Exhibit 10.1

 

Execution Version

 

 

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

 

 

By and Among

 

XSPAND PRODUCTS LAB, INC., as Buyer

 

and

 

EDISON NATION HOLDINGS, LLC, as the Company

 

and

 

THE EXISTING MEMBERS OF EDISON NATION HOLDINGS, LLC

 

June 29, 2018

 

 

 

 

TABLE OF CONTENTS

 

    Page       Article 1 – ISSUANCE AND SALE OF THE COMMON MEMBERSHIP INTERESTS
2       1.1 Issuance and Sale of the Common Membership Interests 2 1.2 Payment
for the Common Membership Interests 2 1.3 Exclusion of Certain Assets and
Liabilities 2       Article 2 - CLOSING 2       2.1 Closing 2 2.2 Payment of the
Purchase Price 2 2.3 Transactions to occur prior to, at or concurrently with the
Closing 3 2.4 Deliveries by the Company 3 2.5 Pre-Closing Covenants 4      
Article 3 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND EXISTING MEMBERS 5
      3.1 Existence and Qualification 5 3.2 Authority, Approval and
Enforceability 6 3.3 Capitalization and Company Records 6 3.4 No Company or
Existing Member Defaults or Consents 7 3.5 No Company Defaults or Consents 7 3.6
No Proceedings 8 3.7 Employee Benefit Matters 8 3.8 Financial Statements; No
Undisclosed Liabilities 11 3.9 Absence of Certain Changes 12 3.10 Compliance
with Laws 13 3.11 Litigation 15 3.12 Real Property 15 3.13 Material Contracts 15
3.14 Insurance 17 3.15 Intellectual Property 17 3.16 Equipment and Other
Tangible Property 21 3.17 Permits; Environmental Matters 21 3.18 Banks 22 3.19
Customers 22 3.20 Absence of Certain Business Practices 23 3.21 Products,
Services and Authorizations 23 3.22 Labor 24 3.23 Transactions With Affiliates
25 3.24 Brokers or Finders’ Fees 25 3.25 Management Continuity 25 3.26 Taxes 25
3.27 Other Information 27

 

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TABLE OF CONTENTS
(CONT.)

 

    Page       3.28 Securities Matters 27 3.29 No Additional Representations 27
      Article 4 - REPRESENTATIONS AND WARRANTIES OF THE BUYER 27       4.1
Existence and Qualification 27 4.2 Authority, Approval and Enforceability 28 4.3
No Default or Consents 28 4.4 No Proceedings 28 4.5 No Other Agreements 29 4.6
Independent Investigation; No Other Representations and Warranties 29 4.7 Buyer
Shares 29 4.8 Brokers or Finders’ Fees 29 4.9 SEC Reports; Financial Statements
30       Article 5 - CONDITIONS TO THE EXISTING MEMBERS’ AND THE BUYER’S
OBLIGATIONS 30       5.1 Conditions to Obligations of the Company 30 5.2
Conditions to Obligations of the Buyer 31       Article 6 - POST-CLOSING
OBLIGATIONS 31       6.1 Further Assurances 31 6.2 Publicity; SEC Filings;
Listing 32 6.3 Post-Closing Indemnity by the Existing Members and by the Buyer
32 6.4 Non-Disclosure 33 6.5 Director Nomination 33 6.6 Releases 33 6.7
Restrictive Covenants 34       Article 7 - TAX MATTERS 35       7.1 Transfer
Taxes 35 7.2 Tax Contests 36 7.3 Additional Agreements 36       Article 8 -
MISCELLANEOUS 38       8.1 Limitation on Liability; Claim Procedure 38 8.2
Brokers 40 8.3 Costs and Expenses 40 8.4 Notices 40 8.5 Governing Law 42 8.6
Survival 42 8.7 Binding Effect and Assignment 42 8.8 Exhibits and Schedules 42
8.9 Multiple Counterparts 42

 

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TABLE OF CONTENTS
(CONT.)

 

    Page       8.10 References and Construction 43 8.11 Attorneys’ Fees 43 8.12
Severability. 43 8.13 Entire Agreement; Amendments and Waivers 43 8.14
Termination 43 8.15 Waiver of Conflicts; Privilege 44       Article 9 -
DEFINITIONS 44

 

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LIST OF SCHEDULES

 

Schedule 1.3 Excluded Liabilities Schedule 3.1 Foreign Qualifications Schedule
3.3(a) Company Capitalization Schedule 3.3(d) Acquired Subsidiary Capitalization
Schedule 3.4 Seller Defaults or Consents Schedule 3.5 Company Defaults or
Consents Schedule 3.6 No Proceedings Schedule 3.7(a) Employee Benefit Matters
Schedule 3.7(c) Benefit Plan Liabilities Schedule 3.8(b) Scheduled Contingent
Liabilities Schedule 3.8(d) Accounts Receivable Schedule 3.8(e) Encumbrances
Schedule 3.9(a) Certain Material Changes Schedule 3.9(b) Certain Actions
Schedule 3.10(a) Compliance with Laws Schedule 3.10(c) Approvals, Registrations
and Authorizations Schedule 3.10(i) Adverse Event Reports Schedule 3.11
Litigation Schedule 3.12 Real Property Schedule 3.13(a) Material Contracts
Schedule 3.13(b) Material Contracts Benefits Schedule 3.14 Insurance Schedule
3.15(b) Company Owned Intellectual Property Schedule 3.15(c) Encumbrances
Schedule 3.15(f) Claims Schedule 3.15(h) Creators of Company Owned Intellectual
Property Schedule 3.15(i) Assignments or Licenses Schedule 3.15(l) Third-Party
Source Code Schedule 3.15(s) Exclusivity Schedule 3.15(u) Contractual
Obligations Schedule 3.15(v) Upcoming Filings Schedule 3.16 Tangible Assets
Condition Schedule 3.17(a) Permits Schedule 3.17(c) Environmental Law Compliance
Schedule 3.18 Banks, Accounts and Authorized Signatories Schedule 3.19 Customers
Schedule 3.21(b) Suspensions Schedule 3.22 Labor Schedule 3.22(c) Independent
Contractors Schedule 3.22(f) Employees Schedule 3.23 Affiliate Transactions
Schedule 3.24 Brokers or Finders’ Fees Schedule 3.26(j) IRS Rulings Schedule 4.3
Buyer Defaults or Consents Schedule 4.8 Brokers or Finders’ Fees Schedule 14C
Preliminary Information Statement

 

 -iv-

 

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT (this “Agreement”) is made and
entered into as of June 29, 2018, by and among, (i) XSPAND PRODUCTS LAB, INC., a
Nevada corporation (the “Buyer”); (ii) EDISON NATION HOLDINGS, LLC, a North
Carolina limited liability company (the “Company”) and (iii) the members of the
Company listed on the signature pages hereto (the “Existing Members” and
collectively with the Company and the Buyer, the “Parties” and each, a “Party”).

 

Recitals

 

WHEREAS, the Company, through the Acquired Subsidiaries (as defined herein), is
primarily engaged in bringing consumer products to market through its inventor
community (as currently conducted by the Company’s Acquired Subsidiaries, the
“Business”); and

 

WHEREAS, the Existing Members collectively own all of the issued and outstanding
membership interests of the Company (collectively, the “Existing Company
Membership Interests”); and

 

WHEREAS, in accordance with the terms, and subject to the conditions, of this
Agreement, at the Closing (as defined herein), the Company desires to issue and
sell to Buyer, and Buyer desires to purchase from the Company, membership
interests in the Company in consideration for (i) the payment to the Company of
the Cash Consideration (as defined herein), (ii) the assumption and/or discharge
of the Company’s borrowed money indebtedness on the terms set forth herein and
(iii) the guarantee of the Company’s obligations to the Existing Members in
respect of the Existing Company Membership Interests as provided in the New
Company LLC Agreement (as defined herein); and

 

WHEREAS, in connection with the issuance and sale of membership interests of the
Company to Buyer, at the Closing, the existing limited liability company
agreement of the Company shall be amended and restated, in the form attached
hereto as Exhibit A (the “New Company LLC Agreement”), to, among other things,
(i) provide for two (2) classes of membership interests consisting of (A)
preferred membership interests (the “Preferred Membership Interests”) to be
owned by the Existing Members, which Preferred Membership Interests shall
entitle the Existing Members to the rights set forth in the New Company LLC
Agreement; and (B) common membership interests (the “Common Membership
Interests”) to be owned by Buyer; and

 

WHEREAS, the Buyer desires to purchase the Common Membership Interests from the
Company and to assume and/or discharge certain borrowed money indebtedness of
the Company, and the Company desires to issue and sell the Common Membership
Interests to the Buyer, upon the terms and subject to the conditions set forth
in this Agreement; and

 

WHEREAS, capitalized terms used and not otherwise defined herein shall have the
meanings given to them in Article 9 hereof.

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:

 

 

 

 

Agreement

 

Article 1 – ISSUANCE AND SALE OF THE COMMON MEMBERSHIP INTERESTS

 

1.1           Issuance and Sale of the Common Membership Interests. On the terms
and subject to the conditions set forth in this Agreement, at the Closing
referred to in Section 2.1 hereof, the Company shall issue to the Buyer, and the
Buyer shall purchase from the Company, the Common Membership Interests, free and
clear of any and all Encumbrances (other than those arising under applicable
securities laws or set forth in the New Company LLC Agreement), for the
consideration specified in Sections 1.2 and 2.2.

 

1.2           Payment for the Common Membership Interests. As payment in full
for the Common Membership Interests being acquired by the Buyer hereunder, the
Buyer shall pay the Cash Consideration to the Company, assume and/or discharge
the indebtedness of the Company set forth in Section 2.2 and guarantee the Put
Right (as defined in the New Company LLC Agreement) obligations of the Company
in respect of the Preferred Membership Interests as provided in the New Company
LLC Agreement.

 

1.3           Exclusion of Certain Assets and Liabilities. Notwithstanding
anything express or implied to the contrary contained in this Section 1.3 or
elsewhere herein, the Excluded Subsidiaries are excluded from the assets and
liabilities of the Company and the Acquired Subsidiaries being acquired by or
transferred to the Buyer at the Closing through the Buyer’s acquisition of the
Common Membership Interests. The Existing Members shall cause the Excluded
Subsidiaries to be transferred to another Person in accordance with the terms
hereof. With respect to the liabilities (the “Excluded Liabilities”) set forth
on Schedule 1.3, the Existing Members shall (i) obtain the release of the
Company and the Acquired Subsidiaries from any obligations in respect of the
AllStar Terminated Agreements and (ii) indemnify the Buyer from the Excluded
Liabilities as provided in Section 6.3 of this Agreement (and subject to the
limitations set forth in Section 8.1 of this Agreement).

 

Article 2- CLOSING

 

2.1           Closing. The closing of the transactions contemplated hereby (the
“Closing”) shall be held at 11:30 a.m., Eastern Time, on the second (2nd)
Business Day following the satisfaction or waiver of the conditions to Closing
set forth in Article 5 or at such other date as may be agreed to by the Parties,
by electronic exchange of signature pages and other documents. The date upon
which the Closing occurs is hereinafter referred to as the “Closing Date.”

 

2.2           Payment of the Purchase Price. At the Closing, subject to Section
1.1, the Buyer shall:

 

(a)          pay by wire transfer of immediately available funds to the account
designated in writing by the Company an amount equal to the Cash Consideration
of Seven Hundred Thousand Dollars ($700,000).

 

(b)          [reserved]

 

(c)          satisfy the indebtedness represented by the Senior Convertible Debt
through (i) the payment, on behalf of the Company, of Two Hundred Fifty Thousand
Dollars ($250,000) of the Senior Convertible Debt (by wire transfer of
immediately available funds to the accounts designated in writing by the holders
of the Senior Convertible Debt) and (ii) the assumption of the remaining balance
of the Senior Convertible Debt through the issuance to the holders of the Senior
Convertible Debt of new secured convertible notes, in the form attached hereto
as Exhibit B (“New Convertible Notes”), in the aggregate principal amount of the
sum of $1,406,352 plus accrued but unpaid interest arising on the Senior
Convertible Debt from and after the date hereof and through and until the
Closing Date.

 

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(d)         satisfy the indebtedness represented by the promissory notes payable
by the Company to Venture Six Note and Wesley Jones Note with a total principal
balance of $4,127,601.94 as of the date hereof (collectively “Promissory Notes”)
in consideration for the issuance of Buyer Common Stock with a value equal to
all outstanding principal and interest of the Promissory Notes, based on a per
share price of the Buyer Common Stock of $7.50.

 

(e)          Buyer shall be entitled to deduct and withhold from any payments
made pursuant to this Section 2.2 all Taxes that Buyer is required to deduct and
withhold under any applicable Legal Requirements; provided, however, that Buyer
shall provide at least five (5) days of advance written notice to the applicable
recipient of such payment prior to such withholding and Buyer shall cooperate
with such recipient in order to minimize or eliminate such withholding. All such
withheld amounts shall be treated as delivered to the applicable recipient
hereunder to the extent such amounts are paid over to the appropriate taxing
authority.

 

2.3           Transactions to occur prior to, at or concurrently with the
Closing.

 

(a)          Prior to the Closing, the Company shall distribute all of the
outstanding membership interests of Edison Nation Medical, LLC to the Existing
Members or an entity designated by the Existing Members.

 

(b)          Concurrently with the Closing, the Company shall transfer, convey
and assign to Allstar Marketing Group, LLC (“AMG”) all of its right, title and
interest in and to the Peticare™ product in consideration for the cancellation
and discharge of the indebtedness of the Company arising from the promissory
note of the Company held by AMG (the “AMG Note”), as provided in the AllStar
Agreement.

 

(c)          Immediately following the Closing, the Company shall use Five
Hundred Fifty Thousand Dollars ($550,000) of the Cash Consideration to purchase
the membership interests of Access Innovation, LLC held by the AI Selling
Members pursuant to that certain Access Innovation Purchase Agreement. Following
the Company’s purchase of the membership interests of Access Innovation, LLC
from the AI Selling Members pursuant to that certain Access Innovation Purchase
Agreement, the Company shall distribute all of the membership interests of
Access Innovation, LLC owned by the Company to the Existing Members or an entity
designated by the Existing Members.

 

2.4           Deliveries by the Company. At or prior to the Closing, the Company
shall deliver or cause to be delivered to the Buyer:

 

(a)          A certificate from the appropriate officer(s) of the Company
certifying (i) the accuracy of the representations and warranties set forth in
Article 3 and the performance of the Company’s and the Existing Member’s
covenants and agreements as of the Closing (ii) the Articles of Organization and
operating agreement of the Company and each Acquired Subsidiary, (iii) the
resolutions of the Board of Managers of the Company approving this Agreement and
the Ancillary Agreements to which it is a party and (iv) the resolutions of the
members of the Company approving this Agreement and the Ancillary Agreements to
which it is a party.

 

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(b)          An assignment agreement evidencing the assignment, prior to the
Closing, of all of the Company’s right, title and interest in and to the
membership interests of Edison Nation Medical, LLC to the Existing Members or an
entity designated by the Existing Members.

 

(c)          The AllStar Agreement, duly executed by the Persons party thereto.

 

(d)          The Access Innovation Purchase Agreement, duly executed by the
Persons party thereto.

 

(e)          Resignations of the officers and managers, or other similar
governing body, as applicable, of the Company and the Acquired Subsidiaries
requested by Buyer at least two (2) days prior to the Closing Date.

 

(f)          A good standing certificate of the Company and the Acquired
Subsidiaries from the North Carolina Secretary of State.

 

(g)          Evidence confirming the discharge of the Senior Convertible Debt
upon receipt of the consideration specified in Section 2.2(c).

 

(h)          Evidencing confirming the discharge of the indebtedness represented
by the Promissory Notes upon receipt of the shares of Buyer Common Stock
specified in Section 2.2(d).

 

(i)          resignations of the officers and managers, or other similar
governing body, as applicable, of the Company and the Acquired Subsidiaries,
effective on or before the Closing Date (other than the resignation of Louis
Foreman in his capacity as a manager of the Company);

 

(j)          evidence satisfactory to the Buyer that Buyer’s designees are the
only authorized signatories with respect to the Company’s various accounts,
credit lines, safe deposit boxes or vaults set forth or required to be set forth
in Schedule 3.18 hereto; and

 

(k)          such other instruments and documents as Buyer may reasonably
request in order to effectuate the transactions contemplated hereby.

 

2.5           Pre-Closing Covenants.

 

(a)          From the date hereof until the earlier to occur of the Closing or
the termination of this Agreement, except as otherwise provided in this
Agreement or consented to in writing by Buyer (which consent shall not be
unreasonably withheld or delayed), the Company shall (i) conduct the business of
the Company in the ordinary course of business consistent with past practice;
and (ii) use its commercially reasonable efforts to maintain and preserve intact
the current organization, business and franchise of the Company and to preserve
the rights, franchises, goodwill and relationships of its employees, customers,
lenders, suppliers and others having business relationships with the Company.

 

(b)          From the date hereof until the earlier to occur of the Closing or
the termination of this Agreement, the Company shall (i) afford Buyer and its
representatives full and free access, during normal business hours of the
Company and subject to reasonable advance written notice to the Company, to and
the right to inspect all of Properties, assets, premises, books and records,
contracts and other documents and data related to the Company; (ii) furnish
Buyer and its representatives with such financial, operating and other data and
information related to the Company (to the extent then in the Company’s
possession) as Buyer or any of its representatives may reasonably request; and
(iii) instruct the representatives of the Company to cooperate with Buyer in its
investigation of the Company. Any investigation pursuant to this Section 2.4(b)
shall be conducted in such manner as not to interfere unreasonably with the
conduct of the Business. No investigation by Buyer or other information received
by Buyer shall operate as a waiver or otherwise affect any representation,
warranty, or agreement given or made by the Company in this Agreement.

 

 4 

 

 

(c)          The holders of a majority of the outstanding shares of Buyer Common
Stock have affirmatively voted to approve the transactions contemplated by this
Agreement and any Ancillary Agreement (the “Buyer Shareholder Approval”), and
Buyer shall have delivered to the Company a copy of the written consent
evidencing the Buyer Shareholder Approval on or prior to the date of this
Agreement. As promptly as practicable following the date hereof (and in no event
more than four (4) days after the date hereof), Buyer shall prepare and file a
preliminary information statement, describing the transactions contemplated
herein, on Schedule 14C (such preliminary information statement, together with
the definitive information statement, the “Information Statement”) with the U.S.
Securities and Exchange Commission (the “SEC”) in accordance with Regulation 14C
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Buyer
shall use commercially reasonable efforts to cause the Information Statement to
comply with the rules and regulations promulgated by the SEC. Buyer shall
provide the Company with a reasonable opportunity to review and comment on the
Information Statement, and any amendments thereto, prior to filing with the SEC.
Buyer will advise the Company promptly after it receives oral or written notice
of any request by the SEC for amendments to the Information Statement or
comments thereon and responses thereto or requests by the SEC for additional
information, and will promptly provide the Company with copies of any written
communication from the SEC or any state securities commission. Buyer shall use
reasonable best efforts to resolve any SEC comments with respect to the
Information Statement and any other required filings as promptly as practicable
after receipt thereof. Buyer will promptly notify the Company if at any time
prior to the Closing any event should occur which is required by applicable law
to be set forth in an amendment of, or a supplement to, the Information
Statement. Buyer shall use reasonable best efforts to cause the Information
Statement to be distributed to its stockholders in accordance with Regulation
14C of the Exchange Act as promptly as reasonably practicable after the date on
which the Information Statement is cleared by the SEC.

