EXHIBIT 10.3

LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
OF
BIOBALANCE LLC
 
This Limited Liability Company Operating Agreement of BioBalance LLC (the
“Company”), a limited liability company organized pursuant to the Delaware
Limited Liability Company Act, 6 Del. C Section 18-101 et seq., as amended from
time to time (the “Act”), is entered into as of August 12, 2008, and shall be
effective as of July 25, 2008, among the parties hereto, as Members (as defined
below).

WHEREAS, the Company was formed pursuant to the provisions of the Act on July
24, 2008; and

WHEREAS, the Members desire to establish their respective rights and obligations
in respect of the business and operation of the Company;

NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree to enter into and organize the Company as follows:

ARTICLE I

 
DEFINITIONS
 
For purposes of this Agreement unless the context clearly indicates otherwise,
the following terms shall have the following meanings:
 
“Act” is defined in the Preamble.
 
“Adjusted Capital Account Deficit” means, with respect to any Member, the
deficit balance, if any, in such Member’s Capital Account as of the end of the
relevant Taxable Year, after giving effect to the following adjustments:
 
(i) increase such Capital Account by any amounts which such Member is obligated
to contribute to the Company (pursuant to the terms of this Agreement or
otherwise) or is deemed to be obligated to contribute to the Company pursuant to
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
 
(ii) reduce such Capital Account by the amount of the items described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
 
“Affiliate” means, with respect to a specified Person, (i) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, (ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person, (iii) any officer, director, member
or general partner of such Person or (iv) any Person who is an officer,
director, general partner, member, trustee, or holder of ten percent (10%) or
more of the voting interests of any Person described in clauses (i) through
(iii) of this sentence.
 
“Agreement” means this Limited Liability Company Operating Agreement, as
originally executed and as amended from time to time, as the context requires.
Words such as “herein”, “hereinafter”, “hereto”, “hereby” and “hereunder”, when
used with reference to this Agreement, refer to this Agreement as a whole,
unless the context otherwise requires.
 
“Available Cash” means the gross cash proceeds of the Company from any and all
sources less the portion thereof used to pay or establish reserves for all
Company costs, expenses, management fees, debt payments, capital improvements,
replacements, and contingencies, all as determined by the Company. “Available
Cash” shall not be reduced by depreciation, amortization, cost recovery
deductions or similar allowances, but shall be increased by any reductions of
reserves previously established pursuant to the first sentence of this
definition.
 

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“Bankruptcy” means, with respect to a Person, the occurrence of any of the
following events: (a) the filing by that Person of a petition commencing a
voluntary case in bankruptcy under applicable bankruptcy laws; (b) entry against
that Person of an order for relief under applicable bankruptcy laws; (c) written
admission by that Person of its inability to pay its debts as they mature, or an
assignment by that Person for the benefit of creditors; or (d) appointment of a
receiver for the property or affairs of that Person.
 
“Business Day” means each day of the calendar year other than a Saturday, Sunday
or a day on which commercial banks are required or authorized to close in the
State of New York.
 
“Capital Account” means the account maintained for a Member determined in
accordance with Article III.
 
“Capital Contribution” means the amount of money and fair market value of
property contributed to the Company by a Member whether as an initial Capital
Contribution or as an additional Capital Contribution.
 
“Certificate of Formation" means the document filed with the Secretary of State
of the State of Delaware and through which the Company is formed and any duly
authorized, executed and filed amendments or restatements thereof.
 
“Code” means the Internal Revenue Code of 1986, as amended from time to time (or
any corresponding provisions of succeeding law).
 
“Company” is defined in the Preamble.
 
“Distribution” means transfer of property to a Member on account of a Membership
Interest as described in Article V.
 
"Indemnified Person" means the Managing Member, any Affiliate of the Managing
Member and any officer, director, employee or agent of the foregoing.
 
“Managing Member” means the Person designated to manage the Company pursuant to
Section 8.1 of this Agreement.
 
“Member” means each of the parties hereto who holds a Membership Interest.
 
"Member Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(i).
 
“Membership Interest” means the rights of a Member in Distributions (liquidating
or otherwise) and allocations of the profits, losses, gains, deductions, and
credits of the Company.
 
“Net Profits” and “Net Loss” means, for each Taxable Year or other period, an
amount equal to the Company’s taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
 
(a) Any income of the Company that is exempt from Federal income tax and not
otherwise taken into account in computing Net Profits or Net Losses shall be
added to such taxable income or loss; and
 
(b) Any expenditures of the Company described in Code Section 705(b)(2)(B) or
treated as Code Section 705(b)(2)(B) expenditures pursuant to Regulations
Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into account in computing
Net Profits or Net Losses shall be subtracted from such taxable income or loss.
 
“Non-Managing Members” means the Members other than the Managing Member, and any
third party (other than the Managing Member) who acquires Membership Interests
from a Non-Managing Member in any transaction permitted under this Agreement.
 
“Percentage Interest” means, with respect to any Member, the percentage interest
of each Member set forth on Schedule A annexed hereto, as modified or
supplemented from time to time.
 
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“Person” means an individual, trust, estate, or any incorporated or
unincorporated organization permitted to be a member of a limited liability
company under the laws of the State of Delaware.
 
“Proceeding” means any administrative, judicial, or adversary proceeding,
including, without limitation, litigation, arbitration, administrative
adjudication, mediation, and appeal or review of any of the foregoing.
 
“Property” means all of the assets of the Company, both tangible and intangible,
or any portion thereof.
 
