Exhibit 10.1

 

Note: Certain identified information in Exhibit 10.1 has been excluded from the
exhibit because it is both (i) not material and (ii) would be competitively
harmful if publicly disclosed. Such omitted information has been replaced with
the following: [redacted].

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

 

By and Among

CARLOS FRIAS

DANIEL NGUYEN,

ALEX FRIAS,

CHRIS FAGAN,

and

FREEDOM LEAF INC.

 

 

 

Dated as of May 21, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

TABLE OF CONTENTS

Page #

Article I DEFINITIONS 1 Section 1.01   Certain Defined Terms 1 Section
1.02   Definitions 5 Section 1.03   Interpretation and Rules of Construction 7
Article II PURCHASE AND SALE 8 Section 2.01   Contribution, Purchase and Sale of
the Membership Interests 8 Section 2.02   Purchase Price. 8 Section
2.03   Closing. 9 Section 2.04   Closing Deliveries by the Sellers 9 Section
2.05   Closing Deliveries by the Purchaser 10 Section 2.06   Withholding. 11
Article III REPRESENTATIONS AND WARRANTIES OF THE SELLERS 11 Section
3.01   Authority and Qualification of the Sellers; Organization, Authority and
Qualification of the Company. 11 Section 3.02   Subsidiaries. 11 Section
3.03   Ownership of the Membership Interests and Subsidiaries. 12 Section
3.04   No Conflict. 13 Section 3.05   Governmental Consents and Approvals 13
Section 3.06   Financial Information 13 Section 3.07   Absence of Undisclosed
Liabilities. 14 Section 3.08   Conduct in the Ordinary Course. 14 Section
3.09   Litigation 14 Section 3.10   Compliance with Laws; Permits. 14 Section
3.11   Environmental Matters. 14 Section 3.12   Intellectual Property.. 15
Section 3.13   Owned and Leased Real Property. 15 Section 3.14   Employee
Benefit Matters. 16 Section 3.15   Taxes. 17 Section 3.16   Contracts. 19

 

 

 

 ii 

 

 

Section 3.17   Securities Matters. 20 Section 3.18   Brokers. 22 Section
3.19   Labor Matters. 23 Section 3.20   Organization Documents. 23 Section
3.21   Insurance. 23 Section 3.22   Accounts Receivable.. 24 Section
3.23   Disclosure. 24 Section 3.24   Bank Accounts. 24 Section 3.25   Assets..
24 Section 3.26   OFAC. 24 Section 3.27   Transactions with Affiliates. 26
Section 3.28   IT Systems. 26 Section 3.29   Data Protection.. 26 Section
3.30   Product Warranties. 26 Section 3.31   Additional Information 27 Section
3.32   Books and Records.. 28 Section 3.33   Disclaimers 28 Article IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 28 Section 4.01   Organization
and Authority of the Purchaser. 28 Section 4.02   Certificate of Incorporation
and By-Laws.. 29 Section 4.03   Capitalization. 29 Section 4.04   No Conflict..
29 Section 4.05   Governmental Consents and Approvals. 30 Section 4.06   SEC
Filings.. 30 Section 4.07   Litigation. 30 Section 4.08   Brokers.. 30 Section
4.09   Compliance With Laws.. 30 Article V ADDITIONAL AGREEMENTS 31 Section
5.01   Conduct of Business Prior to the Closing. 31 Section 5.02   Access to
Information. . 32 Section 5.03   Confidentiality. 32 Section 5.04   Regulatory
and Other Authorizations; Notices and Consents. 33

 

 

 

 iii 

 

 

Section 5.05   No Solicitation of Other Bids. 33 Section 5.06   Notifications;
Update of Disclosure Schedule. 34 Section 5.07   Further Action. . 34 Section
5.08   Conveyance Taxes. 34 Section 5.09   Insurance. 34 Section 5.10   Transfer
Restrictions.. 35 Section 5.11   Economic Benefits of Assignment.. 35 Section
5.12   Tax Matters. 35 Article VI EMPLOYEE MATTERS 38 Section 6.01   Treatment
of Company Employees. 38 Article VII CONDITIONS TO CLOSING 38 Section
7.01   Conditions to Obligations of the Sellers 38 Section 7.02   Conditions to
Obligations of the Purchaser. 39 Article VIII 40 Section 8.01   Survival of
Representations and Warranties.. 40 Section 8.02   Indemnification by the
Sellers 40 Section 8.03   Indemnification by the Purchaser. 41 Section
8.04   Limits on Indemnification. 41 Section 8.05   Notice of Loss; Third Party
Claims. 41 Section 8.06   Remedies.. 42 Section 8.07   Effect of Investigation.
43 Article IX TERMINATION, AMENDMENT AND WAIVER 43 Section 9.01   Termination.
43 Section 9.02   Effect of Termination. 44 Article X GENERAL PROVISIONS 44
Section 10.01   Expenses. 44 Section 10.02   Notices. 44 Section 10.03   Public
Announcements; Confidentiality. 45 Section 10.04   Severability 46 Section
10.05   Entire Agreement. 46 Section 10.06   Assignment. 46

 

 

 

 iv 

 

 

Section 10.07   Amendment. 46 Section 10.08   Waiver. 46 Section 10.09   No
Third Party Beneficiaries. 46 Section 10.10   Currency. 47 Section
10.11   Governing Law. 47 Section 10.12   Waiver of Jury Trial.. 47 Section
10.13   Counterparts.. 47 Section 10.14   Cooperation. 47

 

EXHIBITS AND SCHEDULES

 

Exhibit A Payments to the Sellers

 

Exhibit B Form of Assignment of Membership Interests

 

Exhibit C Form of Stock Certificate

 

 

Sellers Disclosure Schedules

 

 

 

 

 v 

 

 

This MEMBERSHIP INTEREST PURCHASE AGREEMENT (this “Agreement”), dated as of May
21, 2019, by and among Carlos Frias, a natural person (“C. Frias”), Daniel
Nguyen, a natural person (“Nguyen”), Alex Frias, a natural person (“A. Frias”),
Chris Fagan, a natural person (“Fagan”; and together with C. Frias, Nguyen and
A. Frias, collectively the “Sellers”) and Freedom Leaf Inc., a Nevada
corporation (the “Purchaser”).

 

WHEREAS, (i) the Sellers own all of the issued and outstanding membership
interests or other ownership or beneficial interests (the “Membership
Interests”) of ECS Labs LLC, a Texas limited liability company (the “Company”)
and (ii) the Company owns all of the issued and outstanding membership interests
or other ownership or beneficial interests (collectively, the “Subsidiary
Interests”) of B&B Labs, LLC, a Texas limited liability company (“B&B”) and
Texas Wellness Center, LLC, a Texas limited liability company (“TWC”; and
together with B&B, collectively, the “Subsidiaries” and each individually, a
“Subsidiary”; the Company and the Subsidiaries, collectively, the “Companies”);

 

WHEREAS, the Companies are engaged in the Business (as defined below); and

 

WHEREAS, the Sellers wish to sell the Membership Interests, and the Purchaser
wishes to acquire the Membership Interests, by purchase in consideration for
capital stock of the Purchaser.

 

NOW, THEREFORE, in consideration of the promises and the mutual agreements and
covenants hereinafter set forth, and intending to be legally bound, the parties
hereby agree as follows:

 

Article I
DEFINITIONS

 

Section 1.01  Certain Defined Terms. For purposes of this Agreement:

 

“Action” means (i) any claim, action, suit, arbitration, inquiry, or proceeding,
or (ii) any investigation by or before any Governmental Authority.

 

“Acquisition Proposal” shall mean any inquiry, proposal or offer from any Person
(other than the Purchaser or any of its Affiliates) concerning (i) a merger,
consolidation, liquidation, recapitalization, share exchange or other business
combination transaction involving any of the Companies; (ii) the issuance or
acquisition of shares of capital stock or other equity securities of the any of
the Companies; or (iii) the sale, lease, exchange or other disposition of any
significant portion of any of the Companies’ properties or assets.

 

“Affiliate” means, with respect to any specified Person, any other Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.

 

“Ancillary Agreements” means the agreements that are set forth on Schedule
1.01(a) attached hereto.

 

 

 

 1 

 

 

“Assets” means all assets and properties of every kind, nature, character and
description (whether real, personal or mixed, whether tangible or intangible and
wherever situated), including the goodwill related thereto, operated, owned or
leased by the Companies.

 

“Business” means the procurement and commercial exploitation of CBD oil derived
from industrial hemp, consumer packaged goods containing hemp-derived
cannabinoids, and any other businesses currently conducted by the Companies.

 

“Business Day” means any day that is not a Saturday, a Sunday or other day on
which banks are required or authorized by Law to be closed in The City of New
York.

 

“Code” means the Internal Revenue Code of 1986, as amended through the date
hereof, and all “Regulation” or “Treasury Regulation” references to Treasury
Regulations promulgated thereunder.

 

“Common Stock Value” means an amount per share of Common Stock equal to the
arithmetic average of the volume-weighted average (rounded to two decimal
places) trading price per share of Common Stock for the thirty (30) full trading
days ended on and including the trading day prior to the date of the Closing,
using trading prices reported on the OTCQB based on all trades in Common Stock
on the OTCQB during the primary trading sessions from 9:30 a.m., New York Time,
to 4:00 p.m., New York Time (and not an average of the daily averages during
such thirty (30) trading days).

 

“Control” (including the terms “controlled by” and “under common control with”),
with respect to the relationship between or among two or more Persons, means the
possession, directly or indirectly or as trustee, personal representative or
executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as
trustee, personal representative or executor, by contract, credit arrangement or
otherwise.

 

“Conveyance Taxes” means sales, use, excise, bulk sales, registration,
documentary, value added, transfer, stamp, stock transfer, real property
transfer, lease or gains and similar Taxes.

 

“Disclosure Schedule” means the Disclosure Schedule attached hereto, dated as of
the date hereof, delivered by the Sellers to the Purchaser in connection with
this Agreement, as amended and/or updated.

 

“Encumbrance” means any security interest, pledge, charge, option, right,
hypothecation, mortgage, lien, claim or other encumbrance, other than any
non-exclusive licenses of Intellectual Property.

 

“Environmental Law” means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, consent decree or judgment, in each
case in effect as of the date hereof, relating to pollution or protection of the
environment (including natural resources), or the protection of human health.

 

 

 

 2 

 

 

“Environmental Liability” means any claim, demand, order, suit, obligation,
liability, cost (including the cost of any investigation, testing, compliance or
remedial action), consequential damages, loss or expense (including reasonable
and incurred attorney’s and consultant’s fees and expenses) arising out of,
relating to or resulting from any Environmental Law or environmental, health or
safety matter or condition, including natural resources, and related in any way
to the Business, the Assets, the Membership Interests, the Subsidiary Interests,
the Companies or to this Agreement or its subject matter, in each case whether
arising or incurred before, at or after the Closing.

 

“Environmental Permits” means any permit, approval, identification number,
license and other authorization required under or issued pursuant to any
applicable Environmental Law.

 

“Financial Statements Date” means December 31, 2018.

 

“GAAP” means United States generally accepted accounting principles and
practices in effect for the year ended and as of December 31, 2018.

 

“Governmental Authority” means any foreign, federal, national, supranational,
state, local or other government, governmental, regulatory or administrative
authority, agency, board, bureau, agency, instrumentality or commission or any
court, tribunal, or judicial or arbitral body.

 

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

 

“Indebtedness” means, with respect to any Person, all Liabilities in respect of:
(a) borrowed money; (b) indebtedness evidenced by bonds, notes, debentures or
similar instruments; (c) capitalized lease obligations (excluding any leases for
normal and customary office equipment); (d) the deferred purchase price of
assets, services or securities (other than ordinary trade accounts payable); (e)
conditional sale or other title retention agreements; (f) the factoring or
discounting of accounts receivable; (g) swap or hedging agreements or
arrangements; (h) reimbursement obligations, whether contingent or matured, with
respect to letters of credit, bankers’ acceptances, bank overdrafts, surety
bonds, other financial guarantees and interest rate protection agreements
(without duplication of other indebtedness supported or guaranteed thereby); (i)
interest, premium, penalties and other amounts owing in respect of the items
described in the foregoing clauses (a) through (h) after giving effect to the
Closing; (j) all Indebtedness of the types referred to in clauses (a) through
(b) guaranteed in any manner by such Person, whether or not any of the foregoing
would appear on a consolidated balance sheet prepared in accordance with GAAP;
(k) any unfunded pension liabilities; (l) any so-called “change of control”
payments; and (m) simple agreements for future equity.

 

“Indemnified Party” means a Purchaser Indemnified Party or a Seller Indemnified
Party, as the case may be.

 

“Indemnifying Party” means the Sellers pursuant to Section 8.02 and the
Purchaser pursuant to Section 8.03, as the case may be.

 

 

 

 3 

 

 

“Intellectual Property” means all (a) patents and patent applications, (b)
registered and unregistered trademarks, service marks, trade names, trade dress
and registered domain names and domain name applications, together with the
goodwill associated exclusively therewith, (c) copyrights, including, without
limitation, copyrights in computer software, databases and websites, and (d)
confidential and proprietary information, including trade secrets, formulae,
inventions and know-how.

 

“IRS” means the Internal Revenue Service of the United States.

 

“IT Systems” means the hardware, software, communications networks, telephone
switchboards, microprocessors and firmware and other information technology
equipment that are owned or used by the Companies.

 

“Law” means any applicable foreign, federal, national, supranational, state,
local or similar statute, law, ordinance, regulation, rule, code, order,
requirement or rule of law (including common law) in effect as of the date of
this Agreement.

 

“Leased Real Property” means the Real Property leased or subleased by any of the
Companies, as tenant, together with, to the extent leased or subleased by the
Companies, and all fixtures, systems, equipment and items of personal property
of the Companies attached or appurtenant thereto used in connection with the
operation of the Business.

 

“Liabilities” means any and all debts, liabilities and obligations, whether
accrued or fixed, absolute or contingent, matured or unmatured or determined or
determinable, including those arising under any Law, Action or Governmental
Order and those arising under any contract, agreement, arrangement, commitment
or other undertaking.

 

“Material Adverse Effect” means any circumstance, change in or effect on the
Companies that is materially adverse to the results of operations or the
financial condition of the Companies, taken as a whole; provided, however, that
none of the following constitute, or will be considered in determining whether a
Material Adverse Effect has occurred: (i) changes that are the result of factors
generally affecting the industries or markets in which the Companies operate;
(ii) (A) changes in laws, rules, regulations, ordinances, policies, mandates,
guidelines or any other requirements of any Governmental Authority or (B)
changes in GAAP or the interpretation thereof; (iii) any action taken at the
written request of Purchaser; and (iv) changes that are the result of economic
factors affecting the national, regional or world economy or financial markets
or acts of war or terrorism.

 

“Permitted Encumbrances” means (a) statutory liens for current Taxes not yet due
or delinquent (or which may be paid without interest or penalties) or the
validity or amount of which is being contested in good faith by appropriate
proceedings and (b) mechanics’, carriers’, workers’, repairers’ and other
similar liens arising or incurred in the ordinary course of business relating to
obligations as to which there is no default on the part of the Companies or the
validity or amount of which is being contested in good faith by appropriate
proceedings, or pledges, deposits or other liens securing the performance of
bids, trade contracts, leases or statutory obligations (including workers’
compensation, unemployment insurance or other social security legislation).

 

 

 

 4 

 

 

“Person” means any individual, partnership, firm, corporation, limited liability
company, joint venture, limited public company, limited liability partnership,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Securities Exchange Act.

 

“Real Property” means all land, buildings, improvements and fixtures erected
thereon and all appurtenances related thereto.

 

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

 

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

 

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

 

“Sellers’ Knowledge” or “Knowledge of the Sellers” (or similar terms used in
this Agreement) means (a) all facts actually known by Carlos Frias, Daniel
Nguyen, Alex Frias and Chris Fagan as of the date hereof and (b) all facts that
Carlos Frias, Daniel Nguyen and Alex Frias should have known with respect to the
matters at hand if such person had exercised reasonable diligence with respect
to such matters; provided, however, that no additional funds shall be required
to have been expended by any such person beyond amounts already incurred as of
the date hereof in order to establish reasonable diligence.

 

“Subsidiaries” means the subsidiaries of the Company listed in Section 1.01(c)
of the Disclosure Schedule.

