MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

BY AND AMONG

 

NEPHROS, INC.,

 

BIOCON 1, LLC,

 

AETHER WATER SYSTEMS, LLC,

 

THE SOLE MEMBER OF BIOCON 1, LLC,

 

AND

 

THE SOLE MEMBER OF AETHER WATER SYSTEMS, LLC

 

DATED DECEMBER 31, 2018

 

* Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.

 

 

 

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT (this “Agreement”) is made as of
December 31, 2018 by and among NEPHROS, INC., a Delaware corporation (the
“Purchaser”); BIOCON 1, LLC, a Nevada limited liability company (“Biocon”);
AETHER WATER SYSTEMS, LLC, a Nevada limited liability company (“Aether” and,
collectively with Biocon, the “Companies”), and GREGORY LUCAS, an individual
(the “Member” and, collectively with the Companies, the “Selling Parties”). Each
of the Purchaser, the Companies, and the Member may be referred to herein as a
“Party” or collectively as the “Parties.”

 

RECITALS

 

A. The Companies develop and sell water and air purification systems to food
service, hotel and other commercial industries, as well as other air and gas
filtration markets (the “Business”).

 

B. The Member owns 100% of the issued and outstanding membership interests (the
“Membership Interests”) of each Company.

 

C. The Purchaser desires to purchase all of the Membership Interests from the
Member, and the Member desires to sell all of the Membership Interests to the
Purchaser, upon the terms and subject to the conditions hereinafter set forth.

 

D. The Member acknowledges that the Purchaser is paying substantial
consideration under this Agreement and that payment of such consideration will
inure to his benefit, and that his agreement to the terms of this Agreement
(including Section 8.3) is a material inducement for the Purchaser to enter into
this Agreement.

 

AGREEMENT

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Parties, intending to be legally bound,
hereby agree as follows:

 

Article 1
Definitions

 

Definitions. The terms defined in this Article 1 will have the respective
meanings indicated below for all purposes of this Agreement (including in the
Schedules attached hereto), with the definitions being equally applicable to
both the singular and plural forms of the terms defined.

 

“Affiliate” means, with respect to a specified Person, a Person that, directly
or indirectly, through one or more intermediaries, controls, is controlled by or
is under common control with, the specified Person. For purposes of this
definition, the term “control” means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, contract or
otherwise.

 

2

 

 

“Business Day” means a day other than a Saturday, a Sunday or a day on which
commercial banks are required to be closed in the State of New Jersey.

 

“Cash” means the cash and cash equivalents of the Companies (including
marketable securities and short term investments) calculated in accordance with
GAAP applied on a basis consistent with the Annual Financial Statements. For the
avoidance of doubt, Cash will be reduced for outstanding checks.

 

“Closing” means the consummation and effectuation of the transactions
contemplated herein pursuant to the terms and conditions of this Agreement.

 

“Closing Accounts Receivable” means all accounts receivable of the Companies as
of the Closing Date.

 

“Closing Accounts Payable” means all accounts payable of the Companies as of the
Closing Date.

 

“Closing Liabilities” means all Liabilities of the Companies, other than the
Debt Amount, as of the Closing Date.

 

“Closing Payment” means $750,000.

 

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

 

“Confidential Information” means any information with respect to the Business
that the Companies have treated as proprietary and that they do not in the
Ordinary Course of Business disclose to any Person outside the Companies
concerning the businesses and affairs of the Companies, excluding any
information that (a) is in the public domain at the time of disclosure, (b) is
published or otherwise comes into the public domain after its disclosure through
no violation of this Agreement, (c) is disclosed to the recipient by a third
party not under an obligation of confidence, or (d) is already known by the
recipient at the time of its disclosure as evidenced by written documentation of
the recipient existing prior to such disclosure.

 

“Copyrights” means works of authorship in which copyright protection subsists,
including, without limitation, databases, software and related documentation,
together with all registrations and applications to register any of the
foregoing.

 

“Debt” means, with respect to any Person at any date, (a) all obligations for
borrowed money; (b) the outstanding indebtedness with respect to all capital
leases; (c) all obligations arising from cash/book overdrafts or negative cash
balances, (d) all guarantees, including, without limitation, guaranties of
payment, collection and performance, (e) all Liabilities for the deferred
purchase price of property or services; and (f) all accrued interest, prepayment
premiums and penalties related to any of the foregoing.

 

“Employee Benefit Plan” means any plan, program, agreement, policy or
arrangement, that is (a) an employee welfare benefit plan within the meaning of
Section 3(1) of ERISA, (b) an employee pension benefit plan within the meaning
of Section 3(2) of ERISA, (c) a stock bonus, stock purchase, stock option,
restricted stock, stock appreciation right, profit sharing or similar
equity-based plan or agreement, or (d) any other employment,
deferred-compensation, retirement, severance, retention, change-in-control,
leave, vacation, welfare-benefit, bonus, incentive or fringe-benefit plan,
program, agreement or arrangement.

 

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“Environmental Law” means all Laws and Orders, as currently in effect, relating
to the environment, natural resources, pollutants, contaminants, wastes,
chemicals or public health and safety, including but not limited to the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
§ 9601 et seq., the Hazardous Substances Transportation Act, 49 U.S.C. § 5101 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., the
Clean Water Act, 33 U.S.C. § 1251 et seq., the Clean Air Act, 42 U.S.C. § 7401
et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Oil
Pollution Act of 1990, 33 U.S.C. § 2701 et seq., and the Occupational Safety and
Health Act, 29 U.S.C. § 651 et seq., and the regulations promulgated pursuant
thereto, and all analogous state and local statutes and laws.

 

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

 

“ERISA Affiliate” means any trade or business, whether or not incorporated,
under common control with either Company and that, together with such Company,
is treated as a single employer within the meaning of Section 414(b), (c), (m)
or (o) of the Code.

 

“Escrow Agent” means CIBC Bank USA.

 

“Escrow Agreement” means the escrow agreement among the Escrow Agent, the
Purchaser and the Member.

 

“Escrow Amount” means $250,000.

 

“Final Net Revenue of the Companies” means the Net Revenue of the Companies for
a given Quarterly Earnout Period as finally determined pursuant to Section 3.4.

 

“GAAP” means generally accepted accounting principles in the United States as
set forth in pronouncements of the Financial Accounting Standards Board (and its
predecessors) and the American Institute of Certified Public Accountants and,
unless otherwise specified, as in effect on the date hereof or, with respect to
any financial statements, the date such financial statements were prepared, in
each case as consistently applied by the Company.

 

“Governmental Authority” means any domestic or foreign federal, state or local
government, or political subdivision thereof, or any authority, agency or
commission entitled to exercise any administrative, executive, judicial,
legislative, police, regulatory or taxing authority or power, any court or
tribunal (or any department, bureau or division thereof), or any arbitrator or
arbitral body acting on behalf of any such governmental authority.

 

“Hazardous Materials” means (a) those substances, whether waste materials, raw
materials, finished products, co-products, byproducts or any other materials or
articles or constituents thereof that are regulated by, form the basis of
liability under, or are defined as a contaminant, pollutant, dangerous,
designated or controlled substance product, solid or hazardous waste, hazardous
substance, or toxic substance under any Environmental Laws; and (b) any
petroleum or petroleum-derived products, radon, radioactive materials or wastes,
asbestos in any form, lead or lead-containing materials, urea formaldehyde foam
insulation, and polychlorinated biphenyls.

 

4

 

 

“Income Tax Return” means any Tax Return relating to Income Taxes.

 

“Income Taxes” means any federal, state, local or non-U.S. Taxes that are
imposed with respect to the income of the Companies.

 

“Indemnified Party” means a Party who is seeking indemnification under Section
7.1 or Section 7.2.

 

“Indemnitor” means a Party from whom indemnification is being sought under
Section 7.1 or Section 7.2.

 

“Intellectual Property Rights” means Copyrights, Patent Rights, Trademarks and
Trade Secrets, domain names, rights of publicity, moral rights, and other
proprietary rights in intellectual property in any jurisdiction in the world.

 

“Knowledge” means the actual knowledge of the Member and the knowledge that the
Member would reasonably be expected to have after due inquiry.

 

“Law” means any foreign, federal, state or local law, statute, ordinance, common
law ruling or regulation, or any Order, or any license, franchise, permit or
similar right granted under any of the foregoing, or any similar provision
having the force or effect of law.

 

“Liability” means, with respect to any Person, any liability or obligation of
such Person whether known or unknown, whether asserted or unasserted, whether
determined, determinable or otherwise, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated and whether due or to
become due.

 

“Lien” means any lien, option, warrant, pledge, security interest, mortgage,
right of first offer or first refusal, buy/sell agreement and/or any other
material restriction or covenant with respect to, or material condition
governing the use, voting (in the case of any security or equity interest),
transfer, receipt of income or exercise of any other material attribute of
ownership.

 

“Losses” means any and all damages, losses, obligations, Liabilities, demands,
judgments, injuries, penalties, claims, actions or causes of action, costs, and
expenses (including, without limitation, reasonable attorneys’, experts’ and
consultants’ fees).

 

“Material Adverse Effect” means a material adverse effect on the business,
prospects, operations, assets or properties, liabilities or results of
operations of the Companies taken as a whole, or on the ability of the Member to
consummate the transactions contemplated hereby; provided, however, that in no
event will any effect resulting from the occurrence of any of the following be
considered a Material Adverse Effect: (a) any change in general economic or
political conditions or changes affecting the industry generally in which the
Companies operate, so long as such change does not disproportionately affect the
business of the Companies; (b) any natural disaster, any act of terrorism,
sabotage, military action or war (whether or not declared) or any other social
or political disruption, in each case including any escalation or worsening
thereof; (c) any adverse change arising from or relating to any change in
accounting requirements applicable to the Companies or to any change in Laws or
Orders applicable to the Companies or, in each case, in the interpretation
thereof, so long as such change does not disproportionately affect the business
of the Companies; or (d) the consummation of the transactions contemplated by
this Agreement or any actions by any of the Parties taken pursuant to this
Agreement.

 

5

 

 

“Newly Purchased Capital Equipment” means the carbon block extrusion machine,
the Toyota forklift, the label printer, the label applicator, and the water
filter testing equipment that were recently purchased by the Member.

 

“Order” means any judgment, order, award, decision, notice, injunction, ruling,
subpoena, verdict or decree of any foreign, federal, state, local court or
tribunal or other Governmental Authority and any award in any arbitration
proceeding.

 

“Ordinary Course of Business” means an action taken consistent with the past
practices of the Companies, as applicable.

 

“Patent Rights” means United States and foreign patents, patent applications,
including, without limitation, continuations, continuations-in-part, divisions,
provisionals, reissues, reexaminations, patent disclosures, inventions (whether
patentable or not patentable) or improvements thereto.

 

“Permitted Liens” means (a) Liens expressly disclosed in the Financial
Statements, including the notes thereto; (b) Liens for Taxes that are being
contested in good faith and for which appropriate reserves have been established
on the Financial Statements or that are not yet due; (c) mechanic’s,
materialmen’s, carrier’s, repairer’s and other similar Liens arising or incurred
in the Ordinary Course of Business or that are not yet due and payable or that
are being contested in good faith; (d) easements, rights of way, encroachments
and restrictions, zoning ordinances and other similar encumbrances affecting the
Leased Premises that, individually or in the aggregate, do not materially
interfere with the use or possession by the Companies of the Leased Premises;
and (e) statutory Liens in favor of lessors arising in connection with any
Leased Premises that, individually or in the aggregate, are not material and do
not materially interfere with the use or possession by the Companies of the
Leased Premises.

 

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

 

“Post-Closing Tax Period” means any taxable period that begins after the Closing
Date, and, in the case of a Straddle Period, the portion of the Straddle Period
that begins immediately after the Closing Date.

 

“Pre-Closing Tax Period” means taxable periods ending on or before the Closing
Date and, in the case of a Straddle Period, the portion of the Straddle Period
ending at the Closing Date.

 

6

 

 

“Proceeding” means any litigation, action, suit, mediation, arbitration,
assessment, investigation, hearing, grievance or similar proceeding (in each
case, whether civil, criminal, administrative, investigative or informal)
initiated, commenced, conducted, heard, or pending by or before any Governmental
Authority, arbitrator or mediator.

 

“Quarterly Earnout Period” means the first fiscal quarter of the Purchaser
beginning after the Closing Date and each of the next seven fiscal quarters of
the Purchaser thereafter.

 

“Statement of Working Capital” means the statement attached hereto as Exhibit A,
which consist of a listing of all Closing Accounts Receivable, all inventory of
the Companies as of the date(s) indicated on the list thereof, and all Closing
Liabilities.

 

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

 

“Subsidiary” means, with respect to any Person, any corporation, partnership,
joint venture, limited liability company, trust or other legal entity of which
such Person (either alone or through or together with any other Subsidiary)
owns, directly or indirectly, twenty percent (20%) or more of the stock or other
equity interests in such entity, or of which such Person is a general partner,
manager or managing member.

 

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

 

“Tax Matter” means (a) any inquiries, assessments, proceedings or similar events
with respect to Taxes of the Companies for a Pre-Closing Tax Period, or (b) any
voluntary contact with any Governmental Authority relating to Taxes of the
Companies for any Pre-Closing Tax Period.

 

“Tax Return” means any return, report or similar statement filed or required to
be filed with respect to any Taxes (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return and declaration of estimated Tax.