 

(d)          During the period between execution of this Agreement and the
Closing, Buyer shall maintain its existing listing on The Nasdaq Capital Market
and file or furnish on a timely basis all forms, notices documents and reports
required to be filed or furnished with The Nasdaq Stock Market to promptly
secure the listing of all of the Buyer Shares.

 

Article 3- REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND EXISTING MEMBERS

 

Except as set forth on the Schedules to this Agreement, the Company and the
Existing Members hereby represent and warrant to the Buyer as of the date hereof
and the Closing Date as follows:

 

3.1           Existence and Qualification.

 

(a)          The Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of North Carolina, and
the Acquired Subsidiaries and each of the Existing Members that are entities are
duly organized, validly existing and in good standing in their respective
jurisdictions of organization. The Company and each Acquired Subsidiary has the
requisite power to own, manage, lease and hold its Properties and to carry on
the Business as and where such Properties are presently located and such
Business is presently conducted. Neither the character of the Company’s
Properties nor the nature of the Business requires the Company to be duly
qualified to do business as a foreign company in any jurisdiction outside those
identified in Schedule 3.1 attached hereto, except where the failure to be so
qualified would not, individually or in the aggregate, have a Material Adverse
Effect, and the Company is qualified as a foreign corporation and in good
standing in each jurisdiction listed with respect to the Company in Schedule
3.1.

 

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(b)          If any Existing Member is an entity, then such Existing Member is
(i) duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and (ii) duly qualified to do business and in good
standing in each other jurisdiction where such qualification is required, except
where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect.

 

3.2           Authority, Approval and Enforceability. This Agreement and each
Ancillary Agreement to which the Company or any Existing Member is a party has
been duly executed and delivered by the Company or such Existing Member, as
applicable, and the Company and each Existing Member have all requisite power to
execute and deliver this Agreement and all Ancillary Agreements executed and
delivered or to be executed and delivered by it in connection with the
transactions provided for hereby, to consummate the transactions contemplated
hereby and by the Ancillary Agreements to which it is a party, and to perform
its obligations hereunder and under the Ancillary Agreements to which it is a
party. The execution, delivery and performance of this Agreement and the
Ancillary Agreements and the consummation by the Company and the Existing
Members of the transactions contemplated hereby and thereby have been duly and
validly authorized and, if applicable, approved by all necessary limited
liability company or corporate action on the part of the Company and the
Existing Members (including approval of the Company’s and the Existing Member’s
managers, members and/or managing members, as applicable) and no other
proceedings on the part of the Company, any Acquired Subsidiary, or any Existing
Member is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement and each Ancillary Agreement to
which the Company or any Existing Member is a party constitutes, or upon
execution and delivery will constitute, the legal, valid and binding obligation
of the Company or such Existing Member, enforceable against it in accordance
with its terms, except as such enforcement may be limited by general equitable
principles or by applicable bankruptcy, insolvency, moratorium or similar laws
and judicial decisions from time to time in effect which affect creditors’
rights generally. No action by (including any approval), or in respect of, or
filing with, any Governmental Authority is required for, or in connection with,
the valid and lawful (a) authorization, execution, delivery and performance by
the Company and each Existing Member of this Agreement and the Ancillary
Agreements to which it is a party or (b) consummation of the transactions
contemplated hereby by the Company or each Existing Member.

 

3.3           Capitalization and Company Records.

 

(a)          As of the date hereof and immediately prior to the Closing, the
Existing Members are the record and beneficial owners of all of the outstanding
equity interests of the Company, and, except as set forth on Schedule 3.3(a),
there are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal or similar rights) or agreements,
orally or in writing, to purchase or acquire from the Company any equity,
membership, ownership, partnership or similar interest in (or any interest
convertible into or exchangeable or exercisable for any equity, membership,
ownership, partnership or similar interest in) the Company. None of the
outstanding membership interests of the Company were issued in violation of any
preemptive rights. Except as set forth in the New Company LLC Agreement, there
are no outstanding contractual obligations of the Company to repurchase, redeem
or otherwise acquire any membership interests of the Company. There are no
voting trusts, inter-member agreements, proxies or other agreements or
understandings in effect with respect to the voting or transfer of any of the
membership interests of the Company.

 

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(b)          The Preferred Membership Interests and the Common Membership
Interests, when issued, sold and delivered in accordance with the terms and for
the consideration set forth in this Agreement, will be validly issued, fully
paid and non-assessable (other than for obligations set forth in the New LLC
Agreement, if any) and free of restrictions on transfer other than restrictions
on transfer under this Agreement, any Ancillary Agreement (including the New LLC
Agreement) and applicable state and federal securities laws. The Common
Membership Interests and the Preferred Membership Interests will be issued in
compliance with all applicable federal and state securities laws. Immediately
following the Closing, the Existing Members shall own all of the Preferred
Membership Interests and the Buyer shall own all of the Common Membership
Interests, in each case, as provided in the New Company LLC Agreement.

 

(c)          Except for the Acquired Subsidiaries and the Excluded Subsidiaries,
the Company does not own, directly or indirectly, any equity, membership,
ownership, partnership or similar interest in, or any interest convertible into
or exchangeable or exercisable for, any equity, membership, ownership,
partnership or similar interest in, any nonprofit corporation, corporation,
partnership, limited partnership, limited liability company, joint venture,
trust, other business association, entity or other Person.

 

(d)          All membership interests or equity interests held by the Company in
the Acquired Subsidiaries (i) constitute all of the issued and outstanding
membership interests of the Acquired Subsidiaries, (ii) have been duly
authorized, (iii) are validly issued and outstanding, fully paid and
non-assessable, and (iv) have been issued in compliance with all applicable
Legal Requirements, including, without limitation, state and federal securities
laws, and there are no voting trusts, proxies or other similar agreements
outstanding with respect to any of such interests in the Acquired Subsidiaries.
Except as set forth on Schedule 3.3(d), there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal or similar rights) or agreements, orally or in writing, to purchase or
acquire from any Acquired Subsidiary any equity, membership, ownership,
partnership or similar interest in (or any interest convertible into or
exchangeable or exercisable for any equity, membership, ownership, partnership
or similar interest in) such Acquired Subsidiary.

 

(e)          The Company has provided the Buyer with true and complete copies of
the Organizational Documents of the Company and all Acquired Subsidiaries.

 

3.4           No Company or Existing Member Defaults or Consents. Except as
otherwise set forth in Schedule 3.4 hereto, the execution and delivery of this
Agreement and the Ancillary Agreements to which the Company and the Existing
Members are a party and the performance by the Company and each Existing Member
of their obligations hereunder and thereunder will not violate any applicable
Legal Requirements or any judgment, award or decree or any indenture, Contract
or other instrument to which the Company or the Existing Members are a party, or
by which the properties or assets of the Company or the Existing Members are
bound or affected, or conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under, any such indenture,
Contract or other instrument, in each case except to the extent that such
violation, default or breach could not reasonably be expected to delay or
otherwise significantly impair the ability of the parties to consummate the
transactions contemplated hereby.

 

3.5           No Company Defaults or Consents. Except as otherwise set forth in
Schedule 3.5 hereto, neither the execution and delivery of this Agreement nor
the carrying out of any of the transactions contemplated hereby will:

 

(a)          violate or conflict with any of the terms, conditions or provisions
of the Organizational Documents;

 

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(b)          violate any Legal Requirements applicable to the Business;

 

(c)          violate, conflict with, result in a breach of, constitute a default
under (whether with or without notice or the lapse of time or both), or
accelerate or permit the acceleration of the performance required by, or give
any other party the right to terminate, any Contract or Permit binding upon or
applicable to the Business, except for any such violation, conflict, breach,
default or acceleration which would not result in a Material Adverse Effect;

 

(d)          result in the termination of any Contract of the Business, or
require the payment of any fees, Taxes or assessments, in either case, pursuant
to any federal, state or local program or initiative (i) relating to
minority-owned or small disadvantaged businesses, or (ii) based upon some other
status of business ownership;

 

(e)          result in the creation of any Encumbrance on any Properties other
than any Encumbrance that result from the Buyer’s acquisition of the Common
Membership Interests; or

 

(f)           require the Company or the Existing Members to obtain or make any
waiver, consent, action, approval or authorization of, or registration,
declaration, notice or filing with, any private non-governmental third-party or
any Governmental Authority.

 

3.6           No Proceedings. Except as otherwise set forth in Schedule 3.6,
neither the Company nor the Existing Members have received written notice or are
aware that any suit, action, inquiry or other proceeding is pending or, to the
Knowledge of the Company, threatened before any Governmental Authority seeking
to restrain the Company or the Existing Members or prohibit their entry into
this Agreement or prohibit the Closing, or seeking Damages against the Company
or any of its Properties as a result of the consummation of this Agreement.

 

3.7           Employee Benefit Matters.

 

(a)          Schedule 3.7(a) hereto provides a description of each of the
following, if any, which is sponsored, maintained or contributed to by the
Company or the Acquired Subsidiaries for the benefit of the employees or agents
of the Company or the Acquired Subsidiaries with respect to which the Company
has or may have any actual or contingent liability:

 

(i)          each “employee benefit plan,” as such term is defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) (including, but not limited to, employee benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA) (each a “Plan”
and collectively referred to herein as “Plans”); and

 

(ii)         each personnel policy, employee manual or other written statement
of rules or policies concerning employment, collective bargaining agreement,
equity compensation plan, phantom equity plan or arrangement, bonus plan or
arrangement, incentive award plan or arrangement, vacation and sick leave
policy, severance pay policy or agreement, change in control plan or
arrangement, deferred compensation plan or arrangement, consulting agreement,
employment contract and each other employee benefit plan, agreement,
arrangement, program, practice or understanding, whether written or unwritten,
which is not described in Section 3.7(a)(i), including any compensation
arrangement with the Company or its Acquired Subsidiaries, whether relating to
the transactions contemplated hereby or otherwise (each a “Benefit Program or
Agreement” and collectively referred to herein as “Benefit Programs or
Agreements”).

 

 8 

 

 

(b)          True, correct and complete copies of each of the Plans (if any),
including all amendments thereto, and related contracts and trusts, to the
extent applicable, have been furnished to the Buyer. There has also been
furnished to the Buyer, with respect to each Plan, the following: (i) copies of
the most recent Internal Revenue Service (the “IRS”) determination letter
(including copies of any outstanding requests for determination letters) or
opinion letter with respect to each such Plan intended to qualify under Section
401(a) of the Code; (ii) copies of the most recent summary plan descriptions and
any summaries of material modifications thereto; (iii) copies of the three most
recent Forms 5500 annual report and accompanying schedules, the most recent
actuarial report (to the extent applicable) and the non-discrimination testing
results for the three most recent plan years; and (iv) copies of all trust
documents or funding/insurance documents related to each Plan. True, correct and
complete copies or descriptions of all Benefit Programs or Agreements have also
been furnished to the Buyer.

 

(c)          Except as otherwise set forth in Schedule 3.7(c) hereto,

 

(i)          For purposes of this Agreement, “ERISA Affiliates” shall mean any
trade or business, whether or not incorporated, that together with the Company
would be deemed to be a “single employer” within the meaning of
Section 4001(b)(i) of ERISA or Section 414 of the Code;

 

(ii)         neither the Company, the Acquired Subsidiaries nor any ERISA
Affiliate contributes to or has an obligation to contribute to, and neither the
Company, the Acquired Subsidiaries nor any ERISA Affiliate has at any time
contributed to or had an obligation to contribute to, and neither the Company,
the Acquired Subsidiaries nor any ERISA Affiliate has any actual or contingent
liability (including any withdrawal liability as defined in ERISA Section 4201)
under (x) a multiemployer plan within the meaning of Section 3(37) of ERISA or a
multiple employer plan within the meaning of Section 413(b) and (c) of the Code,
(y) a Plan subject to Section 412 of the Code or Title IV of ERISA or (z) any
Plan in which stock of the Company is or was held as a plan asset;

 

(iii)        each Plan and Benefit Program or Agreement has been administered in
all material respects in compliance with its terms and all applicable Legal
Requirements, including, without limitation, if applicable, ERISA and the Code;

 

(iv)        the Company and the Acquired Subsidiaries have performed in all
material respects all obligations, whether arising under Legal Requirements or
Contract, required to be performed by it in connection with the Plans and the
Benefit Programs or Agreements, including, without limitation, the notice and
continuation coverage requirements of Section 4980B of the Code and Parts 6 and
7 of Title I of ERISA, and, to the Knowledge of the Company, there have been no
defaults or violations by any other party to the Plans or Benefit Programs or
Agreements;

 

(v)         all reports and disclosures relating to the Plans required to be
filed with or furnished to Governmental Authorities, Plan participants or Plan
beneficiaries have been filed or furnished, in all material respects, in
accordance with applicable Legal Requirements in a timely manner;

 

(vi)        each of the Plans that is intended to be qualified under
Section 401(a) of the Code has received a favorable determination or may rely on
an opinion letter from the IRS regarding such qualified status and has not,
since receipt of the most recent favorable determination or opinion letter, been
amended or operated in a way which could adversely affect such qualified status;

 

 9 

 

 

(vii)       there are no actions, suits or claims pending (other than routine
claims for benefits) or, to the Knowledge of the Company, threatened against, or
with respect to, any of the Plans or Benefit Programs or Agreements or their
assets;

 

(viii)      all premiums, contributions or other payments required to be made to
the Plans pursuant to their terms and provisions and applicable Legal
Requirements as of the Closing Date have been made timely;

 

(ix)         the Company and the Acquired Subsidiaries have complied in all
material respects with (x) the health care continuation requirements of
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”),
(y) the requirements of the Family Medical Leave Act of 1983, as amended, and
(z) the requirements of the Health Insurance Portability and Accountability Act
of 1996, as amended, as well as all similar provisions of state law applicable
to their respective employees;

 

(x)          to the Knowledge of the Company, none of the Plans nor any trust
created thereunder or with respect thereto has engaged in any “prohibited
transaction” or “party-in-interest transaction” as such terms are defined in
Section 4975 of the Code and Section 406 of ERISA which could subject any Plan,
the Company, the Acquired Subsidiaries or any officer, director, employee or
fiduciary thereof to a Tax or penalty on prohibited transactions or
party-in-interest transactions pursuant to Section 4975 of the Code or Section
502(i) of ERISA;

 

(xi)         there is no matter pending (other than routine qualification
determination filings) with respect to any of the Plans or Benefit Programs or
Agreements before the IRS, the Department of Labor or the Pension Benefit
Guaranty Corp.;

 

(xii)        each trust funding a Plan, which trust is intended to be exempt
from federal income taxation pursuant to Section 501(c)(9) of the Code, has
received a favorable determination letter from the IRS regarding such exempt
status and has not, since receipt of the most recent favorable determination
letter, been amended or operated in a way which would adversely affect such
exempt status;

 

(xiii)       the Company and the Acquired Subsidiaries do not maintain or
contribute to, nor have they maintained or contributed to, nor as a result of
the transactions contemplated by this Agreement will it be required to
contribute to, any Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or terminated employees,
their spouses or their dependents (other than in accordance with COBRA or other
applicable Legal Requirements);

 

(xiv)      none of the Plans is a self-insured group health plan;

 

(xv)       each Plan or Benefit Program or Agreement that is a “nonqualified
deferred compensation plan” (as defined under Section 409A(d)(1) of the Code)
has been operated and administered at all times in compliance in all material
respects with Section 409A of the Code and the Treasury Regulations promulgated
thereunder; and

 

(xvi)      neither the execution and delivery of this Agreement nor the
consummation of any or all of the transactions contemplated hereby will:
(A) entitle any current or former employee of the Company or any Acquired
Subsidiary to severance pay, unemployment compensation or any similar payment,
(B) accelerate the time of payment or vesting or increase the amount of any
compensation due to any such employee or former employee, or (C) directly or
indirectly result in any payment made to or on behalf of any Person to
constitute a “parachute payment” within the meaning of Section 280G of the Code.

 

 10 

 

 

3.8           Financial Statements; No Undisclosed Liabilities.

 

(a)          The Company has delivered to the Buyer true and complete copies of
(i) the unaudited Financial Statements with respect to the Business as of and
for the years ended December 31, 2015, 2016 and 2017 (the “Annual Financial
Statements”), (ii) any management letters relating to the Annual Financial
Statements received by the Company or any Existing Member from the auditors, and
any other written correspondence addressing any material deficiencies or
weaknesses with respect to the Company and/or such Annual Financial Statements
(collectively, the “Management Letters”), and (iii) monthly interim unaudited
Financial Statements as of and for the period (the “Interim Period”) ended April
30, 2018 (the “Balance Sheet Date”) and as of and for each month ended during
the Interim Period (together with the Annual Financial Statements, collectively,
the “Company Financial Statements”). The Company Financial Statements (including
the notes thereto, if any) have been prepared in accordance with GAAP, applied
on a consistent basis throughout the periods covered thereby (except for the
omission of footnotes and subject to year-end adjustments). All of the Company
Financial Statements present fairly in all material respects the financial
condition, results of operations and cash flows of the Business for the dates or
periods indicated thereon applied on a consistent basis throughout the periods
indicated (except for the absence of the footnotes and year-end adjustments).

 

(b)          Except for (i) the liabilities reflected on the Company’s balance
sheet as of the Balance Sheet Date included with the Company Financial
Statements, (ii) trade payables and accrued expenses incurred since the Balance
Sheet Date in the ordinary course of business, none of which are material,
(iii) executory contract obligations under (x) Contracts listed in
Schedule 3.13(a), and/or (y) Contracts not required to be listed in
Schedule 3.13(a) and (iv) the liabilities set forth in Schedule 3.8(b) hereto,
the Company does not have any liabilities or obligations (whether accrued,
absolute, contingent, known, unknown or otherwise, or required to be reflected
or reserved against in a balance sheet) including, but not limited to,
liabilities for violation of Legal Requirements, breach of Contract or tort that
would be required by GAAP to be reflected in the Balance Sheet. Without limiting
the generality of the foregoing, since January 1, 2016, the Company and the
Existing Members have not received any written notice with respect to (i) claims
existing or to the Knowledge of the Company, threatened under or pursuant to any
warranty, whether express or implied, on the Products or Services, (ii) claims
existing as a result of the sale of any Product or performance of any Service or
based on the nature of the Products or Services, or (iii) claims in tort related
to the negligence of the Company and the Acquired Subsidiaries or any employees,
representatives or agents thereof.

 

(c)          Since January 1, 2016, there has not been, to the Knowledge of the
Company, any fraud (whether or not material) that involved management or other
employees who have or had a significant role in financial reporting. Except as
set forth in the Company Financial Statements and the Management Letters, with
respect to the periods covered thereby there have not been any significant
deficiencies in the financial reporting of the Company which are or were
reasonably likely to materially and adversely affect the ability to record,
process, summarize and report financial information.

 

(d)          Except as otherwise set forth in Schedule 3.8(d) hereto, the
accounts receivable reflected on the balance sheet as of the Balance Sheet Date
included in the Company Financial Statements and all of the Company’s accounts
receivable arising since the Balance Sheet Date arose from bona fide
transactions in the ordinary course of business and the Company has fully
rendered the Services. Except as otherwise set forth in Schedule 3.8(d) hereto,
no such account has been assigned or pledged to any Person, and, except only to
the extent fully reserved against as set forth in the balance sheet as of the
Balance Sheet Date included in the Company Financial Statements, no defense or
set-off to any such account has been asserted by the account obligor or, to the
Knowledge of the Company, exists. For the avoidance of doubt, the foregoing
representation does not constitute a guaranty of the collectability of any
Accounts Receivable.

