Document:

Exhibit 10.4

		 
	GRANT SHERMAN
	 

 

APPRAISAL
REPORT B24814

 

 

 

VALUATION
OF

 

INTELLECTUAL
PROPERTY RIGHTS

 

MOXIAN
INTELLECTUAL PROPERTY LIMITED

 

15 NOVEMBER 2014

 

 

    	 

    	 

    

 

GRANT
SHERMAN

 

TABLE
OF CONTENTS

 

	APPRAISAL SUMMARY LETTER	 	 	1	 
	 	 	 	 	 
	INTRODUCTION	 	 	2	 
	 	 	 	 	 
	THE COMPANY	 	 	2	 
	 	 	 	 	 
	MOXIAN	 	 	2	 
	 	 	 	 	 
	THE IP RIGHTS	 	 	3	 
	 	 	 	 	 
	INDUSTRY OVERVIEW	 	 	4	 
	 	 	 	 	 
	BASIS OF VALUATION AND ASSUMPTIONS	 	 	6	 
	 	 	 	 	 
	VALUATION METHODOLOGY	 	 	8	 
	 	 	 	 	 
	THE IP RIGHTS	 	 	8	 
	DISCOUNT
    RATE DEVELOPMENT	 	 	9	 
	Small Capitalization Risk Premium	 	 	9	 
	Specific Risk Premium	 	 	10	 
	Intangible Asset Risk Premium	 	 	10	 
	 	 	 	 	 
	CONCLUSION	 	 	11	 
	 	 	 	 	 
	CERTIFICATION	 	 	 	 
	 	 	 	 	 
	NORMAL SERVICE CONDITIONS	 	 	 	 

 

    	 

    	 

    

 

		 
	GRANT SHERMAN
	 

 

	 	3 December 2014	Our Ref.: B24814

 

Inception
Technology Group Inc

Unit
No. 304

New
East Ocean Centre

No.
9 Science Museum Road

T.S.T., Hong Kong

 

Attn.:
Mr. Liew Kwong Yeow

 

Dear Sirs/Madams,

 

In
accordance with your instructions, we have performed an appraisal of the fair value of a bundle of intellectual property rights
(the "IP Rights") owned by Moxian Intellectual Property Limited (the "Target") which is a wholly owned subsidiary
of Inception Technology Group Inc. (the "Company"), formerly known as Moxian Group Holdings Inc. The IP Rights are the
principal assets of the Target and include seven registered trademarks, patented technologies, copyright of the Company's mascot
"Moya" and domain name of littp://moxian.comr.

 

This
letter identifies the property appraised, describes the basis of valuation and assumptions, explains the valuation methodology
utilized, and presents our conclusion of value.

 

Fair
value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.

 

The
purpose of this appraisal is to express an independent opinion of the fair value of the IP Rights as at 15 November 2014 (the
"Appraisal Date"). It is our understanding that this appraisal will be used by the Company for accounting purposes only.

 

 

    	 

    	 

    

 

GRANT
SHERMAN

 

Our
Ref.: B24814

 

INTRODUCTION

The Company

 

The
Company was incorporated in the State of Florida on 13 September 2011 with former name as Moxian Group Holdings, Inc. On 9 July
2014, the Company changed its corporate name to Inception Technolgy Group, Inc. It is a Hong Kong based company and is principally
engaged in operating multi-channel social media platform and providing tailor-made online marketing services to assist clients
in reaching and connecting to platform users.

 

On
19 February 2014, the Company entered into a license and acquisition agreement (the "Agreement") with Moxian China,
Inc. (the "MOXC") to sell and transfer 100% of the equity interests of the Target to Moxian CN Group Limited, a wholly-owned
subsidiary of MOXC. The Company has licensed the exclusive right to MOXC to use the IP Rights on Moxian (the -Moxian"),
a social commerce platform, in the PRC, Hong Kong, Taiwan, Malaysia and other countries in which the IP Rights cover.

 

The
Company in turn received USD I million as part of the Agreement and will receive USD 1 million as license maintenance royalty
each year commencing from 2015 and 3% as earned royalty from the gross profit for distribution and sale of products and services
of MOXC. The Company sold its Moxian platform as it plans to enter into a new industry while maintaining a stream of income from
its prior business.

 

Moxian

 

Moxian
is a multi-channel social commerce platform created by the Company, integrating social media features with entertainment and businesses
into one single platform. While other major social network platforms usually focus on personal photo and video sharing, Moxian
creates value and space for merchants to connect with millions of Moxian users that can accelerate business growth by promotion
webpages, local event programs, location-based promotion information and mobile chat applications. It significantly facilitates
an easy way for consumers and businesses to connect and interact with one another. It mainly operates in Malaysia and in the PRC,
in which other social network platforms like Facebook are not prominent, it then can secure its market share and maintain
users' loyalty with higher possibility.

