Document:

SECURITIES
PURCHASE AGREEMENT

 

This
Securities Purchase Agreement (this “Agreement”) is dated as of August 21, 2017, between Digital Ally, Inc.,
a Nevada corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including
its successors and assigns, a “Purchaser” and collectively the “Purchasers”).

 

WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the “Securities Act”), the Company desires to issue and sell to each Purchaser,
and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described
in this Agreement.

 

NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration
the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

 

ARTICLE
I.

DEFINITIONS

 

1.1
Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following
terms have the meanings set forth in this Section 1.1:

 

“Acquiring
Person” shall have the meaning ascribed to such term in Section 4.5.

 

“Action”
shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person as such terms are used in and construed under Rule 405 under the Securities Act.

 

“Board
of Directors” means the board of directors of the Company.

 

“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or
any day on which banking institutions in the State of New York are authorized or required by law or other governmental action
to close.

 

“Closing”
means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

 

“Closing
Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable
parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii)
the Company’s obligations to deliver the Securities, in each case, have been satisfied or waived, but in no event later
than the third Trading Day following the date hereof.

 

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

 

“Common
Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which
such securities may hereafter be reclassified or changed.

 

“Common
Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to
acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument
that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive,
Common Stock.

 

“Company
Counsel” means Christian J. Hoffmann, III, Securities Counsel of the Company, with offices located at 9705 Loiret Blvd.,
Lenexa, KS 66219.

 

“Disclosure
Schedules” means the Disclosure Schedules of the Company delivered concurrently herewith.

 

“EGS”
means Ellenoff Grossman & Schole LLP, with offices located at 1345 Avenue of the Americas, New York, New York 10105-0302.

 

“Escrow
Agent” means Signature Bank, a New York State chartered bank, with offices at 261 Madison Avenue, New York, New York
10016.

 

“Escrow
Agreement” means the escrow agreement entered into prior to the date hereof, by and among the Company, the Escrow Agent
and the Placement Agent pursuant to which the Purchasers shall deposit Subscription Amounts with the Escrow Agent to be applied
to the transactions contemplated hereunder.

 

“Evaluation
Date” shall have the meaning ascribed to such term in Section 3.1(s).

 

“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of
Directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered
to the Company, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other
securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such
securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection
with stock splits or combinations) or to extend the term of such securities, (c) shares of Common Stock or Common Stock Equivalents
(which shall not include an Variable Rate Transactions) issued in connection with the financing or monetization of the Company’s
Intellectual Property portfolio or a portion thereof; provided that such securities are issued as “restricted securities”
(as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection
therewith during the prohibition period in Section 4.12(a) herein and (d) securities issued pursuant to acquisitions or strategic
transactions approved by a majority of the disinterested directors of the Company, provided that such securities are issued as
“restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing
of any registration statement in connection therewith during the prohibition period in Section 4.12(a) herein, and provided that
any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries,
an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the
Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

 

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“FCPA”
means the Foreign Corrupt Practices Act of 1977, as amended.

 

“GAAP”
shall have the meaning ascribed to such term in Section 3.1(h).

 

“Indebtedness”
shall have the meaning ascribed to such term in Section 3.1(aa).

 

“Intellectual
Property Rights” shall have the meaning ascribed to such term in Section 3.1(p).

 

“Liens”
means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

“Material
Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“Material
Permits” shall have the meaning ascribed to such term in Section 3.1(n).

 

“Participation
Maximum” shall have the meaning ascribed to such term in Section 4.11(a).

 

“Per
Share Purchase Price” equals $3.00, subject to adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

 

“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Pharmaceutical
Product” shall have the meaning ascribed to such term in Section 3.1(hh).

 

“Placement
Agent” means WestPark Capital, Inc.

 

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“Pre-Notice”
shall have the meaning ascribed to such term in Section 4.11(b).

 

“Pro
Rata Portion” shall have the meaning ascribed to such term in Section 4.11(e).

 

“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial
proceeding, such as a deposition), whether commenced or threatened.

 

“Prospectus”
means the final prospectus filed for the Registration Statement.

 

“Prospectus
Supplement” means the supplement to the Prospectus complying with Rule 424(b) of the Securities Act that is filed with
the Commission and delivered by the Company to each Purchaser at the Closing.

 

“Purchaser
Party” shall have the meaning ascribed to such term in Section 4.8.

 

“Registration
Statement” means the effective registration statement with Commission file No. 333-202944 which registers the sale of
the Shares, the Warrants and the Warrant Shares to the Purchasers.

 

“Required
Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

“Rule
144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted
from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose
and effect as such Rule.

 

“Rule
424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted
from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose
and effect as such Rule.

 

“SEC
Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities”
means the Shares, the Warrants and the Warrant Shares.

 

“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Series
A-1 Warrants” means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in
accordance with Section 2.2(a) hereof, which Warrants shall be exercisable commencing 6 months following the Closing Date and
have a term of exercise equal to five (5) years, in the form of Exhibit A attached hereto.

 

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“Series
A-2 Warrants” means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in
accordance with Section 2.2(a) hereof, which Warrants shall be exercisable commencing on the Closing Date and have a term of exercise
equal to five (5) years, in the form of Exhibit A attached hereto.

 

“Series
B Warrants” means, collectively, the pre-funded Common Stock purchase warrants delivered to the Purchasers at the Closing
in accordance with Section 2.1 and 2.2(a) hereof in the form of Exhibit B attached hereto.

 

“Shares”
means the shares of Common Stock issued or issuable to each Purchaser pursuant to this Agreement.

 

“Short
Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall
not be deemed to include locating and/or borrowing shares of Common Stock).

 

“Subscription
Amount” means, as to each Purchaser, the aggregate amount to be paid for Shares and Warrants purchased hereunder as
specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription
Amount,” in United States dollars and in immediately available funds (other than, if applicable, a Purchaser’s aggregate
unpaid exercise price of $0.01 per share set forth in the Series B Warrants, which amounts shall be paid as and when such Series
B Warrants are exercised for cash).

 

“Subsequent
Financing” shall have the meaning ascribed to such term in Section 4.11(a).

 

“Subsequent
Financing Notice” shall have the meaning ascribed to such term in Section 4.11(b).

 

“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a), and shall, where applicable, also include any direct
or indirect subsidiary of the Company formed or acquired after the date hereof.

 

“Trading
Day” means a day on which the principal Trading Market is open for trading.

 

“Trading
Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

 

“Transaction
Documents” means this Agreement, the Warrants, all exhibits and schedules thereto and hereto and any other documents
or agreements executed in connection with the transactions contemplated hereunder.

 

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“Transfer
Agent” means Action Stock Transfer Corporation, the current transfer agent of the Company, with a mailing address of
2469 E. Fort Union Blvd., Suite 214, Salt Lake City, UT 84121 and a facsimile number of (801) 274-1099, and any successor transfer
agent of the Company.

 

“Variable
Rate Transaction” shall have the meaning ascribed to such term in Section 4.12(b).

 

“Warrants”
means, collectively, the Series A-1 Warrants, Series A-2 Warrants and the Series B Warrants.

 

“Warrant
Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

 

ARTICLE
II.

PURCHASE AND SALE

 

2.1 Closing.
On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the
execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and
not jointly, agree to purchase, up to an aggregate of $3,000,000 of Shares (or Series B Warrants) and Series A-1 Warrants and
Series A-2 Warrants as calculated pursuant to Section 2.2(a). Notwithstanding anything herein to the contrary, to the
extent that a Purchaser determines, in its sole discretion, that such Purchaser’s Subscription Amount (together with
such Purchaser’s Affiliates and any Person acting as a group together with such Purchaser or any of such
Purchaser’s Affiliates) would cause such Purchaser’s beneficial ownership of the shares of Common Stock to exceed
9.99% of the outstanding shares of Common Stock, such Purchaser may elect to purchase Series B Warrants in lieu of the Shares
as determined pursuant to Section 2.2(a). Each Purchaser shall deliver to the Escrow Agent (unless the Placement Agent
directs a Purchaser to make payment directly to the Company) via wire transfer immediately available funds equal to such
Purchaser’s Subscription Amount as set forth on the signature page hereto and the Company shall deliver to such
Purchaser its respective Shares and Warrants as determined pursuant to Section 2.2(a), and the Company and each Purchaser
shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and
conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of EGS or such other location as the
parties shall mutually agree. The Company covenants that, if the Purchaser delivers a Notice of Exercise (as defined in the
Series B Warrants) at least one (1) Trading Day prior to the Closing Date to exercise any Series B Warrants between the date
hereof and the Closing Date, the Company shall deliver shares of Common Stock with respect to the Series B Warrants to the
Purchaser on the Closing Date in connection with such Notice of Exercise.

 

2.2
Deliveries.

 

(a)
On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i)
this Agreement duly executed by the Company;

 

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(ii)
a legal opinion of Company Counsel, substantially in form and substance reasonably acceptable to the Purchasers; 

 

(iii)
the Company shall have provided each Purchaser with the Company’s wire instructions, on Company letterhead and executed
by the Chief Executive Officer or Chief Financial Officer;

 

(iv)
a copy of the irrevocable instructions to the Transfer Agent instructing the Transfer Agent to deliver on an expedited basis via
The Depository Trust Company Deposit or Withdrawal at Custodian system (“DWAC”) Shares equal to such Purchaser’s
Subscription Amount divided by the Per Share Purchase Price, registered in the name of such Purchaser;

 

(v)
a Series A-1 Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 68%
of the sum of (1) the number of such Purchaser’s Shares and (2) the number of shares of Common Stock underlying the Series
B Warrants to be delivered to such Purchaser), with an exercise price equal to $3.36, subject to adjustment therein; 

 

(vi)
a Series A-2 Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 20%
of the sum of (1) the number of such Purchaser’s Shares and (2) the number of shares of Common Stock underlying the Series
B Warrants to be delivered to such Purchaser), with an exercise price equal to $3.36, subject to adjustment therein; 

 

(vii)
to each Purchaser that will receive any Series B Warrants in lieu of Shares pursuant to Section 2.1, Series B Warrants, registered
in the name of such Purchaser to purchase one (1) share of Common Stock, with an unpaid exercise price equal to $0.01 per share
of Common Stock, such Series B Warrants exercisable in the aggregate for a total number of shares of Common Stock equal to the
number of Series B Warrants set forth on such Purchaser’s signature page; 

 

(viii)
the Prospectus and Prospectus Supplement (which may be delivered in accordance with Rule 172 under the Securities Act); and

 

(ix)
a 75-day lock-up agreement (the “Lock-Up Agreements”) from each of the Company’s directors and officers,
in a form reasonably acceptable to the Placement Agent and the Purchasers.

 

(b)
On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company or the Escrow Agent, as
applicable, the following:

 

(i)
this Agreement duly executed by such Purchaser; and

 

(ii)
such Purchaser’s Subscription Amount (less, if applicable, the aggregate of $0.01 unpaid exercise price per share of Common
Stock underlying the Series B Warrants issuable to such Purchaser hereunder) by wire transfer to the account specified in the
Escrow Agreement (unless the Placement Agent directs such Purchaser to make payment directly to the Company, in which case, to
the account specified in Section 2.2(a)(iii)). 

 

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2.3
Closing Conditions.

 

(a)
The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

 

(i)
the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material
Adverse Effect, in all respects) on the Closing Date of the representations and warranties of the Purchasers contained herein
(unless as of a specific date therein in which case they shall be accurate as of such date); 

 

(ii)
all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have
been performed; and

 

(iii)
the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

 

(b)
The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions
being met:

 

(i)
the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material
Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company contained
herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

(ii)
all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been
performed; 

 

(iii)
the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement; 

 

(iv)
there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

 

(v)
from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s
principal Trading Market, and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg
L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are
reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States
or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national
or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in
each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the
Closing.

 

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ARTICLE
III.

REPRESENTATIONS
AND WARRANTIES

 

3.1
Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules
shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained
in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties
to each Purchaser:

 

(a)
Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). The Company
owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens,
and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable
and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other
references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.

 

(b)
Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite
power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business
and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity
or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in
any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

(c)
Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate
the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action
on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders
in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction
Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited by applicable law.

 

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(d)
No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents
to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby
and thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon
any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing
a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which
any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict
with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court
or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations),
or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii)
and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e) Filings,
Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal, state, local or other governmental
authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction
Documents, other than: (i) the filings required pursuant to Section 4.4 of this Agreement, (ii) the filing with the
Commission of the Prospectus Supplement, (iii) application(s) to each applicable Trading Market for the listing of the Shares
and Warrant Shares for trading thereon in the time and manner required thereby, and (iv) such filings as are required to be
made under applicable state securities laws (collectively, the “Required Approvals”).

 

(f)
Issuance of the Securities; Registration. The Securities are duly authorized and, when issued and paid for in accordance
with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all
Liens imposed by the Company. The Warrant Shares, when issued in accordance with the terms of the Warrants, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized
capital stock the maximum number of shares of Common Stock issuable pursuant to this Agreement and the Warrants. The Company has
prepared and filed the Registration Statement in conformity with the requirements of the Securities Act, which became effective
on May 18, 2015 (the “Effective Date”), including the Prospectus, and such amendments and supplements thereto
as may have been required to the date of this Agreement. The Registration Statement is effective under the Securities Act and
no stop order preventing or suspending the effectiveness of the Registration Statement or suspending or preventing the use of
the Prospectus has been issued by the Commission and no proceedings for that purpose have been instituted or, to the knowledge
of the Company, are threatened by the Commission. The Company, if required by the rules and regulations of the Commission, shall
file the Prospectus with the Commission pursuant to Rule 424(b). At the time the Registration Statement and any amendments thereto
became effective, at the date of this Agreement and at the Closing Date, the Registration Statement and any amendments thereto
conformed and will conform in all material respects to the requirements of the Securities Act and did not and will not contain
any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; and the Prospectus and any amendments or supplements thereto, at time the Prospectus or
any amendment or supplement thereto was issued and at the Closing Date, conformed and will conform in all material respects to
the requirements of the Securities Act and did not and will not contain an untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made,
not misleading. The Company was at the time of the filing of the Registration Statement eligible to use Form S-3. The Company
is eligible to use Form S-3 under the Securities Act and it meets the transaction requirements with respect to the aggregate market
value of securities being sold pursuant to this offering and during the twelve (12) months prior to this offering, as set forth
in General Instruction I.B.6 of Form S-3.

 

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(g)
Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g). The Company has not issued
any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of
employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant
to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report under the Exchange Act. Except as set forth on Schedule
3.1(g), no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate
in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities and
except as set forth on Schedule 3.1(g), there are no outstanding options, warrants, scrip rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock or the capital stock
of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or Common Stock Equivalents or capital stock of any Subsidiary. The issuance
and sale of the Securities will not obligate the Company or any Subsidiary to issue shares of Common Stock or other securities
to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under any of such securities. Except as set forth on Schedule 3.1(g), there are no
outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound
to redeem a security of the Company or such Subsidiary. The Company does not have any stock appreciation rights or “phantom
stock” plans or agreements or any similar plan or agreement. All of the outstanding shares of capital stock of the Company
are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities
laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for
or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required
for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements
with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between
or among any of the Company’s stockholders.

 

(h)
SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation
to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein,
together with the Prospectus and the Prospectus Supplement, being collectively referred to herein as the “SEC Reports”)
on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration
of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of
the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not misleading. The Company is not an issuer identified
in Rule 144(i)(1)(i) of the Securities Act. The Company was such an issuer prior to November 30, 2004. The financial statements
of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods
involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material
respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results
of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.

 

    	 	11	 

    	 		 

    

 

(i)
Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements
included within the SEC Reports, except as set forth on Schedule 3.1(i), (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant
to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed
or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities
to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending
before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated
by this Agreement or as set forth on Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development
has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective
businesses, prospects, properties, operations, assets or financial condition that would be required to be disclosed by the Company
under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at
least 1 Trading Day prior to the date that this representation is made.

 

(j)
Litigation. Except as set forth on Schedule 3.1(j), there is no action, suit, inquiry, notice of violation, proceeding
or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary,
nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company,
there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director
or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. 

 

    	 	12	 

    	 		 

    

 

(k)
Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees
of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such
Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company
and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the Company, no executive
officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement
or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and
its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment
and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance
could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(l)
Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred
that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation
of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any
of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree
or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance
or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating
to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters,
except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(m)
Environmental Laws. The Company and its Subsidiaries (i) are in compliance with all federal, state, local and foreign laws
relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land
surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”)
into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments,
licenses, notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder
(“Environmental Laws”); (ii) have received all permits licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such
permit, license or approval where in each clause (i), (ii) and (iii), the failure to so comply could be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect.

 

    	 	13	 

    	 		 

    

 

(n)
Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described
in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.

 

(o)
Title to Assets. Except as set forth on Schedule 3.1(o), the Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that
is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens
as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made
of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which
appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject
to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

 

(p)
Intellectual Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual
property rights and similar rights necessary or required for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise)
that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate
or be abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since
the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise
has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not
have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and, except as set forth on Schedule 3.1(o), there is no existing infringement by another Person
of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

    	 	14	 

    	 		 

    

 

(q)
Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries
are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription
Amount. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.

 

(r)
Transactions With Affiliates and Employees. Except as set forth on Schedule 3.1(r), none of the officers or directors
of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary
is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise
requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member
or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements
under any stock option plan of the Company.

 

(s)
Sarbanes-Oxley; Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable
requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and
regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The
Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability,
(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 the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and
procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.
The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company
and the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such
date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial
reporting (as such term is defined in the Exchange Act) of the Company and its Subsidiaries that have materially affected, or
is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries.

 

    	 	15	 

    	 		 

    

 

(t)
Certain Fees. Except as set forth in the Prospectus Supplement, no brokerage or finder’s fees or commissions are
or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall
have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

 

(u)
Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities,
will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940,
as amended. The Company shall conduct its business in a manner so that it will not become an “investment company”
subject to registration under the Investment Company Act of 1940, as amended.

 

(v)
Registration Rights. Except as set forth on Schedule 3.1(v), no Person has any right to cause the Company or any
Subsidiary to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.

 

(w)
Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating
terminating such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the
listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and maintenance requirements. The Common Stock is currently
eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and the Company
is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection
with such electronic transfer.

 

(x)
Application of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar
charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result
of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including
without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

 

    	 	16	 

    	 		 

    

 

(y)
Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction
Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that it believes constitutes or might constitute material, non-public information
which is not otherwise disclosed in the Prospectus Supplement. The Company understands and confirms that the Purchasers will rely
on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or
on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their respective businesses and the transactions
contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser
makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically
set forth in Section 3.2 hereof.

 

(z)
No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section
3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company for purposes of any applicable shareholder approval
provisions of any Trading Market on which any of the securities of the Company are listed or designated.

 

(aa)
Solvency. Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the
receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company’s
assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities
(including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small
capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements
and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient
to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend
to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable
on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will
file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the
Closing Date. Schedule 3.1(aa) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the
Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness”
means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred
in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness
of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to
be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

    	 	17	 

    	 		 

    

 

(bb)
Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and
local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which
it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined
to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the
payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There
are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of
the Company or of any Subsidiary know of no basis for any such claim.

 

(cc)
Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary,
any agent or other person acting on behalf of the Company or any Subsidiary, has (i) directly or indirectly, used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii)
made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties
or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made
by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material
respect any provision of FCPA.

 

(dd)
Accountants. The Company’s accounting firm is set forth in the Prospectus Supplement. To the knowledge and belief
of the Company, such accounting firm (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall
express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the fiscal
year ending December 31, 2017. 