 

“Tax” or “Taxes” mean all federal, state, county, local, foreign and other taxes
of any kind whatsoever (including, without limitation, income, profits, premium,
estimated, excise, sales, use, occupancy, gross receipts, franchise, ad valorem,
severance, capital levy, production, transfer, license, stamp, environmental,
withholding, employment, unemployment compensation, payroll related and property
taxes, import duties and other governmental charges or assessments), whether or
not measured in whole or in part by net income, and including deficiencies,
interest, additions to tax or interest, and penalties with respect thereto, and
including expenses associated with contesting any proposed adjustment related to
any of the foregoing.

 

“Tax Returns” means any and all statements, returns, reports and forms
(including elections, declarations, claims for refund, amendments, schedules,
information returns or attachments thereto) filed or required to be filed with a
Governmental Authority with respect to Taxes.

 

Section 1.02  Definitions. The following terms have the meanings set forth in
the Sections set forth below:

 

 

 

 5 

 

 

Definition   Location       “2017 Financial Statements”   3.06 “2018 Financial
Statements”   3.06 “2019 Interim Financial Statements”   2.04(e) “A. Frias”  
Preamble “Agreement”   Preamble “Anti-Terrorism Laws”   3.26(b) “B&B”   Recitals
“Benefit Plans”   6.01 “C. Frias”   Preamble “Closing”   2.03 “Closing Date”  
2.03 “COBRA”   3.14(h) “Common Stock”   4.03(a) “Company”   Recitals “Companies”
  Recitals “Company Employees”   6.01 “Company Permits”   3.10(b) “Confidential
Information”   5.03(a) “Company Intellectual Property”   3.12 “Deductible”  
8.04 “Designated Person”   3.26(b) “Equity Consideration   2.02(a) “ERISA”  
3.14(a) “Executive Orders”   3.26(a) “Fagan”   Preamble “Fundamental
Representations”   8.01 “Intended Tax Treatment”   5.12(f) “IP Licensee”   3.12
“IP Owner”   3.12 “Licensed Intellectual Property”   3.12 “Lists”   3.26(b)
“Loss”   8.02 “Material Contract”   3.16(a) “Membership Interests”   Recitals
“Nguyen”   Preamble “OFAC”   3.26(b) “OFAC Laws and Regulations”   3.26(b)
“Other Lists”   3.26(b) “Patriot Act”   3.26(a) “Plans”   3.14(a) “Post-Closing
Period”   5.12(c) “Post-Closing Straddle Period”   5.12(a) “Pre-Closing Period”
  5.12(c) “Pre-Closing Straddle Period”   5.12(a) “Pre-Closing Tax Return”  
5.12(a)

 

 

 

 6 

 

 

“Preferred Stock”   4.03(a) “Pro Rata Portion”   2.02(b) “Proceeding”   5.12(b)
“Products”   3.30 “Prohibited Person”   3.26(b) “Purchase Price”   2.02(a)
“Purchase Price Allocation Schedule”   5.12(g) “Purchaser”   Preamble “Purchaser
Indemnified Party”   8.02 “Purchaser Representatives”   5.02 “SDN List”  
3.26(b) “SEC Reports”   4.06 “Sellers”   Preamble “Seller Indemnified Party”  
8.03 “Sellers’ Representative”   5.12(b) “Straddle Periods”   5.12(a) “Straddle
Return”   5.12(a) “Subsidiaries”   Recitals “Subsidiary Interests”   Recitals
“Tax Claim”   5.12(b) “Terrorism Executive Order”   3.26(a) “Third Party Claim”
  8.05(b) “TWC”   Recitals “WARN”   3.14(g)

 

Section 1.03  Interpretation and Rules of Construction. In this Agreement,
except to the extent otherwise provided or that the context otherwise requires:

 

(a)               when a reference is made in this Agreement to an Article,
Section, Exhibit or Schedule, such reference is to an Article or Section of, or
an Exhibit or Schedule to, this Agreement unless otherwise indicated;

 

(b)               the table of contents and headings for this Agreement are for
reference purposes only and do not affect in any way the meaning or
interpretation of this Agreement;

 

(c)               whenever the words “include,” “includes” or “including” are
used in this Agreement, they are deemed to be followed by the words “without
limitation” whether or not they are in fact followed by such word or words of
similar import;

 

(d)               the words “hereof,” “herein” and “hereunder” and words of
similar import, when used in this Agreement, refer to this Agreement as a whole
and not to any particular provision of this Agreement;

 

 

 

 7 

 

 

(e)               all terms defined in this Agreement have the defined meanings
when used in any certificate or other document made or delivered pursuant
hereto, unless otherwise defined therein;

 

(f)                the definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms;

 

(g)               references to a Person are also to its successors and
permitted assigns;

 

(h)               the use of “or” is not intended to be exclusive unless
expressly indicated otherwise;

 

(i)                 references to “day” or “days” are to calendar days;

 

(j)                 whenever used herein, the singular number shall include the
plural, the plural shall include the singular, and the use of any gender shall
be applicable to all genders; and

 

(k)               any reference in this Agreement to “writing” or comparable
expressions includes a reference to facsimile transmission or comparable
electronic (including e-mail) means of communication.

 

Article II
PURCHASE AND SALE

 

Section 2.01 Contribution, Purchase and Sale of the Membership Interests. Upon
the terms and subject to the conditions of this Agreement, at the Closing, the
Sellers shall sell, assign, transfer and deliver to the Purchaser all of the
Membership Interests, and the Purchaser shall purchase from the Sellers, all of
the Membership Interests free and clear of all Encumbrances.

 

Section 2.02  Purchase Price.

 

(a)               The purchase price to be paid in consideration for all of the
Membership Interests shall be an aggregate amount equal to Fourteen Million
Dollars ($14,000,000) (the “Purchase Price”), which shall consist of that number
of shares of Common Stock that equals the Purchase Price as calculated based on
the Common Stock Value (the “Equity Consideration”). The Equity Consideration
will be issued to the Sellers at the Closing in consideration of the sale of the
Membership Interests to the Purchaser by the Sellers.

 

(b)               The Purchase Price will be payable ratably to the Sellers in
accordance with their direct ownership percentage of the Company immediately
prior to the Closing, with each percentage amount being such Seller’s “Pro Rata
Portion”, in each case as specified in Exhibit A. Stock Certificates in the form
of Exhibit C representing each Seller’s Pro Rata Portion of the Equity
Consideration shall be issued by the Purchaser to each Seller on the Closing
Date.

 

 

 

 

 8 

 

 

Section 2.03 Closing. Upon the terms of this Agreement and subject to the
satisfaction or waiver of the conditions of this Agreement, the sale and
purchase of the Membership Interests contemplated by this Agreement shall take
place at a Closing to be held at the offices of Kleinberg, Kaplan, Wolff &
Cohen, P.C., 551 Fifth Avenue, New York, NY 10176, not earlier than 10:00 a.m.
(New York City time) on the first (1st) Business Day after the satisfaction or
waiver of the conditions to the obligations of the parties hereto set forth in
Section 7.01 and Section 7.02 or at such other place or at such other time or on
such other date as the Sellers and the Purchaser may mutually agree upon (the
“Closing”). The date upon which the Closing occurs is referred to as the
“Closing Date.

 

Section 2.04  Closing Deliveries by the Sellers. At or prior to the Closing, the
Sellers shall deliver or cause to be delivered to the Purchaser:

 

(a)               a duly executed Assignment of Membership Interests to
Purchaser in the form attached hereto as Exhibit B, evidencing the transfer of
the Membership Interests to the Purchaser;

 

(b)               executed counterparts of employment agreements with each of
Carlos Frias, Daniel Nguyen and Alex Frias providing for their employment by the
Purchaser as of the Closing Date;

 

(c)               executed counterparts of all Ancillary Agreements as executed
by the Sellers or any of the appropriate Companies;

 

(d)               a written resignation of each of the Sellers from such
Person’s role as an officer, director, manager or employee of each of the
Companies;

 

(e)               preliminary unaudited consolidated pro forma balance sheets
and income statements for each of the Companies as of and for the period from
January 1, 2019 to March 31, 2019 (the “2019 Interim Financial Statements”);

 

(f)                a true and complete copy, certified by a duly authorized
officer of the Company, of the resolutions duly and validly adopted by the
members of the board of managers of the Company evidencing its authorization of
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby;

 

(g)               a certificate of a duly authorized officer of the Company
certifying the names and signatures of the officer of the Company authorized to
sign this Agreement and any Ancillary Agreements;

 

(h)               a certificate of the Sellers certifying as to the matters set
forth in Section 7.02(a) as of the Closing Date;

 

(i)                a certificate signed by each Seller, or, if applicable, an
officer or partner of such Seller in the form prescribed by Treasury Regulation
Section 1.1445-2(b)(2), to the effect that such Seller is not a “foreign person”
as that term is defined in Section 1445(f)(3) of Code, in order to avoid the
imposition of the withholding tax payment pursuant to Section 1445 or Section
1446(f) of the Code;

 

 

 

 9 

 

 

(j)                all minute books with organizational documents of the
Companies, including, without limitation, limited liability company agreements,
operating agreements, partnership agreements, and management agreements;

 

(k)               all books, records, financial statements, general ledgers,
employee benefits plan documents, leases, real property management agreements,
construction management agreements, leasing and real estate brokerage services
agreements, files, statements, Tax Returns, market studies, plans,
specifications, reports, tests and other materials of any kind owned by or in
the possession of any Seller or any of the Companies which are used by any of
the Companies in the conduct or operation of the Business; and

 

(l)                 good standing certificates from each jurisdiction in which
the Companies are organized and such other jurisdictions in which the Companies
are qualified to conduct business and for which Sellers have received good
standing certificates.

 

Notwithstanding any provision of this Agreement to the contrary, to the extent
that Sellers find it necessary or desirable to substitute a duly-authorized
corporate resolution or proxy signature for any required signature of a Member,
Manager or officer of ECS Labs LLC, and such duly-authorized proxy signature or
resolution shall have the same force and effect as any approval, consent or
original signature of a Member, Manager or Officer that Sellers are required to
provide under this Agreement.

 

Section 2.05  Closing Deliveries by the Purchaser. At the Closing, the Purchaser
shall deliver or cause to be delivered to the Sellers:

 

(a)               stock certificates representing the Equity Consideration
allocated among the Sellers as set forth on Exhibit A hereto;

 

(b)               executed counterparts of any Ancillary Agreements as executed
by the Purchaser;

 

(c)               a true and complete copy, certified by a duly authorized
officer of the Purchaser, of the resolutions duly and validly adopted by the
board of directors of the Purchaser evidencing its authorization of the
execution and delivery of this Agreement and the Ancillary Agreements to which
it is a party and the consummation of the transactions contemplated hereby and
thereby;

 

(d)               a certificate of a duly authorized officer of the Purchaser
certifying the names and signatures of the officer of the Purchaser authorized
to sign this Agreement and the Ancillary Agreements and the other documents to
be delivered hereunder and thereunder; and

 

(e)               a certificate of a duly authorized officer of the Purchaser
certifying as to the matters set forth in Section 7.01(a) as of the Closing
Date.

 

 

 

 10 

 

 

Section 2.06 Withholding. The Purchaser and the Companies shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement such amounts as it is required to deduct and withhold with respect to
such payment under all applicable federal, state, local or foreign Tax Laws. Any
amounts so deducted and withheld shall be paid over to the appropriate
Governmental Body and shall be treated for all purposes of this Agreement as
having been paid to the Person in respect of which such deduction or withholding
was made.

 

Article III
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS

 

Each of the Sellers hereby, severally and not jointly, represents and warrants
to the Purchaser, as of the date hereof or, if a representation or warranty is
made as of a specified date, as of such date, as follows:

 

Section 3.01  Authority and Qualification of the Sellers; Organization,
Authority and Qualification of the Company.

 

(a)               The Sellers are each natural persons, at least eighteen (18)
years old and fully competent under all applicable Laws to enter into, be
legally bound by and perform contracts in their own names, including to carry
out their obligations hereunder and to consummate the transactions contemplated
hereby. This Agreement and each applicable Ancillary Agreement has been, and
upon its execution and the execution of the applicable Ancillary Agreements
shall be, duly executed and delivered by each Seller, and (assuming due
authorization, execution and delivery by the other parties thereto) this
Agreement constitutes, and upon its execution each of the applicable Ancillary
Agreements shall constitute, a legal, valid and binding obligation of each
Seller, enforceable against such Seller in accordance with its respective terms.

 

(b)               Section 3.01(b) of the Disclosure Schedule sets forth a true
and complete list of all of the authorized membership or other ownership
interests of the Company and the holders thereof. The Company (i) is duly
organized and validly existing as a limited liability company and is in good
standing under the laws of its jurisdiction of organization, (ii) has all
necessary power and authority to own, operate or lease the properties and assets
owned, operated or leased by such company and to carry on its business as it has
been and is currently conducted by such company and (iii) is duly licensed or
qualified to do business and is in good standing in each jurisdiction set forth
in Section 3.01(b) of the Disclosure Schedule. In addition, the Company does not
owe any franchise, property or other similar entity level taxes in any
jurisdiction in which the Company conducts any business.

 

Section 3.02  Subsidiaries.

 

(a)               Section 3.02(a) of the Disclosure Schedule sets forth a true
and complete list of all Subsidiaries of the Companies, the authorized capital
stock or other ownership interests of each Subsidiary and the holders thereof.
Other than the Subsidiaries, there are no other corporations, partnerships,
limited liability companies, joint ventures, associations or other entities in
which the Companies own, of record or beneficially, any direct or indirect
equity or other interest or any right (contingent or otherwise) to acquire the
same. Other than the Subsidiaries, none of the Companies is a member of (nor is
any part of the Business conducted through) any partnership, joint venture or
similar arrangement nor are any of the Companies a participant in any
partnership, joint venture or similar arrangement.

 

 

 

 

 11 

 

 

(b)               Each of the Subsidiaries (i) is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, (ii) has all necessary power and authority to own, operate or
lease the properties and assets owned, operated or leased by such Subsidiary and
to carry on its business as it has been and is currently conducted by such
Subsidiary and (iii) is duly licensed or qualified to do business and is in good
standing in each jurisdiction set forth in Section 3.02(a) of the Disclosure
Schedule.

 

Section 3.03  Ownership of the Membership Interests and Subsidiaries.

 

(a)               As of the date hereof, the Sellers have good and marketable
title to, and are the lawful record and beneficial owners of, 100% of the
Membership Interests, free and clear of all Encumbrances, and the Membership
Interests represent all of the beneficial, voting, management, contingent,
economic interest and other right, title and interest in and to the Company.

 

(b)               With respect to the Membership Interests and other than as set
forth on Section 3.03(b) of the Disclosure Schedule, there are no (i)
outstanding ownership interests in the Company other than the Membership
Interests owned and held by the Sellers, (ii) securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which the Sellers or their respective affiliates is a party or by which any
of the foregoing is bound, which obligate the Sellers or their respective
affiliates to issue, create, deliver and/or provide additional ownership
interests in the Companies or (iii) arrangements or undertakings which obligate
the Sellers or their respective affiliates to issue, grant, extend or enter into
any security, option, warrant, call, right, commitment, agreement, arrangement
or other undertaking with respect to the Companies or the Membership Interests.
No person or entity has any voting or management rights with respect to the
Companies other than the Sellers as set forth in and subject to the Companies’
organizational documents.

 

(c)               Other than as set forth on Section 3.03(c) of the Disclosure
Schedule, the Company owns, free and clear of all Encumbrances, directly or
indirectly, of, and have sole voting and dispositive power with respect to, all
of the ownership interests of each of the Subsidiaries, and there are no (i)
outstanding ownership interests in any Subsidiary other than the ownership
interests owned and held by the Company, (ii) securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which the Company is a party or by which any of the foregoing is bound, which
obligate the Company to issue, create, deliver and/or provide additional
ownership interests in any Subsidiary or (iii) arrangements or undertakings
which obligate the Company to issue, grant, extend or enter into any security,
option, warrant, call, right, commitment, agreement, arrangement or other
undertaking with respect to any Subsidiary. No person or entity has any voting
or management rights with respect to the Subsidiaries other than the Company as
set forth in and subject to the Subsidiaries’ organizational documents.

