Document:

Asset Purchase Agreement

EXHIBIT 10.2

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (the “Agreement”) is made and entered into as of this 25th day of November, 2013 (the “Agreement Date”), by and between BLSCH ACQUISITION, LLC, a Georgia limited liability company (“Purchaser”) and BLENDEDSCHOOLS.NET, a Pennsylvania non-profit corporation (“Seller”). 

Background

Seller is a nonprofit corporation exempt from taxation under Section 501(a) of the Internal Revenue Code of 1986, as amended (the “Code”), as an organization described in Section 501(c)(3) of the Code and in the business of on-line blended learning (the “Business”).  Purchaser desires to acquire the Business and assets of Seller on and subject to the terms and conditions of this Agreement.  

Agreement

For and in consideration of the mutual representations, warranties, covenants, and agreements contained herein and for other good and valuable consideration, the receipt and legal sufficiency of which is hereby acknowledged, the parties agree:

Section 1.   Purchase and Sale of Assets

Section 1.1

Purchase of Assets.  

In reliance upon the representations, warranties, covenants, and agreements contained in this Agreement, at the Closing, Purchaser shall purchase and Seller shall sell, assign, grant, transfer, and convey to Purchaser upon the terms and subject to the conditions of this Agreement, free and clear of all liabilities (fixed or contingent), obligations, security interests, liens, claims, or encumbrances of any nature or kind whatsoever except for Assumed Liabilities, all of the assets, properties, and rights of Seller of every type and description, tangible and intangible, wherever located and whether or not reflected on the books of Seller or carried thereon at zero value, including without limitation the following, provided however, that Seller shall not sell and Purchaser shall not purchase the Excluded Assets described in Section 1.2 of this Agreement:

(a)

All world wide web sites and domain names owned or licensed by Seller together with all documentation related thereto, and all related java applets and scripts, HTML pages, and back end software (collectively, the “Web Sites”), including, without limitation, the Web Sites listed on Section 1.1(a) of the Disclosure Schedule;

(b)

all training and education courses in both on-line and live classroom formats as same exist on the Closing Date (the “Content”), including, without limitation, the Web Sites listed on Section 1.1(b) of the Disclosure Schedule;

(c)

all software applications, tools, technologies, and components owned by Seller in both source code and object code versions with all versions, modifications, and enhancements thereto, together with all programming tools, libraries, and software to support and augment such software, and all flowcharts, logic diagrams, technical and descriptive documentation, materials, and specifications related thereto (collectively, the “Applications”), including, without limitation, the Applications listed on Section 1.1(c) of the Disclosure Schedule;

(d)

all patents, patent rights, patent applications and continuances, trade names and trade dress, trademarks (registered and unregistered), trademark applications, service marks (registered and unregistered), service mark applications (all marks to include all goodwill associated therewith), copyrights (registered and unregistered) and applications therefor, formulae, trade secrets, and know-how necessary or desirable to the conduct of the business as conducted by Seller and as proposed to be conducted by Purchaser (collectively, the “Intellectual Property”, including, without limitation, the Intellectual Property listed on Section 1.1(d) of the Disclosure Schedule;

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(e)

All rights of Seller in all software licensed from third parties and used by Seller, including without limitation, development tools, third party components, third party content used in the Web Sites and Applications, and all other third party software used by Seller (collectively, the “Shrink-wrap Software”), including, without limitation, the software packages listed on Section 1.1(e) of the Disclosure Schedule;

(f)

The executory obligations of Seller arising under the contracts listed in Section 1.1(f) of the Disclosure Schedule (each individually, a “Contract” and collectively, “Contracts”), together with the right to receive income with respect to the Contracts after the Closing Date, to the extent assignable; and

(g)

All data, books, records, correspondence, accounts, records of sales, customer lists, files, papers, and related materials used by Seller in connection with the Purchased Assets (collectively, the “Books and Records”).

(h)

All Net Cash as of the Closing Date.  As used herein,  “Net Cash” means the amount of Seller’s cash on hand on the Closing Date after repayment of the then outstanding balance of the Kish Bank loan minus Seller’s accounts payable on the Closing Date;

(i)

All (x) trade accounts receivable and other rights to payment from customers of Seller representing amounts receivable in respect of products sold or services rendered to customers of Seller, (y) all other accounts or notes receivable of Seller, and (z) any claim, remedy or other right related to any of the foregoing (collectively, the “Accounts Receivable”);

(j)

The pre-paid expenses of Seller, determined in accordance with GAAP;

The assets, rights, and properties of Seller described in this Section 1.1 which are not Excluded Assets as defined in Section 1.2 hereof, are hereinafter collectively referred to as the “Purchased Assets.”

Section 1.2

Excluded Assets.  

Seller shall not sell and Purchaser shall not purchase or acquire and the Purchased Assets shall not include:

(a)

Seller’s corporate franchise, corporate interest record books, corporate books containing minutes of meetings of managers and members, tax returns and records, books of account and ledgers, and such other records as having to do with Seller’s organization or capitalization; and

(b)

Any rights which accrue to Seller under this Agreement.

Section 1.3

Assumption of Certain Liabilities.  

At the Closing, as additional consideration for the sale, conveyance, transfer, and delivery of the Purchased Assets, Purchaser shall assume, perform, discharge, and become obligated for, commencing and effective from and after the Closing Date, all of the executory obligations and liabilities of Seller arising from and after the Closing Date pursuant to the Contracts and the licenses related to the Shrink-Wrap Software, but excluding any obligations or liabilities arising from or relating to any breach or violation thereof, or a default thereunder, by Seller prior to Closing (the “Assumed Liabilities”).

Section 1.4

Excluded Liabilities.  

PURCHASER SHALL NOT ASSUME OR BECOME LIABLE FOR ANY OBLIGATIONS, COMMITMENTS, OR LIABILITIES OF SELLER, WHETHER KNOWN OR UNKNOWN, ABSOLUTE, CONTINGENT, OR OTHERWISE, AND WHETHER OR NOT RELATED TO THE PURCHASED ASSETS, EXCEPT FOR THE ASSUMED LIABILITIES (the obligations and liabilities of Seller not assumed by Purchaser are hereinafter referred to as the “Excluded Liabilities”).  

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Section 2. Purchase Price and Closing

Section 2.1

Purchase Price.  

The purchase price for the Purchased Assets and the Restrictive Covenants shall be $550,000.00 (the “Purchase Price”).  Seller’s Net Cash as of the Closing Date shall be credited against the Purchase Price.  If Net Cash is less than the Purchase Price, Purchaser shall deliver the balance of the Purchase Price in cash at Closing.  If Net Cash is greater than the Purchase Price, Seller shall transfer an amount equal to Net Cash minus the Purchase Price to an account designated in writing by Purchaser.

Section 2.2

Time and Place of Closing.  