 

    	 	18	 

    	 		 

    

 

(ee)
Acknowledgment Regarding Purchasers’ Purchase of Securities.
The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser
with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives
or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’
purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this
Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives.

 

(ff)
Acknowledgment Regarding Purchaser’s Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f) and 4.14 hereof), it
is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has
any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) past or future open
market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative”
transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price
of the Company’s publicly-traded securities; (iii) any Purchaser, and counter-parties in “derivative” transactions
to which any such Purchaser is a party, directly or indirectly, presently may have a “short” position in the Common
Stock, and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party
in any “derivative” transaction. The
Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times
during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the
Warrant Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce
the value of the existing stockholders’ equity interests in the Company at and after the time that the hedging activities
are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of
the Transaction Documents.

 

(gg)
Regulation M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly
or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any compensation
for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting
another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid
to the Company’s placement agent in connection with the placement of the Securities.

 

    	 	19	 

    	 		 

    

 

(hh)
Stock Option Plans. Each stock option granted by the Company under the Company’s stock option plan was granted (i)
in accordance with the terms of the Company’s stock option plan and (ii) with an exercise price at least equal to the fair
market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock
option granted under the Company’s stock option plan has been backdated. The Company has not knowingly granted, and there
is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate
the grant of stock options with, the release or other public announcement of material information regarding the Company or its
Subsidiaries or their financial results or prospects.

 

(ii)
Office of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company’s knowledge, any director,
officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered
by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).

 

(jj)
U.S. Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation
within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s
request.

 

(kk)
Bank Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding
Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve
System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls,
directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent
or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank
or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

(ll)
Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance
with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of
1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money
Laundering Laws”), and no Action or Proceeding by or before any court or governmental agency, authority or body or any
arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of
the Company or any Subsidiary, threatened.

 

    	 	20	 

    	 		 

    

 

3.2
Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents
and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein,
in which case they shall be accurate as of such date):

 

(a)
Organization; Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership,
limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction
Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized
by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser.
Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser
in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against
it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited by applicable law.

 

(b)
Understandings or Arrangements. Such Purchaser is acquiring the Securities as principal for its own account and has no
direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities
(this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business.

 

(c)
Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on
each date on which it exercises any Warrants, it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in
Rule 144A(a) under the Securities Act. 

 

(d)
Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk
of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

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(e)
Access to Information. Such Purchaser acknowledges that it has had the opportunity to review the Transaction Documents
(including all exhibits and schedules thereto) and the SEC Reports and has been afforded, (i) the opportunity to ask such questions
as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the
Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can
acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.
Such Purchaser acknowledges and agrees that neither the Placement Agent nor any Affiliate of the Placement Agent has provided
such Purchaser with any information or advice with respect to the Securities nor is such information or advice necessary or desired.
Neither the Placement Agent nor any Affiliate has made or makes any representation as to the Company or the quality of the Securities
and the Placement Agent and any Affiliate may have acquired non-public information with respect to the Company which such Purchaser
agrees need not be provided to it. In connection with the issuance of the Securities to such Purchaser, neither the Placement
Agent nor any of its Affiliates has acted as a financial advisor or fiduciary to such Purchaser.

 

(f)
Certain Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such Purchaser
has not, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed
any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that
such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting
forth the material pricing terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof.
Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation
set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement or to such
Purchaser’s representatives, including, without limitation, its officers, directors, partners, legal and other advisors,
employees, agents and Affiliates, such Purchaser has maintained the confidentiality of all disclosures made to it in connection
with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for the avoidance
of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to locating
or borrowing shares in order to effect Short Sales or similar transactions in the future.

 

The
Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect such
Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations
and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection
with this Agreement or the consummation of the transactions contemplated hereby. Notwithstanding the foregoing, for the avoidance
of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to locating
or borrowing shares in order to effect Short Sales or similar transactions in the future.

 

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ARTICLE
IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1
Warrant Shares. If all or any portion of a Warrant is exercised at a time when there is an effective registration statement
to cover the issuance or resale of the Warrant Shares or if the Warrant is exercised via cashless exercise, the Warrant Shares
issued pursuant to any such exercise shall be issued free of all legends. If at any time following the date hereof the Registration
Statement (or any subsequent registration statement registering the sale or resale of the Warrant Shares) is not effective or
is not otherwise available for the sale or resale of the Warrant Shares, the Company shall immediately notify the holders of the
Warrants in writing that such registration statement is not then effective and thereafter shall promptly notify such holders when
the registration statement is effective again and available for the sale or resale of the Warrant Shares (it being understood
and agreed that the foregoing shall not limit the ability of the Company to issue, or any Purchaser to sell, any of the Warrant
Shares in compliance with applicable federal and state securities laws). The Company shall use best efforts to keep a registration
statement (including the Registration Statement) registering the issuance or resale of the Warrant Shares effective during the
term of the Warrants. 

 

4.2
Furnishing of Information. Until the earliest of the time that (i) no Purchaser owns Securities or (ii) the Warrants have
expired, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period)
all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not
then subject to the reporting requirements of the Exchange Act. 

 

4.3
Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities for
purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing
of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction. 

 

4.4
Securities Laws Disclosure; Publicity. The Company shall (a) by 9:00 a.m. (New York City time) on August 21, 2017, issue
a press release disclosing the material terms of the transactions contemplated hereby, and (b) file a Current Report on Form 8-K,
including the Transaction Documents as exhibits thereto, with the Commission within the time required by the Exchange Act. From
and after the issuance of such press release, the Company represents to the Purchasers that it shall have publicly disclosed all
material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their
respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents.
In addition, effective upon the issuance of such press release, the Company acknowledges and agrees that any and all confidentiality
or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their
respective officers, directors, agents, employees or Affiliates on the one hand, and any of the Purchasers or any of their Affiliates
on the other hand, shall terminate. The Company and each Purchaser shall consult with each other in issuing any other press releases
with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release
nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any
Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall
not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission
or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (a) as required by federal
securities law in connection with the filing of final Transaction Documents with the Commission and (b) to the extent such disclosure
is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of
such disclosure permitted under this clause (b).

 

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4.5
Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other
Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter
adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue
of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.

 

4.6
Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the
Transaction Documents, which shall be disclosed pursuant to Section 4.4, the Company covenants and agrees that neither it, nor
any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that constitutes,
or the Company reasonably believes constitutes, material non-public information, unless prior thereto such Purchaser shall have
consented to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands
and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
To the extent that the Company delivers any material, non-public information to a Purchaser without such Purchaser’s consent,
the Company hereby covenants and agrees that such Purchaser shall not have any duty of confidentiality to the Company, any of
its Subsidiaries, or any of their respective officers, directors, agents, employees or Affiliates, or a duty to the Company, any
of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates not to trade on the basis
of, such material, non-public information, provided that the Purchaser shall remain subject to applicable law. To the extent that
any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding
the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report
on Form 8-K. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting
transactions in securities of the Company.

 

4.7
Use of Proceeds. Except as set forth on Schedule 4.7 attached hereto, the Company shall use the net proceeds from
the sale of the Securities hereunder for working capital purposes and shall not use such proceeds: (a) for the satisfaction of
any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business
and prior practices), (b) for the redemption of any Common Stock or Common Stock Equivalents, (c) for the settlement of any outstanding
litigation or (d) in violation of FCPA or OFAC regulations.

 

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4.8
Indemnification of Purchasers. Subject to the provisions of this Section 4.8, the Company will indemnify and hold each
Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls
such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors,
officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a
Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser
Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation
that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action
instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction
Documents (unless such action is solely based upon a material breach of such Purchaser Party’s representations, warranties
or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder
or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which is
finally judicially determined, without any right to appeal, to constitute fraud, gross negligence or willful misconduct). If any
action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof
with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by
the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel
or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable
fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this
Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall
not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability
is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made
by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section
4.8 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills
are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar
right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.

 

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4.9
Reservation of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling
the Company to issue Shares pursuant to this Agreement and Warrant Shares pursuant to any exercise of the Warrants.

 

4.10
Listing of Common Stock. The Company hereby agrees to use best efforts to maintain the listing or quotation of the Common
Stock on the Trading Market on which it is currently listed, and concurrently with the Closing, the Company shall apply to list
or quote all of the Shares and Warrant Shares on such Trading Market and promptly secure the listing of all of the Shares and
Warrant Shares on such Trading Market. The Company further agrees, if the Company applies to have the Common Stock traded on any
other Trading Market, it will then include in such application all of the Shares and Warrant Shares, and will take such other
action as is necessary to cause all of the Shares and Warrant Shares to be listed or quoted on such other Trading Market as promptly
as possible. The Company will then take all action reasonably necessary to continue the listing and trading of its Common Stock
on a Trading Market and will comply in all respects with the Company’s reporting, filing and other obligations under the
bylaws or rules of the Trading Market. The Company agrees to maintain the eligibility of the Common Stock for electronic transfer
through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment
of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.

 

4.11
Participation in Future Financing. 

 

(a)
From the date hereof until the date that is the twenty four (24) month anniversary of the Closing Date, upon any issuance by the
Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents for cash consideration, Indebtedness or a combination
of units thereof (a “Subsequent Financing”), each Purchaser shall have the right to participate in up to an
amount of the Subsequent Financing equal to 35% of the Subsequent Financing (the “Participation Maximum”) on
the same terms, conditions and price provided for in the Subsequent Financing. 

 

(b)
Between the time period of 4:00 pm (New York City time) and 6:00 pm (New York City time) on the Trading Day immediately prior
to the Trading Day of the expected announcement of the Subsequent Financing (or, if the Trading Day of the expected announcement
of the Subsequent Financing is the first Trading Day following a holiday or a weekend (including a holiday weekend), between the
time period of 4:00 pm (New York City time) on the Trading Day immediately prior to such holiday or weekend and 2:00 pm (New York
City time) on the day immediately prior to the Trading Day of the expected announcement of the Subsequent Financing), the Company
shall deliver to each Purchaser a written notice of the Company’s intention to effect a Subsequent Financing (a “Subsequent
Financing Notice”), which notice shall describe in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing
is proposed to be effected and shall include a term sheet and transaction documents relating thereto as an attachment.

 

    	 	26	 

    	 		 

    

 

(c)
Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by 6:30 am (New
York City time) on the Trading Day following the date on which the Subsequent Financing Notice is delivered to such Purchaser
(the “Notice Termination Time”) that such Purchaser is willing to participate in the Subsequent Financing,
the amount of such Purchaser’s participation, and representing and warranting that such Purchaser has such funds ready,
willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no such
notice from a Purchaser as of such Notice Termination Time, such Purchaser shall be deemed to have notified the Company that it
does not elect to participate in such Subsequent Financing.

 

(d)
If, by the Notice Termination Time, notifications by the Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then
the Company may effect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent
Financing Notice.

 

(e)
If, by the Notice Termination Time, the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to
purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its
Pro Rata Portion (as defined below) of the Participation Maximum. “Pro Rata Portion” means the ratio of (x)
the Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating under this Section 4.11 and (y)
the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date by all Purchasers participating under
this Section 4.11.

 

(f)
The Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right
of participation set forth above in this Section 4.11, if the definitive agreement related to the initial Subsequent Financing
Notice is not entered into for any reason on the terms set forth in such Subsequent Financing Notice within two (2) Trading Days
after the date of delivery of the initial Subsequent Financing Notice or if any material term set forth in such Subsequent Financing
is modified or amended, including, without limitation, pricing terms, the amount of capital to be raised, the amount and/or type
of securities to be issued, the warrant coverage, if any, and the expiration or termination date of any securities to be issued.

 

(g)
The Company and each Purchaser agree that, if any Purchaser elects to participate in the Subsequent Financing, the transaction
documents related to the Subsequent Financing shall not include any term or provision whereby such Purchaser shall be required
to agree to any restrictions on trading as to any of the Securities purchased hereunder or be required to consent to any amendment
to or termination of, or grant any waiver, release or the like under or in connection with, this Agreement, without the prior
written consent of such Purchaser. In addition, the Company and each Purchaser agree that, in connection with a Subsequent Financing,
the transaction documents related to the Subsequent Financing shall include a requirement for the Company to issue a widely disseminated
press release by 9:30 am (New York City time) on the Trading Day of execution of the transaction documents in such Subsequent
Financing (or, if the date of execution is not a Trading Day, on the immediately following Trading Day) that discloses the material
terms of the transactions contemplated by the transaction documents in such Subsequent Financing.

 

    	 	27	 

    	 		 

    

 

(h)
Notwithstanding anything to the contrary in this Section 4.11 and unless otherwise agreed to by such Purchaser, the Company shall
either confirm in writing to such Purchaser that the transaction with respect to the Subsequent Financing has been abandoned or
shall publicly disclose its intention to issue the securities in the Subsequent Financing, in either case in such a manner such
that such Purchaser will not be in possession of any material, non-public information, by 9:30 am (New York City time) on the
second (2nd) Trading Day following date of delivery of the Subsequent Financing Notice. If by 9:30 am (New York City time) on
such second (2nd) Trading Day, no public disclosure regarding a transaction with respect to the Subsequent Financing has been
made, and no notice regarding the abandonment of such transaction has been received by such Purchaser, such transaction shall
be deemed to have been abandoned and such Purchaser shall not be deemed to be in possession of any material, non-public information
with respect to the Company or any of its Subsidiaries.

 

(i)
Notwithstanding the foregoing, this Section 4.11 shall not apply in respect of an Exempt Issuance.

 

4.12
Subsequent Equity Sales. 

 

(a)
From the date hereof until 75 days after the Closing Date, neither the Company nor any Subsidiary shall issue, enter into any
agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents.

 

(b)
From the date hereof until such time as no Purchaser holds any of the Series A-1 or Series A-2 Warrants, the Company shall be
prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common
Stock or Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. “Variable
Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A)
at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies with the trading prices
of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities, or (B)
with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of
such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business
of the Company or the market for the Common Stock or (ii) enters into, or effects a transaction under, any agreement, including,
but not limited to, an equity line of credit, at-the-market offering or similar transaction, whereby the Company may issue securities
at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any
such issuance, which remedy shall be in addition to any right to collect damages. 

 

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(c)
Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of an Exempt Issuance, except that no Variable Rate
Transaction shall be an Exempt Issuance.

 

4.13
Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered
or paid to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the
same consideration is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision
constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended
for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or
as a group with respect to the purchase, disposition or voting of Securities or otherwise.

 

4.14
Certain Transactions and Confidentiality. Each Purchaser, severally and not jointly with the other Purchasers, covenants
that neither it nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or
sales, including Short Sales of any of the Company’s securities during the period commencing with the execution of this
Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to
the initial press release as described in Section 4.4. Each Purchaser, severally and not jointly with the other Purchasers, covenants
that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the
initial press release as described in Section 4.4, such Purchaser will maintain the confidentiality of the existence and terms
of this transaction and the information included in the Disclosure Schedules. Notwithstanding the foregoing and notwithstanding
anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes
any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company
after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press
release as described in Section 4.4, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions in any
securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated
by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4 and (iii) no
Purchaser shall have any duty of confidentiality or duty not to trade in the securities of the Company to the Company or its Subsidiaries
after the issuance of the initial press release as described in Section 4.4. Notwithstanding the foregoing, in the case of a Purchaser
that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s
assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing
other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

 

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4.15
Capital Changes. Until the one year anniversary of the Closing Date, the Company shall not undertake a reverse or forward
stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in
interest of the Shares.

 

4.16
Exercise Procedures. The form of Notice of Exercise included in the Warrants set forth the totality of the procedures required
of the Purchasers in order to exercise the Warrants. No additional legal opinion, other information or instructions shall be required
of the Purchasers to exercise their Warrants. Without limiting the preceding sentences, no ink-original Notice of Exercise shall
be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be
required in order to exercise the Warrants. The Company shall honor exercises of the Warrants and shall deliver Warrant Shares
in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

 

4.17
Lock-Up. The Company shall not amend, modify, waive or terminate any provision of any of the Lock-Up Agreements except
to extend the term of the lock-up period and shall enforce the provisions of each Lock-Up Agreement in accordance with its terms.
If any officer or director that is a party to a Lock-Up Agreement breaches any provision of a Lock-Up Agreement, the Company shall
promptly use its best efforts to seek specific performance of the terms of such Lock-Up Agreement. 

 

ARTICLE
V.

MISCELLANEOUS

 

5.1
Termination. This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only
and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other
parties, if the Closing has not been consummated on or before August 25, 2017; provided, however, that no such termination
will affect the right of any party to sue for any breach by any other party (or parties).

 

5.2
Fees and Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer
Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the
Company and any exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities to the Purchasers.

 

5.3
Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, the Prospectus and the Prospectus
Supplement, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede
all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been
merged into such documents, exhibits and schedules.

 

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5.4
Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall
be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages
attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as
set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time)
on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for
such notices and communications shall be as set forth on the signature pages attached hereto. To the extent that any notice provided
pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries,
the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.

 

5.5
Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written
instrument signed, in the case of an amendment, by the Company and Purchasers which purchased at least 50.1% in interest of the
Shares based on the initial Subscription Amounts hereunder or, in the case of a waiver, by the party against whom enforcement
of any such waived provision is sought, provided that if any amendment, modification or waiver disproportionately and adversely
impacts a Purchaser (or group of Purchasers), the consent of such disproportionately impacted Purchaser (or group of Purchasers)
shall also be required. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise
of any such right. Any proposed amendment or waiver that disproportionately, materially and adversely affects the rights and obligations
of any Purchaser relative to the comparable rights and obligations of the other Purchasers shall require the prior written consent
of such adversely affected Purchaser. Any amendment effected in accordance with this Section 5.5 shall be binding upon each Purchaser
and holder of Securities and the Company.

 

5.6
Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed
to limit or affect any of the provisions hereof.

 

5.7
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors
and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any
Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound,
with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

 

5.8
No Third-Party Beneficiaries. The Placement Agent shall be the third party beneficiary of the representations and warranties
of the Company in Section 3.1 and the representations and warranties of the Purchasers in Section 3.2. This Agreement is intended
for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.8 and this Section 5.8.

 

    	 	31	 

    	 		 

    

 

5.9
Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents
shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard
to the principles of conflicts of law thereof. Each party agrees that all legal Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication
of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including
with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action
or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such Action or Proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If any party shall commence
an Action or Proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company
under Section 4.8, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Action
or Proceeding.

 

5.10
Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.

 

5.11
Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered
one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other
party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.

 

5.12
Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction
to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention
of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any
of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

    	 	32	 

    	 		 

    

 

5.13
Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar
provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under
a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant
notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however,
that, in the case of a rescission of an exercise of a Warrant, the applicable Purchaser shall be required to return any shares
of Common Stock subject to any such rescinded exercise notice concurrently with the return to such Purchaser of the aggregate
exercise price paid to the Company for such shares and the restoration of such Purchaser’s right to acquire such shares
pursuant to such Purchaser’s Warrant (including, issuance of a replacement warrant certificate evidencing such restored
right).

 

5.14
Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation),
or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory
to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances
shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement
Securities.

 

5.15
Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of
damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The
parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations
contained in the Transaction Documents and hereby agree to waive and not to assert in any Action for specific performance of any
such obligation the defense that a remedy at law would be adequate.

 

5.16
Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction
Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other
Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

    	 	33	 

    	 		 

    

 

5.17
Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction
Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way
for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained
herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed
to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption
that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated
by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights including, without
limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary
for any other Purchaser to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented
by its own separate legal counsel in its review and negotiation of the Transaction Documents. For reasons of administrative convenience
only, each Purchaser and its respective counsel have chosen to communicate with the Company through EGS. EGS does not represent
any of the Purchasers and only represents The Placement Agent. The Company has elected to provide all Purchasers with the same
terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any
of the Purchasers. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction
Document is between the Company and a Purchaser, solely, and not between the Company and the Purchasers collectively and not between
and among the Purchasers.