 

 

 

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Section 3.04  No Conflict. Assuming that all consents, approvals, authorizations
and other actions described in Section 3.05 have been obtained, all filings and
notifications listed in Section 3.05 of the Disclosure Schedule have been made
and except as may result from any facts or circumstances relating solely to the
Purchaser, the execution, delivery and performance of this Agreement and the
Ancillary Agreements by the Sellers do not and will not (a) violate, conflict
with or result in the breach of the certificate of organization or company
agreement, operating agreement, shareholder agreement, partnership agreement, or
management agreement (or similar organizational documents) of the Sellers or the
Companies, (b) conflict with or violate, in any material respect, any Law or
Governmental Order applicable to the Sellers or the Companies, and (c) except as
set forth in Section 3.04 of the Disclosure Schedule, violate, conflict with,
result in any breach of, constitute a default (or event which with the giving of
notice or lapse of time, or both, would become a default) under, require any
consent under, or give others rights of termination, modification, acceleration
or cancellation of, any note, bond, mortgage or indenture, contract, agreement,
lease, sublease, license, permit, franchise or other instrument or arrangement
to which any of the Sellers or the Companies is a party.

 

Section 3.05  Governmental Consents and Approvals. Except as set forth in
Section 3.05 of the Disclosure Schedule, the execution, delivery and performance
of this Agreement and the Ancillary Agreements by the Sellers and the
consummation of the transactions contemplated hereby and thereby do not and will
not require any material consent, approval, permit, authorization or other order
of, action by, filing with or notification to, any Governmental Authority,
except as may be necessary as a result of any facts or circumstances relating
solely to the Purchaser or any of its Affiliates.

 

Section 3.06  Financial Information. The Sellers have heretofore furnished the
Purchaser with true and complete copies of the unaudited consolidated financial
statements as of and for the fiscal year ended December 31, 2017 for each of the
Companies (the “2017 Financial Statements”). Section 3.06 of the Disclosure
Schedules sets forth preliminary unaudited consolidated pro forma balance sheets
and income statements for each of the Companies as of and for the fiscal year
ended as of December 31, 2018 (the “2018 Financial Statements” and together with
the 2017 Financial Statements and the 2019 Interim Financial Statements, the
“Financial Statements”). The 2017 Financial Statements present fairly, in all
material respects, the financial condition of the Companies as of such dates and
the results of operations for the Companies as of the dates thereof or the
periods covered thereby. The 2018 Financial Statements present fairly, in all
material respects, the financial condition of the Companies as of such dates and
the results of operations for the Companies as of the dates thereof or the
periods covered thereby, subject to normal year-end adjustments and the absence
of footnotes that would be required under generally accepted accounting
principles. The 2019 Interim Financial Statements shall be prepared in
accordance with the books and records of the Companies and present fairly, in
all material respects, the financial condition of the Companies as of such dates
and the results of operations for the Companies as of the dates thereof or the
periods covered thereby.

 

 

 

 13 

 

 

Section 3.07  Absence of Undisclosed Liabilities. To the Sellers’ Knowledge,
there are no Liabilities of the Companies of any nature required to be reflected
on a balance sheet prepared in accordance with GAAP or disclosed in a footnote
thereto, other than Liabilities (a) reflected on or reserved against on the 2018
Financial Statements, (b) set forth in the Disclosure Schedules, (c) incurred
since the Financial Statements Date in the ordinary course of business
consistent with past practices and which would not have a Material Adverse
Effect.

 

Section 3.08  Conduct in the Ordinary Course. Since the Financial Statements
Date, the Business has been conducted in the ordinary course and there has not
occurred any Material Adverse Effect and none of the Companies has taken any
action (or failed to take any action) that, if taken after the date hereof, to
the Sellers’ Knowledge, would constitute a violation of Section 5.01.

 

Section 3.09  Litigation. Except as set forth in Section 3.09 of the Disclosure
Schedule, as of May 21, 2019 (such Section 3.09 of the Disclosure Schedule to be
updated five (5) Business Days prior to the Closing Date), there is no Action by
or against any of the Companies or the Business pending before any Governmental
Authority, or, to the Sellers’ Knowledge, threatened against any of the
Companies or the Business.

 

Section 3.10  Compliance with Laws; Permits.

 

(a)               Except as set forth in Section 3.10(a) of the Disclosure
Schedule and as would not (i) adversely affect the ability of the Sellers to
carry out their obligations under, and to consummate the transactions
contemplated by, this Agreement or (ii) otherwise have a Material Adverse
Effect, each of the Companies has conducted the Business in accordance with all
applicable Laws and Governmental Orders and none of the Companies are in
violation of any such Law or Governmental Order.

 

(b)               Schedule 3.10(b) of the Disclosure Schedule sets forth all
franchises, permits, licenses and/or any similar authority necessary for the
conduct of the Business, the lack of which could reasonably be expected to have
a Material Adverse Effect (the “Company Permits”). None of the Companies is in
default in any material respect under any such Company Permit.

 

Section 3.11     Environmental Matters. Except as disclosed in Section 3.11 of
the Disclosure Schedule or as would not have a Material Adverse Effect, (i) each
of the Companies is in compliance with all applicable Environmental Laws and has
obtained and is in compliance with all Environmental Permits, (ii) there are no
claims pursuant to any Environmental Law pending or, to the Sellers’ Knowledge,
threatened in writing, against the Companies, and (iii) the Sellers have
provided the Purchaser with copies of any and all (A) environmental reports
submitted to any Governmental Authority, (B) any orders, directives or no
further action letters received from any Governmental Authority relating to any
Environmental Laws, and (C) any environmental assessment or audit reports or
other similar studies or analyses generated within the last three (3) years and
in the possession or control of the Sellers or the Companies that relate to the
Business.

 

 

 

 14 

 

 

Section 3.12     Intellectual Property. Except as set forth on Section 3.12 of
the Disclosure Schedule (a) to the Sellers’ Knowledge, the conduct of the
Business as currently conducted does not infringe upon or misappropriate the
Intellectual Property rights of any third party, and no claim has been asserted
to the Sellers or the Companies that the conduct of the Business as currently
conducted infringes upon or may infringe upon or misappropriates the
Intellectual Property rights of any third party; (b) with respect to each item
of Intellectual Property owned by the Companies (each, an “IP Owner”) which is
material to the Business as currently conducted and is identified in Section
3.12 of the Disclosure Schedule (the “Company Intellectual Property”), the IP
Owner is the owner of the entire right, title and interest in and to such
Company Intellectual Property and is entitled to use such Company Intellectual
Property in the continued operation of the Business; (c) with respect to each
item of Intellectual Property licensed to any of the Companies (each, an “IP
Licensee”) that is material to the Business as currently conducted (“Licensed
Intellectual Property”), and is identified in Section 3.12 of the Disclosure
Schedule, the IP Licensee has the right to use such Licensed Intellectual
Property in the continued operation of the Business in accordance with the terms
of the license agreement governing such Licensed Intellectual Property; (d) the
Company Intellectual Property is valid and enforceable, and has not been
adjudged invalid or unenforceable in whole or in part; (e) to the Sellers’
Knowledge, no person is engaging in any activity that infringes upon the Company
Intellectual Property except as identified in Section 3.09 of the Disclosure
Schedule; (f) to the Sellers’ Knowledge, each license of the Licensed
Intellectual Property is valid and enforceable, is binding on all parties to
such license, and is in full force and effect; (g) Sellers are not in breach of,
or default under, any license of the Licensed Intellectual Property and have not
received written notice of any breach or default thereof; (h) to the Sellers’
Knowledge, no licensor of any license of the Licensed Intellectual Property is
in breach thereof or default thereunder; and (i) neither the execution of this
Agreement nor the consummation of any transaction shall adversely affect any of
the Companies’ rights with respect to the Company Intellectual Property or the
Licensed Intellectual Property.

 

Section 3.13     Owned and Leased Real Property.

 

(a)      None of the Companies owns any Real Property.

 

(b)      Section 3.13(b) of the Disclosure Schedule lists the street address of
each parcel of Leased Real Property and the identity of the lessor, lessee and
current occupant (if different from lessee) of each such parcel of Leased Real
Property. Except as described in Section 3.13(b) of the Disclosure Schedule, (i)
the Sellers have delivered to the Purchaser true and complete copies of the
leases in effect at the date hereof relating to the Leased Real Property, (ii)
Sellers have received no written notice of a breach or default of any such lease
(which have not been cured), and (iii) there has not been any sublease or
assignment entered into by the Companies in respect of the leases relating to
the Leased Real Property. Other than as set forth on Section 3.13(b) of the
Disclosure Schedule, there has been no breach or default of any lease identified
in Section 3.13(b) of the Disclosure Schedule.

 

 

 

 15 

 

 

Section 3.14  Employee Benefit Matters.

 

(a)               Section 3.14(a) of the Disclosure Schedule lists (i) all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”)) and all bonus, stock option,
stock purchase, restricted stock, incentive, deferred compensation, retiree
medical or life insurance, supplemental retirement, severance or other benefit
plans, programs or arrangements, and all employment, termination, severance or
other contracts or agreements, to which the Companies are a party, have any
liability, contingent or otherwise, have any obligation or which are maintained,
contributed to or sponsored by the any of the Companies for the benefit of any
current or former employee, officer or director of any of the Companies, (ii)
each employee benefit plan for which any of the Companies could incur liability
under Section 4069 of ERISA in the event such plan has been or were to be
terminated, (iii) any plan in respect of which any of the Companies could incur
liability under Section 4212(c) of ERISA and (iv) any contracts, arrangements or
understandings between the any of the Companies and any of their employees
(collectively, the “Plans”). The Sellers have made available to the Purchaser a
true and complete copy of each Plan and all amendments, summary plan
descriptions, and each summary of material modifications and the most recent IRS
determination letter relating thereto. None of the Companies have taken action,
or have any express or implied commitment to take action (i) to create, or incur
any material liability with respect to or cause to exist any other material
employee benefit plan, program or arrangements (ii) to enter into any material
contract or agreement to provide compensation or benefits to any officer or
director, or (iii) to modify, change or terminate any Plan in any material
respect, other than with respect to a modification, change or termination
required by ERISA or the Code.

 

(b)               Each Plan has been operated in all material respects in
accordance with its terms and the requirements of all applicable Laws. Each of
the Companies has performed all material obligations required to be performed by
it under, is not in any material respect in default under or in material
violation of, and the Sellers have no Knowledge of any material default or
violation by any party to, any Plan. No Action is pending or, to the Sellers’
Knowledge, threatened with respect to any Plan (other than claims for benefits
in the ordinary course) and, to the Sellers’ Knowledge, no fact or event exists
that could give rise to any such Action.

 

(c)               Except as set forth on Section 3.14(a) of the Disclosure
Schedule, none of the Companies have ever maintained or contributed to a defined
benefit pension plan subject to the provisions of Title IV of ERISA. None of the
Companies have incurred any liability under, arising out of or by operation of
Title IV of ERISA (other than liability for premiums of the Pension Benefit
Guaranty Corporation arising in the ordinary course), including, without
limitation, any liability in connection with (i) the termination or
reorganization of any employee benefit plan subject to Title IV of ERISA or (ii)
the withdrawal from any multiemployer plan within the meaning of Section 3 (37)
or 4001 (a)(3) of ERISA, or from any single employer plan (within the meaning of
Section 4001 (a)(15) of ERISA) for which any of such entities could incur
liability under section 4063 or 4064 of ERISA. None of the transactions
contemplated by this Agreement shall give rise to a complete or partial
withdrawal within the meaning of Section 4203 and 4205 of ERISA, respectively.

 

 

 

 16 

 

 

(d)               Each Plan that is intended to be qualified under Section
401(a) of the Code or Section 401(k) of the Code has timely received a favorable
determination letter from the IRS covering all of the provisions applicable to
the Plan for which determination letters are currently available that the Plan
is so qualified and each trust established in connection with any Plan which is
intended to be exempt from federal income taxation under Section 501(a) of the
Code has received a determination letter from the IRS that it is so exempt, and
no fact or event has occurred since the date of such determination letter or
letters from the IRS to adversely affect the qualified status of any such Plan
or the exempt status of any such trust.

 

(e)               None of the Companies has ever maintained a retiree medical
program for their employees or former employees.

 

(f)                No Plan provides that any director or officer or other
employee of any of the Companies will become entitled to any retirement,
severance or similar benefit or enhanced or accelerated benefit solely as a
result of the transactions contemplated hereby or as the result of any
termination of employment in connection with such transactions; and such
transactions will not result in the payment of any “excess parachute payment”
within the meaning of Section 280G of the Code.

 

(g)               The Companies are each in compliance with the requirements of
the Workers Adjustment and Retraining Notification Act (“WARN”) and have no
liabilities pursuant to WARN.

 

(h)               Each Plan that is an employee welfare benefit plan complies
and has complied with the continuation coverage (“COBRA”) requirements of
Section 4980B of the Code to the extent such Section is applicable to such Plan.

 

Section 3.15  Taxes. Except as set forth on Section 3.15 of the Disclosure
Schedule:

 

(a)               Each of the Companies has timely filed, or has caused to be
timely filed on its behalf, all Tax Returns required to be filed by it, and all
such Tax Returns are true, complete and accurate in all material respects. All
Taxes shown to be due on such Tax Returns, or otherwise owed, have been timely
paid. Where payment is not yet due, the Seller has established an adequate
accrual for the payment of all Taxes on the Financial Statements. Each of the
Companies has withheld or collected and has paid over to the appropriate taxing
authority (or is properly holding for payment to such taxing authority) all
Taxes required by law to be withheld or collected. None of the Companies owes
any franchise, property, or other similar entity level taxes in any jurisdiction
in which such Company conducts business.

 

(b)               No Tax Return of the Companies has been examined or audited by
any taxing authority or is currently being examined or audited by any taxing
authority or is the subject of a pending examination. All assessments for Taxes
due with respect to any completed or settled examinations or any concluded
litigation relating to such Tax Returns have been fully paid. None of the
Companies has entered into or has been the subject of a closing agreement with
any taxing authority with respect to Taxes. The Companies have complied with all
applicable Laws relating to the payment and withholding of Taxes, and has duly
withheld and paid to the proper Taxing Authority all amounts required to be
withheld and paid over.

 

 

 

 17 

 

 

(c)               There are no liens for Taxes (other than for current Taxes not
yet due and payable) on the assets of the Companies. None of the Companies is
bound by or subject to any tax sharing, allocation or similar agreement or any
indemnification or reimbursement agreement with respect to Taxes.

 

(d)               Each of the Companies has at all times been classified and
treated as a partnership or disregarded entity and not as an association taxable
as a corporation for federal income tax purposes in each state and local
jurisdiction in which it files Tax Returns.

 

(e)               None of the Companies is subject to any private letter ruling
of the IRS or comparable rulings of another taxing authority.

 

(f)                None of the Sellers is a foreign person within the meaning of
Section 1445 of the Code or any other laws requiring withholding of amounts paid
to foreign persons.

 

(g)               Copies of (i) any Tax examinations, (ii) extensions of
statutory limitations for the collection or assessment of Taxes, and (iii) the
Tax Returns of the Companies for the last three (3) fiscal years have been made
available to Purchaser. The Companies are not, nor have been at any time, a
party to, bound by, or subject to any obligation under a Tax sharing, Tax
indemnity or Tax allocation contract or similar agreement, and has not assumed
any Tax Liability of any other Person under any contract.

 

(h)               No agreement or waiver extending any statute of limitations on
or extending the period for the assessment or collection of any Tax has been
executed or filed on behalf of or with respect to any of the Companies. No power
of attorney on behalf of the Companies with respect to any Tax matter is
currently in place.

 

(i)                 None of the Companies (i) has “participated” in a
“reportable transaction” or “listed transaction” within the meaning of Treasury
Regulations Section 1.6011-4 or (ii) has taken any reporting position on a Tax
Return, which reporting position (1) if not sustained, would be reasonably
likely, absent disclosure, to give rise to a penalty for substantial
understatement of U.S. federal income Tax under Section 6662 of the Code (or any
predecessor statute or any corresponding provision of any such statute or state,
local or foreign Tax law), and (2) has not adequately been disclosed on such Tax
Return in accordance with Section 6662(d)(2)(B) of the Code (or corresponding
provision of any such predecessor statute or state, local or foreign Tax law).