“Regulations” means, except where the context indicates otherwise, the
permanent, temporary, proposed, or proposed and temporary regulations of the
Department of the Treasury under the Code, as such regulations may be lawfully
changed from time to time (including corresponding provisions of succeeding
regulations).
 
“Taxable Year” means the taxable year of the Company as determined for federal
income tax purposes.
 
“Transfer” As a noun, any voluntary or involuntary transfer, sale, or other
disposition and, as a verb, voluntarily or involuntarily to sell, assign,
transfer, grant, give away, hypothecate, pledge or otherwise dispose of and
shall include any transfer by will, gift or intestate succession.
 
ARTICLE II
 
FORMATION
 
2.1 Organization. The Company was formed as a Delaware limited liability company
pursuant to the provisions of the Act on July 24, 2008.
 
2.2 Name. The name of the Company is “BioBalance LLC”. All business of the
Company shall be conducted under the name “BioBalance LLC”. The Company shall
hold all of its Property in the name of the Company and not in the name of any
Member.
 
2.3 Term. The term of the Company commenced on the date of the formation of the
Company in accordance with and pursuant to the Act, and shall continue until the
Company is dissolved in accordance with either the provisions of this Agreement
or the Act.
 
2.4 Registered Agent and Office. The registered agent for service of process and
the registered office shall be that Person and location reflected in the
Certificate of Formation as filed in the office of the Secretary of State of
Delaware. The Managing Member may, from time to time, change the registered
agent or office through appropriate filings with the Secretary of State. In the
event the registered agent ceases to act as such for any reason or the
registered office shall change, the Company shall promptly designate a
replacement registered agent or file a notice of change of address, as the case
may be.
 
2.5 Principal Office. The principal office of the Company (“Principal Office”)
shall be located at 1850 McDonald Avenue, Brooklyn, New York 11223, or such
other place as may be determined by the Managing Member. The Company may also
maintain offices and places of business at such other place or places as the
Managing Member deems advisable.
 
2.6 Purpose. The Company was formed for the object and purpose of engaging in
any lawful act or activity for which limited liability companies may be formed
under the Act and engaging in any and all activities necessary or incidental to
the foregoing.
 
2.7 Statutory Compliance. The Company shall exist under and be governed by, and
this Agreement shall be construed in accordance with, the applicable laws of the
State of Delaware. The Managing Member may execute and file any duly authorized
amendments to the Certificate of Formation from time to time in a form
prescribed by the Act. The Managing Member shall also cause to be made, on
behalf of the Company, such additional filings and recordings as the Managing
Member shall deem necessary or advisable.
 
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2.8 Title to Property. All real and personal property owned by the Company shall
be owned by the Company as an entity and no Member shall have any ownership
interest in such property in its individual name or right, and each Member’s
interest in the Company shall be deemed personal property for all purposes.
 
2.9 Activities. The Managing Member shall devote so much of its business time
and efforts to the furtherance of the business of the Company and performance of
its responsibilities under this Agreement as it shall reasonably deem necessary.
 
ARTICLE III

 
CONTRIBUTIONS AND CAPITAL ACCOUNTS
 
3.1 Capital Contributions and Percentage Interests. The names, addresses,
Capital Contributions and Percentage Interests of the Members are set forth on
Schedule A annexed hereto.
 
3.2 Maintenance of Capital Accounts. The Company shall establish and maintain
Capital Accounts for each Member and assignee. Each Member’s Capital Account
shall be increased by (i) the amount of any money actually contributed by the
Member to the capital of the Company, (ii) the fair market value of any property
contributed by the Member, as determined by the Managing Member at the time of
contribution (net of liabilities assumed by the Company or subject to which the
Company takes such property), and (iii) the Member’s share of Net Profits. Each
Member’s Capital Account shall be decreased by (i) the amount of any money
actually distributed to the Member from the capital of the Company, (ii) the
fair market value of any property distributed to the Member, as determined by
the Managing Member at the time of distribution (net of liabilities of the
Company assumed by the Member or subject to which the Member takes such
property), and (iii) the Member’s share of Net Loss.
 
In the event any Member Transfers any Membership Interest in accordance with the
terms of this Agreement, the transferee shall succeed to the Capital Account of
the transferor to the extent it relates to the transferred Membership Interest.
 
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Regulations
Section 1.704-1(b), and shall be interpreted and applied in a manner consistent
with such Regulations and any amendment or successor provision thereto.
 
3.3 Additional Capital Contributions. Except as otherwise provided herein, no
Member shall be required to make any additional Capital Contributions to the
Company. 
 
3.4 Other Matters.
 
(a) Except as otherwise provided in this Agreement, no Member shall demand or
receive a return of his Capital Contributions or withdraw from the Company. No
Member shall have the right to withdraw any part of his Capital Contributions
from the Company prior to its liquidation and termination, unless such
withdrawal is permitted under this Agreement.
 
(b) No Member shall receive any interest, salary, or drawing with respect to his
Capital Contributions or his Capital Account or for services rendered on behalf
of the Company or otherwise in his capacity as a Member, except as otherwise
provided in this Agreement or determined by the Managing Member.
 
ARTICLE IV
 
ALLOCATIONS
 
4.1 Allocation of Net Profits and Net Losses of the Company. Except as otherwise
provided in this Article IV, Net Profits and Net Losses of the Company in each
Taxable Year shall be allocated among the Members as follows:
 
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(a) Net Profits. After giving effect to any special allocations set forth in
this Section, Net Profits for any fiscal year shall be allocated in the
following order and priority:
 
(1) First, to each Member in an amount equal to the excess, if any, of the
cumulative amount of Net Losses previously allocated to such Member pursuant to
Section 4.1(b)(i) over the cumulative amount of Net Income previously allocated
to such Member pursuant to this Section 4.1(a)(1); and
 
(2) Second, among the Members pro rata in accordance with their respective
Percentage Interests.
 