 

“Trade Secrets” means confidential and proprietary ideas, trade secrets, know
how, concepts, methods, processes, formulae, reports, data, customer lists,
mailing lists, business plans, or other proprietary information that derives
independent commercial value from not being generally known or readily
available.

 

“Trademarks” means United States, state and foreign trademarks, service marks,
logos, trade dress, trade names, and other similar indicia of source or origin,
together with the goodwill associated therewith, and all registrations and
applications to register any of the foregoing.

 

7

 

 

Article 2
Purchase of Purchased Membership Interests; Closing

 

2.1 Purchase and Sale. Upon the terms and subject to the conditions of this
Agreement, the Member agrees to sell, assign, transfer and deliver to the
Purchaser, and the Purchaser agrees to purchase from the Member, all of the
Member’s right, title and interest in and to the Membership Interests, free and
clear of all Liens, at the Closing.

 

2.2 Closing. The Closing will take place remotely by electronic or other
exchange of documents and signature pages in a manner mutually acceptable to the
Parties on the date hereof or at such other time and place as the Parties may
agree. The Closing will be effective for economic and accounting purposes as of
11:59 p.m. Eastern Time on the date on which the Closing occurs (the “Closing
Date”).

 

2.3 Member Closing Deliveries. At the Closing, the Member will have delivered,
or will have caused to be delivered, all of the following documents to the
Purchaser:

 

(a) assignments of the Membership Interests duly executed in blank in proper
form to transfer;

 

(b) a certificate issued by the Secretary of State of the State of Nevada, as of
a date reasonably acceptable to the Purchaser, as to the good standing of each
Company;

 

(c) a certificate of a duly authorized officer of each Company, dated the
Closing Date, in form and substance reasonably acceptable to the Purchaser,
certifying as to (i) the Articles of Organization of each Company; (ii) the
Limited Liability Company Agreement of each Company; and (iii) the authority and
incumbency of persons acting on behalf of each Company in connection with the
execution and delivery of this Agreement and any document or certificate
executed and delivered by either Company in connection herewith;

 

(d) the Escrow Agreement, duly executed by the Member;

 

(e) an employment agreement between the Purchaser and the Member (the
“Employment Agreement”), duly executed by the Member;

 

(f) a release, duly executed by the Member;

 

(g) all consents, authorizations and notices necessary or appropriate to permit
the consummation of the transactions contemplated by this Agreement, including
the consents, authorizations and notices set forth on Schedules 4.3(c) and
4.3(d);

 

(h) (i) evidence satisfactory to the Purchaser of the payoff of the Debt set
forth on Schedule 4.6(b), and (ii) evidence, in form and substance reasonably
satisfactory to the Purchaser, of the release of all Liens on the assets of the
Companies;

 

(i) the minute books and record books of the Companies and all other books and
books and records of, or pertaining to, the business and operations of the
Companies;

 

8

 

 

(j) the resignation of such officers and the Managing Member of each Company as
the Purchaser may request as of the Closing and the termination of the Limited
Liability Company Agreement of each Company;

 

(k) a certificate pursuant to Treasury Regulations Section 1.1445-2(b) from the
Member certifying that the Member is not a foreign person within the meaning of
Section 1445 of the Code, duly executed by the Member; and

 

(l) such other documents or statements as may reasonably be requested by the
Purchaser or its counsel.

 

2.4 Purchaser Closing Deliveries. At the Closing, the Purchaser will have
delivered, or will have caused to be delivered, all of the following documents
to the Member:

 

(a) evidence of the payment of (i) the Closing Payment, (ii) the Debt of the
Company, as set forth on Schedule 4.6(b), and (iii) the Escrow Amount;

 

(b) the Escrow Agreement, duly executed by the Purchaser; and

 

(c) the Employment Agreement, duly executed by the Purchaser.

 

2.5 Excluded Property. Notwithstanding anything in this Agreement to the
contrary, the Purchaser acknowledges and agrees that (i) at or prior to the
Closing, the Member may withdraw and retain all Cash of the Companies in excess
of $5,000, and (ii) the property located at the Leased Premises that is listed
in Schedule 2.5 is and will remain the property of the Member after the Closing
regardless of whether or not either of the Companies was the initial purchaser
thereof.

 

Article 3
Purchase Price

 

3.1 The Purchase Price. The purchase price to be paid by the Purchaser for the
Membership Interests (as it may be adjusted in accordance with this Agreement,
the “Purchase Price”) will equal the sum of the Closing Payment, the AR
Payments, if any, and the Earnout Payments, if any.

 

3.2 Payments at Closing. The Closing Payment will be paid by the Purchaser as
described in this Section 3.2, and adjusted, if at all, pursuant to Section 3.3.

 

(a) Payment of Closing Payment. At the Closing, the Purchaser will pay the
Closing Payment and the Escrow Amount as follows:

 

(i) The Purchaser will deliver the Closing Payment to the Member by wire
transfer of immediately available funds to an account designated by the Member
(such designation to be delivered to the Purchaser at least three Business Days
prior to the Closing Date).

 

9

 

 

(ii) The Purchaser will deliver the Escrow Amount to the Escrow Agent by wire
transfer of immediately available funds to an account designated by the Escrow
Agent to be held in an escrow account (the “Escrow Account”) pursuant to the
terms of the Escrow Agreement.

 

(b) Debt.

 

(i) At the Closing, on behalf of the Companies, and at the direction of the
Member, the Purchaser will deliver payment to lenders or other creditors of the
Companies in respect of the Debt set forth on Schedule 4.6(b) via wire transfer
of immediately available funds pursuant to payoff letters delivered by such
parties to the Purchaser and the Companies in form and substance reasonably
satisfactory to the Purchaser and the Member (such amount, the “Debt Amount”).

 

(ii) The Parties acknowledge that the Debt of the Companies as of the Closing
Date are obligations of the Companies incurred on or before the Closing Date,
and nothing in this Agreement will be deemed to make them obligations of the
Purchaser. Payment of such Debt of the Companies by the Purchaser, in each case,
on behalf of the Companies, on the Closing Date is being made for convenience
only.

 

3.3 Accounts Receivable Payments. The Purchaser will pay (or will cause the
Companies to pay) to the Member all proceeds collected by the Companies in
respect of the Closing Accounts Receivable during the six-month period following
the Closing Date (the “AR Payment Period”) up to a maximum total equal to the
Closing Accounts Receivable plus $7,000, which reflects the security deposit
under the lease set forth on Schedule 4.12(b), minus the Closing Accounts
Payable (the “AR Payments”). The Purchaser will deliver to the Member a
statement (the “AR Statement”) (i) setting forth the amount collected by the
Companies in respect of the Closing Accounts Receivable with respect to each
monthly period during the AR Payment Period (ii) certified by an authorized
representative of the Purchaser, in such representative’s capacity as a
representative of the Purchaser and not in his or her capacity as an individual,
and (iii) delivered by the Purchaser within 20 days after the end of the each
month of the AR Payment Period. Each AR Statement shall be accompanied by the
corresponding AR Payment for such month.

 

3.4 Earnout.

 

(a) Delivery of Net Revenue Statements. The Purchaser will deliver to the Member
a statement (each a “Net Revenue Statement”) setting forth the amount of Net
Revenue of the Companies with respect to each Quarterly Earnout Period. Each Net
Revenue Statement will be (i) in a form reasonably acceptable to the Member and
the Purchaser, (ii) certified by an authorized representative of the Purchaser,
in such representative’s capacity as a representative of the Purchaser and not
in his or her capacity as an individual, to have been calculated in accordance
with the provisions of this Agreement, and (iii) delivered by the Purchaser
within 30 days after the end of the subject Quarterly Earnout Period.

 

10

 

 

(b) Determination of Net Revenue of the Companies. “Net Revenue of the
Companies” for each Quarterly Earnout Period means the aggregate amount of gross
sales by the Companies (excluding sales between the Purchaser and either Company
and between the Companies but including sales by the Purchaser or any of its
Affiliates of products and services of either Company) of products and services
to third parties during the relevant Quarterly Earnout Period (in each case,
determined in accordance with GAAP), reduced by the following amounts to the
extent allocable to such sales of products and services: (i) any refunds,
credits or allowances actually given or credited to any third party due to
rejections, defects or returns, (ii) any discounts or rebates actually given or
credited, (iii) sales, use, occupation or excise taxes, freight, duty or
transportation insurance included therein, and in each case as actually incurred
by the Companies; and (iv) amounts previously included in Net Revenues of the
Companies after the Closing Date that were written-off during such period as
uncollectible. Net Revenue of the Companies will be calculated for each
Quarterly Earnout Period in the manner provided on Schedule 3.4(a), and for
purposes of determining the deductions referred to in this Section
3.4(b)(i)-(iv) above for each of the products and services, such deductions will
be determined without duplication.

 

(c) Dispute Mechanism.

 

(i) Within 10 days following the Purchaser’s delivery to the Member of a Net
Revenue Statement with respect to a Quarterly Earnout Period, the Member will
give the Purchaser a written notice stating either (i) the Member’s acceptance,
without objection, of the Net Revenue Statement (a “Net Revenue Acceptance
Notice”) or (ii) the Member’s objections to the Net Revenue Statement (a “Net
Revenue Objection Notice”). If the Member gives the Purchaser a Net Revenue
Acceptance Notice or does not give the Purchaser a Net Revenue Objection Notice
within such 10-day period, then such Net Revenue Statement will be conclusive
and binding upon the Parties and the Net Revenue of the Companies set forth on
such Net Revenue Statement will constitute the Final Net Revenue of the
Companies for such Quarterly Earnout Period.

 

(ii) In the event that the Member delivers a Net Revenue Objection Notice to the
Purchaser and the Purchaser and the Member fail to resolve all of the issues set
forth in the Net Revenue Objection Notice within 10 days after the Purchaser
receives the Net Revenue Objection Notice (the “Net Revenue Agreement Period”),
(A) the Member and the Purchaser will retain the Independent Auditors to make
the determination of the Final Net Revenue of the Companies for such Quarterly
Earnout Period in accordance with the terms of this Agreement within the 15-day
period immediately following the Net Revenue Agreement Period, and (B) the
Purchaser and the Member Representative each will provide the Independent
Auditors with their respective determinations of the Net Revenue of the
Companies for such Quarterly Earnout Period. The Independent Auditors will
consider only those items and amounts in the Purchaser’s and the Member’s
respective determinations of the Net Revenue of the Companies that are
identified as being items and amounts to which the Purchaser and the Member have
been unable to agree. In resolving any such disputed item or amount, the
Independent Auditors may not assign a value to any item or amount that is higher
than the highest value for such item or amount claimed by either Party or lower
than the lowest value for such item or amount claimed by either Party. The
Independent Auditors’ determination of the Net Revenue of the Companies will be
based on the definition of Net Revenue of the Companies contained in this
Agreement. Assuming compliance with the immediately preceding sentence, the
determination of the Final Net Revenue of the Companies for such Quarterly
Earnout Period by the Independent Auditors will be conclusive and binding upon
the Parties. The fees, costs and expenses of the Independent Auditor will be
paid (x) by the Member if the items covered thereby are resolved in favor of the
Purchaser or (y) by the Purchaser if the items covered thereby are resolved in
favor of the Member. If the items referred to therein are resolved in part in
favor of the Member and in part in favor of the Purchaser, such fees, costs and
expenses will be allocated between the Member and the Purchaser in inverse
proportion as the Member and the Purchaser may prevail on matters resolved by
the Independent Auditor, which proportionate allocations will be determined by
the Independent Auditors.

 

11

 

 

(d) Earnout Payment. With respect to each Quarterly Earnout Period, the
Purchaser will pay to the Member an amount equal to the payout amount as set
forth on Schedule 3.4(d) based on the Final Net Revenue of the Companies (each
such payment, if any, that is described in this Section 3.4(d) is an “Earnout
Payment” and, collectively, the “Earnout Payments”). Up to the first $31,250 of
each Earnout Payment, if any, that becomes due will be paid from the Escrow
Account, and the Purchaser and the Member agree to jointly instruct the Escrow
Agent to release $31,250 from the Escrow Account as follows: (i) if an Earnout
Payment becomes due in an amount that is equal to or greater than $31,250, then
$31,250 will be released from the Escrow Account to the Member and (ii) if an
Earnout Payment becomes due in an amount that is less than $31,250, then the
amount of the Earnout Payment will be released from the Escrow Account to the
Member and the difference between such Earnout Payment and $31,250 will be
released from the Escrow Account to the Purchaser; provided, in either (i) or
(ii) above, the distribution from the Escrow Account made in connection with the
final Earnout Payment will be a distribution of all remaining funds in the
Escrow Account. Any amount of an Earnout Payment owed to the Member in excess of
the amount received by the Member from the Escrow Account will be paid in cash
or via wire transfer of immediately available funds to such bank accounts as are
designated in writing by the Member within three Business Days of the
determination of Final Net Revenue of the Companies.

 

(e) Recordkeeping Requirements; Examination Rights.

 

(i) The Purchaser will keep true, complete and accurate books and records and
other documents and information, including books of account, supporting
schedules, analyses, workpapers and other underlying records or documentation,
as may be necessary or appropriate for the Member to be able to confirm the
amounts of Net Revenue of the Companies set forth in each Net Revenue Statement
(all of which the Member shall have the right to examine during normal business
hours upon reasonable notice), and the Purchaser will retain the books and
records and other documents and information relating to a Quarterly Earnout
Period until at least one calendar year following the end of such Quarterly
Earnout Period.