 

    	2

    	 

    

 

GRANT
SHERMAN

 

Our
Ref.: B24814

 

The
IP Rights

 

The
Company owns and controls the IP Rights through the Target, a new wholly-owned subsidiary incorporated under the laws of Samoa.
The IP Rights do not have a finite useful life and the registration of the IP Rights can be renewed with insignificant costs.

 

A
summary of IP Rights is listed as follows:

Trademarks

 

	Type	Marks	Application No.	Country	Status
	Trademark		85931344	United States of America	Pending
	Trademark		302534274	Hong Kong	Approved
	Trademark		13460714	China	Pending
	Trademark		13460852	China	Pending
	Trademark		10624504	China	Pending transfer

to Moxian

Technologies

Shenzhen Co. Ltd
	Trademark	☐ ☐	13461178	China	Pending
	Trademark		10624435	China	Pending
transfer

to Moxian

Technologies

Shenzhen CO. Ltd

 

Patent

 

The
application to patent the technologies of the Moxian platform has been submitted in the PRC on 27 December 2013.

 

Copyright

 

The
Company also submitted the application of copyright for its mascot, "Moya". Moya is a mascot representing Moxian.

 

Domain
Name

 

The
Company granted MOXC the license to use its domain: http://moxian.com/.

 

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GRANT
SHERMAN

 

Our
Ref.: B24814

 

INDUSTRY
OVERVIEW Global Ecommerce Market

 

The
global market for e-commerce is large and growing, offering enormous growth potential for this promising industry. Increased interne
penetration and usage, improved payment options and gateways, and proliferation of smartphones continue to drive this dynamic
market. Additionally, social networking platforms such as Facebook, Twitter, Orkut, and Google Plus have opened a new channel
for online retailers to promote and raise awareness for their products. Social commerce platform with unique features that
combines e-commerce with social media is at a distinct advantage over conventional e-tailers that rely on social media for promoting
their products in the distant future.

 

Global
business-to-consumer (B2C) e-commerce sales are forecasted to register a robust 20% growth in 2014 to USD 1.5 trillion, driven
by growth in emerging markets, according to a latest report from market research firm eMarketer. The PRC leads the emerging market
growth at 64% for 2014, twice that of 31.5% of India and way ahead of other emerging markets such as 19% of Brazil and 17% of
Russia. eMarketer notes that the PRC will take in more than six of every 10 dollars spent on ecommerce in the Asia-Pacific for
2014 and nearly three quarters of regional spending by 2017. Currently the PRC is only second to the United States, but by 2016,
the country will overtake the United States in ecommerce spending.

 

According
to McKinsey & Company, in 2012, the e-tail market in The PRC was around USD 210 billion or nearly 5-6% of total retail sales
in 2012. McKinsey forecasts there is annual growth rate of 15-20% through 2020 generating USD 420 billion in e-tailing.

 

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GRANT
SHERMAN

 

Our
Ref.: B24814

 

 

 

 

 

    	5

    	 

    

 

GRANT
SHERMAN

 

Our
Ref.: B24814

 

BASIS
OF VALUATION AND ASSUMPTIONS

 

We
have appraised the IP Rights on the basis of fair value. Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

Our
investigation included discussions with the management of the Company (the "Management") concerning the history and
nature of the business, operations and prospects of the Target and a review of the financial projections (the "Projections"),
unaudited management accounts as well as other records and documents furnished by the Management. The historical data has been
utilized without further verification as correctly representing the results of the operations and the financial condition of the
enterprise. In addition, a study of market conditions and an analysis of published information concerning the industry were used
to evaluate the Target's past performances and to assess its ability and capacity to generate future investment returns. Before
arriving at our opinion of values, we have considered some principal factors that include, but are not limited to, the following:

 

		●	Nature
                                         of the business and the history of the Target from its inception;
	 	 	 
		●	Economic
                                         outlook in general and the condition and outlook of the specific industry in particular;
	 	 	 
		●	The
                                         earning capacity of the Target and the IP Rights;
	 	 	 
		●	The
                                         past operating results of the Target;
	 	 	 
		●	The
                                         business and financial risks of the Target;
	 	 	 
		●	The
                                         Management's policies and strategies for the future;
	 	 	 
		●	The
                                         reputation of the IP Rights, including the Management;
	 	 	 
		●	The
                                         extent, condition, utility and capacity of the facilities and equipment utilized by the
                                         business;
	 	 	 
		●	The
                                         potential of the markets served;

 

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GRANT
SHERMAN

 

Our
Ref.: B24814

 

		●	Investment
                                         market's attitude toward securities with similar characteristics, as measured by market
                                         performance, and alternative investment opportunities available to an investor; and
	 	 	 
		●	The
                                         Projections.