The closing of the purchase and sale of the Purchased Assets (the “Closing”) shall be held at the offices of Krevolin & Horst, LLC, 1201 W. Peachtree Street, Suite 3250, Atlanta, GA 30309, at 10:00 a.m. on the fifth (5th) business day immediately following the date on which the last of the conditions precedent to the obligations of Purchaser set forth in Section 6 have been satisfied or waived, or at such other time, date and place as the parties to this Agreement may otherwise agree.  The date the Closing actually occurs is hereinafter referred to as the “Closing Date”.  The effective time of the closing and the transfer of the Purchased Assets to Purchaser (the “Effective Time”) is 12:01 a.m. on the Closing Date.  The Closing will occur by a mutual electronic exchange of signature pages with originals to follow by overnight delivery and a wire transfer of the net Purchase Price.

Section 2.3

Deliveries at the Closing.  

(a)

At the Closing, Purchaser shall deliver the Purchase Price in the manner described in Section 2.1 hereof; and

(b)

At the Closing, Seller shall deliver the following:

(i)

The Disclosure Schedule;

(ii)

Such bills of sale and assignments as were reasonably requested by Purchaser, each executed by Seller, all of which together effectively vest in Purchaser good and valid title to each of the Purchased Assets free and clear of all liens, restrictions, and encumbrances;

(iii)

Written consents of all third parties necessary to the Purchaser’s use and enjoyment of the Purchased Assets, in form, scope, and substance reasonably satisfactory to Purchaser; and

(iv)

A search of filings made pursuant to Section 9 of the Uniform Commercial Code (conducted through a date reasonably proximate in time to the Closing Date) in each jurisdiction in which any of the Purchased Assets are located.

Section 2.4

Allocation of Purchase Price.  

The consideration paid for the Purchased Assets shall be allocated among the Purchased Assets in accordance with the provisions contained in Treasury Regulation Section 1.1060-1T(d).  The parties agree to be bound by such allocation and to report the transaction contemplated herein for federal income tax purposes in accordance with such allocation.  In furtherance of the foregoing, the parties hereto agree to execute and deliver Internal Revenue Service Form 8594 reflecting such allocation.

Section 2.5

Certain Consents.  

To the extent that Seller’s rights under any agreement, Contract, commitment, lease, Permit, or other Purchased Asset to be acquired by Purchaser hereunder may not be assigned without the consent of another person which has not been obtained, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful, and Seller, at its expense, shall use its best efforts to obtain any such required consent(s) as promptly as possible.  If any such consent shall not be obtained or if any attempted assignment would be ineffective or would impair Purchaser’s rights under the Purchased Asset in question so that Purchaser would not in effect acquire the benefit of all such rights, Seller, to the maximum extent permitted by law and the Purchased Asset, shall act after the Closing as Purchaser’s agent in order to obtain for Purchaser 

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the benefits thereunder, and Seller shall cooperate, to the maximum extent permitted by law, with Purchaser in any other reasonable arrangement designed to provide such benefits to Purchaser.

Section 3.  Representations and Warranties of Seller

The Disclosure Schedule (the “Disclosure Schedule”) shall be delivered to Purchaser in connection with the Closing.  The section numbers in the Disclosure Schedule shall correspond to the section numbers in this Agreement.  For the purpose of inducing the Purchaser to purchase the Purchased Assets and assume the Assumed Liabilities, Seller represents and warrants to Purchaser, except as set forth in the Disclosure Schedule that:

Section 3.1

Organization and Qualification.  

Seller is a corporation duly organized, validly existing, and in good standing under the laws of the Commonwealth of Pennsylvania and has all requisite corporate power and authority to conduct its business, and to own, lease, or operate the Purchased Assets in the places where the business is conducted and the Purchased Assets are owned, leased, or operated.  The Purchased Assets are located at the addresses set forth on Section 3.1 of the Disclosure Schedule.  

Section 3.2

Authority.  

Seller has full power and authority to enter into this Agreement and to consummate the transactions contemplated hereby.  The execution, delivery, and performance of this Agreement by Seller has been duly and validly authorized and approved by all necessary action on the part of Seller and its Board of Directors.  This Agreement is the legal, valid, and binding obligation of Seller enforceable against Seller in accordance with its terms, except as enforceability may be limited by applicable equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors’ rights generally, and to the exercise of judi­cial discretion in accordance with general equitable principles.  Neither the execution and delivery of the Agreement by Seller nor the consummation by Seller of the transactions contemplated hereby will (i) violate Seller’s Articles of Incorporation or bylaws, (ii) violate any pro­visions of law or any order of any court or any governmental unit to which Seller is subject, or by which any of the Purchased Assets are bound, or conflict with, result in a breach of, or constitute a default under any indenture, mortgage, lease, agreement, or other instrument to which Seller is a party or by which it or any of the Purchased Assets are bound, (iii) result in the creation of any lien, charge, or encumbrance upon any of the Purchased Assets; or (iv) result in the acceleration or increase in the amount of any liabilities related to Seller's use of the Purchased Assets.

Section 3.3

Ownership.  

Except as otherwise disclosed in Section 3.3 of the Disclosure Schedule:

(a)

Seller is the sole and exclusive owner of all right, title and interest in and to the Purchased Assets, free and clear of all liens, security interests, charges, encumbrances, equities or other adverse claims (including without limitation distribution rights). 

(b)

Seller has not granted any third party any right to resell, distribute, or market the Web Sites, the Content, or the Applications or create derivative works based upon the Web Sites or the Applications.

(c)

Prior to the Closing Date, Seller has the unfettered right and authority to use, and on and after the Closing Date Purchaser will have the unfettered right and authority to use, the Web Sites, the Content, the Applications, and the Intellectual Property in connection with the conduct of Purchaser’s business in the manner conducted by Seller prior to the Closing Date.

(d)

Purchaser’s ownership and use of the Web Sites, the Content, the Applications, and the Intellectual Property do not involve unfair competition with respect to any intellectual property or other proprietary right of any third person or entity;

(e)

The Web Sites, the Content, the Applications, and the Intellectual Property, do not infringe any patent, trademark, trade name, copyright, trade secret, or other intellectual property right of a third party.

(f)

The Purchased Assets are all of the assets required for Purchaser to conduct the business as presently conducted by Seller.

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(g)

Seller has taken all steps reasonably necessary to protect its right, title, and interest in and to the Web Sites, the Content, the Applications, and the Intellectual Property and the continued use of the Web Sites, the Content, the Applications, and the Intellectual Property.  Without limiting the generality of the foregoing, all designs, drawings, specifications, source code, object code, documentation, flow charts and diagrams incorporating, embodying or reflecting any of the Web Sites, the Content, the Applications, and the Intellectual Property at any state of its development were written, developed, and created by employees of Seller within the scope of their regular duties or were created by third parties who assigned ownership of their rights to Seller in valid and enforceable agreements, which are included in the contracts to be assigned and transferred to Purchaser hereunder.  Seller has at all times used  reasonable efforts to protect its trade secrets and has not disclosed or otherwise dealt with such items in such a manner as to cause the loss of such trade secrets by release thereof into the public domain.  Seller has at all times used  reasonable efforts to protect the confidentiality of all of its other confidential and proprietary information and that of third parties which is or has been in its possession.  

