escrow Agent shall retain the
Claim amount in escrow (in the form of Escrowed Cash and/or Escrowed Shares, as
applicable) and only thereafter distribute the same in accordance with the joint
written instructions of Purchaser and the Indemnifying Sellers given to the
Escrow Agent (a “Joint Written Instruction”) or a final, non-appealable judgment
of a court of competent jurisdiction, and the Escrow Agreement. Any Seller may
make an indemnification claim on behalf of a Seller Indemnified Party pursuant
to Section 7.2(d) by delivering a claims notice in writing to Purchaser
containing a brief description of the claim, and the amount (which may be a
reasonable estimate) of the claim.

 

(b)          Uncontested Claims. If within 30 days of its receipt of a Claim
Notice the Indemnifying Sellers agree with such Claim or do not contest such
Claim in writing to Purchaser, the Indemnifying Sellers shall be conclusively
deemed to have consented to the recovery by the Purchaser Indemnified Person of
the full amount of Losses specified in the Claim Notice, including the
forfeiture of the Escrowed Cash and/or Escrowed Amount, as applicable, in the
amount of the uncontested Claim.

 

(c)          Contested Claims. If the Indemnifying Sellers give Purchaser
written notice contesting all or any portion of a Claim Notice (a “Contested
Claim”) (with a copy to the Escrow Agent) within the 30 day period, then such
Contested Claim shall be resolved by either (i) a written settlement agreement
executed by Purchaser and the Indemnifying Sellers (a copy of which shall be
furnished to the Escrow Agent) or (ii) in the absence of such a written
settlement agreement within 30 days following receipt by Purchaser of the
written notice from the Indemnifying Sellers, by binding litigation between
Purchaser and the Indemnifying Sellers in accordance with the terms and
provisions of Section 7.6(d).

 

(d)          Litigation of Contested Claims. Either Purchaser or the
Indemnifying Sellers may bring suit as provided in Sections 8.12 and 8.13 to
resolve the Contested Claim. Judgment upon any award rendered by the trial court
as to the validity and amount of any claim in such Claim Notice may be entered
in any court having jurisdiction, such award or judgment shall be immediately
paid to the successful party, and the Escrow Agent shall be entitled to act in
accordance with such award or judgment and make or withhold payments out of the
Escrowed Amount in accordance therewith. Notwithstanding the foregoing, any
award rendered or judgment entered by the trial court shall be subject to appeal
pursuant to Applicable Law, and, once any such appeals are resolved and all
appeals rights are either exhausted or waived, the resulting final decision
shall be binding and conclusive upon the parties to this Agreement. In the event
the final, binding and conclusive decision on appeal reverses the trial court’s
initial award and/or judgment, any payment previously made to the successful
party shall be returned within a reasonable time.

 

49

 

 

(e)          Distributions. On the date that is 15 months after the Closing
Date, the Escrow Agent shall release to the Indemnifying Sellers, as provided in
the Escrow Agreement, the Escrowed Cash, less that amount of Escrowed Cash
necessary to satisfy an unsatisfied Claim (an “Outstanding Escrow Claim”). On
the dates that are 18 months, 21 months and 24 months after the Closing Date,
the Escrow Agent shall release to the Indemnifying Sellers, as provided in the
Escrow Agreement, 25% of the Escrowed Shares, less that number of Escrowed
Shares with a value necessary to satisfy a then Outstanding Escrow Claim. On the
date that is 27 months after the Closing Date, the Escrow Agent shall release to
the Indemnifying Sellers, as provided in the Escrow Agreement, the remaining
Escrowed Shares, less that number of Escrowed Shares with a value necessary to
satisfy a then Outstanding Escrow Claim. As soon as any Outstanding Escrow
Claims are resolved pursuant to the procedures set forth in this Article 7, the
Escrow Agent shall release any remaining Escrowed Amount held by the Escrow
Agent pursuant to the terms of the Escrow Agreement to the Indemnifying Sellers.

 

(f)          Escrow Amount; Value of Escrowed Shares. Whenever a payment is to
be made to Purchaser from the Escrow Amount, such payment shall be made first
from the Escrowed Cash until there is no Escrowed Cash, and then, if applicable,
from the Escrowed Shares. When the Escrowed Shares must be valued for purposes
of an Outstanding Escrow Claim or a release of Escrowed Shares, the Escrowed
Shares shall be valued at $4.00 per share, As Adjusted.

 

ARTICLE 8
GENERAL PROVISIONS

 

Section 8.1           Notices. All notices, requests, demands or other
communications that are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed to have been duly given:
(a) on the date of delivery, if personally delivered by hand, (b) upon the third
day after such notice is deposited in the United States mail, if mailed by
registered or certified mail, postage prepaid, return receipt requested,
(c) upon the date scheduled for delivery after such notice is sent by a
nationally recognized overnight express courier if the delivery date is a
Business Day, or otherwise on the next Business Day, or (d) by fax upon written
confirmation (including the automatic confirmation that is received from the
recipient’s fax machine) of receipt by the recipient of such notice if such
confirmation is received on a Business Day during Business Hours, or otherwise
on the next Business Day.

 

50

 

 

If to Purchaser, to:

 

Bacterin International Holdings, Inc.

600 Cruiser Lane

Belgrade, MT 59714

Attn: Chief Executive Officer

Facsimile: (406) 388-0422

With a copy to:

 

Ballard Spahr LLP

1 East Washington Street

Suite 2300

Phoenix, AZ 85004

Attn: Karen C. McConnell

Facsimile: (602) 798-5595

   

If to the Company prior to Closing to:

 

X-spine Systems, Inc.

452 Alexandersville Rd.

Miamisburg, OH 45342

Attn: David L. Kirschman

Facsimile: (937) 847-8410

With a copy to:

 

Dunlevey, Mahan & Furry

110 N. Main Street, Suite 1000

Dayton, OH 45402-1738

Attn: Donald B. Rineer

Facsimile: (937) 223-6003

   

If to Sellers, to:

 

David L. Kirschman

5101 Garden Spring Court

Dayton, OH 45429

Facsimile: (937) 226-9898

 

Kenneth J. Hemmelgarn, Jr. Revocable Living Trust Dated February 9, 1998, as
amended

Brian J. Hemmelgarn Revocable Living Trust Dated February 9, 1998, as amended

Kenneth J. Hemmelgarn, Jr. Second Trust Dated March 18, 2010

Brian J. Hemmelgarn Second Trust Dated March 18, 2010

2122 Winners Circle

Dayton, OH 45404

Facsimile: (937) 228-1608

With a copy to:

 

Dunlevey, Mahan & Furry

110 N. Main Street, Suite 1000

Dayton, OH 45402-1738

Attn: Donald B. Rineer

Facsimile: (937) 223-6003

 

Section 8.2           Severability. The unenforceability, illegality or
invalidity of any provision of this Agreement shall not affect the
enforceability or validity of any other provision.

 

Section 8.3           Assignment; Successors. Neither this Agreement, nor any
rights, obligations or interests hereunder, may be assigned by any party hereto
except with the prior written consent of the other parties hereto; provided that
Purchaser may nominate a direct or indirect subsidiary to take ownership of the
Outstanding Shares without the consent of Sellers. Subject to the preceding
sentence, this Agreement shall be binding upon, and shall inure to the benefit
of, the parties hereto and their respective permitted successors and assigns.

 

51

 

 

Section 8.4           Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.

 

Section 8.5           Expenses. Except as otherwise expressly provided in this
Agreement, all costs and expenses incurred by the parties hereto in connection
with the transactions contemplated by this Agreement shall be borne solely and
entirely by the party that has incurred such expenses.

 

Section 8.6           Governing Law. This Agreement shall be construed and
governed in accordance with the Applicable Laws of the State of Delaware,
without regard to its Applicable Laws regarding conflicts of law.

 

Section 8.7           Headings. The section headings of this Agreement are
included for reference purposes only and shall not affect the construction or
interpretation of any of the provisions of this Agreement.

 

Section 8.8           Entire Agreement. This Agreement and the Disclosure
Schedules, the Confidentiality Agreement and the other Transaction Documents set
forth the entire understanding of the parties with respect to the transactions
contemplated hereby, supersede all prior discussions, understandings, agreements
and representations, and shall not be modified or affected by any offer,
proposal, statement or representation, oral or written, made by or for any party
in connection with the negotiation of the terms hereof.

 

Section 8.9           Third-Party Beneficiaries. Except for the Purchaser
Indemnified Parties and the Seller Indemnified Parties and as provided in
Section 4.4, nothing expressed or referred to in this Agreement will be
construed to give any Person other than the parties to this Agreement any legal
or equitable right, remedy, or claim under or with respect to this Agreement or
any provision of this Agreement.

 

Section 8.10         Disclosure Schedules. All Disclosure Schedules attached
hereto are incorporated herein and expressly made a part of this Agreement as
though completely set forth herein.

 

Section 8.11         Interpretive Matters. Unless the context otherwise
requires, (a) all references to articles, sections or schedules are to Articles,
Sections or Schedules in this Agreement; (b) each accounting term not otherwise
defined in this Agreement has the meaning assigned to it in accordance with
GAAP; (c) words in the singular or plural include the singular and plural, and
pronouns stated in either the masculine, feminine or neuter gender shall include
the masculine, feminine and neuter; and (d) the term “including” means by way of
example and not by way of limitation. The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent arises, this Agreement shall be construed as if drafted
jointly by the parties, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement.

 

52

 

 

Section 8.12         Submission to Jurisdiction. Each of the parties submits to
the exclusive jurisdiction of the state or federal courts located in Delaware,
in any action or proceeding arising out of, or relating to, this Agreement,
agrees that all claims in respect of the action or proceeding may be heard and
determined in any such court, and agrees not to bring any action or proceeding
arising out of, or relating to, this Agreement in any other court. Each of the
parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought. Each party agrees that a final judgment in any
action so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by Applicable Law.

 

Section 8.13         Waiver of Jury Trial. EACH OF THE PARTIES HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF, OR RELATING TO, THIS AGREEMENT.

 

Section 8.14         Public Announcements. No party shall issue or cause the
publication of any press release or other public announcement with respect to
this Agreement or the Purchase without the prior consent of the others, which
shall not be unreasonably withheld or delayed; provided, however, that nothing
herein shall prohibit any party from issuing or causing publication of any such
press release or public announcement to the extent that such party determines
such action to be required by Applicable Law, applicable regulation or stock
market rule, in which case the party making such determination shall, if
practicable in the circumstances, use commercially reasonable efforts to allow
the other parties reasonable time to comment on such release or announcement in
advance of its issuance. To the extent feasible, all press releases or other
announcements or notices regarding this transaction shall be made jointly by the
parties.

 

Section 8.15         Amendment. This Agreement may not be amended, restated,
supplemented or otherwise modified except by an instrument in writing signed by
Purchaser, the Company and Sellers.