 

5.18
Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under
the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated
damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial
liquidated damages or other amounts are due and payable shall have been canceled.

 

5.19
Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right
required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next
succeeding Business Day.

 

5.20
Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity
to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to
be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments
thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be
subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions
of the Common Stock that occur after the date of this Agreement.

 

5.21
WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER
PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY,
IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY. 

 

(Signature
Pages Follow)

 

    	 	34	 

    	 		 

    

 

IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

 

	DIGITAL
    ALLY, INC.	 	Address
    for Notice:
	 	 	 	 
	By:
    	     	 	 
	Name:	 	 	E-Mail:
	Title:	 	 	Fax:

 

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

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE
PAGE FOR PURCHASER FOLLOWS]

 

    	 	35	 

    	 		 

    

 

[PURCHASER
SIGNATURE PAGES TO DGLY SECURITIES PURCHASE AGREEMENT]

 

IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

 

Name
of Purchaser: ________________________________________________________

 

Signature
of Authorized Signatory of Purchaser: _________________________________

 

Name
of Authorized Signatory: _______________________________________________

 

Title
of Authorized Signatory: ________________________________________________

 

Email
Address of Authorized Signatory:_________________________________________

 

Facsimile
Number of Authorized Signatory: __________________________________________

 

Address
for Notice to Purchaser:

 

Address
for Delivery of Securities to Purchaser (if not same as address for notice):

 

Subscription
Amount: $_________________

 

Shares:
_________________

 

Series
A-1 Warrants: __________________

Series
A-2 Warrants: __________________

Series
B Prefunded Warrants: __________________

 

EIN
Number: _______________________

 

[  ]
Notwithstanding anything contained in this Agreement to the contrary, by checking this box (i) the obligations of the above-signed
to purchase the securities set forth in this Agreement to be purchased from the Company by the above-signed, and the obligations
of the Company to sell such securities to the above-signed, shall be unconditional and all conditions to Closing shall be disregarded,
(ii) the Closing shall occur on the third (3rd) Trading Day following the date of this Agreement and (iii) any condition
to Closing contemplated by this Agreement (but prior to being disregarded by clause (i) above) that required delivery by the Company
or the above-signed of any agreement, instrument, certificate or the like or purchase price (as applicable) shall no longer be
a condition and shall instead be an unconditional obligation of the Company or the above-signed (as applicable) to deliver such
agreement, instrument, certificate or the like or purchase price (as applicable) to such other party on the Closing Date.

 

[SIGNATURE
PAGES CONTINUE]

 

    	 	36ASSET PURCHASE AGREEMENT

dated as of August 25, 2017

by and among

FELLS POINT, LLC

and

FELLS POINT WHOLESALE MEATS, INC.

and

ERIK M. OOSTERWIJK

LEENDERT H. PRUISSEN

 

 

 

 

TABLE OF CONTENTS

	
ARTICLE I. Asset Purchase; Closing

	
1

	 	 	 	 
	 	
1.1

	
Purchase and Sale of Assets

	
1

	 	
1.2

	
Acquired Assets

	
1

	 	
1.3

	
Excluded Assets

	
3

	 	
1.4

	
Liabilities

	
4

	 	
1.5

	
Purchase Price and Adjustments

	
6

	 	
1.6

	
Escrow Agreement

	
8

	 	
1.7

	
Allocation

	
8

	 	
1.8

	
Time and Place of Closing

	
9

	 	
1.9

	
Closing Deliverables

	
9

	 	 	 	 
	
ARTICLE II. Representations and Warranties of THE Seller PARTIES

	
11

	 	 	 	 
	 	
2.1

	
Organization and Power

	
11

	 	
2.2

	
Authorization; Capacity of Individual Sellers

	
11

	 	
2.3

	
Non-Contravention

	
11

	 	
2.4

	
Financial Statements

	
12

	 	
2.5

	
Books and Records

	
12

	 	
2.6

	
Inventory

	
12

	 	
2.7

	
Assets

	
13

	 	
2.8

	
Contracts

	
13

	 	
2.9

	
Absence of Certain Changes

	
13

	 	
2.10

	
Litigation

	
15

	 	
2.11

	
Brokerage

	
15

	 	
2.12

	
Employees

	
16

	 	
2.13

	
Intellectual Property

	
16

	 	
2.14

	
Employee Benefit Plans

	
17

	 	
2.15

	
Insurance

	
18

	 	
2.16

	
Customers and Suppliers

	
18

	 	
2.17

	
Legal Compliance

	
19

	 	
2.18

	
Relationships with Seller Related Persons

	
19

	 	
2.19

	
Tax Matters

	
20

	 	
2.20

	
Environmental Matters

	
20

	 	
2.21

	
Orders, Commitments and Returns

	
21

	 	
2.22

	
Seller Accounts Receivable; Trade Accounts Payable

	
21

	 	
2.23

	
Solvency

	
22

	 	
2.24

	
No Brokers

	
22

	 	
2.25

	
No Undisclosed Liabilities

	
22

	 	
2.26

	
Full Disclosure

	
22

	 	
2.27

	
Investor Matters

	
22

	 	 	 	 

                

	
ARTICLE III. Representations and Warranties of Buyer

	
22

	 	 	 	 
	 	
3.1

	
Organization, Power and Authority

	
22

	 	
3.2

	
Authorization; No Breach

	
22

	 	
3.3

	
Litigation

	
23

	 	
3.4

	
Brokerage

	
23

	 	 	 	 
	
ARTICLE IV. POST-CLOSING Covenants AND AGREEMENTS

	
23

	 	 	 	 
	 	
4.1

	
Employee Matters and Employee Benefits

	
23

	 	
4.2

	
Non-Competition

	
24

	 	
4.3

	
Further Assurances

	
25

	 	
4.4

	
Confidentiality

	
26

	 	
4.5

	
Transfer Taxes

	
27

	 	
4.6

	
Misdirected Payments

	
27

	 	
4.7

	
Consents to Assign Contracts

	
27

	 	
4.8

	
Payment of Excluded Liabilities

	
28

	 	
4.9

	
Bulk Sales

	
28

	 	
4.10

	
Books and Records

	
28

	 	
4.11

	
Restrictions on Seller Dissolution

	
29

	 	
4.12

	
Certain Activities

	
29

	 	 	 	 
	
ARTICLE V. Indemnification

	
29

	 	 	 	 
	 	
5.1

	
Survival

	
29

	 	
5.2

	
Indemnification

	
29

	 	
5.3

	
Limits on Indemnification

	
31

	 	
5.4

	
Matters Involving Third Parties

	
32

	 	
5.5

	
Right to Offset

	
33

	 	
5.6

	
Investigation

	
33

	 	 	 	 
	
ARTICLE VI. MISCELLANEOUS

	
34

	 	 	 	 
	 	
6.1

	
Fees and Expenses

	
34

	 	
6.2

	
Press Release and Announcements

	
34

	 	
6.3

	
Remedies

	
34

	 	
6.4

	
Consent to Amendments; Waivers

	
34

	 	
6.5

	
Successors and Assigns

	
34

	 	
6.6

	
Severability

	
34

	 	
6.7

	
Counterparts

	
35

	 	
6.8

	
Descriptive Headings; Interpretation

	
35

	 	
6.9

	
Entire Agreement

	
35

	 	
6.10

	
No Third-Party Beneficiaries

	
35

	 	
6.11

	
Schedules and Exhibits

	
35

	 	
6.12

	
Governing Law

	
35

               

                   

	 	
6.13

	
Venue

	
35

	 	
6.14

	
Waiver of Jury Trial

	
36

	 	
6.15

	
Notices

	
36

	 	
6.16

	
No Strict Construction

	
37

	 	
6.17

	
Seller Representative

	
37

 

 

 

 

 

 

 

 

 

 

                   

ANNEXES

	Annex A          	-          	Definitions

EXHIBITS

	Exhibit A          	-          	Form of Earn-Out Agreement

	Exhibit B          	-          	Estimated Working Capital Statement

	Exhibit C          	-          	Form of Escrow Agreement

	Exhibit D          	-          	Form of Bill of Sale and Assignment and Assumption Agreement

	Exhibit E          	-          	Form of Offer Letters

	Exhibit F          	-          	Form of Non-Competition Agreement and Non-Solicitation Agreement

	Exhibit G          	-          	(RESERVED)

	Exhibit H          	-          	Form of Lease

	Exhibit I          	-          	Form of Lock-Up Agreement

SCHEDULES

	Schedule 1.2(d)	
Acquired Assets - Acquired Intellectual Property

	Schedule 1.2(g)	
Acquired Assets - Personal Property

	Schedule 1.2(k)	
Acquired Assets - Seller Accounts Receivable

	Schedule 1.3(d)	
Excluded Assets - Loans and Accounts Payable to Seller

	Schedule 1.3(e)	
Excluded Assets - Excluded Contracts

	Schedule 1.3(l)	
Excluded Assets - Items of Personal Property

	Schedule 1.4(a)(ii)	
Assumed Liabilities – Trade Accounts Payable

	Schedule 1.4(a)(iii)	
Assumed Liabilities – Accrued Expenses

	Schedule 1.4(b)(vii)	
Excluded Employment Claims

	Schedule 1.9(a)(iv)	
Offer Letters

	Schedule 1.9(a)(v)	
Non-Competition Agreements and Non-Solicitation Agreements

	Schedule 2.8	
Material Contracts

	Schedule 2.12(a)	
Seller Employees

	Schedule 2.12(c)	
Seller Employees’ Employment Status Details

	Schedule 2.13	
Intellectual Property

	Schedule 2.14(a)	
Employee Benefit Plans

	Schedule 2.16	
Customers and Suppliers

	Schedule 2.17(d)	
Governmental Licenses

	Schedule 2.18	
Relationships with Seller Related Persons

	Schedule 2.19	
Tax Matters

 

 

 

 

 

                  

ASSET PURCHASE AGREEMENT

 

This asset purchase agreement (this “Agreement”), is dated as of August 25, 2017, by and among Fells Point, LLC, a Delaware limited liability company (“Buyer”), Fells Point Wholesale Meats, Inc., a Maryland close corporation without a board of directors (“Seller”), and Seller’s stockholders (the “Stockholders” and together with Seller, the “Seller Parties”, and the Seller Parties, together with Buyer, the “Parties”). Capitalized terms used herein and not otherwise defined in this Agreement have the meanings given to such terms in Annex A hereto.

 

RECITALS

 

WHEREAS, Seller owns the assets used in the conduct of the Business; and

 

WHEREAS, Seller desires to sell, and Buyer desires to purchase from Seller, the Acquired Assets, on the terms and subject to the conditions set forth in this Agreement;

 

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows:

 

AGREEMENT

 

 

ARTICLE I.

ASSET PURCHASE; CLOSING

 

1.1          Purchase and Sale of Assets. Upon the terms and conditions set forth herein, at the Closing and effective as of the Effective Time, Buyer agrees to purchase from Seller and Seller agrees to sell, transfer, assign, convey and deliver to Buyer, all of Seller’s right, title and interest in, to and under the Acquired Assets, free and clear of all Liens.

 

1.2          Acquired Assets.  As used herein, “Acquired Assets” means, other than the Excluded Assets, any and all assets, properties, rights, licenses, Contracts, causes of action and businesses of every kind and description, wherever located, real, personal or mixed, tangible or intangible, to the extent owned, licensed or leased by Seller and used (or held for use) in the Business, including, but not limited to, all of Seller’s right, title and interest in, to and under the following:

 

(a)          the Inventory of Seller (the “Acquired Inventory”);

 

(b)          all of Seller’s rights under suppliers’ manufacturers’, vendors’ and contractors’ guaranties, indemnities, representations and warranties relating to the Acquired Assets, the Business or the Assumed Liabilities and all similar rights against third parties relating to the Acquired Assets, the Business or the Assumed Liabilities;

 

 

(c)          the complete list of Seller’s and its affiliates’ customers and suppliers (including all contact information, customer files, records and sales information on hand with respect to each such customer or supplier);

 

(d)          all Intellectual Property of Seller used (or held for use) in the Business, including the items identified on Schedule 1.2(d) (the “Acquired Intellectual Property”);

 

(e)          all goodwill and going concern value of Seller relating to the Business;

 

(f)          all rights and benefits of Seller under Contracts relating to the Business, but specifically excluding the Excluded Contracts (collectively, the “Assumed Contracts”);

 

(g)          all tangible personal property of Seller used (or held for use) in the Business, including the Acquired Inventory, all of which is identified on Schedule 1.2(g) (collectively, the “Personal Property”);

 

(h)          to the extent transferable, all Governmental Licenses held by Seller related to the Business;

 

(i)          all existing books, records, files, papers and correspondence of Seller (whether in original, photostatic, electronic or other form or medium) related to the Business, the Acquired Assets or the Assumed Liabilities, including all lists of customers (past and present), potential customers and vendors (past and present), all files and documents relating to customers and vendors, copies of all Assumed Contracts, sales records, invoices, inventory records, personnel and employment files and records relating to the Hired Employees (to the extent permitted by Law), cost and pricing information, business plans, catalogs, quality control records and manuals, research and development files, Trademark files and litigation files, financial and accounting records and service and warranty records;

 

(j)          all claims of Seller against third parties relating to the Acquired Assets;

 

(k)          all of Seller’s accounts, accounts receivable and notes receivable, whether or not billed or accrued or recorded or unrecorded, together with any unpaid interest or fees accrued thereon or other amounts due with respect thereto arising from or related to the Business, including those accounts receivable set forth on Schedule 1.2(k), and excluding the loans and accounts payable to Seller by certain of its affiliates and Stockholders set forth on Schedule 1.3(d) (the “Seller Accounts Receivable”);

 

(l)          all rights of Seller relating to deposits, security deposits and prepaid expenses, claims of refunds and rights to offset in respect thereof that are not excluded under Section 1.3; and

 

2

 

1.3          Excluded Assets.          Notwithstanding the provisions of Section 1.2 and the designation of Acquired Assets included therein, Seller is not selling, and shall retain as its sole right, title and interest, and Buyer is not purchasing nor shall Buyer have any right, title or interest, pursuant to this Agreement, Seller’s right, title and interest in, to and under the following (collectively, the “Excluded Assets”), all of which shall be retained by Seller:

 

(a)          any real property interests owned by Seller and any accounts due to or from Seller related to real property;

 

(b)          any real property leases of Seller;

 

(c)          all cash, cash equivalents and investments (except for any cash, cash equivalents and investments included in the Estimated Working Capital);

 

(d)          all claims, causes of action, choses in action, rights to insurance or indemnity, rights of recovery and rights of set-off of any kind against any Person to the extent arising out of or relating to any Excluded Asset or Excluded Liability;

 

(e)          all rights of Seller under any Contract identified in Schedule 1.3(e) (the “Excluded Contracts”);

 

(f)          all Tax Returns, and all notes, worksheets, files or documents relating thereto, for any Pre-Closing Tax Period, provided that Buyer shall be entitled to receive copies thereof to the extent any information related to the Acquired Assets is included therein;

 

(g)          any bill backs, discounts or supplier rebates relating to the Acquired Inventory to the extent received by Seller prior to Closing;

 

(h)          all claims for and rights to receive refunds, rebates or similar payments of Taxes to the extent such Taxes were paid by or on behalf of Seller with respect to the Acquired Assets for any Pre-Closing Tax Period or for any Tax period ending on or prior to the Effective Time;

 

(i)          all claims, causes of action, choses in action and rights to insurance under insurance policies related to events or occurrences prior to the Closing, so long as such events or occurrences shall not impact the Acquired Assets post-Closing;

 

(j)          all Employee Plans;

 

(k)          the rights of Seller under this Agreement and each other Transaction Document;

 

(l)          those items of personal property listed on Schedule 1.3(l); and

 

(m)          the original minute books and stock records of Seller (provided, that copies of all such minute books and stock records shall be delivered to Buyer).

 

3

                

1.4          Liabilities.

 

(a)          Assumed Liabilities.  Upon the terms and conditions set forth herein, at the Closing and effective as of the Effective Time, Buyer shall assume and agree to pay, perform and discharge, when due, only the following Liabilities of Seller (the “Assumed Liabilities”):

 

(i)          all Liabilities of Seller under or related to the Assumed Contracts which are incurred on or after the Effective Time (excluding any Liabilities arising as a result of any act or omission which occurred prior to the Effective Time or the breach of any representation or warranty hereunder by any of Seller);

 

(ii)         certain trade accounts payable identified on Schedule 1.4(a)(ii);

 

(iii)        the accrued expenses identified on Schedule 1.4(a)(iii); and.

 

(b)          Excluded Liabilities.  Notwithstanding any provision in this Agreement to the contrary, except for the Assumed Liabilities, Buyer shall not assume or be obligated to pay, perform or otherwise discharge any other Liabilities of Seller.  From and after the Closing, Seller shall remain liable for and shall pay, perform and discharge when due all Liabilities of Seller and its Affiliates that are not specifically included in the Assumed Liabilities (the “Excluded Liabilities”), including, but not limited to, the following:

 

(i)          all Liabilities of Seller under or related to the Excluded Assets, including all Liabilities of Seller under or related to Excluded Contracts;

 

(ii)         all Liabilities of Seller arising from the breach or default (or any act or omission by Seller which, with or without notice or lapse of time or both, would constitute a breach or default) prior to the Closing of any term, covenant or provision of any Contract;

 

(iii)        all Liabilities of Seller related to the current portion of long-term debt, cash overdrafts and the fair value of derivatives;

 

(iv)        all Liabilities for Taxes with respect to the Business or Acquired Assets for all periods prior to the Effective Time;

 

(v)         all Liabilities of Seller now existing or which may hereafter exist by reason of any violation or alleged violation of any Laws, including but not limited to any Laws with respect to the termination of employment or period of service of any employee or independent contractor employed or retained by Seller, or any of their Affiliates, before or at the time of the Closing, or by an employee or independent contractor of Seller in which Seller is alleged to be responsible for the acts or omissions of any such Person, relating to the ownership, use or operation of the Acquired Assets or the Business prior to the Closing;

 

(vi)         all Liabilities of Seller arising out of or relating to any Proceeding against Seller or any of their employees or agents to the extent (A) resulting from any acts or omissions which occurred prior to the Closing, (B) in respect of the operation of the Business to the extent such litigation or claim related to the operation of the Business on or prior to the Closing Date, or (C) with respect to any Excluded Assets;

 

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(vii)        all Liabilities arising out of or related to any Employee Plan, or relating to payroll, vacation, sick leave, workers’ compensation, unemployment benefits, pension benefits, employee equity incentive or profit sharing plans, health care plans or benefits, or any other employee plans or benefits of any kind for Seller’s or any of Seller’s Affiliates’ employees or former employees or both, including but not limited to claims listed on Schedule 1.4(b)(vii);

 

(viii)       all Liabilities arising out of or relating to violations of any Environmental Laws arising from any real property owned or utilized in connection with the Business prior to the Closing, including the Wilmarco Avenue Property (the “Real Property”), or any condition thereon;

 

(ix)        any Liability arising out of or relating to Seller’s leasing or operation of the Real Property;

 

(x)         any Liability to any taxing authority arising out of Laws applicable to bulk sales transactions and any Liability arising out of non-compliance with such bulk sales Laws (except for any applicable sales Taxes due with respect to the transfer to Buyer of owned motor vehicles included in the Acquired Assets, as provided in Section 4.5);

 

(xi)        any Liability to indemnify, reimburse or advance amounts to any officer, director, employee or agent of Seller;

 

(xii)       any Liability arising out of or relating to the products of Seller to the extent sold prior to the Effective Time;

 

(xiii)      any Liability of Seller or any other Person to distribute to the Stockholders or otherwise apply all or any part of the consideration received hereunder;

 

(xiv)      any Liability of Seller for income, transfer, sales, use, and other Taxes arising in connection with the consummation of the transactions contemplated hereby (including any income Taxes arising because Seller is transferring the Acquired Assets);

 

(xv)       all obligations of Seller for Indebtedness, including obligations under guarantees for Affiliate Indebtedness;

 

(xvi)      all Liabilities arising out of or relating to the termination of employment or period of service of any employee or independent contractor employed or retained by Seller, or any of its Affiliates, or arising out of or relating to Seller’s sale of the Business or any of the Acquired Assets to Buyer, on or prior to the Closing; and

 

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1.5          Purchase Price and Adjustments.