(h)

To Seller’s knowledge, no employee of Seller is in violation of any term of any employment contract or confidentiality agreement or any other contract or agreement relating to the relationship of any such person with Seller. 

(i)

Except for product returns in the ordinary course of business, no product liability or warranty claim with respect to any product included among the Purchased Assets has been communicated to or overtly threatened against Seller nor, is there any specific situation, set of facts or occurrence that provides a basis for any such claim.  Seller has provided to Purchaser an accurate list of all material known errors or “bugs” in the Web Sites and the Applications.

Section 3.4

Compliance with Laws.  

Seller, to the best of its knowledge, is not subject to any judgment, order, writ, injunction, or decree that adversely affects, or might in the future reasonably be expected to adversely affect any of the Purchased Assets or its business.  Seller is, to the best of its knowledge, in substantial compliance with all laws applicable to its business and the Purchased Assets, including without limitation, all laws related to zoning, occupational safety, labor, wages, working hours, working conditions, environmental protection, and fair business practices.  Seller, to the best of its knowledge, has all permits, licenses, approvals, consents, and authorizations which are required for the operation of Seller’s business under federal, state, or local laws, rules, and regulations.

Section 3.5

Litigation.  

There are no formal or informal complaints, investigations, claims, charges, arbitration, grievances, actions, suits, or proceedings pending, or to the knowledge of Seller threatened against, or affecting Seller or any of the Purchased Assets at law or in equity or admiralty, or before or by any federal, state, municipal, or other governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, except that Seller has filed an appeal of an adverse decision related to Pennsylvania Sales Tax exemption that is currently pending. Seller will withdraw said appeal upon execution of this Agreement.  Seller is not subject to any order, writ, injunction, or decree of any federal, state, municipal court, or other governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, affecting the Purchased Assets or Seller's business.

Section 3.6

Brokers and Finders.  

Seller has not incurred any obligation or liability to any party for any brokerage fees, agent’s commissions, or finder’s fees in connection with the transactions contemplated hereby.

Section 3.7

Contracts. 

(a)

Each Contract pursuant to which Seller has any obligation which extends past the Closing Date, the performance of which is to be assumed by Purchaser, is described on Section 1.1(f) of the Disclosure Schedule.  Except as disclosed on Section 3.7(a) of the Disclosure Schedule, there is no Contract which is not terminable by Seller without premium, penalty, or other obligation upon thirty (30) days notice or less;

(b)

Each of the Contracts is in full force and effect and there are no existing defaults or events of default, real or claimed, or events which with notice or lapse of time or both would constitute defaults, the consequences of which, severally or in the aggregate, would have an adverse effect on the Business or financial condition of Seller.  Except as 

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reflected in Section 3.7(b) of the Disclosure Schedule, each of the Contracts may be assigned to Purchaser without the prior approval or consent of any other party;

(c)

Seller has fulfilled all obligations required pursuant to the Contracts to have been performed by Seller prior to the date hereof;

(d)

True, correct, and legible copies of all documents evidencing the Contracts have been provided to Purchaser.

Section 3.8

Governmental Approval and Consents.  

Seller has obtained all governmental approvals, authorizations, permits, and licenses required to permit the operation of its business as presently conducted.  Except for approvals of the Pennsylvania Attorney’s General’s office and the Mifflin County Court of Common Pleas, no authorization, consent, approval, designation or declaration by, or filing with, any public body, governmental authority, bureau, or agency is necessary or required as a condition to the validity of this Agreement and the consummation of the transactions contemplated hereby.

Section 3.9

Labor Matters.  

Section 3.9 of the Disclosure Schedule contains a true and correct list of all present W-2 employees of Seller (the “Employees”), their duties, their total remuneration for the fiscal year ended June 30, 2013, their current remuneration, and a brief narrative description of all perquisites and fringe benefits they receive or are eligible to receive.  Except as described in Section 3.9 of the Disclosure Schedule, all Employees are employees at-will and for indefinite terms and there is no outstanding agreement or arrangement with respect to severance payments.  All taxes required to be withheld on or prior to the Closing Date from employees for income taxes, social security taxes, unemployment taxes and other similar withholding taxes have been properly withheld and, if required on or prior to the Closing, have been deposited with the appropriate governmental agency.

Section 3.10

Financial Statements.  

Attached to the Disclosure Schedule are true, correct, and complete copies of the unaudited balance sheet of Seller dated September 30, 2013 (the “Reference Balance Sheet”), the unaudited income statement for the twelve months then ended, and the audited balance sheets of Seller as of June 30, 2013, 2012, and 2011, and audited statements of income, and cash flow for the periods then ended, together with the notes thereto (if any) (collectively, the “Financial Statements”).  The Financial Statements () are in accordance with the books and records of Seller, () present fairly the financial condition of Seller as of the respective dates indicated and the results of operations for such periods, () have been prepared in accordance with generally accepted accounting principles (“GAAP”) consistently applied throughout the periods involved, and () reflect adequate reserves for all liabilities and losses.  Seller has no material liabilities or obligations (secured or unsecured, whether accrued, absolute, direct, indirect, contingent, or otherwise, and whether due or to become due) that are not fully accrued or reserved against in the Financial Statements or described on Section 3.10 of the Disclosure Schedule.  The books, records, and accounts of Seller shown to Purchaser accurately and fairly reflect, in reasonable detail, all transactions, assets, and liabilities of Seller.  

Section 3.11

Accounts Receivable.  

All Accounts Receivable outstanding at the Closing (“Closing Date Receivables”) represent sales actually made or services actually performed in the ordinary course of business in bona fide transactions completed in accordance with the terms and provisions contained in any documents related thereto.  All Closing Date Receivables will be collectible, net of any reserves reflected on the Interim Balance Sheet, which reserves are in an amount consistent with past practice, within 180 days after Closing.

Section 3.12

Correctness of Representations.  

To the best of its knowledge, no representation or warranty of Seller in this Agreement or in any Exhibit, certificate, or Schedule attached hereto or furnished to Purchaser hereunder contains any untrue statement of fact, or omits to state any fact necessary in order to make the statements contained therein not misleading.  True copies of all mortgages, indentures, notes, leases, agreements, plans, contracts, and other instruments listed on or referred to in the Schedules delivered or furnished to Purchaser pursuant to this Agreement have been delivered to Purchaser.

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Section 4.  Representations and Warranties of Purchaser

Purchaser hereby represents and warrants to Seller as follows:

Section 4.1

Organization and Qualification.  

Purchaser is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Georgia and has all necessary power and authority to conduct its business, to own, lease, or operate its properties in the places where such business is conducted and such properties are owned, leased, or operated.

Section 4.2

Authority.  