 

[Signature Page Follows]

 

53

 

 

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

 

  BACTERIN INTERNATIONAL HOLDINGS, INC.       By: /s/ Daniel Goldberger   Name:
Daniel Goldberger   Title: CEO        X-SPINE SYSTEMS, INC.       By: /s/ David
Kirschman    Name: David Kirschman    Title: President and CEO        /s/ David
Kirschman    David L. Kirschman, M.D.       KENNETH J. HEMMELGARN, JR. REVOCABLE
LIVING TRUST DATED FEBRUARY 9, 1998, AS AMENDED       By: /s/ Kenneth J.
Hemmelgarn, Jr.      Kenneth J. Hemmelgarn, Jr., Trustee       BRIAN HEMMELGARN
REVOCABLE LIVING TRUST DATED FEBRUARY 9, 1998, AS AMENDED       By: /s/ Brian J.
Hemmelgarn      Brian J. Hemmelgarn, Trustee    

 

[Signature Page to Stock Purchase Agreement]

 

S-1

 

 

  KENNETH J. HEMMELGARN, JR. SECOND TRUST DATED MARCH 18, 2010       By: /s/
Kenneth J. Hemmelgarn      Kenneth J. Hemmelgarn, Trustee       BRIAN HEMMELGARN
SECOND TRUST DATED MARCH 18, 2010       By: /s/ Kenneth J. Hemmelgarn     
Kenneth J. Hemmelgarn, Trustee

 

[Signature Page to Stock Purchase Agreement]

 

S-2

 

 

LIST OF EXHIBITS AND SCHEDULES

 

Exhibits:

 

Exhibit A – Definitions

Exhibit B-1 – Form of Seller Non-Compete Agreement (Kirschman)

Exhibit B-2 – Form of Seller Non-Compete Agreement (Hemmelgarn)

Exhibit C - Lock-Up Agreement

Exhibit D - Guaranty

 

Disclosure Schedules:

 

Disclosure Schedule 1.2(c) – Sellers and Ownership Interest Shares

Disclosure Schedule 3.2(c) – Capitalization; Directors and Officers

Disclosure Schedule 3.2(e) – No Conflict

Disclosure Schedule 3.2(f) – Financial Statements

Disclosure Schedule 3.2(g) – Liabilities

Disclosure Schedule 3.2(h)(i) – Accounts Receivable

Disclosure Schedule 3.2(h)(iii) – Accounts Payable

Disclosure Schedule 3.2(i) – Litigation

Disclosure Schedule 3.2(j)(xiv) – Taxes

Disclosure Schedule 3.2(j)(xix) – Tax Deficiencies

Disclosure Schedule 3.2(k)(ii) – Leased Real Property

Disclosure Schedule 3.2(l)(i) – Intellectual Property

Disclosure Schedule 3.2(l)(ii) – Intellectual Property Exceptions

Disclosure Schedule 3.2(l)(iv) – Company Intellectual Property Payments

Disclosure Schedule 3.2(l)(xiii) – Intellectual Property Violations

Disclosure Schedule 3.2(o)(ii) – Applicable Laws

Disclosure Schedule 3.2(o)(iii) – Governmental Notices

Disclosure Schedule 3.2(r) – Environmental Matters

Disclosure Schedule 3.2(s)(i) – FDA Exceptions

Disclosure Schedule 3.2(s)(iii) – Adverse Event and Complaint Review and
Analysis Reports

Disclosure Schedule 3.2(s)(v) – Recalls and Notices

Disclosure Schedule 3.2(t) – Health Care Professionals

Disclosure Schedule 3.2(u) – Restrictions on Business

Disclosure Schedule 3.2(w) – Employees

Disclosure Schedule 3.2(x)(i) – Employee Plans

Disclosure Schedule 3.2(y) – Material Contracts

Disclosure Schedule 3.2(z) – Transactions with Affiliates

Disclosure Schedule 3.2(aa) – Absence of Changes

Disclosure Schedule 3.2(bb) – Insurance

Disclosure Schedule 3.2(cc) – Largest Suppliers and Customers

Disclosure Schedule 3.2(dd) – Standard Terms and Conditions for Company Products

Disclosure Schedule 4.8 – Liens

 

1

 

 

EXHIBIT A

 

DEFINITIONS

 

The following terms shall have the following meanings in this Agreement:

 

“Action” means any claim, action, suit or proceeding, litigation, arbitral
action, governmental inquiry, criminal prosecution, audit or other investigation
as to which written notice has been provided to the applicable party.

 

“Accredited Investor” has the meaning ascribed thereto in Rule 501(a) of
Regulation D promulgated by the SEC under the Securities Act.

 

“Activities to Date” is defined in Section 3.2(s)(ii).

 

“Affiliate” means, with respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition and this Agreement, the term “control” (and correlative terms) means
the power, whether by contract, equity ownership or otherwise, to direct the
policies or management of a Person.

 

“Agreement” is defined in the preamble.

 

“Applicable Law” or “Applicable Laws” means all laws, statutes, constitutions,
rules, regulations, principles of common law, codes, ordinances, Judgments,
orders, decrees, injunctions, and writs of any Governmental Entity which has
jurisdiction over the applicable Person or the businesses, operations or assets
of the applicable Person.

 

“Appointee Director” is defined in Section 2.3.

 

“As Adjusted” means, in the event of any stock split, reverse stock split, stock
dividend (including any dividend or distribution of securities convertible into
capital stock), reorganization, reclassification, combination, recapitalization
or other like change with respect to Purchaser occurring after the Closing, such
equitable adjustment to the agreed value of $4.00 per share of the Purchaser
Common Stock necessary to provide the parties the same economic effect as
contemplated by this Agreement prior to such stock split, reverse stock split,
stock dividend, reorganization, reclassification, combination, recapitalization
or other like change.

 

“B. Hemmelgarn 1998 Trust” means the Brian J. Hemmelgarn Revocable Living Trust
Dated February 9, 1998, as amended.

 

“B. Hemmelgarn 2010 Trust” means the Brian J. Hemmelgarn Second Trust Dated
March 18, 2010.

 

“Basic Cap” is defined in Section 7.2(e)(iii).

 

“Basic Representations” means all representations and warranties in Sections 3.1
and 3.2 of this Agreement except the Fundamental Representations and the Interim
Representations.

 

A-1

 

 

“Business” means the manufacturing and distribution of spinal implant products
for the treatment of spinal disease.

 

“Business Associate” shall have the meaning given to it 45 C.F.R. 160.103.

 

“Business Day” means any day other than a Saturday, a Sunday, or a holiday on
which national banking associations in the State of Delaware are authorized by
Applicable Law to close.

 

“Cap” means the Transaction Cap, Basic Cap or Interim Cap.

 

“Cash Consideration” is defined in Section 1.2(a)(i).

 

“Charter Documents” is defined in Section 3.2(a).

 

“Claim” is defined in Section 7.6(a).

 

“Claim Notice” is defined in Section 7.6(a).

 

“Closing” means the consummation of the transactions contemplated by this
Agreement.

 

“Closing Balance Sheet” is defined in Section 1.3(a).

 

“Closing Date” means the date on which the Closing occurs.

 

“Closing Working Capital” is defined in Section 1.3(a).

 

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

 

“Company” is defined in the preamble.

 

“Company Intellectual Property” means any and all Intellectual Property of the
Company or the Subsidiary whether owned or controlled by or for, licensed to, or
otherwise held by or for the benefit of the Company or Subsidiary that is
related to the Business, including any and all (a) Company Owned Intellectual
Property and (b) Company Licensed Intellectual Property.

 

“Company Licensed Intellectual Property” means any and all third party
Intellectual Property that is licensed to the Company or the Subsidiary.

 

“Company Licenses” is defined in Section 3.2(s)(ii).

 

“Company Owned Intellectual Property” means any and all Intellectual Property
rights that are owned or are purportedly owned by the Company or the Subsidiary.

 

“Company Products” means all products or services produced, marketed, licensed,
sold, distributed or performed by or on behalf of the Company or Subsidiary and
all products or services currently under development by the Company or
Subsidiary.

 

A-2

 

 

“Company Registered Intellectual Property” means all United States,
international and foreign (a) patents and patent applications (including
provisional applications), (b) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks, (c) registered Internet domain names, (d) registered
copyrights and applications for copyright registration and (e) any other
Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued, filed with, or recorded by any
Governmental Entity that is owned by, registered or filed in the name of, the
Company or Subsidiary.

 

“Company Stock” is defined in Section 3.2(c).

 

“Company’s Representatives” is defined in Section 4.7(a).

 

“Confidential Information” means information, in any form, relating to the
Company’s past, present or future research, development or business activities,
whether or not marked or otherwise identified as “confidential” or
“proprietary,” including any copies, excerpts, summaries, analyses or notes
thereof, including all of the following: designs, drawings, specifications,
techniques, models, data, source code, object code, documentation, diagrams,
copyrights, flow charts, research, development, processes, procedures,
“know-how,” new product or new technology information, product prototypes,
product copies, operational and data processing capabilities, systems, software
and hardware and the documentation thereof development or marketing techniques
and materials, development or marketing timetables, business relationships,
methods of transacting business, strategies and development plans, including
trade secrets, trade names, trademarks, customer, supplier or personal names and
other information related to customers, sub-contractors and dealers, suppliers
or personnel, current or future cost, pricing information, pricing policies and
financial information, and other information of a similar nature, whether or not
reduced to writing or other tangible form, and any other trade secrets or
nonpublic business information, including the terms or conditions of this
Agreement. “Confidential Information” shall not include information or
documentation that: (a) is or becomes generally available to the public by acts
or omissions other than those of the Person subject to restrictions with respect
to the Confidential Information; or (b) becomes available to a Person on a
non-confidential basis from a source other than the Company, provided that to
the knowledge of such Person such source is not bound by a confidentiality
agreement with or other contractual, legal or fiduciary obligation of
confidentiality to the applicable Company or any other Person with respect to
such information.

 

“Confidentiality Agreement” means that certain Mutual Confidentiality and
Nondisclosure Agreement, dated April 1, 2015, by and between the Company and
Bacterin International, Inc.

 

“Consents” means all consents, approvals, waivers or authorizations of any
Governmental Entity or other Person.

 

“Contested Claim” is defined in Section 7.6(c).

 

A-3

 

 

“Contract” means any written or oral agreement, contract, subcontract,
settlement agreement, lease, instrument, note, option, warranty, purchase order,
license, sublicense, or legally binding commitment or undertaking of any nature.

 

“Covered Entity” shall have the meaning given to it 45 C.F.R. 160.103.

 

“Current Assets” means the sum of all current assets of the Company and the
Subsidiary on the Closing Date, as determined in accordance with this Agreement
and GAAP.

 

“Current Liabilities” means the sum of all current liabilities of the Company
and the Subsidiary on the Closing Date, but excluding the Indebtedness Pay-Off
Amount and the Paid Transaction Costs that are paid at the Closing, each as
determined in accordance with this Agreement and GAAP.

 

“Deductible” is defined in Section 7.2(e)(ii).

 

“Deductions” is defined in Section 1.2(a)(ii).

 

“Deductions Certificate” is defined in Section 2.2(c)(x).

 

“Disclosure Schedules” means the disclosure schedules numbered according to the
relevant sections in this Agreement, prepared by Sellers and the Company and
delivered to Purchaser concurrently with the execution hereof.

 

“Employee Plans” has the meaning set forth in Section 3.2(x)(i).

 

“Environmental Law” means any Applicable Law pertaining to land use, air, soil,
surface water, groundwater (including the protection, cleanup, removal,
remediation or damage thereof), or any other environmental matter as in effect
as of the date of this Agreement.

 

“Environmental Permit” means any permit, approval, identification number,
license, registration, consent, exemption, variance or other authorization
required under or issued pursuant to any applicable Environmental Law.

 

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

 

“ERISA Affiliate” means any subsidiary or other entity that would be considered
a single employer with a Person or a subsidiary within the meaning of Section
414 of the Code.

 

“Escrow Agent” means Wells Fargo Bank, N.A.

 

“Escrow Agreement” means the escrow agreement in a form reasonably satisfactory
to the Indemnifying Sellers and Purchaser entered into on or prior to the
Closing Date by and among Purchaser, the Indemnifying Sellers and the Escrow
Agent.

 

“Escrowed Amount” is defined in Section 1.6.

 

“Escrowed Cash” is defined in Section 1.6.

 

A-4

 

 

“Escrowed Shares” is defined in Section 1.6.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Export Approvals” is defined in Section 3.2(q)(i).

 

“FCPA” is defined in Section 3.2(p).

 

“FDA” means the Food and Drug Administration.

 

“FDA Fraud Policy” is defined in Section 3.2(s)(ix).

 

“Final Adjustment Deficiency” is defined in Section 1.3(e).

 

“Final Adjustment Surplus” is defined in Section 1.3(e).

 

“Final Balance Sheet” is defined in Section 1.3(b).

 

“Final Working Capital” means the Working Capital Amount in the Final Balance
Sheet as agreed upon by Sellers and Purchaser in accordance with Section 1.3(c),
or the Working Capital Amount in the Final Balance Sheet as agreed upon by
Sellers and Purchaser with any such objections submitted to and resolved by the
Neutral Firm in accordance with Section 1.3(d), as the case may be.

 

“Financial Statements” is defined in Section 3.2(f).