 

(j)                 None of the Companies or any other Person on behalf of and
with respect to any of the Companies has (i) agreed to or is required to make
any adjustments pursuant to Section 481(a) of the Code or any similar provision
of state, local or foreign law by reason of a change in accounting method
initiated by the Companies, and, to the Sellers’ Knowledge, the IRS has not
proposed any such adjustment or change in accounting method, or (ii) any
application pending with any taxing authority requesting permission for any
change in accounting method that relates to the business or operations of the
Companies or (iii) executed or entered into a closing agreement pursuant to
Section 7121 of the Code or any predecessor provision thereof or any similar
provision of state, local or foreign law with respect to the Companies; and

 

 

 

 18 

 

 

(k)               None of the Companies is or has been a member of a
consolidated, combined or unitary group for which such Company or Subsidiary is
or may be liable pursuant to Treasury Regulations Section 1.1502-6(a) or any
analogous or similar state, local or foreign law or regulation.

 

Section 3.16  Contracts.

 

(a)               Section 3.16(a) of the Disclosure Schedule contains a true and
complete list of each of the following contracts and agreements of the Companies
(such contracts and agreements being “Material Contracts”):

 

(i)               all contracts, understandings, agreements, instruments, or
proposed transactions to which any of the Companies is a party which involve
obligations (contingent or otherwise) of, or payments to, the Company or a
Subsidiary or any Affiliate of the Companies in excess of $20,000;

 

(ii)              all contracts and agreements relating to Indebtedness for
borrowed money, including all capital leases;

 

(iii)             all contracts and agreements to which any of the Companies is
a party which involve restrictive covenants regarding circumvention,
solicitation, or that limit or purport to limit the ability of any of the
Companies to compete in any line of business or with any Person or in any
geographic area or during any period of time;

 

(iv)             all other contracts and agreements that are material to the
Business apart from at-will employment agreements; and

 

(v)             all written contracts, agreements and obligations between or
among any of Carlos Frias, Daniel Nguyen, Alex Frias, Chis Fagan, the Companies
and any of their respective Affiliates.

 

(b)               Except as disclosed in Section 3.16(b) of the Disclosure
Schedule, each Material Contract (i) was entered into in the ordinary course of
business and (ii) is valid and binding on the Companies, as the case may be,
and, to the Sellers’ Knowledge, the counterparties thereto, is in full force and
effect and (iii) upon consummation of the transactions contemplated by this
Agreement, except to the extent that any consents set forth in Section 3.04 of
the Disclosure Schedule are not obtained, shall continue in full force and
effect without penalty. Except as disclosed in Section 3.16(b) of the Disclosure
Schedule, none of the Companies or, to Sellers’ Knowledge, by any other party
thereto, are in breach of, or default under, any Material Contract, except for
such breaches or defaults that would not have a Material Adverse Effect. The
Companies and Subsidiaries are not restricted by any agreement from carrying on
the Business in any geographic location. There are no negotiations pending or in
progress to revise any Material Contract in any material respect, other than
change orders, changes in scope, or other changes in the ordinary course of
business with respect to construction management agreements.

 

 

 

 19 

 

 

(c)               The Sellers have provided the Purchaser with true, accurate
and complete copies of all Material Contracts.

 

Section 3.17  Securities Matters.

 

(a)               Each Seller has such knowledge and experience in financial and
business matters and such experience in evaluating and investing in companies
such as the Purchaser as to be capable of evaluating the merits and risks of an
investment in the Equity Consideration. Each Seller has the financial ability to
bear the economic risk of his investment in the Equity Consideration being
acquired hereunder, has adequate means for providing for his current needs and
contingencies and has no need for liquidity with respect to his investment in
the Equity Consideration.

 

(b)               Each Seller is acquiring the shares of Equity Consideration
hereunder for investment for such Seller’s own account, for investment purposes
only, and not with the view to, or for resale in connection with, any
distribution thereof; provided, however, that, except for any contractual
restrictions contained herein (including Section 5.10) or in any other contract
entered into with any Seller, such Seller does not by making the representations
herein agree to hold the Equity Consideration for any minimum or other specific
term and reserves the right to dispose of the Equity Consideration at any time
in accordance with or pursuant to an exemption from registration under the
Securities Act.

 

(c)               Each Seller is an “accredited investor” pursuant to Rule
501(a) of Regulation D under the Securities Act and has relied upon independent
investigations made by such Seller or such Seller’s representatives and is fully
familiar with the business, results of operations, financial condition,
prospects and other affairs of the Purchaser and realizes the shares of Equity
Consideration are a speculative investment involving a high degree of risk for
which there is no assurance of any return. Each Seller acknowledges that in
connection with the transactions contemplated hereby, neither the Purchaser nor
anyone acting on its behalf or any other Person has made, and such Seller is not
relying upon, any representations, statements or projections concerning the
Purchaser, its present or projected results of operations, financial condition,
prospects, present or future plans, acquisition plans, products and services, or
the value of the shares of Equity Consideration issued hereunder or the
Purchaser’s business or any other matter in relation to the Purchaser’s business
or affairs. Such Seller has had an opportunity to discuss the Purchaser’s
business, management, financial affairs and acquisition plans with its
management, to review the Purchaser’s facilities, and to obtain such additional
information concerning such Seller’s investment in the shares of Equity
Consideration in order for such Seller to evaluate its merits and risks, and
such Seller has determined that the shares of Equity Consideration are a
suitable investment for such Seller and that at this time such Seller could bear
a complete loss of his investment.

 

(d)               Each Seller is aware that no federal or state or other agency
has passed upon or made any finding or determination concerning the fairness of
the transactions contemplated by this Agreement or the adequacy of the
disclosure of the exhibits and schedules hereto and such Seller must forego the
security, if any, that such a review would provide.

 

 

 

 20 

 

 

(e)               Each Seller understands and acknowledges that neither the IRS
nor any other Tax authority has been asked to rule on the Tax consequences of
the transactions contemplated hereby or by the other agreements entered into in
connection herewith and, accordingly, in making his decision to acquire the
shares of Equity Consideration such Seller has relied upon the investigations of
such Seller’s own Tax and business advisors in addition to such Seller’s own
independent investigations, and that such Seller and such Seller’s advisors have
fully considered all the Tax consequences of such Seller’s acquisition of the
shares of Equity Consideration hereunder. The Sellers will be responsible for
the full amount of any federal or state and any other Tax liability for which
they may be responsible under applicable Tax law resulting from the consummation
of the transactions contemplated by this Agreement and will have no recourse
against the Purchaser, the Companies or any of their respective Affiliates for
any such Tax liability or for the Tax treatment of the transactions contemplated
by this Agreement under any federal, state or other applicable Tax Law.

 

(f)                No Seller has been offered the Equity Consideration by any
form of advertisement, article, notice, or other communication published in any
newspaper, magazine, or similar media or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any such media.

 

(g)               Each Seller understands that the transactions contemplated by
this Agreement involve substantial risk. Each Seller (i) is a sophisticated
investor with respect to the transactions contemplated by this Agreement, (ii)
has adequate information concerning the business and financial affairs of the
Purchaser to make an informed decision regarding the sale of the Membership
Interests pursuant to the terms and conditions of this Agreement, and (iii) has
independently and without reliance upon the Purchaser (except for any
information set forth in the SEC Reports (as defined below)), and based on such
information in the SEC Reports and such other information as Seller has deemed
appropriate, made its own analysis and decision to sell the Membership Interests
to the Purchaser pursuant to the terms and conditions of this Agreement.

 

(h)               Each Seller acknowledges and agrees that the Purchaser has not
given such Seller any investment advice, credit information or opinion on
whether the sale of the Membership Interests to the Purchaser pursuant to the
terms and subject to the conditions of this Agreement is prudent.

 

(i)                 Each Seller acknowledges and agrees that the Equity
Consideration acquired hereunder will be in book-entry form and will bear
legends or restrictive notations in substantially the following form:

 

 

 

 21 

 

 

THE COMMON STOCK REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION COMPLIES WITH THE PROVISIONS OF THAT CERTAIN MEMBERSHIP INTEREST
PURCHASE AGREEMENT BY AND AMONG MR. CARLOS FRIAS, MR. DANIEL NGUYEN, MR. ALEX
FRIAS, MR. CHRIS FAGAN AND FREEDOM LEAF INC. (THE “COMPANY”), DATED AS OF MAY
21, 2019 (A COPY OF WHICH IS ON FILE WITH THE COMPANY; THE “PURCHASE
AGREEMENT”). EXCEPT AS OTHERWISE PROVIDED IN THE PURCHASE AGREEMENT, NO
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
COMMON STOCK REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY
OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF
THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER. IN ADDITION, THE
COMMON STOCK ARE SUBJECT TO THE PROVISIONS OF SECTION 5.10 OF THE PURCHASE
AGREEMENT.

 

THE COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN VOTING
REQUIREMENTS AND OTHER RESTRICTIONS SET FORTH IN A VOTING AGREEMENT BETWEEN THE
HOLDER OF THIS CERTIFICATE AND CERTAIN OTHER PARTIES. TRANSFER OF THE COMMON
STOCK IS SUBJECT TO THE RESTRICTIONS CONTAINED IN SUCH AGREEMENT.

 

THE COMPANY WILL FURNISH TO EACH HOLDER WHO SO REQUESTS A STATEMENT OF THE
POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF WHICH THE COMPANY IS
AUTHORIZED TO ISSUE AND OF THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF
SUCH PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST IS TO BE ADDRESSED TO THE
COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS.

 

(j)                 Each Seller is not a “foreign person” within the meaning of
Section 1445 of the Code and is not a Person whose separate existence from a
“foreign person” within the meaning of Section 1445 of the Code is disregarded
for U.S. federal income Tax purposes.

 

Section 3.18 Brokers. Except as set forth on Section 3.18 of the Disclosure
Schedule, no agent, broker, Person, firm, finder or investment banker acting on
behalf of the Sellers or the Companies is entitled to any brokerage, finder’s or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Sellers.

 

 

 

 22 

 

 

Section 3.19 Labor Matters. Except as set forth on Section 3.19 of the
Disclosure Schedule, none of the Companies is subject to any collective
bargaining or other labor agreement, and to Sellers’ Knowledge, there are no
union organization efforts underway among the employees of such entities. There
are no strikes, slowdowns or work stoppages pending, or, to the Sellers’
Knowledge, threatened between any of them and any of their respective employees,
and none of such entities has experienced any such strike, slowdown or work
stoppage within the past three years. None of the Companies has breached in any
material respect or otherwise failed to comply with the provisions of any
collective bargaining or union contract and there are no written grievances
outstanding against any of such entities under any such agreement or contract.
The Companies are in compliance with all applicable federal, state and local
laws (including common law) respecting employment practices, labor, terms and
conditions of employment and wages and hours and the payment and withholding of
taxes, and to the Sellers’ Knowledge, there are no suits, actions, disputes,
claims (other than routine claims for benefits), investigations, charges or
audits pending or threatened relating to discrimination in employment or
employment practices.

 

Section 3.20 Organization Documents. Sellers have heretofore provided Purchaser
with full access to true, complete and correct copies of the organizational
documents of each of the Companies, including, without limitation, operating
agreements, limited liability company agreements and management agreements, and
all such documents are in full force and effect. None of the Companies is in
violation of any provision of its respective organizational documents.

 

Section 3.21  Insurance.

 

(a)               Section 3.21(a) of the Disclosure Schedule sets forth all
insurance policies maintained by the Companies with respect to the Business. To
Sellers’ Knowledge, all material assets, properties and risks of the Business
are covered by valid and, except for policies that have expired under their
terms in the ordinary course, currently effective insurance policies or binders
of insurance (including, without limitation, general liability insurance,
property insurance and workers compensation insurance) issued in favor of the
Companies.

 

(b)               Except as would not have a Material Adverse Effect or set
forth on Section 3.21(b) of the Disclosure Schedules, with respect to each
insurance policy of the Companies: (i) the policy is legal, valid, binding and
enforceable in accordance with its terms and, except for policies that have
expired under their terms in the ordinary course, is in full force and effect;
(ii) none of the Companies is in breach or default (including any breach or
default with respect to the payment of premiums or the giving of notice), and no
event has occurred which, with notice or the lapse of time, would constitute
such a breach or default or permit termination or modification, under the
policy; (iii) no party to the policy has repudiated, or given notice of an
intent to repudiate, any provision thereof; and (iv) there is no claim pending
under any policy as to which coverage has been denied or disputed by the
insurer.

 

(c)               All insurance policies listed in Section 3.21(a) of the
Disclosure Schedule are outstanding and duly in force as of the date hereof.

 

 

 

 23 

 

 

Section 3.22 Accounts Receivable. Section 3.22 of the Disclosure Schedule
contains a true, correct and complete list of all accounts receivables of the
Companies as of May 9, 2019. All accounts receivable of the Companies are bona
fide and have arisen in the ordinary course of business in arms-length
transactions for goods actually sold and services actually performed or to be
performed. The Sellers have available in records copies of invoices (or other
appropriate evidence of such accounts receivable) with respect to all such
accounts receivable.

 

Section 3.23 Disclosure. To the Knowledge of the Sellers, the representations
and warranties and the statements and information contained in this Agreement,
the Ancillary Documents, each other document (including the financial
statements, exhibits and schedules), certificates or other writings furnished or
to be furnished by the Sellers to the Purchaser pursuant to the provisions
hereof and in connection with the transactions contemplated hereby do not
contain any untrue statement of a material fact and, when taken together, do not
omit to state a material fact required to be stated therein or necessary in
order to make such statements not misleading in light of the circumstances under
which they were made.

 

Section 3.24 Bank Accounts. Section 3.24 of the Disclosure Schedule attached
hereto contains a true, correct and complete list of all bank accounts
maintained in the name of, or for the benefit for, any of the Sellers or the
Companies relating to the Business.

 

Section 3.25  Assets. The Assets constitute all of the assets and properties
that are necessary for the conduct of the Business as currently conducted by the
Companies and immediately after the Closing, the Purchaser shall continue to be
able to conduct the Business in the same manner as conducted by the Companies
prior to the Closing Date. The Assets are all the Assets utilized in obtaining
the financial results set forth in the 2018 Financial Statements.

 

Section 3.26  OFAC.

 

(a)               No Seller is subject to sanctions of the United States
government or in violation of any Laws relating to terrorism or money
laundering, including, without limitation, Executive Order No. 13224, 66 Fed.
Reg. 49079 (published September 25, 2001) (the “Terrorism Executive Order”) or a
Person similarly designated under any related enabling legislation or any other
similar Executive Orders (collectively with the Terrorism Executive Order, the
“Executive Orders”), the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
(Public Law 107-56, the “Patriot Act”), any sanctions and regulations
promulgated under authority granted by the Trading with the Enemy Act, 50 U.S.C.
App. 1-44, as amended from time to time, the International Emergency Economic
Powers Act, 50 U.S.C. §§ 1701-06, as amended from time to time, the Iraqi
Sanctions Act, Publ. L. No. 101-513; United Nations Participation Act, 22 U.S.C.
§ 287c, as amended from time to time, the International Security and Development
Cooperation Act, 22 U.S.C. § 2349 aa-9, as amended from time to time, The Cuban
Democracy Act, 22 U.S.C. §§ 6001-10, as amended from time to time, The Cuban
Liberty and Democratic Solidarity Act, 18 U.S.C. §§ 2332d and 2339b, as amended
from time to time, and The Foreign Narcotics Kingpin Designation Act, Publ. L.
No. 106-120, as amended from time to time.