Purchaser has full power and authority to enter into this Agreement and to consummate the transactions contemplated hereby.  The execution, delivery, and performance of this Agreement by Purchaser has been duly and validly authorized and approved by all necessary action on the part of Purchaser, and this Agreement is the legal, valid, and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms, except as enforceability may be limited by applicable equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors’ rights generally, and by the exercise of judicial discretion in accordance with equitable principles.  Neither the execution and delivery of this Agreement by Purchaser nor the consummation by Purchaser of the transactions contemplated hereby will (a) violate Purchaser’s Articles of Organization or Operating Agreement, (b) violate any pro­visions of law or any order of any court or any governmental unit to which Purchaser is subject, or by which its assets may be bound, or (c) conflict with, result in a breach of, or constitute a default under any indenture, mortgage, lease, agreement, or other instrument to which Purchaser is a party or by which its assets or properties may be bound.

Section 4.3

Litigation.  

There is no suit, action, proceeding, claim or investigation pending, or, to Purchaser’s knowledge, threatened, against Purchaser which would prevent Purchaser from consummating the transactions contemplated by this Agreement.

Section 4.4

Brokers and Finders.  

Purchaser has not incurred any obligation or liability to any party for brokerage fees, agent’s commissions, or finder’s fees in connection with the transactions contemplated hereby.

Section 4.5

Disclosure and Absence of Undisclosed Liabilities.  

No representation or warranty by Purchaser contained in or made in connection with this Agreement or the transactions herein contemplated contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein not misleading.

Section 5.   Covenants of Seller

Seller covenants and agrees with Purchaser as follows:

Section 5.1

Conduct of Business Prior to Closing.  

From the Agreement Date hereof to the Closing Date, and except to the extent that Purchaser shall otherwise consent in writing, Seller shall:

(a)

operate the Business substantially as previously operated and only in the regular and ordinary course, not make any purchase or sale, or introduce any new method of management or operation except in the ordinary course of business and in a manner consistent with past practices, and use its best efforts to maintain and preserve intact each of the goodwill, reputation, present business organization, and relationships of Seller with persons having business dealings with it, and will reasonably endeavor to maintain the services of its Employees;

(b)

maintain the Purchased Assets in good order and condition, reasonable wear and use excepted, and deliver the Purchased Assets to Purchaser on the Closing Date in such condition, and maintain all policies of insurance 

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covering the Purchased Assets in amounts and on terms substantially equivalent to those in effect on the date of this Agreement;

(c)

take all steps reasonably necessary to maintain the Intellectual Property and other intangible assets of Seller;

(d)

pay all accounts payable when due in accordance with prudent business practices;

(e)

comply with all laws applicable to Seller where the failure to so comply would have a material adverse affect on the Business or the Purchased Assets;

(f)

maintain the Books and Records of Seller in the usual, regular, and ordinary manner, on a basis consistent with past practices and prepare and file all foreign, federal, state, and local tax returns and amendments thereto required to be filed by Seller after taking into account any extensions of time granted by such taxing authorities.

Section 5.2

Access to Properties and Records, Etc.  

Until the Closing or, if earlier, termination of this Agreement, Purchaser and its counsel, accountants, and other representatives will be given full access during normal business hours to all of the properties, personnel, books, tax returns, contracts, commitments, and records of Seller to the extent reasonably necessary for Purchaser’s due diligence investigation, and Purchaser will be furnished with all such additional documents and information with respect to the affairs of Seller as Purchaser or its counsel or accountants may from time to time reasonably request.

Section 5.3

Actions Prior to Closing.  

From the date of this Agreement through the Effective Time, Seller shall not without the prior written consent of Purchaser:

(a)

incur any obligations, liabilities, or expenses of any nature (whether absolute, accrued, contingent, or otherwise and whether due or to become due) that would constitute Assumed Liabilities other than items incurred in the ordinary course of business consistent with past practice;

(b)

permit, allow, or suffer any of the Purchased Assets to be subjected to any mortgage, pledge, lien, or encumbrances other than Permitted Encumbrances;

(c)

suffer any material adverse change in the Purchased Assets or in the operations, condition (financial or otherwise), liabilities, earnings, or prospects of the Business;

(d)

waive any claims or rights with respect to and materially and adversely affecting any of the Business, the Purchased Assets, or the Assumed Liabilities;

(e)

sell, transfer, or otherwise dispose of any of the Purchased Assets, other than Excluded Assets, except in the ordinary course of business consistent with past practice;

(f)

dispose of or permit to lapse any right to the use of any Intellectual Property, except for the expiration of any proprietary rights to use patents that may expire by law;

(g)

other than in accordance with and in amounts not greater than provided for in existing agreements between Seller and Employees, grant any increase in the salary and wages of any Employee or any increase in such salary and wages payable or to become payable at any time in the future to any of the Employees, except pursuant to promotions previously disclosed to Purchaser that will become effective on or prior to the Closing Date and except for Employees that Purchaser identifies on a written list delivered to Seller as Employees who will not receive an offer to become Hired Employees;

(h)

make any change in any material method of accounting or accounting principle, practice, or policy affecting or relating to the Purchased Assets or Assumed Liabilities including, without limitation, any extension of the useful lives of the Purchased Assets and consequent adjustments to the depreciation or valuation thereof on the books and records of Seller;

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(i)

make any change (or change any assumption underlying or method of calculating) in the amount of any bad debt, contingency, or other reserve, other than in the ordinary course of business consistent with past practice;

(j)

write-down or write-up the value of any Inventory (including write-downs by reason of shrinkage or mark downs), except for write-downs, write-ups, and write-offs in the ordinary course of business consistent with past practice, none of which are or will be material in amount;

(k)

except consistent with past practices or existing programs, pay, loan, or advance any amount to, sell, transfer, or lease any properties or Purchased Assets (real, personal or mixed, tangible, or intangible) to, or enter into any agreement or arrangement with, any Employee, or any spouse or Affiliate of any such Person, except for routine travel advances to Employees, and compensation to Employees consistent with Section 5.3(a) hereof;

(l)

dispose of or permit to lapse any right to the use of any patent, trademark, assumed name, service mark, trade name, copyright, license, or application therefor or dispose of or disclose to any person not authorized to have such information, any trade secret, proprietary information, formula, process, or know-how not previously a matter of public knowledge or existing in the public domain;

(m)

waive, terminate, or commit any breach of any provision under or relating to any of the Contracts;

(n)

enter into any Contracts, Agreements, or transactions with respect to or affecting the Assumed Liabilities other than Contracts entered into in the ordinary course of business and consistent with past practices; 

(o)

with respect to the Purchased Assets, permit any option to renew any lease or any option to purchase any property to expire or exercise any such option;

(p)

omit to do any act or permit any act which could reasonably be expected to cause a breach of any material Contract or obligation of Seller with respect to or affecting the Purchased Assets or any breach of any representation, warranty, covenant, or agreement made by Seller herein;

(q)

default regarding the provisions of any insurance policy or fail to give notice or present any claim under any such policy in due and timely fashion if such default or failure to give notice would give the insurer the right to cancel any policy, deny claims, or limit coverage; or

(r)

take any other action not in the ordinary course of business consistent with past practice or omit to take any other action that would be taken in the ordinary course of business consistent with past practice if such action or omission to take action would materially and adversely affect the Business, the Purchased Assets, or the Assumed Liabilities.