 

“Flow of Funds Memorandum” means a memorandum to be prepared as of the Closing
Date in form and substance satisfactory to Purchaser and Sellers and consistent
with the provisions of this Agreement setting forth how the Purchase
Consideration is to be disbursed, which shall include, among other things,
instructions from Sellers to Purchaser as to the allocation and disbursement of
the Cash Consideration and the Purchaser Stock Consideration among Sellers.

 

“Fundamental Representations” is defined in Section 7.1(b)(iii).

 

“GAAP” means generally accepted accounting principles in the United States.

 

“Governmental Entity” means any government, any governmental entity, department,
commission, board, agency or instrumentality, and any court, tribunal or
judicial body, whether federal, state, county, local or foreign.

 

“Hazardous Material” means any material or substance that is prohibited or
regulated by any Environmental Law or that has been designated by any
Governmental Entity to be radioactive, toxic, hazardous or otherwise a danger to
health, reproduction or the environment, including asbestos, petroleum, radon
gas and radioactive matter.

 

A-5

 

 

“Healthcare Laws” means, to the extent related to the conduct of the Business as
of the date hereof, the FDCA, Medicare (Title XVIII of the Social Security Act)
and Medicaid (Title XIX of the Social Security Act), the federal Anti-Kickback
Statute (42 U.S.C. § 1320a-7b(b)), the Stark Anti-Self-Referral Law (42 U.S.C.
§§ 1395nn), the Anti-Inducement Law (42 U.S.C. § 1320a-7a(a)(5)), the civil
False Claims Act (31 U.S.C. §§ 3729 et seq.), the administrative False Claims
Law (42 U.S.C. § 1320a-7b(a)), HIPAA, HITECH, all regulations or guidance
promulgated pursuant to such Applicable Laws, and any other federal, or state
Applicable Law that regulates the design, development, testing, studying,
manufacturing, processing, storing, importing or exporting, licensing, labeling
or packaging, advertising, distributing or marketing of pharmaceutical or
medical device products, or that is related to kickbacks, patient or program
charges, recordkeeping, claims process, documentation requirements, medical
necessity, referrals, the hiring of employees or acquisition of services or
supplies from those who have been excluded from government health care programs,
quality, safety, privacy, security, licensure, accreditation or any other aspect
of providing health care services.

 

“Health Care Professional” means any Person that is licensed or otherwise
authorized by Law to provide health care directly to individuals, or an officer,
employee, agent or contractor of such Person acting in the course and scope of
his or her employment, agency or contract related to or in support of the
provision of health care directly to individuals.

 

“Hemmelgarn Knowledge Representations and Warranties” means the representations
and warranties set forth in Sections 3.2(g) (No Undisclosed Liabilities), 3.2(i)
(Litigation), 3.2(j) (Taxes), 3.2(l) (Intellectual Property), 3.2(o) (Compliance
with Applicable Laws; Permits), 3.2(q) (Export Control Laws), 3.2(r)
(Environmental Matters), and 3.2(x) (Employee Benefit Plans).

 

“Hemmelgarn Sellers” means the K. Hemmelgarn 1998 Trust, the B. Hemmelgarn 1998
Trust, the K. Hemmelgarn 2010 Trust, and the B. Hemmelgarn 2010 Trust.

 

“HIPAA” means the administrative simplification section of the Health Insurance
Portability and Accountability Act of 1996, as amended, including as amended by
HITECH.

 

“HITECH” means Subtitle D of the Health Information Technology for Clinical
Health Act.

 

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.

 

“Indebtedness” means, without duplication, (a) all indebtedness (including the
principal amount thereof or, if applicable, the accreted amount thereof and the
amount of accrued and unpaid interest thereon) of the Company, whether or not
represented by bonds, debentures, notes or other securities, for the repayment
of money borrowed, whether owing to banks, financial institutions, on equipment
leases or otherwise, (b) all deferred indebtedness of the Company for the
payment of the purchase price of property or assets purchased, (c) any
outstanding reimbursement obligation of the Company with respect to letters of
credit, bankers’ acceptances or similar facilities issued for the account of the
Company, (d) all guaranties, endorsements, assumptions and other contingent
obligations of the Company in respect of or to purchase or to otherwise acquire,
indebtedness for borrowed money of others.

 

“Indebtedness Agreements” means all agreements between the Company and a holder
of Indebtedness.

 

A-6

 

 

“Indebtedness Pay-Off Amount” is defined in Section 2.2(a)(i).

 

“Indemnified Party” is defined in Section 7.2(d).

 

“Indemnifying Party” is defined in Section 7.3(a).

 

“Indemnifying Sellers” means Kirschman, the K. Hemmelgarn 1998 Trust and the B.
Hemmelgarn 1998 Trust.

 

“Insurance Policies” is defined in Section 3.2(bb).

 

“Intellectual Property” means any or all industrial and intellectual property
rights and all rights associated therewith, throughout the world, including:
(a) all patents and applications therefor and all reissues, reexaminations,
inter partes review, divisions, renewals, extensions, adjustments, restorations,
provisionals, continuations and continuations-in-part thereof; (b) all
inventions (whether patentable or not), invention disclosures and improvements,
all trade secrets, proprietary or Confidential Information, know-how,
technology, technical data, proprietary processes and formulae, algorithms,
specifications, customer lists and supplier lists, computer software, including
all source code, object code, firmware, development tools, files, records and
data, schematics, methodologies, prototypes, devices, databases and data
collections and all rights therein; (c) all copyrights in both published and
unpublished works of authorship, including all compilations, databases, computer
programs, content and manuals and other documentation, and registrations and
applications for any of the foregoing; (d) all corporate names, trade names,
logos, trademarks and service marks, trademark and service mark registrations
and applications, and any and all goodwill associated with and symbolized by the
foregoing items, and all Internet domain names; (e) all moral and economic
rights of authors and inventors, however denominated, and any similar or
equivalent rights to any of the foregoing, and (f) all tangible embodiments of
the foregoing items under the preceding sub-clauses (a) - (e).

 

“Interim Cap” is defined in Section 7.2(e)(iv).

 

“Interim Representations” is defined in Section 7.1(b)(i).

 

“Joint Written Instruction” is defined in Section 7.6(a).

 

“Judgment” means any order, judgment, injunction (whether temporary, preliminary
or permanent), edict, decree, stipulation, ruling, pronouncement, determination,
decision, opinion, verdict, sentence, subpoena, writ or award issued, made,
entered, rendered or otherwise put into effect by or under the authority of any
Governmental Entity or any arbitrator or arbitration panel.

 

“K. Hemmelgarn 1998 Trust” means the Kenneth J. Hemmelgarn, Jr. Revocable Living
Trust Dated February 9, 1998, as amended.

 

“K. Hemmelgarn 2010 Trust” means the Kenneth J. Hemmelgarn, Jr. Second Trust
Dated March 18, 2010.

 

“Key Employees” means Kirschman, Michael Schmitz, Kriss Anderson, Deborah
Klopsch, Greg Causey and Daniel Abramowitz.

 

A-7

 

 

“Kirschman” is defined in the preamble.

 

“Knowledge of the Hemmelgarn Sellers” means the actual knowledge of Kenneth J.
Hemmelgarn, Jr., and Brian J. Hemmelgarn.

 

“Knowledge of the Company” means the actual knowledge of each Key Employee after
reasonable inquiry of such officers and employees of the Company whom they
reasonably believe would have knowledge of the matters represented.

 

“Latest Balance Sheet” means the unaudited, consolidated balance sheet of the
Company and the Subsidiary at May 31, 2015.

 

“Latest Balance Sheet Date” means May 31, 2015.

 

“Leased Real Property” is defined in Section 3.2(k)(ii).

 

“Liabilities” means any and all debts, liabilities, commitments and obligations,
whether contingent, fixed or absolute, direct or indirect, accrued or unaccrued,
asserted or unasserted, matured or unmatured, liquidated or unliquidated, known
or unknown, due or to become due, or determined or determinable.

 

“Lien” or “Liens” means any pledges, claims, liens, charges, encumbrances,
options and security interests of any kind or nature whatsoever.

 

“Losses” is defined in Section 7.2(h).

 

“Material Adverse Effect” means any change, circumstance, event or condition
that is materially adverse to the operations, business, financial condition or
results of operations of the Company and the Subsidiary, taken as a whole, or
that materially impairs the ability of the Company to consummate the
transaction, other than any changes, circumstances, events or conditions
resulting, directly or indirectly, from: (a) the announcement or performance of
the transaction, including any action or inaction by the Company, Purchaser,
Sellers or any of the customers, suppliers, lessors, employees or competitors of
the Business; (b) changes in general economic conditions in any of the markets
in which the Business operates (to the extent such change does not affect the
Company and the Subsidiary disproportionately from their competitors); (c) any
change in economic conditions or the financial, banking, currency or capital
markets in general; (d) any calamity or other condition generally affecting the
medical device industry and/or the body shaping market (to the extent such
change does not affect the Company and the Subsidiary disproportionately from
their competitors); (e) national or international political or social
conditions, including the engagement by any country in hostilities, whether
commenced before or after the date of this Agreement, and whether or not
pursuant to the declaration of a national emergency or war, or the occurrence of
any military or terrorist attack; (f) changes in any Applicable Law (including
relating to excise Taxes on medical devices and healthcare reform) or
interpretations thereof affecting the medical device industry and/or the body
shaping market in general (to the extent such change does not affect the Company
and the Subsidiary disproportionately from their competitors); or (g) changes in
GAAP or interpretations thereof or other accounting principles or requirements.

 

A-8

 

 

“Material Contract” means any of the following: (a) any Contract that requires
or that likely will require future expenditures by the Company or Subsidiary in
excess of $150,000 or that likely will result in payments to the Company or
Subsidiary in excess of $150,000; (b) lease agreements in connection with the
Leased Real Property; (c) any Contract relating to the Company Intellectual
Property, excluding standard license provisions in distribution agreements and
fee per procedure agreements; (d) any Contract to which the Company or
Subsidiary is a party that requires a Consent to a change of control, merger or
an assignment by operation of law, either before or after the Closing Date; (e)
any Contract to which the Company or Subsidiary is a party granting any cash
change of control, severance, or termination pay to any Employee; (f) any
fidelity or surety bond or completion bond and any Contract of indemnification
or guarantee to which the Company or Subsidiary is a party; (g) any indentures,
guarantees, loans or credit agreements, security agreements or other Contracts
or instruments relating to the borrowing of money or extension of credit or
other Indebtedness to which the Company or Subsidiary is a party or by which any
of its property is bound; (h) any dealer, distribution, joint marketing,
strategic alliance, affiliate or development Contract; (i) any Contract
containing any “most favored nation” or other preferred pricing provision; (j)
any sales representative, original equipment manufacturer, manufacturing, value
added, remarketer, reseller, or independent software vendor, or other Contract
for use or distribution of the Company Products; (k) any nondisclosure,
confidentiality or similar Contract, other than those entered into with any
actual or prospective customer or vendor in the ordinary course of business
consistent with past practices; (l) any Contract which has or may reasonably be
expected to have the effect of prohibiting or impairing in any material respect
any business practice of the Company or the Subsidiary, any acquisition of
property (tangible or intangible) by the Company or the Subsidiary, the conduct
of business by the Company or the Subsidiary, or otherwise limiting in any
material respect the freedom of the Company to engage in any line of business,
to conduct any business activities, or to compete with any Person; (m) any
partnership or joint venture Contract; (n) any settlement or co-existence
agreement; and (o) any other Contract, or group of Contracts, the termination or
breach of which would be reasonably expected to have a Material Adverse Effect.

 

“Net Purchase Consideration” is defined in Section 1.2(a)(iii).

 

“Neutral Firm” is defined in Section 1.3(d).

 

“Objection Notice” is defined in Section 1.3(c).

 

“Outstanding Escrow Claim” is defined in Section 7.6(e).

 

“Outstanding Share” or “Outstanding Shares” is defined in Section A of the
Recitals.

 

“Ownership Interest Share” is defined in Section 1.2(a)(iv).

 

“Paid Transaction Costs” is defined in Section 2.2(a)(ii).