 

(ii) In the event of a dispute between the Parties with respect to this Section
3.4, the Independent Auditors will have the right to examine, on a confidential
basis, during normal business hours, the books and records and other relevant
documents and information of the Purchaser and its Affiliates that the
Independent Auditors may reasonably request in order to verify the accuracy of
the Net Revenue Statements provided by the Purchaser pursuant to Section 3.4(a);
provided, however, that any such access will not unreasonably interfere with the
conduct of the business of the Companies.

 

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(f) Conduct of Business. From and after the Closing Date, all decisions and
efforts with respect to the operation of the Companies, the conduct of the
Business and the development of the products of the Companies will be in the
Purchaser’s sole and absolute discretion, without any express or implied
warranty or covenant of any kind; provided, however that the Member will be
employed as President of the Companies pursuant to the Employment Agreement and
will have the duties and responsibilities as set forth in the Employment
Agreement.

 

3.5 Treatment of Purchase Price. The Purchaser and the Member agree to treat all
payments of the Purchase Price made by the Purchaser to the Member pursuant to
this Agreement (which, for the avoidance of doubt, includes the Closing Payment,
the AR Payments (if any) and the Earnout Payments (if any) as consideration for
the purchase of the Membership Interests and to report such payments on all tax
and information returns accordingly, and to not take any position inconsistent
with the foregoing.

 

Article 4
Representations and Warranties of the Companies

 

The Selling Parties, jointly and severally, hereby represent and warrant to the
Purchaser as follows:

 

4.1 Organization.

 

(a) Biocon is a limited liability company duly organized, validly existing, and
in good standing under the laws of the State of Nevada. Aether is a limited
liability company duly organized, validly existing, and in good standing under
the laws of the State of Nevada. Each Company has the organizational power and
authority to carry on the businesses in which it is engaged and to own, lease
and use the properties owned, leased and used by it. Each Company is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such authorization is required except where the lack of such
authorization would not have a Material Adverse Effect.

 

(b) Each Company has furnished or made available to the Purchaser a complete and
correct copy of its Articles of Organization and Limited Liability Company
Agreement, each as amended to date, of such Company. Such Articles of
Organization and Limited Liability Company Agreements are in full force and
effect. Neither Company is in violation of any of the provisions of its Articles
of Organization or Limited Liability Company Agreement. True and complete copies
of the transfer books and minute books of each Company, if any, have been made
available to the Purchaser prior to the date hereof.

 

4.2 Capitalization. Schedule 4.2 sets forth the authorized and outstanding
Membership Interests of each Company. All such outstanding Membership Interests
are duly authorized, validly issued, fully paid and non-assessable. There are no
outstanding securities, obligations or instruments convertible into or
exchangeable for Membership Interests in either Company and no commitments to
issue such securities, obligations or instruments. No Person has any right of
first refusal, preemptive right, subscription right or similar right with
respect to any Membership Interests of either Company. None of the Membership
Interests have been issued in violation of, or are subject to, any preemptive
right, subscription right or similar right.

 

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4.3 Due Authorization; Execution and Enforceability; Consents; No Conflict.

 

(a) Each Company has full limited liability company power and authority to
execute and deliver this Agreement and all agreements, documents and instruments
to be executed and delivered by such Company in connection herewith, if any
(collectively, the “Transaction Documents”), to consummate the transactions
contemplated hereby and thereby and to perform such Company’s obligations
hereunder and thereunder.

 

(b) This Agreement has been duly executed and delivered by each Company. The
execution and delivery by such Company of this Agreement and the Transaction
Documents, the performance of its obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by such Company, and no other company action or proceeding on the
part of such Company is necessary to authorize the execution and delivery of, or
the performance of its obligations under, this Agreement or the Transaction
Documents or to consummate the transactions contemplated hereby or thereby. This
Agreement and the Transaction Documents, constitute, or when executed and
delivered will constitute, valid, legal and binding obligations of each Company,
enforceable against such Company in accordance with their terms, except to the
extent that enforceability may be limited by bankruptcy, insolvency and other
similar laws affecting the enforcement of creditor’s rights generally and
general equity principles.

 

(c) Except as set forth on Schedule 4.3(c) hereto, no material authorization,
approval or consent of, or notice to or filing or registration with, any
Governmental Authority or any other Person is required in connection with the
execution and delivery by either Company of this Agreement and the Transaction
Documents, the consummation of the transactions contemplated hereby and thereby
and the performance by either Company of its respective obligations hereunder
and thereunder.

 

(d) Except as set forth on Schedule 4.3(d) hereto, the execution and delivery by
each Company of this Agreement and the Transaction Documents, the consummation
by such Company of the transactions contemplated hereby and thereby and the
performance by such Company of its obligations hereunder and thereunder do not
and will not (i) conflict with or violate any of the terms of such Company’s
Articles of Organization or Limited Liability Company Agreement; (ii) violate or
conflict with any Law or any Order applicable to such Company, (iii) violate or
conflict with the terms of, or result in the acceleration of, any Liability of
such Company under, or violate or conflict with or result in a breach of, or
constitute a default under, any material indenture, mortgage, deed of trust,
contract, agreement or instrument to which such Company is a party or by which
any of its assets or properties is bound or affected, (iv) result in the
creation or imposition of any material Lien (other than Permitted Liens) of any
nature upon any of the assets or properties of such Company, or (v) constitute
an event permitting termination of any material Contract, License, or other
material right of the Company.

 

4.4 Equity Interests. Neither Company, directly or indirectly, owns any equity,
partnership, membership or similar interest in, or any interest convertible
into, exercisable for the purchase of or exchangeable for any such equity,
partnership, membership or similar interest, or is under any current or
prospective obligation to form or participate in, provide funds to, make any
loan, capital contribution or other investment in, or assume any Liability of,
any Person.

 

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4.5 Financial Statements.

 

(a) Attached as Schedule 4.5 are the following financial statements (the
“Financial Statements”): (a) a balance sheet of Biocon as of December 31, 2017,
and the related statements of income and cash flows for the fiscal year then
ended (the “Annual Financial Statements”), and (b) a balance sheet of Biocon as
of December 12, 2018 (the “Interim Balance Sheet”) and the related statement of
income for the year 2018 through such date (the “Interim Financial Statements”).
Except as set forth on Schedule 4.5, the Financial Statements: (i) are correct
and complete in all material respects and have been prepared in accordance with
the books and records of Biocon; (ii) fairly present, in all material respects,
the financial condition and the results of operations and cash flow of Biocon as
of the date thereof and for the period referred to therein; and (iii) have been
prepared in accordance with GAAP or other commercially reasonable accounting
method, consistently applied throughout the periods indicated subject, in the
case of the Interim Financial Statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the aggregate,
have a Material Adverse Effect) and the absence of footnotes. The Financial
Statements do not reflect any assets of any Person other than Biocon. The
Financial Statements have been prepared from, and are consistent with, the books
and records of Biocon, which books and records are accurate and complete in all
material respects.

 

(b) Each Company maintains a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management’s general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of audited financial statements in conformity
with GAAP or such other applicable commercially reasonable accounting method and
to maintain accountability for assets; (iii) access to assets is permitted only
in accordance with management’s general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

 

4.6 Absence of Liabilities; No Debt.

 

(a) Except as set forth on Schedule 4.6(a), neither Company has any Liabilities
(including, without limitation, any Liabilities that may be owed to the Member
or any Affiliate of the Member) other than those (i) reflected or reserved
against in the Financial Statements; (ii) reflected in the Statement of Working
Capital; (iii) not required by GAAP, as consistently applied, to be reflected or
reserved against in the Financial Statements; or (iv) incurred in the Ordinary
Course of Business consistent with past practice since the Interim Balance
Sheet.

 

(b) Except as set forth on Schedule 4.6(b), neither Company has any Liability
for Debt and true and complete copies of all material instruments and documents,
if any, evidencing, creating, securing or otherwise relating to such Debt have
been delivered or made available to the Purchaser. No event has occurred and no
condition has become known to either Company that constitutes, or with notice or
passage of time, or both, would constitute, a default or termination under any
instrument or document relating to or evidencing such Debt.

 

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4.7 Absence of Changes. Since the date of the Interim Balance Sheet, the
Business has been operated in the Ordinary Course of Business and there has not
been incurred, nor has there occurred: (a) any damage, destruction or loss
(whether or not covered by insurance), adversely affecting the Business or
assets of either Company in excess of $10,000; (b) any strikes, work stoppages
or other labor disputes involving the employees of either Company; (c) transfer,
pledge or other disposition of any of the assets of either Company having an
aggregate book value of $10,000 or more (except sales in the Ordinary Course of
Business or dispositions of obsolete assets); (d) any redemption, repurchase or
other acquisition of the equity interests of either Company; (e) any material
amendment, termination, waiver or cancellation of any material Contract (except
in each case in the Ordinary Course of Business); (f) any (i) general uniform
increase in the compensation of the employees of either Company (including,
without limitation, any increase pursuant to any bonus, pension, profit-sharing,
deferred compensation or other plan or commitment), other than in the Ordinary
Course of Business, (ii) increase in any such compensation payable to any
individual officer, partner, consultant or agent of either Company, other than
in the Ordinary Course of Business, or (iii) loan or commitment therefore made
by either Company to any officer, partner, employee, consultant or agent of such
Company; (g) any change in the accounting methods, procedures or practices
followed by either Company or any change in depreciation or amortization
policies or rates theretofore adopted by such Company; (h) any material change
in policies, operations or practices of either Company with respect to business
operations followed by such Company, including, without limitation, with respect
to selling methods, returns, discounts or other terms of sale, or with respect
to the policies, operations or practices of such Company concerning the
employees of such Company; (i) any capital appropriation or expenditure or
commitment therefore on behalf of either Company in excess of $10,000
individually or $25,000 in the aggregate; (j) any write-down or write-up of the
value of any inventory or equipment of either Company or any increase in
inventory levels in excess of historical levels for comparable periods; (k) any
Material Adverse Effect; or (l) any agreement, whether in writing or otherwise,
for either Company to take any of the actions enumerated in this Section 4.7.

 

4.8 Managers, Governors, Directors and/or Officers. A true, correct and complete
list of the current managers, governors, directors and/or officers of each
Company is set forth on Schedule 4.8 hereto.

 

4.9 Compliance with Laws. Each Company is in compliance in all material respects
with all applicable Laws. There is no investigation by any Governmental
Authority pending or, to the Knowledge of the Companies, threatened against
either Company. Since December 31, 2012, neither Company has received any
notice, Order, inquiry, investigation, complaint or other communication from any
Governmental Authority or any other Person that either Company is not in
compliance in all material respects with any Law applicable to it.

 

4.10 Licenses. Schedule 4.10 contains a complete and correct list of each
approval, consent, license, permit, waiver or other authorization (other than
the Environmental Permits) issued, granted or given by or under the authority of
any Governmental Authority or pursuant to any Law (each a “License”) that is
held by either Company or that is used by either Company in connection with the
Business. Each Company is, and at all times since December 31, 2012 has been, in
compliance in all material respects with the terms and requirements of each
License. Since December 31, 2012, neither Company has received any notice or
other communication (whether oral or written) from any Governmental Authority or
any other Person regarding (i) any actual or potential violation of any term or
requirement of any License, or (ii) any actual or potential revocation,
withdrawal, suspension, cancellation, termination of, or modification to any
License. All Licenses are valid and in full force and effect. The Licenses
collectively constitute all of the Licenses necessary to permit each Company to
lawfully conduct and operate the Business in the manner currently conducted. No
License prohibits or restricts the consummation of the transactions contemplated
by this Agreement.

 

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4.11 Environmental Matters.

 

(a) Each Company is and, since December 31, 2015, has been in compliance in all
material respects with all applicable Environmental Laws in connection with its
ownership, use, maintenance, and operation of the Business and the Leased
Premises.

 

(b) Each Company currently holds all permits, licenses, approvals, consents or
authorizations necessary for the conduct and operation of the Business under
applicable Environmental Laws (“Environmental Permits”). All such Environmental
Permits are listed on Schedule 4.11(b) and are in good standing, except where
the relevant Company has filed a timely application for renewal, and each
Company is and at all times has been in compliance in all material respects with
the terms and conditions of all such Environmental Permits.

 

(c) To the Knowledge of the Companies, (i) no Hazardous Materials are or have
been released, discharged or disposed of at, on or under or migrated onto or
from the Leased Premises or any real property formerly owned or operated by
either Company (the “Former Properties”), and (ii) no other Person has at any
time released, discharged or disposed of Hazardous Materials at, on, under or
around the Leased Premises or Former Properties, or used the Leased Premises or
Former Properties as a landfill or other disposal site.

 

(d) No proceedings, orders, notices, complaints, requests for information,
claims, investigations, lawsuits, enforcement actions, demands or similar
communications from any Governmental Authority or other Person are pending or,
to either Company’s Knowledge, threatened with respect to either Company, the
operation of the Business or the Leased Premises and arise from or relate to:
(i) the actual or alleged presence of any Hazardous Material or any other
release or threatened release on, in, under or around the Leased Premises or
Former Properties caused by either Company; or (ii) any other circumstances
forming the basis of any actual or alleged violation of any applicable
Environmental Law by either Company or Liability of either Company under any
applicable Environmental Law, including without limitation the off-site disposal
of Hazardous Materials.