(b) Net Losses. After giving effect to any special allocations set forth in this
Section, Net Losses shall be allocated between the Members in the following
order and priority:
 
(1) First, to each Member in an amount equal to the excess, if any, of the
cumulative amount of Net Profits previously allocated to such Member pursuant to
Section 4.1(a)(2) over the cumulative amount of Net Losses previously allocated
to such Member pursuant to this Section 4.1(b)(1), not to exceed, in the case of
any Member, an allocation of Net Losses that would result in the Capital Account
balance of such Member being reduced below zero; and
 
(2) Thereafter, the balance of such Net Losses shall be allocated pro rata to
the Members in accordance with their respective Percentage Interests.
 
4.2 Qualified Income Offset. If any Member unexpectedly receives any
adjustments, allocation or distributions described in clauses (4), (5) or (6) of
Regulations Section 1.704-1(b)(2)(ii)(d), items of Company income shall be
specially allocated to such Member in an amount and manner sufficient to
eliminate the Adjusted Capital Account Deficit created by such adjustments,
allocations or distributions as quickly as possible. This Section 4.2 is
intended to constitute a “qualified income offset” within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(d)(3).
 
4.3 Member Nonrecourse Deductions. Any Member Nonrecourse Deductions for a
fiscal year or other period shall be specially allocated to the Member who bears
the economic risk of loss with respect to the Member Nonrecourse Debt to which
such Member Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i). If more than one Member bears the economic risk
of loss with respect to that Member Nonrecourse Debt shall be allocated among
the Members based upon the ratio in which they bear the economic risk of loss.
 
4.4 Allocations for Federal Income Tax Purposes. The Company's ordinary income
and losses, capital gains and losses and other tax items as determined for
federal income tax purposes shall be allocated to the Members in the same manner
as the corresponding "book" items are allocated pursuant to Section 4.1.
Notwithstanding the foregoing sentence, federal income tax items with respect to
property contributed to the Company by a Member shall be allocated among the
Members in accordance with Section 704(c) of the Code so as to take into account
the difference between the fair market value and the tax basis of such property
to the contributing Member as of the date of its contribution to the Company.
Unless otherwise determined by the Members, any allocations required by Code
Section 704(c) shall be effectuated using the traditional method described in
Regulation Section 1.704-3(b). Allocations pursuant to this Section 4.4 are
solely for income tax purposes and shall not effect or in any way be taken into
account on determining a Member's Capital Account or share of distributions.
 
4.5 Regulatory Allocations. The allocations set forth in Sections 4.2 and 4.3
(the "Regulatory Allocations") are intended to comply with certain requirements
of the Regulations. It is the intent of the Members that, to the extent
possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of income or
loss. Therefore, notwithstanding any other provision of this Article IV (other
than the Regulatory Allocations), offsetting special allocations of Net Profits
or Net Loss, shall be made in whatever manner is appropriate so that, after such
offsetting allocations are made, each Member's Capital Account balance is, to
the extent possible, equal to the Capital Account balance such Member would have
had if the Regulatory Allocations were not part of the Agreement.
 
ARTICLE V

 
DISTRIBUTIONS
 
5.1 Distributions of Available Cash. Available Cash shall be distributed when
determined by the Managing Member to and between the Members in proportion to
their respective Percentage Interests. Available Cash shall be distributed to
the Members pro rata in proportion to their respective Percentage Interests as
and when required to enable the Members to make estimated tax payments
attributable to their respective distributive shares of Net Profits, if any
(“Tax Distributions”). Tax Distributions shall be based on the highest marginal
federal, state and local individual tax rates in effect for the year in
question.
 
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5.2 Distributions Upon Liquidation. Distributions made in conjunction with the
final liquidation of the Company, shall be applied or distributed as provided in
Article XII.
 
5.3 Amounts Withheld. All amounts withheld pursuant to the Code or any provision
of any state or local tax law with respect to any payment, distribution or
allocation to the Company or the Members shall be treated as amounts distributed
to the Members pursuant to this Section for all purposes under this Agreement.
The Company is authorized to withhold from distributions, or with respect to
allocations, to the Members and to pay over to any federal, state, or local
government any amounts required to be so withheld pursuant to the Code or any
provisions of any other federal, state or local law and shall allocate such
amounts to the Members with respect to which such amount was withheld.
 
ARTICLE VI

 
RIGHTS AND DUTIES OF MEMBERS
 
6.1 Liability of Members. No Member shall be liable as such for the liabilities
of the Company. The failure of the Company to observe any formalities or
requirements relating to the exercise of its powers or management of its
business or affairs under this Agreement or the Act shall not be grounds for
imposing personal liability on the Members for liabilities of the Company.
 
ARTICLE VII
 
INDEMNIFICATION
 
7.1 Liability. No Indemnified Person shall be personally liable for the return
of any contributions made to the capital of the Company by the Members. No
Indemnified Person shall be liable to the Company or any Member for any act or
omission of any other employee, broker or agent of the Company which results in
losses to the Company due to the fraud, bad faith, willful misconduct or
negligence, provided that such employee, broker or agent was selected, engaged
and retained with reasonable care and, with regard to an employee, that such
employee was supervised with reasonable care.
 