 

“Payoff Letters” means the payoff letters in the form prescribed by Purchaser,
issued by (a) creditors under all Indebtedness Agreements, setting forth the
amounts required to repay the Indebtedness under the Indebtedness Agreements in
full, and (b) recipients of Transaction Costs that remain outstanding as of the
Closing Date, setting for the amount of Transaction Costs outstanding, each of
which shall specifically include a release of the Company and Purchaser for all
matters up to the Closing Date, contingent upon receipt of such payment.

 

A-9

 

 

“Permits” is defined in Section 3.2(o)(i).

 

“Permitted Liens” means such of the following as to which no enforcement,
collection, execution, levy or foreclosure proceeding shall have been commenced:
(a) Liens for Taxes, assessments, charges, levies or other claims not yet due
and payable, or the validity of which are being contested in good faith and for
which adequate reserves have been provided on the Latest Balance Sheet;
(b) Liens arising by operation of Applicable Laws, such as materialmen’s,
mechanics’ carriers’, warehousemen’s, workmen’s and repairmen’s liens and other
similar liens for amounts not yet due and payable; (c) pledges or deposits to
secure obligations under workers’ compensation or similar Applicable Laws or to
secure public or statutory obligations; (d) immaterial Liens, irregularities,
easements, reserves, servitudes, encroachments, rights of way or other
imperfections of title or possession the existence of which do not interfere
with the present use of the affected real or other tangible property;
(e) registered easements, rights-of-way, restrictive covenants and servitudes
and other similar rights in land granted to, reserved or taken by any
Governmental Entity or public utility, or any registered subdivision,
development, servicing, site plan or other similar agreement with any
Governmental Entity or public utility the existence of which do not interfere
with the present use of the affected real property; (f) restrictions on transfer
of securities under applicable state and federal securities laws; and (g) Liens
that will be released in connection with the Closing.

 

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

 

“Personal Information” refers to data that, separately or when combined with
other data, can be used to identify an individual person, such as name, address,
email address, photograph, IP address, and unique device identifier.

 

“Post-Closing Operations” means the operations of the Company following the
Closing Date, including with respect to any claims for product liability
asserted after the Closing Date; provided that Purchaser shall not be obligated
to indemnify or hold harmless any Seller Indemnified Party for Post-Closing
Operations to the extent the Losses attributable to such Post-Closing Operations
arise out of or result from a breach by any Seller of its representations and
warranties to Purchaser in this Agreement.

 

“Pre-Closing Product Liability Claims” means claims for product liability
asserted against the Company prior to the Closing Date.

 

“Privacy Laws” means all Applicable Laws and industry self-regulatory programs
concerning the collection, use, analysis, retention, storage, protection,
transfer, disclosure and/or disposal of Personal Information including HIPAA,
HITECH, state consumer protection Applicable Laws, state breach notification
Applicable Laws, state social security number protection Applicable Laws, the
Federal Trade Commission Act, the federal Privacy Act of 1974, the Telephone
Consumer Protection Act, the Fair Credit Reporting Act and its state law
equivalents, the California Online Privacy Protection Act, the Massachusetts
Data Security Regulations (201 CMR 17.00 et seq.), each as amended to the date
hereof, as well as the Digital Advertising Alliance’s Self-Regulatory Principles
for Online Behavioral Advertising.

 

A-10

 

 

“Protected Health Information” shall have same meaning prescribed by HIPAA.

 

“Purchase” is defined in Recital B.

 

“Purchase Consideration” is defined in Section 1.2(a)(v).

 

“Purchase Price” is defined in Section 1.2.

 

“Purchaser” is defined in the preamble.

 

“Purchaser Common Stock” means the Common Stock, par value $0.001, of Purchaser.

 

“Purchaser Fundamental Representations” is defined in Section 7.1(f).

 

“Purchaser Indemnified Parties” is defined in Section 7.2(a).

 

“Purchaser Indemnified Taxes” means any and all Taxes together with any costs,
expenses or damages (including court and administrative costs and reasonable
legal fees and expenses incurred in investigating and preparing for any audit,
examination, litigation or other judicial or administrative proceeding) arising
out of, in connection with or incident to the determination, assessment or
collection of such Taxes (a) imposed on the Company or the Subsidiary (including
Taxes imposed on or with respect to the income, business, property or operations
of the Company and the Subsidiary), or for which the Company and the Subsidiary
may otherwise be liable, with respect to (i) any Taxable period ending on or
prior to the Closing Date or (ii) the portion of any Straddle Period ending on
the Closing Date (determined in accordance with Section 4.6(c)), or (b) arising
out of, in connection with, or related to, a breach of any representation or
warranty set forth in Section 3.1(j) or the covenants set forth in Section 4.6;
provided, however, that any such Tax shall not be a Purchaser Indemnified Tax to
the extent such Tax was included as a Current Liability in the determination of
Final Working Capital pursuant to Section 1.3(c).

 

“Purchaser SEC Documents” means all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange.

 

“Purchaser Stock Consideration” is defined in Section 1.2(a)(vi).

 

“Purchaser’s Board” means the board of directors of Purchaser.

 

“Released Parties” is defined in Section 4.9.

 

“Releasors” is defined in Section 4.9.

 

“Rule 144” means Rule 144 as promulgated by the SEC under the Securities Act.

 

“SEC” means the United States Securities and Exchange Commission.

 

A-11

 

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Seller” or “Sellers” is defined in the preamble.

 

“Seller Indemnified Parties” is defined in Section 7.2(d).

 

“Sensitive Personal Information” refers to a subset of Personal Information
that, separately or when combined with other data can be used to cause harm,
embarrassment, financial loss or injury to an individual or result in identity
theft or fraud. Sensitive Personal Information is a subset of Personal
Information. Sensitive Personal Information includes, for example, name or email
address in combination with: date of birth, social security number,
government-issued identification numbers, payment card numbers, log-in
credentials, geo-location information, fingerprints, financial account numbers,
health information and other health-related information.

 

“Straddle Period” means any taxable period that begins on or before the Closing
Date and ends after the Closing Date.

 

“Subsidiary” is defined in Section 3.2(b).

 

“Systems” is defined in Section 3.2(m).

 

“Tail Policies” is defined in Section 4.4.

 

“Tax” or “Taxes” means (i) any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, franchise, profits,
capital stock, withholding, social security, unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated or other tax of any kind whatsoever,
including any interest, penalty or addition thereto, whether disputed or not;
(ii) any liability for payment of amounts described in clause (i) whether as a
result of transferee liability, of being a member of an affiliated,
consolidated, combined or unitary group for any period or otherwise through
operation of law; and (iii) any liability for the payment of amounts described
in clauses (i) or (ii) as a result of any tax sharing, tax indemnity or tax
allocation agreement or any other express or implied agreement to indemnify any
other Person.

 

“Tax Proceeding” is defined in Section 4.6(e).

 

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

 

“Third Party Action” is defined in Section 7.3(a).

 

“Transaction Cap” means an amount equal to the Purchase Consideration.

 

A-12

 

 

“Transaction Costs” means all fees, costs and expenses of any brokers, financial
advisors, consultants, accountants, attorneys or other professionals engaged by
the Company in connection with the structuring, negotiation or consummation of
the transactions contemplated by this Agreement, including the costs associated
with the Phase I environmental investigation of the Leased Real Property, and
all fees, costs and expenses of any party that are to be paid by the Company as
a result of the transactions contemplated by this Agreement, whether or not such
costs, fees and expenses have been paid prior to Closing.

 

“Transaction Document” or “Transaction Documents” means this Agreement and all
other documents to be executed by any of the parties to this Agreement in
connection with the consummation of the transactions contemplated in this
Agreement.

 

“Working Capital Adjustment” means the amount, if any, by which the Working
Capital Amount is greater than or less than the Working Capital Target.

 

“Working Capital Amount” means Current Assets minus Current Liabilities on the
Closing Balance Sheet or the Final Balance Sheet (as the case may be).

 

“Working Capital Target” means $13,576,366.

 

A-13

 

 

EXHIBIT B-1

 

Seller Non-Compete Agreement

 

(Kirschman)

 

B-1

 

 

NON-COMPETITION AND NON-SOLICITATION AGREEMENT

 

This Non-Competition and Non-Solicitation Agreement (this “Agreement”), dated
[_________], 2015, is made by and between Bacterin International Holdings, Inc.,
a Delaware corporation (the “Purchaser”), and David L. Kirschman, M.D.
(“Seller”).

 

Recitals:

 

In connection with the closing (the “Closing”) of the transactions contemplated
by the Stock Purchase Agreement, dated as of [__________], 2015, by and among
Purchaser, X-spine Systems, Inc., an Ohio corporation (the “Company”), Seller,
and certain other parties (the “Purchase Agreement”), Seller has agreed to
provide the Company with certain restrictive covenants, upon the terms and
conditions set forth herein, in order to maintain the value and goodwill of the
business of the Company purchased by Purchaser pursuant to the Purchase
Agreement. Capitalized terms used but not otherwise defined herein shall take
their meaning from the Purchase Agreement.

 

Agreements:

 

NOW, THEREFORE, in consideration of the promises contained herein, and the other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Purchaser and Seller, intending to be legally bound, agree as
follows:

 

SECTION 1.          Effective Date. This Agreement shall commence on the date
hereof (the “Effective Date”).

 

SECTION 2.         Restrictive Covenants. As an inducement and as essential
consideration for Purchaser to consummate the Purchase contemplated by the
Purchase Agreement, and as additional consideration for the payments to which
Seller is entitled under the Purchase Agreement, Seller hereby agrees to the
restrictive covenants contained in this Section 2. The parties agree that such
restrictive covenants are essential to preserve the goodwill of the business of
the Company acquired under the Purchase Agreement and that Purchaser would not
have entered into the Purchase Agreement without Seller’s consent to the
restrictive covenants set forth in this Section 2.

 

2.1.                        Non-Competition. During the period commencing on the
Effective Date and ending on the date that is three years following the
Effective Date (the “Restricted Period”), Seller shall not, without the advance
written consent of the board of directors of Purchaser (the “Board”), such
consent to be granted or withheld in the Board’s sole discretion, either
directly or indirectly, as a proprietor, partner, stockholder (except as the
passive holder of not more than 1% of the outstanding stock of a publicly held
company), director, executive, employee, consultant, joint venturer, investor or
otherwise, (a) own, manage, operate or control, (b) participate in the
ownership, management, operation or control of, or (c) be employed by and/or
perform services for any Person that engages in the design, manufacturing and/or
distribution of spinal implant products (the “Restricted Business”), in North
America, except for Purchaser and the Company.

 

1

 

 

2.2.                        Non-Solicitation. During the Restricted Period,
Seller shall not, directly or indirectly, on its own behalf or on behalf of any
other Person, solicit, divert, take away, encourage to terminate or reduce, or
otherwise harm the Company’s relationship with any present or prospective
customer of the Company (each, a “Customer”). During the Restricted Period,
Seller shall not, directly or indirectly, on its own behalf or on behalf of any
other Person, solicit, employ, engage, interfere with, or attempt to entice away
from the Company, any individual who either (i) is employed by or engaged as an
independent contractor consultant to the Company at the time of the
solicitation, or (ii) has been so employed or engaged within six months prior to
the time of solicitation. During the Restricted Period, Seller shall not,
directly or indirectly, on its own behalf or on behalf of any other Person, harm
the Company’s relationship, or attempt to harm the Company’s relationship, with
any landlord or supplier.

 

2.3.                        Confidentiality. Seller shall not, without the
advance written consent of the Board, directly or indirectly divulge, disclose
or make available or accessible any Confidential Information to any Person,
other than to enforce its rights under the Purchase Agreement or Transaction
Documents, or when required to do so by a lawful order of a court of competent
jurisdiction, any governmental authority or agency, or any recognized subpoena
power, or in connection with Seller’s continued employment with the Company or
Purchaser, if applicable. In addition, Seller shall not create any derivative
work or other product based on or resulting from any Confidential Information,
and shall proffer to the Board’s designee, on or promptly (and in any event,
within five Business Days) following the Effective Date, and without retaining
any copies, notes or excerpts thereof, all memoranda, computer disks or other
media, computer programs, diaries, notes, records, data, customer or client
lists, marketing plans and strategies, and any other documents consisting of or
containing Confidential Information that are in Seller’s actual or constructive
possession or which are subject to its control at such time.