 

 11 

 

 

(e)          Except as provided under the provisions of the agreements described
in Schedule 3.8(e) hereto, the Company has legal and beneficial ownership of its
Properties, free and clear of any and all Encumbrances.

 

3.9           Absence of Certain Changes.

 

(a)          Except as otherwise set forth in Schedule 3.9(a) hereto and
excluding any event or circumstance generally affecting the industries in which
the Business operates without specifically affecting the Business, since the
Balance Sheet Date, there has not been:

 

(i)          any Material Adverse Effect; or

 

(ii)         any damage, destruction or loss (whether or not covered by
insurance) that had or is reasonably likely to have a Material Adverse Effect.

 

(b)          Except as otherwise set forth in Schedule 3.9(b) hereto or as
otherwise contemplated by this Agreement, since the Balance Sheet Date, the
Company and the Acquired Subsidiaries have not done any of the following:

 

(i)          merged into or with or consolidated with, or acquired the business
or assets of, any Person;

 

(ii)         purchased any securities of any Person;

 

(iii)        created, incurred, assumed, guaranteed or otherwise become liable
or obligated with respect to any indebtedness, or made any loan or advance to,
or any investment in, any Person, except in each case in the ordinary course of
business;

 

(iv)        made or changed any Tax election, changed any annual Tax accounting
period, adopted or changed any method of Tax accounting, filed any amended Tax
Return, entered into any closing agreement, settled any Tax claim or assessment,
surrendered any right to claim a Tax refund, offset or other reduction in Tax
liability or consented to any extension or waiver of the limitations period
applicable to any Tax claim or assessment;

 

(v)         entered into, amended or terminated any material Contract;

 

(vi)        sold, transferred, leased, mortgaged, encumbered or otherwise
disposed of, or agreed to sell, transfer, lease, mortgage, encumber or otherwise
dispose of, any Properties except (A) in the ordinary course of business, or
(B) pursuant to any Contract specified in Schedule 3.13(a);

 

(vii)       settled any claim or litigation, or filed any motions, orders,
briefs or settlement agreements in any proceeding before any Governmental
Authority or any arbitrator;

 

(viii)      incurred or approved, or entered into any Contract to make, any
expenditures in excess of $50,000 (other than those arising in the ordinary
course of business or those required pursuant to any Contract specified in
Schedule 3.13(a));

 

 12 

 

 

(ix)         maintained its books of account other than in the usual, regular
and ordinary manner and on a basis consistent with prior periods (including with
respect to accruals) or made any change in any of its accounting methods or
practices that would be required to be disclosed under GAAP (including with
respect to accruals);

 

(x)          made any material change, whether written or oral, to any Contract
with any of the suppliers or customers listed or required to be listed in
Schedule 3.19;

 

(xi)         adopted any Plan or Benefit Program or Agreement, or granted any
increase in, or made any change to, the compensation payable or to become
payable to directors, officers or employees other than in the ordinary course of
business;

 

(xii)        suffered any extraordinary losses or waived any rights of material
value;

 

(xiii)       made any payment to any Affiliate (other than with respect to any
employment arrangement with any such Affiliate) or forgiven any indebtedness for
borrowed money due or owing from any Affiliate to the Company or the Acquired
Subsidiaries;

 

(xiv)      (A) provided discounts on pricing or receivables other than in the
ordinary course, (B) modified the accounting for or funding of reserves or
(C) changed in any material respect the Business’s practices in connection with
the marketing, performance or pricing of its Services;

 

(xv)       engaged in any one or more activities or transactions with an
Affiliate outside the ordinary course of business;

 

(xvi)      declared, set aside or paid any dividends, or made any distributions
or other payments in respect of its equity securities, or repurchased, redeemed
or otherwise acquired any such securities;

 

(xvii)     amended the Organizational Documents;

 

(xviii)    issued any shares of capital stock or other securities, or granted,
or entered into any agreement to grant, any options, convertible rights, other
rights, warrants, calls or agreements relating to its capital stock or other
securities; or

 

(xix)       committed to do any of the foregoing.

 

3.10         Compliance with Laws.

 

(a)          Except as otherwise set forth in Schedule 3.10(a) hereto, the
Company and the Acquired Subsidiaries are and, since January 1, 2016, have been
in compliance in all material respects with any and all Legal Requirements
applicable to the Company and the Acquired Subsidiaries. Except as otherwise set
forth in Schedule 3.10(a) hereto, and without limiting the generality of the
foregoing, (i) since January 1, 2016, the Company and the Acquired Subsidiaries
have not received or entered into any written citations, complaints, consent
orders, compliance schedules or other similar enforcement orders or received any
written notice from any Governmental Authority or any other written notice that
would indicate that it is not currently in compliance with all such Legal
Requirements, (ii) the Company and the Acquired Subsidiaries are not in default
under any Permit applicable to the Business, and (iii) to the Knowledge of the
Company, no formal or informal investigation or review related to the Business
has been conducted since January 1, 2016 or is being conducted by any
commission, board or other Governmental Authority, and, to the Knowledge of the
Company, no such investigation or review is scheduled, pending or threatened
against the Company or any Acquired Subsidiary.

 

 13 

 

 

(b)          The Company and the Acquired Subsidiaries have not received any
written notice of them being subject to any, and, to the Knowledge of the
Company, there has been no threatened, adverse inspection, finding of
deficiency, finding of non-compliance, investigation, penalty, fine, sanction,
assessment, request for corrective or remedial action or other compliance or
enforcement action by any Governmental Authority affecting the Business.

 

(c)          Except as identified on Schedule 3.10(c), the Company and the
Acquired Subsidiaries have obtained all approvals, registrations and
authorizations from, and has made all appropriate applications and other
submissions to, all Government Authorities necessary for operation of the
Business relating to the Products and Services in compliance in all material
respects with all applicable Legal Requirements. To the Knowledge of the
Company, no Other Party has failed to obtain all approvals, registrations and
authorizations from, has failed to make all appropriate applications and other
submissions to, or has failed to prepare and maintain all records, studies and
other documentation needed to satisfy and demonstrate compliance with the
requirements of, all applicable requirements of the Government Authorities
necessary for the operation of the Services or the Business in compliance in all
material respects with all applicable Legal Requirements. As used herein, “Other
Party” means any Person employed or retained by the Company to sale or market
any of the Services, excluding, for the avoidance of doubt, any Persons involved
in a co-marketing or similar relationship with the Company.

 

(d)          The Company and the Acquired Subsidiaries have not made and, to the
Knowledge of the Company, no Other Party has made any false statement in, or
omission from, the applications, approvals, reports or other submissions to any
Governmental Authorities to comply with the requirements of any Governmental
Authorities relating to the Products or Services or the Business.

 

(e)          [reserved]

 

(f)          The Company and the Acquired Subsidiaries are, and to the Knowledge
of the Company, all Other Parties are in compliance, in all material respects,
with all applicable regulations and requirements of Governmental Authorities
relating to the Products or Services, including any requirements for
investigating customer complaints and inquiries.

 

(g)          To the Knowledge of the Company, none of the Products or Services,
(i) fail to comply in all material respects with the requirements of all
Governmental Authorities, or (ii) were handled by the Company not in conformity
with the requirements of all Governmental Authorities.

 

(h)          Neither the Company, the Acquired Subsidiaries nor, to the
Knowledge of the Company, any of the Other Parties, have sold any Products or
Services into any jurisdictions without first having obtained all requisite
approvals, registrations and permissions from all applicable Governmental
Authorities. There are no pending or outstanding: (1) warning letters or other
regulatory letters or sanctions or (2) field notifications or alerts relating to
the Products or Services or the Business that assert ongoing lack of compliance
with any such Legal Requirements by the Company or the Acquired Subsidiaries.

 

(i)           Except as set forth on Schedule 3.10(i), the Company has furnished
to the Buyer correct and complete copies, or summaries of, all adverse event
reports since January 1, 2016, which reports, among other things, detail
material customer complaints or mistakes made by the Company relating to the
Products and Services.

 

 14 

 

 

3.11         Litigation. Except as otherwise set forth in Schedule 3.11 hereto,
there are no claims, actions, suits, investigations, inquiries or proceedings
against the Company or any of the Acquired Subsidiaries pending or, to the
Knowledge of the Company, threatened in any court or before or by any
Governmental Authority, or before any arbitrator. Schedule 3.11 hereto also
includes a true and correct listing of all material actions, suits,
investigations, claims or proceedings that were pending, settled or adjudicated
with respect to the Company and the Acquired Subsidiaries since January 1, 2016.

 

3.12         Real Property.

 

(a)          Other than as identified in Schedule 3.12 hereto, neither the
Company nor any Acquired Subsidiary owns (or has never owned) any real property
or any ownership interest therein.

 

(b)          Schedule 3.12 sets forth a list of all leases, licenses or similar
agreements to which the Company or any Acquired Subsidiary is a party that are
for the use or occupancy of real estate owned by a third-party (“Leases”) (true
and complete copies of which have previously been furnished to the Buyer,
together with all related documents, e.g., non-disturbance agreements, lease
amendments or modifications, notices of renewal or non-renewal, expansion
options, purchase options, etc.), in each case, setting forth: (i) the lessor
and lessee thereof, (ii) the date of the Lease, and (iii) the street address or
legal description of each property covered thereby (the parcels of real property
identified on Schedule 3.12 which are referred to herein collectively as the
“Leased Premises”). The Leases are in full force and effect and have not been
amended except as disclosed in Schedule 3.12, and none of the Company or any
Acquired Subsidiary, or to the Knowledge of the Company, the Lessor is in
default or material breach under any such Lease. No event has occurred which,
with the passage of time or the giving of notice or both would cause a material
breach of or material default by the Company or any Acquired Subsidiary under
any Lease. Except as set forth on Schedule 3.12, the Company or the Acquired
Subsidiaries, as applicable, has a valid leasehold interest in the Leased
Premises as indicated on Schedule 3.12.

 

(c)          The portions of the buildings located on the Leased Premises that
are used in the Business are in good repair and condition, normal wear and tear
excepted, and are in the aggregate sufficient to satisfy the Company’s and the
Acquired Subsidiaries’ current business activities as conducted thereon and, to
the Knowledge of the Company, there is no latent material defect in the
improvements on any of the Leased Premises, the structural elements thereof, the
mechanical systems (including, without limitation, all heating, ventilating, air
conditioning, plumbing, electrical, utility and sprinkler systems) therein, the
utility system servicing such Leased Premises and the roofs which have not been
disclosed to the Buyer in writing prior to the date hereof. Each of the Leased
Premises, has direct access to public roads or access to public roads by means
of a perpetual access easement, such access being sufficient to satisfy the
current and reasonably anticipated future transportation requirements of the
business conducted at such Leased Premises. None of the Company, the Acquired
Subsidiaries nor any of their Affiliates have received written notice of (x) any
condemnation, eminent domain or similar proceeding affecting any portion of any
of the Leased Premises or any access thereto, and, to the Knowledge of the
Company, no such proceedings are contemplated, (y) any special assessment or
pending improvement liens to be made by any Governmental Authority which could
materially and adversely affect any of the Leased Premises, or (z) any
violations of building codes and/or zoning ordinances or other governmental
regulations with respect to any of the Leased Premises.

 

3.13         Material Contracts.

 

(a)          Except as otherwise set forth in Schedule 3.13(a) and Schedule 3.19
hereto, the Company and the Acquired Subsidiaries are not a party to or bound by
any written Contracts of the following types:

 

 15 

 

 

(i)          any Contract that provides any customer with discounted pricing or
the potential right to any such discounts in the future other than in the
ordinary course of business;

 

(ii)         any Contract for capital expenditures by the Business in excess of
$20,000 in the aggregate;

 

(iii)        any Contract pursuant to which the Company or any Acquired
Subsidiary licenses or leases from any other Person, any material Properties any
Contract (other than customer Contracts) pursuant to which the Company or any
Subsidiary licenses or leases any material Properties to any other Person;

 

(iv)        any Contract relating to (A) the borrowing of money, (B) the
guarantee of any payment obligation, (C) the deferred payment of the purchase
price of any Properties or (D) any bonding or surety agreement or arrangement;

 

(v)         any shareholder, partnership, joint venture, limited liability
company operating or similar entity governance Contract;

 

(vi)        any Contract with any Affiliate of the Company or the Acquired
Subsidiaries relating to the provision of funds, real property, goods or
services by or to the Company or any Acquired Subsidiary;

 

(vii)       any Contract for the sale of any assets outside the ordinary course
of business that in the aggregate have a net book value on the Company’s or an
Acquired Subsidiary’s, as applicable, books of greater than $20,000;

 

(viii)      any Contract that purports to limit the Company’s or any Acquired
Subsidiary’s freedom to compete freely in any line of business or in any
geographic area;

 

(ix)         any preferential purchase right, right of first refusal or similar
Contract; or

 

(x)          any other Contract that is material to the Company’s or any
Acquired Subsidiary’s business, operations, prospects, Properties, financial
condition or cash flows, taken as a whole.

 

(b)          All of the Contracts listed or required to be listed in
Schedule 3.13(a) are valid, binding and in full force and effect with respect to
the Company or the Acquired Subsidiaries, as applicable, and, to the Knowledge
of the Company, each counter-party thereto, and neither the Company nor any
Acquired Subsidiary has been notified or advised in writing by any party thereto
of such party’s intention or desire to terminate any such Contract in any
respect, except as otherwise set forth in Schedule 3.13(a). Neither the Company,
the Acquired Subsidiaries nor, to the Knowledge of the Company, any other party
is in breach of any of the material terms or covenants of any Contract listed or
required to be listed in Schedule 3.13(a). Except as set forth on
Schedule 3.13(b), immediately following the Closing, the Company and the
Acquired Subsidiaries, as applicable, will continue to be entitled to all of the
benefits currently held by them under each Contract listed or required to be
listed in Schedule 3.13(a). The Company has made available to the Buyer true and
correct copies of each of the Contracts listed on Schedule 3.13(a), including
all amendments thereto.  To the extent any such Contract has not been executed
by all parties thereto, the Company or any Acquired Subsidiary, as applicable,
and, to the Knowledge of the Company, the counterparty thereto is operating in
accordance with the material terms of the form of such Contract that has been
made available to the Buyer.

 

 16 

 

 

3.14         Insurance. Schedule 3.14 hereto sets forth a complete and correct
list of all insurance policies (including, but not limited to, fire, liability,
product liability, workers’ compensation and vehicular) presently in effect that
relate to the Company, an Acquired Subsidiary or any of its Properties,
including the annual premiums with respect thereto. Such policies are in amounts
that constitute compliance by the Company and the Acquired Subsidiaries with all
applicable Legal Requirements and all material Contracts. None of the insurance
carriers has indicated to the Company or any Acquired Subsidiary in writing an
intention to cancel any such policies or to materially increase any insurance
premiums (including, but not limited to, workers’ compensation premiums), or
that any insurance required to be listed in Schedule 3.14 will not be available
in the future on substantially the same terms as currently in effect. The
Company and the Acquired Subsidiaries have no claim pending or anticipated
against any of its insurance carriers for failure to pay claims under any of
such policies and, to the Knowledge of the Company, there has been no actual or
alleged occurrence of any kind which could reasonably be expected to give rise
to any such claim.

 

3.15         Intellectual Property.

 

(a)          Definitions:

 

(i)          “Intellectual Property” means any or all of the following and all
rights in, arising out of, or associated therewith (including all applications
or rights to apply for any of the following, and all registrations, renewals,
extensions, future equivalents, and restorations thereof, now or hereafter in
force and effect): (A) all United States, international, and foreign:
(1) patents, utility models, and applications therefor, and all reissues,
divisions, re-examinations, provisionals, continuations and
continuations-in-part thereof, and equivalent or similar rights anywhere in the
world in inventions, discoveries, and designs, including invention disclosures;
(2) all Trade Secrets and other rights in know-how and confidential or
proprietary information; (3) all mask works and copyrights, and all other rights
corresponding thereto (including moral rights), throughout the world; (4) all
rights in World Wide Web addresses and domain names and applications and
registrations therefor, and contract rights therein; (5) all trade names, logos,
trademarks and service marks, trade dress and all goodwill associated therewith
throughout the world; (6) rights of publicity and personality; and (7) any
similar, corresponding, or equivalent rights to any of the foregoing in items
(1) through (6) above, anywhere in the world (items (1) through (7)
collectively, “Intellectual Property Rights”); and (B) any and all of the
following: computer software and code, including software and firmware listings,
assemblers, applets, applications, websites, content (including text, pictures,
sounds, music, and video), compilers, source code (whether in a format to be
compiled, interpreted, or otherwise), object code, net lists, design tools, user
interfaces, application programming interfaces, protocols, formats,
documentation, annotations, comments, data, data structures, databases, data
collections, system build software and instructions, design documents,
schematics, diagrams, product specifications, know-how, show-how, techniques,
algorithms, routines, works of authorship, processes, prototypes, test
methodologies, supplier and customer lists, materials that document design or
design processes, or that document research or testing (including design,
processes, and results); and any other tangible embodiments of any of the
foregoing or of Intellectual Property Rights (“Technology”).

 

(ii)         “Company Owned Intellectual Property” means all Intellectual
Property owned by the Company or any Acquired Subsidiary.

 

(iii)        “Company Licensed Intellectual Property” means all Intellectual
Property owned by third Persons and licensed to the Company or any Acquired
Subsidiary. Unless otherwise noted, all references to “Company Intellectual
Property” refer to both Company Owned Intellectual Property and Company Licensed
Intellectual Property.

 

 17 

 

 

(b)          Schedule 3.15(b) lists the following:

 

(i)          all of the Company’s and the Acquired Subsidiaries’ registrations
and applications for registration for Company Owned Intellectual Property;

 

(ii)         all licenses, sublicenses, reseller, distribution, and other
agreements or arrangements in accordance with which any other Person is
authorized by the Company or any Acquired Subsidiary to have access to, resell,
distribute, or use Company Owned Intellectual Property or to exercise any other
right with regard thereto, in each case, other than customer contracts entered
into in the ordinary course of business;

 

(iii)        all licenses and other agreements under which the Company or any
Acquired Subsidiary has been granted a license or any other right to any Company
Licensed Intellectual Property (other than license agreements for standard
“shrink wrapped,” “click through,” or other form licensed based “off-the-shelf”
third-party Intellectual Property that is otherwise commercially available)
where such Company Licensed Intellectual Property is a part of, offered in
conjunction with, or used by Company or any Acquired Subsidiary in connection
with the development, support, or maintenance of the Products, Services,
Technology, or Services (“In-Licenses”);

 

(iv)        any obligations of exclusivity, covenants not to sue, noncompetition
or nonsolicitation obligations, rights of first refusal, rights of parity of
treatment, grants of most favored nation status, or rights of first negotiation
to which Company or any Acquired Subsidiary is subject and that relate to and/or
restrict any Company Intellectual Property or the Products, Business or services
that are provided using Company Intellectual Property; and

 

(v)         any grants by the Company or any Acquired Subsidiary of exclusivity
(including license rights granted by Company or any Acquired Subsidiary to any
third-party in Company Owned Intellectual Property or other exclusivity grants),
covenants not to sue, noncompetition or non-solicitation obligations, rights of
first refusal, rights of parity of treatment, grants of most favored nation
status, or rights of first negotiation to which the Company or any Acquired
Subsidiary is subject and that relate to and/or restrict any Company
Intellectual Property.