 

(a)          Payment of Purchase Price.  At the Closing, Buyer shall purchase the Acquired Assets from Seller, for aggregate consideration of (i) $33,000,000, subject to post-Closing adjustment as set forth herein (the “Base Purchase Price”) plus (ii) the assumption by Buyer of the Assumed Liabilities, plus (iii) the Earn-Out Amount of up to $12,000,000, to be paid in four equal installments when and if earned pursuant to the Earn-Out Agreement (together with the amount in (i), the “Total Purchase Price”). The Base Purchase Price shall be comprised of (i) cash consideration of $30,000,000 (the “Closing Cash Consideration”), and (ii) shares of Parent Common Stock in an amount equal to the quotient of (A) $3,000,000 divided by (B) the Parent Stock Average Price, and rounded down to the nearest whole share (the “Closing Stock Consideration”).  The maximum Total Purchase Price, without regard to the value of Assumed Liabilities or any adjustment, is $45,000,000.  At the Closing and in accordance with the Closing Statement, Buyer shall (1) pay Seller the Closing Cash Consideration, less the Closing Date Adjustment Amount (defined below), and less the Escrow Amount, by wire transfer of immediately available funds; and (2) simultaneously at the Closing, Buyer shall transfer the Closing Stock Consideration, in equal proportion, to each of Seller’s Stockholders, as instructed by Seller. As a condition of receiving the Stock Consideration, each Stockholder shall execute a lock-up agreement in the form attached hereto as Exhibit A (each, a “Lock-Up Agreement”).

 

(b)          Closing Date Working Capital.  Attached hereto as Exhibit B is an estimated balance sheet of the Business as of the Effective Time, prepared by Seller (the “Estimated Working Capital Statement”), which sets forth Working Capital that will be included in the Acquired Assets and assumes that Working Capital is no less than the average Working Capital during the 12 months preceding the Closing Date (the “Estimated Working Capital”).  The Estimated Working Capital Statement shall be prepared and interpreted in accordance with GAAP, and, to the extent not inconsistent with GAAP, in a manner consistent with the preparation of the Financial Statements, subject to the following:  (i) Inventory shall be valued, in the aggregate, on a last cost basis; (ii) no amount shall be reflected with respect to Inventory that is damaged, beyond the stated expiration date, thawed and refrozen, mislabeled, subject to recall, or that consists of a quality or quantity not usable or saleable in the ordinary course of business; (iii) no amount shall be reflected with respect to Seller Accounts Receivable (A) that are subject to dispute, offset, counterclaim or other claim or defense, (B) that are past due by greater than sixty (60) days from the date of invoicing, or (C) that are not evidenced by an invoice rendered to the customer; and (iv) the calculation of Working Capital shall take into account any rebates, bill backs or other discounts. The Total Purchase Price assumes that the Acquired Assets include net Working Capital on the Closing Date equal to $4,882,736 (the “Targeted Working Capital”). If the Estimated Working Capital is greater or less than the Targeted Working Capital, the cash payable to Seller on the Closing Date shall be increased or reduced dollar-for-dollar by the amount of the excess or shortfall (the “Closing Date Adjustment Amount”), without affecting the Total Purchase Price payable pursuant to the Post-Closing Adjustment pursuant to Section 1.5(c). No adjustment shall be made on the Closing Date for any excess of Estimated Working Capital over Targeted Working Capital. The amount of net Working Capital credited to Seller on the Closing Date is referred to below as the “Closing Date Working Capital”).

 

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(c)          Post-Closing Purchase Price Adjustment.  On or before the 120th day following the Closing Date, Buyer shall prepare and deliver to Seller Representative a statement setting forth the actual Working Capital (the “Actual Working Capital”) as of the Effective Time (the “Actual Working Capital Statement”). The Actual Working Capital Statement shall be prepared in a manner consistent with the preparation of the Estimated Working Capital Statement; provided, however, that for purposes of the Actual Working Capital Statement, Working Capital will include any amounts collected by Buyer for Seller Accounts Receivable even if such Seller Accounts Receivable were not reflected in the Estimated Working Capital Statement; and provided further that any Seller Accounts Receivable, whether or not reflected in the Estimated Working Capital Statement, will be disregarded for purposes of the Actual Working Capital Statement to the extent such Seller Accounts Receivable remain uncollected 120 days following the Closing. During the 30-day period immediately following delivery to Seller Representative of the Actual Working Capital Statement, Buyer shall promptly on written request of Seller Representative or its agents deliver to same, and Seller Representative and its agents and representatives shall be permitted to review, Buyer’s working papers related to the preparation and determination of the Actual Working Capital Statement.  The Actual Working Capital Statement shall become final and binding upon the Parties 30 days following delivery to Seller Representative or its agent, unless Seller Representative gives written notice of disagreement (a “Notice of Disagreement”) to Buyer prior to such date.  Any Notice of Disagreement shall specify in reasonable detail the nature and dollar amount of any disagreement so asserted. If Seller sends a Notice of Disagreement within 30 days following delivery to Seller Representative or its agent of the Actual Working Capital Statement, each undisputed item on the Actual Working Capital Statement shall become final and binding and each disputed item on the Actual Working Capital Statement shall become final and binding on the earliest of (x) the date Buyer and Seller Representative resolve in writing each such difference they have with respect to the matters specified in the Notice of Disagreement and (y) the date on which each such matter in dispute is finally resolved by the Independent Accountant (defined below).  After the 45 days following delivery of a Notice of Disagreement, if Buyer and Seller Representative have not resolved all differences outlined in the Notice of Disagreement, Buyer and Seller Representative, unless otherwise mutually agreed to in writing, shall submit to a nationally recognized accounting firm (the “Independent Accountant”) proposed by Buyer and reasonably acceptable to the Seller Representative for review and resolution only such matters that remain in dispute and that were properly included in the Notice of Disagreement.  Buyer and Seller Representative shall instruct the Independent Accountant to resolve such disputed matters within 30 days of submission by assigning a value to each item in dispute no greater than the greatest value for such item assigned by either Buyer or Seller Representative, and no lesser than the smallest value of such item assigned by either Buyer or Seller Representative. Buyer and Seller Representative shall each pay half of the fees and expenses of the Independent Accountant upon invoice.

 

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Upon the final determination of the Actual Working Capital as set forth in this Section 1.5(c): (x) if the Actual Working Capital exceeds the Closing Date Working Capital, then Buyer shall pay to Seller Representative an amount equal to the difference between the Actual Working Capital and the Closing Date Working Capital (net of any Closing Date Adjustment Amount) within 30 days of demand by Seller Representative; and (y) if Actual Working Capital is less than Closing Date Working Capital, Seller shall pay to Buyer an amount equal to the difference between the Actual Working Capital and the Closing Date Working Capital within 10 days of final determination (in each instance under clause (x) or (y) above, the “Post-Closing Adjustment”). Notwithstanding the foregoing, if the Post-Closing Adjustment is payable to Buyer, then Buyer may seek recovery of any Post-Closing Adjustment owed to it in the following priority: (1) from the escrowed funds, (2) if the escrowed funds are less than the amount of the Post-Closing Adjustment, demand payment from the Seller directly, or (3) if the escrowed funds and payments received directly from Seller are together less than the Post-Closing Adjustment, offset such amount against any amount owed to Seller pursuant to the Earn-Out Agreement. Buyer shall have direct recourse against the Seller Parties, jointly and severally, for any portion of the Post-Closing Adjustment owed to Buyer after the escrowed funds have been exhausted, and the Seller Parties shall pay such amount to Buyer within 10 days of demand. The Seller Parties shall, within 10 days of Buyer’s demand, replenish any portion of the Escrow Amount that is depleted to pay any Post-Closing Adjustment owed to Buyer.

Any payments made under this Section 1.5(c) shall be treated by the Parties as an adjustment to the Total Purchase Price for Tax purposes.

1.6          Escrow Agreement.  At the Closing, Buyer, the Seller Parties, and the Escrow Agent shall enter into an Escrow Agreement, dated as of the date hereof in the form of Exhibit C attached hereto (the “Escrow Agreement”), which provides for the payment by Buyer to the escrow account (the “Escrow Account”) of $3,300,000 (together with any interest accrued thereon, the “Escrow Amount”).

 

1.7          Allocation. Both Seller and Buyer shall propose to each other a purchase price allocation (in accordance with Code Section 1060 and the Treasury Regulations promulgated thereunder) as soon as practicable following the Closing, but in no event later than 60 days following the Closing Date, and shall reasonably agree upon the final allocation (the “Allocation”).  Seller and Buyer shall endeavor to agree on a reasonable approach regarding the Allocation. In the event, however, that Buyer and Seller are unable to agree on the Allocation within 30 days after delivery of both of the proposed Allocations, Buyer, Seller and their respective Affiliates shall report, act and file Tax Returns (including, but not limited to IRS Form 8594) in all respects and for all purposes consistent with their respective determinations of the Allocation, and shall furnish to each other their respective IRS Forms 8594 prior to filing their federal income Tax Returns for the current fiscal year. To the extent that Seller and Buyer reach an agreement on the Allocation, neither Buyer nor Seller shall take any position (whether in audits, Tax Returns or otherwise) that is inconsistent with the Allocation unless required to do so by applicable Law.

 

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1.8          Time and Place of Closing.  The consummation of the transactions contemplated by and the delivery of related documents, instruments and agreements provided for in this Agreement (collectively, the “Closing”) shall take place simultaneously with the signing of this Agreement.  The Parties and their respective representatives need not be physically present at the Closing, which may be effected through electronic means. The Closing will be effective as of 11:59 p.m. Eastern Time (the “Effective Time”) on August 25, 2017 (the “Closing Date”).

 

1.9          Closing Deliverables.

 

(a)          Closing Deliverables of the Seller Parties. At the Closing, the Seller Parties shall deliver to Buyer, in addition to any other documents to be delivered under the provisions of this Agreement, all of the following:

 

(i)          a closing statement setting forth the order of funds flow, dated as of the date hereof, duly executed by each of the Seller Parties (the “Closing Statement”);

 

(ii)          the Escrow Agreement, duly executed by each of the Seller Parties;

 

(iii)          a bill of sale and assignment and assumption agreement with respect to the Acquired Assets, substantially in the form attached hereto as Exhibit D (the “Bill of Sale and Assignment and Assumption Agreement”), duly executed by Seller;

 

(iv)          offer letters, in the form attached hereto as Exhibit E (the “Offer Letters”), duly executed by those Persons identified on Schedule 1.9(a)(iv);

 

(v)          non-competition and non-solicitation agreements, in the form attached hereto as Exhibit F (the “Non-Competition Agreements and Non-Solicitation Agreements”), duly executed by those Persons identified on Schedule 1.9(a)(v);

 

(vi)          the Earn-Out Agreement, duly executed by each of the Seller Parties;

 

(vii)          evidence of full and complete payment of all Indebtedness (including payoff letters with respect thereto) and releases of all Liens (other than Permitted Liens with respect to the Acquired Assets) on the Acquired Assets, including the termination of all security interests with respect to the Acquired Assets, in each case in a form reasonably acceptable to Buyer;

 

(viii)          a certificate of the secretary of Seller (A) certifying that attached thereto are true and complete copies of all resolutions adopted by Seller’s stockholders authorizing the execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby; (B) certifying that attached thereto are true and complete copies of Seller’s articles of incorporation (or similar document), as amended through and in effect on the Closing Date; (C) certifying that attached thereto are true and complete copies of Seller’s bylaws, as amended through and in effect on the Closing Date; and (D) certifying as to the incumbency of the officer(s) of Seller executing this Agreement and the Transaction Documents on behalf of Seller;

 

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(ix)          a good standing certificate or comparable document, dated not earlier than the tenth (10th) Business Day prior to the Closing Date, of the Maryland State Department of Assessments and Taxation, and in each state in which Seller is qualified to conduct business, stating that Seller is in good standing or has comparable active status;

 

(x)           a lease agreement (the “Lease”) for Seller’s existing facility, duly executed on behalf of the landlord, in the form attached hereto as Exhibit H.

 

(xi)          an estoppel letter from Monroe Holdings, LLC pertaining to the Wilmarco Avenue Property, in form and substance satisfactory to Buyer, and including a consent to the transactions contemplated by this Agreement

 

(xii)         the Lock-Up Agreements, each duly executed by the respective Stockholder.

 

(xiii)        such other documents relating to the transactions contemplated by this Agreement as Buyer may reasonably request.

 

(b)          Closing Deliverables of Buyer. At the Closing, Buyer shall deliver to the Seller Parties all of the following:

 

(i)          the Base Purchase Price (as adjusted pursuant to Section 1.5(c)), less the Escrow Amount placed in the Escrow Account pursuant to Section 1.6, payable by wire transfer of immediately available funds in accordance with the Closing Statement;

 

(ii)         the Closing Statement, the Escrow Agreement, the Earn-Out Agreement, the Bill of Sale and Assignment and Assumption Agreement, the Offer Letters, the Non-Competition Agreements and Non-Solicitation Agreements and the Lease, in each case duly executed by Buyer;

 

(iii)        a certificate of the secretary of Buyer (A) certifying that attached thereto are true and complete copies of all resolutions adopted by Buyer’s board of directors, authorizing the execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby; (B) certifying that attached thereto are true and complete copies of Buyer’s certificate of incorporation (or similar document), as amended through and in effect on the Closing Date; (C) certifying that attached thereto are true and complete copies of Buyer’s bylaws, as amended through and in effect on the Closing Date; and (D) certifying as to the incumbency of the officer(s) of Buyer executing this Agreement and the Transaction Documents on behalf of Buyer;

 

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(iv)        a certificate, dated not earlier than the tenth (10th) Business Day prior to the Closing Date, of the Secretary of State of the State of Delaware, stating that Buyer is in good standing or has comparable active status in such state; and

            

(v)         such other documents relating to the transactions contemplated by this Agreement as Seller Representative may reasonably request.

               

ARTICLE II.

REPRESENTATIONS AND WARRANTIES OF THE SELLER PARTIES

 

The Seller Parties represent and warrant to Buyer as follows:

 

2.1          Organization and Power.

 

(a)          The Seller is a corporation duly organized, validly existing and in good standing under the Laws of the State of Maryland.  The Seller is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of the business conducted by it makes such qualification or license necessary.

 

(b)          The Seller possesses all requisite corporate power and authority necessary to carry on the Business as presently conducted, to execute and deliver this Agreement and all other agreements and documents contemplated hereby (the “Transaction Documents”) to which it is a party, and to carry out the transactions contemplated by this Agreement and the Transaction Documents to which it is a party.

 

2.2          Authorization; Capacity of Individual Sellers. Each Seller Party’s execution, delivery and performance of this Agreement and the Transaction Documents to which it is a party have been duly authorized by such Seller Party, or, in the case of a Seller Party that is a natural person, it is within such Seller Party’s full legal right, power, and capacity. This Agreement and the Transaction Documents constitute valid and binding obligations of the Seller Parties, enforceable in accordance with their terms, except as may be limited by applicable bankruptcy, insolvency or similar Laws affecting creditors’ rights generally or by general principles of equity (the “Creditors’ Rights and Equitable Limitations”).

 

2.3          Non-Contravention. The execution, delivery and performance by the Seller Parties of this Agreement and the Transaction Documents to which any of them is a party, and the fulfillment of and compliance with the respective terms hereof and thereof by the Seller Parties, as applicable, do not and shall not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) result in the creation of any Lien upon the Acquired Assets pursuant to, (iii) result in a violation of, or (iv) require any authorization, Consent, exemption or other action by or notice or declaration to, or filing with, any third party or any Government Entity pursuant to (A) the organizational documents of Seller, (B) any agreement to which any Seller Party is subject, or (C) any Law to which any Seller Party is subject.  The Seller Parties have obtained all Consents, approvals, authorizations or orders of third parties, including Government Entities, necessary for the authorization, execution and performance of this Agreement and the Transaction Documents by the Seller Parties, as applicable, including for assignment of any Assumed Contract.

 

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2.4          Financial Statements.  The Seller has delivered to Buyer:  (a) independently compiled balance sheets of Seller as of 2014, 2015 and 2016, and the related statement of income and account-specific revenue and margin data for each of the fiscal years then ended (the “Annual Financial Statements”), and (b) unaudited interim fiscal monthly financial statements for Seller for the fiscal year in which the Closing occurs up to and including the last fiscal month prior to the fiscal month in which the Closing occurs (the “Monthly Financial Statements,” and collectively with the Annual Financial Statements, the “Financial Statements”).  The Financial Statements have been prepared consistent with the past practice of the Business and fairly present the assets, liabilities, financial condition and results of operations of the Business as at the respective dates thereof and for the periods therein referred to, all in accordance with GAAP except for the lack of footnote disclosure in Monthly Financial Statements.

 

2.5          Books and Records.  The Seller has delivered or provided to Buyer for its review true, complete and correct copies of the following items, as amended and presently in effect, for Seller: (a) certificates of incorporation or similar organizational documents, (b) bylaws, (c) minute books, or similar corporate records, (d) stock registration books, and (e) and any stockholders’ agreement or other similar agreements governing the rights as between the equity holders thereof.  The minute books, or similar corporate records, contain a record of all director, shareholder, member or manager meetings and actions taken without a meeting from the date of its incorporation to the date hereof.  The stock registration books are complete and accurate and contain a complete record of all transactions in Seller’s equity interests from the date of its incorporation to the date hereof.

 

2.6          Inventory. The Seller Inventory (i) is merchantable and fit for the purpose for which it was procured or manufactured, is not damaged, is not beyond its stated expiration date or thawed and re-frozen, and consists of a quantity and quality usable and saleable in the ordinary course of business, as conducted by Seller in a commercially reasonable manner, and (ii) has been valued in the Financial Statements on a last cost basis, net of any related bill backs, discounts or supplier rebates to the extent actually received by Seller prior to the date hereof; provided however, that any related bill backs, discounts or supplier rebates received by Buyer or the Seller Parties following the Closing with respect to such items will be for the benefit of Buyer.  The Seller Inventory has been stored in compliance with all Laws and is not adulterated or mislabeled, misbranded or unsafe within the meaning of the Federal Food, Drug and Cosmetic Act (the “FDA Act”) (including the Pesticide and Food Additive Amendment of 1958) and the regulations thereunder.

 

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2.7          Assets. The Seller has good and valid title to the Seller Assets, free and clear of all Liens. There are no rights of first offer, rights of first refusal or other agreements or understandings with respect to the sale or transfer of the Seller Assets.  The Seller Assets constitute all assets necessary to conduct the Business as conducted on the date hereof.  The Seller neither owns nor leases any real property assets used in the operation of the Business other than the Real Property.  All Personal Property included in the Seller Assets is in good and usable condition except for ordinary wear and tear.