 

Due
to the changing environment in which the Target and the IP Rights are operating, a number of assumptions have to be established
in order to sufficiently support our concluded value. The major assumptions adopted in this appraisal are:

 

		●	There
                                         will be no material changes in the existing political, legal, fiscal and economic conditions
                                         in the PRC in which the Target carries on its business;
	 	 	 
		●	Interest
                                         rates will not differ materially from those presently prevailing;
	 	 	 
		●	There
                                         will be no material changes in the current taxation law in the PRC and the rates of tax
                                         payable will remain unchanged and that all applicable laws and regulations will be complied
                                         with;
	 	 	 
		●	The
                                         Projections have been prepared on a reasonable and going concern basis, reflecting estimates
                                         which have been arrived at after due and careful consideration by the Management;
	 	 	 
		●	The
                                         availability of finance will not be a constraint on the forecasted growth of the Target;
	 	 	 
		●	The
                                         industry trends and market conditions of related industries will not deviate significantly
                                         from economic forecasts.
	 	 	 
		●	The
                                         IP Rights are closely related and complement each other to generate the revenue stream
                                         for the Target;
	 	 	 
		●	The
                                         IP Rights is assumed to have an expected economic life of 10 years.

 

 

    	7

    	 

    

 

GRANT
SHERMAN

 

Our
Ref.: B24814

 

For the purpose of
this valuation, we were furnished with projected financial information, and records and documents by the Management. We
have reviewed and examined the said information and have no reason to doubt the authenticity and accuracy
of the information contained therein. We have also consulted sources of financial and
business information to supplement the information provided by the Management.
In arriving at our opinion of value, we have relied to a very considerable extent upon such data, records,
documents, financial and business information from other sources, as well as a number of assumptions that are subjective and
uncertain in nature. Any variation to these assumptions could seriously affect the fair value of the appraised
asset.

 

VALUATION
METHODOLOGY

The IP Rights

 

In
our appraisal of the IP Rights, we were furnished by the Management for the purpose of this appraisal, financial projections as
well as other relevant records and documents. In arriving at our opinion of value, we have relied upon the projections, records
and documents, as well as financial and business information from other sources.

 

To
develop our opinion of value for the IP Rights, we have considered the three generally accepted approaches to value: the cost
approach, the market approach and the income approach. While each of these approaches are considered, the nature and characteristics
of the IP Rights will indicate which approach, or approaches, are most applicable. Moreover, we have considered a number of alternative
valuation methods which are relief-from-royalty method, excess earnings method and premium profits method for this valuation.
We have concluded that the most appropriate method for valuing the IP Rights in this appraisal is the relief-from-royalty method
within the income approach.

 

Under
the relief-from-royalty method, an asset is valued based upon the incremental after tax cash flow accruing to the owner by virtue
of the fact that the owner does not have to pay a fair royalty to a third party for the use of that asset. Accordingly, the Target's
earnings, equal to the after-tax royalty that would have been paid for use of the IP Rights, can be attributed to the IP Rights.
The value of the IP Rights depends on the present worth of future after-tax royalties derived from ownership. Thus, indication
of value is developed by discounting future after-tax royalties attributable to the IP Rights to their present worth at market-derived
rate of return appropriate for the risks of the IP Rights.

 

    	8

    	 

    

 

GRANT
SHERMAN

 

Our
Ref.: B24814

 

We
have considered various alternatives in determination of the fair royalty rate for the IP Rights. The best evidence is to inquire
whether the Target, as owner of the IP Rights, has granted any arm's length licence(s) to other companies to use the IP Rights.
With reference to the Agreement, we adopt a royalty rate of 3% of net profit and annual fee of USD 1 million for the valuation
of the IP Rights as at the Appraisal Date.

 

Discount
rate development

 

A
discount rate represents the total expected rate of return that an investor would demand on the purchase price of an ownership
interest in an asset given the level of risk inherent in that ownership interest. When developing a discount rate to apply to
the cash flow streams attributable to the IP Rights, the discount rate is the weighted average cost of capital (the "WACC").
WACC is the weighted sum of cost of equity and after tax cost of debt. The cost of equity is the expected rate of return that
an investor would demand for investing in the equity interest in a business enterprise given the risks of the investment. The
cost of equity is developed through the application of the Capital Asset Pricing Model ("CAPM").

 

The
CAPM states that an investor requires excess returns to compensate for any risk that is correlated to the risk in the return from
the stock market as a whole but requires no excess return for other risks. Risks that are correlated with the return from the
stock market are referred to as systematic and measured by a parameter called beta, whereas other risks are referred to as nonsystematic.
Under the CAPM, the appropriate rate of return is the sum of the risk-free return and the equity risk premium required by investors
to compensate for the systematic risk assumed with the adjustment for increments for risk differentials of the subject company
being valued versus those of the comparative companies, which include risk adjustments for size (the "Small Capitalization
Risk Premium") and other risk factors in relation to the comparative companies.