 

(c)          Except as set forth on Schedule 3.15(c), the Company owns free and
clear of Encumbrances and/or any requirement of any past, present, or future
royalty payments, all rights in all Company Owned Intellectual Property.

 

(d)          The Company and the Acquired Subsidiaries are not in material
violation of any license, sublicense, or other agreement relating to Company
Intellectual Property, including any In-License.

 

(e)          To the Company’s Knowledge, neither the (i) use, reproduction,
modification, distribution, licensing, sublicensing, sale, offering for sale, or
import, of Company Owned Intellectual Property nor (ii) the operation of the
Business, including the provision of Products or Services infringes any
Intellectual Property Rights, or any other intellectual property, proprietary,
or personal right, of any Person, or constitutes unfair competition or unfair
trade practice under the laws of the applicable jurisdiction. To the Knowledge
of the Company, there is no unauthorized use, infringement, or misappropriation
of any of the Company Intellectual Property by any third-party, employee, or
former employee.

 

 18 

 

 

(f)           Except as set forth on Schedule 3.15(f), the Company or any
Acquired Subsidiary has not received written notice of any claims, (i)
challenging the validity, effectiveness or ownership by the Company or any
Acquired Subsidiary of any Company Owned Intellectual Property, or (ii) that any
of clauses (i) or (ii) in Section 3.15(e) above infringes, or will infringe on,
any third-party Intellectual Property Right or constitutes unfair competition or
unfair trade practices under the laws of the applicable jurisdiction.

 

(g)          No parties other than Company or any Acquired Subsidiary possess
any current or contingent rights of any kind to any source code included in
Company Owned Intellectual Property, nor has the Company or any Acquired
Subsidiary granted any current or contingent rights of any kind to any source
code that is part of any Company Licensed Intellectual Property.

 

(h)          Schedule 3.15(h) lists all current Independent Contractors
(excluding every day inventors who assign Intellectual Property Rights to the
Company or its Subsidiaries in the ordinary course of the Business) and current
employees who have created any material portion of Company Owned Intellectual
Property other than employees of Company who meet all of the following
requirements: (i) their work in any Product, Technology, or Service was created
by them entirely within the scope of their engagement or employment by the
Company or an Acquired Subsidiary, (ii) their copyrightable work product in any
Product, Technology, or Service is owned by the Company or an Acquired
Subsidiary, and (iii) any inventions of such Persons that are included or
implemented in any Company Product, Technology, or Service have been validly
assigned to the Company or an Acquired Subsidiary.

 

(i)           Except as set forth on Schedule 3.15(i), the Company and the
Acquired Subsidiaries have secured from all current and former employees,
consultants, and contractors of the Company and the Acquired Subsidiaries who
have created any material portion of any Company Owned Intellectual Property or
Product, Technology, or Service, valid and enforceable written assignments or
licenses to Company or any Acquired Subsidiary of any such employees’,
consultants’ and contractors’ contribution or rights therein and Company has
provided true and complete copies of all such assignments or licenses to the
Buyer.

 

(j)          The Company and the Acquired Subsidiaries have taken commercially
reasonable steps to protect rights in Confidential Information (both of the
Company and that of third-Persons that the Company or any Acquired Subsidiary
has received under an obligation of confidentiality).

 

(k)          The Company and the Acquired Subsidiaries are in compliance in all
material respects with all applicable laws, rules, regulations, and their
contractual obligations governing the collection, interception, storage,
receipt, purchase, sale, transfer and use (“Collection and Use”) of personal,
consumer, or customer information, including name, address, telephone number,
electronic mail address, social security number, bank account number or credit
card numbers (collectively, “Customer Information”). The Company’s and the
Acquired Subsidiaries’ Collection and Use of such Customer Information are in
accordance in all material respects with the Company’s privacy policy (or
applicable terms of use) as published on its website or any other privacy
policies (or applicable terms of use) presented to consumers or customers
(actual or potential) and to which the Company is bound or otherwise subject and
any contractual obligations of the Company to its customers regarding privacy.
The Company and the Acquired Subsidiaries do not use, collect, or receive, in
connection with the provision of its Products or Services, social security
numbers or credit card numbers other than (i) social security numbers of its
employees collected in connection with employment and (ii) social security
numbers and credit card numbers of certain of its customers.

 

 19 

 

 

(l)          Schedule 3.15(l) identifies all licenses entered into by the
Company or any Acquired Subsidiary with regard to any third-party source code.

 

(m)         No Company or Acquired Subsidiary software product or service is
governed by an Excluded License. “Excluded License” means any license that
requires, as a condition of modification or distribution of software subject to
the Excluded License, that (i) such software and other software combined or
distributed with such software be disclosed or distributed in source code form,
or (ii) such software and other software combined or distributed with such
software and any associated intellectual property be licensed on a royalty free
basis (including for the purpose of making additional copies or derivative
works).

 

(n)          The Company and the Acquired Subsidiaries have not distributed or
published to any third-party any of the Company’s software or software used in
any Product, Technology, or Service that is governed by an Excluded License.

 

(o)          The Company and the Acquired Subsidiaries have not incorporated
into any of their software or software used in any Technology, or Service any
code, modules, utilities, or libraries that are covered in whole or in part by a
license that triggers the discontinuance of some or all license rights if
certain patent enforcement suits are brought by the Company or any Acquired
Subsidiary.

 

(p)          The Company and the Acquired Subsidiaries have not incorporated
into any of its software or software used in any Technology, or Service any
code, modules, utilities, or libraries that are covered in whole or in part by a
license that requires that Company give attribution for its use of such code,
modules, utilities, or libraries.

 

(q)          Neither the Company nor any Acquired Subsidiary is a member of any
standards-setting organization.

 

(r)          Neither the Company nor any Acquired Subsidiary has participated in
any standards-setting activities that would affect the proprietary nature of any
Company Intellectual Property or restrict the ability of the Company to enforce,
license or exclude others from using or licensing any Company Intellectual
Property.

 

(s)          Except as set forth on Schedule 3.15(s), neither the Company nor
any Acquired Subsidiary is subject to, and the transactions contemplated by this
Agreement will not give rise to, any obligations of exclusivity (including
exclusive license rights granted by the Company or any Acquired Subsidiary to
any third-party in Company Intellectual Property or other exclusivity grants),
covenants not to sue, noncompetition or non-solicitation obligations, rights of
first refusal, rights of parity of treatment, most favored nation status, rights
of first negotiation, or other similar material restrictions on the operation of
the Business.

 

(t)          The transactions contemplated by this Agreement will not give rise
to or cause under any agreements relating to Company Intellectual Property, (i)
a right of termination under, or a breach of, any such agreement, or any loss or
change in the rights or obligations of the Company under any such agreement,
(ii) an obligation to pay any royalties or other amounts to any third Person in
excess of those that Company or any Acquired Subsidiary is otherwise obligated
to pay absent Closing, or (iii) any other change in the rights or obligations or
any other party to such agreement specifically with regard to payment, services,
assignment, termination, or Company Intellectual Property.

 

 20 

 

 

(u)          Except as set forth on Schedule 3.15(u), the Company or any
Acquired Subsidiary is not under any contractual obligation, (i) to include any
Company Licensed Intellectual Property in any Product, Technology, or Service,
or (ii) to obtain a third-party’s approval of any Product, Technology, or
Service at any stage in the development, licensing, distribution, or sale of
that Product, Technology, or Service.

 

(v)          [reserved]

 

(w)          The Company or any Acquired Subsidiary has not exported or
re-exported its Products, Services, or Technology, directly or indirectly, in
violation of law either to: (i) any countries that are subject to U.S.,
Canadian, or European Union export restrictions or export restrictions of any
other jurisdiction in which the Business operates or is otherwise subject; or
(ii) any end-user who Company or any Acquired Subsidiary knows or has reason to
know will utilize them in the design, development, or production of nuclear,
chemical, or biological weapons; and the Company and the Acquired Subsidiaries
have complied with all end-user, end-use, and destination restrictions issued by
the U.S. and any other jurisdiction to which the Business operates or is
subject.

 

(x)          No Person (including the Company or any Acquired Subsidiary but
excluding the Buyer), (i) is authorized to license, sublicense, resell, or
otherwise distribute any Company Owned Intellectual Property either for itself
or on behalf of Company or any Acquired Subsidiary, or (ii) has any obligation
to distribute any Company Owned Intellectual Property on behalf of Company or
any Acquired Subsidiary, including bug fixes, or updates.

 

3.16         Equipment and Other Tangible Property.

 

(a)          The Company and each Acquired Subsidiary has good and marketable
title to, or, in the case of property held under a lease or other contractual
obligation, a valid leasehold interest in, or right to use and otherwise
commercially exploit, all of the Properties, rights, and assets, whether real or
personal property and whether tangible or intangible, that are owned or
purported to be owned by the Company or such Acquired Subsidiary. This Section
3.16(a) does not apply to Intellectual Property which is governed solely by
Section 3.15.

 

(b)          Except as otherwise set forth in Schedule 3.16 hereto, the
Company’s equipment, furniture, machinery, vehicles, structures, fixtures and
other tangible property included in its Properties (the “Tangible Company
Properties”), are suitable for the purposes for which they are intended and in
good operating condition and repair, except for ordinary wear and tear, and
except for such Tangible Company Properties as shall have been taken out of
service on a temporary basis for repairs or replacement consistent with the
Company’s prior practices.

 

3.17         Permits; Environmental Matters.

 

(a)          Except as otherwise set forth in Schedule 3.17(a) hereto, the
Company and the Acquired Subsidiaries have all material Permits necessary for
the Company and the Acquired Subsidiaries to own, operate, use and/or maintain
their Properties and to conduct their Business and operations as presently
conducted. Except as otherwise set forth in Schedule 3.17(a) hereto, all such
material Permits are in effect, no proceeding is pending or, to the Knowledge of
the Company, threatened to modify, suspend or revoke, withdraw, terminate or
otherwise limit any such Permits, and no administrative or governmental actions
have been taken or, to the Knowledge of the Company, threatened in connection
with the expiration or renewal of such material Permits which could adversely
affect the ability of the Company or any Acquired Subsidiary to own, operate,
use or maintain any of their Properties or to conduct their business and
operations as presently conducted. Except as otherwise set forth in
Schedule 3.17(a) hereto, the Company and the Acquired Subsidiaries are in
compliance in all material respects with such material Permits.

 

 21 

 

 

(b)          To the Knowledge of the Company, there are no claims, liabilities,
causes of action, inquiries, studies, notices, investigations, litigation,
administrative proceedings, whether pending or threatened, or judgments or
orders relating to any Hazardous Materials (collectively called “Environmental
Claims”) asserted or threatened against the Company or any Acquired Subsidiary
or relating to any real property currently or formerly owned, leased or
otherwise used by the Company or any Acquired Subsidiary. Neither the Company or
any Acquired Subsidiary nor, to the Knowledge of the Company, any current owner,
lessee or operator of such real property nor, to the Knowledge of the Company,
any prior owner, lessee or operator of such real property, has caused or
permitted any Hazardous Material to be used, generated, reclaimed, transported,
released, treated, stored or disposed of on such real property in a manner which
could reasonably be expected to form the basis for an Environmental Claim
against the Company or the Buyer. The Company and the Acquired Subsidiaries have
not assumed any liability of any Person for cleanup, compliance or required
capital expenditures in connection with any Environmental Claim.

 

(c)          Except as set forth on Schedule 3.17(c), the Company and the
Acquired Subsidiaries have been since January 1, 2015 and are currently in
compliance in all material respects with all applicable Environmental Laws,
including obtaining and maintaining in effect all Permits required by applicable
Environmental Laws.

 

3.18         Banks. Schedule 3.18 hereto sets forth (a) the name of each bank,
trust company or other financial institution and stock or other broker with
which the Company or any Acquired Subsidiary has an account, credit line or safe
deposit box or vault; (b) the names of all persons authorized to draw thereon or
to have access to any safe deposit box or vault; (c) the purpose of each such
account, safe deposit box or vault; and (d) the names of all persons authorized
by proxies, powers of attorney or other like instrument to act on behalf of the
Company or the Acquired Subsidiaries with respect to the accounts, credit lines,
safe deposit boxes and vaults. Except as otherwise set forth in Schedule 3.18
hereto, no such proxies, powers of attorney or other like instruments are
irrevocable.

 

3.19         Customers. Schedule 3.19 sets forth a list of (a) the ten (10)
largest customers of the Business (measured by aggregate billings for the fiscal
year ended December 31, 2017), and (b) the ten (10) largest suppliers of
materials, products or services to the Business (measured by the aggregate
amount purchased for the Business for the fiscal year ended December 31, 2017).
Except as otherwise set forth in Schedule 3.19 hereto, no such party has
canceled, terminated or made any written threat to the Company to cancel or
otherwise terminate its relationship with the Company or any Acquired Subsidiary
or to materially change the quantity, pricing or other terms applicable to its
sale of products or services to the Company or any Acquired Subsidiary or its
direct or indirect purchase of Products or Services from the Company or any
Acquired Subsidiary. The Company and the Acquired Subsidiaries are not qualified
or registered under, and since January 1, 2015, have not been qualified or
registered under, any federal, state or local program or initiative (i) relating
to minority-owned or small disadvantaged businesses or (ii) based upon some
other status of business ownership, and has not received from any Governmental
Authority any special, preferential or advantageous treatment in connection with
any such program or initiative. Since January 1, 2015, the Company and the
Acquired Subsidiaries have not provided any Product or Service to any Person,
and is under no obligation to provide any Product or Service to any Person, in
connection with or pursuant to any federal, state or local program or initiative
(i) relating to minority-owned or small disadvantaged businesses or (ii) based
upon some other status of business ownership.

 

 22 

 

 

3.20         Absence of Certain Business Practices. None of the Existing
Members, the Company or any Acquired Subsidiary nor any other agent of the
Company or any Acquired Subsidiary, or, to the Knowledge of the Company, any
other Person acting on behalf of or associated with the Company, acting alone or
together, has (other than as reimbursement or payment for the Services in the
ordinary course of business consistent with past practice) (a) received,
directly or indirectly, any rebates, payments, commissions, promotional
allowances or any other economic benefits, regardless of their nature or type,
from any customer, supplier, employee or agent of any customer or supplier; or
(b) directly or indirectly given or agreed to give any illegal money, gift or
similar benefit to any customer, supplier, employee or agent of any customer or
supplier, any official or employee of any government (domestic or foreign), or
any political party or candidate for office (domestic or foreign), or other
Person who was, is or may be in a position to help or hinder the Business (or
assist the Company or any Acquired Subsidiary in connection with any actual or
proposed transaction), in each case which (i) reasonably could be expected to
subject the Company or any Acquired Subsidiary to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (ii) if not given in
the past, may have had an adverse effect on the assets, business, operations or
prospects of the Company, taken as a whole, or (iii) if not continued in the
future, may have a Material Adverse Effect. Further, the Company and the
Acquired Subsidiaries are not Affiliates of an “investment company” within the
meaning of the Investment Company Act of 1940, as amended.

 

3.21         Products, Services and Authorizations.

 

(a)          To the Knowledge of the Company, since January 1, 2016, no Product
sold or Service rendered by the Company has been sold or rendered other than in
accordance in all material respects with the provisions of all applicable Legal
Requirements, policies, guidelines and any other requirements and regulations of
all Governmental Authorities.

 

(b)          Schedule 3.21(b) sets forth (i) a list of all Products and Services
which at any time since January 1, 2016, have been withdrawn or suspended by the
Company or any Acquired Subsidiary, as a result of any governmental or
regulatory action, proceeding or order binding on the Company or the Business;
(i) a brief description of all completed or pending governmental or regulatory
proceedings seeking the withdrawal or suspension of any Product or Service; and
(ii) a list of all regulatory letters received by the Company or any Acquired
Subsidiary or the Existing Members or any of their agents relating to the
Company or any Acquired Subsidiary or any of the Products or Services.

 

(c)          To the Knowledge of the Company, there is no basis for withdrawal
or suspension of any Product registration, Product license or other license,
approval or consent of any Governmental Authority with respect to the Company or
any Acquired Sub or any of the Products.

 

(d)          The Company and the Acquired Subsidiaries have not and, to the
Knowledge of the Company, their respective employees, representatives or agents,
and, to the Knowledge of the Company, the Other Parties, have not, made any
marketing or advertising claims, statements or representations that any such
Person knows or has reason to believe is or was false.

 

 23 

 

 

3.22         Labor. Except as disclosed in Schedule 3.22 hereto:

 

(a)          The Company and the Acquired Subsidiaries: (i) are in compliance in
all material respects with applicable Legal Requirements with respect to
employment, employment practices, terms and conditions of employment and wages
and hours, in each case with respect to its employees; (ii) has withheld and
reported all amounts required by Legal Requirements or by Contract to be
withheld and reported with respect to wages, salaries and other payments to its
employees; (iii) is not liable for any arrears of wages or any Taxes or any
penalty for failure to comply with the Legal Requirements applicable to the
foregoing; (iv) is not liable for any payment to any trust or other fund
governed by or maintained by or on behalf of any Governmental Authority with
respect to unemployment compensation benefits, social security or other benefits
or obligations for its employees (other than routine payments to be made in the
normal course of business and consistent with past practice); and (v) has no
leased employees.

 

(b)          To the Knowledge of the Company, the Company and the Acquired
Subsidiaries are employing only individuals who are lawfully permitted to work
in the United States and the Company and the Acquired Subsidiaries are in
compliance with all applicable laws and regulations of the United States
regarding immigration and/or employment of non-citizen workers. The Company and
the Acquired Subsidiaries have not been notified in writing of any pending or
threatened investigation by any branch or department of U.S. Immigration and
Customs Enforcement (“ICE”), or other federal agency charged with administration
and enforcement of federal immigration laws concerning the Company or any
Acquired Subsidiary, and the Company or any Acquired Subsidiary has never
received any “no match” notices from ICE, the Social Security Administration or
the IRS within the previous 24 months of the Effective Date.

 

(c)          Schedule 3.22(c) hereto contains a true and complete listing,
including location, of each individual paid by the Company or any Acquired
Subsidiary as an independent contractor rather than an employee, total
compensation for services in excess of Twenty Thousand Dollars ($20,000) during
the period from January 1, 2017 through the date hereof (“Independent
Contractors”). The Company and the Acquired Subsidiaries have completed IRS Form
SS-8 with respect to any Independent Contractor and no Independent Contractor
has completed IRS Form SS-8 with respect to the Company or any Acquired
Subsidiary. Except as set forth in Schedule 3.22(c), no current employee of the
Company or any Acquired Subsidiary was treated at any time in the past as an
Independent Contractor of the Company or any Acquired Subsidiary. Except as set
forth on Schedule 3.22(c), no current Independent Contractor has canceled,
terminated or made any written threat to the Company to cancel or otherwise
terminate his, her or its relationship with the Company or any Acquired
Subsidiary, or to materially change the pricing or other terms applicable to
his, her or its sale or provision of services to the Company or any Acquired
Subsidiary, or materially reduce his, her or its business relationship with the
Company or any Acquired Subsidiary other than in accordance with the Contract,
if any, by which such Independent Contractor is engaged by the Company or any
Acquired Subsidiary.