Section 5.4

Certain Governmental Approvals.  

Seller shall take all action necessary to secure any approval of Pennsylvania Attorney’s General’s office and the Mifflin County Court of Common Pleas required for the consummation of the transactions contemplated hereby.  Seller shall keep Purchaser informed of the status of Seller’s efforts to secure such approvals and shall use best efforts to secure such approvals.

Section 5.5

Other Transactions.  

Seller shall deal exclusively and in good faith with Purchaser with regard to the sale of the Purchased Assets to Purchaser and will not, and will direct its officers, directors, financial advisors, accountants, agents, and counsel not to:  () solicit submission of proposals or offers from any person other than Purchaser relating to any acquisition of all or any material part of the Purchased Assets or the Business or solicit submission of proposals or offers from any person other than Purchaser and its representatives relating to any acquisition or purchase of all or a material portion of the Purchased Assets used in the Business (an “Acquisition Proposal”); () subject to fiduciary obligations under applicable law as advised in writing by counsel (with a copy of such advice contemporaneously being furnished to Purchaser and its counsel), participate in any discussions or negotiations regarding, or furnish any non-public information to any other person regarding Seller other than Purchaser and its representatives or otherwise cooperate in any way or assist, facilitate, or encourage any Acquisition Proposal by any person other than Purchaser; or () enter into any agreement or understanding, whether oral or in writing, that would have the effect of preventing the consummation of the transactions contemplated by this Agreement.  If, notwithstanding the foregoing, 

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Seller, or its representatives or agents should receive any Acquisition Proposal or any inquiry regarding such proposal from a third party, such persons shall promptly inform Purchaser and its counsel thereof.

Section 5.6

Consents.  

Seller shall obtain, at its cost and expense, prior to the Closing all consents and estoppels which, in the reasonable judgment of Purchaser, are necessary or appropriate for the transfer of the Purchased Assets to Purchaser and the consummation of the transactions contemplated hereby.  All such consents and estoppels shall be in writing and in form and substance satisfactory to Purchaser, and executed counterparts thereof will be delivered to Purchaser promptly after receipt thereof but in no event later than the Closing.

Section 5.7

Supplemental Disclosure.  

Seller and Purchaser shall each have the continuing obligation up to and including the Closing Date to supplement promptly or amend the Schedules with respect to any matter hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or listed in the Schedule.  Any such matter or information hereafter disclosed shall be deemed to amend the Schedules hereto (to the extent of such written disclosure) as of the date hereof unless Purchaser shall within five (5) business days after receipt of such written disclosure by Purchaser and its counsel, but in any event prior to the Closing, notify Sellers in writing that the matter or information so disclosed materially varies from, or materially and adversely to Purchaser’s interests changes, the information disclosed on the Schedules on the date hereof.  In such event, the Schedules hereto shall not be deemed amended or changed by the matter or information so disclosed, and, unless the acts or circumstances giving rise to the matter or information so disclosed is corrected prior to the Closing, the matter or information so disclosed shall constitute items at variance with the warranties and representations of Seller herein.

Section 5.8

Additional Reports.  

Promptly after they become available, Seller will deliver to Purchaser true and correct copies of all internal management and control reports (including aging of accounts receivables, listings of accounts payable, and inventory control reports) and financial statements related to the Business.  Each such report shall be in accordance with the books and records of Seller, and, in the case of financial statements shall present fairly the financial condition of Seller as of the dates indicated and the results of operations for the periods then ended.

Section 5.9

Capital Expenditures.  

Seller shall cause the management of Seller to discuss with Purchaser any proposed significant capital expenditure to be made by the Business after the Closing prior to entering into any contract or commitment for such capital expenditure.  No capital expenditure shall be made by Seller in respect of the Business prior to the Closing Date without the prior consent of Purchaser, which consent shall not be unreasonably withheld or delayed.  

Section 5.10

Discharge of Liens and Encumbrances.  

All liens, claims, charges, security interests, pledges, assignments, or encumbrances relating to the Purchased Assets shall be satisfied, terminated, and discharged by Seller on or prior to the Closing Date and evidence satisfactory to Purchaser and its counsel of such satisfaction, termination, and discharge shall be delivered to Purchaser at or prior to the Closing.

Section 6.   Conditions Precedent to the Obligations of Purchaser

The obligation of Purchaser to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction, on or before the Closing Date, of each of the following conditions all or any of which may be waived in writing, in whole or in part, by Purchaser:

Section 6.1

Representations True at Closing.  

Each representation and warranty in Section 3 hereof shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though such representation and warranty had been made on and as of the Closing Date (except that such representations and warranties may be untrue or incorrect as a result of actions or transactions expressly permitted by this Agreement or actions or transactions of Seller made with the prior written consent of Purchaser), and Seller shall have delivered to Purchaser a certificate, executed by each of Seller, dated the Closing Date to such effect.

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Section 6.2

Compliance by Seller.  

Seller shall have duly performed all of the covenants, agreements, acts, and undertakings to be performed by Seller on or prior to the Closing Date, and Seller shall have delivered to Purchaser a certificate, executed by each of Seller, dated the Closing Date to such effect.

Section 6.3

No Injunction, Etc.  

No action, proceeding, investigation, regulation, or legislation shall be pending or overtly threatened which seeks to enjoin, restrain, or prohibit consummation of the transactions contemplated hereby, or to obtain damages from Purchaser, in respect of the consummation of the transactions contemplated hereby, or which seeks to enjoin the operation of a substantial portion of the Purchased Assets, or, which in the reasonable judgment of Purchaser, would make it inadvisable to consummate the transactions contemplated by this Agreement.

Section 6.4

Operation in the Ordinary Course.  

Seller shall have operated the Business in the ordinary course (except as otherwise permitted by this Agreement or as agreed to by Purchaser as evidenced by Purchaser’s prior written consent) since October 1, 2013, and Purchaser shall have received a certificate dated as of the Closing Date, executed by each of Seller to such effect.

Section 6.5

Consents and Waivers.  

Purchaser shall have received a true and correct copy of each consent and waiver required for the assignment of the Contracts and Purchaser shall have received a certificate dated as of the Closing Date, executed by Seller to the foregoing effect, and Purchaser shall be satisfied with the terms, conditions, and restrictions, of and obligations under, each such consent and waiver.

Section 6.6

Governmental Authorizations and Approvals.  