 

 

 

 24 

 

 

(b)               No Seller nor any Affiliate of the Companies, is (i) listed on
the Specially Designated Nationals and Blocked Persons List (the “SDN List”)
maintained by the Office of Foreign Assets Control (“OFAC”), Department of the
Treasury, and/or on any other similar list (“Other Lists” and, collectively with
the SDN List, the “Lists”) maintained by the OFAC pursuant to any authorizing
statute, Executive Order or regulation (collectively, “OFAC Laws and
Regulations”); or (ii) a Person (a “Designated Person”) either (A) included
within the term “designated national” as defined in the Cuban Assets Control
Regulations, 31 C.F.R. Part 515, or (B) designated under Sections 1(a), 1(b),
1(c) or 1(d) of the Terrorism Executive Order or a Person similarly designated
under any related enabling legislation or any other similar Executive Orders
(collectively, the “Executive Orders”), including a “Prohibited Person”. The
OFAC Laws and Regulations and the Executive Orders are collectively referred to
as the “Anti-Terrorism Laws”. “Prohibited Person” is defined as follows:

 

(i)              a person or entity that is listed in the Annex to the Terrorism
Executive Order, or is otherwise subject to the provisions of the Terrorism
Executive Order or any other Executive Order;

 

(ii)           a person or entity owned or controlled by, or acting for or on
behalf of, any person or entity that is listed in the Annex to the Terrorism
Executive Order, or is otherwise subject to the provisions of the Terrorism
Executive Order or any other Executive Order;

 

(iii)         a person or entity with whom any Property Owner is prohibited from
dealing or otherwise engaging in any transaction by any terrorism or anti-money
laundering Law, including the Terrorism Executive Order, any other Executive
Order and the Patriot Act;

 

(iv)          a person or entity who commits, threatens or conspires to commit
or supports “terrorism” as defined in the Terrorism Executive Order or any other
Executive Order; or

 

(v)            a person or entity that is named as a “specially designated
national and blocked person” on the most current list published by the U.S.
Treasury Department Office of Foreign Asset Control at its official website,
http://www.treas.gov/ofac/tllsdn.pdf or any replacement website or other
replacement official publication of such list.

 

(c)               The Sellers have required, and have taken all reasonable
measures to ensure compliance with the requirement, that no Affiliate of any of
the Companies is on any Lists, is a Designated Person, or is in violation of any
Laws, including any OFAC Laws and Regulations.

 

(d)               None of the Sellers nor any Affiliate of the Companies has (i)
conducted any business or engaged in making or receiving any contribution of
funds, goods or services to or for the benefit of any Designated Person, (ii)
dealt in, or otherwise engaged in, any transaction relating to any property or
interest in property blocked pursuant to any Executive Order or the Patriot Act,
or (iii) engaged in or conspired to engage in any transaction that evades or
avoids, or has the purpose of evading or avoiding, or attempts to violate, any
of the prohibitions set forth in any Executive Order or the Patriot Act.

 

 

 

 25 

 

 

Section 3.27  Transactions with Affiliates. Except as set forth on Section 3.27
of the Disclosure Schedule, no Affiliate of the Company or any Seller has (a)
borrowed money or loaned money to the Company which remains outstanding or (b)
any contractual arrangements with the Company. Except as set forth on Section
3.27 of the Disclosure Schedule, (i) the Company is not party to any Contract
with any Seller, manager, officer or employee of the Company or any Affiliate of
the foregoing, and (ii) no Seller, manager, officer or employee of the Company
or any Affiliate of the foregoing (A) owns or has owned (within the past five
(5) years), directly or indirectly, or has or has had any interest in (including
the right to use, other than in connection with the Company’s business) any
property (real or personal, tangible or intangible) that the Company uses or has
used in its business, or (B) has or has had (within the past five (5) years) any
business dealings or a financial interest in any transaction with the Company or
involving any assets or property of the Company.

 

Section 3.28  IT Systems. Each of the Companies own free and clear of all
Encumbrances, or is licensed to use, all IT Systems used by it in the operation
of its business. There are no plans to replace or upgrade any material part of
the IT Systems within the period of six months after the Closing Date. To
Sellers’ Knowledge the IT Systems are appropriate for the Business, function in
accordance with all applicable specifications, and have been regularly and
properly maintained. Disaster recovery plans are in place, or are being put in
place, to ensure that the IT Systems can be replaced without material disruption
to the Business in the event of failure of the IT Systems or any part of them.
To Sellers’ Knowledge, the IT Systems are sufficiently protected by industry
standard security, firewall and anti-virus protection hardware and/or software.
To Sellers’ Knowledge there are, and in the past four years there have been, no
performance reductions or logical or physical intrusions to any IT Systems or
loss of data that have had (or are having) a Material Adverse Effect on the use
of such systems by the Companies.

 

Section 3.29 Data Protection. To Sellers’ Knowledge, the Companies have
collected, handled, transferred, used, imported, exported and protected all
personally-identifiable information relating to consumers, and other information
relating to individuals protected by Law, including users of any web sites
operated by the Companies, in accordance with the privacy policies of the
Companies, and in compliance in all material respects with all applicable Laws,
including Laws concerning privacy, data protection, and notification of data
security breaches, including by entering into Contracts, where applicable,
governing the flow of such information across national borders. No Person has
brought any written claim in connection with the conduct of the Companies based
on an allegation which, if true, would breach the foregoing representation. The
consummation of the transactions contemplated by this Agreement will not violate
any privacy policy, terms of use or applicable Law relating to the use,
handling, transfer, import, export, or protection of such data or information.

 

Section 3.30  Product Warranties.

 

 

 

 26 

 

 

(a)               Except as disclosed on Section 3.30 of the Disclosure
Schedule, there are no warranties (express or implied) outstanding with respect
to any products currently or formerly manufactured, sold, distributed, provided,
shipped or licensed by any of the Companies (collectively, “Products”).

 

(b)               To the Sellers’ Knowledge, and except as disclosed on Section
3.30 of the Disclosure Schedule, all Products that have been or are being
tested, developed, labeled, stored, promoted, distributed, manufactured, sold
and/or marketed by the Companies have been and are being tested, developed,
labeled, stored, promoted, distributed, manufactured, sold and/or marketed in
compliance with all Product specifications, all express and implied warranties
and all requirements under applicable Law.

 

(c)               To the Sellers’ Knowledge, there are no material design,
manufacturing or other defects, latent or otherwise, with respect to any Product
and such Products are not toxic when used in accordance with their intended use.
To the Sellers’ Knowledge, and except as disclosed on Section 3.30 of the
Disclosure Schedule, each Product that has been manufactured, sold, distributed,
provided, shipped or licensed contained all warnings required by applicable Law
and such warnings have been in accordance with reasonable industry practice.

 

(d)               To the Sellers’ Knowledge, there are no Liabilities arising
out of any injury to individuals or property as a result of the ownership,
possession or use of any Product. None of the Sellers or the Companies, nor to
the Sellers’ Knowledge, any of their suppliers, have committed any act or failed
to commit any act, which would result in, and there has been no occurrence which
would give rise to or form the basis of, any product liability, product defect
or liability for breach of warranty in excess of $5,000 (whether covered by
insurance or not) with respect to any Product.

 

(e)               None of the Sellers or the Companies, nor to the Sellers’
Knowledge, any of their suppliers, has voluntarily made, or been required by any
Governmental Authority to make, any recall of, or suspend or discontinue, any
Product, and to the Sellers’ Knowledge, there are no facts, circumstances or
conditions that would reasonably be expected to form the basis for any Action
with respect to a recall, suspension or discontinuance of any Product.

 

(f)                Since December 31, 2018, there have been no inspections,
inspection reports or other written correspondence from any Governmental
Authority that asserts or alleges that the operation of the Companies is or was
not or may not be in compliance with any applicable Laws or regulatory
requirements.

 

(g)               None of the Sellers or the Companies has in the past had any
Product design and warranty claims or other damages in connection with any
Product manufactured, sold, distributed, shipped or licensed, or service
rendered, by it on or prior to the Closing Date.

 

Section 3.31        Additional Information. Section 3.31 of the Disclosure
Schedule contains, to the extent not described in some other schedule hereto,
accurate lists and summary descriptions of the following:

 

(a)               the names of all present officers and managers of each of the
Companies;

 

 

 

 27 

 

 

(b)               the names of all Persons authorized to borrow money or incur
or guarantee
Indebtedness on behalf of any of the Companies; and

 

(c)               all names under which any of the Companies have conducted any
Business or which any Company has otherwise used since its date of formation.

 

Section 3.32  Books and Records. The Companies have maintained their respective
books and records in the ordinary course of business, consistent with
professional business standards, and in accordance with applicable Law and
reasonable and customary accounting practices. The Companies make and keep
books, records and accounts which, in reasonable detail, accurately and fairly
reflect actual bona fide transactions of the Companies.

 

Section 3.33  Disclaimers

 

(a)               NONE OF THE COMPANIES NOR ANY OF THE SELLERS HAS MADE ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, OF ANY NATURE WHATSOEVER
RELATING TO TARGET OR THE BUSINESS OF TARGET OR OTHERWISE IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED HEREBY, OTHER THAN THOSE REPRESENTATIONS AND
WARRANTIES EXPRESSLY SET FORTH IN THIS SECTION 3.

 

(b)               Without limiting the generality of the foregoing, neither the
Companies nor any of the Sellers has made, and shall not be deemed to have made,
any representations or warranties in the materials relating to the business of
the Companies made available to Purchaser, including due diligence materials, or
in any presentation of the business of the Companies by the Sellers or others in
connection with the transactions contemplated hereby, and no statement contained
in any of such materials or made in any such presentation shall be deemed a
representation or warranty hereunder or otherwise or deemed to be relied upon by
Purchaser in executing, delivering and performing this Agreement and the
transactions contemplated hereby. It is understood that any cost estimates,
projections or other predictions, any data, any financial information or any
memoranda or offering materials or presentations, including but not limited to,
any offering memorandum or similar materials made available by the Companies and
the Sellers were made in good faith and are not and shall not be deemed to be or
to include representations or warranties of the Companies or the Sellers, and
are not and shall not be deemed to be relied upon by Purchaser in executing,
delivering and performing this Agreement and the transactions contemplated
hereby.

 

Article IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER

 

The Purchaser hereby represents and warrants to the Sellers as follows:

 

Section 4.01  Organization and Authority of the Purchaser.

 

(a)               The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. The Purchaser has all necessary power and authority to enter into
this Agreement and the Ancillary Agreements to which it is a party, to carry out
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The Purchaser is duly licensed or qualified to
do business and in good standing in each jurisdiction which the properties owned
or leased by it or the operation of its business make such licensing or
qualification necessary, except to the extent that the failure to be so
licensed, qualified or in good standing would not adversely affect the ability
of the Purchaser to carry out its obligations under, and to consummate the
transactions contemplated by, this Agreement and the Ancillary Agreements.

 

 

 

 28 

 

 

(b)               The execution and delivery by the Purchaser of this Agreement
and the Ancillary Agreements to which it is a party, the performance of their
obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby by the Purchaser have been duly authorized by
all requisite corporate action on the part of the Purchaser.

 

(c)               This Agreement has been, and upon its execution by the
Purchaser and of the applicable Ancillary Agreements shall be, duly executed and
delivered by the Purchaser, and (assuming due authorization, execution and
delivery by the other parties thereto) this Agreement constitutes, and upon its
execution and the execution of the applicable Ancillary Agreements shall
constitute, the legal, valid and binding obligations of the Purchaser,
enforceable against the Purchaser in accordance with its terms.

 

Section 4.02  Certificate of Incorporation and By-Laws. Purchaser has heretofore
furnished to the Sellers a complete and correct copy of the certificate of
incorporation and the by-laws of Purchaser, as amended to date. Such certificate
of incorporation and by-laws are in full force and effect and Purchaser is not
in violation of any material provision of its certificate of incorporation or
by-laws.

 

Section 4.03  Capitalization.

 

(a)               The authorized capital stock of the Purchaser consists of (i)
500,000,000 shares of common stock, par value $0.001 per share (“Common Stock”)
and (ii) 10,000,000 shares of preferred stock, par value $0.001 per share
(“Preferred Stock”), of which 1,000,000 shares are designated as the “Series A
Preferred Stock.” As of May 13, 2019, (i) 223,180,451 shares of Common Stock
were issued and outstanding, all of which were validly issued, fully paid and
non-assessable, and (ii) 948,022 shares of Series A Preferred Stock were issued
and outstanding, all of which were validly issued, fully paid and
non-assessable.

 

(b)               The Equity Consideration to be issued pursuant to and in
accordance with Section 2.02 hereof shall be duly authorized, validly issued,
fully paid and non-assessable, and shall be issued free and clear of all
Encumbrances.

 

Section 4.04  No Conflict. The execution, delivery and performance by the
Purchaser of this Agreement and the execution, delivery and performance by the
Purchaser of the Ancillary Agreements to which it is a party do not and will not
(i) violate, conflict with or result in the breach of any provision of the
certificate of incorporation or bylaws of the Purchaser, (ii) conflict with or
violate any Law or Governmental Order applicable to the Purchaser or its assets,
properties or businesses, or (iii) conflict with, result in any breach of,
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a default) under, require any consent under, or give to
others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, any note, bond, mortgage or indenture, contract,
agreement, lease, sublease, license, permit, franchise or other instrument or
arrangement to which the Purchaser is a party or by which any property or asset
of the Purchaser is bound or affected, except, in the case of clauses (ii) and
(iii), as would not materially and adversely affect the ability of the Purchaser
to carry out its obligations under, and to consummate the transactions
contemplated by, this Agreement and the Ancillary Agreements.

 

 

 

 29 

 

 

Section 4.05  Governmental Consents and Approvals. The execution, delivery and
performance by the Purchaser of this Agreement and the Ancillary Agreements do
not and will not require any consent, approval, authorization or other order of,
action by, filing with, or notification to, any Governmental Authority, except
where failure to obtain such consent, approval, authorization or action, or to
make such filing or notification, would not prevent or materially delay the
consummation by the Purchaser of the transactions contemplated by this
Agreement.

 

Section 4.06  SEC Filings. The Purchaser has filed all forms, reports and
documents required to be filed with the SEC since January 1, 2017 (collectively,
the “SEC Reports”). The SEC Reports (i) were prepared in accordance with either
the requirements of the Securities Act or the Securities Exchange Act, as the
case may be, and the rules and regulations promulgated thereunder, and (ii) did
not, at the time they were filed, or, if amended, as of the date of such
amendment, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.

 

Section 4.07 Litigation. No action by or against the Purchaser is pending or, to
the knowledge of the Purchaser, threatened, which could affect the legality,
validity or enforceability of this Agreement, any Ancillary Agreement or the
consummation of the transactions contemplated hereby or thereby.

 

Section 4.08  Brokers. No agent, broker, Person, firm, finder or investment
banker acting on behalf of the Purchaser is entitled to any brokerage, finder’s
or other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Purchaser.

 

Section 4.09  Compliance With Laws. Except as disclosed in the SEC Reports, to
the Purchaser’s Knowledge the Purchaser has conducted its business in accordance
with all applicable Laws and Governmental Orders and the Purchaser is not in
violation of any such Law or Governmental Order.

 

 

 

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Article V
ADDITIONAL AGREEMENTS

 

Section 5.01 Conduct of Business Prior to the Closing. The Sellers covenant and
agree that, except as described in Section 5.01 of the Disclosure Schedule or as
provided by Sections 5.07 and 5.11 below, between the date hereof and the
Closing, the Sellers shall cause each of the Companies to (A) conduct its
operations and the Business in the ordinary course in all material respects (B)
use its reasonable efforts to preserve intact in all material respects their
respective business organizations and the business organization of the Companies
and (C) use its reasonable efforts to preserve for the Purchaser the
relationships of the Companies with their respective customers, suppliers,
managers, employees, tenants and others having on-going relationships with any
of the Companies. Except as described in Section 5.01 of the Disclosure Schedule
or as provided by Sections 5.07 and 5.11 below, the Sellers covenant and agree
that, between the date hereof and the Closing, without the prior written consent
of the Purchaser, the Companies will not:

 

(a)               (i) issue or sell any equity interests (partnership,
membership or otherwise), notes, bonds or other securities (or any option,
warrant or other right to acquire the same), (ii) redeem any of its equity
interests, or (iii) declare, make or pay any dividends or distributions to the
holders of equity interests, other than cash dividends, distributions and
redemptions declared, made or paid by the Companies to the Sellers;

 

(b)               incur or assume any liabilities, obligations or Indebtedness
for borrowed money or guarantee any such liabilities, obligations or
Indebtedness, other than in the ordinary course of business and consistent with
past practice; provided that in no event shall any such Indebtedness obligate
the Purchaser at any time;

 

(c)               amend or restate the certificate of formation or operating
agreement (or similar organizational documents) of any of the Companies;

 

(d)               enter into any contract, or take any action to extend the term
of any Material Contract, that is not terminable on 30 days’ or less notice, in
each case if such Material Contract survives Closing, other than in the ordinary
course of business and consistent with past practice;

 

(e)               permit, allow or suffer any Assets to become subjected to any
Encumbrance, other than Permitted Encumbrances;

 

(f)                cancel any Indebtedness (other than as set forth in Section
7.02(f) of the Disclosure Schedule) or waive any claims or rights of value;

 

(g)               except for intercompany transactions in the ordinary course of
business, pay, loan or advance any amount to, or sell, transfer or lease any of
its assets to, or enter into any agreement or arrangement with, any Seller or
any Affiliates of the Sellers or the Companies, in each instance which survive
the Closing;

 

 

 

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(h)               grant or announce any increase in the salaries, bonuses or
other benefits payable by the Companies to any of the employees of the
Companies, other than as required by Law, pursuant to any Plans, programs or
agreements existing on the date hereof or other ordinary increases consistent
with the past practices of the Companies;

 

(i)                 change any method of accounting or accounting practice or
policy used by the Companies, other than such changes required by GAAP;

 

(j)                 fail to exercise any rights of renewal with respect to any
material Leased Real Property that by its terms would otherwise expire;

 

(k)               settle or compromise any material claims of the Companies,
other than in the ordinary course of business;

 

(l)                 change any policies, practices or procedures with respect to
credit, billing and/or collection with respect to customers or payments with
respect to vendors/subcontractors; or

 

(m)             agree to take any of the actions specified in Sections
5.01(a)-(l), except as contemplated by this Agreement.