 

(d)          To the Knowledge of the Company, the Company and the Acquired
Subsidiaries have properly classified, for all times prior to the date hereof,
Independent Contractors and employees, and has paid all Taxes required to be
paid related to said Independent Contractors and employees.

 

(e)          Since January 1, 2016, there have not been any, (i) work stoppages,
labor disputes or other material controversies between the Company and its
employees, (ii) labor union grievances or, to the Knowledge of the Company,
organizational efforts, or (iii) unfair labor practice or labor arbitration
proceedings pending or, to the Knowledge of the Company, threatened.

 

(f)          Schedule 3.22(f) hereto sets forth by number and employment
classification the approximate number of employees employed by the Company or
any Acquired Subsidiary in each classification as of the date hereof, and,
except as set forth therein, none of the Company’s employees are subject to
union or collective bargaining agreements with the Company.

 

 24 

 

 

3.23         Transactions With Affiliates. Except as otherwise set forth in
Schedule 3.23 hereto and except for normal advances to employees consistent with
past practices, payment of compensation for employment to employees consistent
with past practices, and participation in scheduled Plans or Benefit Programs or
Agreements by employees, the Company and the Acquired Subsidiaries have not
purchased, acquired or leased any property or services from, or sold,
transferred or leased any property or services to, or loaned or advanced any
money to, or borrowed any money from, or entered into or been subject to any
management, consulting or similar agreement with, or engaged in any other
transaction with any Existing Member or any other officer, director or
shareholder of the Company or any of their respective Affiliates. Except as
otherwise set forth in Schedule 3.23 hereto, none of the Existing Members or any
other Affiliate of the Company is directly or indirectly indebted to the Company
or any Acquired Subsidiary for money borrowed or other loans or advances, and
neither the Company nor any Acquired Subsidiary is directly or indirectly
indebted to any such Person.

 

3.24         Brokers or Finders’ Fees. Except as otherwise set forth in
Schedule 3.24 hereto, all negotiations relating to this Agreement and the
transactions contemplated hereby have been carried out without the intervention
of any Person acting on behalf of the Company, any Acquired Subsidiary or the
Existing Members in such a manner as to give rise to any valid claim against the
Buyer for any brokerage fee, finder’s fee or similar compensation.

 

3.25         Management Continuity. To the Knowledge of the Company, none of the
officers of the Company or any Acquired Subsidiary have any current intention,
plan or desire to terminate their respective employment or professional service
agreements with the Company or any Acquired Subsidiary or to cease performing
their respective duties as employees of the Company or any Acquired Subsidiary
providing services to the Company or any Acquired Subsidiary.

 

3.26         Taxes.

 

(a)          The Company and the Acquired Subsidiaries have timely filed all
income Tax Returns and other material Tax Returns that it has been required to
file. All such Tax Returns were true, correct and complete in all material
respects. All Taxes owed by the Company (whether or not shown on any Tax Return
and whether or not any Tax Return was required) have been timely paid. The
Company and the Acquired Subsidiaries are not currently the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever been
made in writing by a Governmental Authority in a jurisdiction where the Company
or any Acquired Subsidiary does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction or the requirement to file Tax Returns
in that jurisdiction. There are no Encumbrances on any of the Properties that
arose in connection with any failure (or alleged failure) to pay any Tax, except
for Encumbrances for Taxes not yet due and payable or that are being contested
in good faith by the Company.

 

(b)          The Company and the Acquired Subsidiaries have (i) timely withheld
and paid all Taxes required to have been withheld and paid or properly reflected
in the reserve referred to in Section 3.26(f)(ii) in connection with amounts
paid or owing to any employee, independent contractor, creditor, equityholder,
customer or other third-party, (ii) complied with all information reporting and
backup withholding provisions of applicable Legal Requirements, and (iii)
maintained all required records with respect to the items in clauses (i) and
(ii).

 

(c)          There is no dispute or claim concerning any Tax liability of the
Company or any Acquired Subsidiary either, (i) claimed or raised by any
Governmental Authority in writing, or (ii) as to which the Company or any
Acquired Subsidiary or any of the Existing Members has actual knowledge based
upon personal contact with any agent of such Governmental Authority. No issue
relating to Taxes has been raised in writing by a Governmental Authority during
any pending audit or examination. The Company has delivered to the Buyer correct
and complete copies of all U.S. federal, state, local and foreign income,
franchise and similar Tax Returns which have been filed, examination reports and
statements of deficiencies assessed against, or agreed to by, the Company since
January 1, 2016.

 

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(d)          Neither the Company nor any Acquired Subsidiary has waived any
statute of limitations in respect of Taxes or requested or agreed to any
extension of time with respect to a Tax assessment or deficiency.

 

(e)          The Company and the Acquired Subsidiaries are not a party to any
Tax allocation or Tax sharing agreement. The Company and the Acquired
Subsidiaries (i) have not been a member of an Affiliated Group filing a
consolidated federal income Tax Return, and (ii) have no liability for the Taxes
of any Person under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract or otherwise (other than pursuant to contracts entered into in the
ordinary course of business not primarily related to Taxes).

 

(f)          The unpaid Taxes of the Company and the Acquired Subsidiaries,
(i) do not, as of the Balance Sheet Date, exceed the reserve for Tax liability
(other than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the Company
Financial Statements (rather than in any notes thereto), and (ii) do not exceed
that reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company or any Acquired
Subsidiary in filing its Tax Returns.

 

(g)          Neither the Company nor any Acquired Subsidiary is a party to any
joint venture, partnership or other arrangement or contract that could be
treated as a partnership for federal income Tax purposes.

 

(h)          The Company and the Acquired Subsidiaries have not entered into any
sale leaseback or leveraged lease transaction that fails to satisfy the
requirements of Revenue Procedure 2001-28 (or similar provisions of foreign law)
or any safe harbor lease transaction.

 

(i)           All material elections with respect to Taxes affecting the Company
and the Acquired Subsidiaries are disclosed or attached to a Tax Return of the
Company or an Acquired Subsidiary, as applicable.

 

(j)           All private letter rulings or similar rulings, memoranda, or
determinations issued by any Governmental Authority to the Company or any
Acquired Subsidiary (including without limitation any rulings, memoranda or
determinations issued by any state, local or foreign Governmental Authority to
the Company) have been disclosed in Schedule 3.26(j), and there are no pending
requests for any such rulings, memoranda or determinations.

 

(k)          Neither the Company nor any Acquired Subsidiary will be required to
include any items of income in, or exclude any items of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing Date
as a result of (i) any change in method of accounting for a taxable period
ending on or prior to the Closing Date under Section 481(a) of the Code (or any
corresponding or similar provision of state, local or foreign income Tax law);
(ii) any “closing agreement” as described in Section 7121 of the Code (or any
corresponding or similar provision of state, local or foreign income Tax law);
(iii) any installment sale or open transaction made on or prior to the Closing
Date; (iv) any prepaid amount received on or prior to the Closing Date; (v) the
cash basis method of accounting or percentage of completion method of
accounting; or (vi) an election under Section 108(i) of the Code.

 

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(l)          There are no Tax-sharing agreements or similar arrangements
(including indemnity arrangements) with respect to or involving the Company or
any Acquired Subsidiary and, after the Closing Date, neither the Company nor any
Acquired Sub will be bound by any such Tax-sharing agreements or similar
arrangements entered into prior to the Closing or have any liability thereunder
for amounts due in respect of periods prior to the Closing Date.

 

(m)          The Company and the Acquired Subsidiaries do not have and have not
had a permanent establishment in any foreign country and do not engage and have
not engaged in a trade or business in any foreign country.

 

(n)          The Company and the Acquired Subsidiaries have not entered into any
transaction identified as a “reportable transaction” or “listed transaction” for
purposes of Treasury Regulations Sections 1.6011-4(b). If the Company or any
Acquired Subsidiary has entered into any transaction such that, if the treatment
claimed by it were to be disallowed, the transaction would constitute a
substantial understatement of federal income Tax within the meaning of Section
6662 of the Code, then it believes that it has either (i) substantial authority
for the tax treatment of such transaction or (ii) reasonable basis for the tax
treatment of such transaction and disclosed on its Tax Returns the relevant
facts affecting the tax treatment of such transaction.

 

3.27         Other Information. The representations, warranties and other
statements of the Company and the Existing Members contained in this Agreement
and the Ancillary Agreements do not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading.

 

3.28         Securities Matters. Each Existing Member is an “accredited
investor” as such term is defined under Rule 501 of Regulation D as promulgated
under the Securities Act, and has such knowledge, sophistication and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the receipt of the Buyer Securities and of protecting its interests
in connection therewith. Each Existing Member has the ability to bear the
economic risk of this investment, including complete loss of the investment.

 

3.29         No Additional Representations. Except for the representations and
warranties made by the Company and the Existing Members in this Article 3,
neither the Company nor any other Person makes any express or implied
representation or warranty with respect to either the Company, any Subsidiary or
the Business, and the Company hereby disclaims any such other representations or
warranties. 

 

Article 4- REPRESENTATIONS AND WARRANTIES OF THE BUYER

 

The Buyer hereby represents and warrants to the Company and the Existing Members
as of the date hereof and the Closing Date as follows:

 

4.1           Existence and Qualification. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada. The Buyer has the corporate power to own, manage, lease and hold its
properties and to carry on its business as and where such properties are
presently located and such business is presently conducted. The Buyer (i)
qualifies as an accredited investor under Rule 501(a) of Regulation D,
promulgated under the Securities Act, (ii) is acquiring the Common Membership
Interests for its own account and for the purpose of investment and not with a
view to distribution or resale thereof and (iii) acknowledges that (A) the
Common Membership Interests have not been registered under the Securities Act or
any state securities laws, (B) there is no public market for the Common
Membership Interests and there can be no assurance that a public market will
develop, and (C) it must bear the economic risk of its investment in the Common
Membership Interests for an indefinite period of time and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the Common Membership Interests.

 

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4.2           Authority, Approval and Enforceability. This Agreement and each
Ancillary Agreement to which the Buyer is a party has been duly executed and
delivered by the Buyer and the Buyer has all requisite corporate power to
execute and deliver this Agreement and all Ancillary Agreements executed and
delivered or to be executed and delivered by the Buyer in connection with the
transactions provided for hereby, to consummate the transactions contemplated
hereby and by the Ancillary Agreements, and to perform its obligations hereunder
and under the Ancillary Agreements. The execution, delivery and performance of
this Agreement and the Ancillary Agreements and the consummation by the Buyer of
the transactions contemplated hereby and thereby (including the issuance and
delivery of the New Convertible Notes and the issuance of any Buyer Shares) have
been duly and validly authorized and approved by all necessary company action on
the part of the Buyer and no other proceeding on the part of the Buyer is
necessary to authorize this Agreement, any Ancillary Agreement to which the
Buyer is a party or to consummate the transactions contemplated hereby or
thereby. Approval by the holders of a majority of the outstanding shares of
common stock of Buyer for the potential issuance of 20% of the Buyer’s common
stock is the only vote of stockholders of Buyer necessary to approve the
transactions contemplated by this Agreement and any Ancillary Agreement, and
such approval was obtained prior to the date hereof. This Agreement and each
Ancillary Agreement to which the Buyer is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of the
Buyer, enforceable in accordance with its terms, except as such enforcement may
be limited by general equitable principles or by applicable bankruptcy,
insolvency, moratorium or similar laws and judicial decisions from time to time
in effect which affect creditors’ rights generally.

 

4.3           No Default or Consents. Except as otherwise set forth in
Schedule 4.3 hereto, neither the execution nor delivery of this Agreement nor
the carrying out of the transactions contemplated hereby will:

 

(a)          violate or conflict with any of the terms, conditions or provisions
of the articles of incorporation or by-laws of the Buyer;

 

(b)          violate any Legal Requirements applicable to the Buyer;

 

(c)          violate, conflict with, result in a breach of, constitute a default
under (whether with or without notice or the lapse of time or both), or
accelerate or permit the acceleration of the performance required by, or give
any other party the right to terminate, any Contract or Permit binding upon or
applicable to the Buyer;

 

(d)          result in the creation of any Encumbrance on any properties of the
Buyer; or

 

(e)          require the Buyer to obtain or make any waiver, consent, action,
approval or authorization of, or registration, declaration, notice or filing
with, any private non-governmental third-party or any Governmental Authority.

 

4.4           No Proceedings. No suit, action or other proceeding is pending or,
to the Buyer’s knowledge, threatened before any Governmental Authority seeking
to restrain the Buyer or prohibit its entry into this Agreement or prohibit the
Closing, or seeking Damages against the Buyer or any of its properties as a
result of the consummation of this Agreement.

 

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4.5           No Other Agreements. Except for the agreements expressly
contemplated hereby, none of the Buyer or any of its Affiliates has any other
agreements, arrangements or understandings with any director, officer, employee,
consultant, stockholder or Affiliate of the Company in respect of the
transactions contemplated hereby. Without limiting the generality of the
foregoing, the Buyer agrees that no representation or warranty, express or
implied, is made with respect to any financial projections, budgets or other
forward looking statements. The Buyer further covenants, acknowledges and agrees
that it (a) has made its own investigation into, and based thereon has formed an
independent judgment concerning, the Company, the Acquired Subsidiaries and the
Business, (b) has been given adequate access to such information about the
Company, the Acquired Subsidiaries and the Business as the Buyer has reasonably
requested, and (c) will not assert any claim against the Company, the Existing
Members or any of their respective Affiliates, or seek to hold any such Person
liable, for any inaccuracies, misstatements or omissions with respect to any
information made available, delivered, provided or furnished to the Buyer or any
of its Affiliates; provided, that this Section 4.6 shall not preclude the Buyer
Indemnified Parties from asserting claims for indemnification in accordance with
Section 6.3(a) (subject to the limitations contained in Sections 6.3 and 8.1).

 

4.6           Independent Investigation; No Other Representations and
Warranties. The Buyer agrees that none of the Company, the Existing Members or
any of their respective Affiliates have made and shall not be deemed to have
made, nor has the Buyer or any of its Affiliates relied on, any representation,
warranty, covenant or agreement, express or implied, with respect to the
Company, the Acquired Subsidiaries, the Business or the transactions
contemplated hereby, other than those representations, warranties, covenants and
agreements explicitly set forth in Article 3 of this Agreement.

 

4.7           Buyer Shares. The New Convertibles and the Buyer Shares have been
duly authorized. Upon issuance, the New Convertible Notes and the Buyer Shares
will be validly issued, fully paid and nonassessable, and will not be subject to
any option, call, preemptive, subscription or similar rights. At the Closing,
Buyer will have sufficient authorized but unissued shares or treasury shares of
Buyer Common Stock for the Buyer to meet its obligation to deliver the Buyer
Shares under this Agreement and the Ancillary Agreements to which it is a party.
Upon issuance of the Buyer Shares, the recipient thereof shall acquire good and
valid title to the Buyer Shares. Upon issuance, the New Convertibles Notes and
the Buyer Shares will be issued in compliance with applicable Legal
Requirements. The issuance and sale of the New Convertible Notes and the Buyer
Shares contemplated hereby does not conflict with or violate any rules or
regulations of the Nasdaq Capital Market.

 

4.8           Brokers or Finders’ Fees. Except as otherwise set forth in
Schedule 4.8 hereto, all negotiations relating to this Agreement and the
transactions contemplated hereby have been carried out without the intervention
of any Person acting on behalf of the Buyer in such a manner as to give rise to
any valid claim against the Company or any Existing Member for any brokerage
fee, finder’s fee or similar compensation.

 

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4.9           SEC Reports; Financial Statements. The Buyer has filed all reports
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the twelve months
preceding the date hereof (or such shorter period as the Buyer was required by
law to file such materials) (the foregoing materials being collectively referred
to herein as the “SEC Reports”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Securities Exchange
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Buyer included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Securities Exchange Commission with respect thereto
as in effect at the time of filing. Such financial statements have been prepared
in accordance with GAAP during the periods involved, except as may be otherwise
specified in such financial statements or the notes thereto, and fairly present
in all material respects the financial position of the Borrower and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial (individually and in the aggregate),
year-end audit adjustments and the absence of footnotes.

 

Article 5- CONDITIONS TO THE EXISTING MEMBERS’ AND THE BUYER’S OBLIGATIONS

 

5.1           Conditions to Obligations of the Company. The obligations of the
Company and the Members to carry out the transactions contemplated by this
Agreement are subject, at the option of the Company, to the satisfaction or
waiver of the following conditions:

 

(a)          As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of the Company or any of
the Existing Members) shall be pending or threatened before any Governmental
Authority seeking to restrain the Company or prohibit the Closing or seeking
Damages against the Existing Members as a result of the consummation of this
Agreement.

 

(b)          The Buyer shall have made the payments of the Cash Consideration in
accordance with Section 2.2 hereof.

 

(c)          The Buyer shall have issued and delivered the New Convertible Notes
to the holders of the Senior Convertible Debt in accordance with Sections 2.2(c)
of this Agreement.

 

(d)          The Buyer shall have issued the Buyer Shares to Venture Six, LLC
and Wesley Jones in satisfaction of the Promissory Notes in accordance with
Section 2.2(d) of this Agreement.

 

(e)          The Buyer shall have executed and delivered to the Company its
executed signature page to the New Company LLC Agreement.

 

(f)          The Company shall have received a certificate of the Secretary of
the Buyer certifying (i) the articles of incorporation and by-laws of the Buyer,
(ii) the resolutions of the Board of Directors of the Buyer approving this
Agreement and the Ancillary Agreements to which it is a party, (iii) the written
consent of the stockholders of the Buyer approving this Agreement and the
Ancillary Agreements to which it is a party (including the approval of the
issuance of any Buyer Shares issuable pursuant to this Agreement or any of the
Ancillary Agreements).

 

(g)          The Buyer shall have executed and delivered its executed signature
page to the Registration Rights Agreement.

 

(h)          The Buyer shall have filed with The Nasdaq Capital Market an
additional shares listing application covering all of the Buyer Shares issued or
issuable under this Agreement and the Ancillary Agreements, and shall have
received no objections from The Nasdaq Capital Market with respect to such
listing application that are not resolved prior to the Closing Date.

 

 30 

 

 

(i)          The Buyer shall have delivered the Information Statement pursuant
to Section 14(c) of the Exchange Act to the stockholders of the Buyer notifying
them of the approval, by written consent, of the stockholders of the Buyer to
the issuance of the Buyer Shares issuable pursuant to this Agreement and the
Ancillary Agreements and twenty (20) days shall have elapsed since the
Information Statement was sent or given to the stockholders of Buyer.

 

5.2           Conditions to Obligations of the Buyer. The obligations of the
Buyer to carry out the transactions contemplated by this Agreement are subject,
at the option of the Buyer, to the satisfaction or waiver of the following
conditions:

 

(a)          As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of the Buyer) shall be
pending or threatened before any Governmental Authority seeking to restrain the
Buyer or prohibit the Closing or seeking Damages against the Buyer or the
Company or its Properties as a result of the consummation of this Agreement.

 

(b)          The Company shall have furnished the Buyer with a certified copy of
all necessary corporate resolutions and actions on its behalf approving the
Company’s execution, delivery and performance of this Agreement.

 

(c)          No proceeding in which the Company shall be a debtor, defendant or
party seeking an order for its own relief or reorganization shall be pending by
or against such Person under any United States or state bankruptcy or insolvency
law.

 

(d)          The Buyer shall have received the deliverables contemplated by
Section 2.2 hereof.