 

Small
Capitalization Risk Premium

 

Small
capitalization risk premium is the excess return that an investor would demand in order to compensate for the additional risk
over that of the entire stock market when investing in a small size company. This premium reflects the fact that the cost of capital
increases with decreasing size of the company. A number of studies were conducted in the U.S. which concludes that the risk premium
associated with a small company is over and
above the amount that would be warranted just as a result of the company's systematic risk derived from the CAPM. We concluded
that a small capitalization risk premium of 5.99% is appropriate for the IP Rights as at the Appraisal Date.

 

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GRANT
SHERMAN

 

Our
Ref.: B24814

 

Specific
Risk Premium

 

The
specific risk associated with the IP Rights is the business risk arising from the uncertainty of the profitability of the business
related to the IP Rights. Moxian platform is a unique social commerce platform that focuses on accelerating growth of new e-commerce
industry. To reflect this specific business risk associated with the IP Rights, we have added an additional risk premium of 2.00%
in developing the discount rate.

 

Intangible
Asset Risk Premium

 

Intangible
assets are considered to be the highest risk asset components of an overall business enterprise. These assets may have little,
if any, liquidity, and poor versatility for redeployment elsewhere in the business. This increases their risk. A higher rate of
return on these assets therefore is required. In this appraisal, we adopted an intangible asset risk premium of 3.00%, resulting
in an aggregate discount rate of 25.89%, to reflect the additional risk for valuing the IP Rights.

 

The
readers of this report should carefully consider the nature of the Target's business and the risks associated. This valuation
is based on numerous assumptions which are inherently subject to significant economic uncertainties beyond the Management's control.

 

    	10

    	 

    

 

GRANT
SHERMAN

 

Our
Ref.: B24814

 

CONCLUSION

 

Based
upon the investigation and analysis outlined above and on the appraisal method employed, it is our opinion that the fair values
of the IP Rights as at 15 November 2014 are reasonably stated by the amounts of UNITED STATES DOLLARS SIX MILLION SEVEN
HUNDRED AND EIGHTY TWO THOUSAND (USD6,782,000) only.

 

This
conclusion of value was based on generally accepted valuation procedures and practices that rely extensively on the use of numerous
assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained.

 

We
hereby certify that we have neither present nor prospective interests in the Company, the Target, MOXC, their subsidiaries,
the IP Rights or the value reported.

 

Respectfully
submitted,

For
and on behalf of

GRANT
SHERMAN APPRAISAL LIMITED

 

	 	/s/
    Keith C.C. Yan	 	/s/
    Kelvin C.H. Chan
	 	Keith
    C.C. Yan, ASA	 	Kelvin
    C.H. Chan, FCCA, CFA
	 	Managing
    Director	 	Director

 

	 	Note:		Mr.
                                         Keith C.C. Yan is an Accredited Senior Appraiser (Business Valuation/Intangible Asset)
                                         and he has been conducting business valuation of various industries and intangible assets
                                         valuation in Hong Kong, the PRC and the Asian region for various purposes since 1988.
                                         Mr. Kelvin C.H. Chan is a CFA Charterholder and a fellow member of the Association of
                                         Chartered Certified Accountants. He has been working in the financial industry since
                                         1996, with experiences covering the area of corporate banking, equity analysis and business
                                         valuation.

 

Investigation
and report by:

Keith C.C. Yan, ASA

Kelvin
C.H. Chan, FCCA, CFA

Derek T.Y. Wong, CFA, FRM

Keith Y.K. Lui

 

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GRANT
SHERMAN

 

CERTIFICATION

 

I
certify that, to the best of my knowledge and belief:

 

	 	-	The
    statements of fact contained in this report are true and correct.
	 	 	 
		-	The
                                         reported analyses, opinions, and conclusions are limited only by the reported assumptions
                                         and limited conditions and are my personal, impartial, and unbiased professional analyses.
                                         opinions, and conclusions.
	 	 	 
		-	I
                                         have no present or prospective interest in the property that is the subject of this report,
                                         and I have no personal interest with respect to the parties involved.
	 	 	 
	 	-	I
    have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment.
	 	 	 
		-	My
                                         engagement in this assignment was not contingent upon developing or reporting predetermined
                                         results.
	 	 	 
	 	-	My
                                         compensation for completing this assignment is not contingent upon the development or
                                         reporting of a predetermined value or direction in value that favors the cause of the
                                         client, the amount of the value opinion, the attainment of a stipulated result, or the
                                         occurrence of a subsequent event directly related to the intended use of this appraisal.
	 	 	 