 

2.8          Contracts.  Schedule 2.8 sets forth a list of all Material Contracts.  No Seller Party has violated or breached, or committed any default under, any Material Contract and each Material Contract is (a) in full force and effect and (b) a legal, valid and binding obligation of the applicable Seller, subject to Creditors’ Rights and Equitable Limitations and, to the Knowledge of the Seller Parties, a legal, valid and binding obligation of each other party thereto, subject to Creditors’ Rights and Equitable Limitations.  To the Knowledge of the Seller Parties, each other party to the Material Contracts has performed in all respects all obligations required to be performed by it and has not violated, breached or committed any default in any respect.  There has not occurred any event or events that, with or without the lapse of time or the giving of notice or both, constitutes a default, breach or violation by any Seller Party of any Material Contract.  No Seller Party has given to, or received from, any other party to any Material Contract any notice or other communication regarding any actual or alleged breach of or default under, or threat or indication of any intention to terminate prior to the expiration of its term, any Material Contract.

 

2.9          Absence of Certain Changes.  Since December 31, 2016, the Seller has not:

 

(a)          suffered any Material change in its Working Capital, financial condition, assets, liabilities, business or prospects, experienced any labor difficulty, or suffered any casualty loss (whether or not insured);

 

(b)          made any Material change in the Business or operations or in the manner of conducting the Business other than changes in the ordinary course of business;

 

(c)          incurred any Liabilities, except Liabilities which are reflected or reserved against in the Financial Statements or that were incurred since the date of the Monthly Financial Statements, in the ordinary course of business and consistent with past practice, or experienced any change in any assumptions underlying or methods of calculating any bad debt, contingency or other reserves;

 

(d)          paid, discharged or satisfied any Lien or Liability, other than Liens or Liabilities which are reflected or reserved against in the Financial Statements and which were paid, discharged or satisfied since the date thereof in the ordinary course of business and consistent with past practice;

 

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(e)          written down the value of any Inventory, or written off as uncollectible any notes or accounts receivable or any portion thereof, except for write-downs and write-offs of less than $10,000 in the aggregate;

 

(f)          authorized or adopted a plan of liquidation or dissolution;

 

(g)          canceled any other debts or claims, or waived any rights of substantial value;

 

(h)          sold, transferred or conveyed any of its properties or assets (whether real, personal or mixed, tangible or intangible), except in the ordinary course of business and consistent with past practice;

 

(i)          entered into a settlement or compromise of any pending or threatened Proceeding;

 

(j)          granted any increase in the base compensation, or paid any bonuses or other non-base compensation to (including, without limitation, any severance or termination pay), of any officer, director, employee or agent (including, without limitation, any increase pursuant to any bonus, pension, profit sharing or other plan or commitment) except in the ordinary course of business and consistent with past practices or adopted any Employee Plan, and no such increase or payment, or the adoption of any such Employee Plan, is planned or required;

 

(k)          made any capital expenditures or commitments in excess of $10,000 in the aggregate for replacements or additions to property, plant, equipment or intangible capital assets;

 

(l)          declared, paid or made or set aside for payment or making, any dividend or other distribution in respect of its capital stock or other securities, except for dividend distributions in the ordinary course of business and consistent with past practices or directly or indirectly redeemed, purchased or otherwise acquired any of its capital stock or other securities;

 

(m)          made any change in any method of accounting or accounting practice;

 

(n)          paid, loaned or advanced any amount to or in respect of, or sold, transferred or leased any properties or assets (real, personal or mixed, tangible or intangible) to, or entered into any agreement, arrangement or transaction with, any Stockholder, or any Affiliates or associates of Seller, or any of their respective officers, directors or managers, or any business or entity in which any of such Persons has any direct or indirect interest in Seller, except for, compensation to the officers and employees of Seller at rates not exceeding the rates of compensation in effect at December 31, 2016, and advances to Seller Employees in the ordinary course of business for travel and expense disbursements in accordance with past practice, but not in excess of $2,500 at any one time outstanding;

                  

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(o)          sold, transferred, licensed, abandoned, let lapse encumbered or otherwise disposed of any Intellectual Property;

 

(p)          suffered any Material Adverse Effect;

 

(q)          failed to preserve and maintain all Consents required for the conduct of the Business as currently conducted or the ownership and use of the Seller Assets;

 

(r)          failed to pay the debts, Taxes and other obligations of the Business or such Party when due;

 

(s)          failed to collect accounts receivable in a manner consistent with past practice, without discounting such accounts receivable;

 

(t)          discontinued any insurance policies, except as required by applicable Law or when replaced with comparable coverages;

 

(u)          failed to perform any of its obligations under any Assumed Contract;

 

(v)          entered into, terminated or amended any Material Contract (or any Contract that if in effect as of the date hereof would be a Material Contract), other than in the ordinary course of business and consistent with past practice;

 

(w)          failed to maintain the books and records of the Business or such Party in accordance with past practice;

 

(x)          failed to comply in all respects with all Laws applicable to the conduct of the Business or the ownership and use of the Seller Assets; or

 

(y)          agreed, whether in writing or otherwise, to take any action described in this Section 2.9.

 

2.10          Litigation. As of the date hereof, there are no actions, suits, hearings, proceedings (including any arbitration proceedings), orders, investigations, grievances, indictments, mediations or other claims (collectively, “Proceedings”) pending or, to the Knowledge of the Seller Parties, threatened against or affecting the Business or any of the Seller Assets, at Law or in equity, or before or by any Government Entity (including any Proceedings with respect to the transactions contemplated by this Agreement and the Transaction Documents) and, to the Knowledge of the Seller Parties, there has not occurred any event or events that, with or without the lapse of time or the giving of notice or both, could reasonably be expected to give rise to such a Proceeding.

 

2.11          Brokerage. There are no claims for brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement to which any Seller Party (or any Seller Party’s Affiliates) is a party or to which any Seller Party (or any Seller Party’s Affiliates) is subject for which Buyer could become liable or obligated.

 

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2.12          Employees.

 

(a)          Schedule 2.12(a) identifies all of Seller’s sales representatives, customer service representatives, office personnel, office managers, independent contractors and other employees (including independent contractors) employed by Seller, and of those Persons so identified indicates each such Person who, in Seller’s reasonable estimation, is necessary for the operation of the Business as currently conducted (the “Seller Employees”). To the Knowledge of the Seller Parties, no Seller Employee has notified Seller or the Seller Parties of an intention to terminate employment with Seller during the next 12 months. The Seller is not a party to or bound by any collective bargaining agreement relating to any of the Seller Employees. There is no organizational effort presently being made or threatened by or on behalf of any labor union with respect to the Seller Employees. No grievance exists, no arbitration proceeding arising out of or under any collective bargaining agreement is pending and no claim therefor has been asserted.  The Seller has not experienced any material labor difficulty or work stoppage during the last three years.  The Seller does not have any charges or other claims of employment discrimination pending or threatened against it before the United States Equal Employment Opportunity Commission or the Maryland Commission on Civil Rights. The Seller has not committed any unfair labor practice in connection with the Business, no charge alleging any unfair labor practice has been filed or is currently pending against Seller, Seller is in full compliance with all federal, state and local wage and hour Laws governing payment of wages and/or overtime pay, and no investigation has been made of Seller with respect to violations of the foregoing laws.

 

(b)          The Seller has complied with any applicable requirements to give notice to its employees and to any Government Entity, pursuant to any applicable Laws with respect to the employment, discharge or layoff of employees by such Seller before or at the time of the Closing, including, but not limited to, to the extent it may be applicable, the Worker Adjustment and Retraining Notification Act and/or similar state and local Laws, and any rules or regulations as have been issued in connection with such Laws.

 

(c)          Schedule 2.12(c) sets forth a complete and accurate list with respect to the Seller Employees of the name (or other identifier), title, location, annual salary, hire date, adjusted service date, incentive/bonus plan eligibility and target, year-to-date paid bonus/incentives, Fair Labor Status Act status, department name, vacation/paid-time-off balance, full-time-equivalent, supervisor, last review result, last increase pay amount, last pay increase date, medical/dental/vision elections, 401k contribution, actively at work (y/n), Family and Medical Leave Act status, salary continuation, employee/independent contractor or leased employee indicator.

 

2.13          Intellectual Property.          Schedule 2.13 contains a true, correct and complete list of the Seller Intellectual Property, including all applications and/or registrations for any of the foregoing.  The Seller exclusively owns or possesses valid licenses or other legal rights, free and clear of all Liens, to all Seller Intellectual Property. The Seller Intellectual Property is valid, enforceable and subsisting and is not subject to any outstanding contract claim or Proceeding adversely affecting, or that could adversely affect, Seller’s use thereof or rights thereto.  

 

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The Seller Intellectual Property constitutes all the Intellectual Property necessary to the conduct of the Business as currently conducted.  The Seller has taken all reasonably necessary actions to establish, maintain, protect and enforce the Seller Intellectual Property.  The conduct of the Business and use of any Seller Intellectual Property (and the performances by Seller’s employees and consultants of their duties in connection therewith) does not copy without permission, infringe, misappropriate, violate, impair or conflict with (“Infringe”) any common law, statutory or other right of any Person, including any rights relating to any Intellectual Property.  There is no Proceeding pending or claim asserted in writing or, to the Knowledge of the Seller Parties, threatened against Seller concerning the ownership, validity, registrability, enforceability, infringement, misappropriation, violation or use of, or licensed right to use, any Seller Intellectual Property. To the Knowledge of the Seller Parties, no Person is Infringing any of the Seller Intellectual Property.

 

2.14          Employee Benefit Plans.

 

(a)          Schedule 2.14(a) sets forth a list of all employee plans, including any and all employee benefit plans as defined in Section 3(3) of ERISA, and including any profit-sharing, deferred compensation, bonus, stock option, stock purchase, stock bonus, phantom stock, vacation pay, holiday pay, severance, excess, incentive compensation, salary continuation, medical, life or other insurance, employment, consulting or supplemental unemployment arrangements, including all unwritten employee benefit plans, programs, agreements and arrangements, if any, sponsored, maintained or contributed to or required to be contributed to by any of Seller or any ERISA Affiliate for the benefit of any current or former employee, independent contractor or director (and/or their dependents or beneficiaries), or with respect to which Seller or any ERISA Affiliate otherwise have any liabilities (“Employee Plans”).  An arrangement will not be excluded from the definition of Employee Plan simply because it only covers one individual or because obligations under the plan arise by reason of the sponsor being a “successor employer” under applicable Laws.  In addition, with respect to each such Employee Plan, Seller has made available to Buyer complete and correct copies of each of the following documents: (i) a copy of such Employee Plan documentation (including any amendments thereto); (ii) a copy of the three most recent Form 5500 annual reports, if any; (iii) a copy of the most recent summary plan description, if any, required under ERISA; (iv) if such Employee Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding agreement (including any amendments thereto); (v) if the Employee Plan is intended to be qualified under Section 401(a) of the Code, the most recent determination letter received from the Internal Revenue Service (the “IRS”); (vi) any actuarial reports; and (vii) all correspondence with the IRS, Department of Labor and the Pension Benefit Guaranty Corporation regarding any Employee Plan within the last three years. 

 

(b)          No Employee Plan is: (i) a “multiemployer plan,” as such term is defined in Section 3(37) of ERISA; (ii) a plan that is subject to Title IV of ERISA, Sections 302 or 303 of ERISA or Sections 412 or 430 of the Code; (iii)  a multiple employer plan as defined in Section 413(c) of the Code; (iv) a multiple employer welfare arrangement as defined in Section 3(40) of ERISA, and neither Seller nor any ERISA Affiliate has maintained, contributed to or been required to contribute to any Employee Plan described in clauses (i), (ii), (iii) or (iv) above within the last six years.  For purposes of this Agreement, an “ERISA Affiliate” means any Person, whether or not incorporated, which is, or at any relevant time was, a member of a “controlled group of corporations” with, under “common control” with, or a member of an “affiliated service group” with Seller, within the meaning of Section 414(b), (c), (m) or (o) of the Code.

 

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(c)          Neither Seller nor any ERISA Affiliate maintains any plan that provides (or will provide) medical or death benefits or other welfare benefits (as defined in Section 3(1) of ERISA) to any current or future former employees (including retirees) of the Business, including, but not limited to, any Seller Employee, beyond their retirement or other termination of service, other than benefits that are required to be provided pursuant to Section 4980B of the Code or state Law continuation coverage or conversion rights.

 

(d)          Each Employee Plan is and has been maintained and administered in compliance with its terms and with the applicable requirements (including any filing or reporting obligations) of ERISA, the Code and any other applicable Law. With respect to each Employee Plan: (i) there has been no non-exempt prohibited transaction within the meaning of Section 406 of ERISA and Section 4975 of the Code; and (ii) to the Knowledge of the Seller Parties, no fiduciary within the meaning of Section 3(21) of ERISA has breached any fiduciary duty imposed under Title I of ERISA.

 

(e)          Each Employee Plan intended to qualify under Section 401(a) of the Code is qualified and has received a determination letter (or the prototype form plan document on which such Plan is based has received an opinion letter or advisory letter) from the IRS upon which the sponsor may rely regarding its qualified status under the Code, and nothing has occurred, whether by action or by failure to act, that caused or could reasonably be expected to cause the loss of such status or the imposition of any penalty or Tax Liability.

 

(f)          The consummation of the transactions contemplated hereby will not (i) result in an increase in or accelerate the vesting of any of the benefits available under any Employee Plan, or (ii) otherwise entitle any current or former employee, independent contractor or director of Seller to severance pay or any other payment.

 

2.15          Insurance.          The Seller maintains commercially reasonable insurance coverage taking into account the nature of the Business and the value of the Real Property for casualty loss, liability, malpractice, theft, errors and omissions and other forms of property and casualty and other insurance covering the Business, the Seller Assets and the Seller Employees.

 

2.16          Customers and Suppliers. Schedule 2.16 contains a complete and accurate list of all Customers, showing the total sales to each such customer during the 12-month period ended July 31, 2017.  Schedule 2.16 also contains a complete and accurate list of all current suppliers of the Business.  Except as noted on Schedule 2.16, no Customer has notified any Seller Party of its intent to cease or diminish its purchasing from the Business during the next 12 months.  Except as noted on Schedule 2.16, no supplier of the Business has notified any Seller Party of its intent to terminate its relationship with the Business or cease or diminish its supplying the Business.

 

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2.17          Legal Compliance.

 

(a)          The Seller and each officer, director, manager, and employee of Seller are, and at all times since January 1, 2011 have been, in full compliance with all Laws applicable to the operation of the Business and the ownership of the Seller Assets, including with respect to compliance with the FDA Act and PACA.

 

(b)          Since January 1, 2011, (i) no Seller Party or agent thereof has received notice from any Government Entity that alleges any non-compliance (or that the Seller or any officer, director, manager or employee thereof is under investigation or the subject of an inquiry by any such Government Entity for such alleged non-compliance) with any applicable Law; and (ii) the Seller has not entered into any written or oral agreement or settlement with any Government Entity with respect to its non-compliance with, or violation of, any applicable Law.

 

(c)          Since January 1, 2011, the Seller has timely filed all regulatory reports, schedules, statements, documents, filings, submissions, forms, registrations and other documents, together with any amendments required to be made with respect thereto, that the Seller was required to file with any Government Entity.

 

(d)          The Seller possesses, and is in material compliance with, all Governmental Licenses necessary to conduct the Business as currently conducted. Schedule 2.17(d) sets forth a true and complete list of all Governmental Licenses maintained by the Seller.  The consummation of the transactions contemplated by this Agreement and the Transaction Documents shall not result in a revocation or cancellation of any Governmental License maintained by the Seller, provided that the Consents listed on Schedule 2.17(d) with respect to the indicated Governmental Licenses are obtained.

 

2.18          Relationships with Seller Related Persons. Except as set forth on Schedule 2.18, (i) no Stockholder, director or officer of the Seller (any such individual, a “Seller Related Person”), or, to the Knowledge of the Seller Party, any Affiliate or member of the immediate family of any Seller Related Person, is, or since December 31, 2013 has been, directly or indirectly, an owner of more than 5% of an Affiliate of any Customer or any supplier of the Seller, or otherwise involved in any business arrangement or relationship with the Seller or any Customer or supplier of the Seller, and (ii) no Seller Related Person or, to the Knowledge of the Seller Parties, any Affiliate or member of the immediate family of any Seller Related Person, directly or indirectly, owns, or since December 31, 2013 has owned, any property or right, tangible or intangible, used by the Seller in the conduct of the Business. Except as set forth on Schedule 2.18, as of, and after giving effect to the Closing, no amounts will be payable by the Seller to any of the Seller Parties or by the Seller to any Seller Related Person.

 

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2.19          Tax Matters.          Seller has filed all Tax Returns that it was required to file, all such Tax Returns were correct and complete in all respects and all Taxes owed by Seller (whether or not shown on any Tax Return) have been paid, except as to the unpaid or disputed Taxes described on Schedule 2.19, which Seller will pay in full at Closing.  The Seller has not been included in any consolidated, unitary, or combined Tax Return provided for under the laws of the United States, any non-US Jurisdiction, or any state or locality with respect to Taxes for any period for which the statute of limitations has not expired.  Seller is currently not the beneficiary of any extension of time within which to file any income Tax Return. The Seller has withheld and paid or will withhold and pay all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party, and all Forms W-2 and 1099 required with respect thereto have been properly completed and timely filed. There is no dispute or claim concerning any Tax Liability of Seller either claimed or raised by any authority except with regard to the unpaid or disputed Taxes described on Schedule 2.19, which Seller will pay in full at Closing. No audits or other administrative Proceedings or court Proceedings are presently pending with regard to any Taxes or Tax Returns of Seller. No taxing authority is now asserting any deficiency or claim for Taxes or any adjustment to Taxes with respect to which Seller may be liable, except such as have been fully paid or finally settled.  No written claim has ever been made by any taxing authority in a jurisdiction where Seller does not file Tax Returns that Seller is or may be subject to taxation by that jurisdiction. There are no tax-sharing, allocation, indemnification, or similar agreements in effect between Seller, or any predecessor or Affiliate, on one hand, and any other party (including any Seller Party), on the other, under which Buyer could become liable for any Taxes or other claims of any party. The Seller has not granted (and are not subject to) any waiver or extension that is currently in effect of the period of limitations for the assessment, collection or payment of any Tax or the filing of any Tax Return.

 

2.20          Environmental Matters.

 

(a)          The Seller has obtained all Governmental Licenses under Environmental Laws required for the conduct and operation of the Business and is in compliance with the terms and conditions contained therein and with all applicable Environmental Laws.

 

(b)          As to Seller:

 

(i)          there are no Environmental Claims pending or, to the Knowledge of the Seller Parties, threatened with respect to the Seller Assets or the Business;

 

(ii)          there is no condition on, at or under any property (including the air, soil and groundwater) currently or formerly owned, leased or used by Seller (including off-site waste disposal facilities) or created by Seller’s operations that would create a Liability with respect to the Seller Assets or the Business under applicable Environmental Laws;

 

(iii)          there are no past or present actions, activities, circumstances, events or incidents (including the Release or Handling of any Hazardous Material) with respect to the Business that would form the basis of an Environmental Claim or create a Liability with respect to the Seller Assets under applicable Environmental Laws;

 

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(iv)          there are no underground storage tanks, above ground storage tanks or drums of Hazardous Materials present on any portion of any property leased or used by Seller;

 

(v)          the Seller has not caused a Release or otherwise placed any Hazardous Materials into, on or under the soils, surface water or groundwater at, on, under or from any portion of any property owned, leased, operated or used by it; and

 

(vi)          no portion of any structures on any property owned, leased, operated or used by Seller in the Business contains any asbestos or mold.

 

(c)          No Seller Party has been provided with any site assessments, compliance audits, environmental studies or similar reports not provided to Buyer prior to the date hereof relating to (i) the environmental conditions on, under or about the properties or assets currently owned, leased, operated or used by Seller or (ii) any Hazardous Materials Handled or Released by Seller or any other Person on, under, about or from, or otherwise in connection with, any of the properties or assets currently owned, leased, operated or used by Seller in connection with the Business.