 

2.4.                        Injunctive Relief. Seller acknowledges and agrees
that Purchaser will have no adequate remedy at law and would be irreparably
harmed, if Seller actually breaches or threatens to breach any of the provisions
of this Section 2. Seller agrees that Purchaser shall be entitled to equitable
and/or injunctive relief to prevent any actual breach or threatened breach of
this Section 2, and to specific performance of each of the terms of such Section
2, without the need for posting a bond or other security and in addition to any
other legal or equitable remedies that Purchaser may have. Seller further agrees
that it shall not, in any equity proceeding relating to the enforcement of the
terms of this Section 2, raise the defense that Purchaser has an adequate remedy
at law.

 

2.5.                        Special Severability. The terms and provisions of
this Section 2 are intended to be separate and divisible provisions and if, for
any reason, any one or more of them is held to be invalid or unenforceable,
neither the validity nor the enforceability of any other provision of this
Agreement shall thereby be affected. Seller acknowledges and agrees, and it is
the intention of the parties to this Agreement, that the potential restrictions
on Seller’s future employment and activities imposed by this Section 2 are
reasonable in both duration and geographic scope and in all other respects to
protect the legitimate business interests of Purchaser. Further, Seller agrees
and acknowledges that the Company is currently engaging in business and actively
marketing its services and products throughout North America, and the Company
expends significant time and effort developing and protecting the
confidentiality of its Confidential Information. If for any reason any court of
competent jurisdiction shall find any provisions of this Section 2 unreasonable
in duration or geographic scope or otherwise, it is the intention of the parties
that the restrictions and prohibitions contained herein shall be reformed and
enforced to the fullest extent allowed under applicable law in such
jurisdiction.

 

2

 

 

2.6.                        Tolling During Periods of Breach. The parties agree
and intend that Seller’s obligations under this Section 2 be tolled during any
period that Seller is in breach of any of the obligations under this Section 2,
so that Purchaser is provided with the full benefit of the restrictive periods
set forth herein.

 

2.7.                        Notification. Seller consents to Purchaser notifying
any future employer of Seller of Seller’s obligations under this Section 2, and
if Seller becomes self-employed or has an ownership interest in any future
employer, then Seller further consents to Purchaser notifying any future
customer, vendor or client of such future employer of Seller’s obligations under
this Section 2.

 

2.8.                        Fees. If Purchaser (a) brings any action or
proceeding to enforce any provision of this Agreement or to obtain damages as a
result of a breach of this Agreement or to enjoin any breach of this Agreement
and (b) prevails in such action or proceeding, then Seller will, in addition to
any other rights and remedies available to Purchaser, reimburse Purchaser for
any and all reasonable costs and expenses (including attorneys’ fees) incurred
by Purchaser in connection with such action or proceeding.

 

SECTION 3.          Successors. This Agreement is personal to Seller and,
without the prior express written consent of the Board, shall not be assignable
by Seller. This Agreement shall be binding upon Seller’s heirs, beneficiaries
and/or legal representatives. This Agreement shall inure to the benefit of
Purchaser and its respective successors, purchasers and assigns.

 

SECTION 4.          Miscellaneous.

 

4.1.                        Notices. All notices, requests, demands or other
communications that are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed to have been duly given:
(a) on the date of delivery, if personally delivered by hand, (b) upon the third
day after such notice is deposited in the United States mail, if mailed by
registered or certified mail, postage prepaid, return receipt requested,
(c) upon the date scheduled for delivery after such notice is sent by a
nationally recognized overnight express courier if the delivery date is a
business day, or otherwise on the next business day, or (d) by fax upon written
confirmation (including the automatic confirmation that is received from the
recipient’s fax machine) of receipt by the recipient of such notice if such
confirmation is received on a business day during business hours, or otherwise
on the next business day.

 

 

3

 

 

if to Purchaser, to:

 

Bacterin International Holdings, Inc.

600 Cruiser Lane

Belgrade, MT 59714

Attn: Chief Executive Officer

Facsimile: (406) 388-0422

with a copy to:

 

Ballard Spahr LLP

1 East Washington Street

Suite 2300

Phoenix, AZ 85004

Attn: Karen C. McConnell

Facsimile: (602) 798-5595

   

if to Seller, to:

 

David L Kirschman

5101 Garden Spring Court

Dayton, OH 45429

Facsimile: (937) 226-9898

with a copy to:

 

Dunlevey, Mahan & Furry

110 N. Main Street, Suite 1000

Dayton, OH 45402-1738

Attn: Donald B. Rineer

Facsimile: (937) 223-8550

 

4.2.                        Severability. The unenforceability, illegality or
invalidity of any provision of this Agreement shall not affect the
enforceability or validity of any other provision.

 

4.3.                        Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.

 

4.4.                        Governing Law. This Agreement shall be construed and
governed in accordance with the Applicable Laws of the State of Delaware,
without regard to its Applicable Laws regarding conflicts of law.

 

4.5.                        Headings. The section headings of this Agreement are
included for reference purposes only and shall not affect the construction or
interpretation of any of the provisions of this Agreement.

 

4.6.                        Entire Agreement. This Agreement, the Purchase
Agreement and the Transaction Documents set forth the entire understanding of
the parties with respect to the transactions contemplated hereby, supersede all
prior discussions, understandings, agreements and representations, and shall not
be modified or affected by any offer, proposal, statement or representation,
oral or written, made by or for any party in connection with the negotiation of
the terms hereof.

 

4.7.                        Interpretive Matters. Unless the context otherwise
requires, (a) all references to sections are to Sections in this Agreement; (b)
words in the singular or plural include the singular and plural, and pronouns
stated in either the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter; and (c) the term “including” means by way of
example and not by way of limitation. The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent arises, this Agreement shall be construed as if drafted
jointly by the parties, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement.

 

4

 

 

4.8.                        Submission to Jurisdiction. Each of the parties
submits to the exclusive jurisdiction of the state or federal courts located in
Delaware, in any action or proceeding arising out of, or relating to, this
Agreement, agrees that all claims in respect of the action or proceeding may be
heard and determined in any such court, and agrees not to bring any action or
proceeding arising out of, or relating to, this Agreement in any other court.
Each of the parties waives any defense of inconvenient forum to the maintenance
of any action or proceeding so brought. Each party agrees that a final judgment
in any action so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by applicable law.

 

4.9.                        Waiver of Jury Trial. EACH OF THE PARTIES HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF, OR RELATING TO, THIS AGREEMENT.

 

4.10.                      Amendments. This Agreement may not be amended,
restated, supplemented or otherwise modified except by an instrument in writing
signed by the parties.

 

[Signature Page Follows]

 

5

 

 

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

 

  BACTERIN INTERNATIONAL HOLDINGS, INC.       By:     Name:     Title:        
Seller:           David L. Kirschman, M.D.

 

[Signature Page to Non-Competition Agreement]

 

 

 

 

EXHIBIT B-2

 

Seller Non-Compete Agreement

 

(Hemmelgarn)

 

B-2

 

 

NON-COMPETITION AND NON-SOLICITATION AGREEMENT

 

This Non-Competition and Non-Solicitation Agreement (this “Agreement”), dated
[_________], 2015, is made by and between Bacterin International Holdings, Inc.,
a Delaware corporation (the “Purchaser”), and Kenneth J. Hemmelgarn, Jr.
(“Hemmelgarn”), and the Kenneth J. Hemmelgarn, Jr. Revocable Living Trust Dated
February 9, 1998, as amended (“Seller,” and together with Hemmelgarn, the
“Hemmelgarn Parties”).

 

Recitals:

 

In connection with the closing (the “Closing”) of the transactions contemplated
by the Stock Purchase Agreement, dated as of [__________], 2015, by and among
Purchaser, X-spine Systems, Inc., an Ohio corporation (the “Company”), Seller,
and certain other parties (the “Purchase Agreement”), the Hemmelgarn Parties
have agreed to provide the Company with certain restrictive covenants, upon the
terms and conditions set forth herein, in order to maintain the value and
goodwill of the business of the Company purchased by Purchaser pursuant to the
Purchase Agreement. Capitalized terms used but not otherwise defined herein
shall take their meaning from the Purchase Agreement.

 

Agreements:

 

NOW, THEREFORE, in consideration of the promises contained herein, and the other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Purchaser and the Hemmelgarn Parties, intending to be legally
bound, agree as follows:

 

SECTION 5.          Effective Date. This Agreement shall commence on the date
hereof (the “Effective Date”).

 

SECTION 6.         Restrictive Covenants. As an inducement and as essential
consideration for Purchaser to consummate the Purchase contemplated by the
Purchase Agreement, and as additional consideration for the payments to which
Seller is entitled under the Purchase Agreement, the Hemmelgarn Parties hereby
agree to the restrictive covenants contained in this Section 2. The parties
agree that such restrictive covenants are essential to preserve the goodwill of
the business of the Company acquired under the Purchase Agreement and that
Purchaser would not have entered into the Purchase Agreement without the
Hemmelgarn Parties’ consent to the restrictive covenants set forth in this
Section 2.

 

6.1.                        Non-Competition. During the period commencing on the
Effective Date and ending on the date that is three years following the
Effective Date (the “Restricted Period”), the Hemmelgarn Parties shall not,
without the advance written consent of the board of directors of Purchaser (the
“Board”), such consent to be granted or withheld in the Board’s sole discretion,
either directly or indirectly, as a proprietor, partner, stockholder (except as
the passive holder of not more than 1% of the outstanding stock of a publicly
held company), director, executive, employee, consultant, joint venturer,
investor or otherwise, (a) own, manage, operate or control, (b) participate in
the ownership, management, operation or control of, or (c) be employed by and/or
perform services for any Person that engages in the marketing and/or selling of
spinal implant products (the “Restricted Business”), in North America.
Notwithstanding the foregoing, for purposes of clarification, “Restricted
Business” shall not include the Hemmelgarn Parties’ ownership, management,
operation or control of Norwood Tool Company d/b/a Norwood Medical (“Norwood”),
which, in part, is a contract manufacturer for third parties engaged in the
spinal products business, so long as Norwood itself does not sell spinal
products to hospitals or other end-user purchasers of spinal products.

 

1

 

 

6.2.                        Non-Solicitation. During the Restricted Period, the
Hemmelgarn Parties shall not, directly or indirectly, on their own behalf or on
behalf of any other Person, solicit, divert, take away, encourage to terminate
or reduce, or otherwise harm the Company’s relationship with any present or
prospective customer of the Company (each, a “Customer”). During the Restricted
Period, the Hemmelgarn Parties shall not, directly or indirectly, on their own
behalf or on behalf of any other Person, solicit, employ, engage, interfere
with, or attempt to entice away from the Company, any individual who either (i)
is employed by or engaged as an independent contractor consultant to the Company
at the time of the solicitation, or (ii) has been so employed or engaged within
six months prior to the time of solicitation. During the Restricted Period, the
Hemmelgarn Parties shall not, directly or indirectly, on their own behalf or on
behalf of any other Person, harm the Company’s relationship, or attempt to harm
the Company’s relationship, with any landlord or supplier; provided the
foregoing shall not apply with respect to Norwood and the parties acknowledge
that the Hemmelgarn Parties may operate Norwood in their sole discretion.

 

6.3.                        Confidentiality. The Hemmelgarn Parties shall not,
without the advance written consent of the Board, directly or indirectly
divulge, disclose or make available or accessible any Confidential Information
to any Person, other than to enforce their rights under the Purchase Agreement
or Transaction Documents, or when required to do so by a lawful order of a court
of competent jurisdiction, any governmental authority or agency, or any
recognized subpoena power, or in connection with the Hemmelgarn Parties’
continued employment with the Company or Purchaser, if applicable. In addition,
the Hemmelgarn Parties shall not create any derivative work or other product
based on or resulting from any Confidential Information, and shall proffer to
the Board’s designee, on or promptly (and in any event, within five Business
Days) following the Effective Date, and without retaining any copies, notes or
excerpts thereof, all memoranda, computer disks or other media, computer
programs, diaries, notes, records, data, customer or client lists, marketing
plans and strategies, and any other documents consisting of or containing
Confidential Information that are in the Hemmelgarn Parties’ actual or
constructive possession or which are subject to its control at such time.