Purchaser shall have received a true and correct copy of the approvals of the Pennsylvania Attorney’s General’s office and the Mifflin County Court of Common Pleas required for the consummation of the transactions contemplated hereby, and Purchaser shall have received a certificate dated as of the Closing Date, executed by Seller to the foregoing effect, and Purchaser shall be satisfied with the terms, conditions, and restrictions, of and obligations under, each such authorization, order, or approval.

Section 6.7

Condition of Purchased Assets.  

On the Closing Date, all of the Purchased Assets shall be in substantially the same condition as at the close of business on the date hereof, except for ordinary use and wear thereof, and changes occurring in the ordinary course of business between the date hereof and the Closing Date, and Purchaser shall have received a certificate of Seller dated the Closing Date to such effect.

Section 6.8

Financing.  

Purchaser shall have consummated financings under terms satisfactory to Purchaser, which financings, when taken in the aggregate with other funds available to Purchaser, shall be in an amount sufficient to pay the Purchase Price, the transaction costs of Purchaser associated with this Agreement and the transactions contemplated by this Agreement, and provide adequate working capital for the operation of the Business by Purchaser.

Section 6.9

Incumbency.  

Purchaser shall have received a certificate of incumbency of Seller executed by the President and Secretary of Seller listing the officers of Seller authorized to execute the Agreement and the instruments of transfer and conveyance on behalf of Seller, certifying the authority of each such officer to execute the agreements, documents, and instruments on behalf of Seller in connection with the consummation of the transactions contemplated herein.

Section 6.10

Certified Resolutions.  

Purchaser shall have received a certificate of the Secretary of Seller containing a true and correct copy of the resolutions duly adopted by the board of directors and shareholders of Seller, approving and authorizing this Agreement and the 

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consummation of the transactions contemplated hereby.  The Secretary of Seller shall also certify that such resolutions have not been rescinded, revoked, modified, or otherwise affected and remain in full force and effect.

Section 6.11

Release of Certain Liens.  

Purchaser shall have received Uniform Commercial Code searches (which searches shall be made or caused to be made by and at the expense of Seller) of filings made pursuant to Article 9 thereof in all jurisdictions where any of the Purchased Assets are located, in form, scope, and substance reasonably satisfactory to Purchaser and its counsel, which searches shall reflect the release or termination of liens, claims, security interests, or encumbrances against any of the Purchased Assets disclosed thereby that are not Permitted Encumbrances, and to the extent any such release or termination is not reflected of record, Purchaser shall have received evidence satisfactory to it, that all such liens and encumbrances against the Purchased Assets other than Permitted Encumbrances have been released or terminated prior to or at the Closing; and Purchaser shall have received a certificate dated as of the Closing Date, executed by an authorized officer of Seller to such effect.

Section 6.12

No Material Adverse Change.  

There shall have been no material adverse change in the Business, the financial condition of Seller, or the Purchased Assets since October 1, 2013.

Section 6.13

Accuracy of Schedules.  

Examination by Purchaser shall not have disclosed any material inaccuracy in the representations and warranties of Seller, set forth in this Agreement or in the Schedules delivered to Purchaser pursuant hereto.

Section 6.14

Instruments of Transfer.  

Seller shall have delivered to Purchaser such bills of sale, endorsements, assignments, licenses, and other good and sufficient instruments of conveyance and transfer and any other instruments deemed appropriate by counsel to Purchaser all in form and substance satisfactory to counsel to Purchaser to vest in Purchaser all of Seller’s rights, title, and interest in and to the Purchased Assets, free and clear of all liens, charges, encumbrances, pledges, or claims of any nature except for Permitted Encumbrances.

Section 7. Indemnification

Section 7.1

Survival of Warranties.  

All representations and warranties of the parties contained in this Agreement shall survive the Closing until the first (1st) anniversary of the Closing Date; provided, however, that the representations and warranties of Seller contained in () Section 3.2 (Authorization), Section 3.3 (Ownership), and Section 3.6 (Brokers and Finders) (each a “Fundamental Representation”) shall survive until the ninetieth (90th) day after the expiration of the applicable statute of limitations, including any extensions, each of such periods is a “Warranty Survival Period”.  Any representation or warranty that would otherwise terminate in accordance with this Section 7.1 will continue to survive if a Claim Notice shall have been given under this Section 7 on or prior to such termination date until the related claim for indemnification has been satisfied or otherwise resolved as provided in this Section 7.  No cause of action based upon, or alleging, a breach of warranty may be commenced after the expiration of the applicable Warranty Survival Period.  For the purposes of this Section 7, the terms “Loss” and “Losses” shall mean any and all any loss, liability, claim, damage (excluding punitive damages other than damages awarded to third parties), tax, obligation, penalty, fine, judgment, cost and expense (including amounts paid in settlement, reasonable costs of investigation and defense, and reasonable attorneys’ fees) suffered by an Indemnified Party, whether or not involving a Third Party Claim and as the same are incurred.  All statements contained in any certificate, Exhibit or Schedule delivered by or on behalf of Purchaser or Seller pursuant to this Agreement shall be deemed representations and warranties hereunder by Purchaser or Seller, as the case may be.  Any inspection, preparation, or compilation of information or Schedules, or audit of the inventories, properties, financial condition, or other matters relating to Seller conducted by or on behalf of Purchaser pursuant to this Agreement shall in no way limit, affect, or impair the ability of Purchaser to rely upon the representations, warranties, covenants, and agreements of Seller set forth herein.  

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Section 7.2

Agreement of Seller to Indemnify Purchaser.

(a)

Subject to the terms and conditions of this Section 7, Seller hereby agrees to indemnify, defend, and hold harmless Purchaser, and, to the extent named or involved in any Third-Party Claim, Purchaser’s officers, directors, employees and shareholders, and their respective successors and assigns, from, against, and in respect of any and all Losses which are based upon, arise out of, result from, or relate to:

(i)

the inaccuracy or untruth of any representation or warranty of Seller (other than a Fundamental Representation) contained in or made pursuant to this Agreement or in any certificate, Schedule, or Exhibit furnished by Seller, in connection with the execution and delivery of this Agreement and the closing of the transactions contemplated hereby, 

(ii)

the breach by Seller of any covenant or agreement made in or pursuant to this Agreement or any agreement executed by Seller, and delivered to Purchaser in connection with the Closing of the transactions contemplated hereby; and 

(iii)

the inaccuracy or untruth of any Fundamental Representation or any Excluded Liability, including without limitation the failure to comply with the bulk sales law.

(b)

Seller’s obligation to indemnify Purchaser for Losses is subject to the condition that Seller shall have received notice of the Losses for which indemnity is sought on or before the expiration of the applicable Warranty Survival Period.  

(c)

No claim may be made pursuant to Section 7.2 (other than with respect to a breach of a Fundamental Representation) until the total of all Losses with respect to such matters exceeds $10,000.00, at which time Seller shall be liable for the full amount of such Damages (including the initial $10,000.00).

(d)

The maximum recovery for Losses in the aggregate under this Section 7.2 shall be the aggregate consideration received by Seller pursuant to this Agreement.