7.2 Indemnification. The Company shall indemnify and hold any Indemnified Person
harmless from and against any loss, expense, damage or injury suffered or
sustained by such Indemnified Person to the fullest extent permitted by law for
any loss, damage, or claim incurred by such Indemnified Person by reason of any
acts, omissions, or alleged acts or omissions arising out of any activity
performed or not performed by such Indemnified Person, for or otherwise in
connection with or related to the Company, other than for such actions or
omissions constituting gross negligence or willful misconduct. This
indemnification shall include, but not be limited to: (i) payment, as incurred,
of reasonable attorneys' fees and other expenses incurred in settling any claim
or threatened action, or incurred in investigating, preparing for, or defending
any legal proceeding up to and including a final adjudication (including any
fees and expenses incurred in seeking indemnification), and (ii) the removal of
any liens affecting the property of an Indemnified Person (which liens shall be
deemed a debt of the Company to such Indemnified Person to be repaid in this
Agreement). If for any reason (other than the gross negligence, actions or
omissions taken in bad faith, or willful misconduct of such Indemnified Person)
the foregoing indemnification is unavailable to any Indemnified Person, or is
insufficient to hold it harmless, then the Company shall contribute to the
amount paid or payable by such Indemnified Person as a result of such loss,
claim, damage, liability or expense in such proportion as is appropriate to
reflect the relative benefits received by the Company, on the one hand, and such
Indemnified Person, on the other hand, or, if such allocation is not permitted
by applicable law, to reflect not only the relative benefits referred to above,
but also any other relevant equitable considerations. The total obligation of
the Company to all Indemnified Persons under this Section 7.2 shall be limited
solely to the assets of the Company.
 
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ARTICLE VIII

 
MANAGEMENT
 
8.1 Management and Authority.
 
The Company shall be managed by one or more designees of The BioBalance
Corporation (such designees referred to collectively as the “Managing Member”).
The Managing Member shall have such rights, duties and powers as are specified
in this Agreement and the Act or as may be prescribed by the Members.
 
(a) General Rights, Duties and Powers of the Managing Member. The Managing
Member is the general manager of the Company, and shall have complete and
exclusive control over the management of the business of the Company.
 
(b) Specific Powers and Duties of the Managing Member. In addition to the
general powers given to the Managing Member by law and by this Agreement, except
as expressly limited by the provisions of this Agreement, the Managing Member
shall have the power to enter into, make, sign, seal, deliver and perform all
agreements, contracts, documents, instruments and other undertakings and to
engage in all activities and transactions as may be necessary or desirable, in
the sole discretion of the Managing Member, in order to carry out the business
of the Company, all on behalf of the Company, including, without limitation, the
following:
 
(i) to admit additional Non-Managing Members;
 
(ii) to acquire, hold, sell, transfer, exchange, pledge and dispose of Property,
and exercise all rights, powers, privileges, and other incidents of ownership or
possession with respect thereto;
 
(iii) to open, maintain and close bank accounts and draw checks or other orders
for the payment of money;
 
(iv) to otherwise deal in any manner with the Property; and
 
(v) to make such elections under the Code and Regulations and other relevant tax
laws as to the treatment of items of Company income, gain, loss, deduction and
credit; including without limitation, elections referred to in Section 754 of
the Code.
 
8.2 Managing Member's Standard of Care. The Managing Member's duty of care in
the performance of its duties to the Company and the other Members is limited to
the performance of such duties in good faith and with that degree of care that
an ordinarily prudent person in a like position would use under similar
circumstances. In performing such duties, the Managing Member shall be entitled
to rely on information, opinions, reports or statements, including financial
statements and other financial data, in each case presented or prepared by
(i) one or more agents or employees of the Company, or (ii) counsel, public
accountants or other Persons as to matters that the Managing Member believes to
be within such Person’s professional or expert competence. Except as may be
otherwise required by the Act, the Managing Member shall not be personally
liable to the Company or any Member for damages for any act or omission taken or
suffered by the Managing Member in connection with this Agreement or the conduct
of the business of the Company other than for such acts or omissions
constituting gross negligence or willful misconduct. To the fullest extent
permitted by law, the Managing Member shall not owe any fiduciary duty to the
Members of the Company.
 
8.3 Reimbursement of Expenses. The Managing Member shall be entitled to
reimbursement from the Company for all out-of-pocket costs and expenses incurred
by it, in its reasonable discretion, for or on behalf of the Company.
 
8.4 Officers. The Managing Member may from time to time appoint one or more
officers of the Company. Such officers shall serve on such terms and for such
periods and shall have such powers and duties as shall be specified by the
Managing Member. The Managing Member shall have the ability to remove officers
with or without cause.
 
8.5 Approval of Consulting Agreement. The Managing Member hereby confirms the
approval by the Company of the Consulting Agreement, of even date herewith,
between the Company and The Meister Group, LLC (the “Consulting Agreement”).
 
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ARTICLE IX

 
DISPOSITION OF MEMBERSHIP INTERESTS
 
9.1 Transfers of Membership Interests Restricted. No Member may Transfer all or
a portion of such Member’s Membership Interest other than in compliance with
this Article IX. Any Transfer of all or any part of the Membership Interest of a
Member in violation of the provisions of this Article IX shall be null and void
for all purposes. In addition, any Non-Managing Member that is not an individual
shall not transfer any ownership interest therein without the prior written
consent of the Managing Member.
 
9.2 Compliance with Code. Notwithstanding any provision of this Agreement to the
contrary, no Transfer shall be made if such Transfer, alone or when combined
with other transactions, would result in the termination of the Company within
the meaning of Section 708 of the Code or under any other relevant section of
the Code or any successor statute, or otherwise adversely affect the
classification of the Company for income tax purposes.
 