 

6.4.                        Injunctive Relief. The Hemmelgarn Parties
acknowledge and agree that Purchaser will have no adequate remedy at law and
would be irreparably harmed, if the Hemmelgarn Parties actually breach or
threaten to breach any of the provisions of this Section 2. The Hemmelgarn
Parties agree that Purchaser shall be entitled to equitable and/or injunctive
relief to prevent any actual breach or threatened breach of this Section 2, and
to specific performance of each of the terms of such Section 2, without the need
for posting a bond or other security and in addition to any other legal or
equitable remedies that Purchaser may have. The Hemmelgarn Parties further agree
that they shall not, in any equity proceeding relating to the enforcement of the
terms of this Section 2, raise the defense that Purchaser has an adequate remedy
at law.

 

2

 

 

6.5.                        Special Severability. The terms and provisions of
this Section 2 are intended to be separate and divisible provisions and if, for
any reason, any one or more of them is held to be invalid or unenforceable,
neither the validity nor the enforceability of any other provision of this
Agreement shall thereby be affected. The Hemmelgarn Parties acknowledge and
agree, and it is the intention of the parties to this Agreement, that the
potential restrictions on the Hemmelgarn Parties’ future employment and
activities imposed by this Section 2 are reasonable in both duration and
geographic scope and in all other respects to protect the legitimate business
interests of Purchaser. Further, the Hemmelgarn Parties agree and acknowledge
that the Company is currently engaging in business and actively marketing its
services and products throughout North America, and the Company expends
significant time and effort developing and protecting the confidentiality of its
Confidential Information. If for any reason any court of competent jurisdiction
shall find any provisions of this Section 2 unreasonable in duration or
geographic scope or otherwise, it is the intention of the parties that the
restrictions and prohibitions contained herein shall be reformed and enforced to
the fullest extent allowed under applicable law in such jurisdiction.

 

6.6.                        Tolling During Periods of Breach. The parties agree
and intend that the Hemmelgarn Parties’ obligations under this Section 2 be
tolled during any period that the Hemmelgarn Parties are in breach of any of the
obligations under this Section 2, so that Purchaser is provided with the full
benefit of the restrictive periods set forth herein.

 

6.7.                        Fees. If Purchaser (a) brings any action or
proceeding to enforce any provision of this Agreement or to obtain damages as a
result of a breach of this Agreement or to enjoin any breach of this Agreement
and (b) prevails in such action or proceeding, then the Hemmelgarn Parties will,
in addition to any other rights and remedies available to Purchaser, reimburse
Purchaser for any and all reasonable costs and expenses (including attorneys’
fees) incurred by Purchaser in connection with such action or proceeding.

 

SECTION 7.          Successors. This Agreement is personal to the Hemmelgarn
Parties and, without the prior express written consent of the Board, shall not
be assignable by the Hemmelgarn Parties. This Agreement shall be binding upon
the Hemmelgarn Parties’ heirs, beneficiaries and/or legal representatives. This
Agreement shall inure to the benefit of Purchaser and its respective successors,
purchasers and assigns.

 

SECTION 8.          Miscellaneous.

 

8.1.                        Notices. All notices, requests, demands or other
communications that are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed to have been duly given:
(a) on the date of delivery, if personally delivered by hand, (b) upon the third
day after such notice is deposited in the United States mail, if mailed by
registered or certified mail, postage prepaid, return receipt requested,
(c) upon the date scheduled for delivery after such notice is sent by a
nationally recognized overnight express courier if the delivery date is a
business day, or otherwise on the next business day, or (d) by fax upon written
confirmation (including the automatic confirmation that is received from the
recipient’s fax machine) of receipt by the recipient of such notice if such
confirmation is received on a business day during business hours, or otherwise
on the next business day.

 

 

3

 

 

if to Purchaser, to:

 

Bacterin International Holdings, Inc.

600 Cruiser Lane

Belgrade, MT 59714

Attn: Chief Executive Officer

Facsimile: (406) 388-0422

with a copy to:

 

Ballard Spahr LLP

1 East Washington Street

Suite 2300

Phoenix, AZ 85004

Attn: Karen C. McConnell

Facsimile: (602) 798-5595

   

if to the Hemmelgarn Parties, to:

 

Kenneth J. Hemmelgarn, Jr.

Kenneth J. Hemmelgarn, Jr. Revocable Living Trust Dated February 9, 1998, as
amended

2122 Winners Circle

Dayton, OH 45404

Facsimile: (937) 228-1608

with a copy to:

 

Dunlevey, Mahan & Furry

110 N. Main Street, Suite 1000

Dayton, OH 45402-1738

Attn: Donald B. Rineer

Facsimile: (937) 223-8550

 

8.2.                        Severability. The unenforceability, illegality or
invalidity of any provision of this Agreement shall not affect the
enforceability or validity of any other provision.

 

8.3.                        Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.

 

8.4.                        Governing Law. This Agreement shall be construed and
governed in accordance with the Applicable Laws of the State of Delaware,
without regard to its Applicable Laws regarding conflicts of law.

 

8.5.                        Headings. The section headings of this Agreement are
included for reference purposes only and shall not affect the construction or
interpretation of any of the provisions of this Agreement.

 

8.6.                        Entire Agreement. This Agreement, the Purchase
Agreement and the Transaction Documents set forth the entire understanding of
the parties with respect to the transactions contemplated hereby, supersede all
prior discussions, understandings, agreements and representations, and shall not
be modified or affected by any offer, proposal, statement or representation,
oral or written, made by or for any party in connection with the negotiation of
the terms hereof.

 

8.7.                        Interpretive Matters. Unless the context otherwise
requires, (a) all references to sections are to Sections in this Agreement; (b)
words in the singular or plural include the singular and plural, and pronouns
stated in either the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter; and (c) the term “including” means by way of
example and not by way of limitation. The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent arises, this Agreement shall be construed as if drafted
jointly by the parties, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement.

 

4

 

 

8.8.                        Submission to Jurisdiction. Each of the parties
submits to the exclusive jurisdiction of the state or federal courts located in
Delaware, in any action or proceeding arising out of, or relating to, this
Agreement, agrees that all claims in respect of the action or proceeding may be
heard and determined in any such court, and agrees not to bring any action or
proceeding arising out of, or relating to, this Agreement in any other court.
Each of the parties waives any defense of inconvenient forum to the maintenance
of any action or proceeding so brought. Each party agrees that a final judgment
in any action so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by applicable law.

 

8.9.                        Waiver of Jury Trial. EACH OF THE PARTIES HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF, OR RELATING TO, THIS AGREEMENT.

 

8.10.                      Amendments. This Agreement may not be amended,
restated, supplemented or otherwise modified except by an instrument in writing
signed by the parties.

 

[Signature Page Follows]

 

5

 

 

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

 

  BACTERIN INTERNATIONAL HOLDINGS, INC.       By:     Name:     Title:          
  Kenneth J. Hemmelgarn, Jr.       KENNETH J. HEMMELGARN, JR. REVOCABLE LIVING
TRUST DATED FEBRUARY 9, 1998, AS AMENDED       By:     Name:     Title:  

 

[Signature Page to Non-Competition Agreement]

 

 

 

 

NON-COMPETITION AND NON-SOLICITATION AGREEMENT

 

This Non-Competition and Non-Solicitation Agreement (this “Agreement”), dated
[_________], 2015, is made by and between Bacterin International Holdings, Inc.,
a Delaware corporation (the “Purchaser”), and Brian J. Hemmelgarn (“Hemmelgarn”)
and the Brian J. Hemmelgarn Revocable Living Trust Dated February 9, 1998, as
amended (“Seller,” and together with Hemmelgarn, the “Hemmelgarn Parties”).

 

Recitals:

 

In connection with the closing (the “Closing”) of the transactions contemplated
by the Stock Purchase Agreement, dated as of [__________], 2015, by and among
Purchaser, X-spine Systems, Inc., an Ohio corporation (the “Company”), Seller,
and certain other parties (the “Purchase Agreement”), the Hemmelgarn Parties
have agreed to provide the Company with certain restrictive covenants, upon the
terms and conditions set forth herein, in order to maintain the value and
goodwill of the business of the Company purchased by Purchaser pursuant to the
Purchase Agreement. Capitalized terms used but not otherwise defined herein
shall take their meaning from the Purchase Agreement.

 

Agreements:

 

NOW, THEREFORE, in consideration of the promises contained herein, and the other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Purchaser and the Hemmelgarn Parties, intending to be legally
bound, agree as follows:

 

SECTION 9.          Effective Date. This Agreement shall commence on the date
hereof (the “Effective Date”).

 

SECTION 10.        Restrictive Covenants. As an inducement and as essential
consideration for Purchaser to consummate the Purchase contemplated by the
Purchase Agreement, and as additional consideration for the payments to which
Seller is entitled under the Purchase Agreement, the Hemmelgarn Parties hereby
agree to the restrictive covenants contained in this Section 2. The parties
agree that such restrictive covenants are essential to preserve the goodwill of
the business of the Company acquired under the Purchase Agreement and that
Purchaser would not have entered into the Purchase Agreement without the
Hemmelgarn Parties’ consent to the restrictive covenants set forth in this
Section 2.

 

10.1.                      Non-Competition. During the period commencing on the
Effective Date and ending on the date that is three years following the
Effective Date (the “Restricted Period”), the Hemmelgarn Parties shall not,
without the advance written consent of the board of directors of Purchaser (the
“Board”), such consent to be granted or withheld in the Board’s sole discretion,
either directly or indirectly, as a proprietor, partner, stockholder (except as
the passive holder of not more than 1% of the outstanding stock of a publicly
held company), director, executive, employee, consultant, joint venturer,
investor or otherwise, (a) own, manage, operate or control, (b) participate in
the ownership, management, operation or control of, or (c) be employed by and/or
perform services for any Person that engages in the marketing and/or selling of
spinal implant products (the “Restricted Business”), in North America.
Notwithstanding the foregoing, for purposes of clarification, “Restricted
Business” shall not include the Hemmelgarn Parties’ ownership, management,
operation or control of Norwood Tool Company d/b/a Norwood Medical (“Norwood”),
which, in part, is a contract manufacturer for third parties engaged in the
spinal products business, so long as Norwood itself does not sell spinal
products to hospitals or other end-user purchasers of spinal products.

 

1

 

 

10.2.                      Non-Solicitation. During the Restricted Period, the
Hemmelgarn Parties shall not, directly or indirectly, on their own behalf or on
behalf of any other Person, solicit, divert, take away, encourage to terminate
or reduce, or otherwise harm the Company’s relationship with any present or
prospective customer of the Company (each, a “Customer”). During the Restricted
Period, the Hemmelgarn Parties shall not, directly or indirectly, on their own
behalf or on behalf of any other Person, solicit, employ, engage, interfere
with, or attempt to entice away from the Company, any individual who either (i)
is employed by or engaged as an independent contractor consultant to the Company
at the time of the solicitation, or (ii) has been so employed or engaged within
six months prior to the time of solicitation. During the Restricted Period, the
Hemmelgarn Parties shall not, directly or indirectly, on their own behalf or on
behalf of any other Person, harm the Company’s relationship, or attempt to harm
the Company’s relationship, with any landlord or supplier; provided the
foregoing shall not apply with respect to Norwood and the parties acknowledge
that the Hemmelgarn Parties may operate Norwood in their sole discretion.

 

10.3.                      Confidentiality. The Hemmelgarn Parties shall not,
without the advance written consent of the Board, directly or indirectly
divulge, disclose or make available or accessible any Confidential Information
to any Person, other than to enforce their rights under the Purchase Agreement
or Transaction Documents, or when required to do so by a lawful order of a court
of competent jurisdiction, any governmental authority or agency, or any
recognized subpoena power, or in connection with the Hemmelgarn Parties’
continued employment with the Company or Purchaser, if applicable. In addition,
the Hemmelgarn Parties shall not create any derivative work or other product
based on or resulting from any Confidential Information, and shall proffer to
the Board’s designee, on or promptly (and in any event, within five Business
Days) following the Effective Date, and without retaining any copies, notes or
excerpts thereof, all memoranda, computer disks or other media, computer
programs, diaries, notes, records, data, customer or client lists, marketing
plans and strategies, and any other documents consisting of or containing
Confidential Information that are in the Hemmelgarn Parties’ actual or
constructive possession or which are subject to its control at such time.