(e)

Purchaser’s remedies against Seller for any Losses hereunder shall be cumulative, and the exercise by Purchaser of its right to indemnification hereunder shall not affect the right of Purchaser to exercise any other remedy at law or in equity, to recover damages, or to obtain equitable or other relief, provided, that Seller shall not be liable for damages in excess of the actual damages suffered by Purchaser as a result of the act, circumstance, or condition for which indemnification is sought.

Section 7.3

Agreement of Purchaser to Indemnify Seller.

(a)

Subject to the terms and conditions of this Section 7.3, Purchaser hereby agrees to indemnify, defend, and hold harmless Seller from, against, for, and in respect of any and all Losses asserted against, relating to, imposed upon, or incurred by Seller by reason of, resulting from or based upon:

(i)

the inaccuracy or untruth of any representation or warranty of Purchaser, contained in or made pursuant to this Agreement or in any certificate, Schedule, or Exhibit furnished by Purchaser, in connection with the execution and delivery of this Agreement or the closing of the transactions contemplated hereby; and

(ii)

the breach by Purchaser of any covenant or agreement made in or pursuant to this Agreement or any agreement executed by Purchaser, and delivered to Seller in connection with the Closing of the transactions contemplated hereby. 

(b)

Purchaser’s obligation to indemnify Seller for Losses is subject to the condition that Purchaser shall have received notice of the Losses for which indemnity is sought on or before the expiration of the applicable Warranty Survival Period.

(c)

Seller’s remedies against Purchaser for any Losses hereunder shall be cumulative, and the exercise by Seller of its right to indemnification hereunder shall not affect the right of Seller to exercise any other remedy at law or in equity, to recover damages, or to obtain equitable or other relief, provided, that Purchaser shall not be liable for damages 

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in excess of the actual damages suffered by Seller as a result of the act, circumstance, or condition for which indemnification is sought.

Section 7.4

Procedures for Indemnification.  

As used herein, the term “Indemnitor” means the party against whom indemnity hereunder is sought, and the term “Indemnitee” means the party seeking indemnification hereunder.  

(a)

A claim for indemnification hereunder (“Indemnification Claim”) shall be made by Indemnitee by delivery of a written declaration to Indemnitor requesting indemnification and specifying the basis on which indemnification is sought and the amount of asserted Losses, and, in the case of a Third Party Claim (as defined in Section 7.5 hereof), containing (by attachment or otherwise) such other information as Indemnitee shall have concerning such Third Party Claim.

(b)

If the Indemnification Claim involves a matter other than a Third Party Claim, the Indemnitor shall have ten (10) days to object to such Indemnification Claim by delivery of a written notice of such objection to Indemnitee specifying in reasonable detail the basis for such objection.  Failure to timely so object shall constitute a final and binding acceptance of the Indemnification Claim by the Indemnitor and the Indemnification Claim shall be paid in accordance with Section 7.4(c)hereof.  If an objection is timely interposed by the Indemnitor and the dispute is not resolved within forty-five (45) days from the date (such period is hereinafter the “Negotiation Period”) Indemnitee receives such objection, such dispute shall be resolved by arbitration in accordance with the provisions of Section 10.8, unless the Indemnification Claim involves () Intellectual Property or () injunctive relief is reasonably necessary to protect the interests of the Indemnitee (collectively the types of claims referred to in clauses () and () are hereinafter referred to as the “Excluded Claims”), in which event, the dispute may be resolved by institution of an appropriate legal proceeding or by arbitration in accordance with the provisions of Section 10.7 at the option of the Indemnitee.

(c)

Upon determination of the amount of Losses required to be paid pursuant to an Indemnification Claim, whether by agreement between Indemnitor and Indemnitee or by an arbitration award, or by any other final adjudication, Indemnitor shall pay the amount of such Indemnification Claim by check within ten (10) days of the date such amount is determined.

Section 7.5

Defense of Third Party Claims.  

Should any claim be made, or suit or proceeding (including, without limitation, a binding arbitration or an audit by any taxing authority) be instituted against Indemnitee by a Third Party which, if prosecuted successfully, would be a matter for which Indemnitee is entitled to indemnification under this Agreement (a “Third Party Claim”), the obligations and liabilities of the parties hereunder with respect to such Third Party Claim shall be subject to the following terms and conditions:

(a)

The Indemnitee shall give the Indemnitor written notice of any such claim promptly after receipt by the Indemnitee of notice thereof, and the Indemnitor will undertake the defense thereof by representatives of its own choosing reasonably acceptable to the Indemnitee.  The assumption of the defense of any such claim by the Indemnitor shall be an acknowledgement by the Indemnitor of its obligation to indemnify the Indemnitee with respect to such claim hereunder.  If, however, the Indemnitor fails or refuses to undertake the defense of such claim within fifteen (15) days after written notice of such claim has been given to the Indemnitor by the Indemnitee, the Indemnitee shall have the right to undertake the defense, compromise, and, settlement of such claim with counsel of its own choosing.  The Indemnitor shall have the right to participate in any defense assumed by the Indemnitee, at its sole cost and expense.  In the circumstances described in the preceding sentence, the Indemnitee shall, promptly upon its assumption of the defense of such claim, make an Indemnification Claim as specified in Section 7.4, which shall be deemed an Indemnification Claim that is not a Third Party Claim for the purposes of the procedures set forth herein.

(b)

The Indemnitee and Indemnitor shall cooperate with each other in all reasonable respects in connection with the defense of any Third Party Claim, including making available records relating to such claim and furnishing, without expense to the Indemnitor, management employees of the Indemnitee as may be reasonably necessary for the preparation of the defense of any such claim or for testimony as witnesses in any proceeding relating to such claim.

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Section 8. Post Closing Matters

Section 8.1

Employment of Employees.  

On or before the Closing Date, Purchaser shall offer employment to all Employees (except for Employees who are () on Worker’s Compensation or other medical disability leave, () on “light duty” as a result of any worker’s compensation or other medical disability, except pregnancy disability, or () otherwise on any other leave or part-time status, other than vacation leave or maternity leave at the Closing Date) at the same rates of pay and working conditions offered by Seller to such Employees on the date of this Agreement.  All Employees accepting Purchaser’s offer of employment are referred to as the “Hired Employees.”  Seller shall be responsible for the payment of all accrued but unpaid wages, vacation pay, sick pay, holiday pay, and severance pay due to Hired Employees, up to and including the Effective Time or the earlier termination of employment.  Seller shall be responsible for the payment of any amounts due to its Employees (including the Hired Employees) pursuant to the Seller Plans as a result of the employment of the Employees.  Seller will be responsible for reporting and paying all employee-related costs and liabilities of Hired Employees accruing prior to the Closing Date.  Purchaser shall become responsible for all costs and liabilities attributable to Hired Employees accruing on and after the Closing Date.  Purchaser shall allow Seller access to the Hired Employees to perform services as needed to wind up the affairs of Seller, to the extent such services do not unduly interfere with the timely performance of duties by such Hired Employees for Purchaser.  The services of the Hired Employees shall be provided, subject to the preceding sentence, free of charge to Seller. 