9.3 Compliance with Securities Laws. No Transfer of any Membership Interest by a
Non-Managing Member may be made without an opinion of counsel satisfactory to
the Company and the Managing Member that such Transfer is subject to an
effective registration under, or exempt from the registration requirements of,
applicable State and Federal securities laws.
 
9.4 Instruments of Assignment. Membership Interests acquired by any third party
pursuant to the provisions of this Article IX, as well as Membership Interests
of a deceased Non-Managing Member or in the hands of a legal representative or
distributees of a Non-Managing Member, shall continue to be subject to the
restrictions set forth in this Article IX and elsewhere in this Agreement. No
Transfer of all or any part of a Membership Interest otherwise permitted under
this Agreement shall be binding upon the Company unless and until a duly
executed and acknowledged counterpart of such assignment or instrument of
transfer, in form and substance satisfactory to the Company and the Managing
Member, has been delivered to the Company.
 
9.5 Record Ownership Conclusive. Notwithstanding a any provision of this
Agreement to the contrary, the Company shall be entitled to treat the record
holder of the Membership Interest of a Member as the absolute owner thereof, and
shall incur no liability by reason of distributions made in good faith to such
record holder, unless and until there has been delivered to the Company the
assignment or other instrument of transfer and such other evidence as may be
reasonably required by the Company to establish to the satisfaction of the
Company that an interest has been assigned or transferred in accordance with
this Agreement.
 
9.6 Permitted Transfers. Notwithstanding any provision contained herein to the
contrary and subject to the provisions contained in this Article IX, on not less
than ten (10) business days prior written notice to the Company and to the other
Members, a Non-Managing Member who is an individual shall be permitted to
transfer Membership Interests (i) to any other Member, (ii) to a trust created
for the benefit of such Non-Managing Member or any of such Non-Managing Member’s
parents, siblings, spouse or children or the children of any siblings of the
Non-Managing Member, (iii) to a trust the settler of which is such Non-Managing
Member, or (iv) to an entity with respect to which the Non-Managing Member
exercises voting control at all times, provided that in all such instances the
Non-Managing Member shall retain the sole right, if any, to vote such Membership
Interests. In addition, subject to Section 9.8 below, upon the death of a
Non-Managing Member who is an individual, the Membership Interests of such
deceased Non-Managing Member may be transferred to his personal representative,
executor or administrator of the deceased Non-Managing Member’s estate, as
applicable (“Executor”) or otherwise in accordance with applicable law, provided
that the Executor, transferee, heir, successor, assignee, and/or other
distributee of such Membership Interests, as the case may be, from the deceased
Non-Managing Member becomes a signatory to this Agreement and agrees to be bound
by the terms thereof.
 
9.7 Right of First Refusal. 
 
(a)  Unless otherwise consented to by the Members, no Member shall be permitted
to transfer its Membership Interests hereunder prior to July 25, 2009 (the
“Restricted Period”).
 
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(b) Following the expiration of the Restricted Period, in the event that a
Member (“Offering Member”) shall desire to sell all or a portion of its
Membership Interests and has received from a third party which is not related to
or affiliated with it (an “Offeror”) an irrevocable and unconditional bona fide
arms-length written offer (a "Bona Fide Offer") for the purchase of its
Membership Interests (the "Offered Interests"), the Offering Member shall
promptly give a written notice (the "Sale Notice") to the Company and the other
Members (the “Remaining Members”) which shall (i) state the nature and details
of the sale transaction proposed to be effected; and (ii) be accompanied by a
photocopy of the original executed Bona Fide Offer, certified to be a true and
correct copy thereof. Notwithstanding the foregoing, no transfer to any
Competitor (as defined) shall be permitted hereunder. For purposes of this
Section, “Competitor” shall mean any person or entity then engaged in, or which
proposes to engage in, the field of the development, manufacture, and/or sale of
probiotic products or other products performing functions similar to
ProBactrix®.
 
(c) For a period of thirty (30) days from the giving of the Sale Notice (the "
Option Period"), each Remaining Member shall have an option to purchase all, and
not less than all, of the Offered Interests, exercisable by a written notice
(the “Remaining Member’s Notice”) from such Remaining Member to the Offering
Member and to the Company of the desire of such Remaining Member (each, an
“Electing Member”) to purchase all of Offered Interests on the terms specified
in the Sale Notice. Such Remaining Member’s Notice shall be accompanied by
evidence reasonably satisfactory to the Offeror that the Electing Member has
sufficient cash on hand, or evidence of a binding commitment from a reputable
financial institution, to fund the cash purchase price and consummate the
transaction described in the Sale Notice. If two or more Electing Members
deliver a Remaining Member’s Notice, then the Offered Interests shall be
allocated among the Electing Members ratably in accordance with their respective
Percentage Interests.
 
(d) If the Remaining Members elect to purchase all of the Offered Interests, the
Offering Member shall be obligated to sell, and the Electing Members shall be
obligated to purchase all of the Offered Interests specified in the Remaining
Member’s Notices at the price and upon the terms set forth in the Bona Fide
Offer. Pending (i) exercise by the Remaining Members of their respective
options; or (ii) expiration, without exercise of the option, of the Option
Period, the Offering Member shall not accept, consummate or, except as specified
herein, otherwise act upon the Bona Fide Offer.
 