 

10.4.                      Injunctive Relief. The Hemmelgarn Parties acknowledge
and agree that Purchaser will have no adequate remedy at law and would be
irreparably harmed, if the Hemmelgarn Parties actually breach or threaten to
breach any of the provisions of this Section 2. The Hemmelgarn Parties agree
that Purchaser shall be entitled to equitable and/or injunctive relief to
prevent any actual breach or threatened breach of this Section 2, and to
specific performance of each of the terms of such Section 2, without the need
for posting a bond or other security and in addition to any other legal or
equitable remedies that Purchaser may have. The Hemmelgarn Parties further agree
that they shall not, in any equity proceeding relating to the enforcement of the
terms of this Section 2, raise the defense that Purchaser has an adequate remedy
at law.

 

2

 

 

10.5.                      Special Severability. The terms and provisions of
this Section 2 are intended to be separate and divisible provisions and if, for
any reason, any one or more of them is held to be invalid or unenforceable,
neither the validity nor the enforceability of any other provision of this
Agreement shall thereby be affected. The Hemmelgarn Parties acknowledge and
agree, and it is the intention of the parties to this Agreement, that the
potential restrictions on the Hemmelgarn Parties’ future employment and
activities imposed by this Section 2 are reasonable in both duration and
geographic scope and in all other respects to protect the legitimate business
interests of Purchaser. Further, the Hemmelgarn Parties agree and acknowledge
that the Company is currently engaging in business and actively marketing its
services and products throughout North America, and the Company expends
significant time and effort developing and protecting the confidentiality of its
Confidential Information. If for any reason any court of competent jurisdiction
shall find any provisions of this Section 2 unreasonable in duration or
geographic scope or otherwise, it is the intention of the parties that the
restrictions and prohibitions contained herein shall be reformed and enforced to
the fullest extent allowed under applicable law in such jurisdiction.

 

10.6.                      Tolling During Periods of Breach. The parties agree
and intend that the Hemmelgarn Parties’ obligations under this Section 2 be
tolled during any period that the Hemmelgarn Parties are in breach of any of the
obligations under this Section 2, so that Purchaser is provided with the full
benefit of the restrictive periods set forth herein.

 

10.7.                      Fees. If Purchaser (a) brings any action or
proceeding to enforce any provision of this Agreement or to obtain damages as a
result of a breach of this Agreement or to enjoin any breach of this Agreement
and (b) prevails in such action or proceeding, then the Hemmelgarn Parties will,
in addition to any other rights and remedies available to Purchaser, reimburse
Purchaser for any and all reasonable costs and expenses (including attorneys’
fees) incurred by Purchaser in connection with such action or proceeding.

 

SECTION 11.         Successors. This Agreement is personal to the Hemmelgarn
Parties and, without the prior express written consent of the Board, shall not
be assignable by the Hemmelgarn Parties. This Agreement shall be binding upon
the Hemmelgarn Parties’ heirs, beneficiaries and/or legal representatives. This
Agreement shall inure to the benefit of Purchaser and its respective successors,
purchasers and assigns.

 

SECTION 12.        Miscellaneous.

 

12.1.                      Notices. All notices, requests, demands or other
communications that are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed to have been duly given:
(a) on the date of delivery, if personally delivered by hand, (b) upon the third
day after such notice is deposited in the United States mail, if mailed by
registered or certified mail, postage prepaid, return receipt requested,
(c) upon the date scheduled for delivery after such notice is sent by a
nationally recognized overnight express courier if the delivery date is a
business day, or otherwise on the next business day, or (d) by fax upon written
confirmation (including the automatic confirmation that is received from the
recipient’s fax machine) of receipt by the recipient of such notice if such
confirmation is received on a business day during business hours, or otherwise
on the next business day.

 

3

 

 

if to Purchaser, to:

 

Bacterin International Holdings, Inc.

600 Cruiser Lane

Belgrade, MT 59714

Attn: Chief Executive Officer

Facsimile: (406) 388-0422

with a copy to:

 

Ballard Spahr LLP

1 East Washington Street

Suite 2300

Phoenix, AZ 85004

Attn: Karen C. McConnell

Facsimile: (602) 798-5595

   

if to the Hemmelgarn Parties, to:

 

Brian J. Hemmelgarn

Brian J. Hemmelgarn Revocable Living Trust Dated February 9, 1998, as amended

2122 Winners Circle

Dayton, OH 45404

Facsimile: (937) 228-1608

with a copy to:

 

Dunlevey, Mahan & Furry

110 N. Main Street, Suite 1000

Dayton, OH 45402-1738

Attn: Donald B. Rineer

Facsimile: (937) 223-8550

 

12.2.                      Severability. The unenforceability, illegality or
invalidity of any provision of this Agreement shall not affect the
enforceability or validity of any other provision.

 

12.3.                      Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.

 

12.4.                      Governing Law. This Agreement shall be construed and
governed in accordance with the Applicable Laws of the State of Delaware,
without regard to its Applicable Laws regarding conflicts of law.

 

12.5.                      Headings. The section headings of this Agreement are
included for reference purposes only and shall not affect the construction or
interpretation of any of the provisions of this Agreement.

 

12.6.                      Entire Agreement. This Agreement, the Purchase
Agreement and the Transaction Documents set forth the entire understanding of
the parties with respect to the transactions contemplated hereby, supersede all
prior discussions, understandings, agreements and representations, and shall not
be modified or affected by any offer, proposal, statement or representation,
oral or written, made by or for any party in connection with the negotiation of
the terms hereof.

 

12.7.                      Interpretive Matters. Unless the context otherwise
requires, (a) all references to sections are to Sections in this Agreement; (b)
words in the singular or plural include the singular and plural, and pronouns
stated in either the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter; and (c) the term “including” means by way of
example and not by way of limitation. The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent arises, this Agreement shall be construed as if drafted
jointly by the parties, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement.

 

4

 

 

12.8.                      Submission to Jurisdiction. Each of the parties
submits to the exclusive jurisdiction of the state or federal courts located in
Delaware, in any action or proceeding arising out of, or relating to, this
Agreement, agrees that all claims in respect of the action or proceeding may be
heard and determined in any such court, and agrees not to bring any action or
proceeding arising out of, or relating to, this Agreement in any other court.
Each of the parties waives any defense of inconvenient forum to the maintenance
of any action or proceeding so brought. Each party agrees that a final judgment
in any action so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by applicable law.

 

12.9.                      Waiver of Jury Trial. EACH OF THE PARTIES HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF, OR RELATING TO, THIS AGREEMENT.

 

12.10.                    Amendments. This Agreement may not be amended,
restated, supplemented or otherwise modified except by an instrument in writing
signed by the parties.

 

[Signature Page Follows]

 

5

 

 

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

 

  BACTERIN INTERNATIONAL HOLDINGS, INC.       By:     Name:     Title:          
  Brian J. Hemmelgarn       BRIAN J. HEMMELGARN REVOCABLE LIVING TRUST DATED
FEBRUARY 9, 1998, AS AMENDED       By:     Name:     Title:  

 

[Signature Page to Non-Competition Agreement]

 

 

 

 

EXHIBIT C

 

Lock-Up Agreement

 

C-1

 

 

[__________], 2015

 

Bacterin International Holdings, Inc.
600 Cruiser Lane
Belgrade, MT 59714
Attention: Chief Executive Officer

 

 

Re:        Lock-Up Agreement

 

Ladies and Gentlemen:

 

Reference is made to that certain Stock Purchase Agreement, dated [__________],
2015 (the “Purchase Agreement”), by and among Bacterin International Holdings,
Inc., a Delaware corporation (the “Purchaser”), X-spine Systems, Inc., an Ohio
corporation (the “Company”), David L. Kirschman, M.D. (“Kirschman”), the Kenneth
J. Hemmelgarn, Jr. Revocable Living Trust Dated February 9, 1998, as amended
(the “K. Hemmelgarn 1998 Trust”), the Brian J. Hemmelgarn Revocable Living Trust
Dated February 9, 1998, as amended (the “B. Hemmelgarn 1998 Trust”), the Kenneth
J. Hemmelgarn, Jr. Second Trust Dated March 18, 2010 (the “K. Hemmelgarn 2010
Trust”), and the Brian J. Hemmelgarn Second Trust Dated March 18, 2010 (the “B.
Hemmelgarn 2010 Trust,” and collectively with Kirschman, the K. Hemmelgarn 1998
Trust, the B. Hemmelgarn 1998 Trust, the K. Hemmelgarn 2010 Trust, and the B.
Hemmelgarn 2010 Trust, the “Sellers”), pursuant to which Sellers will sell and
transfer to Purchaser, and Purchaser will acquire from Sellers, the Outstanding
Shares of the Company (the “Purchase”). In connection with the Purchase,
Purchaser will issue Purchaser Common Stock to certain of the Sellers in
reliance on one or more exemptions from the registration requirements of the
Securities Act of 1933, as amended (the “Securities Act”), and exemptions from
the qualification requirements of applicable state law. Unless otherwise defined
herein, all capitalized terms used herein shall have the respective meanings
given to such terms in the Purchase Agreement.

 

In order to induce Purchaser to enter into the Purchase Agreement, the
undersigned Seller hereby executes this Lock-Up Agreement and agrees with
Purchaser as follows.

 

The undersigned will not engage in any of the following dispositive actions with
respect to the shares of Purchaser Common Stock issued to the undersigned in the
Purchase (the “Shares”) for a period of one year following the Closing Date: (1)
offer, pledge, announce the intention to sell, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, the Shares or (2) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences of
ownership of the Shares, whether any such transaction described in clause (1) or
(2) above is to be settled by delivery of the Shares, in cash or otherwise
(“Dispositive Actions”). The restrictions set forth in this paragraph shall not
apply to (1) any transfers made by the undersigned (a) as a bona fide gift to
any member of the immediate family (as defined below) of the undersigned or to a
trust, the beneficiaries of which are exclusively the undersigned or members of
the undersigned’s immediate family, (b) by will or intestate succession upon the
death of the undersigned or (c) as a bona fide gift to a charity or educational
institution, or (2) if the undersigned is a trust, the distribution by the trust
of the Shares to its beneficiaries; provided, however, that it shall be a
condition to any such transfer that the transferee executes and delivers to
Purchaser, not later than one business day prior to such transfer, a written
agreement, in substantially the form of this letter agreement and otherwise
satisfactory in form and substance to the Purchaser. For purposes of this
paragraph, “immediate family” shall mean a spouse, domestic partner, child,
grandchild or other lineal descendant (including by adoption), father, mother,
brother or sister of the undersigned.

 

 

 

 

The undersigned acknowledges that the Shares issued to the undersigned in the
Purchase are characterized as “restricted securities” under the Securities Act
inasmuch as they are being acquired from Purchaser in a transaction not
involving a public offering and that, consequently, such Shares may be resold
only pursuant to an exemption from registration under the Securities Act. The
undersigned acknowledges and agrees that any certificate issued to the
undersigned respecting the Shares will bear a restricted legend, including a
legend referencing this Lock-Up Agreement.

 

This Lock-Up Agreement will be binding upon and inure to the benefit of the
undersigned and its successors and permitted assigns. This Lock-Up Agreement may
be executed in any number of counterparts, each of which will be an original and
all of which together will constitute one and the same instrument.

 

The parties hereto agree that irreparable damage would occur in the event that
any of the provisions of this Lock-Up Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that Purchaser shall be entitled to seek an injunction to prevent breaches of
this Lock-Up Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction,
without the need to post any bond or other security therefor.

 

Any term or provision of this Lock-Up Agreement may be amended, and the
observance of any term of this Lock-Up Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only by
a writing signed by the undersigned and Purchaser.