 

(e)          The Company and the Existing Members shall have executed and
delivered to the Buyer their executed signature pages to the New Company LLC
Agreement.

 

(f)          The holders of the New Convertible Notes, the Existing Members,
Wesley Jones and Venture Six, LLC shall have executed and delivered to the Buyer
their executed signature pages to the Registration Rights Agreement.

 

Article 6- POST-CLOSING OBLIGATIONS

 

6.1           Further Assurances. Following the Closing, the Company, the
Existing Members and the Buyer shall execute and deliver such other documents,
and take such other action, as shall be reasonably requested by any other Party
hereto to carry out the transactions contemplated by this Agreement.

 

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6.2           Publicity; SEC Filings; Listing. None of the Parties hereto shall
issue or make, or cause to have issued or made, any public release or
announcement concerning this Agreement or the transactions contemplated hereby,
without the advance approval in writing of the form and substance thereof by
each of the other Parties, except: (a) as required by any applicable Legal
Requirement (in which case, so far as possible, there shall be consultation
among the Parties prior to such announcement), including as noted in the next
two sentences, and (b) to each Party’s advisors and lenders. The Parties
understand and acknowledge that as a publicly held company, the Buyer will be
required to file a Current Report on Form 8-K with the U.S. Securities and
Exchange Commission to disclose the acquisition contemplated by this Agreement
(the “Form 8-K”), and all of the Parties expressly consent to such timely
filing. In addition, the Existing Members and the Company understand and
acknowledge that in connection with such filing, the Buyer will be required to
file the previous two (2) years of audited financial statements of the Company,
along with required pro-forma financial statements in accordance with Rule 3-05
of Regulation S-X, no later than seventy-one (71) days after the date that the
initial Form 8-K must be filed. Buyer shall use reasonable best efforts to
ensure that the Form 8-K, and related financial statements, are timely filed.
Buyer shall maintain the listing of the Buyer Shares and shall not take any
action which would be reasonably expected to result in the delisting or
suspension of the Buyer’s common stock on The Nasdaq Stock Market.

 

6.3           Post-Closing Indemnity by the Existing Members and by the Buyer.

 

(a)          Subject to the limitations set forth in Section 8.1, from and after
the Closing, the Existing Members shall jointly and severally indemnify and hold
harmless the Buyer and its Affiliates (including the Company), directors,
officers, employees, agents and representatives (the “Buyer Indemnified
Parties”) from and against any and all Damages arising out of or resulting from:
(i) a breach of, or material inaccuracy in, any of the representations or
warranties made by the Company or the Existing Members in this Agreement (it
being agreed that, for purposes of this Section 6.3 and Section 8.1, all
qualifications and exceptions relating to materiality, material adverse effect
or words of similar import (but not specific dollar thresholds) shall be
disregarded for purposes of calculating the amount of Damages resulting from
such breach or inaccuracy, but for the avoidance of doubt, such materiality,
material adverse effect and words of similar import shall not be disregarded for
purposes of determining whether such breach or inaccuracy exists), (ii) a breach
or default in performance by the Company of any pre-closing covenant or
agreement contained in this Agreement or a breach or default of any Existing
Member of any covenant or agreement of such Existing Member contained in this
Agreement, (iii) the Excluded Subsidiaries, (iv) Indemnified Taxes and (v) the
Excluded Liabilities.

 

(b)          Subject to the limitations set forth in Section 8.1, from and after
the Closing, the Buyer shall indemnify and hold harmless the Existing Members
and their Affiliates, directors, officers, employees, agents and representatives
(the “Existing Member Indemnified Parties”) from and against any and all Damages
arising out of or resulting from: (i) a breach of, or material inaccuracy in,
any of the representations or warranties made by the Buyer in this Agreement and
(ii) a breach or default in performance by the Buyer or the Company of any
covenant or agreement of the Buyer or the Company (in the case of the Company,
solely with respect to its post-Closing covenants or agreements) contained in
this Agreement.

 

(c)          All representations and warranties set forth in this Agreement are
contractual in nature only and subject to the sole and exclusive remedies set
forth herein; provided that the use of any one right or remedy hereunder by any
Party hereto shall not preclude or constitute a waiver of its right to use any
or all other remedies hereunder. Except for actual fraud, the remedies provided
in this Section 6.3 (which are subject to the limitations set forth in Section
8.1) shall be the sole and exclusive remedies of the Buyer Indemnified Parties
and Existing Member Indemnified Parties and their heirs, successors and
permitted assigns after the Closing with respect to this Agreement, including
any breach or non-performance of any representation, warranty, covenant or
agreement contained herein. No Buyer Indemnified Party or Existing Member
Indemnified Party shall bring any claim with respect to this Agreement, whether
in contract, tort or otherwise, other than (i) a claim of actual fraud against
the party that committed such actual fraud, (ii) an indemnification claim made
by the Buyer on behalf of the Buyer Indemnified Parties in accordance with
Section 6.3(a), or (iii) an indemnification claim made by an Existing Member on
behalf of the Existing Member Indemnified Parties in accordance with Section
6.3(b); provided, that any party may seek equitable relief, including the
remedies of specific performance and injunction, with respect to the breach of
any covenant or agreement to be performed after the Closing. For the avoidance
of doubt, this Section 6.3 does not preclude any claim arising from any failure
of (i) the Buyer to comply with its obligations under the New Convertible Notes
or (ii) the Company to comply with its Put Right obligations as provided in the
New Company LLC Agreement or the Buyer to comply with its guarantee of such Put
Right obligations of the Company.

 

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6.4           Non-Disclosure.

 

(a)          General. In consideration of the payment to be made pursuant to
Section 2.2 hereof, and in order to induce the Buyer to enter into this
Agreement and to consummate the transactions contemplated hereby, each Existing
Member hereby covenants and agrees that such Existing Member shall not divulge,
communicate, use for any commercial purpose any Confidential Information or
Trade Secrets (collectively “Company Information”) pertaining to the Company or
any of its Affiliates. Any Company Information now known or hereafter acquired
by any Existing Member with respect to the Company or any of its Affiliates
shall be deemed a valuable, special and unique asset of the Company that is
received by such party in confidence, and such party shall treat such Company
Information as such under this Section 6.4(a). In addition, the Existing Members
will use commercially reasonable efforts to:

 

(i)          receive and hold all Company Information in trust and in strictest
confidence; and

 

(ii)         take reasonable steps to protect the Company Information from
disclosure.

 

(b)          Injunction. It is recognized and hereby acknowledged by the parties
hereto that a breach or violation by any Existing Member may cause irreparable
harm and damage to the Buyer in a monetary amount which may be virtually
impossible to ascertain. As a result, each Existing Member recognizes and hereby
acknowledges that the Buyer shall be entitled to an injunction from any court of
competent jurisdiction enjoining and restraining any breach or violation of any
or all of the covenants set forth in Section 6.4(a) by any Existing Member, and
that such right to injunction shall be cumulative and in addition to whatever
other rights or remedies the Buyer and/or the Company may possess hereunder, at
law or in equity. Nothing contained in this Section 6.4(b) shall be construed to
prevent the Buyer and/or the Company from seeking and recovering from an
Existing Member Damages sustained by it as a result of any breach or violation
by such Existing Member of any of the covenants or agreements contained herein,
and their respective controlled Affiliates and each of their respective past or
present officers, managers, directors, stockholders, members, partners,
employees and agents.

 

6.5           Director Nomination. At the next annual meeting of Buyer, the
Buyer shall use best efforts to cause Louis Foreman to be nominated as a
director on the Buyer’s Board of Directors.

 

6.6           Releases. Due to the consideration to be received by each Existing
Member under this Agreement and the Ancillary Agreements, effective as of (and
subject to) the Closing, each Existing Member, on behalf of himself, herself, or
itself and each of his, her, or its respective controlled Affiliates, successors
and assigns, hereby releases the Buyer, the Company, the Acquired Subsidiaries
and their respective Affiliates, as well as each of their respective past or
present officers, managers, directors, stockholders, members, partners,
employees and agents (collectively, the “Released Parties”) from any and all
actions, causes of action, suits, debts, dues, sums of money, accounts,
reckoning, bonds, bills, liabilities, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments,
extents, executions, claims and demands which such Existing Member may have
relating to, arising out of or in connection with any facts or circumstances
directly or indirectly relating to the Company and the Acquired Subsidiaries,
which existed on or prior to the Closing Date (the “Released Claims”), and
agrees not to bring or threaten to bring or otherwise join in, and agrees to
cause its, his or her controlled Affiliates and successors and assigns not to
bring or threaten, any Released Claim against the Released Parties; provided,
that the foregoing shall not (i) preclude such Existing Member from seeking
recovery under any directors and officers’ insurance policy maintained by the
Existing Members on behalf of the Company or any Acquired Subsidiary for claims
made after Closing in respect of events occurring prior to Closing having the
effect of converting the Company’s current claims-made policies into “occurrence
based” coverage or (ii) apply to any rights of such Existing Member or such
Existing Member’s Affiliates arising under this Agreement or any Ancillary
Agreement. Furthermore, the release contained in this Section 6.6 specifically
includes any claim relating to any unpaid compensation due and owing to Gregg
Smith and Louis Foreman for services rendered in their capacities as Independent
Contractors.

 

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6.7           Restrictive Covenants.

 

(a)          Each Existing Member acknowledges and agrees that: (i) the
covenants contained in this Section 6.7 (the “Restrictive Covenants”) are being
entered into by such Existing Member in connection with the transactions
contemplated by this Agreement; and (ii) the Restrictive Covenants are a
material inducement to Buyer to enter into this Agreement and the other
Ancillary Agreements. Therefore, during the period commencing on the Closing
Date and continuing thereafter for two (2) years after the Closing Date (the
“Restricted Period”), each Existing Member shall not, directly or indirectly,
for himself, herself or itself, or for, through or in association with any other
Person:

 

(i)          Engage or participate in or be involved in any capacity, own any
shares or equity interests in, manage, operate, control, finance, or be employed
or engaged by or associated with, serve as a director, officer, manager,
consultant, trustee or partner of or provide services or advice or other aid or
assistance to, nor lend or permit their name to be used in connection with, any
company, business, enterprise or other Person (other than in connection with
such Existing Member’s ownership in or management of the Company) engaged in the
Restricted Business, nor attempt to do or take, assist any other Person in doing
or taking or permit any Affiliate to do or take any such action; provided, that,
(i) this Section 6.7(a)(i) shall not preclude the product design, development,
prototyping, marketing, crowdfunding, and manufacturing services that are
currently being conducted by Enventys Partners, LLC (including the right of
Enventys Partners, LLC to continue to perform such services), a subsidiary of
Venture Six, LLC, and (ii) this Section 6.7(a)(i) shall not preclude such
Existing Member from owning less than five percent (5%) of any class of
securities of a publicly traded Person so long as such Existing Member does not
participate in any way in the management, operation or control of such Person;

 

(ii)         (A) Solicit, induce or attempt to induce any employee or
independent contractor of the Buyer, Company, any Acquired Subsidiary or their
respective Affiliates to leave such employment, or (B) hire any Person who is or
was an employee or independent contractor of the Buyer, Company or any Acquired
Subsidiary at any time during the twelve-month period immediately prior to the
date on which such hiring would take place, nor attempt to do or take, assist
any other Person in doing or taking or permit any Affiliate to do or take any
such action; provided that the foregoing shall not apply to (y) solicitations
through search firms (including, without limitation, any online or other
recruiting or employment agencies) or general advertisements (including, without
limitation, through newspapers, trade publications, periodicals, radio, or
internet sites (i.e., Monster.com or LinkedIn)) not specifically targeted at
employees of the Buyer, Company, any Acquired Subsidiary or their respective
Affiliates, or (z) solicitations or hiring of any Person who has not been
employed by the Company or any Acquired Subsidiary in the twelve (12) months
preceding such Existing Member’s solicitation or hiring of such Person;

 

 34 

 

 

(iii)        Solicit, recruit or induce, in any case, for the purpose of
enticing away or to ceasing or reducing doing business with the Buyer, the
Company, the Acquired Subsidiaries or their respective Affiliates, any Person
having a business relationship with the Buyer, the Company, the Acquired
Subsidiaries or their respective Affiliates, nor attempt to do or take, assist
any other Person in doing or taking or permit any Affiliate to do or take any
such action; or

 

(iv)        Take any action designed to intentionally interfere with or disrupt
in any way the business relationship between the Buyer, the Company or any of
the Acquired Subsidiaries, on the one hand, and any inventor, customer,
supplier, vendor, consultant, employee or independent contractor of the Company
or any of the Acquired Subsidiaries.

 

(b)          Following the Closing, each Existing Member hereby covenants and
agrees not to make or publish, orally or in writing or electronically, any
derogatory or disparaging statements regarding the Buyer, the Company, the
Acquired Subsidiaries or their respective Affiliates, nor attempt to do or take,
assist any other Person in doing or taking or permit any Affiliate to do or take
any such action; provided, however, that this clause is not intended to prevent
(i) any Existing Member from testifying truthfully in response to a valid
subpoena or other compulsory legal process or (ii) any Existing Member from
enforcing such Existing Member’s rights under this Agreement and any other
Ancillary Agreement.

 

(c)          If, at the time of enforcement of any of the Restrictive Covenants,
a court holds that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the Parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed and directed to revise the restrictions contained herein to cover the
maximum period, scope and area permitted by law.

 

(d)          Each Existing Member acknowledges that a breach of any of the
Restrictive Covenants would cause irreparable harm to the Buyer, the Companies
and the Acquired Subsidiaries, for which there is no adequate remedy at law.
Each Existing Member agrees that, in the event of any breach or threatened
breach of any of the Restrictive Covenants, the Buyer, the Company and the
Acquired Subsidiaries may have the right, in addition to any other rights or
remedies they may have, to seek a temporary restraining order or orders and
preliminary or permanent injunctive relief to prevent breach(es) of the
Restrictive Covenants and to specifically enforce the terms and provisions
thereof without having to post bond or other security and without having to
prove special damages or the inadequacy of the available remedies at law.

 

Article 7- TAX MATTERS

 

7.1           Transfer Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties, and
interest and related expenses) incurred in connection with this Agreement shall
be borne fifty percent (50%) by the Existing Members and fifty percent (50%) by
the Buyer, and the Existing Members or the Buyer (as required by applicable law)
will, at their own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration and other Taxes and fees, and, if required by applicable law, the
other party will, and will cause its Affiliates to, join in the execution of any
such Tax Returns and other documentation.

 

 35 

 

 

7.2           Tax Contests.

 

(a)          If a claim relating to Taxes shall be made by any Governmental
Authority that, if successful, would result in the Existing Members being
required to indemnify a Buyer Indemnified Party (for purposes of this Article 7,
an “Indemnified Taxpayer”) pursuant and subject to Sections 6.3 and 8.1, the
Indemnified Taxpayer shall promptly notify the Existing Members in writing of
such fact; provided, however, that any failure to give such notice will not
waive any rights of the Indemnified Taxpayer except to the extent the rights of
the indemnifying party are actually materially prejudiced.

 

(b)          The Existing Members shall have the right to defend the Indemnified
Taxpayer against such claim with counsel of their choice satisfactory to the
Indemnified Taxpayer so long as (A) the Existing Members notify the Indemnified
Taxpayer in writing within fifteen (15) calendar days after the Indemnified
Taxpayer has given notice of such claim that the Existing Members desire to
defend the Indemnified Taxpayer against such claim and (B) the Existing Members
conduct the defense of the claim actively and diligently.

 

(c)          Subject to the provisions of paragraph (ii) above, the Existing
Members shall be entitled to prosecute such contest to a determination in a
court of initial jurisdiction, and if the Existing Members shall reasonably
request, to a determination in an appellate court.

 

(d)          The Existing Members shall not be entitled without the Buyer’s
consent (such consent not to be unreasonably withheld, conditioned or delayed)
to settle or to contest any claim relating to Taxes if the settlement of, or an
adverse judgment with respect to, the claim would be likely, in the good faith
judgment of the Existing Members, to cause the liability for any Tax of the
Indemnified Taxpayer or of any Affiliate of the Indemnified Taxpayer for any
taxable period ending after the Closing Date to increase (including, but not
limited to, by making any election or taking any action having the effect of
making any election, by deferring the inclusion of any amount in income or by
accelerating the deduction of any amount or the claiming of any credit).

 

(e)          If any of the conditions in Section 7.2(b) above are or become
unsatisfied, (A) the Indemnified Taxpayer may defend against such claims, and
(B) the Existing Members will remain responsible for any Damages the Indemnified
Taxpayer may suffer to the fullest extent provided in this Section 7.2, in each
case, subject to the limitations set forth in Section 6.3 and 8.1 hereof.

 

7.3           Additional Agreements.

 

(a)          The Buyer shall, at all times following the Closing, (i) cause the
Company to grant to the Existing Members access at all reasonable times to all
of the Company’s books and records (including Tax workpapers, Tax Returns and
correspondence with Governmental Authorities), including the right to take
extracts therefrom and make copies thereof, to the extent relevant to Tax
periods beginning before and ending on or before the Closing Date (“Pre-Closing
Tax Periods”) and (ii) otherwise cooperate with the Existing Members in
connection with any audit of Taxes with respect to Pre-Closing Tax Periods. The
Buyer shall similarly cause the Company to grant to the Existing Members access
to the Company’s records for periods on or after the Closing to the extent
reasonably required to assess and/or determine the Existing Members’ obligations
for indemnification under this Agreement. The Buyer and the Existing Members
further agree, upon request, to use their commercially reasonable efforts to
obtain any certificate or other document from any Governmental Authorities or
any other Person as may be necessary to mitigate, reduce or eliminate any Tax
that could be imposed (including with respect to the transactions contemplated
by this Agreement).

 

 36 

 

 

(b)          The Existing Members shall be responsible, at their expense, for
preparing and filing, or causing the Company to prepare and file, all Tax
Returns of the Company required to be filed after the Closing Date to the extent
such returns relate to Pre-Closing Tax Periods. The Existing Members shall send
the Buyer drafts of such Tax Returns for review and comment at least twenty (20)
days prior to the due date for filing such Tax Returns (including any applicable
extensions) and shall consider in good faith making such revisions to such Tax
Returns as are reasonably requested by the Buyer. All Tax Returns to be prepared
pursuant to this Section 7.3(b) shall be prepared in a manner consistent with
the past practice of the Company, except as otherwise required by law. The
Existing Members shall pay the amount due with respect to such Tax Returns.

 

(c)          The Company shall prepare, at the Company’s expense, all Tax
Returns of the Company with respect to periods beginning before the Closing Date
and ending after the Closing Date (“Straddle Periods”) and will send the
Existing Members drafts of such Tax Returns for review and comment at least
twenty (20) days prior to the due date for filing such Tax Returns (including
any applicable extensions) and shall make such revisions to such Tax Returns as
are reasonably requested by the Existing Members. At least five (5) days before
the date on which Taxes are due with respect to any Tax Return covering a
Straddle Period, the Existing Members shall pay to the Company the portion of
the Taxes shown as due on such Tax Return related to the portion of the Straddle
Period ending on the Closing Date. For purposes of this Agreement, with respect
to Straddle Periods, any Tax based directly or indirectly on gross or net
income, sales or receipts, imposed in respect of specific transactions, or
employment, social security or other similar taxes shall be allocated between
the portion of the Straddle Period ending on the Closing Date and the portion of
the Straddle Period beginning on the day immediately after the Closing Date by
assuming that the taxable period ended on the Closing Date, and any other Tax
shall be allocated between the portion of the Straddle Period ending on the
Closing Date and the portion of the Straddle Period beginning on the day
immediately after the Closing Date based on the number of days in the Straddle
Period ending on the Closing Date divided by the total number of days in the
Straddle Period.