 

4.12 Real Property.

 

(a) Neither Company owns or has ever owned real property.

 

(b) Schedule 4.12(b) hereto contains a complete list and description of all real
property of which either Company is a tenant (herein collectively referred to as
the “Leased Premises”). True, correct and complete copies of all leases of all
Leased Premises (the “Real Property Leases”) have been delivered or made
available to the Purchaser. Each Company has valid and binding leasehold title
to all Leased Premises, in each case, free and clear of all Liens, except
Permitted Liens. With respect to each Real Property Lease, no event or condition
currently exists that would give rise to a material repair or restoration
obligation if such Real Property Lease were to terminate. To the Knowledge of
either Company, no event or condition currently exists that would create a legal
or other impediment to the use of the Leased Premises as currently used, or
would increase the additional charges or other sums payable by the tenant under
any of the Real Property Leases (including, without limitation, any pending Tax
reassessment or other special assessment affecting the Leased Premises).

 

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(c) To the Knowledge of either Company, the Leased Premises conform in all
material respects with all applicable accreditation requirements and zoning
Laws. To the Knowledge of either Company, each Company has all rights,
including, but not limited to, rights for power lines, water lines, sewers and
other means of ingress and egress, necessary to conduct the Business such
Company now conducts.

 

(d) Neither the whole nor any portion of any of the Leased Premises has been
condemned, expropriated, ordered to be sold or otherwise taken by any public
authority, with or without payment or compensation therefore, and, to the
Knowledge of either Company, no such condemnation, expropriation, sale or taking
is currently threatened or contemplated. To the Knowledge of either Company,
there are no pending assessments that would affect any of the Leased Premises.

 

4.13 Title to Assets; Adequacy; Inventory.

 

(a) Each Company has good and marketable title to all tangible assets used in
the business of such Company and purported to be owned by such Company, free and
clear of all Liens, except for Liens specified on Schedule 4.13(a) and Permitted
Liens. Each Company owns or has valid leasehold rights to all assets sufficient
for the continued conduct of the Business after the Closing in substantially the
same manner as conducted prior to the Closing. All tangible assets owned or
leased by either Company have been maintained in all material respects in
accordance with generally accepted industry practice and are in all material
respects in good operating condition and repair, ordinary wear and tear
excepted.

 

(b) No officer, director, governor, manager, Member or Affiliate of either
Company or any individual in such officer’s, director’s, governor’s, manager’s
or Member’s immediate family is a party to any Contract or transaction with
either Company or has any direct or indirect interest in any of either Company’s
assets.

 

(c) The inventory of each Company (i) is free of any known defect or deficiency,
and (ii) to the extent of finished goods that are a part of the inventory, may
be introduced into interstate commerce in the United States. To the extent the
inventory contains raw materials and work-in-process, such raw materials and
work-in process (x) are of good manufacturing quality and (y) have been
manufactured, handled, maintained, packaged and stored at all times in
accordance with the specifications set forth in the relevant Licenses, in
compliance with applicable Law and current good manufacturing practices, and in
compliance with all requirements of relevant Governmental Authorities. The
quantities of each item of inventory (whether raw materials, work-in-process, or
finished goods) are reasonable in the present circumstances of the Business. The
inventory contains no material amount of slow moving, obsolete or damaged items.
Any obsolete items and items of below-standard quality contained in the
inventory have all been written off or written down to net realizable value in
the Financial Statements or on the accounting records of the relevant Company as
of the Closing, as the case may be. All inventory not written off has been
priced at the lower of cost or net realizable value in accordance with GAAP
consistently applied for all periods, with appropriate write-downs for slow
moving, obsolete and damaged merchandise.

 

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(d) The Statement of Working Capital contains a list of all of the inventory and
the locations of all such inventory as of the date(s) indicated on such list.
All inventory of the Companies is owned by the relevant Company free and clear
of any Liens (except for Liens specified on Schedule 4.13(a) and Permitted
Liens). No inventory has been consigned to others, nor is any inventory
consigned to either Company.

 

4.14 Contracts.

 

(a) Schedule 4.14(a) lists all of the following agreements, contracts,
arrangements and commitments (collectively, “Contracts”) to which either Company
is a party and that are currently in effect:

 

(i) all contracts and agreements that provide for annual payments or expenses
by, or annual payments or income to, either Company of $10,000 or more (other
than ordinary course purchase and sale orders);

 

(ii) all partnership, joint venture, limited liability company contract
arrangements or agreements or similar agreements;

 

(iii) all contracts, license agreements or agreements in respect of similar
rights granted or held with respect to technology, Intellectual Property Rights
or any services related thereto, except for licenses with respect to (A)
pre-packaged or “off-the-shelf” software applications licensable to the public
generally on standard terms, or (B) rights to display or use the marks or names
of third parties pursuant to agreements with either Company’s suppliers;

 

(iv) all contracts or other documents that limit the freedom of either Company
to compete in any line of business or with any Person or in any geographic area;

 

(v) all agreements or other documents of either Company in respect of Debt;

 

(vi) all agreements and other documents of either Company relating to any
interest rate, currency or commodity derivatives or hedging transaction;

 

(vii) all agreements and other documents that create a future payment obligation
or other Liability to either Company in excess of $10,000 on an annual basis or
more or that have a term greater than one year and cannot be cancelled by the
relevant Company without penalty or further payment and without more than 30
days’ notice;

 

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(viii) all contracts, agreements or other documents with the Member or his
Affiliates;

 

(ix) all collective bargaining agreements or other labor agreements; and

 

(x) all contracts, agreements or other documents of either Company in respect of
property or assets (whether real or personal, tangible or intangible) in which
either Company holds a leasehold interest.

 

(b) Each Contract required to be disclosed pursuant to Section 4.14(a) is a
valid and binding agreement of the relevant Company, enforceable in accordance
with its terms against the applicable Company, and, to the Knowledge of either
Company, the other contracting party (or parties, as applicable), except in each
case that enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, or similar Laws affecting the
enforcement of the rights of creditors generally and (ii) the availability of
equitable remedies (including, without limitation, specific performance and
injunctive relief). Neither Company nor, to the Knowledge of either Company, any
other party thereto is in default under the terms of any Contract. Neither
Company has received notice of any material default or event that, with notice
or lapse of time, or both, would constitute a material default by either Company
under any Contract. No Person is renegotiating, or has a right (or, to the
Knowledge of either Company, has asserted a right) pursuant to the terms of any
Contract to renegotiate, any amount paid or payable to either Company under any
Contract or any other material term or provision of any Contract.

 

(c) Each Company has made available or delivered to the Purchaser accurate and
complete copies of all written Contracts, including all amendments thereto, and
Schedule 4.14(a) provides an accurate description of the material terms of each
Contract that is not in written form.

 

(d) Except as set forth on Schedule 4.3(c) and Schedule 4.3(d), none of the
execution, delivery or performance by either Company of this Agreement or the
consummation by either Company of the transactions contemplated hereby
constitutes a default under or gives rise to any right of termination,
cancellation or acceleration of any obligation of either Company or to a loss of
any material benefit to which either Company is entitled under any provision of
any Contract.

 

4.15 Litigation. There is no, nor since December 31, 2012 has there been any,
claim, action, suit or proceeding at law or in equity by any Person, or any
Proceeding pending, or, to the Knowledge of either Company, threatened, against
either Company or any of its properties or rights or against or affecting the
Membership Interests or the transactions contemplated hereby. Neither Company
nor any assets or properties owned, leased or used or held for use by either
Company are subject to any Order that (a) prohibits or restricts the
consummation of the transactions contemplated hereby or the ability of either
Company or the Member to comply with the terms and conditions hereof; or (b)
restricts the ability of either Company to acquire any property or conduct
business in any area.

 

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4.16 Intellectual Property.

 

(a) Schedule 4.16(a) contains a complete list of all (i) Patent Rights,
registrations and applications for Trademarks, registrations and applications
for Copyrights, domain names and URLs, and material unregistered Trademarks and
Copyrights (including all names under which either Company is conducting
business), in each case that are owned by, licensed to or used by either Company
in connection with the Business and (ii) agreements, contracts, licenses, and
sublicenses that relate to any such Patent Rights, Trademarks or Copyrights.

 

(b) Except as disclosed on Schedule 4.16(b): (i) all issued Patent Rights
identified on Schedule 4.16(a), all registered Trademarks identified on Schedule
4.16(a) and all registered Copyrights identified on Schedule 4.16(a) are valid
and enforceable; (ii) to the Knowledge of either Company, all applications for
issuance of Patent Rights identified on Schedule 4.16(a), all applications to
register Trademarks identified on Schedule 4.16(a), and all applications to
register Copyrights identified on Schedule 4.16(a) are in good standing and
without challenge by any third party; (iii) to the Knowledge of either Company,
there are no pending claims, actions or proceedings that challenge the validity
of any Intellectual Property Rights identified on Schedule 4.16(a) or that form
the basis for such Intellectual Property Rights being adjudicated invalid or
unenforceable; and (iv) each Company has the sole and exclusive right to bring
actions for infringement or unauthorized use of the Intellectual Property Rights
owned by such Company.

 

(c) Each Company is the sole and exclusive owner of all right, title and
interest in and to the Intellectual Property Rights owned by such Company, and
has the valid and enforceable right to use all other Intellectual Property
Rights used in, or necessary for, the conduct of the Business, in each case free
and clear of all Liens (except for Liens specified on Schedule 4.13(a) and
Permitted Liens).

 

(d) Except as set forth on Schedule 4.16(d), (i) no infringement,
misappropriation or other violation of any Intellectual Property Rights of any
other Person has occurred or results in any way from the conduct of the
Business, (ii) no claim of any infringement, misappropriation or other violation
of any Intellectual Property Rights of any other Person has been made or
asserted against or to either Company, and (iii) to the Knowledge of either
Company, no Person has infringed, misappropriated or otherwise violated, or is
infringing, misappropriating or otherwise violating, any Intellectual Property
Rights owned by either Company or used in the conduct of the Business.

 

(e) Each Company has taken commercially reasonable steps to secure and protect
the confidentiality of all Trade Secrets owned or used by such Company.

 

(f) Neither Company is subject to any agreement with any standards body or other
similar entity that would obligate such Company to grant licenses to any Person
with respect to, or otherwise impair or limit such Company’s control of, any
Intellectual Property Rights.

 

(g) Since December 31, 2012, each Company has complied in all material respects
with all applicable Laws, and with the terms of all contracts, in either case
relating to the collection, retention, use, disclosure, transmission and storage
of personal information. No Person has commenced any action relating to either
Company’s information privacy or data security practices.

 

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4.17 Taxes. Each Company has filed all income Tax Returns and other Tax Returns
that are required to be filed by it and all such Tax Returns are true and
correct in all material respects. All Taxes owed by either Company, whether or
not shown on any Tax Return, have been paid or properly accrued for on the
Financial Statements in accordance with GAAP. No examination or audit of any Tax
Return is currently in progress and no examination or audit of any Tax Return
has been made since December 31, 2012. There are no agreements or waivers
extending, or having the effect of extending, the statutory periods of
limitation within which to assess any Tax that are currently in force. Each
Company has withheld and collected all Taxes required to be withheld and
collected by it and, to the extent required, has properly and timely paid or
deposited such Taxes as required by applicable Law. No Governmental Authority is
asserting in writing or, to the Knowledge of either Company, threatening to
assert against either Company any deficiency, proposed deficiency, or claim for
additional Taxes or any adjustment thereof. There are no Liens for Taxes (other
than Taxes not yet due and payable) upon any of the assets of either Company.
Neither Company is now, nor has either ever been, a member of a consolidated
group for federal income Tax purposes or a consolidated, combined or similar
group for state Tax purposes with any Person. At all times since inception, each
Company has been and until Closing will continue to be properly treated as a
disregarded entity for United States federal Income Tax purposes, and for the
Income Tax purposes of any state in which each Company is subject to Income
Taxes. No election has been filed to treat either Company as an association
taxable as a corporation for U.S. federal, state or local Tax purposes. The
transactions contemplated by this Agreement will not have any adverse effect on
the continued validity and effectiveness of any Tax exemption, Tax holiday, Tax
deferral, Tax incentive or other preferential Tax treatment of any member of
either Company and will not result in the claw-back or recapture of any such Tax
exemption, Tax holiday, Tax deferral, Tax incentive or other preferential Tax
treatment. The Member is not a disregarded entity for tax purposes and is not a
“foreign person” as that term is used in Treasury Regulations Section 1.1445-2.
Neither Company has engaged in any transaction that is subject to disclosure
under current or former Treasury Regulations Sections 1.6011-4 or 1.6011-4T, as
applicable.

 

4.18 Employees.

 

(a) As of the date of this Agreement, other than the Member, each Company
employs only those full-time and part-time employees, and retains only those
contractors, whose names, positions and salaries are listed on Schedule 4.18(a).