(e) If the Remaining Members do not elect to purchase all of the Offered
Interests, or if they elect to purchase Offered Interests but do not timely
close on the purchase of the Offered Interests in accordance with the terms
hereof (other than on account of the default of the Offering Member), the
Offering Member shall be entitled to sell all (but not less than all) of such
Offered Interests which the Remaining Members do not elect to purchase (or have
elected to purchase, but did not timely do so) to the Offeror, in the manner, at
the price and upon the terms specified in the Bona Fide Offer, provided such
action is consummated (i) within thirty (30) days from the last day of the
Option Period and (ii) only with the Offeror who tendered the Bona Fide Offer.
If such transaction specified in the Bona Fide Offer shall not have been so
consummated within such thirty (30)-day period, then the Offering Member shall
not thereafter have the right to consummate such transaction and its Membership
Interests shall continue to be subject to the provisions of this Agreement in
all respects as if the Sale Notice had never been given.
 
(f) The closing of a purchase by the Remaining Members pursuant to this Section
9.7 (the "Closing Date") shall take place thirty (30) days after the giving of
the Remaining Members Notice.
 
(g) On the Closing Date, the Offering Member shall deliver to the Electing
Members the certificate or certificates, if any, representing the Offered
Interests, duly endorsed for transfer with all requisite transfer tax paid and
stamps affixed. If the Offered Interests are evidenced by book-entry notation,
then appropriate book-entry transfers shall be made as of the Closing Date. The
Electing Members may require the delivery to them on the applicable Closing Date
of such consents to transfer, tax waivers and releases of liens and certificates
and opinions of counsel, as may be reasonably appropriate in connection with the
transfer of any of the Offered Interests. On such Closing Date, all right, title
and interest in the Offered Interests being sold shall be conveyed to the
Electing Members, and the Offering Member shall thereafter cease to be, and
shall have no rights, as a Member with respect to such Offered Interests.
 
(h) If the date upon which any action is required to be taken under this
Agreement shall fall on a Saturday, Sunday or legal holiday, then such act shall
be performed on the next succeeding business day.
 
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9.8  Death of a Non-Managing Member. 
 
(a) Upon the death of a Non-Managing Member (the “Deceased Non-Managing
Member”), the Company shall have the option, but not the obligation, to purchase
the Membership Interests of the Deceased Non-Managing Member at a price equal to
the Fair Market Value of the Membership Interests (as defined below),
exercisable by a written notice from the Company to the Deceased Non-Managing
Member's Executor of the Company's desire to purchase as provided in this
Section, which notice shall be delivered no later than ninety (90) days from the
date of death of the Deceased Non-Managing Member. If the Non-Managing Members
unanimously agree, then the Company may, at its own expense (and provided that
the Non-Managing Members are insurable), carry policies of insurance on the
lives of the Non-Managing Members in such amounts (“Life Policies”), as the
Non-Managing Members deem necessary to purchase the Membership interests of a
Deceased Non-Managing Member.

(b) “Fair Market Value” shall mean the price that a willing purchaser would pay
and a willing seller would accept for the Membership Interests being transferred
under this Section as of the proposed date of transfer, both purchaser and
seller being fully informed of the relevant facts and neither being under a
compulsion to purchase or sell. If not agreed upon by the Company and the
Executor of the Deceased Non-Managing Member, then Fair Market Value shall be
determined by an independent and qualified appraiser jointly selected by the
parties, and shall be binding on the parties. All costs of any appraisal shall
be paid equally by the Company and the estate of the Deceased Non-Managing
Member.
 
(c) The closing of a purchase by the Company pursuant to this Section 9.8 (the
"Closing Date") shall take place thirty (30) days after the expiration of the
90-day period provided in Section 9.8(a), above. The purchase price shall be
paid by delivery of the Company’s non-negotiable promissory note which shall
provide that the unpaid principal balance thereof shall bear interest at the
Prime Rate (as defined below), payable in thirty six (36) equal monthly
principal installments, together with interest accrued thereon, with the first
payment being due and payable on the first day of the month following the
Closing Date. “Prime Rate” as of any date shall mean the rate of interest set
forth as the “Prime Rate” as published by The Wall Street Journal in its daily
“Money Rates” column on such date Notwithstanding the foregoing, however, all
proceeds of the Life Policies payable upon the death of the Deceased
Non-Managing Member shall be paid to fund the purchase of the Deceased
Non-Managing Member’s Membership Interest as and when received.
 
ARTICLE X
 
ACCOUNTING AND RECORDS; CERTAIN TAX MATTERS
 
10.1 Records to be Maintained.
 
(a) The Company shall maintain at its Principal Office separate books of account
for the Company which shall reflect a true and accurate record of all costs and
expenses incurred, all charges made, all credits made and received, and all
income derived in connection with the operation of the Company business in
accordance with generally accepted accounting principles consistently applied
and, to the extent inconsistent therewith, in accordance with this Agreement.
Each Member shall, at his sole expense, have the right, or reasonable notice, to
examine, copy, and audit the Company’s books and records during normal business
hours.
 
(b) The Company shall maintain the following records at its Principal Office:
 
(i) A current list of the full name and last known business address of each
Member;
 
(ii) A copy of the Certificate of Formation and all amendments thereto;
 
(iii) Copies of the Company’s income tax returns and reports for the three most
recent Taxable Years;
 
(iv) Copies of this Agreement and any admission agreement, including all
amendments thereto; and
 
(v) Any audited financial statements of the Company.
 
10.2 Reports. The Company shall be responsible for the preparation of financial
reports of the Company and the coordination of financial matters of the Company
with the Company’s accountants. The Company shall provide the Members, not less
frequently than annually, with financial statements of the Company that may be
unaudited, including a balance sheet and related statements of income and
retained earnings and changes in financial position. Each Non-Managing Member
will also be furnished with adequate information necessary for the preparation
of its federal income tax return, including a copy of Form K-1.
 