 

[Signature Page Follows]

 

2

 

 

  Very truly yours,           Signature           Name (Please Type or Print)  
        Name and Title if signing on behalf an entity           Address        
  City, State and Zip Code

 

Agreed to and Accepted:       Bacterin International Holdings, Inc.       By:  
        Name:           Title:    

 

[Signature Page to Lock-Up Agreement]

 

 

 

 

exhibit D

 

guarantIes

 

D-1

 

 

GUARANTY

 

This Guaranty (“Guaranty”), dated [_________], 2015, is made by Kenneth J.
Hemmelgarn, Jr. (“Guarantor”), in favor of Bacterin International Holdings,
Inc., a Delaware corporation (the “Purchaser”).

 

Recitals:

 

In connection with the closing of the transactions contemplated by the Stock
Purchase Agreement, dated as of [__________], 2015, by and among Purchaser,
X-spine Systems, Inc., an Ohio corporation, and certain selling parties (the
“Purchase Agreement”), Guarantor has agreed to guarantee the obligations of the
K. Hemmelgarn 1998 Trust and K. Hemmelgarn 2010 Trust (together, the “Trusts”)
owed to Purchaser under the Purchase Agreement, upon the terms and conditions
set forth herein. Capitalized terms used but not otherwise defined herein shall
take their meaning from the Purchase Agreement.

 

Agreements:

 

NOW, THEREFORE, in consideration of the promises contained herein, and the other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Guarantor, intending to be legally bound, agrees as follows:

 

SECTION 13.         Affirmation and Guaranty of Guarantor. Guarantor hereby
represents and warrants that he is in control of and a direct or indirect
beneficiary of the K. Hemmelgarn 1998 Trust and the grantor of the K. Hemmelgarn
2010 Trust, and will receive value under the Purchase Agreement, including some
of the Purchase Consideration that the Sellers receive from Purchaser pursuant
to the Purchase Agreement. As a result, and in order to induce Purchaser to
enter into the Purchase Agreement, to pay the Purchase Consideration and as
security for the performance of the Trusts’ obligations under the Purchase
Agreement, Guarantor unconditionally guarantees the full and prompt payment and
performance of all obligations of the Trusts to Purchaser arising out of or in
connection with the Purchase Agreement. This guaranty is an absolute, complete
and continuing guaranty and shall be fully binding upon and enforceable against
Guarantor. Guarantor acknowledges that because he is in control of and is a
beneficiary of the K. Hemmelgarn 1998 Trust that will receive a portion of the
Purchase Consideration, but may distribute such consideration to Guarantor
pursuant to the applicable trust agreement, and because he is the grantor of the
K. Hemmelgarn 2010 Trust, without this guaranty Purchaser would not have agreed
to consummate the transactions contemplated by the Purchase Agreement. Guarantor
may not rescind or revoke his obligations hereunder and his liabilities
hereunder shall be absolute, unconditional and irrevocable irrespective of the
failure of Purchaser to exercise any available rights or remedies against any
other Person, any amendment to or waiver of the Purchase Agreement that does not
expressly reference this Guaranty, or the insolvency or bankruptcy of, or
similar event affecting the Trusts.

 

 

 

 

SECTION 14.         Miscellaneous.

 

14.1.                      Notices. All notices, requests, demands or other
communications that are required or may be given pursuant to the terms of this
Guaranty shall be in writing and shall be deemed to have been duly given: (a) on
the date of delivery, if personally delivered by hand, (b) upon the third day
after such notice is deposited in the United States mail, if mailed by
registered or certified mail, postage prepaid, return receipt requested,
(c) upon the date scheduled for delivery after such notice is sent by a
nationally recognized overnight express courier if the delivery date is a
business day, or otherwise on the next business day, or (d) by fax upon written
confirmation (including the automatic confirmation that is received from the
recipient’s fax machine) of receipt by the recipient of such notice if such
confirmation is received on a business day during business hours, or otherwise
on the next business day.

 

if to Guarantor, to:

 

Kenneth J. Hemmelgarn, Jr.

2122 Winners Circle

Dayton, OH 45404

Facsimile: (937) 228-1608

with a copy to:

 

Dunlevey, Mahan & Furry

110 N. Main Street, Suite 1000

Dayton, OH 45402-1738

Attn: Donald B. Rineer

Facsimile: (937) 223-8550

 

14.2.                      Severability. The unenforceability, illegality or
invalidity of any provision of this Guaranty shall not affect the enforceability
or validity of any other provision.

 

14.3.                      Governing Law. This Guaranty shall be construed and
governed in accordance with the Applicable Laws of the State of Delaware,
without regard to its Applicable Laws regarding conflicts of law.

 

14.4.                      Headings. The section headings of this Guaranty are
included for reference purposes only and shall not affect the construction or
interpretation of any of the provisions of this Guaranty.

 

14.5.                      Entire Agreement. This Guaranty, the Purchase
Agreement and the Transaction Documents set forth the entire understanding of
the parties with respect to the transactions contemplated hereby, supersede all
prior discussions, understandings, agreements and representations, and shall not
be modified or affected by any offer, proposal, statement or representation,
oral or written, made by or for any party in connection with the negotiation of
the terms hereof.

 

14.6.                      Interpretive Matters. Unless the context otherwise
requires, (a) all references to sections are to Sections in this Guaranty; (b)
words in the singular or plural include the singular and plural, and pronouns
stated in either the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter; and (c) the term “including” means by way of
example and not by way of limitation. The parties have participated jointly in
the negotiation and drafting of this Guaranty. In the event an ambiguity or
question of intent arises, this Guaranty shall be construed as if drafted
jointly by the parties, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Guaranty.

 

14.7.                      Submission to Jurisdiction. Guarantor submits to the
exclusive jurisdiction of the state or federal courts located in Delaware, in
any action or proceeding arising out of, or relating to, this Guaranty, agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court, and agrees not to bring any action or proceeding
arising out of, or relating to, this Guaranty in any other court. Guarantor
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought. Guarantor agrees that a final judgment in any action so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by applicable law.

 

2

 

 

14.8.                      Waiver of Jury Trial. GUARANTOR HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT
OF, OR RELATING TO, THIS GUARANTY.

 

14.9.                      Amendments. This Guaranty may not be amended,
restated, supplemented or otherwise modified except by an instrument in writing
signed by Guarantor and approved by Purchaser.

 

[Signature Page Follows]

 

3

 

 

IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date first
written above.

 

      Kenneth J. Hemmelgarn, Jr.

 

[Signature Page to Guaranty]

 

 

 

 

GUARANTY

 

This Guaranty (“Guaranty”), dated [_________], 2015, is made by Brian J.
Hemmelgarn (“Guarantor”), in favor of Bacterin International Holdings, Inc., a
Delaware corporation (the “Purchaser”).

 

Recitals:

 

In connection with the closing of the transactions contemplated by the Stock
Purchase Agreement, dated as of [__________], 2015, by and among Purchaser,
X-spine Systems, Inc., an Ohio corporation, and certain selling parties (the
“Purchase Agreement”), Guarantor has agreed to guarantee the obligations of the
B. Hemmelgarn 1998 Trust and B. Hemmelgarn 2010 Trust (together, the “Trusts”)
owed to Purchaser under the Purchase Agreement, upon the terms and conditions
set forth herein. Capitalized terms used but not otherwise defined herein shall
take their meaning from the Purchase Agreement.

 

Agreements:

 

NOW, THEREFORE, in consideration of the promises contained herein, and the other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Guarantor, intending to be legally bound, agrees as follows:

 

SECTION 15.         Affirmation and Guaranty of Guarantor. Guarantor hereby
represents and warrants that he is in control of and a direct or indirect
beneficiary of the B. Hemmelgarn 1998 Trust and the grantor of the B. Hemmelgarn
2010 Trust, and will receive value under the Purchase Agreement, including some
of the Purchase Consideration that the Sellers receive from Purchaser pursuant
to the Purchase Agreement. As a result, and in order to induce Purchaser to
enter into the Purchase Agreement, to pay the Purchase Consideration and as
security for the performance of the Trusts’ obligations under the Purchase
Agreement, Guarantor unconditionally guarantees the full and prompt payment and
performance of all obligations of the Trusts to Purchaser arising out of or in
connection with the Purchase Agreement. This guaranty is an absolute, complete
and continuing guaranty and shall be fully binding upon and enforceable against
Guarantor. Guarantor acknowledges that because he is in control of and is a
beneficiary of the B. Hemmelgarn 1998 Trust that will receive a portion of the
Purchase Consideration, but may distribute such consideration to Guarantor
pursuant to the applicable trust agreements, and because he is the grantor of
the B. Hemmelgarn 2010 Trust, without this guaranty Purchaser would not have
agreed to consummate the transactions contemplated by the Purchase Agreement.
Guarantor may not rescind or revoke his obligations hereunder and his
liabilities hereunder shall be absolute, unconditional and irrevocable
irrespective of the failure of Purchaser to exercise any available rights or
remedies against any other Person, any amendment to or waiver of the Purchase
Agreement that does not expressly reference this Guaranty, or the insolvency or
bankruptcy of, or similar event affecting the Trusts.

 

 

 

 

SECTION 16.        Miscellaneous.

 

16.1.                      Notices. All notices, requests, demands or other
communications that are required or may be given pursuant to the terms of this
Guaranty shall be in writing and shall be deemed to have been duly given: (a) on
the date of delivery, if personally delivered by hand, (b) upon the third day
after such notice is deposited in the United States mail, if mailed by
registered or certified mail, postage prepaid, return receipt requested,
(c) upon the date scheduled for delivery after such notice is sent by a
nationally recognized overnight express courier if the delivery date is a
business day, or otherwise on the next business day, or (d) by fax upon written
confirmation (including the automatic confirmation that is received from the
recipient’s fax machine) of receipt by the recipient of such notice if such
confirmation is received on a business day during business hours, or otherwise
on the next business day.

 

if to Guarantor, to:

 

Brian J. Hemmelgarn

2122 Winners Circle

Dayton, OH 45404

Facsimile: (937) 228-1608

with a copy to:

 

Dunlevey, Mahan & Furry

110 N. Main Street, Suite 1000

Dayton, OH 45402-1738

Attn: Donald B. Rineer

Facsimile: (937) 223-8550

 

16.2.                      Severability. The unenforceability, illegality or
invalidity of any provision of this Guaranty shall not affect the enforceability
or validity of any other provision.

 

16.3.                      Governing Law. This Guaranty shall be construed and
governed in accordance with the Applicable Laws of the State of Delaware,
without regard to its Applicable Laws regarding conflicts of law.

 

16.4.                      Headings. The section headings of this Guaranty are
included for reference purposes only and shall not affect the construction or
interpretation of any of the provisions of this Guaranty.

 

16.5.                      Entire Agreement. This Guaranty, the Purchase
Agreement and the Transaction Documents set forth the entire understanding of
the parties with respect to the transactions contemplated hereby, supersede all
prior discussions, understandings, agreements and representations, and shall not
be modified or affected by any offer, proposal, statement or representation,
oral or written, made by or for any party in connection with the negotiation of
the terms hereof.

 

16.6.                      Interpretive Matters. Unless the context otherwise
requires, (a) all references to sections are to Sections in this Guaranty; (b)
words in the singular or plural include the singular and plural, and pronouns
stated in either the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter; and (c) the term “including” means by way of
example and not by way of limitation. The parties have participated jointly in
the negotiation and drafting of this Guaranty. In the event an ambiguity or
question of intent arises, this Guaranty shall be construed as if drafted
jointly by the parties, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Guaranty.

 

16.7.                      Submission to Jurisdiction. Guarantor submits to the
exclusive jurisdiction of the state or federal courts located in Delaware, in
any action or proceeding arising out of, or relating to, this Guaranty, agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court, and agrees not to bring any action or proceeding
arising out of, or relating to, this Guaranty in any other court. Guarantor
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought. Guarantor agrees that a final judgment in any action so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by applicable law.

 

2

 

 

16.8.                      Waiver of Jury Trial. GUARANTOR HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT
OF, OR RELATING TO, THIS GUARANTY.

 

16.9.                      Amendments. This Guaranty may not be amended,
restated, supplemented or otherwise modified except by an instrument in writing
signed by Guarantor and approved by Purchaser.

 

[Signature Page Follows]

 

3

 

 

IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date first
written above.

 

      Brian J. Hemmelgarn

 

[Signature Page to Guaranty]