 

(b) Other than for customary “at will” oral employment arrangements, neither
Company has any written, oral or implied employment contracts with any of its
employees. As of the date of this Agreement: (i) neither Company is delinquent
in the payment (A) to or on behalf of its past or present employees of any
wages, salaries, commissions, bonuses, benefit plan contributions or other
compensation for all periods prior to the date hereof, or (B) of any amount that
is due and payable to any state or state fund pursuant to any workers’
compensation statute, rule or regulation or any amount that is due and payable
to any workers’ compensation claimant; (ii) there are no collective bargaining
agreements currently in effect between either Company and labor unions or
organizations representing any employees of either Company; (iii) no collective
bargaining agreement is currently being negotiated by either Company; and (iv)
to the Knowledge of either Company, there are no union organizational drives in
progress and there has been no formal or informal request to either Company for
collective bargaining or for an employee election from any union or from the
National Labor Relations Board. No employees of either Company will be entitled
to any severance or other payment in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby.
Neither Company has extended to any of its employees any loans or credit.

 

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(c) Each Company is in compliance with all Laws governing the employment of
labor, including all contractual commitments and all such Laws relating to
wages, hours, affirmative action, collective bargaining, discrimination, civil
rights, safety and health, workers’ compensation and the collection and payment
of withholding and/or Social Security Taxes and similar Taxes, including the Age
Discrimination in Employment Act, as amended, Title VII of the Civil Rights Act
of 1964, as amended, the Civil Rights Act of 1991, the Employee Retirement
Income Security Act, the Fair Labor Standards Act (29 U.S.C. 201, et seq.)
(“FLSA”), the Americans with Disabilities Act, the Sarbanes-Oxley Act of 2002,
the Worker Adjustment and Retraining Notification Act, as amended, the
Occupational Safety and Health Act, as amended, the Family and Medical Leave Act
(29 U.S.C. 2601, et seq.), as amended, the National Labor Relations Act of 1935,
as amended, Executive Order 11246 and any other executive Orders or regulations
governing affirmative action, EEO and VETS-100 reporting obligations, the
Immigration Nationality Act (8 U.S.C. 1324a, et seq.), as amended, and all
similar applicable Laws (collectively the “Labor Laws”). Each Company has, since
December 31, 2012, conducted its business in compliance with all applicable
Labor Laws. Each Company has withheld all amounts required by Law or Contract to
be withheld from the wages or salaries of its employees and is not liable for
the payment of any arrears of wages or other Taxes, penalties, fines or other
compensation of any kind, however designated, for failure to comply with any of
the foregoing. Each Company has maintained adequate and suitable records
regarding the service of each of its employees including records of working
time. Each Company has properly classified its employees pursuant to the FLSA.
Neither Company is, nor has it been in the past three years, a government
contractor.

 

4.19 Employee Benefits.

 

(a) Set forth on Schedule 4.19(a) is a list of all Employee Benefit Plans
established, maintained or contributed to by either Company. Each Company has
delivered or caused to be delivered or made available to the Purchaser copies of
(i) each current Employee Benefit Plan, together with the most recent amendments
thereto, and related trust agreement or other funding instrument, as well as the
most recent Internal Revenue Service determination letter, opinion or advisory
related to each Employee Benefit Plan qualified under Section 401(a) or 501 of
the Code, (ii) IRS Form 5500 for the three most recently completed plan years
for each Employee Benefit Plan required to file such Form and any related
audited financial statements and opinions; (iii) the most recent Summary Plan
Description (plus all subsequent Summaries of Material Modification) for each
Employee Benefit Plan subject to the Summary Plan Description requirements of
Section 104(b) of ERISA, (iv) all material communications to or from any
Governmental Authority (including the Internal Revenue Service and Department of
Labor) concerning any Employee Benefit Plan since December 31, 2012, and (v)
with respect to each Employee Benefit Plan qualified under Section 401(a) of the
Code, test results for the prior plan year demonstrating such Employee Benefit
Plan’s compliance with the applicable coverage, annual additions and
discrimination rules under the Code.

 

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(b) Neither Company (including all employers, whether or not incorporated, that
are treated together with such Company as a single employer within the meaning
of Section 414 of the Code) maintains or contributes to, and neither has
maintained or contributed to in the six years prior to Closing, an Employee
Benefit Plan that is either (i) subject to Title IV of ERISA, (ii) a
“multiemployer plan” within the meaning of Section 3(37) of ERISA or (iii)
subject to the minimum funding standards of Section 412 of the Code or Section
302 of ERISA. No Employee Benefit Plan is a multiple employer plan within the
meaning of Section 413(c) of the Code. No Employee Benefit Plan is a “multiple
employer welfare arrangement” as defined in Section 3(40) of ERISA.

 

(c) Each Employee Benefit Plan conforms to and has been operated and
administered in material compliance with the requirements of ERISA, the Code and
all other applicable Laws. To the Knowledge of either Company, there are no
facts relating to any Employee Benefit Plan that (i) have resulted in a
“prohibited transaction” (within the meaning of Section 4975 of the Code or
Section 406 of ERISA) or otherwise have resulted in or could reasonably result
in the imposition of an excise tax, penalty or similar Liability under ERISA or
the Code; (ii) have resulted in a breach of fiduciary duty or violation of Part
4 of Title I of ERISA; or (iii) could reasonably result in any material
Liability (whether or not asserted as of the date hereof) under ERISA, the Code,
any other applicable Laws or otherwise, other than Liability for benefit claims
and funding obligations in the ordinary course to the Purchaser. There are no
pending or, to the Knowledge of either Company, threatened claims (other than
routine claims for benefits) or lawsuits against or with respect to any Employee
Benefit Plans. Neither Company has Knowledge of any governmental audit or
examination of any Employee Benefit Plan or of any facts that would reasonably
lead it to believe that any such audit or examination is pending or threatened.

 

(d) Each Employee Benefit Plan intended to qualify under Section 401(a) of the
Code and each related trust intended to be exempt under Section 501 of the Code
has been and is so qualified or exempt as of the date hereof, and each Company
has received a current favorable determination letter to such effect from the
Internal Revenue Service or is properly relying on the Internal Revenue Service
opinion or advisory letter issued with respect to the qualification of a
prototype plan document that such Company has duly adopted. To the Knowledge of
either Company, the amendments to and operation of any Employee Benefit Plan or
related trust since receipt of such letter do not materially adversely affect
the qualified or exempt status of any such Employee Benefit Plan or related
trust.

 

(e) All amounts required to have been paid as contributions to any Employee
Benefit Plan have been paid within the time prescribed by applicable Laws and
the applicable plan documents. Neither Company has been delinquent as to
premiums, reimbursements, accruals, contributions or payments to or in respect
of any Employee Benefit Plan. With respect to each Employee Benefit Plan, there
are no funded benefit obligations for which contributions have not been made or
properly accrued and there are no unfunded benefit obligations that have not
been accounted for by reserves, or otherwise noted on the Financial Statements.
Each Company has furnished or made available to the Purchaser complete financial
information regarding the funding and present and future liabilities of any and
all deferred compensation, salary continuation, or other Employee Benefit Plans
that are not intended to be qualified under Section 401(a) of the Code. No
assets of either Company are allocated to or held in a “rabbi trust” or similar
funding vehicle.

 

24

 

 

(f) Neither Company has made any promises or incurred any Liability under any
Employee Benefit Plan or otherwise to provide health or other welfare benefits
to current or future retirees or other former employees of either Company (or to
their spouses or dependents) or to anyone else, except as specifically required
by applicable Laws.

 

(g) All group health plans of the either Company comply with the requirements of
Part 6 of Title I of ERISA (“COBRA”), Section 5000 of the Code, the Patient
Protection and Affordable Care Act, the Health Insurance Portability and
Accountability Act of 1996, and any other comparable Law. No Employee Benefit
Plan is funded by, associated with or related to a “voluntary employee’s
beneficiary association” within the meaning of Section 501(c)(9) of the Code.

 

(h) All nonqualified deferred compensation plans or arrangements have been at
all times in operational and documentary compliance with Section 409A of the
Code and the regulations, notices and other guidance of general applicability
issued thereunder. All options and equity awards have been granted at a per
share exercise price that is at least equal to the fair market value of the
underlying equity security as of the date the option or award was granted, as
determined in accordance with applicable Law, including Section 409A of the
Code.

 

(i) Neither the execution of this Agreement nor the consummation of the
transactions contemplated hereby will (either alone or upon the occurrence of
any additional or subsequent events) constitute an event under any Employee
Benefit Plan that will or may result in any payment (whether of change of
control or severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any employee of either Company. No payment or benefit
that will or may be made by the Company with respect to any “disqualified
individual” (as defined in Section 280G of the Code and the regulations
thereunder) will be characterized as a parachute payment within the meaning of
Section 280G(b)(2) of the Code. There is no contract, agreement, plan or
arrangement to which either Company or any ERISA Affiliate is a party by which
any of them is bound to compensate any employee of either Company for excise
Taxes paid pursuant to Section 4999 of the Code.

 

4.20 Insurance. Schedule 4.20 hereto contains a list of all insurance policies
and bonds maintained by, or on behalf of, either Company on its respective
properties, operations, inventories, assets, business or personnel (specifying
the insurer, type of insurance, policy number and any pending claims). All such
insurance policies (a) are valid, outstanding, and enforceable; (b) are
sufficient for compliance with all Laws and Contracts to which either Company is
a party or by which it is bound; and (c) will continue in full force and effect
following the consummation of the transactions contemplated by this Agreement.
Neither Company nor the Member has received any notice of cancellation or any
other indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any policy is not willing or able
to perform its obligations thereunder. Each Company has paid all premiums due,
and has otherwise performed all of its obligations, under each policy to which
such Company is a party or that provides coverage to such Company, or any of its
directors, governors or managers. Each Company has given notice to the insurer
of all known claims that may be insured thereby.

 

25

 

 

4.21 Banks; Powers of Attorney. Schedule 4.21 sets forth (a) the names and
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which either Company maintains safe deposit boxes or
accounts of any nature to which it has access, and of all Persons authorized to
draw thereon, make withdrawals therefrom or have access thereto; and (b) the
names of all Persons to whom either Company has granted a power of attorney.

 

4.22 Broker’s and Finder’s Fees. Neither Company has employed any broker or
finder or incurred any Liability for any financial advisory fees, commission or
finder’s fee and no broker or finder has acted, directly or indirectly, for
either Company in connection with this Agreement or the transactions
contemplated by it.

 

4.23 Affiliate Interests and Transactions.

 

(a) Neither the Member nor any officer of either Company: (i) owns, directly or
indirectly, any equity or other financial or voting interest in any material
supplier, licensor, lessor, distributor, independent contractor or customer of
either Company; (ii) owns, directly or indirectly, or has any interest in any
property (real or personal, tangible or intangible) that either Company uses in
the Business; or (iii) has any business dealings or a financial interest in any
transaction with either Company or involving any assets or property of either
Company, other than business dealings or transactions conducted in the Ordinary
Course of Business at prevailing market prices and on prevailing market terms.

 

(b) There are no outstanding notes payable to, accounts receivable from or
advances by either Company to, and neither Company is otherwise a debtor or
creditor of the Member or any officer of either Company. Neither Company has any
obligation or Liability to, or entered into or agreed to enter into any
transaction with or for the benefit of, the Member or any officer of either
Company, other than the transactions contemplated by this Agreement.

 

4.24 Certain Payments. Since December 31, 2012, neither Company nor any
director, officer, agent, employee of either Company has, in violation of
applicable Law, directly or indirectly made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or services,
(a) to obtain favorable treatment in securing business, (b) to pay for favorable
treatment for business secured, or (c) to obtain special concessions, or for
special concessions already obtained, for or in respect of the Business.

 

4.25 Disclosure. No representation or warranty by either Company or the Member
contained in this Agreement, and no statement contained on the Schedules or any
other agreements, documents and instruments delivered to or to be delivered by
or on behalf of either Company or the Member pursuant to this Agreement or any
other agreements, documents and instruments to be executed and delivered by
either Company in connection herewith, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made, in
order to make the statements herein or therein not misleading.

 

26

 

 

Article 5
Representations and Warranties of the Member

 

The Member represents and warrants to the Purchaser as follows:

 

5.1 Title to Membership Interests. The Member owns 100% of the outstanding
Membership Interests in each Company. The Member has, and will convey to the
Purchaser at the Closing, good and valid title to the Membership Interests
(subject to restrictions on transfer under applicable securities Laws), free and
clear of any Lien.

 

5.2 Due Authorization; Execution and Enforceability; Consents; No Conflict.

 

(a) The Member has, or will have on the Closing Date, the full right to
transfer, assign and deliver the Member’s entire interest in the Membership
Interests to the Purchaser.

 

(b) This Agreement has been duly executed and delivered by the Member. The
execution and delivery by the Member of this Agreement and all other such
agreements, documents and instruments to be executed and delivered by the Member
in connection herewith, the performance of the Member’s respective obligations
hereunder and thereunder and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Member, and no other action
or proceeding on the part of the Member is necessary to authorize the execution
and delivery of, or the performance of his respective obligations under this
Agreement and all other such agreements, documents and instruments or to
consummate the transactions contemplated hereby or thereby. This Agreement and
all other agreements, documents and instruments executed or to be executed by
the Member in connection herewith, constitute or, when executed and delivered,
will constitute valid, legal and binding obligations of the Member, enforceable
against the Member in accordance with their terms, except to the extent that
enforceability may be limited by bankruptcy, insolvency and other similar Laws
affecting the enforcement of creditor’s rights generally and general equity
principles.