 

(d)          The Parties hereto acknowledge and agree that the purchase and sale
of the Common Membership Interests by the Buyer shall be treated for U.S.
federal and applicable state income tax purposes as a purchase of partnership
interests from the Company. The Parties agree that there shall be an interim
closing of the books of the Company under Section 706 of the Code effective as
of the Closing Date, and accordingly, the income, gain, loss and deduction (and
items thereof) for the portion of the taxable year of the Company in which the
Closing occurs prior to and including the Closing Date shall be allocated solely
to the Existing Members and not the Buyer. The Parties acknowledge that the tax
year of the Company shall not terminate as a result of the purchase of Common
Membership Interests by Buyer; therefore the U.S. federal income tax return of
the Company for the period that includes the Closing Date will be a Tax Return
for a Straddle Period.

 

(e)          The Buyer shall not amend any Tax Return for Pre-Closing Tax Period
or extend the statute of limitations period in respect of any such Tax Return
without the written consent of the Existing Members, which consent shall not be
unreasonably withheld, conditioned or delayed.

 

 37 

 

 

Article 8 - MISCELLANEOUS

 

8.1           Limitation on Liability; Claim Procedure.

 

(a)          The representations and warranties of the Company and the Buyer set
forth in this Agreement shall survive the Closing until the date that is (i)
with respect to the Fundamental Representations, sixty (60) days after the
expiration of the longest permitted applicable statute of limitations under
applicable Legal Requirements and (ii) with respect to all other representations
and warranties set forth in this Agreement, eighteen (18) months after the
Closing Date (each such survival date set forth in subclauses (i) and (ii)
above, a “Representation and Warranty Survival Date”). All covenants or
agreements required to be performed pursuant to this Agreement by any Party
shall survive the Closing in accordance with their respective terms (the
“Covenant Survival Date” and, together with the Representation and Warranty
Survival Date, each, a “Survival Date”). No Party may bring a claim with respect
to any representation, warranty, covenant or agreement unless such claim is made
by the Indemnified Party to an Indemnifying Party prior to the applicable
Survival Date. No Party shall have any liability whatsoever with respect to any
such representations, warranties, covenants or agreements unless a claim is made
by an Indemnified Party pursuant to Section 6.3 of this Agreement (and in
accordance with Section 8.1(b) below) prior to the applicable Survival Date and
if written notice of an indemnification claim has been provided in accordance
herewith by any Party prior to the expiration of the applicable Survival Date,
then such applicable representation, warranty or covenant shall survive solely
as to such claim until such claim has been finally resolved.

 

(b)          For purposes of this Section 8.1, a Party making a claim for
indemnity under Section 6.3 is hereinafter referred to as an “Indemnified Party”
and the Party against whom such claim is asserted is hereinafter referred to as
the “Indemnifying Party.” All claims by any Indemnified Party under Section 6.3
hereof shall be asserted and resolved in accordance with the following
provisions. If any claim or demand for which an Indemnifying Party would be
liable to an Indemnified Party is asserted against or sought to be collected
from such Indemnified Party by such third-party, said Indemnified Party shall
with reasonable promptness notify in writing the Indemnifying Party of such
claim or demand stating with reasonable specificity the circumstances of the
Indemnified Party’s claim for indemnification; provided, however, that any
failure to give such notice will not waive any rights of the Indemnified Party
except to the extent the rights of the Indemnifying Party are actually
prejudiced or to the extent that any applicable Survival Period has expired
without such notice being given. After receipt by the Indemnifying Party of such
notice, then upon reasonable notice from the Indemnifying Party to the
Indemnified Party the Indemnifying Party shall have the right to defend, manage
and conduct any proceedings, negotiations or communications involving any
claimant whose claim is the subject of the Indemnified Party’s notice to the
Indemnifying Party as set forth above, and shall take all actions necessary,
including, but not limited to, the posting of such bond or other security as may
be required by any Governmental Authority, so as to enable the claim to be
defended against without expense or other action by the Indemnified Party.

 

(c)          Upon request of the Existing Members where they are the
Indemnifying Party, the Indemnified Party shall, to the extent it may legally do
so and at its own expense (provided that such expenses shall be included in the
calculation of Damages in the event and to the extent of an indemnifiable
claim):

 

(i)          take such action as the Existing Members may reasonably request in
connection with such action,

 

(ii)         allow the Existing Members to dispute such action in the name of
the Indemnified Party and to conduct a defense to such action on behalf of the
Indemnified Party, and

 

 38 

 

 

(iii)        render to the Existing Members all such assistance as the Existing
Members may reasonably request in connection with such dispute and defense.

 

(d)          Determination of Damages. In determining the amount of any Damages
for which an Indemnified Party is entitled to assert a claim for indemnification
hereunder, the amount of any such Damages shall be determined after deducting
therefrom the amount of any insurance proceeds (after giving effect to any
applicable deductible or retention) and other third-party recoveries actually
received by the Indemnified Party or an Affiliate in respect of such Damages
(which proceeds and recoveries the Indemnifying Party agrees to use diligent
efforts to obtain) and the amount of any Tax Benefit related thereto; provided
that the Buyer’s right to bring a claim hereunder to recover damages shall not
be delayed as a result of pending resolutions of any insurance claims. As used
herein, “Tax Benefit” shall mean any reduction of Taxes payable by or on behalf
of the Indemnifying Party or any of its Affiliates as a result of any Damages.
If an indemnification payment is received by an Indemnified Party, and such
Indemnified Party or any Affiliate later receives insurance proceeds, other
third-party recoveries or Tax Benefits in respect of the related Damages, the
Indemnified Party shall immediately pay to the Indemnifying Party a sum equal to
the lesser of (i) the actual amount of such insurance proceeds, other
third-party recoveries and Tax Benefits or (ii) the actual amount of the
indemnification payment previously paid with respect to such Damages. All
parties shall use commercially reasonably efforts to mitigate the amount of
Damages for which they may be entitled to indemnification hereunder.

 

(e)          Tax Treatment of Indemnity Payments. To the maximum extent
permitted by law, it is the intention of the parties to treat any indemnity
payment made under this Agreement as an adjustment to the purchase price for all
purposes, and the parties agree to file their Tax Returns accordingly.

 

(f)          Limitations.

 

(i)          Notwithstanding anything to the contrary in this Agreement, (i) the
Existing Members shall have no liability in respect of their indemnification
obligations under Section 6.3(a)(i) of this Agreement (other than with respect
to breaches of the Fundamental Representations) unless and until the aggregate
amount of Damages exceeds $75,000 (the “Basket”), at which point the Existing
Members shall be responsible for the entire amount of such Damages back to the
first dollar of Damages (i.e. without giving effect to the Basket) but subject
to the other limitations set forth herein, (ii) the Existing Members’ aggregate
liability in respect of their indemnification obligations under Section
6.3(a)(i) of this Agreement (other than with respect to breaches of the
Fundamental Representations) shall not exceed twenty percent (20%) of the Put
Right Shares issuable to the Existing Members under the New Company LLC
Agreement in respect of their Preferred Membership Interests and (iii) the
Existing Members’ aggregate indemnification obligations under this Agreement
(including in respect of breaches of their Fundamental Representations and the
other indemnifiable items set forth in Section 6.3(a) of this Agreement) shall
not exceed one hundred percent (100%) of the Put Right Shares issuable to the
Existing Members under the New Company LLC Agreement in respect of their
Preferred Membership Interests.

 

(ii)         Except for Indemnified Taxes, which shall be payable by Existing
Members in cash, neither the Buyer nor any other Buyer Indemnified Party may
seek recovery directly against an Existing Member in respect of the Existing
Members’ indemnification obligations under this Agreement, and any recovery
shall be limited to a right of offset against, and to reduce, the number of Put
Right Shares to be paid to the Existing Members in respect of their Preferred
Membership Interests. For purposes of the preceding sentence only, the Parties
agree to value each Put Right Share using the Valuation Methodology in order to
determine the reduction in the number of Put Right Shares and the related Put
Right obligation. By way of example, assuming each Put Right Share is valued at
$5, if the Existing Members’ were liable for Damages in respect of their
indemnification obligations under this Agreement in an amount equal to $500,000,
then the number of Put Right Shares underlying the Put Right would be reduced by
100,000 Buyer Shares. Any Indemnified Taxes which are paid in cash shall be
applied and credited towards any indemnification cap.

 

 39 

 

 

(iii)        If an Indemnified Party is entitled to indemnification under more
than one clause or sub-clause of this Agreement with respect to Damages, then
such Indemnified Party shall be entitled to only one indemnification or recovery
for such Damages to the extent it arises out of the same set of circumstances
and events; it being understood that this Section 8.1(f)(iii) is solely to
preclude a duplicate recovery by an Indemnified Party.

 

8.2           Brokers. Regardless of whether the Closing shall occur, (a) the
Existing Members shall jointly and severally indemnify and hold harmless the
Buyer from and against any and all liability for any brokers or finders’ fees
arising with respect to brokers or finders retained or engaged by the Company or
the Existing Members in respect of the transactions contemplated by this
Agreement, and (b) the Buyer shall indemnify and hold harmless the Company and
the Existing Members from and against any and all liability for any brokers’ or
finders’ fees arising with respect to brokers or finders retained or engaged by
the Buyer in respect of the transactions contemplated by this Agreement.

 

8.3           Costs and Expenses. Each of the Parties to this Agreement shall
bear its own expenses incurred in connection with the negotiation, preparation,
execution and closing of this Agreement and the transactions contemplated hereby
(the “Transaction Expenses”); provided, however, that the Existing Members shall
be responsible for and shall discharge all Transaction Expenses incurred by or
on behalf of the Company or any of the Existing Members (including the costs
associated with the negotiation, preparation, delivery, and consummation of the
Access Innovation Purchase Agreement and the transactions contemplated thereby
and any other continuing obligations of the Company thereunder, other than with
respect to the payment of the purchase price by the Company to the AI Selling
Members as contemplated in this Agreement) (collectively, “Existing Members’
Expenses”). Following the Closing, the Company shall be responsible for any
audit fees and expenses related to the preparation of the Company’s audited
financial statements described in the last sentence of Section 6.2 of this
Agreement and, for the avoidance of doubt, such audit fees and expenses shall
not constitute Existing Members’ Expenses and the Existing Members shall have no
obligation or liability in respect of such audit fees and expenses.

 

8.4           Notices. Any notice, request, instruction, correspondence or other
document to be given hereunder by any Party hereto to another (herein
collectively called “Notice”) shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, by facsimile or by FedEx, UPS or other reputable overnight courier,
as follows:

 

IF TO THE BUYER:

Xspand Products Lab, Inc.
909 New Brunswick Avenue
Phillipsburg, New Jersey 08865
Attn: CEO
Email: Chris@SRMIdealab.com

 

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With a copy to (that shall not constitute notice):

Waller Lansden Dortch & Davis, LLP
511 Union Street, Suite 2700
Nashville, TN 37219
Attn: Marc J. Adesso, Esq.
Email: marc.adesso@wallerlaw.com
Facsimile: (615) 244-6804

 

IF TO THE COMPANY (following the Closing):

 

Edison Nation Holdings, LLC
c/o Xspand Products Lab, Inc.
909 New Brunswick Avenue
Phillipsburg, New Jersey 08865
Attn: CEO
Email: Chris@SRMIdealab.com

 

With a copy to (that shall not constitute notice):

Waller Lansden Dortch & Davis, LLP
511 Union Street, Suite 2700
Nashville, TN 37219
Attn: Marc J. Adesso, Esq.
Email: marc.adesso@wallerlaw.com
Facsimile: (615) 244-6804

 

IF TO THE COMPANY (prior to the Closing)
OR TO THE EXISTING MEMBERS:

 

c/o Evolution Corporate Advisors LLC
641 Lexington Avenue, Suite 1302

New York, NY 10022
Attn.: Gregg Smith

 

With a copy to (that shall not constitute notice):

 

Greenberg Traurig, P.A.
401 E. Las Olas Boulevard, Suite 2000
Fort Lauderdale, FL 33301
Attn: Mathew B. Hoffman, Esq.
Email: hoffmanma@gtlaw.com
Facsimile: (954) 759-5532

 

Each of the addresses for Notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered or
certified mail shall be effective upon actual receipt. Notice given by facsimile
shall be effective upon transmission if successfully transmitted during the
recipient’s normal business hours, or at the beginning of the recipient’s next
normal business day after receipt if not transmitted during the recipient’s
normal business hours. All Notices by facsimile shall be confirmed by the sender
thereof promptly after transmission in writing by registered or certified mail,
personal delivery, email FedEx, UPS or other reputable overnight courier.

 

 41 

 

 

8.5           Governing Law.

 

(a)          THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE DOMESTIC LAWS OF THE STATE OF NEVADA WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF NEVADA
OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER
THAN THE STATE OF NEVADA TO BE APPLIED.

 

(b)          EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO
THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, TRIAL BY JURY IN ANY
SUIT, ACTION OR PROCEEDING ARISING HEREUNDER.

 

8.6           Survival. Any provision of this Agreement which contemplates
performance or the existence of obligations after the Closing Date, and any and
all representations and warranties set forth in this Agreement, shall not be
deemed to be merged into or waived by the execution and delivery of the
instruments executed at the Closing, but shall expressly survive the Closing and
shall be binding upon the party or parties obligated thereby in accordance with
the terms of this Agreement, subject to any limitations expressly set forth in
this Agreement.

 

8.7           Binding Effect and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any Party hereto without the prior written consent of the other
Party, provided, however, that nothing herein shall prohibit the assignment of
the Buyer’s rights (but not its obligations) to any direct or indirect
subsidiary or prohibit the assignment of the Buyer’s rights (but not
obligations) to any lender as collateral for any indebtedness for borrowed money
from such lender. The Persons referred in Section 6.3(a) and (b) of this
Agreement are intended third-party beneficiaries of the covenants, agreements,
representations and warranties in such Section. Except as otherwise expressly
set forth in this Agreement, nothing in this Agreement, is intended to confer
upon any person or entity other than the Parties and their respective permitted
successors and assigns, any rights, benefits or obligations hereunder.

 

8.8           Exhibits and Schedules. The Exhibits and Schedules referred to
herein are attached hereto and incorporated herein by this reference. The
Schedules to Article 3 shall be arranged in sections and subsections
corresponding to the numbered and lettered sections and subsections contained in
Article 3. No modifications, qualifications, or exceptions to any
representations or warranties disclosed on one Schedule to Article 3 shall
constitute a modification, qualification, or exception to any other
representations or warranties made in Article 3 of this Agreement unless it is
reasonably apparent on its face that the disclosures on such Schedule applies to
such other representations and warranties.

 

8.9           Multiple Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and will be effective
when counterparts have been signed by the Buyer, the Existing Members and the
Company and delivered to the Buyer, the Existing Members and the Company. A
manual signature on this Agreement, an image of which shall have been
transmitted electronically, will constitute an original signature for all
purposes. The delivery of copies of this Agreement, including executed signature
pages where required, by electronic transmission will constitute effective
delivery of this Agreement.

 

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8.10         References and Construction.

 

(a)          Whenever required by the context, and is used in this Agreement,
the singular number shall include the plural and pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular or
plural, as the identification of the Person may require. References to monetary
amounts, specific named statutes and GAAP are intended to be and shall be
construed as references to United States dollars, statutes of the United States
of the stated name and U.S. GAAP, respectively, unless the context otherwise
requires. When appearing in this Agreement, the terms “include”, “includes” and
“including” shall be deemed to be followed by the words “without limitation”
(whether or not they are in fact followed by such words) or words of like
import.

 

(b)          The provisions of this Agreement shall be construed according to
their fair meaning and neither for nor against any Party hereto irrespective of
which Party caused such provisions to be drafted, and no rule of strict
construction shall be applied against any Party. Each of the Parties
acknowledges that it has been represented by an attorney in connection with the
preparation and execution of this Agreement.

 

8.11         Attorneys’ Fees. Subject to Section 6.3 and Section 8.1 hereof, in
the event any suit or other legal proceeding is brought for the enforcement of
any of the provisions of this Agreement, the Parties hereto agree that the
prevailing Party or Parties shall be entitled to recover from the other Party or
Parties upon final judgment on the merits reasonable attorneys’ fees, including
attorneys’ fees for any appeal, and costs incurred in bringing such suit or
proceeding.

 

8.12         Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

 

8.13         Entire Agreement; Amendments and Waivers. The Recitals to this
Agreement are true and correct in all respects and are hereby incorporated by
reference herein. This Agreement, together with all Exhibits and Schedules
attached hereto, constitutes the entire agreement between and among the parties
hereto pertaining to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, and there are no warranties, representations or other
agreements between the parties in connection with the subject matter hereof
except as set forth specifically herein or contemplated hereby. No supplement,
modification or waiver of this Agreement shall be binding unless executed in
writing by the Party to be bound thereby. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (regardless of whether similar), nor shall any such waiver
constitute a continuing waiver unless otherwise expressly provided.

 

8.14         Termination. Either Buyer or the Company may terminate this
Agreement if the Closing has not occurred by September 30, 2018; provided,
however, (i) Buyer may not terminate this Agreement if the failure of the
Closing to occur is due to the failure of Buyer to satisfy any of the conditions
set forth in Section 5.1 and (ii) the Company may not terminate this Agreement
if the failure of the Closing to occur is due to the failure of the Company to
satisfy any of the conditions set forth in Section 5.2. If this Agreement is
terminated, then all further obligations under this Agreement shall terminate
and no Party shall have any liability in respect of the termination of this
Agreement; provided that no such termination will relieve any Party of liability
for its willful and material breach of any representation, warranty, covenant or
agreement set forth in this Agreement prior to such termination.

 

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8.15         Waiver of Conflicts; Privilege.

 

(a)          Each of the Parties acknowledges and agrees that Greenberg Traurig,
P.A. (“GT”) has acted as counsel to the Existing Members, the Company and its
Subsidiaries in connection with the negotiation of this Agreement and
consummation of the transactions contemplated hereby.

 

(b)          Buyer hereby consents and agrees to, and agrees to cause the
Company and the Acquired Subsidiaries to consent and agree to, GT representing
any of the Existing Members after the Closing, including with respect to
disputes in which the interests of any of the Existing Members may be directly
adverse to Buyer and its Subsidiaries (including, following the Closing, the
Company and the Acquired Subsidiaries), and even though GT may have represented
the Company and its Subsidiaries in a matter substantially related to any such
dispute prior to the Closing. Buyer further consents and agrees to, and agrees
to cause the Company and its Subsidiaries to consent and agree to, the
communication by GT to the Existing Members in connection with any such
representation of any fact (as opposed to legal analysis, legal strategy or
otherwise privileged information for which the Existing Members do not continue
to own the privilege pursuant to Section 8.15(d) below) known to GT arising by
reason of GT’s prior representation of the Company or any of its Subsidiaries.

 

(c)          In connection with the foregoing, Buyer hereby irrevocably waives
and agrees not to assert, and agrees to cause the Company and the Acquired
Subsidiaries to irrevocably waive and not to assert, any conflict of interest
arising from or in connection with: (i) GT’s prior representation of the Company
or any of the Company’s Subsidiaries prior to the Closing and (ii) GT’s
representation of the Existing Members prior to and after the Closing.