 

2.21          Orders, Commitments and Returns.  The aggregate of all accepted and unfilled orders for the sale of merchandise entered into by Seller does not exceed an amount which can reasonably be expected to be filled in the ordinary course of business on a schedule which will maintain satisfactory customer relationships, and the aggregate of all Contracts or commitments for the purchase of products by Seller does not exceed an amount which is reasonable for its anticipated volumes of business (all of which orders, Contracts and commitments were made in the ordinary course of business).  There are no asserted or un-asserted claims to return merchandise of Seller by reason of alleged over-shipments, defective merchandise, breach of warranty or otherwise.  There is no merchandise in the hands of Customers under any understanding that such merchandise is returnable other than pursuant to the standard returns policy set forth in the Seller’s Contracts.  No Seller Party Knows or has reason to believe that the execution and delivery of this Agreement, or the consummation of the transactions contemplated hereby, will result in any cancellations or withdrawals of accepted and unfilled orders for Seller’s merchandise.

 

2.22          Seller Accounts Receivable; Trade Accounts Payable.  The Seller Accounts Receivable (i) arose through Seller’s bona fide sales of goods or merchandise to Customers, which have been shipped from and invoiced by Seller to each Customer within the 60 days preceding the Closing Date, (ii) are not subject to any dispute, offset, counterclaim or other claim or defense on the part of the Customer, (iii) are not subject to any return or rejection of the merchandise in respect of such account receivable which has not been cured or remedied to the satisfaction of the Customer, and (iv) are evidenced by an invoice rendered to the Customer. The Trade Accounts Payable have arisen from bona fide transactions.

 

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2.23          Solvency.  Seller is not now insolvent, and will not be rendered insolvent by any of the transactions contemplated hereby. In addition, immediately after giving effect to the transactions contemplated hereby, (a) Seller will be able to pay its debts as they become due, (b) Seller will have sufficient capital to conduct its present and proposed business, and (c) Seller will have assets (calculated at their fair market value) that exceed its liabilities.

 

2.24          No Brokers.  No Seller Party has any Liability of any kind to any broker, finder, agent or other Person for any commission, fee or similar compensation with respect to the transactions contemplated by this Agreement.

 

2.25          No Undisclosed Liabilities  Seller does not have any Liabilities, except for (i) liabilities reflected or reserved against in the Financial Statements, and (ii) current Liabilities incurred in the ordinary course of Seller’s business consistent with past practices since the date of the most recently delivered Financial Statements.

 

2.26          Full Disclosure.  Neither this Agreement, nor any Schedule, Exhibit, list, certificate or other instrument and document furnished or to be furnished by the Seller Parties to Buyer pursuant to this Agreement, contains any untrue statement of a fact or omits to state any fact required to be stated herein or therein or necessary to make the statements and information contained herein or therein not misleading.  None of the Seller Parties has withheld from Buyer disclosure of any event, condition or fact which any Seller Party Knows, or has reasonable grounds to know, may have a Material Adverse Effect.

 

2.27          Investor Matters.  Each Stockholder receiving shares of Company Stock is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended.  Each Stockholder is able to fend for himself, can bear the economic risk of holding Company Stock subject to the restrictions contained in the Lock-Up Agreement, and has such knowledge and experience in financial or business matters to permit him to evaluate the merits and risks of holding Company Stock.

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer hereby represents and warrants to the Seller Parties as follows:

 

3.1          Organization, Power and Authority. Buyer is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Delaware. Buyer is duly qualified or otherwise authorized to act as a foreign limited liability company, and is in good standing under the Laws of every other jurisdiction in which such qualification or authorization is necessary. Buyer possesses all requisite corporate power and authority necessary to own and operate its properties, to carry on its business as presently conducted, to execute and deliver this Agreement and to carry out the transactions contemplated by this Agreement.

 

3.2          Authorization; No Breach.

 

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(a)          The execution, delivery and performance of this Agreement and all other Transaction Documents to which Buyer is a party or by which Buyer is bound have been duly authorized by Buyer. This Agreement constitutes a valid and binding obligation of Buyer, enforceable in accordance with its terms, and all Transaction Documents to which Buyer is a party, when executed and delivered by Buyer in accordance with the terms hereof, shall each constitute a valid and binding obligation of Buyer, enforceable in accordance with its terms, except Creditors’ Rights and Equitable Limitations.

 

(b)          The execution, delivery and performance by Buyer of this Agreement and all other agreements and instruments contemplated hereby to which Buyer is a party, and the fulfillment of and compliance with the respective terms hereof and thereof by Buyer, do not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under (whether with or without the passage of time, the giving of notice or both), (iii) give any third party the right to modify, terminate or accelerate any obligation under, (iv) result in a violation of, or (v) require any authorization, Consent, approval, exemption or other action by or notice or declaration to, or filing with, any third party or Government Entity pursuant to, (A) the organizational documents of Buyer, (B) any Law to which Buyer is subject, or (C) any agreement or instrument to which Buyer is subject (but specifically excluding the Assumed Contracts to which Buyer is a party as a result of this Agreement).

 

3.3          Litigation. There are no Proceedings pending or, to the Knowledge of Buyer, threatened against or affecting Buyer, at law or in equity, or before any Government Entity, with respect to the transactions contemplated by this Agreement or which if adversely determined would have an effect on Buyer’s ability to consummate the transactions contemplated hereby in a timely manner or perform its obligations hereunder.

 

3.4          Brokerage. There are no claims for brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement to which Buyer (or its Affiliates) is subject for which any of the Seller Parties could become liable or obligated.

 

ARTICLE IV.

POST-CLOSING COVENANTS AND AGREEMENTS

 

4.1          Employee Matters and Employee Benefits.

 

(a)          Offers of Employment or Engagement.  Buyer or an Affiliate of Buyer shall offer to hire or retain as of the Effective Time all of the Stockholders and Seller Employees identified in Schedule 1.9(a)(iv) on the terms set forth in their respective Offer Letters.

 

(b)           COBRA.  Following the Closing, Seller shall continue the health insurance Employee Plan currently in effect with respect to the Business (or adopt a successor plan) and assume all responsibility for the provision of health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), as amended, to all “M&A qualified beneficiaries” (within the meaning of Treasury Regulations §54.4980B-9, Q&A-4) that experience a qualifying event under COBRA prior to or in connection with the transactions contemplated by this Agreement, including, without limitation, (i) all Seller Employees not hired by Buyer or its Affiliates at the Closing and their beneficiaries, and (ii) all other current and former employees of Seller and its respective Affiliates (not including any Hired Employees employed by Buyer or its Affiliates as of the Effective Time), and their beneficiaries.  

 

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Seller’s obligation to continue the health insurance Employee Plan currently in effect pursuant to this Section 4.1 shall continue until such time as any and all current and former employees of Seller have exhausted their rights to continue health insurance coverage under COBRA.  Buyer shall not have any responsibility, Liability or obligation, whether to employees not hired by Buyer or its Affiliates at the Closing and their beneficiaries, or to other current and former employees of Seller or its Affiliates (not including any Hired Employees employed by Buyer as of the Effective Time) with respect to any notification or provision of health continuation coverage in accordance with the requirements of COBRA.

 

(c)          No Third-Party Beneficiaries.  No provision in this Article IV shall be deemed to be an amendment to any Employee Plan, and shall not create any right in any other Person, including any employees, former employees, Employee Plan participants, or any beneficiary thereof.

 

4.2          Non-Competition.

 

(a)          Material Inducement.  Each Seller Party hereby acknowledges that such Seller Party is familiar with Seller’s Trade Secrets and with other Confidential Information and Trade Secrets pertaining to the Seller Assets and the Business.  Each Seller Party acknowledges and agrees that Buyer and its Affiliates would be irreparably damaged if any of the Seller Parties or any of their Affiliates were to provide services to or otherwise participate in the business of any Person competing or planning to compete with Buyer or its Affiliates in a business similar to the Business and that any such competition by any of the Seller Parties or any of their Affiliates would result in a significant loss of goodwill by the Business. The Seller Parties further acknowledge and agree that the covenants and agreements set forth in this Section 4.2 are a material inducement to Buyer to enter into this Agreement and to perform its obligations hereunder and that none of Buyer or its Affiliates would obtain the benefit of the bargain set forth in this Agreement as specifically negotiated by the Parties if any of the Seller Parties breached the provisions of this Section 4.2.

 

(b)          Restrictive Covenants. In further consideration of the amounts to be paid hereunder for the Business and to assure the transfer to the Buyer of the goodwill and going concern value relating to the Business, each Seller Party covenants and agrees that such Seller Party will not, and will cause its Affiliates not to, without the prior written consent of Buyer, (i) engage, directly or indirectly, in any business competing or planning to compete with the Business, in all states of the United States, and within any state, province, or similar geographical region where Seller has conducted Business, or where Buyer conducts the Business after Closing, and (ii) solicit and serve any customers of the Business, in each case until the sixth (6th) anniversary of the Closing.  In addition, each Seller Party agrees that until the sixth (6th) anniversary of the Closing, such Seller Party shall not (and shall cause its Affiliates not to) directly, or indirectly through another Person, solicit, hire or attempt to hire any Hired Employee, or any current employee of Buyer.

 

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(c)          Remedies.  If, at the time of enforcement of any of the covenants contained in Section 4.2(b) (the “Restrictive Covenants”), a court shall hold that the duration, scope or area restrictions stated therein are unreasonable under circumstances then existing, the Parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed and directed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by applicable Laws. Each Seller Party has determined and hereby acknowledges that the Restrictive Covenants are reasonable in terms of duration, scope and area restrictions and are necessary to protect the goodwill of the Business and the substantial investment in the Seller Assets and the Business made by Buyer hereunder.  Each Seller Party further acknowledges and agrees that the Restrictive Covenants are being entered into by them in connection with the sale of the Business and the goodwill of the Business.

 

If any of the Seller Parties or any of their Affiliates breaches, or threatens to commit a breach of, any of the Restrictive Covenants, Buyer or any of its respective Affiliates shall have the following rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and each of which is in addition to, and not in lieu of, any other rights and remedies available to Buyer, or any of its Affiliates, at law or in equity:

(i)          the right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to Buyer and that money damages would not provide an adequate remedy to Buyer; and

 

(ii)          the right and remedy to require the Seller Parties to account for and pay over to Buyer or its Affiliates any profits, monies, accruals, increments or other benefits derived or received by such Person as the result of any transactions constituting a breach of the Restrictive Covenants from the date any Seller Party or any Seller Party’s Affiliate was in breach of any of the Restrictive Covenants.

 

(d)          Buyer shall not be required to post a bond or undertaking as a condition of obtaining any such remedy.

 

(e)          In the event of any breach or violation by any Seller Party or any Seller Party’s Affiliate of any of the Restrictive Covenants, the time period of such covenant shall be tolled until such breach or violation is resolved.

 

4.3          Further Assurances. Following the Closing, each of the Seller Parties and Buyer shall execute and deliver such further instruments as the other Party may reasonably request, and shall take such additional action as the other Party may reasonably request, to effect, consummate, confirm or evidence the transactions contemplated by this Agreement, including the transfer to Buyer of the Acquired Assets, and Seller shall execute such documents provided by Buyer as may be necessary to assist Buyer in preserving or perfecting its rights in the Acquired Assets.

 

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4.4          Confidentiality.

 

(a)          The Parties acknowledge and agree that certain information relating to the Parties is confidential (“Confidential Information”).  Confidential Information includes (i) all of the terms and conditions of this Agreement and any of the other Transaction Documents, (ii) all information regarding the Seller Parties disclosed to Buyer or learned by Buyer during Buyer’s due diligence of Seller and all information regarding Buyer disclosed to or learned by the Seller Parties during the Parties’ negotiations, and (iii) any information relating to the negotiations between the Parties, including, without limitation, offers and counteroffers regarding the terms and conditions of this Agreement and the Transaction Documents which do and do not ultimately form part of the final executed versions of the Transaction Documents.  The Parties further acknowledge and agree that Confidential Information also includes (A) financial, accounting and Tax information, including, without limitation, earnings, sales, financial projections and other similar information, (B) internal policies and procedures, marketing strategies and pricing information, (C) sources of supplies and terms of suppliers, (D) information relating to business practices, (E) personnel information, (F) information relating to litigation or possible litigation and (G) information relating to the Seller Intellectual Property.

 

(b)          The Parties shall treat all Confidential Information as strictly confidential and proprietary, shall not disclose such Confidential Information except to Representatives (as that term is defined below) who agree to maintain such information in confidence, and shall comply in all material respects with all Laws protecting such Confidential Information from unauthorized disclosure. A Party who discloses Confidential Information to its Representative shall notify the Representative that the use and disclosure of such Confidential Information is restricted under this Agreement, and the disclosing Party shall be liable for any breach of this Section 4.4 caused by its Representative.  The Parties further agree not to take any action which would cause all or any portion of the Confidential Information which is privileged to lose such protection.  Each Party shall implement such systems and controls as may be reasonably necessary to ensure that it and each of its officers, directors, Affiliates, agents, Representatives and employees comply with the confidentiality provisions of this Agreement.  Each Party further agrees, if and to the extent permitted by applicable Law, to notify the other Parties immediately in writing of any Known attempt or effort by any third party to obtain information or documents that comprise a part of the Confidential Information, including, without limitation, receipt of a subpoena or request for information or documents, to permit such other Parties, at their own expense, to seek a protective order or otherwise defend against such disclosure or delivery. For purposes of this Section 4.4(b), the term “Representatives”, when used in reference to a Party, means and refers to that Party’s employees, agents, independent contractors, legal and financial advisors, lenders and other potential debt and equity partners who have a need to know such Confidential Information or who are consulted in evaluating or advising on the transactions contemplated under this Agreement or carrying out the terms hereof, or accounting for, for accounting, taxation or similar purposes, the considerations paid or received hereunder.

 

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(c)          Notwithstanding any terms herein to the contrary, information shall not be considered Confidential Information if such information (i) was available to the public prior to the time of disclosure to the receiving Party, (ii) becomes available to the public as a result of action by Persons other than the receiving Party, (iii) was rightfully in a Party’s possession prior to receipt of such information from the other Party hereto, (iv) was obtained by the receiving Party from a third party not Known by the receiving Party to be under any obligation not to so disclose, or (iv) is information which the receiving Party can document was independently developed by such Party.

 

(d)          If, for any reason, the terms of this Section 4.4 conflict with any other confidentiality agreement to which any Party is subject for the benefit of the other Parties, including, but not limited to, the Confidentiality Agreement, all such conflicts shall be resolved by giving the maximum confidentiality protections to the Confidential Information.

 

(e)          This Section 4.4 shall survive the Closing.

 

4.5          Transfer Taxes. All sales, use, transfer, real property transfer, value added, recording, registration, notary, stamp, stamp duty or similar Taxes and fees, and all recording costs, arising out of the transfer of the Acquired Assets pursuant to this Agreement and all costs and expenses incurred in connection with the transferring and recording of title to the Acquired Assets (collectively, the “Transfer Taxes”) shall be the responsibility of the Seller Parties.  The Tax Returns relating to such Transfer Taxes shall be timely prepared by the Seller Representative, which shall provide copies of such Tax Returns to Buyer within ten (10) days of filing such Tax Returns.

 

4.6          Misdirected Payments. Following the Closing, to the extent that Buyer receives any checks, cash or other form of payment that is the property of the Seller Parties, Buyer shall promptly return the same to the Seller Representative. Following the Closing, to the extent that any Seller Party receives any checks, cash or other form of payment that is the property of Buyer after the Effective Time, such Seller Party, shall promptly return the same to Buyer.

 

4.7          Consents to Assign Contracts. Notwithstanding anything herein to the contrary, this Agreement shall not constitute an agreement to assign any Assumed Contract, claim or other right if the assignment or attempted assignment thereof without the Consent of another Person would (i) constitute a breach thereof or adversely affect the Business; (ii) be ineffective or render the Assumed Contract void or voidable, or (iii) materially affect Seller’s rights thereunder so that Buyer would not in fact receive all such rights. In any such event, Seller shall cooperate in any reasonable arrangement designed to provide for Buyer the benefits under any such Assumed Contract, claim or right, including enforcement of any and all rights of Seller, as applicable, against the other Person arising out of the breach or cancellation by such other Person or otherwise; provided, that Buyer shall reimburse Seller for its reasonable and documented third-party costs. After the Closing, except as otherwise requested by Buyer in writing, Buyer and Seller shall continue to use reasonable best efforts to obtain the Consent to the assignment of such Assumed Contract, claim or right.

 

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4.8          Payment of Excluded Liabilities.  On and after the Closing Date, the Seller Parties shall pay and discharge when due, all of the Excluded Liabilities, including, but not limited to, all of the debts and Liabilities arising in connection with the ownership or operation of the Acquired Assets and the Business prior to the Effective Time, whether or not the claim with respect thereto has been asserted on or prior to the Effective Time, other than the Assumed Liabilities. If any Excluded Liabilities are not so paid or provided for, or if Buyer reasonably determines that failure to make any payments will impair Buyer’s use or enjoyment of the Acquired Assets or conduct of the Business, Buyer may at any time after the Closing Date elect to make all such payments directly (but shall have no obligation to do so) and will be promptly reimbursed by the Seller Parties for such payments.

 

4.9          Bulk Sales.  Each of the Parties hereby waives compliance with any applicable “bulk sales law” or other similar Law.

 

4.10          Books and Records.

 

(a)          In order to facilitate the resolution of any claims made against or incurred by the Seller Parties prior to the Closing, or for any other reasonable purpose, for a period of three (3) years after the Closing, Buyer shall:

 

(i)          retain the books and records (including personnel files) relating to periods prior to the Closing in a manner reasonably consistent with the prior practices of the Business; and

 

(ii)          upon reasonable notice, afford any of the Seller Parties reasonable access (including the right to make, at such Seller Party’s expense, photocopies), during normal business hours, to such books and records.

 

(b)          In order to facilitate the resolution of any claims made by or against or incurred by Buyer after the Closing, or for any other reasonable purpose, for a period of three (3) years following the Closing, the Seller Parties shall:

 

(i)          retain the books and records (including personnel files) of the Business and its operations for periods prior to the Closing; and

 

(ii)          upon reasonable notice, afford Buyer and its Affiliates reasonable access (including the right to make, at Buyer’s expense, photocopies), during normal business hours, to such books and records.

 

(c)          None of the Parties shall be obligated to provide the other Parties with access to any books or records (including personnel files) pursuant to this Section 4.10 where such access would violate any Law.

 

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4.11          Restrictions on Seller Dissolution.  Seller shall maintain its corporate existence and good standing in its jurisdiction of formation, and shall not take any actions to dissolve, until the later to occur of (i) the date that is two years and one day following the Closing Date; and (ii) the date that there are no unresolved indemnification claims brought by Buyer under Article V.

 

4.12          Certain Activities.  Notwithstanding anything to the contrary set forth herein, the Parties acknowledge and agree that, for accounting purposes, the Business is effectively being acquired for the benefit and the burden of the Buyer as of the Effective Time.  Accordingly, all cash collected by the Business after the Effective Time shall be the property of Buyer and all expenses that are Assumed Liabilities (which, for purposes of clarification, includes all expenses incurred by the Business in the ordinary course after the Effective Time) shall constitute Buyer’s obligations.  Further, the Buyer and Seller agree that they shall account for and reconcile all cash collected and expenses paid by Seller on behalf of the Buyer after the Effective Time and on or prior to the Closing that is included in the Actual Working Capital, and remit to the Buyer or Seller, as applicable, the net amount of such cash and expenses as soon as practicable after the Closing. For purposes of clarification, the Parties agree and acknowledge that any checks with respect to the Business written prior to the Effective Time shall be an Excluded Liability and the responsibility of Seller regardless of whether such checks clear after the Effective Time.

                              

ARTICLE V.