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10.3 Tax Returns; Information. The Company shall arrange for the preparation of
all income and other tax returns of the Company and shall cause the same to be
filed in a timely manner. The Company shall furnish to each Member a copy of
each such return, together with any schedules or other information each Member
may require in connection with such Member’s own tax affairs.
 
10.4 Tax Matters Member. The Managing Member is specifically authorized to act
as the Tax Matters Member under the Code and in any similar capacity under state
or local law.
 
ARTICLE XI

 
WITHDRAWALS; ACTION FOR PARTITION; BREACHES
 
11.1 Waiver of Partition. No Member shall, either directly or indirectly, take
any action to require partition, file a bill for Company accounting or
appraisement of the Company or of any of its assets or properties or cause the
sale of any Company property and, notwithstanding any provisions of applicable
law to the contrary, each Member (and each of such Member’s legal
representatives, successors, or assigns) hereby irrevocably waives any and all
rights it may have to maintain any action for partition or to compel any sale
with respect to its Membership Interest, or with respect to any assets or
properties of the Company, except as expressly provided in this Agreement.
 
11.2 Covenant Not to Withdraw or Dissolve. Except as otherwise provided in this
Agreement, each Member hereby covenants and agrees that the Members have entered
into this Agreement based on their mutual expectation that all Members will
continue as Members and carry out the duties and obligations undertaken by them
hereunder and that, except as otherwise expressly required or permitted hereby,
each Member hereby covenants and agrees not to, without the prior written
consent of the Managing Member, (a) take any action to file a certificate of
dissolution or its equivalent with respect to itself, (b) take any action that
would cause voluntary bankruptcy of such Member, (c) withdraw or attempt to
withdraw from the Company, (d) exercise any power under the Act to dissolve the
Company, (e) Transfer all or any portion of its Membership Interest in the
Company except as expressly permitted hereunder, (f) petition for judicial
dissolution of the Company, or (g) demand a return of such Member’s
contributions or profits (or a bond or other security for the return of such
contributions or profits).
 
ARTICLE XII

 
DISSOLUTION AND WINDING UP
 
12.1 Dissolution; Liquidating Events. The Company shall be dissolved and its
affairs wound up upon the first to occur of the following events:
 
(a) the written consent of the Managing Member;
 
(b) the sale of all or substantially all of the assets of the Company without
any contemplated reinvestment of proceeds following such sale, as determined by
the Managing Member; or
 
(c) the entry of a decree of judicial dissolution under Section 18-802 of the
Act.
 
Notwithstanding the foregoing, the dissolution of the Company during the
one-year period commencing on the date of this Agreement shall require the
unanimous written consent of the Members.
 
12.2 Effect of Dissolution. Upon dissolution, the Company shall cease carrying
on as distinguished from the winding up of the Company business, but the Company
shall not be terminated, and shall continue until the winding up of the affairs
of the Company is completed in accordance with the Act.
 
12.3 Liquidating Agent. The liquidation of the Company shall be conducted and
supervised by the Managing Member or the Managing Member’s designee (the
"Liquidating Agent"). The Liquidating Agent hereby is authorized and empowered
to execute any and all documents and to take any and all actions necessary or
desirable to effectuate the dissolution and liquidation of the Company in
accordance with this Agreement. Promptly after the termination of the Company,
the Liquidating Agent shall cause to be prepared and furnished to the Members a
statement setting forth the assets and liabilities of the Company as of the date
of termination. The Liquidating Agent, to the extent practicable, shall
liquidate the assets of the Company as promptly as possible, but in an orderly
and businesslike manner so as not to involve undue sacrifice. Neither the
Managing Member nor the Liquidating Agent will be personally liable for the
return of the capital contributions of the Non-Managing Members, it being
expressly understood that such returns will be repayable only from the Company's
assets.
 
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12.4 Distribution of Assets on Dissolution. Upon the winding up of the Company,
the Company’s assets shall be distributed in the following order of priority,
after giving effect to all distributions made under Article V hereof and after
establishing such reserves as the Liquidating Agent shall deem necessary or
appropriate:
 
(a) to creditors, including Members who are creditors, in satisfaction of the
Company's liabilities;
 
(b) to Members in accordance with positive Capital Account balances, taking into
account all Capital Account adjustments for the Company’s Taxable Year in which
the liquidation occurs until all capital accounts are reduced to zero, and
thereafter in accordance with the Members’ Percentage Interests. Liquidation
proceeds shall be paid within 60 days of the end of the Company’s Taxable Year
or, if later, within 90 days after the date of liquidation. Such distributions
shall be in cash or property (which need not be distributed proportionately) or
partly in both, as determined by the Managing Member.
 
12.5 Winding Up and Certificate of Cancellation. The winding up of the Company
shall be completed when all debts of the Company have been paid and discharged
or reasonably adequate provision therefor has been made, and all of the
remaining assets of the Company have been distributed to the Members in
accordance with the provisions of the Act.
 
ARTICLE XIII

 
MISCELLANEOUS PROVISIONS
 
13.1 Entire Agreement. This Agreement represents the entire agreement among the
parties hereto with respect to the subject matter hereof.
 
13.2 Loans by Members. Loans by Members to the Company shall be made voluntarily
and only upon such terms and conditions as the Managing Member may determine.
 