 

(c) No authorization, approval or consent of, or notice to or filing or
registration with, any Governmental Authority or any other Person is required in
connection with the execution and delivery by the Member of this Agreement and
the other agreements, documents and instruments to be executed and delivered by
the Member in connection herewith, the consummation of the transactions
contemplated hereby and thereby and the performance by the Member of his
obligations hereunder and thereunder.

 

(d) The execution and delivery by the Member of this Agreement and the other
agreements, documents and instruments to be executed and delivered by the Member
in connection herewith, the consummation by the Member of the transactions
contemplated hereby and thereby and the performance by the Member of his
obligations hereunder and thereunder do not and will not (i) violate or conflict
with any Law or any Order applicable to the Member, or (ii) result in the
creation or imposition of any Lien of any nature upon the Member’s Membership
Interests.

 

27

 

 

5.3 Litigation. There is no claim, action, suit or proceeding at law or in
equity by any Person, or any Proceeding pending, or, to the Knowledge of the
Member, threatened, against the Member affecting the Member’s Membership
Interests or the transactions contemplated hereby. The Member is not subject to
any Order that prohibits or restricts the consummation of the transactions
contemplated hereby or the ability of the Member to comply with the terms and
conditions hereof.

 

5.4 Broker’s and Finder’s Fees. The Member has not employed any broker or finder
or incurred any Liability for any financial advisory fees, commission or
finder’s fee and no broker or finder has acted, directly or indirectly, for the
Member in connection with this Agreement or the transaction contemplated by it.

 

Article 6
Representations and Warranties of the Purchaser

 

The Purchaser represents and warrants to the Member as follows:

 

6.1 Corporate Organization; Due Authorization; Execution and Enforceability;
Consents; No Conflict.

 

(a) The Purchaser is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware. The Purchaser has the
requisite corporate power and authority to execute and deliver this Agreement
and all agreements, documents and instruments to be executed and delivered by
the Purchaser in connection herewith, to consummate the transactions
contemplated hereby and thereby and to perform the Purchaser’s obligations
hereunder and thereunder. The execution, delivery and performance of this
Agreement, subject to its terms, have been duly and validly authorized by the
Purchaser.

 

(b) This Agreement and the other agreements, documents and instruments to be
executed by the Purchaser in connection herewith, and the consummation by the
Purchaser of the transactions contemplated hereby and thereby, have been duly
authorized, executed and delivered by the Purchaser, and constitute, and the
other agreements, documents and instruments contemplated hereby, when executed
and delivered by the Purchaser, will constitute, the legal, valid and binding
obligations of the Purchaser, enforceable against the Purchaser in accordance
with their respective terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency and other similar Laws affecting the
enforcement of creditor’s rights generally and general equity principles.

 

(c) No authorization, approval or consent of, or notice to or filing or
registration with, any Governmental Authority or any other Person is required in
connection with the execution and delivery by the Purchaser of this Agreement
and the other agreements, documents and instruments to be executed and delivered
by the Purchaser in connection herewith, the consummation of the transactions
contemplated hereby and thereby and the performance by the Purchaser of its
obligations hereunder and thereunder.

 

28

 

 

(d) The execution and delivery by the Purchaser of this Agreement and the other
agreements, documents and instruments to be executed and delivered by the
Purchaser in connection herewith, the consummation by the Purchaser of the
transactions contemplated hereby and thereby and the performance by the
Purchaser of its obligations hereunder and thereunder do not and will not (i)
conflict with or violate any of the terms of the Certificate of Incorporation or
By-laws of the Purchaser, (ii) violate or conflict with any Law or any Order
applicable to the Purchaser, or (iii) violate or conflict with the terms of, or
result in the acceleration of, any Liability of the Purchaser under, or violate
or conflict with or result in a breach of, or constitute a default under, any
material indenture, mortgage, deed of trust, contract, agreement or instrument
to which the Purchaser is a party or by which any of its assets or properties is
bound or affected.

 

6.2 Litigation. There is no claim, action, suit or proceeding at law or in
equity by any Person, or any Proceeding pending, or, to the knowledge of the
Purchaser, threatened, against the Purchaser affecting the transactions
contemplated hereby. The Purchaser is not subject to any Order that prohibits or
restricts the consummation of the transactions contemplated hereby or the
ability of the Purchaser to comply with the terms and conditions hereof.

 

6.3 Broker’s and Finder’s Fees. The Purchaser has not employed any broker or
finder or incurred any Liability for any financial advisory fees, commission or
finder’s fee and no broker or finder has acted, directly or indirectly, for the
Purchaser in connection with this Agreement or the transaction contemplated by
it.

 

6.4 Investment Representation. The Purchaser is not acquiring the Membership
Interests with a view to the sale or distribution thereof, other than in a sale
or distribution that is registered under the Securities Act of 1933, as amended,
or is exempt from such registration. Notwithstanding the foregoing, nothing
herein will be interpreted so as to prevent the Purchaser from reselling the
Membership Interests as long as it complies with all applicable Laws.

 

Article 7
Indemnification

 

7.1 Indemnification by the Member. Subject to the terms and conditions of
Sections 7.3, 7.4 and 7.5 hereof, from and after the Closing, the Member hereby
agrees to indemnify, defend and hold harmless the Purchaser and its Affiliates
(the “Purchaser Indemnitees”) from and against any Loss, whether or not
involving a Third Party Claim, that the Purchaser Indemnitees incur as a result
of, without duplication, (a) the breach of any of the representations and
warranties made by the Companies contained in Article 4 or made by the Member
contained in Article 5; (b) the failure of the Member to perform and comply with
any covenant, agreement or obligation hereunder to be performed by the Member,
when and as required by this Agreement to be performed or complied with; (c) the
failure of either Company to perform and comply with any covenant, agreement or
obligation hereunder to be performed on or prior to the Closing by such Company,
when and as required by this Agreement to be performed or complied with; (d) any
Taxes imposed on either Company for a Pre-Closing Tax Period; (e) any Debt of
the Companies existing as of the Closing, other than Debt identified on Schedule
4.6(b), and (f) any Liability of the Companies incurred on or prior to the
Closing Date by or on behalf of either Company or the Member to the extent not
included on the Statement of Working Capital.

 

29

 

 

7.2 Indemnification by the Purchaser. Subject to the terms and conditions of
Sections 7.3, 7.4 and 7.5 hereof, from and after the Closing, the Purchaser
hereby agrees to indemnify, defend and hold harmless the Member and his heirs
and assigns (each a “Member Indemnitee”) from and against any Loss, whether or
not involving a Third Party Claim, that the Member incurs as a result of,
without duplication, (a) the breach of any representation or warranty made by
the Purchaser in or pursuant to this Agreement; (b) the failure of the Purchaser
or either Company (after the Closing) to perform and comply with any of their
respective covenants, agreements or obligations hereunder, when and as required
by this Agreement to be performed or complied with; (c) any Taxes imposed on
either Company for a Post-Closing Tax Period; (d) any Debt of the Companies
identified on Schedule 4.6(b); and (e) any Liability of the Companies included
on the Statement of Working Capital or incurred after the Closing Date by or on
behalf of either Company.

 

7.3 Limits on Indemnification.

 

(a) Notwithstanding anything in this Agreement to the contrary, the Member will
not have any obligation to indemnify the Purchaser Indemnitees under Section
7.1(a) unless and until the Purchaser Indemnitees suffer an aggregate amount of
Losses by reason of such matters in excess of $10,000 (the “Basket”), and then
to the extent of such Losses from the first dollar of the aggregate of such
Losses without regard to the Basket; provided however, that the Basket will not
apply to Losses resulting from a breach of the representations and warranties
contained in Sections 4.1 (Company Organization), 4.2 (Capitalization), 4.3 (Due
Authorization; Execution and Enforceability; Consents; No Conflict), 4.4 (Equity
Interests), 4.13 (Title to Assets; Adequacy), 4.17 (Taxes) or 4.22 (Broker’s and
Finder’s Fees) (collectively, the “Fundamental Representations”) or any claim
related to, arising out of or based upon any fraud, willful breach or
intentional misrepresentation by either Company or the Member.

 

(b) Notwithstanding anything in this Agreement to the contrary, (i) the maximum
obligation of the Member to indemnify the Purchaser Indemnitees under Section
7.1(a) will not exceed $250,000 (the “Cap”). Notwithstanding the forgoing, the
Cap will not apply to Losses resulting from a breach of the Fundamental
Representations or any claim related to, arising out of or based upon any fraud,
willful breach or intentional misrepresentation by either Company or the Member;
provided, however, that the maximum obligation of the Member to indemnify the
Purchaser Indemnitees for all Losses resulting from a breach of the Fundamental
Representations will not exceed the amount of the Purchase Price. Subject to the
Cap, the Purchaser will have the right to offset any Losses against payments
that may become due to the Member under this Agreement.

 

(c) The Purchaser will have the right to hold back, retain and/or offset any
indemnifiable Losses, or any claims therefor, that any Purchaser Indemnitees may
have against any Earnout Payments due under Section 3.4.

 

(d) Notwithstanding anything in this Agreement to the contrary, for purposes of
the indemnification obligations under this Article 7, all of the representations
and warranties set forth in this Agreement, or any certificate or schedule that
are qualified as to “material,” “materiality,” “Material Adverse Effect” or
words of similar import or effect will be deemed to have been made without any
such qualification for the purposes of determining whether a breach or
misrepresentation has occurred and the amount of any Losses resulting from,
arising out of, or relating to any such breach or misrepresentation; provided,
however, that the Member shall not have any liability for Damages pursuant to
Section 7.1(a), unless and until the Damages relating to a claim or a series of
claims arising from the same or substantially similar facts or circumstances
(other than any claim for fraud, willful breach or intentional
misrepresentation) exceed $5,000.

 

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(e) A Purchaser Indemnitee’s right to indemnification and payment of Losses, or
other remedy based on such representations, warranties, covenants and
obligations, will not be affected by any investigation conducted with respect
to, or any knowledge acquired (or capable of being acquired) at any time,
whether before or after the execution and delivery of this Agreement or the
Closing Date, with respect to the accuracy or inaccuracy of or compliance with,
any such representation, warranty, covenant or obligation. The Parties recognize
and agree that the representations and warranties also operate as bargained for
promise and risk allocation devices and that, accordingly, the Purchaser’s
knowledge and the waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification or payment
of Losses pursuant to this Article 7, or other remedy based on such
representations, warranties, covenants and obligations

 

7.4 Indemnification Procedures.

 

(a) Third Party Claims.

 

(i) Notice. If any third party notifies any Indemnified Party of any matter that
may give rise to a claim by such Indemnified Party for indemnification pursuant
to Section 7.1 or Section 7.2 (a “Third Party Claim”) or if an Indemnified Party
otherwise has suffered or reasonably expects to suffer or incur a Loss, such
Indemnified Party must give the Indemnitor written notice of such Indemnified
Party’s claim for indemnification (a “Claim Notice”) promptly after the
Indemnified Party receives written notice of such Third Party Claim (it being
understood that any claim for indemnity related to a breach of a representation
or warranty must be made by notice given within the applicable survival period
specified in Section 7.5). Such notice must contain a reasonably detailed
description of the claim and the nature and amount of such Loss that has been
paid, incurred, sustained or accrued, or is reasonably expected to be paid,
incurred, sustained or accrued. The failure of any Indemnified Party to give
timely notice under this Section 7.4(a)(i) will not affect any rights to
indemnification hereunder except to the extent that the Indemnitor is prejudiced
by such failure; provided, however, that any claim for indemnity related to a
breach of a representation or warranty must be made by notice given within the
applicable survival period specified in Section 7.5.

 

(ii) Control of Defense; Settlement. An Indemnitor, at its option, may assume
control of the defense of any Third Party Claim within 15 days of receiving
notice of the Third Party Claim from the Indemnified Party and may appoint as
lead counsel of such defense legal counsel selected by the Indemnitor and
reasonably satisfactory to the Indemnified Party. In the event an Indemnitor
assumes control of the defense of a Third Party Claim, the Indemnified Party (A)
may participate in the defense of such claim and employ counsel of its choice
for such purpose; provided, however, that such employment will be at the
Indemnified Party’s own expense, and (B) will cooperate with the Indemnitor in
the defense of such Third Party Claim, at Indemnitor’s expense. If the
Indemnitor does not elect to assume the defense of such a Third Party Claim, the
Indemnified Party will have the sole right to assume the defense of and to
settle such Third Party Claim. If the Indemnitor assumes the defense of a Third
Party Claim, the Indemnitor will not consent to the entry of any judgment or
enter into any settlement with respect to any Third Party Claim without the
prior written consent of the Indemnified Party (such consent not to be withheld
unreasonably); except that the Indemnitor may enter into a settlement without
the consent of the Indemnified Party if the sole relief provided for in such
settlement is monetary damages that will be paid in full by the Indemnitor.

 

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(b) Other Claims. Any Indemnified Party may make a claim for indemnification
pursuant to Section 7.1 or Section 7.2 by providing a Claim Notice to the
Indemnitor (it being understood that any claim for indemnity related to a breach
of a representation or warranty must be made by notice given within the
applicable survival period specified in Section 7.5). Such notice must contain a
reasonably detailed description of the claim and the nature and amount of such
Loss that has been paid, incurred, sustained or accrued, or is reasonably
expected to be paid, incurred, sustained or accrued.