 

(d)          Buyer further agrees, on behalf of itself and, after the Closing,
on behalf of the Company and its Subsidiaries, that all communications in any
form or format between GT and the Company or its Subsidiaries, or any of their
respective managers, directors, officers employees or other representatives,
that relate in any way to the negotiation, documentation and consummation of the
transactions contemplated by this Agreement or any dispute arising under this
Agreement (collectively, the “Deal Communications”) shall be deemed to be
retained and owned collectively by the Existing Members, shall be controlled by
the Existing Members and shall not pass to or be claimed by Buyer, the Company
or any of its Subsidiaries. All Deal Communications that are attorney-client
privileged (the “Privileged Deal Communications”) shall remain privileged after
the Closing and the privilege and the expectation of client confidence relating
thereto shall belong solely to the Existing Members, shall be controlled by the
Existing Members and shall not pass to or be claimed by Buyer, the Company or
any of its Subsidiaries.

 

Article 9- DEFINITIONS

 

Capitalized terms used in this Agreement are used as defined in this Article 9
or as referenced elsewhere in this Agreement.

 

“Access Innovation Purchase Agreement” shall mean that certain Purchase
Agreement, dated as of the date hereof, by and among the Company and certain
other members of Access Innovation, LLC (the “AI Selling Members”) pursuant to
which, among other things, the Company shall use Five Hundred Fifty Thousand
Dollars ($550,000) of the Cash Consideration to purchase the membership
interests of Access Innovation, LLC from the AI Selling Members.

 

 44 

 

 

“Acquired Subsidiaries” shall mean Edison Nation, LLC, SafeTV Shop, LLC and
Everyday Edisons, LLC.

 

“Affiliate” shall mean, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, the term “control” (including the terms
“controlling,” “controlled by” and “under common control with”) means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise, and such “control”
will be presumed if the first Person owns fifty percent (50%) or more of the
voting capital stock or other ownership interests, directly or indirectly, of
such other Person.

 

“Agreement” shall have the meaning set forth in the preamble.

 

“Affiliated Group” shall mean any affiliated group within the meaning of Section
1504(a) of the Code or any similar group defined under a similar provision of
state, local or foreign law.

 

“AI Selling Members” shall have the meaning set forth in the defined term
“Access Innovation Purchase Agreement”.

 

“AllStar Agreement” shall mean that certain agreement, dated as of the date
hereof, by and among the Company, the Acquired Subsidiaries and AMG pertaining
to, among other things, (i) the cancellation and discharge of the AMG Note in
exchange for the transfer, conveyance and assignment to AMG of the Company’s
right, title and interest in and to the Peticare™ product and (ii) the
termination of the Terminated AllStar Agreements.

 

“Ancillary Agreements” shall mean any or all of the exhibits to this Agreement
and any and all other agreements, instruments or documents required or expressly
contemplated by this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement (including the New Convertible
Notes, the Registration Rights Agreement and the New Company LLC Agreement).

 

“AMG” shall have the meaning set forth in Section 2.3(b).

 

“AMG Note” shall have the meaning set forth in Section 2.3(b).

 

“Basket” shall have the meaning set forth in Section 8.1(f)(i)

 

“Business” shall have the meaning set forth in the first recital.

 

“Buyer Common Stock” means the common stock, par value $0.001 per share, of the
Buyer.

 

“Buyer Shareholder Approval” shall have the meaning set forth in Section 2.5
(c).

 

“Buyer Shares” means any shares of Buyer Common Stock issuable by Buyer pursuant
to this Agreement or any Ancillary Agreement, including, without limitation, the
shares of Buyer Common Stock issuable to Wesley Jones and Venture Six, LLC
pursuant to Section 2.2(e) of this Agreement, the shares of Buyer Common Stock
issuable upon conversion of the New Convertible Notes and the Put Right Shares.

 

“Cash Consideration” shall mean Seven Hundred Thousand Dollars ($700,000).

 

 45 

 

 

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

 

“Common Membership Interests” shall have the meaning set forth in the fourth
recital.

 

“Company” shall have the meaning set forth in the preamble.

 

“Company Information” shall have the meaning set forth in Section 6.4(a).

 

“Confidential Information” shall mean confidential data and confidential
information (whether or not specifically labeled or identified as
“confidential”), in any form or medium, relating to the Business, Products or
Services of the Company or the Acquired Subsidiaries (which does not rise to the
status of a Trade Secret under applicable law) which is or has been disclosed to
any Existing Member or of which any Existing Member became aware as a
consequence of or through its ownership of the Company and which has value to
the Company and is not generally known to the competitors of the Company.
Confidential Information includes, but is not limited to, the following:
(a) internal business information (including information relating to strategic
and staffing plans and practices, business, training, marketing, promotional and
sales plans and practices, cost, rate and pricing structures and accounting and
business methods), (b) identities of, individual requirements of, specific
contractual arrangements with, and information about, the suppliers,
distributors, customers, independent contractors or other business relations of
the Company and their confidential information, (c) Trade Secrets, know-how,
compilations of data and analyses, techniques, systems, research, records,
reports, manuals, documentation, data and data bases relating thereto and
(d) inventions, innovations, improvements, developments, methods, designs,
analyses, drawings, reports and all similar or related information (whether or
not patentable). Notwithstanding the foregoing, Confidential Information shall
not include any data or information that (i) is or becomes generally available
to the public other than as a result of a disclosure by any of the Existing
Members or any of their respective Affiliates, (ii) is or becomes available to
the Company, any of the Existing Members or their Affiliates or any of their
respective employees, agents, accountants, legal counsel or other
representatives or advisers on a nonconfidential basis prior to its disclosure
by the Company, the Existing Members or their Affiliates or any of their
respective employees, agents, accountants, legal counsel or other
representatives or advisers or (iii) is required to be disclosed by the Company,
the Existing Members or their Affiliates or any of their respective employees,
agents, accountants, legal counsel or other representatives or advisers as a
result of any applicable law, rule or regulation of any Governmental Authority
or as is necessary to effect the transaction contemplated by this Agreement; and
provided, further, that the Existing Members shall promptly notify the Buyer of
any disclosure pursuant to this clause (iii).

 

“Contracts,” when described as being those of or applicable to any Person, shall
mean any and all written contracts, agreements, commitments, franchises,
understandings, arrangements, leases, licenses, registrations, mortgages, bonds,
notes, guaranties or other undertakings to which such Person is a party or to
which or by which such Person or the property of such Person is subject or
bound, excluding any Permits.

 

“Covenant Survival Date” shall have the meaning set forth in Section 8.1(a).

 

“Damages” shall mean any and all damages, liabilities, losses, penalties, fines,
judgments, claims, deficiencies, losses, costs and expenses and assessments
(including, but not limited to, income and other Taxes, interest, penalties, and
attorneys’ and accountants’ fees and disbursements) but excluding all
consequential damages, punitive and exemplary damages, special damages or other
similar items.

 

“Deal Communications” shall have the meaning set forth in Section 8.15(d).

 

 46 

 

 

“Encumbrances” shall mean any charge, claim, community property interest,
pledge, condition, equitable interest, liens (statutory or other), option,
security interest, mortgage, easement, encroachment, right of way, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.

 

“Environmental Law” shall mean all existing and applicable Legal Requirements of
federal, state and local Governmental Authorities concerning pollution or
protection of the environment, public health and safety or employee health and
safety, including Legal Requirements relating to emissions, discharges, releases
or threatened releases of Hazardous Materials into ambient air, surface water,
ground water or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of, or
exposure to Hazardous Materials.

 

“Exchange Act” shall have the meaning set forth in Section 2.5 (c).

 

“Excluded Liabilities” shall have the meaning set forth in Section 1.3.

 

“Excluded Subsidiaries” shall mean Edison Nation Medical, LLC and Access
Innovation, LLC.

 

“Existing Company Membership Interests” shall have the meaning set forth in the
second recital.

 

“Existing Members” shall have the meaning set forth in the preamble.

 

“Existing Members’ Expenses” shall have the meaning set forth in Section 8.3.

 

“Fundamental Representations” shall mean the following representations and
warranties: Section 3.2; Sections 3.3(a) and (b); Section 3.4; Section 3.24;
Section 4.2; Section 4.7; and Section 4.8.

 

“GAAP” means U.S. generally accepted accounting principles.

 

“Governmental Authorities” shall mean any nation or country (including, but not
limited to, the United States) and any commonwealth, territory or possession
thereof and any political subdivision of any of the foregoing, including, but
not limited to, courts, departments, commissions, boards, bureaus, agencies,
ministries or other instrumentalities.

 

“GT” shall have the meaning set forth in Section 8.15(a).

 

“Hazardous Material” shall mean all or any of the following: (a) substances that
are defined or listed in, or otherwise classified pursuant to, any applicable
laws or regulations as “hazardous substances,” “hazardous materials,” “Hazardous
wastes,” “toxic substances” or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity or “EP
toxicity”; (b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty parts per million.

 

 47 

 

 

“Indemnified Taxes” shall mean (i) all Taxes (or the non-payment thereof) of the
Company and Acquired Subsidiaries for all Pre-Closing Tax Periods and the
portion of all Straddle Periods ending on the Closing Date, (ii) any and all
Taxes of any member of an affiliated, consolidated, combined, or unitary group
of which the Company or any Acquired Subsidiary (or any predecessor of any of
the foregoing) is or was a member on or prior to the Closing Date, and (iii) any
and all Taxes of any person (other than the Company and Acquired Subsidiaries)
imposed on the Company or the Acquired Subsidiaries as a transferee or
successor, by contract (other than contracts entered into in the ordinary course
of business not primarily related to Taxes) or pursuant to any law, rule or
regulation, which Taxes relate to an event or transaction occurring before the
Closing.

 

“Indemnified Party” shall have the meaning set forth in Section 8.1(b).

 

“Indemnified Taxpayer” shall have the meaning set forth in Section 7.2(a).

 

“Indemnifying Party” shall have the meaning set forth in Section 8.1(b).

 

“Information Statement” shall have the meaning set forth in Section 2.5 (c).

 

“Knowledge of the Company” shall mean the actual knowledge of the Company and
the Existing Members, with respect to the matter in question, and such knowledge
as any of them reasonably should have obtained upon commercially reasonable
inquiry of employees of the Company and the Subsidiaries into the matter in
question.

 

“Legal Requirements,” when described as being applicable to any Person, shall
mean any and all laws (statutory, judicial or otherwise), ordinances,
regulations, judgments, orders, directives, injunctions, writs, decrees or
awards of any Governmental Authority, in each case as and to the extent
applicable to such Person or such Person’s business, operations or properties.

 

“Material Adverse Effect” shall mean a material adverse effect on the Business,
financial condition, Properties or liabilities of the Company or the Acquired
Subsidiaries, taken as a whole provided, that in no event shall any of the
following be taken into account in the determination of whether an Material
Adverse Effect has occurred: (i) any change in any Legal Requirement or GAAP;
(ii) any change resulting from conditions affecting any of the industries in
which the Company operates or from changes in general business, financial,
political, capital market or economic conditions (including any change resulting
from any force majeure, hostilities, war or military or terrorist attack);
(iii) any change resulting from the announcement or pendency of the transactions
contemplated by this Agreement or attributable to the fact that the Buyer or any
of its Affiliates is the prospective owner of the Common Membership Interests;
(iv) any event, condition or other matter disclosed on a Schedule to this
Agreement; (v) any change resulting from any action by the Company contemplated
by this Agreement; or (vi) the failure of the Company to achieve any financial
projections or budget.

 

“New Company LLC Agreement” shall have the meaning set forth in the fourth
recital.

 

“New Convertible Notes” shall have the meaning set forth in Section 2.2(c).

 

“Notice” shall have the meaning set forth in Section 8.4.

 

“Organizational Documents” shall mean, with respect to the Company or any of its
Subsidiaries, the Company’s or its subsidiary’s certificate of formation and
operating agreement.

 

“Party” or “Parties” shall have the meaning set forth in the preamble.

 

 48 

 

 

“Permits” shall mean any and all permits, rights, approvals, licenses,
authorizations, or orders under any Legal Requirement or otherwise granted by
any Governmental Authority, including without limiting the foregoing,
participation in Government Programs.

 

“Person” shall mean any individual, corporation, limited liability company,
general or limited partnership, association, joint stock company, trust, joint
venture, unincorporated organization or governmental entity (or any department,
agency or political subdivision thereof).

 

“Pre-Closing Tax Periods” shall have the meaning set forth in Section 7.3 (c).

 

“Preferred Membership Interests” shall have the meaning set forth in the fourth
recital.

 

“Privileged Deal Communications” shall have the meaning set forth in Section
8.15(d).

 

“Product” shall mean each product offered, distributed or sold by the Company or
the Acquired Subsidiaries and any other products with respect to which the
Company or the Acquired Subsidiaries has any liability, proprietary rights or
beneficial interest.

 

“Promissory Notes” shall have the meaning set forth in Section 2.2(d).

 

“Properties” shall mean any and all properties and assets (real, personal or
mixed, tangible or intangible) owned or used by the Company and the Acquired
Subsidiaries.

 

“Put Right Shares” means the shares of Buyer Common Stock issuable to the
Existing Members under the New Company LLC Agreement in satisfaction of the Put
Right obligations of the Company guaranteed by the Buyer.

 

“Registration Rights Agreement” shall mean the Registration Rights Agreement, in
substantially the form attached hereto as Exhibit C, by and among the Buyer, the
holders of the New Convertible Notes, Wesley Jones, Venture Six, LLC and the
Existing Members.

 

“Released Claims” shall have the meaning set forth in Section 6.6.

 

“Released Parties” shall have the meaning set forth in Section 6.6.

 

“Representation and Warranty Survival Date” shall have the meaning set forth in
Section 8.1(a).

 

“Restricted Business” shall mean the business of operating an internet
marketplace or other similar exchange or portal that provides a platform for
Persons to submit ideas, concepts, technologies or processes intended to be
evaluated for the purpose of licensing the idea, concept, technology or process.

 

“Restricted Period” shall have the meaning set forth in Section 6.7.

 

“Restrictive Covenants” shall have the meaning set forth in Section 6.7.

 

“SEC” shall have the meaning set forth in Section 2.5 (c).

 

“Securities Act” shall mean the Securities Act of 1933, as amended.

 

 49 

 

 

“Senior Convertible Debt” shall mean the senior convertible indebtedness of the
Company in the aggregate principal amount, together with accrued but unpaid
interest as of the date hereof, of $1,656,352.02 issued pursuant to that certain
Amended and Restated Convertible Note Purchase Agreement, dated as of April 25,
2016, by and among the Company, GS Venture Partners, LLC, Wesley Jones, David
Rozinov, Louis Foreman and Todd Stancombe.

 

“Service” shall mean each service offered or sold by the Company and the
Acquired Subsidiaries, or under development, and any other services with respect
to which the Company or any Acquired Subsidiary has any liability, proprietary
rights or beneficial interest.

 

“Straddle Periods” shall have the meaning set forth in Section 7.3 (c).

 

“Subsidiary” shall mean, with respect to any Person, any corporation,
association, partnership, limited liability company, trust or other entity of
which fifty percent (50%) or more of the total voting power, whether by way of
contract or otherwise, of shares of capital stock or other equity interests
(including limited liability company or partnership interests) entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly (e.g., through another Subsidiary), by (a) such Person
(b) such Person and one or more of its Subsidiaries, or (c) one or more
Subsidiaries of such Person. Notwithstanding the foregoing, for purposes of this
Agreement, (i) Edison Nation Medical, LLC shall not be deemed to be a Subsidiary
of the Company and the membership interests of Edison Nation Medical, LLC shall
be distributed to the Existing Members prior to the Closing and (ii) Access
Innovation, LLC shall not be deemed to be a Subsidiary of the Company and the
membership interests of Access Innovation, LLC owned by the Company (after
giving effect to the transactions contemplated by the Access Innovation Purchase
Agreement) shall be distributed to the Existing Members in accordance with the
New Company LLC Agreement promptly following the Closing.

 

“Survival Date” shall have the meaning set forth in Section 8.1(a).

 

“Tax” shall mean any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Section 59A of the Code),
vehicle, customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, unclaimed property,
escheat, alternative or add-on minimum, estimated or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.

 

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

 

“Terminated AllStar Agreements” shall mean (i) that certain Note Purchase
Agreement, dated as of March 27, 2017 (as amended), by and among AllStar, the
Company and the Acquired Subsidiaries and the Loan Documents (as defined in such
Note Purchase Agreement) executed in connection therewith, (ii) that certain
Exclusivity Agreement, dated as of March 27, 2014 (as amended), by and among
AllStar, the Company, the Acquired Subsidiaries and Todd Stancombe and (iii)
that certain Innovation Partner Master Services Agreement, dated as of April 25,
2016, by and among AllStar, the Company, the Acquired Subsidiaries, and Todd
Stancombe.

 

 50 

 

 

“Trade Secrets” shall mean information of the Company and the Acquired
Subsidiaries including, but not limited to, technical or nontechnical data,
formulas, patterns, compilations, programs, financial data, financial plans,
product or service plans or lists of actual or potential customers or suppliers
which (a) derives economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other Persons
who can obtain economic value from its disclosure or use, and (b) is the subject
of efforts that are reasonable under the circumstances to maintain its secrecy.

 

“Transaction Expenses” shall have the meaning set forth in Section 8.3.

 

“Treasury Regulations” shall mean the regulations currently in force as final or
temporary that have been issued by the U.S. Department of Treasury under its
authority under the Code, and any successor regulations.

 

“Valuation Methodology” means the arithmetic average of the daily VWAP of a
share of Buyer Common Stock for the fifteen (15) consecutive trading days
immediately prior to payment of an amount in Buyer Common Stock for the Existing
Members’ indemnity obligations hereunder.

 

“VWAP” shall mean the market value per share of Buyer Common Stock on such
trading day as determined, using a volume-weighted average method.

 

**REMAINDER OF PAGE INTENTIONALLY LEFT BLANK**

 

 51 

 

 

IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be duly
executed on its behalf as of the Effective Date.

 

  THE BUYER:       XSPAND PRODUCTS LAB, INC.       By: /s/ Chris Ferguson  
Name:  Chris Ferguson   Title:  Chief Executive Officer       THE COMPANY:      
EDISON NATION HOLDINGS, LLC       By: /s/ Louis Foreman   Name:  Louis Foreman  
Title:  CEO

 

existing members:

 

VENTURE SIX, LLC   TWC CAPITAL, LLC       By: /s/ Louis Foreman   By: /s/ Chad
D. Tillman Name:  Louis Foreman   Name:  Chad D. Tillman Title:  CEO  
Title:  Manager       EE INVESTORS, LLC   FIVEOAKS CAPITAL, LLC       By: /s/
Wes Jones   By: /s/ Wes Jones Name:  Wes Jones   Name:  Wes Jones
Title:  Managing Member   Title:  Managing Member       GS VENTURE PARTNERS LLC
  MATTHEW WYNN       By: /s/ Gregg Smith   /s/ Matthew Wynn Name:  Gregg Smith  
Matthew Wynn Title:  Managing Member           LOUIS FOREMAN   TODD STANCOMBE  
    /s/ Louis Foreman   /s/ Todd Stancombe Louis Foreman   Todd Stancombe      
WES JONES   DAVID ROZINOV       /s/ Wes Jones   /s/ David Rozinov Wes Jones  
David Rozinov

 

[Signature Page to Membership Interest Purchase Agreement]