	 	-	My
                                         analyses, opinions, and conclusions were developed, and this report has been prepared,
                                         in conformity with the Uniform Standards of Professional Appraisal Practice.
	 	 	 
	 	-	Anyone
                                         provided significant assistance to the person signing this certification is identified
                                         in the report.

 

	 	/s/ Keith
C.C. Yan
	 	Keith
C.C. Yan, ASA

 

    	 

    	 

    

 

GRANT
SHERMAN

 

CERTIFICATION

 

I
certify that, to the best of my knowledge and belief:

 

		-	The
                                         statements of fact contained in this report are true and correct.
	 	 	 
	 	-	The
    reported analyses, opinions, and conclusions are limited only by the reported assumptions and limited conditions and are my
    personal, impartial, and unbiased professional analyses, opinions, and conclusions.
	 	 	 
	 	-	I
    have no present or prospective interest in the property that is the subject of this report, and I have no personal interest
    with respect to the parties involved.
	 	 	 
	 	-	I
    have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment.
	 	 	 
		-	My
                                         engagement in this assignment was not contingent upon developing or reporting predetermined
                                         results.
	 	 	 
		-	My
                                         compensation for completing this assignment is not contingent upon the development or
                                         reporting of a predetermined value or direction in value that favors the cause of the
                                         client, the amount of the value opinion, the attainment of a stipulated result, or the
                                         occurrence of a subsequent event directly related to the intended use of this appraisal.
	 		 
		-	My
                                         analyses, opinions, and conclusions were developed, and this report has been prepared,
                                         in conformity with the Uniform Standards of Professional Appraisal Practice.
	 	 	 
		-	Anyone
                                         provided significant assistance to the person signing this certification is identified
                                         in the report.

 

	 	/s/ Kelvin
C.H. Chan
	 	Kelvin
    C.H. Chan, FCCA, CFA

 

    	 

    	 

    

 

GRANT
SHERMAN

 

CERTIFICATION

 

I
certify that, to the best of my knowledge and belief:

 

	 	-	The statements of fact contained in this report are true
and correct.
	 	 	 
	 	-	The reported analyses, opinions, and conclusions are limited
only by the reported assumptions and limited conditions and are my personal, impartial, and unbiased professional analyses, opinions,
and conclusions.
	 	 	 
	 	-	I have no present or prospective interest in the property
that is the subject of this report,
and I have no personal interest with respect to the parties involved.
	 	 	 
	 	-	I have no bias with respect to the property that is the subject
of this report or to the parties
involved with this assignment.
	 	 	 
	 	-	My engagement in this assignment was not contingent upon
developing or reporting predetermined results.
	 	 	 
	 	-	My
    compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or
    direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated
    result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.
	 	 	 
	 	-	My analyses, opinions, and conclusions were developed, and
this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice.
	 	 	 
	 	-	Anyone provided significant assistance to the person signing
this certification is identified in the report.

 

	 	/s/ Derek T.Y. Wong
	 	 Derek T.Y. Wong, CFA, FRM

 

    	 

    	 

    

 

GRANT
SHERMAN

 

CERTIFICATION

 

I
certify that, to the best of my knowledge and belief:

 

	 	-	The statements of fact contained in this report are true
and correct.
	 	 	 
	 	-	The reported analyses, opinions, and conclusions are limited
only by the reported assumptions and limited conditions and are my personal, impartial, and unbiased professional analyses, opinions,
and conclusions.
	 	 	 
	 	-	I have no (or the
    specified) present     or     prospective interest in the property that is the subject of this report,
    and I have no (or the
    specified) personal interest with respect to the parties involved.
	 	 	 
	 	-	I have no bias with respect to the property that is the subject
of this report or to the parties
involved with this assignment.
	 	 	 
	 	-	My engagement in this assignment was not contingent upon
developing or reporting predetermined results.
	 	 	 
	 	-	My
    compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or
    direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated
    result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.
	 	 	 
	 	-	My analyses, opinions,
    and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional
    Appraisal Practice.
	 	 	 
	 	-	Anyone provided significant assistance to the person signing
this certification is identified in the report.

 

	 	/s/ Keith Y.K. Lui
	 	  Keith Y.K. Lui

 

    	 

    	 

    

 

GRANT
SHERMAN

 

NORMAL
SERVICE CONDITIONS

 

The
services provided by Grant Sherman Appraisal Limited will be performed in accordance with professional standards. We assume, without
independent verification, the accuracy of all data provided to us. Our report is to be used for the specific purposes stated herein
and any other use is invalid. No one should rely on our report as a substitute for their own due diligence. No reference to our
name or our report, in whole or in part, in any document you prepare or distribute to third parties may be made without our written
consent. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will
retain this data for at least five years.