 

Section 5.02  Access to Information. From the date hereof until the Closing,
upon reasonable written notice, the Sellers shall cause the Companies and each
of its officers, directors, employees, agents, representatives, accountants and
counsel to (i) afford the Purchaser and its officers, directors, employees,
agents, representatives, accountants and counsel (collectively, the “Purchaser
Representatives”) with reasonable access to all of the offices, properties and
books and records of the Companies and (ii) furnish to the Purchaser
Representatives such additional financial and operating data and other
information regarding the Companies or the Business (or copies thereof) as the
Purchaser may from time to time reasonably request; provided, however, that any
such access or furnishing of information shall be conducted at the Purchaser’s
sole expense, during normal business hours, under the supervision of the
Company’s personnel and in such a manner as not to interfere with the normal
operations of the Companies or the Business. No investigation by the Purchaser
or other information received by the Purchaser shall operate as a waiver or
otherwise affect any representation, warranty or agreement given or made by the
Sellers in this Agreement.

 

Section 5.03  Confidentiality.

 

(a)               The parties hereto acknowledge and agree that all customer,
prospect, and marketing lists, sales data, Intellectual Property, proprietary
information, trade secrets, and other confidential information of the Companies
(collectively, “Confidential Information”) (i) are valuable, special and unique
assets of the Companies and (ii) are, and following the Closing, will continue
to be owned exclusively by the Companies, as the case may be. Each party hereto
agrees to, and agrees to use reasonable best efforts to cause its directors,
officers, employees, partners, Affiliates, advisors and other representatives
(“Representatives”) to, treat the Confidential Information, together with any
other confidential information furnished to the Sellers or the Companies by the
Purchaser, on the one hand, or to Purchaser by the Sellers or any of the
Companies, on the other hand, as confidential and not to make use of such
information for its own purposes other than in connection with the transactions
contemplated hereby or for the benefit of any other Person (other than by and
for the Companies and after the Closing, the Purchaser). Notwithstanding
anything to the contrary contained herein, the obligations of the Purchaser
pursuant to this Section 5.03 shall terminate upon the Closing and the term
Confidential Information does not include information which (A) is or becomes
generally available to the public other than as a result of a disclosure by any
of the parties hereto or their respective Representatives, (B) was available on
a non-confidential basis prior to its disclosure, or (C) becomes available on a
non-confidential basis from a source, other than any of the parties hereto or
their respective Representatives, not known to be bound by confidentiality
obligations with respect to such information.

 

 

 

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(b)               Prior to the Closing, the Sellers shall not disclose to any
third party any information that is not public information concerning the
Purchaser or any transaction or potential transaction any of the Sellers may
become aware of involving the Purchaser without the prior written consent of the
Purchaser.

 

Section 5.04  Regulatory and Other Authorizations; Notices and Consents.

 

(a)               Each of the parties to this Agreement shall use all reasonable
efforts to promptly obtain all authorizations, consents, orders and approvals of
all Governmental Authorities and other third parties that may be or become
necessary for its execution and delivery of, and the performance of its
obligations pursuant to, this Agreement and will cooperate fully with one
another in promptly seeking to obtain all such authorizations, consents, orders
and approvals.

 

(b)               Except as provided in Section 10.03, each party to this
Agreement shall promptly notify the other party of any communication it or any
of its Affiliates receives from, or sends to, any Governmental Authority
relating to the matters that are the subject of this Agreement and permit, to
the extent practicable, the other party to review in advance any proposed
communication by such party to any Governmental Authority.

 

Section 5.05  No Solicitation of Other Bids.

 

(a)               The Sellers shall not, and shall not authorize or permit any
of their Affiliates (including the Companies) or any of their Representatives
to, directly or indirectly, (i) encourage, solicit, initiate, facilitate or
continue inquiries regarding an Acquisition Proposal; (ii) enter into
discussions or negotiations with, or provide any information to, any Person
concerning a possible Acquisition Proposal; or (iii) enter into any agreements
or other instruments (whether or not binding) regarding an Acquisition Proposal.
The Sellers shall immediately cease and cause to be terminated, and shall cause
their Affiliates (including the Companies) and all of their Representatives to
immediately cease and cause to be terminated, all existing discussions or
negotiations with any Persons conducted heretofore with respect to, or that
could reasonably lead to, an Acquisition Proposal.

 

 

 

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(b)               In addition to the other obligations under this Section 5.05,
the Sellers shall promptly (and in any event within three Business Days after
receipt thereof by Seller or its Representatives) advise the Purchaser orally
and in writing of any written Acquisition Proposal, any request for information
with respect to any Acquisition Proposal, or any inquiry with respect to or
which could reasonably be expected to result in an Acquisition Proposal, the
material terms and conditions of such request, Acquisition Proposal or inquiry,
and the identity of the Person making the same.

 

(c)               The Sellers agree that the rights and remedies for
noncompliance with this Section 5.05 shall include having such provision
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach shall cause
irreparable injury to the Purchaser and that money damages would not provide an
adequate remedy to the Purchaser.

 

Section 5.06 Notifications; Update of Disclosure Schedule. Until the Closing,
each party hereto shall promptly notify the other party in writing of any fact,
change, condition, circumstance or occurrence or nonoccurrence of any event
relating to its own representations, warranties or covenants of which it is
aware that will or is reasonably likely to result in any of the conditions set
forth in Article VII of this Agreement becoming incapable of being satisfied;
provided, however, that the delivery of any notice pursuant to this Section 5.06
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice. The Sellers may, from time to time, prior to or at
the Closing, by notice given in accordance with this Agreement, supplement or
amend the Disclosure Schedule to correct any matter that would otherwise
constitute a breach of any representation, warranty, covenant or agreement
contained herein. If, pursuant to and in accordance with Section 9.01(d), such a
supplement or amendment of any section of the Disclosure Schedule materially and
adversely affects the Business as a whole , then the Purchaser shall have the
right to terminate this Agreement in accordance with Section 9.01(d).

 

Section 5.07  Further Action. The parties hereto shall use all reasonable
efforts to take, or cause to be taken, all appropriate action, to do or cause to
be done all things necessary, proper or advisable under applicable Law, and to
execute and deliver such documents and other papers, as may be required to carry
out the provisions of this Agreement and consummate and make effective the
transactions contemplated by this Agreement in the most expeditious manner
practicable.

 

Section 5.08 Conveyance Taxes. The Sellers shall be liable for, shall hold the
Purchaser harmless against, and agrees to pay any and all Conveyance Taxes that
may be imposed upon, or payable or collectible or incurred in connection with
this Agreement and the transactions contemplated hereby. The Purchaser and the
Sellers agree to cooperate in the execution and delivery of all instruments and
certificates necessary to enable the Purchaser to comply with any pre-Closing
filing requirements.

 

Section 5.09  Insurance. The Sellers hereby covenant and agree to make any
claim, on behalf of the Companies, at the request of the Purchaser, for any Loss
which is covered by an insurance policy owned by either Seller and not included
in the Assets and to use commercially reasonable efforts in the recovery of said
insurance proceeds. Furthermore, the Sellers hereby covenant and agree to pay to
the Purchaser any insurance proceeds actually recovered from said claims. All
rights to uncollected proceeds which vested in the Sellers prior to the Closing
Date shall be conveyed, transferred and assigned to the Purchaser in connection
with this Agreement, and the Sellers shall waive any and rights or claims with
respect to such proceeds.

 

 

 

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Section 5.10  Transfer Restrictions. Each Seller agrees that the Equity
Consideration issued pursuant to this Agreement may not be offered, transferred,
sold, assigned, pledged, hypothecated or otherwise disposed of until after the
12-month anniversary of the Closing Date.

 

Section 5.11 Economic Benefits of Assignment. If any note, bond, mortgage or
indenture, contract, agreement, lease, sublease, license, permit, franchise, or
other instrument or arrangement to which any of the Companies is a party set
forth on Section 3.04 of the Disclosure Schedule may not be transferred or
assigned without the consent, approval or waiver of a third party and the
transfer or assignment or attempted transfer or assignment would constitute a
breach thereof or a violation of any Law, nothing in this Agreement or in any
Ancillary Agreement will be deemed a transfer or assignment or an attempted
transfer or assignment thereof. The Sellers will use their commercially
reasonable efforts, both before and after the Closing to secure any such
consents, approvals or waivers. Without limiting any other provision of this
Agreement, if any such consents, approvals and waivers are not (for any reason)
obtained before the Closing, then the Sellers will cooperate (at their expense)
in any reasonable arrangement requested by the Purchaser to transfer to the
Purchaser the economic benefit for all periods after the Closing of any such
agreement as to which consent is not obtained, including by enforcement for the
benefit of the Purchaser of any and all rights of the Sellers against any other
party thereto, and all payments received by the Sellers under any affected
agreement for all periods after the Closing will be immediately paid over to the
Purchaser. The Purchaser’s consummation of the transactions contemplated in this
Agreement shall not abridge the Purchaser’s or the Sellers’ obligations under
this Section 5.11, which obligations shall survive the execution and delivery
hereof and the Closing, and remain in full force and effect thereafter.

 

Section 5.12  Tax Matters.

 

(a)               The Sellers shall be liable for and timely pay any and all
Taxes with respect to the ownership or operations of the Companies for all
taxable periods ending on or prior to the Closing. Except as otherwise provided
herein with respect to Straddle Periods, the Purchaser shall be liable for and
timely pay any and all Taxes with respect to the ownership or operations of the
Companies for all taxable periods ending after the Closing. In any case where
applicable law does not permit any Company or any Subsidiary to close its Tax
year as of the Closing Date or in any case in which a Tax is assessed with
respect to a taxable period which includes the Closing Date (but does not begin
or end on that day), then Taxes, if any, attributable to the Tax period of any
Company or any Subsidiary beginning before and ending after the Closing Date
shall be allocated to and be payable by (i) the Sellers for the period up to and
including the Closing Date (the “Pre-Closing Straddle Period”) and (ii) the
Purchasers for the period after the Closing Date (the “Post-Closing Straddle
Period” and together with a Pre-Closing Straddle Period, a “Straddle Period”).
The Sellers shall prepare and timely file all Tax Returns (including applicable
filing extensions) for taxable periods ended on or prior to the Closing (a
“Pre-Closing Tax Return”); provided, however, that the Sellers shall provide the
Purchaser with a copy of any such Pre-Closing Tax Return no later than
forty-five (45) calendar days prior to filing such Pre-Closing Tax Return and
shall within five (5) calendar days of filing provide the Purchaser with a copy
of any such Pre-Closing Tax Return filed with any taxing authority. The Sellers
shall not file such Pre-Closing Tax Returns without the prior written consent of
the Purchaser, which consent shall not be unreasonably withheld; provided that
notwithstanding anything to the contrary in this Section 5.12(a), the Seller
shall be entitled to file or cause to be filed the applicable return without
incorporating any disagreed upon changes to avoid a late filing of the return.
All Pre-Closing Tax Returns shall be prepared in a manner consistent with the
reporting of all items of income or loss on prior Tax Returns of any Company or
any Subsidiary, unless otherwise required by applicable laws. The Purchaser
shall prepare and shall timely file (including applicable filing extensions) or
cause to be prepared and timely filed (including applicable filing extensions)
all Tax Returns which begin before the Closing and end after end after the
Closing (“Straddle Returns”). Straddle Returns shall be prepared in a manner
consistent with the reporting of all items of income and loss on prior Tax
Returns of any Company or any Subsidiary, unless otherwise required by
applicable laws, and to the extent they involve an allocation of Taxes as to a
Pre-Closing Straddle Period shall be subject to Sellers’ approval, which shall
not be unreasonably withheld. Taxes payable with Straddle Returns shall be
apportioned to the Pre-Closing Straddle Period and Post-Closing Straddle Period,
as described above, based on an assumed taxable period ending on the date of
Closing; provided, however, that Taxes not based on income or receipts shall be
apportioned to the Pre-Closing Straddle Period and Post-Closing Straddle Period
based on the number of days in each such taxable period.

 

 

 

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(b)               If any claim, demand, assessment (including a notice of
proposed assessment) or other assertion is made with respect to Taxes against
the Sellers or the Purchaser the calculation of which involves a specific matter
covered in this Agreement (“Tax Claim”) or if the Purchaser receives any notice
from any Governmental Authority with respect to any current or future audit,
examination, investigation or other proceeding (“Proceeding”) involving the
Sellers or the Purchaser or that otherwise involves a specific matter covered in
this Agreement that could directly or indirectly materially affect the Sellers
(adversely or otherwise), then the Purchaser shall promptly notify Carlos Frias
(“Sellers’ Representatives”) of such Tax Claim or Proceeding. Any Proceeding
that would increase any Seller’s liability for Taxes for a Pre-Closing Period or
a Pre-Closing Straddle Period or could give rise to a claim for indemnification
under this Agreement shall be considered material to Sellers.

 

(c)               Sellers shall have the right to control the defense,
settlement or compromise of any Proceeding or Tax Claim with respect to the
ownership or operations of the Companies for any taxable period ended on or
prior to the Closing (“Pre-Closing Period”), unless any such action would
reasonably be expected to result in a material adverse Tax effect or a liability
or material increase in liability to the Purchaser for any Tax period, in which
case, such action may not be taken without the Purchaser’s consent. The
Purchaser shall have the right to control the defense, settlement or compromise
of any Proceeding or Tax Claim with respect to the ownership or operations of
the Companies for any taxable period ending after the Closing (“Post-Closing
Period”), unless any such action would reasonably be expected to result in a
material adverse Tax effect or a liability or material increase in liability to
Sellers for any Tax period, in which case, such action may not be taken without
Seller’s consent. Subject to the provision of this Section 5.12(c), neither
Sellers nor the Purchaser shall consent to the entry of any judgment or enter
into any settlement with respect to a Tax Claim or Proceeding without the prior
written consent of the other party; provided, that each such party shall keep
the other party duly and contemporaneously informed of the progress thereof to
the extent that such Proceeding or Tax Claim could directly or indirectly
materially affect (adversely or otherwise) the other party and shall afford the
other party the right to review and comment on any and all submissions made to
the IRS or any Governmental Authority with respect to such Tax Claim or
Proceeding and shall consider any such comments in good faith. As a condition to
withholding its consent to a settlement proposal (i) a party must have a
reasonable basis to believe that such settlement would have a material adverse
Tax effect or material increase in liability to such party; provided, that if
for any period ending after the Closing a proposed settlement does not increase
Sellers’ liability for Taxes for a Pre-Closing Period or a Pre-Closing Straddle
Period and could not give rise to a claim for indemnification pursuant to this
Agreement, then such impact shall not be deemed material to Sellers unless it is
different than the impact to other stockholders of the Purchaser who are not
Sellers, and (ii) a party must believe, based on the advice of a nationally
recognized accounting or law firm, that it is more likely than not that the
position asserted by the party seeking consent would prevail if it were to be
asserted in a judicial proceeding. A party withholding its consent shall offer
to assume the subsequent costs of defending and asserting the positions asserted
by such party, and shall indemnify the other party for any taxes and related
interest and penalties resulting from a subsequent judgment in excess of the
amounts that would have been imposed pursuant to the rejected settlement (but
not any other costs associated with such proceeding or any other issues involved
therein).