INDEMNIFICATION

 

5.1          Survival.The representations and warranties contained in Section 2.1 (Organization and Power), Section 2.2 (Authorization; Capacity of Individual Sellers), Section 2.3 (Non-Contravention), Section 2.7 (Assets), Section 2.13 (Intellectual Property), Section 2.19 (Tax Matters), Section 2.20 (Environmental Matters), Section 3.1 (Organization, Power and Authority), and Section 3.2 (Authorization; No Breach) (collectively, the “Fundamental Representations”) shall survive the Closing for the maximum time-period permissible pursuant to any applicable statute of limitations for claims or counterclaims arising from or relating to alleged facts that would constitute a breach of the applicable Fundamental Representation. Covenants that require performance after the Closing shall survive until fully performed; provided, however, that such expiration shall not affect the Parties’ rights and obligations as to any claims asserted prior to such time.  Other than the Fundamental Representations, all of the other representations and warranties of the Parties made pursuant to this Agreement or in the Transaction Documents shall survive for eighteen (18) months following the Closing; provided, however, that such expiration shall not affect the Parties’ rights and obligations as to any claims asserted prior to such time.  An Indemnified Party may not assert any new claim for indemnification with respect to a representation of a Party hereto after the relevant survival period has expired.

 

5.2          Indemnification

 

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(a)          Indemnification by the Seller Parties. Subject to the limitations set forth in this Article V, from and after the Closing, each of the Seller Parties shall jointly and severally indemnify, defend and hold harmless Buyer and its directors, officers, employees, shareholders, members, partners, agents, Affiliates, successors and assigns (each such foregoing Person a “Buyer Indemnitee” and collectively, the “Buyer Indemnitees”) from and against any Losses Buyer Indemnitees may suffer, sustain or become subject to (“Buyer Indemnifiable Losses”) arising out of, in connection with or resulting from:

 

(i)          any failure of any representation or warranty made by the Seller Parties in this Agreement to be true and correct in all respects (without giving effect to any materiality, Material Adverse Effect, Knowledge, or similar qualifications);

 

(ii)          any nonfulfillment or breach of any covenant, agreement or obligation to be performed by the Seller Parties pursuant to this Agreement;

 

(iii)          the Excluded Liabilities;

 

(iv)          the Excluded Assets; or

 

(v)          the ownership and operation of the Acquired Assets and the Business prior to the Effective Time.

 

(b)          Indemnification by Buyer.  Subject to the limitations set forth in this Article V, from and after the Closing, Buyer shall indemnify, defend and hold harmless Seller and other Seller Parties, and their respective directors, officers, employees, shareholders, members, partners, agents, Affiliates, successor and assigns (each such foregoing Person a “Seller Indemnitee” and collectively, the “Seller Indemnitees”; each Buyer Indemnitee and each Seller Indemnitee, as the context requires, are each sometimes referred to herein as an “Indemnified Party”) from and against any Losses the Seller Indemnitees may suffer, sustain or become subject to (“Seller Indemnifiable Losses”), arising out of, in connection with or resulting from:

 

(i)          any failure of any representation or warranty made by Buyer in this Agreement to be true and correct in all respects (without giving effect to any materiality, Material Adverse Effect, Knowledge, or similar qualifications);

 

(ii)          any nonfulfillment or breach of any covenant, agreement or obligation to be performed by Buyer pursuant to this Agreement;

 

(iii)          the Assumed Liabilities; or

 

(iv)          the ownership and operation of the Acquired Assets and the Business by Buyer from and after the Effective Time.

 

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5.3          Limits on Indemnification.

 

(a)          The Seller Parties shall not have any obligation to indemnify Buyer Indemnitees with respect to any Buyer Indemnifiable Losses arising under Section 5.2(a)(i) until Buyer Indemnitees first have suffered aggregate Buyer Indemnifiable Losses in excess of $25,000 (the “Seller Indemnification Basket”) (at which point, subject to the limitations set forth in this Article V, the Seller Parties shall indemnify Buyer Indemnitees for all such Buyer Indemnifiable Losses including the Seller Indemnification Basket). Amounts finally paid to Buyer pursuant to the Post-Closing Adjustment will not count toward calculation of the Seller Indemnification Basket. The limitations of this Section 5.3(a) shall not apply to any Losses arising out of, in connection with or resulting from a breach of a Fundamental Representation by any Seller Party.

 

(b)          Any claim by any Buyer Indemnitee for Buyer Indemnifiable Losses arising from Section 5.2 shall first be made against the Escrow Amount, if applicable, and then directly against any of the Seller Parties.  After the Escrow Amount is exhausted or any non-exhausted portion thereof is paid to the Seller Parties, Buyer shall have the right to set off against the Earn-Out Amount and shall also have direct recourse against each of the Seller Parties, jointly and severally, with respect to claims for indemnification or claims related to the Post-Closing Adjustment.

 

(c)          Buyer shall not have any obligation to indemnify Seller Indemnitees with respect to any Seller Indemnifiable Losses arising under Section 5.2(b)(i) until Seller Indemnitees have first suffered aggregate Seller Indemnifiable Losses in excess of $25,000 (the “Buyer Indemnification Basket”) (at which point, subject to the limitations set forth in this Article V, Buyer shall indemnify Seller Indemnitees for all such Seller Indemnifiable Losses, including the Buyer Indemnification Basket). Notwithstanding the foregoing, the provisions respecting the Buyer Indemnification Basket shall not apply to or excuse or otherwise diminish Buyer’s obligations to pay any portion of the Total Purchase Price due to Seller under this Agreement. The limitations of this Section 5.3(c) shall not apply to any Losses arising out of, in connection with or resulting from a breach of a Fundamental Representation by Buyer.

 

(d)          Notwithstanding anything to the contrary contained herein, the aggregate Liability of Buyer for Seller Indemnifiable Losses arising under Section 5.2(b)(i) from a breach of a representation or warranty, other than the representations and warranties contained in Section 3.1 or Section 3.2, shall not exceed the Total Purchase Price.

 

(e)          An Indemnified Party shall, at the Indemnifying Party’s request, cooperate in the defense of any matter subject to indemnification hereunder at the Indemnifying Party’s expense.

 

(f)          Notwithstanding any provision to the contrary, nothing in this Agreement shall limit or restrict any Indemnified Party’s right to maintain or recover any damages caused by or resulting from fraudulent or intentional misrepresentation with respect to any of the representations or warranties contained herein or willful misconduct on the part of any other Party hereto.

 

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(g)          The Parties shall treat any payments made pursuant to this Article V as an adjustment to the Total Purchase Price for Tax purposes, unless a final determination causes such payment not to be treated as an adjustment to the Total Purchase Price for Tax purposes.

 

(h)          The amount payable by the Indemnifying Party to the Indemnified Party under this Article V as a result of, or in connection with, any Losses shall be reduced by any insurance proceeds (other than proceeds from self-insurance or fronted insurance programs) realized and actually received by the Indemnified Party in respect of such Losses, net of any premiums with respect to, and reasonable costs of realizing, such insurance proceeds and any resulting increase in applicable future insurance premiums specifically attributable to such Losses. The Indemnified Party shall use its commercially reasonable efforts to recover under insurance policies for any such Losses. If such insurance proceeds are actually received by an Indemnified Party after the date on which the Indemnifying Party pays such indemnification claim to the Indemnified Party, the Indemnified Party shall, no later than forty five (45) Business Days after receipt of such insurance proceeds, reimburse the Indemnifying Party in an amount equal to such insurance proceeds (but in no event an amount greater than the related Loss theretofore paid to the Indemnified Party by the Indemnifying Party).

 

5.4          Matters Involving Third Parties.

 

(a)          Promptly after receipt by an Indemnified Party of notice of the commencement of any claim by a third party against it, such Indemnified Party will, if a claim is to be made against an Indemnifying Party, give prompt notice to the Indemnifying Party of the commencement of such claim, but the failure to notify the Indemnifying Party will not relieve the Indemnifying Party of any Liability that it may have to any Indemnified Party, except to the extent that the Indemnifying Party demonstrates that the defense of such Proceeding is materially prejudiced by the Indemnified Party’s failure to give such notice.

 

(b)          If any claim referred to in Section 5.4(a) is brought against an Indemnified Party and it gives notice to the Indemnifying Party of the commencement of such third-party claim, the Indemnifying Party will, unless the claim involves Taxes, be entitled to participate in such third-party claim and, to the extent that it desires, to assume the defense of such third-party claim with counsel satisfactory to the Indemnified Party unless (i) the Indemnifying Party is also a party to such third-party claim and the Indemnified Party determines in good faith that joint representation would be inappropriate, or (ii) the Indemnifying Party fails to provide reasonable assurance to the Indemnified Party of its financial capacity to defend such third-party claim and provide indemnification with respect to such third-party claim.  After notice from the Indemnifying Party to the Indemnified Party of its election to assume the defense of such third-party claim, the Indemnifying Party shall not, as long as it diligently conducts such defense, be liable to the Indemnified Party under this Article V for any fees of other counsel or any other expenses with respect to the defense of such third-party claim that are subsequently incurred by the Indemnified Party in connection with the defense of such third-party claim, other than reasonable costs of investigation. If the Indemnifying Party assumes the defense of a third-party claim:  (i) it will be deemed for purposes of this Agreement that the claims made in that third-party claim are within the scope of and subject to indemnification; (ii) no compromise or settlement of such claims may be effected by the Indemnifying Party without the Indemnified Party’s consent unless (A) there is no finding or admission of any violation of Laws or any violation of the rights of any Person and no effect on any other claims that may be made against the Indemnified Party, (B) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party, and (C) the Indemnified Party is fully released from such claim; and (iii) the Indemnified Party will have no Liability with respect to any compromise or settlement of such claims effected without its consent, such consent not to be unreasonably withheld or delayed.  

 

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If notice is given to an Indemnifying Party of the commencement of any third-party claim and the Indemnifying Party does not, within twenty (20) days (or, if earlier, by the tenth (10th) day preceding the day on which an answer or other pleading must be served in order to prevent judgment by default in favor of the Person asserting the claim) after the Indemnified Party’s notice is given, give notice to the Indemnified Party of its election to assume the defense of such third-party claim, the Indemnifying Party will be bound by any determination made in such third-party claim.  If the Indemnified Party assumes control of the defense of a third-party claim, the Indemnifying Party shall pay the costs and expenses of such defense, including reasonable attorney’s fees.

 

(c)          Notwithstanding the foregoing, if an Indemnified Party demonstrates that there is a reasonable probability that a third-party claim may adversely affect it or its Affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the Indemnified Party may, by notice to the Indemnifying Party, assume the exclusive right to defend, compromise or settle such third-party claim, but the Indemnifying Party will not be bound by any determination of a third-party claim so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld or delayed).

 

5.5          Right to Offset.  Upon written notice to the Seller Parties, Buyer may offset any Loss to which it is entitled to indemnification under this Article V against amounts otherwise payable to the Seller Parties, including, without limitation, any portion of the Earn-Out Amount.  The exercise of such right of offset by Buyer in good faith, whether or not ultimately determined to be justified, will not constitute an event of default under this Agreement or any other agreement, including the Escrow Agreement or the Earn-Out Agreement. If after Buyer exercises such right of offset, a court having jurisdiction over the matter finally determines that such exercise of Buyer’s offset rights was not justified, Buyer shall repay any portion of the offset amount that is determined belongs to a Seller Party within 5 days following such final determination.  Neither the exercise of nor the failure to exercise such right of offset will constitute an election of remedies or limit Buyer in any manner in the enforcement of any other remedies that may be available to it.

 

5.6          Investigation.  The right to indemnification, reimbursement or other remedy based on the representations, warranties, covenants and obligations of the Parties hereunder will not be affected by any investigation conducted with respect to, or any Knowledge acquired (or capable of being acquired) about the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation.

 

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ARTICLE VI.

MISCELLANEOUS

 

6.1          Fees and Expenses. Except as specifically set forth in this Agreement, each Party to this Agreement shall pay its own costs and expenses incurred in connection with the negotiation, preparation and execution of the Transaction Documents, the other agreements referred to therein, and the consummation of the transactions contemplated hereby and thereby.

 

6.2          Press Release and Announcements. None of the Parties hereto shall, and each shall cause its Affiliates not to, issue any press releases or make any public announcement with respect to this Agreement or the transactions contemplated hereby without the prior written consent of the other Parties hereto. Notwithstanding the foregoing, any such press release or public announcement may be made if required by applicable Law or a securities exchange rule and the contents of any such press release or public announcement shall be contemporaneously provided by the Party making same to the other Parties.

 

6.3          Remedies. All rights and remedies under this Agreement are cumulative and non-exclusive, and may be exercised singularly or concurrently.

 

6.4          Consent to Amendments; Waivers. This Agreement may only be amended, or a provision waived, in a signed writing, executed by each of the Parties hereto affected by such amendment or waiver. No course of dealing between or among the Parties hereto shall be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any such Party or such holder under or by reason of this Agreement.

 

6.5          Successors and Assigns. This Agreement and all covenants and agreements contained herein and rights, interests or obligations hereunder, by or on behalf of any of the Parties hereto, shall bind and inure to the benefit of the respective successors and permitted assigns of the Parties hereto whether so expressed or not, except that neither this Agreement nor any of the covenants and agreements herein or rights, interests or obligations hereunder may be assigned or delegated by the Seller Parties without the prior written consent of Buyer, and neither this Agreement nor any of the covenants and agreements herein or rights, interests or obligations hereunder may be assigned or delegated by Buyer without the prior written consent of the Seller Representative.

 

6.6          Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement or the application of any such provision to any Person or circumstance is held to be prohibited by, illegal or unenforceable under applicable Law or rule in any respect by a court of competent jurisdiction, such provision shall be ineffective only to the extent of such prohibition, illegality or unenforceability, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

 

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6.7          Counterparts. This Agreement may be executed by one or more of the Parties on any number of separate counterparts (including by facsimile or other electronic means), any one of which need not contain the signatures of more than one Party, but all such counterparts taken together shall constitute one and the same agreement.

 

6.8          Descriptive Headings; Interpretation. The headings and captions used in this Agreement and the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized terms used in any Schedule or Exhibit and not otherwise defined therein shall have the meanings set forth in this Agreement.  The use of the word “including” herein shall mean “including without limitation.”

 

6.9          Entire Agreement. This Agreement and the agreements and documents referred to herein contain the entire agreement and understanding among the Parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings (other than the Confidentiality Agreement), whether written or oral, relating to such subject matter in any way. Except as expressly set forth in this Agreement (or as set forth in any certificate delivered pursuant to this Agreement), no Party hereto has made any representations or warranties of any kind to any other Party hereto with respect to the transactions contemplated hereby and none shall be implied.

 

6.10        No Third-Party Beneficiaries. This Agreement is for the sole benefit of the Parties hereto and their permitted successors and assigns.  Nothing herein, expressed or implied, shall give or be construed to give any Person (including any Hired Employee), other than the Parties hereto and such permitted successors and assigns, any legal or equitable rights hereunder.

 

6.11        Schedules and Exhibits. All Annexes, Schedules and Exhibits referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein.

 

6.12        Governing Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the Schedules and Exhibits hereto shall be governed by, and construed in accordance with, the Laws of the State of New York without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of New York or any other jurisdiction) that would cause the application of the Laws of any jurisdiction other than the State of New York. In furtherance of the foregoing, the internal Law of the State of New York shall control the interpretation and construction of this Agreement (and all Schedules and Exhibits hereto), even though under that jurisdiction’s choice of law or conflict of law analysis, the substantive Law of some other jurisdiction would ordinarily apply.

 

6.13        Venue.          The Parties irrevocably submit to the exclusive jurisdiction of any New York State or U.S. Federal Court located in New York County over any Proceeding arising out of or in connection with this Agreement or any Transaction Document. The Parties hereby irrevocably agree that all claims in respect of any such Proceeding may be held and determined in such New York State or Federal Court. 

 

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The Parties agree that a final judgment in any such Proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. The Parties hereby waive, to the fullest extent permitted by Law, any objection they may have to the laying of venue in any such court, and any objection to any Proceeding in any such court on the basis of an inconvenient forum or that the venue of the Proceeding is improper. The Parties hereby further waive service of process, and consent to process being served in any such Proceedings by mailing of copies thereof by certified or registered mail, return receipt requested, or dispatched through a reputable overnight courier service, addressed to the Parties at their respective addresses appearing in this Agreement, and agree that such service shall constitute good and sufficient service of process and notice thereof. If Buyer assigns any of its rights under this agreement to one or more permitted assigns, Buyer shall in connection with such assignment obtain and deliver to the Seller Representative the written agreement of each such permitted assign to the agreements set forth in this Section 6.13.

 

6.14        WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR ACTION OF ANY PARTY HERETO IN CONNECTION WITH THE SUBJECT MATTER HEREOF.

 

6.15        Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally, five (5) Business Days after being sent by U.S. First Class mail (postage prepaid), or one (1) Business Day after dispatch to a reputable overnight courier service (charges prepaid). Such notices, demands and other communications shall be sent to Buyer and the Seller Parties at the addresses indicated below or to such other address or to the attention of such other Person as the recipient party has specified by prior written notice to the sending party. All notices, demands and other communications hereunder may be given by any other means (including telecopy or electronic mail), but shall not be deemed to have been duly given unless and until it is actually received by the intended recipient.

 

Buyer:

Fells Point, LLC

c/o The Chefs’ Warehouse, Inc.

100 East Ridge Road

Ridgefield, CT 06877

Attn: Alexandros Aldous, Esq.

 

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Seller Parties:

Fells Point Wholesale Meats, Inc.

2730 Wilmarco Avenue

Baltimore, MD 21223

Attention: Erik Oosterwijk

With a copy (which shall not constitute Notice) to:

Thomas & Libowitz, P.A.

100 Light Street, Suite 1100

Baltimore, Maryland 21202

Attn:  Robert A. Snyder, Jr., Esquire

6.16        No Strict Construction. The Parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any Party hereto by virtue of the authorship of any of the provisions of this Agreement.

 

6.17        Seller Representative. The Seller Parties hereby appoint Erik Oosterwijk, as the Seller Representative (the “Seller Representative”), to act as agent for and on behalf of each Seller Party to give and receive notices and communications, to agree to, negotiate and enter into, on behalf of the Seller Parties, amendments, consents and waivers under this Agreement pursuant to the terms set forth herein, to make and receive payments on behalf of the Seller Parties pursuant to the terms set forth herein, to take such other actions as authorized by this Agreement, and to take all actions necessary or appropriate in the judgment of the Seller Representative for the accomplishment of the foregoing. If at any time the Seller Representative resigns, dies or becomes incapable of acting, the Seller Parties shall choose another person to act as the Seller Representative under this Agreement. The Seller Indemnitees may not make a claim for indemnity against Buyer pursuant to this Agreement except through the Seller Representative. Once the Seller Representative has initiated such a claim for indemnity, the Seller Representative may enforce, prosecute and settle such claim without further directions from the Seller Indemnitees, and all acts and decisions of the Seller Representative in connection with such matter shall be binding on all the Seller Indemnitees. No bond shall be required of the Seller Representative, and the Seller Representative shall receive no compensation for services provided hereunder. Notices or communications to or from the Seller Representative shall constitute notice to or from each Seller Party.

 

(a)          The Seller Representative will be entitled to engage such counsel, experts and other agents as the Seller Representative deems necessary or proper in connection with performing the Seller Representative’s obligations hereunder, and will be promptly reimbursed by the Seller Parties for all reasonable expenses, disbursements and advances incurred by the Seller Representative in such capacity upon demand. Each Seller Party shall indemnify and hold harmless the Seller Representative pro rata based upon such Seller Party’s pro rata share of the equity interests in the Seller as of the Closing Date, from any and all Losses that are incurred by the Seller Representative as a result of actions taken, or actions not taken, by the Seller Representative herein, except to the extent that such Losses arise from the gross negligence or willful misconduct of the Seller Representative. The Seller Representative shall not be liable to the Seller Parties for any act done or omitted hereunder as the Seller Representative, excluding acts which constitute gross negligence or willful misconduct.