 

7.5 Survival of Representations, Warranties and Covenants. All representations,
warranties and covenants contained in this Agreement will survive the
consummation of the transactions contemplated by this Agreement and continue in
full force and effect until December 31, 2020, except that the representations
and warranties contained in (a) Sections 4.1 (Company Organization), 4.2
(Capitalization), 4.3 (Due Authorization; Execution and Enforceability;
Consents; No Conflict), 4.4 (Equity Interests), 4.13 (Title to Assets;
Adequacy), 4.22 (Broker’s and Finder’s Fees), Article 5 and Article 6 will
survive indefinitely and (b) Section 4.17 (Taxes) will survive until 60 days
following the expiration of the applicable statute of limitations. All of the
covenants and agreements of the Parties set forth in this Agreement will survive
the Closing.

 

7.6 Exclusive Remedy. Except with respect to claims related to, arising out of
or based upon fraud, willful breach or intentional misrepresentation or the
availability of equitable remedies, as provided in Section 9.14, each of the
Parties hereto acknowledges and agrees that from and after the Closing, the
foregoing indemnification provisions in this Article 7 will be the exclusive
remedy of the Purchaser Indemnitees and Member Indemnitees arising under this
Agreement (except for disputes under Section 3.3 or Section 3.4, which disputes
will be resolved in accordance with the dispute resolution mechanism set forth
in those Sections, and Tax Matters as provided in Section 8.4(g)).

 

7.7 Disputes Regarding Indemnification. If the Purchaser and the Member are
unable to resolve any dispute regarding this Article 7 within 30 days after the
Purchaser notifies the Member or the Member notifies the Purchaser, as
applicable, of such dispute in writing, then either of such Parties may submit
such dispute to arbitration in accordance with this Section 7.7. The arbitration
of such dispute shall be held in Las Vegas, Nevada, or through electronic means,
and the arbitrator shall be a Person reasonably acceptable to both the Purchaser
and the Member. The arbitration shall be held in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The prevailing party
in such arbitration will be entitled to be reimbursed for reasonable fees and
costs incurred by that party with respect to such arbitration. The determination
and decision of the arbitrator shall be final, non-appealable and binding upon
the Purchaser and the Member.

 

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Article 8
Covenants and Agreements

 

8.1 Further Assurances. After the Closing, each Party to this Agreement will, at
the request of the other, furnish, execute and deliver documents, instruments,
certificates, notices of other further assurances as the requesting Party may
reasonably request as necessary or desirable to effect complete consummation of
this Agreement and the transactions contemplated hereby. Without limiting the
foregoing, the Purchaser shall provide the Member reasonable access to the
business records of the Companies, and to any employees of the Companies hired
by the Purchaser or any of its Affiliates, as is reasonably necessary to perform
any obligation or defend any Third Party Claim for which the Member is
responsible hereunder.

 

8.2 Confidentiality. The Member will treat and hold as such all of the
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement or the Member’s employment under the
Employment Agreement. In the event that the Member is requested or required (by
oral question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, the Member will notify the Purchaser
promptly of the request or requirement so that the Purchaser may seek an
appropriate protective order or waive compliance with the provisions of this
Section 8.2. If such protective order is not obtained, or if and to the extent
Purchaser waives such prohibition, the Member may make such disclosure that, in
the reasonable opinion of the Member’s counsel is legally required to be
disclosed. Notwithstanding anything herein to the contrary, each Party to this
Agreement (and each employee, representative, and other agent of such Party) may
disclose to any and all Persons, without limitation, this Agreement and the
transactions contemplated hereby for Tax reporting, legal advice and other
similar purposes. There shall be no public announcements of this Agreement or
the transactions contemplated hereby without written consent of both the
Purchaser and the Member, unless such public announcement or disclosure is
required by applicable Law (including the regulations of any applicable stock
exchange or other self-regulatory organization).

 

8.3 Restrictive Covenants.

 

(a) Non-Competition. For a period of three years from the Closing Date, the
Member will not, directly or indirectly, anywhere in the United States (a)
engage in any business or activity that competes with the Business, or (b)
invest in, own, manage, operate, finance, control, advise, render services to or
guarantee the obligations of any Person (other than the Purchaser) engaged in or
planning to become engaged in any business or activity that competes with the
Business; provided, however, that the Member may purchase or otherwise acquire
up to (but not more than) 2.5% of any class of the securities of any Person (but
may not otherwise participate in the activities of such Person) if such
securities are listed on any national or regional securities exchange or have
been registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended.

 

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(b) Non-Solicitation and Non-Hire. For a period of five years from the Closing
Date, the Member will not, directly or indirectly:

 

(i) solicit the business of any Person who is a customer of either Company, the
Purchaser or its Affiliates with respect to the Business;

 

(ii) cause, induce or attempt to cause or induce any customer, supplier,
licensee, licensor, franchisee, employee, consultant or other business relation
of either Company, the Purchaser or its Affiliates to cease doing business with
such parties, to deal with any competitor of either Company, the Purchaser or
its Affiliates, or in any way interfere with its relationship with such parties;

 

(iii) cause, induce or attempt to cause or induce any customer, supplier,
licensee, licensor, franchisee, employee, consultant or other business relation
of either Company on the Closing Date or within the year preceding the Closing
Date to cease doing business with either Company, the Purchaser or its
Affiliates, to deal with any competitor of either Company, the Purchaser or its
Affiliates, or in any way interfere with its relationship with such parties with
respect to the Business; or

 

(iv) hire, retain or attempt to hire or retain any employee or independent
contractor of either Company, the Purchaser or its Affiliates (including any
former employee or independent contractor if such Person was an employee or
independent contractor of either Company, the Purchaser or any of its Affiliates
within the 12-month period prior to such hiring, retention or attempt to hire or
retain) or in any way interfere with the relationship between either Company,
the Purchaser or any of its Affiliates and any of their respective employees or
independent contractors.

 

(c) Tolling. If the Member violates any provisions or covenants of this Section
8.3, the duration of the restrictions in this Section 8.3 will be extended for a
period of time equal to that period beginning when such violation commenced and
ending when the activities constituting such violation terminated, and, in the
event the Purchaser seeks relief from such violation before any court, board or
other tribunal, then the duration of restrictions in this Section 8.3 will be
extended for a period of time equal to the pendency of such proceedings,
including all appeals.

 

(d) Modification of Covenant. If a final judgment of a court or tribunal of
competent jurisdiction determines that any term or provision contained in this
Section 8.3 is invalid or unenforceable, then the Parties agree that the court
or tribunal will have the power to reduce the scope, duration or geographic area
of the term or provision, to delete specific words or phrases or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision. This Section 8.3 will be enforceable
as so modified after the expiration of the time within which the judgment may be
appealed. The Member acknowledges that this Section 8.3 is reasonable and
necessary to protect and preserve the Purchaser’s and its Affiliates’ legitimate
business interests.

 

34

 

 

(e) Enforcement of Covenant. The Parties agree that the remedy of damages at law
for the breach of any of the covenants contained in this Section 8.3 is an
inadequate remedy and that the Member will not challenge the enforceability or
reasonableness of the covenants set forth in this Section 8.3. In recognition of
the irreparable harm that a violation by the Member of any of the covenants,
agreements or obligations arising under this Section 8.3 would cause the
Purchaser or its Affiliates, the Member agrees that in addition to any other
remedies or relief afforded by law, an injunction against an actual or
threatened violation or violations may be issued against the Member without
posting a bond or other security. In the event of an action to enforce the
covenants in this Section 8.3, the Purchaser will be entitled to be reimbursed
for attorney’s fees incurred by the Purchaser with respect to such action. The
Member acknowledges and expressly consents to the governing law and exclusive
jurisdiction provisions set forth in Sections 9.2 and 9.3 with respect to this
Section 8.3.

 

8.4 Post-Closing Actions Concerning Taxes.

 

(a) Pre-Closing Income Tax Returns. The Member will prepare or cause to be
prepared and file or cause to be filed (taking into account all applicable
extensions) with the applicable Governmental Authorities any Income Tax Returns
required to be filed by or with respect to the Companies for taxable years
ending on or before the Closing Date. Such Income Tax Returns will be prepared
in a manner consistent with each Company’s past practice. Notwithstanding
anything in this Agreement to the contrary, the Parties agree that the Member
will be entitled to claim all permitted Tax deductions related to the payment of
all amounts payable by or on behalf of either Company in connection with the
consummation of the transactions contemplated by this Agreement, including,
without limitation, the Debt of the Companies as of the Closing Date, and
neither the Purchaser nor the Companies (or any of their Affiliates) will claim
such deductions for a Post-Closing Tax Period unless otherwise required by Law.
The Purchaser must be provided Income Tax Returns for taxable years ending on or
before the Closing Date 30 days prior to the due date for such Income Tax
Return, in order for the Purchaser to review and approve such Income Tax Return
prior to filing. Approval by the Purchaser will not be unreasonably withheld.
The Member will be responsible for any costs to prepare and file the Income Tax
Returns.

 

(b) Other Tax Returns. Except for the Tax Returns prepared by the Member
pursuant to Section 8.4(a), each Company will file or cause to be filed when due
all Tax Returns that are required to be filed by or with respect to such Company
after the Closing Date.

 

(c) Apportionment of Taxes. All Taxes and Tax Liabilities with respect to the
Companies that relate to a Straddle Period will be apportioned between the
Pre-Closing Tax Period and the Post-Closing Tax Period as follows: (i) in the
case of Taxes that are either (A) based upon or measured by reference to income,
receipts, profits, capital or net worth (including sales and use Taxes), (B)
imposed in connection with any sale or other transfer or assignment of property
(real or personal, tangible or intangible), or (C) required to be withheld, such
Taxes will be deemed equal to the amount that would be payable if the Tax year
ended at the end of the day on the Closing Date; and (ii) in the case of Taxes
imposed on a periodic basis with respect to the Companies other than those
described in clause (i), such Taxes will be deemed to be the amount of such
Taxes for the entire period (or, in the case of such Taxes determined on an
arrears basis, the amount of such Taxes for the immediately preceding period),
multiplied by a fraction, the numerator of which is the number of calendar days
in the period ending on the Closing Date and the denominator of which is the
number of calendar days in the entire period.

 

35

 

 

(d) Refunds. Any refunds or credits of Taxes of the Companies arising after the
Closing Date that are attributable to the Pre-Closing Tax Period will be for the
account of the Member, and the Purchaser will pay to the Member any such refund
or credit within 10 days after the receipt thereof or entitlement thereto, as
applicable.

 

(e) Amendments. Neither the Purchaser, either Company nor any of their
Affiliates will, unless required by Law, (i) amend, refile, revoke or otherwise
modify any Tax Return or Tax election of either Company relating to a
Pre-Closing Tax Period, (ii) make any Tax election that has retroactive effect
with respect to any Tax Return for a Pre-Closing Tax Period, or (iii) take any
action to extend the applicable statute of limitations with respect to any Tax
Return of either Company, in each such case without the prior written consent of
the Member.

 

(f) Tax Audits. Notwithstanding Section 7.4, this Section 8.4(f) will control
any inquiries, assessments, proceedings or similar events with respect to Taxes
of the Companies (a “Tax Contest”) for the Pre-Closing Tax Period. The Purchaser
will promptly notify the Member (i) upon receipt by the Purchaser, either
Company or any of their Affiliates of any notice of any Tax Matter from any
Governmental Authority or (ii) prior to the Purchaser or either Company
initiating any Tax Matter with any Governmental Authority. The Member may, at
the Member’s sole expense, participate in and, upon written notice to the
Purchaser, assume the defense of any such Tax Matter. If the Member assumes such
defense, the Member will have the authority, with respect to any Tax Matter, to
represent the interests of the applicable Company before the relevant
Governmental Authority and the Member will have the right to control the
defense, compromise or other resolution of any such Tax Matter, including
responding to inquiries, and contesting, defending against and resolving any
assessment for additional Taxes or notice of Tax deficiency or other adjustment
of Taxes of, or relating to, such Tax Matter; provided, however, that the Member
will not settle or resolve any Tax Contest if such settlement or resolution has
any adverse impact on the Purchaser or either Company for any Post-Closing Tax
Period without the Purchaser’s written consent. The Purchaser will cause the
applicable Company to execute any powers of attorney necessary to allow the
Member to represent the interest of such Company in any such Tax Matter. The
Member will keep the Purchaser informed with respect to the commencement, status
and nature of any such Tax Matter, and will, in good faith, allow the Purchaser
to consult with it regarding the conduct of or positions taken in any such
proceeding. If the Member does not elect to assume the defense of a Tax Contest
relating to a Tax Matter for a Pre-Closing Tax Period, the Purchaser and the
applicable Company will have the right to assume the defense of, and resolve and
settle, such Tax Contest, provided that the Member will indemnify and promptly
reimburse the Purchaser and the applicable Company for the reasonable cost of
such defense.

 

36

 

 

(g) Certain Taxes. Notwithstanding the foregoing, all transfer, sale, use,
stamp, conveyance, value added, recording, registration, documentary, filing and
other non-income Taxes and administrative and filing fees arising in connection
with the transfer of the Membership Interests to the Purchaser will be the
responsibility of the Company.

 

(h) Indemnification Payments. For all relevant Tax purposes, the Parties agree
to treat any indemnification payments made under this Agreement as adjustments
to the Purchase Price unless otherwise required by Law.