 

 

 

 36 

 

 

(d)               From and after the Closing, the Parties shall provide each
other with such assistance as may reasonably be requested by any of them in
connection with (i) the preparation of any Tax Return, election, consent or
certificate required to be prepared by any party hereto or (ii) any Tax Claim or
Proceeding. Such assistance shall include making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder and shall include providing copies of any
relevant Tax Returns and supporting work schedules.

 

(e)               The Sellers agree to not make or change any Tax election or
take any other action (or fail to take such action) that would result in the
Companies being treated as a corporation for U.S. federal income tax purposes,
file any amended Tax Return, enter into any closing agreement, settle or
compromise any proceeding with respect to any Tax claim or assessment, surrender
any right to claim a refund of Taxes, or consent to any extension or waiver of
the limitation period applicable to any Tax claim, without the Purchaser’s
consent.

 

(f)                For U.S. federal income Tax purposes, as well as any
corresponding state and local Tax purposes, the Parties shall treat the sale of
the Membership Interests in exchange for payment of the Purchase Price
contemplated by this Agreement as a sale of the Company’s assets to Purchaser as
to Purchaser and a sale of partnership interests as to the Sellers in accordance
with Internal Revenue Service Revenue Ruling 99-6 (the “Intended Tax Treatment”)
and shall prepare all Tax books, records and filings in a manner consistent with
the Intended Tax Treatment and shall not take any position inconsistent
therewith.

 

 

 

 37 

 

 

(g)               Within ninety (90) days following the Closing, Purchaser shall
prepare and deliver to the Seller Representative a draft schedule allocating the
Purchase Price (and any liabilities considered assumed by Purchaser treated as
purchase consideration for Tax purposes) among the Assets of the Company treated
as acquired by Purchaser from the Sellers in accordance with the Intended Tax
Treatment for the purposes of determining the Tax consequences of the
transactions contemplated by this Agreement (the “Purchase Price Allocation
Schedule”). Purchaser shall revise the draft Purchase Price Allocation Schedule
as necessary to reflect adjustments to the Purchase Price required by this
Agreement, which Purchaser shall deliver to the Seller Representative within
thirty (30) days following the date of such adjustment. If the Seller
Representative disagrees with the Purchase Price Allocation Schedule delivered
by Purchaser (including any revisions thereto), the Seller Representative may,
within thirty (30) days after delivery of such Purchase Price Allocation
Schedule (or any revision thereto), deliver a written notice to Purchaser to
such effect, specifying those items as to which the Seller Representative
disagrees and setting forth the Seller Representative’s proposed allocation. If
the Seller Representative fails to timely and duly deliver such notice of
disagreement, then the Purchase Price Allocation Schedule shall be final and
binding on the Parties. If the Seller Representative timely and duly delivers
such notice of disagreement, then Purchaser shall reasonably and in good faith
consider the Seller Representative’s prosed Purchase Price Allocation. The
Purchaser will determine the final Purchase Price Allocation. The final Purchase
Price Allocation will be binding and the Sellers may not report the Purchase
Price Allocation inconsistently with the final Purchase Price Allocation.

 

Article VI
EMPLOYEE MATTERS

 

Section 6.01  Treatment of Company Employees. As of the Closing Date, the
Purchaser shall cause the Companies to continue to employ all employees of the
Companies set forth on Schedule 6.01 (the “Company Employees”), with the
understanding that such employment shall be on the same terms as the Company
Employees are currently employed.

 

Article VII
CONDITIONS TO CLOSING

 

Section 7.01 Conditions to Obligations of the Sellers. The obligations of the
Sellers to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment or written waiver, at or prior to the Closing, of
each of the following conditions:

 

(a)               Representations, Warranties and Covenants. (i) The
representations and warranties of the Purchaser contained in this Agreement
which are qualified by materiality shall be true and correct in all respects as
of the Closing Date and the representations and warranties of the Purchaser
contained in this Agreement which are not so qualified shall be true and correct
in all material respects as of the Closing Date, except to the extent such
representations and warranties are made as of another date, in which case such
representations and warranties shall be so true and correct as of such other
date and (ii) the covenants and agreements contained in this Agreement to be
complied with by the Purchaser on or before the Closing shall have been complied
with in all material respects.

 

 

 

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(b)               Governmental Approvals. All governmental approvals, consents
and waivers applicable to the sale and purchase of the Membership Interests
contemplated by this Agreement shall have expired or shall have been terminated
or shall have been received.

 

(c)               No Order. No Governmental Authority shall have enacted,
issued, promulgated, enforced or entered any Law or Governmental Order (whether
temporary, preliminary or permanent) that has the effect of making the
transactions contemplated by this Agreement or the Ancillary Agreements illegal
or otherwise restraining or prohibiting the consummation of such transactions
unless same shall have expired or shall have been terminated.

 

(d)               No Litigation Threatened. No Action having a reasonable
likelihood of prevailing shall have been instituted or threatened before a court
or other Governmental Authority to restrain, prohibit or materially delay any of
the transactions contemplated hereby; provided, that the Sellers shall not be
able to asset this condition if any Seller shall have instigated such Action.

 

Section 7.02 Conditions to Obligations of the Purchaser. The obligations of the
Purchaser to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment or written waiver, at or prior to the Closing, of
each of the following conditions:

 

(a)               Representations, Warranties and Covenants. (i) The
representations and warranties of the Sellers contained in this Agreement which
are qualified by Material Adverse Effect or materiality shall be true and
correct in all respects as of the Closing and the representations and warranties
of the Sellers contained in this Agreement which are not qualified by Material
Adverse Effect or materiality shall be true and correct in all material respects
as of the Closing Date, other than such representations and warranties that are
made as of another date, in which case such representations and warranties shall
be so true and correct as of such other date, and (ii) the covenants and
agreements contained in this Agreement to be complied with by the Sellers at or
before the Closing shall have been complied with in all material respects.

 

(b)               Third Party Consents. The Sellers shall have delivered to the
Purchaser the consents, waivers and approvals of the Persons identified on
Schedule 7.02(b), in form and substance reasonably satisfactory to the
Purchaser.

 

(c)               Governmental Approvals. All governmental approvals, consents,
and waivers applicable to the sale and purchase of the Membership Interests
contemplated by this Agreement shall have expired or shall have been terminated
or shall have been received.

 

(d)               No Order. No Governmental Authority shall have enacted,
issued, promulgated, enforced or entered any Law or Governmental Order (whether
temporary, preliminary or permanent) that has the effect of making the
transactions contemplated by this Agreement or the Ancillary Agreements illegal
or otherwise restraining or prohibiting the consummation of such transactions
unless same shall have expired or shall have been terminated.

 

 

 

 39 

 

 

(e)               No Litigation Threatened. No Action having a reasonable
likelihood or prevailing shall have been instituted or threatened before a court
or other Governmental Authority to restrain, prohibit or materially delay any of
the transactions contemplated hereby; provided, that the Purchaser shall not be
entitled to assert this condition if the Purchaser (or any of its Affiliates)
shall have instigated such Action.

 

(f)                Repayment of Indebtedness. The Sellers shall have caused the
repayment of all Indebtedness identified on Schedule 7.02(f) of the Disclosure
Schedule as Indebtedness that will be repaid prior to or at Closing and all
liens or guaranties with respect to such Indebtedness shall be discharged.

 

(g)               Bonus Unit Cancellation and Release Agreements. The Sellers
shall have delivered to the Purchaser duly-executed Bonus Unit Cancellation and
Release Agreements by each Person set forth in Section 7.02(g) of the Disclosure
Schedule in accordance with the terms of the 2017 Change in Control and Long
Term Incentive Plan.

 

Article VIII

INDEMNIFICATION

 

Section 8.01 Survival of Representations and Warranties. The representations and
warranties of the parties hereto contained in this Agreement shall survive the
Closing for a period of eighteen (18) months after the Closing, except that the
representations and warranties of Sellers in Sections 3.01, 3.02, 3.03, 3,04,
3.15, 3.17, 3.18, 3.20, 3.26 and 3.27 (the “Fundamental Rep(s)”) shall survive
until the expiration of the applicable statute of limitations; provided, that
any claim made with reasonable specificity by the party seeking to be
indemnified within the time periods set forth in this Section 8.01 shall survive
until such claim is finally and fully resolved. All covenants and agreements
contained herein shall remain in full force and effect for a period of three (3)
years following the Closing, except for those covenants and agreements that by
their terms are to be performed in whole or in part after the Closing, which
shall remain in full force and effect for a period equal to the later of three
(3) years after the Closing or three (3) years following the date by which such
covenant or agreement is required to be performed; provided, however, that any
claim made with reasonable specificity by the party seeking to be indemnified
within the time periods set forth in this Section 8.01 shall survive until such
claim is finally and fully resolved.

 

Section 8.02  Indemnification by the Sellers. Subject to Sections 8.04 and 8.07,
the Purchaser and their Affiliates, officers, directors, employees, agents,
successors and assigns (each, a “Purchaser Indemnified Party”) shall be
indemnified and held harmless by the Sellers, jointly and severally, for and
against all losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties (including reasonable attorneys’ and consultants’ fees
and expenses) actually suffered or incurred by them (hereinafter, a “Loss” or,
collectively “Losses”), arising out of or resulting from: (a) the breach of any
representation or warranty made by the Sellers contained in this Agreement, (b)
the breach of any covenant or agreement by the Sellers contained in this
Agreement, (c) any of the Sellers (or any predecessor of any of the Sellers)
having been a member of an “affiliated group” (as defined in Section 1504(a) of
the Code) for any consolidated, combined or unitary foreign, state or local tax
purposes, (d) any Tax sharing, allocation or similar agreement to which any of
the Companies is a party prior to or as of the Closing, and (e) all Taxes
attributable to the activities of any of the Companies attributable to the
period on or prior to the Closing.

 

 

 

 40 

 

 

Section 8.03 Indemnification by the Purchaser. The Sellers and their Affiliates,
officers, directors, employees, agents, successors and assigns (each, a “Seller
Indemnified Party”) shall be indemnified and held harmless by the Purchaser for
and against any and all Losses arising out of or resulting from: (a) the breach
of any representation or warranty made by the Purchaser contained in this
Agreement or (b) the breach of any covenant or agreement by the Purchaser
contained in this Agreement.

 

Section 8.04 Limits on Indemnification. No claim for Losses shall be made under
Section 8.02 until the aggregate Losses for which claims are made under Section
8.02 exceeds $100,000 (the “Deductible”), in which case the Indemnified Party
shall be entitled to seek compensation for all Losses in excess of the
Deductible; provided that the Deductible shall not apply to Losses resulting
from a breach of a Fundamental Representation. Notwithstanding anything to the
contrary herein, in the event of a claim under Section 8.02, the liability of
each Seller shall be joint and several, and shall be limited to an amount equal
to the Purchase Price. No claim may be asserted nor may any Action be commenced
against either party for breach of any representation, warranty, covenant or
agreement contained herein, unless written notice of such claim or action is
received by such party describing in reasonable detail the facts and
circumstances with respect to the subject matter of such claim or Action on or
prior to the date on which the representation, warranty, covenant or agreement
on which such claim or Action is based ceases to survive as set forth in Section
8.01, irrespective of whether the subject matter of such claim or action shall
have occurred before or after such date. Notwithstanding anything to the
contrary herein, the existence of this Section 8.04 and of the rights and
restrictions herein do not limit any legal remedy against the parties hereto to
claims based on fraud or as otherwise set forth in Section 8.08.

 

Section 8.05  Notice of Loss; Third Party Claims.

 

(a)               An Indemnified Party shall give the Indemnifying Party notice
of any matter which an Indemnified Party has determined has given or could give
rise to a right of indemnification under this Agreement, within sixty (60) days
of such determination, stating the amount of the Loss, if known, and method of
computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises.

 

 

 

 41 

 

 

(b)               If an Indemnified Party shall receive notice of any Action,
audit, claim, demand or assessment (each, a “Third Party Claim”) against it
which may give rise to a claim for Loss under this Article VIII, within thirty
(30) days of the receipt of such notice, the Indemnified Party shall give the
Indemnifying Party notice of such Third Party Claim; provided, however, that the
failure to provide such notice shall not release the Indemnifying Party from any
of its obligations under this Article VIII except to the extent that such
failure results in a detriment to the Indemnifying Party and shall not relieve
the Indemnifying Party from any other Liability that it may have to any
Indemnified Party other than under this Article VIII. The Indemnifying Party
shall be entitled to assume and control the defense of such Third Party Claim at
its expense and through counsel of its choice if it gives notice of its
intention to do so to the Indemnified Party within fifteen (15) days of the
receipt of such notice from the Indemnified Party. If the Indemnifying Party
elects to undertake any such defense against a Third Party Claim, the
Indemnified Party may participate in such defense at its own expense; provided,
that if in the reasonable opinion of counsel to the Indemnified Party, (A) there
are legal defenses available to an Indemnified Party that are different from or
additional to those available to the Indemnifying Party; or (B) there exists a
conflict of interest between the Indemnifying Party and the Indemnified Party
that cannot be waived, the Indemnifying Party shall be liable for the reasonable
fees and expenses of counsel to the Indemnified Party in each jurisdiction for
which the Indemnified Party determines counsel is required. The Indemnified
Party shall fully cooperate with the Indemnifying Party in such defense and make
available to the Indemnifying Party, at the Indemnifying Party’s expense, all
witnesses, pertinent records, materials and information in the Indemnified
Party’s possession or under the Indemnified Party’s control relating thereto as
is reasonably required by the Indemnifying Party. If the Indemnifying Party
elects to direct the defense of any such claim or proceeding, the Indemnified
Party shall not pay, or permit to be paid, any part of such Third Party Claim
unless the Indemnifying Party consents in writing to such payment or unless the
Indemnifying Party withdraws from the defense of such Third Party Claim
liability or unless a final judgment from which no appeal may be taken by or on
behalf of the Indemnifying Party is entered against the Indemnified Party for
such Third Party Claim. If the Indemnifying Party assumes the defense of any
such claims or proceeding pursuant to this Section 8.05 and proposes to settle
such claims or proceeding prior to a final judgment thereon or to forgo any
appeal with respect thereto, then the Indemnifying Party shall give the
Indemnified Party prompt written notice thereof and the Indemnified Party shall
have the right to participate in the settlement or assume or reassume the
defense of such claims or proceeding. The Indemnifying Party shall not enter
into any settlement or compromise of any action, suit or proceeding or consent
to the entry of any judgment (i) which does not include as an unconditional term
thereof the delivery by the claimant or plaintiff to the Indemnified Party of a
written release from all liability in respect of such action, suit or proceeding
or (ii) for other than monetary damages to be borne in full by the Indemnifying
Party without the prior written consent of the Indemnified Party, which consent
shall not be unreasonably withheld, conditioned or delayed.

 

Section 8.06 Remedies. The Purchaser and each of the Sellers acknowledge and
agree that (i) following the Closing, the indemnification provisions of Section
8.02 and Section 8.03 shall be the sole and exclusive remedies of the parties
for any breach by the other party of the representations and warranties in this
Agreement and for any failure by the other party to perform and comply with any
covenants and agreements contained in this Agreement, except that if any of the
provisions of this Agreement are not performed in accordance with their terms or
are otherwise breached, the parties shall be entitled to specific performance of
the terms thereof in addition to any other remedy at Law or equity and (ii)
anything herein to the contrary notwithstanding, no breach of any
representation, warranty, covenant or agreement contained herein shall give rise
to any right on the part of the Purchaser or the Sellers, after the consummation
of the purchase and sale of the Membership Interests contemplated by this
Agreement, to rescind this Agreement or any of the transactions contemplated
hereby. Each party hereto shall take all reasonable steps to mitigate its Losses
upon and after becoming aware of any event which could reasonably be expected to
give rise to any Losses.