 

We
have not investigated the legal title to or any liabilities against the property appraised. Any legal document disclosed is for
reference only and no responsibility is assumed for any legal matters concerning the property appraised. We will not assume
any responsibility for any misinterpretation of the legal documents. We are not legal experts; therefore, we are unable to ascertain
and comment on the title and to report any encumbrances that may be registered against the property appraised.

 

You
agree to indemnify and hold us harmless against and from any and all losses. claims, actions, damages, expenses, or liabilities,
including reasonable attorneys' fees, to which we may become subject in connection with this engagement. You will not be liable
for our negligence. In the event we are subject to any liability in connection with this engagement, such liability will be limited
to the amount of fees we received for this engagement.

 

We
reserve the right to include your company name in our client list, but we will maintain the confidentiality of all
conversations, documents provided to us, and the contents of our reports, subject to legal or administrative
process or proceedings.

 

    	 

    	 

    

 

 

 

 

 

 

 

 

 

-
END OF REPORT -Exhibit 10.5

 

(EXECUTION COPY)

 

AMENDED AND RESTATED MANAGEMENT AGREEMENT

 

This Amended and Restated Management Agreement (the “Agreement”) is made as of September 26, 2014, among 21st Century Oncology, Inc. (f/k/a Radiation Therapy Services, Inc.), a Florida corporation (the “Company”), 21st Century Oncology Holdings, Inc. (f/k/a Radiation Therapy Services Holdings, Inc.), a Delaware corporation (“Holdings”), 21st Century Oncology Investments, LLC (f/k/a Radiation Therapy Investments, LLC) a Delaware limited liability company (“Investors”) and Vestar Capital Partners, a New York general partnership (“Vestar”).

 

WHEREAS, Vestar, by and through its officers, employees, agents, representatives and affiliates, has expertise in the areas of corporate management, finance, investment, acquisitions and other matters relating to the business of the Company and its subsidiaries;

 

WHEREAS, each of Investors, Holdings and the Company desires to avail itself, for the term of this Agreement, of the expertise of Vestar in the aforesaid areas, in which it acknowledges the expertise of Vestar; and

 

WHEREAS, Canada Pension Plan Investment Board (“CPPIB”) is, on the date hereof, entering into a Subscription Agreement (the “Subscription Agreement”) with Company, Holdings and Investor, which provides for an investment by CPPIB in Holdings and which is conditioned upon, among other things, an amendment and restatement of the Management Agreement, dated as of February 21, 2008 (the “Prior Agreement”).  Unless noted otherwise, capitalized terms used herein without definition shall have the meaning set forth in the Subscription Agreement or in the Certificate of Designations (as defined in the Subscription Agreement).

 

NOW, THEREFORE, in consideration of the foregoing recitals and the covenants and conditions herein set forth, the parties hereto agree as follows:

 

1.     Appointment.  Each of Investors, Holdings and the Company hereby appoints Vestar to render the advisory and consulting services described in Section 2 hereof commencing upon the date hereof.

 

2.     Services.  Vestar hereby agrees that it shall render to each of Investors, Holdings and the Company (and their subsidiaries) by and through Vestar’s officers, employees, agents, representatives and affiliates as Vestar in its sole discretion shall designate from time to time, advisory and consulting services in relation to the affairs of Investors, Holdings and the Company (and their subsidiaries) in connection with strategic financial planning, and other services not referred to in the next sentence, including, without limitation, advisory and consulting services in relation to the selection, supervision and retention of independent auditors, the selection, retention and supervision of outside legal counsel, and the selection, retention and supervision of investment bankers or other financial advisors or consultants. It is expressly agreed that the services to be performed hereunder shall not include (x) investment banking or other financial advisory services rendered by Vestar and its affiliates to Investors, Holdings and the Company (and their subsidiaries) after the date hereof in connection with acquisitions,

 

 

divestitures, refinancings, restructurings and similar transactions by Investors, Holdings and the Company (and their subsidiaries); or (y) full or part-time employment by any of the Company and its subsidiaries of any employee or partner of Vestar and any of its affiliates, in each case, for which Vestar and its respective affiliates shall be entitled to receive additional compensation pursuant to Section 3(b) below.

 

3.     Fees

 

(a)           In consideration of the services contemplated by Section 2, subject to the provisions of Section 6, Investors, Holdings and the Company and their respective successors hereby jointly and severally agree to pay to Vestar an aggregate per annum management fee (the “Fee”) equal to the greater of (i) $850,000 and (ii) an amount per annum equal to 1.00% of Consolidated EBITDA (as defined in the Credit Agreement) before deducting the Fee payable pursuant to this Section 3 (“Adjusted EBITDA”), commencing as of the date hereof.  The Fee shall be payable quarterly in advance at the end of the immediately preceding calendar quarter, with an adjustment of the Fee for any fiscal year payable promptly following the determination of Adjusted EBITDA for such fiscal year or on termination of this Agreement.  All references to “per annum” or “annual” herein refer to the fiscal year of the Company.