 

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(b)          A decision, act, consent or instruction of the Seller Representative in respect of any action under this Agreement shall constitute a decision of all of the Seller Parties and shall be final, binding and conclusive upon each such Seller Party and Buyer may rely upon any decision, act, consent or instruction of the Seller Representative hereunder as being the decision, act, consent or instruction of each and every such Seller Party. Buyer is hereby relieved from any Liability to any Person (including any Seller Party) for any acts done by the Buyer in accordance with such decision, act, consent or instruction of the Seller Representative.

 

(Signature Pages Follow)

 

 

 

 

 

 

 

 

 

 

 

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

 

                                        

	
BUYER:

	 
	 	 
	
FELLS POINT, LLC

	 
	
  by Fells Point Holdings, LLC, Sole Member and Manager

	
  by Chefs’ Warehouse Parent, LLC, Sole Member and Manager

	 	 	 	 
	 	 	 	 
	
By:

	   	
/s/ Alexandros Aldous

	 
	
Name:

	
Alexandros Aldous

	 
	
Title:

	
General Counsel and Corporate Secretary

	 	 	 	 
	 	 	 	 
	
SELLER:

	 
	 	 	 	 
	
FELLS POINT WHOLESALE MEATS, INC.

	 	 	 	 
	 	 	 	 
	
By:

	   	
/s/ Erik M. Oosterwijk

	 
	
Name:

	
Erik M. Oosterwijk

	 
	
Title:

	
President

	 
	 	 	 	 

                              

                     

	
STOCKHOLDERS OF FELLS POINT WHOLESALE MEATS, INC.:

	 	 	 
	 	 	 
	
By:

	
/s/ Erik M. Oosterwijk

	 
	 	
Erik M. Oosterwijk

	 
	 	 	 
	 	 	 
	
By:

	
/s/ Leendert H. Pruissen

	 
	 	
Leendert H. Pruissen

	 
	 	 	 

 

 

 

 

[Signature Page to Asset Purchase Agreement]

                            

               

Annex A

Definitions & Interpretation

Interpretation of the Transaction Documents shall be governed by the following rules of construction: (a) words in the singular shall be held to include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires; (b) references to the terms Article, Section, paragraph, Exhibit and Schedule are references to the Articles, Sections, paragraphs, Exhibits and Schedules of this Agreement unless otherwise specified; and (c) the terms “hereof”, “herein”, “hereby”, “hereto”, and derivative or similar words refer to this entire Agreement, including the Schedules and Exhibits hereto.

 

For the purposes this Agreement, the following terms have the meanings set forth below:

 

“Acquired Assets” is defined in Section 1.2.

 

“Acquired Intellectual Property” is defined in Section 1.2(d).

 

“Acquired Inventory” is defined in Section 1.2(a).

 

“Actual Working Capital Statement” is defined in Section 1.5(c).

 

“Actual Working Capital” is defined in Section 1.5(c).

 

“Adjusted EBITDA” means an amount equal to the sum (without duplication) of net income attributable to Buyer’s operation of the Business after Closing, plus interest expense, income tax expense, and depreciation and amortization expense. Adjusted EBITDA shall be determined using a methodology consistent with that used by Seller in preparing the Financial Statements, except where Seller’s past practices, methodologies, or procedures are not in accordance with GAAP as applied by Buyer in preparation of its publicly reported financial statements, and shall be reduced for any reasonable costs of Buyer and Parent attributable to Buyer’s operation of the Business after Closing.

 

“Affiliate” of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, contract or otherwise.

 

“Agreement” is defined in the preamble.

 

“Allocation” is defined in Section 1.7.

 

“Annual Financial Statements” is defined in Section 2.4.

 

“Assumed Contracts” is defined in Section 1.2(f).

 

A-1

 

“Assumed Liabilities” is defined in Section 1.4(a).

 

“Base Purchase Price” is defined in Section 1.5(a).

 

“Bill of Sale and Assignment and Assumption Agreement” is defined in Section 1.9(a)(iii).

 

“Business” means the business conducted by the Seller immediately prior to the signing of this Agreement, including, but not limited to, the sale and distribution of food products and other items sold for use by the Seller’s customers.

 

 “Business Day” means each day which is not a day on which banking institutions in the city of New York, New York are authorized or obligated by Law or executive order to close.

 

 “Buyer Indemnifiable Losses” is defined in Section 5.2(a).

 

“Buyer Indemnification Basket” is defined in Section 5.3(c).

 

“Buyer Indemnitee” or “Buyer Indemnitees” is defined in Section 5.2(a).

 

“Buyer” is defined in the preamble.

 

“Closing Cash Consideration” is defined in Section 1.5(a).

 

“Closing Stock Consideration” is defined in Section 1.5(a).

 

“Closing Date” is defined in Section 1.8.

 

“Closing Statement” is defined in Section 1.9(a)(i).

 

“Closing” is defined in Section 1.8.

 

“Closing Date Adjustment Amount” is defined in Section 1.5(b).

 

“Closing Date Working Capital” is defined in Section 1.5(b).

 

“COBRA” is defined in Section 4.1(b).

 

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

 

“Confidential Information” is defined in Section 4.4(a).

 

“Confidentiality Agreement” means the Confidentiality and Non-Disclosure Agreement, dated January 29, 2016, by and between Buyer and Seller.

 

“Consent” means any approval, consent, license, permit, ratification, waiver or other authorization issued, granted, given or otherwise made available by or under the authority of any Government Entity or third party or pursuant to any applicable Law, and all consents and approvals of third parties necessary to prevent any conflict with, violation or breach of, or default under, or any right of termination or buy-out by any third party, cancellation, amendment or acceleration of any obligation or the loss of any benefit under, any Contracts.

 

A-2

 

“Contract” means any written or oral loan or credit agreement, note, bond, debenture, indenture, mortgage, guarantee, deed of trust, lease, franchise, permit, authorization, license, contract, instrument, supplier agreement, employee benefit plan or practice or other binding agreement, obligation, arrangement, understanding or commitment.

 

“Creditors’ Rights and Equitable Limitations” is defined in Section 2.2.

 

“Customers” means those Persons to which Seller has sold any food products at any time, whether or not such Person is a current customer of Seller.

 

“Earn-Out Agreement” means the earn-out agreement in the form of Exhibit A, by and among the Parties.

 

“Earn-Out Amount” means the aggregate consideration payable to the Seller Parties, when and if earned pursuant to the Earn-Out Agreement.

 

“Effective Time” is defined in Section 1.8.

 

“Employee Plans” is defined in Section 2.14(a).

 

“Environmental Claim” means any Proceeding, notice, letter, demand or request for information (in each case in writing) by any Person alleging potential Liability (including potential Liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on or resulting from any violation of Environmental Laws or the Release, emission or presence of any Hazardous Material at any location.

 

“Environmental Laws” shall mean any and all Laws promulgated, approved or entered thereunder by any Government Entity, including requirements of common law, relating to pollution or the protection, cleanup or restoration of the environment, or to human health or safety, including the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act, the Federal Comprehensive Environmental Response, Compensation, and Liability Act, the Federal Occupational Safety and Health Act and the Federal Toxic Substances Control Act.

 

“ERISA Affiliate” is defined in Section 2.14(b).

 

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

 

“Escrow Account” is defined in Section 1.6.

 

“Escrow Agent” means U.S. Bank National Association.

 

A-3

 

“Escrow Agreement” is defined in Section 1.6.

 

“Escrow Amount” is defined in Section 1.6.

 

“Estimated Working Capital Statement” is defined in Section 1.5(b).

 

“Estimated Working Capital” is defined in Section 1.5(b).

 

“Excluded Assets” is defined in Section 1.3.

 

“Excluded Contracts” is defined in Section 1.3(e).

 

“Excluded Liabilities” is defined in Section 1.4(b).

 

“FDA Act” is defined in Section 2.6.

 

“Financial Statements” is defined in Section 2.4.

 

“Fundamental Representations” is defined in Section 5.1.

 

“GAAP” means United States generally accepted accounting principles consistently applied, as in effect from time to time.

 

“Government Entity” means individually, and “Government Entities” means collectively, the United States of America or any other nation, any state or other political subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or administrative functions of government, including any court, in each case having jurisdiction over any of the Parties.

 

“Governmental License” means any license, permit, franchise certification, registration, identification number, certificate of need, certificate of occupancy, Food and Drug Administration registration, franchise, Consent or order of, or filing with, any state or federal Government Entity.

 

“Handle” or “Handling” means the production, use, generation, emission, storage, treatment, transportation (including for disposal off-site), recycling, disposal (whether on-site or off-site), discharge, abandonment, Release or other management or disposition of any kind of any Hazardous Material.

 

“Hazardous Material” means chemicals, pollutants, contaminants, hazardous materials, hazardous substances and hazardous wastes, medical waste, toxic substances, petroleum and petroleum products and by-products, asbestos-containing materials, mold, fungus, PCBs and any other chemicals, pollutants, substances or wastes, in each case regulated, or that could result in Liability, under Environmental Laws.

 

A-4

 

“Hired Employees” means employees of Seller who after the Closing are employed or retained by Buyer or an Affiliate of Buyer.

 

“Indebtedness” means, with respect to any Person, (i) indebtedness of such Person for borrowed money, whether secured or unsecured, (ii) obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (iii) obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person, (iv) capital lease obligations of such Person, (v) obligations of such Person under acceptance, letter of credit or similar facilities, (vi) obligations of such Person under interest rate cap, swap, collar or similar transaction or currency hedging transactions, and (vii) guarantees of such Person of any such indebtedness referred to in clauses (i)-(vi) of any other Person.

 

“Indemnified Party” is defined in Section 5.2(b).

 

“Indemnifying Party” means a Party from whom indemnification is sought pursuant to Article V.

 

“Independent Accountant” is defined in Section 1.5(c).

 

“Infringe” is defined in Section 2.13.

 

“Intellectual Property” shall mean all U.S. and foreign (i) patents, patent applications (including all provisional, divisions, divisionals, continuations, continuations in part and reissues), renewals, patent disclosures and inventions (whether patentable or unpatentable and whether or not reduced to practice), business methods, continuing patent applications, reexaminations, and extensions thereof, any counterparts claiming priority therefrom, utility models, patents of importation/confirmation, certificates of invention, certificates of registration and like rights, including invention disclosures, (ii) registered and unregistered trademarks, service marks, logos, designs, slogans, trade dress, trade names, brand names and corporate names, assumed names, business names and all other indicia of origin and registrations and applications for registration thereof (“Trademarks”), (iii) registered and unregistered copyrights in both published works and unpublished works of authorship and applications for registration thereof, (iv) computer software (including source code, object code, binary code and algorithms), application programming, user interfaces, databases and all documentation related thereto, (v) trade secrets and Confidential Information (including without limitation ideas, formulas, compositions, know-how, trade secrets, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, financial and marketing plans and customer and supplier lists and information), rights in personal data, data, data collection and all rights therein throughout the world, process technology and blueprints and all other non-public information, Confidential Information and tangible and intangible proprietary information (“Trade Secrets”), (vi) domain name registrations, web addresses, uniform resource locators and websites and (vii) any similar or equivalent rights to any of the foregoing anywhere in the world.

 

A-5

 

“Inventory” means Seller’s goods, products and other items located at or in transit to Seller’s facilities for sale to Customers.

 

“IRS” is defined in Section 2.14(a).

 

“Knows”, “Known” or “Knowledge” means, with respect to any Person, knowledge after reasonable inquiry and investigation.

 

“Laws” means all statutes, laws, codes, ordinances, regulations, rules, orders, judgments, writs, injunctions, assessments, awards, acts or decrees of any Government Entity.

 

“Liability” shall mean any and all charges, debts, obligations, bonds, indemnification and similar obligations, covenants, promises, guarantees, make whole agreements and similar obligations, and other liabilities, including all contractual obligations, whether absolute or contingent, inchoate or otherwise, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, Known or unknown, whenever arising, and including those arising under any Law,  actual, threatened or contemplated Proceeding or ruling of any Government Entity or any award of any arbitrator (public or private) of any kind, including attorneys’ fees, and those arising under any Contract, commitment or undertaking, including those arising under this Agreement.

 

“Lien” or “Liens” means any lien, pledge (including any negative pledge), purchase option, easement, restrictive covenant, security interest, deed of trust, right of first refusal, servitude, proxy, transfer restriction under any shareholder agreement or similar agreement, mortgage, conditional sales agreement, encumbrance or other right of third parties, voluntarily incurred or arising by operation of Law, and includes any agreement to give any of the foregoing in the future, and any contingent sale or other title retention agreement or lease in the nature thereof.

 

“Lock-Up Agreement” is defined in Section 1.5(a).

 

 “Loss” or “Losses” shall mean all claims, demands, suits, Proceedings, judgments, losses, lost profits, Liabilities, damages (including consequential damages), Taxes, costs, diminution of value and expenses of every kind and nature (including reasonable attorneys’ fees and costs of investigation actually incurred and paid by a Party).

 

“Material” or “material” means an event or circumstance that would be reasonably likely to constitute or contribute to a Material Adverse Effect.

 

“Material Adverse Effect” means an event or circumstance pertaining to the condition or prospects of the Business, the Seller Assets, or the Seller Parties, that would, individually or in the aggregate, (i) significantly impair the ability of any Seller Party, as applicable, to perform in a timely manner any of its obligations under this Agreement or any Transaction Document to which it is a party or any transaction contemplated hereby or thereby, or (ii) if known to a reasonable acquirer prior to Closing, would likely cause such acquirer not to proceed with the transaction.

 

A-6

 

 “Material Contract” means those Contracts to which either Seller is a party or by which it or its assets or properties are otherwise bound, and that are categorized by any of the following: (a) each Contract that involves the performance of services or delivery of goods or materials by or to Seller resulting or reasonably expected to result in receipts or payment in excess of $25,000, (b) each Contract that was not entered into by Seller in the ordinary course of business, (c) each lease, rental or occupancy agreement, installment and conditional sale agreement, and any other Contract or agreement affecting the ownership of, leasing of, title to or use of any real property used or held for use in the Business, (d) each license agreement or other Contract with respect to Intellectual Property, including Contracts with current or former employees, consultants or contractors regarding the appropriation or the non-disclosure of any Intellectual Property, (e) each collective bargaining agreement, including amendments and side letter agreements thereto, and any other Contract with any labor union or other employee representative of a group of employees of Seller or its Affiliates, (f) each employment Contract, termination Contract, retention, change in control, severance, compensation and bonus Contract with any Seller Employee, (g) each joint venture, partnership, franchise, joint research and development and joint marketing agreement or any other similar Contract (including a sharing of profits, Losses, costs or Liabilities by Seller with any other Person), (h) all Contracts to loan money or extend credit to any other Person, (i) each Contract containing covenants that in any way purport to restrict or prohibit the business activity of Seller to engage in any line of business or to compete with any Person, (j) each Contract providing for indemnification by Seller with respect to the Business or the Acquired Assets, (k) each Contract that creates or establishes a Lien on any of the Acquired Assets or otherwise is a Contract for borrowed money, (l) each Contract with any Government Entity, (m) each Employee Plan and (n) each other Contract that is not terminable by either party thereto upon 90 days’ notice.

 

“Monthly Financial Statements” is defined in Section 2.4.

 

“Non-Competition Agreement and Non-Solicitation Agreement” is defined in Section 1.9(a)(v).

 

“Notice of Disagreement” is defined in Section 1.5(c).

 

“Offer Letters” is defined in Section 1.9(a)(iv).

 

“PACA” means the federal Perishable Agricultural Commodities Act.

 

“Parent” means The Chefs’ Warehouse, Inc., a Delaware corporation.

 

“Parent Common Stock” means shares of common stock of Parent, par value $0.01 per share.

 

A-7

 

“Parent Stock Average Price” means $16.1775.

 

“Party” or “Parties” is defined in the preamble.

 

“Permitted Liens” means (i) Liens for Taxes not yet due and payable; (ii) mechanics’, carriers’, workers’, repairers’ and similar statutory liens arising or incurred in the ordinary course of business for amounts which are not delinquent and which are not, individually or in the aggregate, material.

 

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a Government Entity or any department, agency or political subdivision thereof.

 

“Personal Property” is defined in Section 1.2(g).

 

“Post-Closing Adjustment” is defined in Section 1.5(c).

 

“Pre-Closing Tax Period” means any taxable period of the Business that ends prior to the Effective Time.

 

“Proceedings” is defined in Section 2.10.

 

“Real Property” is defined in Section 1.4(b)(viii).

 

“Release” or “Released” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, migrating or disposing (including abandoning or discarding).

 

“Restrictive Covenants” is defined in Section 4.2(c).

 

“Seller Accounts Receivable” is defined in Section 1.2(k).

 

“Seller Assets” means, other than the Excluded Assets, any and all assets, properties, rights, licenses, Contracts, real property, causes of action and businesses of every kind and description, wherever located, real, personal or mixed, tangible or intangible, to the extent owned, licensed or leased by either Seller and used (or held for use) in the Business, including the Acquired Assets.

 

“Seller Employees” is defined in Section 2.12(a).

 

“Seller Indemnifiable Losses” has the meaning in Section 5.2(b).

 

“Seller Indemnification Basket” is defined in Section 5.3(a).

 

 

A-8

 

“Seller Indemnitee” and “Seller Indemnitees” is defined in Section 5.2(b).

 

“Seller Intellectual Property” means all Intellectual Property used (or held for use) in the Business by Seller, including the Acquired Intellectual Property.

 

“Seller Inventory” means all Inventory of Seller used in the operation of the Business, including the Acquired Inventory.

 

“Seller Parties” is defined in the preamble.

 

“Seller Related Person” is defined in Section 2.18.

 

“Seller Representative” is defined in Section 6.17.

 

“Targeted Working Capital” is defined in Section 1.5(b).

 

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

 

“Tax” or “Taxes” means (i) federal, state, province, county, local, foreign or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility, environmental, communications, real or personal property, capital stock, license, payroll, wage or other withholding, employment, unemployment, social security, severance, stamp, occupation, alternative or add-on minimum, estimated, customs duties, fees, assessments charges and other taxes of any kind whatsoever, whether disputed or not, (ii) all interest, penalties, fines, additions to tax or additional amounts imposed by any taxing authority in connection with any item described in clause (i) above, and (iii) all amounts described in clauses (i) and (ii) above payable as a result of having been a member of a consolidated, combined, affiliated or unitary group.

 

“Total Purchase Price” is defined in Section 1.5(a).

 

“Trade Accounts Payable” means accounts payable of the Seller with respect to the Business for services rendered or for the procurement of supplies and inventory.

 

“Trademarks” is defined in the definition of “Intellectual Property”.

 

“Transaction Documents” is defined in Section 2.1(b).

 

“Transfer Taxes” is defined in Section 4.5.

 

 “Treasury Regulation” means the United States Treasury Regulations promulgated under the Code, and any reference to any particular Treasury Regulation section shall be interpreted to include any final or temporary revision of or successor to that section regardless of how numbered or classified.

 

A-9

 

“Wilmarco Avenue Property” means the Seller premises at 2730 Wilmarco Avenue, Baltimore, Maryland.

 

“Working Capital means the current assets of the Business net of reserves (excluding all cash, cash equivalents and short-term investments of Seller) minus the current liabilities (excluding the current portion of long-term debt and cash overdrafts) of the Business, in each case determined in accordance with GAAP and (to the extent consistent with GAAP) applied on a basis consistent with the preparation of the Financial Statements and calculated in accordance with Section l .5(b).

 

 

 

 

A-10

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