13.3 No Partnership Intended for Nontax Purposes. The Members have formed the
Company under the Act, and expressly do not intend hereby to form a partnership
under any partnership or limited partnership act. The Members do not intend to
be partners one to another, or partners as to any third party. To the extent any
Member, by word or action, represents to another person that any other Member is
a partner or that the Company is a partnership, the Member making such wrongful
representation shall be liable to any other Member who incurs personal liability
by reason of such wrongful representation.
 
13.4 Rights of Creditors and Third Parties under Agreement. This Agreement is
entered into among the Company and the Members for the exclusive benefit of the
Company, its Members, and their permitted successors and assigns. This Agreement
is expressly not intended for the benefit of any creditor of the Company or any
other Person. Except and only to the extent provided by applicable statute, no
such creditor or third party shall have any rights under this Agreement or any
agreement between this Company and any Member with respect to any Capital
Contribution or otherwise.
 
13.5 Competing Business Activities. Except as otherwise set forth in the
Consulting Agreement, which shall supersede the provisions of this Section 13.5
to the extent inconsistent therewith, each Member, including the Managing
Member, may engage in, invest in, participate in, or otherwise enter into, any
other businesses arrangements of every nature and description, now or hereafter
existing, individually or with others including other Members, whether or not
such businesses or professions compete directly with the Company and the pursuit
of any such venture, even if competitive with the business of the Company, shall
not be deemed wrongful or improper. Subject to the foregoing, (a) neither the
Company nor any other Member shall have any rights in or to any such business
arrangements or the income or profits therefrom, even if such opportunity is of
a character that, if presented to the Company, could be taken by the Company,
and the Members shall have the right to take for their own accounts
(individually or as a partner or fiduciary) or to recommend to others any such
particular investment or other opportunity, and (b) no Member, including the
Managing Member, shall be obligated to afford to the Company any business
opportunity.
 
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13.6 Notices. Any notice, payment, demand, or communication required or
permitted to be given by any provision of this Agreement shall be in writing and
sent by overnight courier, or by telephone or facsimile, if such telephone
conversation or facsimile is followed by a hard copy of the telephone
conversation or facsimiled communication sent by overnight courier, charges
prepaid, addressed as reflected in the books and records of the Company or to
such other address as such Person may from time to time specify by notice to the
Company. Any such notice shall be deemed to be delivered, given, and received as
of the date so delivered.
 
13.7 Binding Effect. Except as otherwise provided in this Agreement, every
covenant, term and provision of this Agreement shall be binding upon and inure
to the benefit of the Members and their respective permitted successors,
transferees and assigns.
 
13.8 Construction. Every covenant, term, and provision of this Agreement shall
be construed simply according to its fair meaning and not strictly for or
against any Member. The terms of this Agreement are intended to embody the
economic relationship among the Members and shall not be subject to modification
without the consent of all of the Members.
 
13.9 Headings. Section and other headings contained in this Agreement are for
reference purposes only and are not intended to describe, interpret, define, or
limit the scope, extent, or intent of this Agreement or any provision hereof.
 
13.10 Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or
legality of the remainder of this Agreement.
 
13.11 Incorporation by Reference. Each agreement, instrument, schedule or
exhibit attached to this Agreement and/or referred to herein is incorporated in
this Agreement by reference and made a part hereof as if fully set forth herein.
 
13.12 Further Action. Each Member agrees to perform all further acts and
execute, acknowledge, and deliver any documents which may be reasonably
necessary, appropriate, or desirable to carry out the provisions of this
Agreement.
 
13.13 Variation of Pronouns. All pronouns and any variations thereof shall be
deemed to refer to masculine, feminine, or neuter, singular or plural, as the
identity of the person or persons may require.
 
13.14 Governing Law. The laws of the State of Delaware (without reference to its
choice of laws principles) shall govern the validity of this Agreement, the
construction of its terms, and the interpretation of the rights and duties of
the Members.
 
13.15 Counterpart Execution. This Agreement may be executed in any number of
counterparts with the same effect as if all of the Members had signed the same
document. All counterparts shall be construed together and shall constitute one
agreement.
 
13.16  Amendment of Operating Agreement. This Agreement may be amended by action
of the Managing Member without the consent or approval of any Non-Managing
Member if: (i) the amendment is solely for the purpose of clarification and does
not change the substance of the Agreement; or (ii) in the opinion of the
Company's counsel, the amendment is necessary or appropriate to satisfy
requirements of the Code with respect to the Company or of any applicable
securities or other legal requirements and the amendment does not adversely
affect the interests of the Non-Managing Members. No other amendment to this
Agreement may be made without the written consent of the Managing Member and all
of the Non-Managing Members.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
 
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IN WITNESS WHEREOF, this Limited Liability Company Agreement has been executed
and delivered as of the date first above written.

 
MANAGING MEMBER:
 
THE BIOBALANCE CORPORATION
 
By: /s/Murry Englard
Name: Murry Englard
Title: Chief Executive Officer
 
NON-MANAGING MEMBER:
 
/s/Yitz Grossman
Yitz Grossman

 
[SIGNATURE PAGE – BIOBALANCE LLC OPERATING AGREEMENT]
 
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SCHEDULE A 
 
OPERATING AGREEMENT OF BBAL LLC
 
Members
 
Capital Contribution
 
Percentage Interest
 
Address
The BioBalance Corporation
 
The intellectual property of The BioBalance Corporation, valued at $628,056.
 
66-2/3%
 
 
1850 McDonald Avenue, Brooklyn, New York 11223
Yitz Grossman
 
 
0
 
 
33-1/3%
 
 
5 Dogwood Lane, Lawrence, New York 11559

 
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