 

(i) Cooperation on Tax Matters. The Purchaser and the Member will cooperate, and
will cause their respective Affiliates (including the Companies), officers,
employees, agents, auditors and representatives reasonably to cooperate, with
each other in preparing and filing all Tax Returns, resolving all disputes
relating to Taxes, and handling all proceedings, examinations, and audits
relating to Tax matters, including maintaining and making available all records
necessary in connection with Tax-related matters and making employees available
on a mutually convenient basis to provide any information and to assist in
connection with the foregoing. The Purchaser will, and will cause the Companies
to, retain and not destroy or dispose of all Tax Returns (including supporting
materials), books and records (including computer files) of, or with respect to
the activities or Taxes of, the Companies for all Pre-Closing Tax Periods. The
Purchaser will not, nor will the Purchaser permit the Companies to, destroy or
dispose of any such Tax Returns, books or records unless it first offers such
Tax Returns, books or records to the Member in writing and the Member fails to
accept such offer within 60 days of it being made.

 

8.5 Post-Closing Actions Concerning Employees and Employee Benefits.

 

(a) Credited Service. The Purchaser will cause each employee benefit plan or
program or service-based policy of Purchaser or its Affiliate in which employees
who continue to be employed by either Company, the Purchaser or its Affiliates
after the Closing are eligible to participate to take into account, for purposes
of eligibility, vesting and levels of benefits thereunder, the pre-Closing
service of such employees as if such service were with the Purchaser or its
Affiliates to the same extent that such service was recognized by the Companies
immediately prior to the Closing; provided that such credit does not result in
duplication of benefits. Prior service will be credited for benefit programs
such as vacation, vesting in retirement plans and other services related
programs but will not be credited for determining benefits under the Purchaser’s
pension plans.

 

(b) Successor Medical Plan. In addition, if either Company or its employees
commence participation in a medical plan sponsored by the Purchaser or any of
its Affiliates (a “Successor Medical Plan”), the Purchaser will (i) waive any
pre-existing condition exclusions, actively-at-work requirements, or waiting
periods that are applicable to any employee who continues to be employed by the
Purchaser or its Affiliates after the Closing or their dependents or
beneficiaries, and (ii) for the plan year in which participation in a Successor
Medical Plan commences, provide full credit for all payments made for healthcare
expenses for purposes of deductibles and out-of-pocket limits.

 

37

 

 

(c) COBRA. Effective from and after the Closing Date, the Purchaser will be
solely responsible for providing continuation benefits or coverage for any
participant or any beneficiary or a participant who is or becomes a qualified
beneficiary prior to, on or after the Closing Date under any Employee Benefit
Plan of the Companies that as of the Closing Date is subject to COBRA or
mandated by other applicable Laws, including state Law, whether such obligation
to provide continuation benefits or coverage under any such Employee Benefit
Plan of the Companies arises prior to, on or after the Closing Date.

 

8.6 Company Corporate Actions. All intercompany obligations between and among
the Companies will be eliminated prior to the Closing Date (and any Taxes due in
connection therewith will be the responsibility of the Member).

 

8.7 Investment. The Purchaser and the Member understand that future growth
depends on increasing sales and improving the supply chain, which can include
expanding manufacturing capacity and minimizing the dependency on third party
manufacturers where rational. The Purchaser will reimburse the Member for
$51,000 of the cost of the Newly Purchased Capital Equipment within 30 days
following the Closing Date. In addition, the Purchaser and the Member will
jointly review investment projects determined to have the potential to stimulate
future growth and the Purchaser will invest in projects deemed to have a
positive return on investment, with an estimated aggregate cost of $200,000.
Examples of these possible investment projects include: (a) in the near term,
the Companies will look to expand laboratory and warehouse facilities and to
bring the carbon block system on-line; and (b) the potential investment in
developing a proprietary filter manifold platform.

 

Article 9
Miscellaneous

 

9.1 Costs and Expenses. Except to the extent paid by the Companies prior to the
Closing or as expressly set forth in this Agreement, the Member will pay all
expenses incurred on his or either Company’s behalf in connection with the
transactions contemplated by this Agreement, including, without limitation all
fees and expenses of their counsel and financial advisors, and the Purchaser
will pay all of its expenses relating to the transactions contemplated by this
Agreement, including, without limitation the fees and expenses of its counsel
and financial advisors.

 

9.2 Governing Law. This Agreement will be governed by and construed in
accordance with the internal laws of the State of Delaware, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws. The Parties expressly waive any right they may have, now or in the future,
to demand or seek the application of a governing law other than the laws of the
State of Delaware.

 

9.3 Jurisdiction. The Parties expressly agree than any Proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with this Agreement or the transactions contemplated hereby may be brought only
in a United States District Court or any state court located in Delaware, so
long as one of such courts will have subject matter jurisdiction over such
Proceeding, and that any cause of action arising out of this Agreement will be
deemed to have arisen from a transaction of business in the State of Delaware,
and each of the Parties hereby irrevocably consents to the jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any such
Proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection that it may now or hereafter have to the laying of venue of any such
Proceeding in any such court or that any such Proceeding brought in any such
court has been brought in an inconvenient forum. Process in any such Proceeding
may be served on any Party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each Party
agrees that service of process on such Party as provided in Section 9.6 will be
deemed effective service of process on such Party.

 

38

 

 

9.4 Waiver of Jury Trial. EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT ANY
PROCEEDING (IN CONTRACT, IN TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY, ANY RELATIONSHIPS AMONG
THE PARTIES HEREUNDER AND ANY DISPUTES WITH RESPECT TO ANY OF THE FOREGOING IS
LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH OF THE
PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

9.5 Interpretation. The Article and Section captions used herein are for
reference purposes only, and do not in any way affect the meaning or
interpretation of this Agreement. Unless expressly stated to be contrary, any
reference herein to an Exhibit or Schedule will refer to an Exhibit or Schedule
attached hereto, and any reference herein to a Section or Article will refer to
a Section or Article hereof.

 

9.6 Notices. Any notice or other communications required or permitted hereunder
will be in writing and: (a) delivered in person; (b) sent by reputable overnight
courier or delivery; (c) sent by facsimile or email transmission; or (d) mailed
by registered or certified mail, postage prepaid, addressed as follows (or to
such other address for a Party as will be specified by like notice; provided
that notice of change of address will be effective only upon receipt thereof):

 

  If to the Purchaser: Nephros, Inc.     380 Lackawanna Place     South Orange,
New Jersey 07079     Attention: Daron Evans     Email: daron@nephros.com

 

  with a copy (which will not constitute notice) to: Fredrikson & Byron, P.A.  
  200 South Sixth Street, Suite 4000     Minneapolis, Minnesota 55402    
Attention: Christopher J. Melsha       Amanda K. Lorentz     Email:
cmelsha@fredlaw.com       alorentz@fredlaw.com     Fax: (612) 492-7077

 

39

 

 

  If to the Member: Gregory Lucas     591 East Sunset Road     Henderson, Nevada
89011     Email: greg@biocon1.com

 

  with a copy (which will not constitute notice) to: Sklar Williams PLLC     410
South Rampart Boulevard, Suite 350     Las Vegas, Nevada 89145     Attention:
Mark McIntire     Email: mmcintire@sklar-law.com     Fax: (702) 360-0000

 

All such notices and other communications will be deemed effective: (i) if by
personal delivery, upon receipt; (ii) if by overnight courier or delivery, on
the first Business Day after the date of mailing; (iii) if by facsimile or email
transmission, immediately upon sending, provided notice is sent on a Business
Day before 6:00 p.m., recipient’s time, but if not then upon the following
Business Day; and (iv) if by certified or registered mail, on the fifth Business
Day after the date of the mailing thereof.

 

9.7 Assignment; Parties in Interest. Except as permitted in this Section 9.7,
neither this Agreement nor any of the rights of the Parties hereunder may be
transferred, assigned or pledged by any Party hereto, in whole or in part, and
any attempted assignment prohibited hereunder will be void. The Purchaser may,
without the consent of either Company or the Member, assign, by operation of law
or otherwise, all or any part of its rights under this Agreement to any
Affiliate; provided, however, no such assignment will relieve the Purchaser of
its obligations hereunder. This Agreement will be binding upon and will inure to
the benefit of the Parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.

 

9.8 Counterparts; Electronic and Facsimile Signatures. This Agreement may be
executed in any number of counterparts, each of which when executed and
delivered will be an original, but all such counterparts will constitute one and
the same instrument. The exchange of executed copies of this Agreement by
facsimile, email (including .pdf or any electronic signature complying with the
U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmissions
will constitute effective execution and delivery of this Agreement.

 

9.9 Entire Agreement. This Agreement, together with the Schedules attached
hereto, which are hereby incorporated herein by this reference, contains the
entire understanding of the Parties hereto with respect to the subject matter
contained herein. This Agreement supersedes all prior agreements and
understandings between the Parties with respect to such subject matter,
including that certain Letter Agreement, dated November 20, 2018. In that this
Agreement was prepared as a result of negotiation and mutual agreement between
the Parties hereto, neither this Agreement nor any provision hereof will be
construed against either Party hereto as the Party that prepared this Agreement
or any such provision.

 

40

 

 

9.10 Schedules. The Schedules attached hereto, together with all documents and
instruments incorporated by reference therein, form an integral part of this
Agreement and are hereby incorporated into this Agreement wherever reference is
made to them, to the same extent as if they were set out in full at the point at
which such reference is made. Notwithstanding anything to the contrary contained
herein, no information disclosed on any Schedule will be, unless reasonably
apparent on the face of such Schedule, deemed to be disclosed on any other
Schedule.

 

9.11 Amendments; Waivers. No amendment, modification or discharge of this
Agreement, and no waiver hereunder, will be valid or binding unless set forth in
writing and duly executed by the Party against whom enforcement of the
amendment, modification, discharge or waiver is sought. Any such waiver will
constitute a waiver only with respect to the specific matter described in such
writing and will in no way impair the rights of the Party granting such waiver
in any other respect or at any other time. Neither the waiver by any of the
Parties hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the Parties, on one or more occasions, to
enforce any of the provisions of this Agreement or to exercise any right or
privilege hereunder, will be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights or
privileges hereunder.

 

9.12 Third Party Beneficiaries. Each Party hereto intends that this Agreement
will not benefit or create any right or cause of action in or on behalf of any
Person other than the Parties hereto.

 

9.13 Severability. Any provision, or clause thereof, of this Agreement that will
be found to be contrary to applicable Law or otherwise unenforceable will not
affect the remaining terms of this Agreement, which will be construed as if the
unenforceable provision, or clause thereof, were absent from this Agreement.

 

9.14 Specific Performance. Each of the Parties will have and retain all rights
to specific performance and injunctive or other equitable relief, arising out of
or relating to a breach or threatened breach of this Agreement. Without limiting
the generality of the foregoing, each of the Parties acknowledges that money
damages would not be a sufficient remedy for any breach or threatened breach of
this Agreement and that irreparable harm would result if this Agreement were not
specifically enforced. Therefore, the rights and obligations of the Parties will
be enforceable by a decree of specific performance issued by any court of
competent jurisdiction, and appropriate injunctive relief will be granted in
connection therewith, without the necessity of posting a bond or other security
or proving irrevocable harm and without regard to the adequacy of any remedy at
law. Each of the Parties agrees that it will not oppose the granting of an
injunction, specific performance and other equitable relief when available
pursuant to the terms of this Agreement on the basis that the other Parties have
an adequate remedy at law or an award of specific performance is not an
appropriate remedy for any reason at law or equity.

 

(Signatures appear on following page)

 

41

 

 

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

 

PURCHASER: NEPHROS, INC.       By: /s/ Daron Evans   Name: Daron Evans   Its:
Chief Executive Officer       COMPANIES: BIOCON 1, LLC       By: /s/ Gregory
Lucas   Name: Gregory Lucas   Its: Manager         AETHER WATER SYSTEMS, LLC    
    By: /s/ Gregory Lucas   Name: Gregory Lucas   Its: Manager       MEMBER: /s/
Gregory Lucas   Gregory Lucas

 

 

 

 

SCHEDULE 3.4

 

EARNOUT

 

Schedule 3.4(d)

 

  Actual Quarterly Net Revenue Ranges for 2019 Net Revenue Range [*******]*
[*******]* [*******]* [*******]* [*******]* Earn-Out Payment Multiplier
[*******]* [*******]* [*******]* [*******]* [*******]* Payment [*******]*
[*******]* [*******]* [*******]* [*******]* Net Revenue Range [*******]*
[*******]* [*******]* [*******]* [*******]* Earn-Out Payment Multiplier
[*******]* [*******]* [*******]* [*******]* [*******]* Payment [*******]*
[*******]* [*******]* [*******]* [*******]*

 

  Actual Quarterly Net Revenue Ranges for 2020 Net Revenue Range [*******]*
[*******]* [*******]* [*******]* [*******]* Earn-Out Payment Multiplier
[*******]* [*******]* [*******]* [*******]* [*******]* Payment [*******]*
[*******]* [*******]* [*******]* [*******]* Net Revenue Range [*******]*
[*******]* [*******]* [*******]* [*******]* Earn-Out Payment Multiplier
[*******]* [*******]* [*******]* [*******]* [*******]* Payment [*******]*
[*******]* [*******]* [*******]* [*******]*

 

* Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.

 

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