 

 

 

 42 

 

 

Section 8.07 Effect of Investigation. The representations, warranties and
covenants of the Indemnifying Party, and the Indemnified Party’s right to
indemnification with respect thereto, shall not be affected or deemed waived by
reason of any investigation made by or on behalf of the Indemnified Party
(including by any of its Representatives) or by reason of the fact that the
Indemnified Party or any of its Representatives knew or should have known that
any such representation or warranty is, was or might be inaccurate or by reason
of the Indemnified Party’s waiver of any condition set forth in Section 7.01 or
Section 7.02, as the case may be.

 

Section 8.08  No Limitation. Nothing in this Agreement shall limit the liability
in amount or otherwise of the Purchaser, the Sellers or the Companies for fraud
or intentional misrepresentation.

 

Article IX
TERMINATION, AMENDMENT AND WAIVER

 

Section 9.01  Termination. This Agreement may be terminated at any time prior to
the Closing:

 

(a)               by either the Sellers, or the Purchaser, if the Closing shall
not have occurred by June 30, 2019 (including any extension thereof); provided,
however, that the right to terminate this Agreement under this Section 9.01(a)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement shall have been the cause of, or shall have resulted in,
the failure of the Closing to occur on or prior to such date;

 

(b)               by either the Purchaser or the Sellers in the event that any
Governmental Order restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement shall have become final and
nonappealable;

 

(c)               by the Purchaser, if a supplement or amendment of any section
of the Disclosure Schedule made by the Sellers pursuant to Section 5.13
materially and adversely affects the Business as a whole;

 

(d)               by the Sellers, if the Purchaser shall have breached any of
its representations, warranties, covenants or agreements contained in this
Agreement which would give rise to the failure of a condition set forth in
Article VII, which breach cannot be or has not been cured within thirty (30)
days after the giving of written notice by the Sellers to the Purchaser
specifying such breach;

 

(e)               by the Purchaser, if the Sellers shall have breached any of
their representations, warranties, covenants or agreements contained in this
Agreement which would give rise to the failure of a condition set forth in
Article VII, which breach cannot be or has not been cured within thirty (30)
days after the giving of written notice by the Purchaser to the Sellers
specifying such breach; or

 

(f)                by the mutual written consent of the Sellers and the
Purchaser.

 

 

 

 43 

 

 

Section 9.02  Effect of Termination.

 

In the event of termination of this Agreement as provided in Section 9.01, this
Agreement shall forthwith become void and there shall be no liability on the
part of either party hereto except (a) as set forth in Section 5.03 and Article
X and (b) that nothing herein shall relieve either party from liability for any
breach of this Agreement occurring prior to such termination.

 

Article X
GENERAL PROVISIONS

 

Section 10.01 Expenses. Except as otherwise specified in this Agreement, all
costs and expenses, including, fees and disbursements of counsel, financial
advisors and accountants, incurred in connection with this Agreement and the
transactions contemplated by this Agreement shall be borne by the party
incurring such costs and expenses, whether or not the Closing shall have
occurred.

 

Section 10.02  Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by an internationally recognized overnight courier service, by e-mail
(read receipt requested), by facsimile or registered or certified mail (postage
prepaid, return receipt requested) to the respective parties hereto at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 10.02):

 

If to the Sellers:

 

Carlos Frias

[redacted]

 

Daniel Nguyen

[redacted]

 

Alex Frias

[redacted]

 

Chris Fagan

[redacted]

 

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

 

Adam Foster Law

717 17th Street, Suite 1900

Denver, CO 80202

Telephone: (303) 495-5503

E-mail: Adam@adamfosterlaw.com

Attention: Adam Foster, Esq.

 

 

 

 44 

 

 

If to the Purchaser:

 

Freedom Leaf Inc.

3571 E. Sunset Road, Suite 420

Las Vegas, NV 89120

 

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

 

Kleinberg, Kaplan, Wolff & Cohen, P.C.

551 Fifth Avenue

New York, NY 10176

Telecopy: (212) 986-8866

Telephone: (212) 880-9869

Email: jain@kkwc.com

Attention: Jonathan Ain

 

Section 10.03  Public Announcements; Confidentiality. Upon the execution of this
Agreement, the Purchaser shall have the right to make such public announcements
or filings as may be required by (i) the Securities Act, (ii) the Securities
Exchange Act, (iii) the rules and listing standards of the OTCQB, (iv) any other
law of a jurisdiction to which the Purchaser is subject, or (v) any oral
questions, interrogatories, requests for information, subpoena, civil
investigative demand, or similar process required by applicable rules, laws or
regulations by any court, law or administrative authority to which the Purchaser
is subject. The Purchaser also shall have the right to make such public
announcements or filings as they may deem reasonably prudent, and shall be
entitled to make such filings or announcements upon advice of counsel as may be
otherwise be deemed necessary. In this connection, it should be noted that the
Purchaser has determined that the entry into this Agreement will need to be
disclosed within four (4) Business Days of its execution on a Current Report on
Form 8-K under Item 1.01 thereof and that the Agreement will be filed as an
exhibit thereto or be filed as an exhibit to the Purchaser’s next following
periodic report filed pursuant to the Securities Exchange Act. The Sellers may
make such public disclosures as are required by Law. Each of the Sellers and the
Purchaser hereby agree to provide the non-disclosing parties as much advance
notice as reasonably possible with respect to the nature of such disclosure,
cooperate fully as to the timing and contents of such disclosure and review in
good faith the suggestions of the other party with respect to the contents of
such disclosure.

 

 

 

 45 

 

 

Section 10.04  Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any Law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect for so long as the economic or legal substance of the
transactions contemplated by this Agreement is not affected in any manner
materially adverse to either party hereto. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner in order that the transactions contemplated by this Agreement
are consummated as originally contemplated to the greatest extent possible.

 

Section 10.05 Entire Agreement. This Agreement (including the Exhibits and the
Disclosure Schedule) and the Ancillary Agreements constitute the entire
agreement of the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior agreements and undertakings, both written and
oral, between the Sellers and the Purchaser with respect to the subject matter
hereof and thereof.

 

Section 10.06  Assignment. This Agreement may not be assigned by operation of
Law or otherwise without the prior express written consent of the Sellers and
the Purchaser which consent may be granted, conditioned, delayed or withheld in
the sole discretion of the Sellers or the Purchaser, as the case may be.
Notwithstanding the foregoing, the Purchaser may assign any or all of its
interests in this transaction to one or more Affiliates, provided, that any such
assignment shall not relieve the Purchaser from its obligations hereunder.

 

Section 10.07 Amendment. This Agreement may not be amended or modified except
(a) by an instrument in writing signed by, or on behalf of, the Sellers and the
Purchaser or (b) by a waiver in accordance with Section 10.08.

 

Section 10.08 Waiver. Any party to this Agreement may (a) extend the time for
the performance of any of the obligations or other acts of the other party, (b)
waive any inaccuracies in the representations and warranties of the other party
contained herein or in any document delivered by the other party pursuant
hereto, or (c) waive compliance with any of the agreements of the other party or
conditions to such party’s obligations contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party to be bound thereby. Any waiver of any term or condition shall not be
construed as a waiver of any subsequent breach or a subsequent waiver of the
same term or condition, or a waiver of any other term or condition of this
Agreement. The failure of either party hereto to assert any of its rights
hereunder shall not constitute a waiver of any of such rights.

 

Section 10.09 No Third Party Beneficiaries. This Agreement shall be binding upon
and inure solely to the benefit of the parties hereto and their respective
successors and permitted assigns and nothing herein, express or implied
(including the provisions of Article VI relating to employee matters and Article
VIII relating to indemnified parties), is intended to or shall confer upon any
other Person any legal or equitable right, benefit or remedy of any nature
whatsoever, including any rights of employment for any specified period, under
or by reason of this Agreement.

 

 

 

 46 

 

 

 

Section 10.10 Currency. Unless otherwise specified in this Agreement, all
references to currency, monetary values and dollars set forth herein shall mean
United States (U.S.) dollars and all payments hereunder shall be made in United
States dollars.

 

Section 10.11 Governing Law. This Agreement and all others arising out of or
relating to this Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York. All Actions arising out of or relating
to this Agreement shall be heard and determined exclusively in any New York
federal court sitting in the Borough of Manhattan of The City of New York;
provided, however, that if such federal court does not have jurisdiction over
such Action, such Action shall be heard and determined exclusively in any New
York state court sitting in the Borough of Manhattan of The City of New York.
Consistent with the preceding sentence, the parties hereto hereby (a) submit to
the exclusive jurisdiction of any federal or state court sitting in the Borough
of Manhattan of The City of New York for the purpose of any Action arising out
of or relating to this Agreement brought by any party hereto and (b) irrevocably
waive, and agree not to assert by way of motion, defense, or otherwise, in any
such Action, any claim that it is not subject personally to the jurisdiction of
the above-named courts, that its property is exempt or immune from attachment or
execution, that the Action is brought in an inconvenient forum, that the venue
of the Action is improper, or that this Agreement or the transactions
contemplated by this Agreement may not be enforced in or by any of the
above-named courts.

 

Section 10.12  Waiver of Jury Trial. The parties hereto hereby waive to the
fullest extent permitted by applicable law any right it may have to a trial by
jury with respect to any litigation directly or indirectly arising out of, under
or in connection with this Agreement or the transactions contemplated by this
Agreement. Each of the parties hereto hereby (a) certifies that no
representative, agent or attorney of the other party has represented, expressly
or otherwise, that such other party would not, in the event of litigation, seek
to enforce the foregoing waiver and (b) acknowledges that it has been induced to
enter into this Agreement and the transactions contemplated by this Agreement,
as applicable, by, among other things, the mutual waivers and certifications in
this Section 10.12.

 

Section 10.13  Counterparts. This Agreement shall not be effective or binding
until such time as it has been executed and delivered by all parties hereto.
This Agreement may be executed and delivered (including by facsimile
transmission or portable document format (PDF)) in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.

 

Section 10.14 Cooperation. Prior to and after the Closing, each party hereto
shall, from time to time, execute, acknowledge and deliver such further
instruments, in recordable form, if necessary, and perform such additional acts,
as the other party may reasonably request in writing in order to effectuate the
intent of this Agreement, within thirty (30) days of the request. Nothing
contained in this Agreement shall be deemed to create any rights or obligations
of partnership, joint venture or similar association between the Sellers and the
Purchaser. This Agreement shall be given a fair and reasonable construction in
accordance with the intentions of the parties hereto, and without regard to or
aid of canons requiring construction against the Sellers or the Purchaser or the
party whose counsel drafted this Agreement. The provisions of this Section 10.14
shall survive the Closing.

 

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

 

 

 47 

 

IN WITNESS WHEREOF, the Purchaser and each of the Sellers have executed or have
caused this Membership Interest Purchase Agreement to be executed by their
respective officers or Persons thereunto duly authorized as of the date first
written above.

 

   

FREEDOM LEAF INC.

 

a Nevada corporation

 

 

 

By: /s/ Clifford J. Perry                                     

Name: Clifford Perry

Title: Chief Executive Officer

 

 

 

CARLOS FRIAS

 

 

 

/s/ Carlos Frias                                              

 

 

 

DANIEL NGUYEN

 

 

 

/s/ Daniel Nguyen                                      

 

 

ALEX FRIAS

 

 

 

/s/ Alex Frias                                              

 

 

 

CHRIS FAGAN

 

 

/s/ Carlos Frias *                                            

 

By: Carlos Frias, as attorney-in-fact under the power of attorney granted
pursuant to Section 2.16(b) of the Company Agreement, dated as of October 19,
2017, of ECS Labs LLC, a Texas limited liability company

 

 

____________________________________________

 

* Carlos Frias signed for Chris Fagan as attorney-in-fact under power of
attorney granted pursuant to Section 2.16(b) of the Company Agreement, dated as
of October 19, 2017, of ECS Labs LLC, a Texas limited liability company.

 

 

 

 48 

 

 

EXHIBIT A

 

EQUITY CONSIDERATION TO THE SELLERS

 

Name  Ownership
Percentage of the Company   Equity
Consideration Carlos Frias
[REDACTED]
   26.6%   To be inserted at the Closing. Daniel Nguyen
[REDACTED]
   26.6%   To be inserted at the Closing. Alex Frias
[REDACTED]
   20.2%   To be inserted at the Closing. Chris Fagan
[REDACTED]   26.6%   To be inserted at the Closing.

 

 

 

 

 

 

 

 

 

 

 49 

 

 

EXHIBIT B

 

FORM OF ASSIGNMENT OF MEMBERSHIP INTERESTS

 

FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which are
hereby acknowledged, (“Assignor”), ___________________, owner of an interest in
ECS Labs LLC, a Texas limited liability company (the “Company”), hereby assigns,
transfers, sells and conveys to Freedom Leaf Inc. (“Assignee”), a Nevada
corporation, all of such legal and beneficial right, title and interest in and
to the Company, including, without limitation, all right, title and interest of
Assignor in and to the assets of the Company and the right to receive
distributions of money, profits and other assets from the Company, presently
existing or hereafter at any time arising or accruing (such right, title and
interest are hereinafter collectively referred to as the “Membership Interest”).

 

TO HAVE AND HOLD the same unto Assignee, its successors and assigns, forever.

 

This Assignment is made without representation or warranty by Assignor to
Assignee and without recourse to Assignor. Upon the execution and delivery
hereof, Assignee assumes all obligations in respect of the Membership Interest.

 

Executed: as of May ___, 2019

 

  ASSIGNOR:       [SELLER NAME]              
                                                                                           
          ASSIGNEE:   FREEDOM LEAF INC.       BY:
                                                                                    
          Name:           Title:    

 

 

 

 

 

 

 50 

 

 

EXHIBIT C

 

FREEDOM LEAF INC. STOCK CERTIFICATE

 

* SEE RESTRICTIVE LEGENDS ON SECOND PAGE *

 

FREEDOM LEAF INC.

A NEVADA CORPORATION

 

Number:     Shares:  

 

This is to certify that ________________ is the owner of ( ) shares of common
stock, par value $0.001 per share, of Freedom Leaf Inc., a Nevada corporation
(the “Company”), transferable only on the books of the Company by the holder
hereof in person or by the holder’s duly authorized attorney upon surrender of
this Certificate properly endorsed.

 

WITNESS, the seal of the Company and the signature of its duly authorized
executive officer.

 

Dated: May __________, 2019

 

  FREEDOM LEAF INC.               By:
                                                                     Name:  
Title:

 

 

 

 

-SEAL-

 

 

 

 51 

 

 

THE COMMON STOCK REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION COMPLIES WITH THE PROVISIONS OF THAT CERTAIN MEMBERSHIP INTEREST
PURCHASE AGREEMENT BY AND AMONG MR. CARLOS FRIAS, MR. DANIEL NGUYEN, MR. ALEX
FRIAS, MR. CHRIS FAGAN AND FREEDOM LEAF INC. (THE “COMPANY”), DATED AS OF MAY
21, 2019 (A COPY OF WHICH IS ON FILE WITH THE COMPANY; THE “PURCHASE
AGREEMENT”). EXCEPT AS OTHERWISE PROVIDED IN THE PURCHASE AGREEMENT, NO
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
COMMON STOCK REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY
OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF
THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER. IN ADDITION, THE
COMMON STOCK ARE SUBJECT TO THE PROVISIONS OF SECTION 5.10 OF THE PURCHASE
AGREEMENT.

 

THE COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN VOTING
REQUIREMENTS AND OTHER RESTRICTIONS SET FORTH IN A VOTING AGREEMENT BETWEEN THE
HOLDER OF THIS CERTIFICATE AND CERTAIN OTHER PARTIES. TRANSFER OF THE COMMON
STOCK IS SUBJECT TO THE RESTRICTIONS CONTAINED IN SUCH AGREEMENT.

 

THE COMPANY WILL FURNISH TO EACH HOLDER WHO SO REQUESTS A STATEMENT OF THE
POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF WHICH THE COMPANY IS
AUTHORIZED TO ISSUE AND OF THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF
SUCH PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST IS TO BE ADDRESSED TO THE
COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS.

 

FOR VALUE RECEIVED, hereby sells, assigns and transfers unto ________________
the Common Stock represented by the within Certificate, and does hereby
irrevocably constitute and appoint ___________ to transfer the said Common Stock
on the books of the within named Company with full power of substitution in the
premises.

 

 

Dated:                                                                              
                                                                                

 

 

 

 52 

 

 

DISCLOSURE SCHEDULE

[REDACTED]

 

 

 

 

 

 

 

 

 

 53