 

(b)   Subject to Section 7, Investors, Holdings and the Company and their respective successors shall hereby jointly and severally agree to pay or cause to be paid to Vestar (i) $6,000,000 for any financial advisory or similar services provided by it and/or its affiliates in connection with a Sale of the Company (as defined in that certain Securityholders Agreement, dated as of the date hereof, by and among Investors and certain of the securityholders of Investors from time to time party thereto, as the same may be amended, modified or restated from time to time (the “Securityholders Agreement”)) and (ii) $6,000,000 in connection with a Qualified IPO or other initial Public Offering (as defined in the Securityholders Agreement) (the fees set forth in this Section 3(b), together with the Fee, the “Advisory Fee”).

 

(c)   Notwithstanding anything in the contrary contained herein, the Company shall accrue but not pay the Advisory Fee for so long as and to the extent any such payment is prohibited under any financing agreements entered into by the Company; provided that interest will accrue on all such due and unpaid Advisory Fees at the Default Rate (compounded annually) until such Advisory Fees are paid; and provided further that the Company shall pay any accrued Advisory Fee deferred under this Section 3(c), together with all accrued interest thereon, promptly at such time and to the extent that such payment is no longer prohibited under any such financing agreement. The “Default Rate” shall be, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of one percent) equal to the weighted average of the rates on overnight federal funds transaction with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the business day next succeeding such day, provided that if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day.  “Business Day” shall mean any day other than a Saturday, Sunday and any day which is a legal holiday under the Laws of the State of New York or is a day on which banking institutions located in the State of New York are authorized or required by Law or other governmental action to close.

 

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4.     Reimbursements.  In addition to the Fee, Investors, Holdings and the Company hereby jointly and severally agree, at the direction of Vestar, to pay directly or reimburse Vestar for its reasonable Out of Pocket Expenses incurred after the date hereof in connection with the services provided to Investors, Holdings and the Company (and their subsidiaries) pursuant to Section 2 hereof. For the purposes of this Agreement, the term “Out of Pocket Expenses” shall mean the amounts paid by or on behalf of Vestar in connection with the services contemplated hereby, including reasonable (i) fees and disbursements of any independent professionals and organizations, including independent auditors and outside legal counsel, investment bankers or other financial advisors or consultants, (ii) costs of any outside services or independent contractors, such as financial printers, couriers, business publications or similar services, and (iii) transportation, per diem, telephone calls, word processing expenses or any similar expense not associated with its ordinary operations.  All reimbursements for Out-of-Pocket Expenses shall be made promptly upon or as soon as practicable after presentation by Vestar of the statement in connection therewith.

 

5.     Indemnification.  Investors, Holdings and the Company hereby jointly and severally agree to indemnify and hold harmless Vestar, and its affiliates and partners, members, officers, directors, employees, agents, representatives and stockholders (each being an “Indemnified Party”) from and against any and all Damages (as defined in the Subscription Agreement), to which such Indemnified Party may become subject under any applicable federal or state law, or any claim made by any third party, or otherwise, to the extent they relate to or arise out of the services contemplated by this Agreement or the engagement of Vestar pursuant to, and the performance by Vestar of the services contemplated by, this Agreement.  Investors, Holdings and the Company hereby jointly and severally agree to reimburse any Indemnified Party for all reasonable costs and expenses (including reasonable attorneys’ fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim for which the Indemnified Party would be entitled to indemnification under the terms of the previous sentence, or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party hereto. Investors, Holdings and the Company will not be liable under the foregoing indemnification provision to the extent that any Damages is determined by a court, in a final judgment following the expiration of any applicable appeal period, to have resulted primarily from the gross negligence or willful misconduct of Vestar.

 

6.     Term.  This Agreement shall terminate upon the earlier to occur of (i) such time as Vestar Capital Partners V, L.P., a Delaware limited partnership, and the partners therein and the affiliates thereof, in the aggregate, hold directly or indirectly through Investors and Holdings, or otherwise, less than 20% of the voting power of the Company’s outstanding voting stock, (ii) the consummation of Qualified IPO or other initial Public Offering (as defined in the Securityholders Agreement), or (iv) a Sale of the Company (as defined in the Securityholders Agreement).  The provisions of Sections 4, 5, 8 and 9 and the joint and several obligation of Investors, Holdings and the Company to pay Fees accrued during the term of this Agreement pursuant to Section 2 shall survive the termination of this Agreement.

 

7.             Default Event.  Notwithstanding anything herein to the contrary, upon (A) the occurrence and during the continuance of a Default Event (as defined in the Certificate of Designations), or (B) upon and following the exercise of a Repurchase Option (as defined in the

 

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Certificate of Designations) as a result of a Default Event (as defined in the Certificate of Designations) then, in either case, (i) Section 3(b) shall have no force or effect and no payment shall be owed to Vestar thereunder, and (ii) any and all other payment rights of Vestar hereunder (including rights of reimbursement and indemnification) shall be subordinated to the senior and priority right of payment of the holders of the Convertible Preferred Stock to the extent of the Stated Value thereof, and Vestar agrees that if it receives any such payment hereunder on or after a Default Event and prior to the full payment of the Stated Value to such holders, it shall hold such received amount in trust for such holders and shall promptly remit same as directed by the Majority Holders.

 

8.     Permissible Activities.  Nothing herein shall in any way preclude Vestar or its partners, members, officers, employees or affiliates from engaging in any business activities or from performing services for its or their own account or for the account of others, including for companies that may be in competition with the business conducted by the Company.

 

9.     General.

 

(a)   No amendment or waiver of any provision of this Agreement, or consent to any departure by either party from any such provision, shall in any event be effective unless the same shall be in writing and signed by the parties to this Agreement and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

(b)   Any and all notices hereunder shall, in the absence of receipted hand delivery, be deemed duly given when mailed, if the same shall be sent by registered or certified mail, return receipt requested, and the mailing date shall be deemed the date from which all time periods pertaining to a date of notice shall run.  Notices shall be addressed to the parties at the following addresses:

 

	
If to Vestar:
    	
Vestar Capital Partners
   245 Park Avenue, 41st Floor
   New York, New York  10167
   Attention:     General Counsel
    
	
 
    	
 
    
	
If to Investors, Holdings
    	
 
    
	
or the Company:
    	
21st Century Oncology Investments, LLC
   c/o Vestar Capital Partners V, L.P.
   245 Park Avenue, 41st Floor
   New York, NY 10167
   Attention: General Counsel
   Facsimile: (212) 808-4922
    

 

In any case,

 

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with copies to:
    	
Kirkland & Ellis LLP
   601 Lexington Avenue 
   New York, NY 10022
   Attention: Michael Movsovich
   Facsimile: (212) 446-4900
    

 

(c)   This Agreement shall constitute the entire Agreement between the parties with respect to the subject matter hereof, and shall supersede all previous oral and written (and all contemporaneous oral) negotiations, commitments, agreements and understandings relating hereto, including, without limitation, the Prior Agreement.

 

(d)   THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN.  THE PARTIES TO THIS AGREEMENT HEREBY AGREE TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS LOCATED IN THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. This Agreement shall inure to the benefit of, and be binding upon, Vestar, the Indemnified Parties, Investors, Holdings, the Company and their respective successors and assigns.

 

(e)   EACH PARTY TO THIS AGREEMENT HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE

 

(f)    This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts, each set of counterparts showing execution by all parties shall be deemed an original, but all of which shall constitute one and the same instrument.

 

(g)   The Majority Holders (as defined in the Certificate of Designations) are intended beneficiaries of this Agreement, with full right of enforcement hereunder, and this Agreement shall not be amended without the prior written consent of the Majority Holders.

 

(h)   The waiver by any party of any breach of this Agreement shall not operate as or be construed to be a waiver by such party of any subsequent breach.

 

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IN WITNESS WHEREOF, the parties have caused this Management Agreement to be executed and delivered by their duly authorized officers or agents as set forth below.

 

	
 
    	
VESTAR   CAPITAL PARTNERS
    
	
 
    	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Steven Della Rocca
    
	
 
    	
 
    	
Name:   Steven Della Rocca
    
	
 
    	
 
    	
Title:   Managing Director & General Counsel
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
21ST CENTURY ONCOLOGY, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:   
    	
/s/ Daniel E. Dosoretz, M.D.
    
	
 
    	
 
    	
Name:   Daniel E. Dosoretz, M.D.
    
	
 
    	
 
    	
Title:   Chief Executive Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
21st CENTURY ONCOLOGY HOLDINGS, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:   
    	
/s/ Daniel E. Dosoretz, M.D.
    
	
 
    	
 
    	
Name:   Daniel E. Dosoretz, M.D.
    
	
 
    	
 
    	
Title:   Chief Executive Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
21st CENTURY ONCOLOGY INVESTMENTS, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:   
    	
 /s/ James Elrod
    
	
 
    	
 
    	
Name:   James Elrod
    
	
 
    	
 
    	
Title:   President

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