Section 8.2

Seller’s Benefit Plans.  

Purchaser will assume no responsibility with regard to any Seller Qualified Plans.  Seller shall retain any and all liability under the Company Plans of Seller.  For the purposes of this Section 8.2 a claim is deemed incurred when the services that are the subject of the claim performed; in the case of life insurance, when death occurs; in the case of disability benefits, when the disability occurs; in the case of a hospital stay, when the employee or covered dependent first enters the hospital; and in the case of workers’ compensation, when the injury occurs.  To the extent necessary, Seller may continue to communicate with the Hired Employees regarding their rights and entitlement to any benefits under the Plans, subject to Purchaser’s prior approval, which shall not be unreasonably withheld.

Section 8.3

Employee Files.  

On the Closing Date, or as soon as practicable thereafter, Seller shall deliver to a designee of Purchaser all historical personnel records of each of the Hired Employees, including, but not limited to, employment agreements, confidentiality and noncompete agreements, employment applications, performance reviews, corrective action reports, disciplinary reports, notices of transfer, notices of rate changes, and other similar documents.

Section 8.4

Assistance in Hiring.  

Seller shall use reasonable efforts to assist Purchaser in employing as new employees of Purchaser, all persons presently employed by Seller who are identified by Purchaser prior to the Closing Date.  Seller shall terminate effective as of the Closing Date all employment agreements it has with any of the Hired Employees.  

Section 8.5

Discharge of Business Obligations.  

From and after the Closing Date Seller shall pay and discharge, in accordance with past practice but not less than on a timely basis, all obligations and liabilities incurred, including but not limited to trade payables, current liabilities, and any other Excluded Liability, prior to the Closing Date in respect of the Business, its operations or the Purchased Assets and properties used therein (except for those expressly assumed by Purchaser hereunder), including without limitation any liabilities or obligations to employees, trade creditors, and clients of the Business.

Section 8.6

Maintenance of Books and Records.  

Each of Seller and Purchaser shall preserve until the fifth anniversary of the Closing Date all Books and Records possessed or to be possessed by such party relating to any of the Purchased Assets, liabilities or business of the Business prior to the Closing Date.  After the Closing Date, where there is a legitimate purpose, such party shall provide the other parties with access, upon prior reasonable written request specifying the need therefor, during regular business hours, to () the officers and employees of such party and () the books of account and records of such party, but, in each case, only to the extent relating to the Purchased Assets, Assumed Liabilities, or Business prior to the Closing Date, and the other parties and their representatives shall 

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have the right to make copies of such books and records; provided however, that the foregoing right of access shall not be exercisable in such a manner as to interfere unreasonably with the normal operations and business of such party; and provided further, that, as to so much of such information as constitutes trade secrets or confidential business information of such party, the requesting party and its officers, directors and representative will use due care to not disclose such information except () as required by law, () with the prior written consent of such party, which consent shall not be unreasonably withheld, or () where such information becomes available to the public generally, or becomes generally known to competitors of such party, through sources other than the requesting party, its affiliates or its officers, directors, or representatives.  Such records may nevertheless be destroyed by a party if such party sends to the other parties written notice of its intent to destroy records, specifying with particularity the contents of the records to be destroyed.  Such records may then be destroyed after the 30th day after such notice is given unless another party objects to the destruction in which case the party seeking to destroy the records shall deliver such records to the objecting party.

Section 8.7

Payments Received.  

Seller and Purchaser each agree that after the Closing they will hold and will promptly transfer and deliver to the other, from time to time as and when received by them, any cash, checks with appropriate endorsements (using their best efforts not to convert such checks into cash), or other property that they may receive on or after the Closing which properly belongs to the other party, including without limitation, any insurance proceeds, and will account to the other for all such receipts.  From and after the Closing, Purchaser shall have the right and authority to endorse without recourse the name of Seller on any check or any other evidences of indebtedness received by Purchaser on account of the Business and the Purchased Assets transferred to Purchaser hereunder.

Section 8.8

UCC Matters.  

From and after the Closing Date, Seller will promptly refer all inquiries with respect to ownership of the Purchased Assets or the Business to Purchaser.  In addition, Seller will execute such documents and financing statements as Purchaser may request from time to time to evidence transfer of the Purchased Assets to Purchaser, including any necessary assignments of financing statements.

Section 8.9

Certain Expenses.  

Any payments made by Seller on behalf of Purchaser or by Purchaser on behalf of Seller which are made after the Closing Date (“Post Closing Payments”) shall be reimbursed by the party on whose behalf the payment was made as follows:  an accounting will take place each Friday for a period of two months after the Closing Date, at which the amount (the “Settlement Amount”) by which Post-Closing Payments made by one party (the “Payee”) exceeds Post-Closing Payments made by the other party (the “Payor”) will be calculated.  The Payor at each such accounting shall issue a check payable to the Payee in satisfaction of the settlement amount for that accounting.  The foregoing notwithstanding to preserve the rights of the parties with respect to third parties, neither party shall make any Post Closing Payment without the prior written consent of the other.

Section 8.10

Further Assurances.  

From and after the date hereof, Seller agrees, without further consideration, to execute and deliver promptly to Purchaser, such further consents, waivers, assignments, endorsements, and other documents and instruments, and to take all such further actions, as Purchaser may from time to time reasonably request, with respect to the assignment, transfer, and delivery to Purchaser of the Purchased Assets, and the fulfillment of any condition precedent to the obligations of Purchaser that was waived by Purchaser in order to close the transactions contemplated herein, and the consummation in full of the transactions provided for herein.

Section 8.11

Assignment and Ownership of Intellectual Property Rights.  

Seller will follow the required and appropriate procedures as specified in the Shrink-wrap Software licenses and by law to assign and transfer its rights in the Shrink-wrap Software to Purchaser, and, if required to record such assignment.  Seller will follow the required and appropriate procedures as required by law or by third party agreement, to assign and transfer its rights in the Intellectual Property to Purchaser, and to record such assignment with the U.S. Patent and Trademark Office and/or the U.S. Copyright Office.  Seller recognizes and agrees that all derivative works, modifications, upgrades, and new versions based on the Intellectual Property, and all new technologies and products developed by Purchaser shall be owned by Purchaser exclusively, 

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including but not limited to all worldwide patent, copyright, trademark, trade secret, confidential information and other proprietary rights.

Section 8.12

Winding Up of Seller.  

From and after the Closing Date, Seller shall cease all business activities and commence winding up its business and affairs.  Seller shall inform Purchaser of the proposed date for filing articles of dissolution so that Purchaser can simultaneously file an amendment to its Certificate of Authority to secure the name “BlendedSchools”.

Section 9. Restrictive Covenants

Section 9.1

Definitions.  

As used herein, the following capitalized terms are used with the meanings thereafter ascribed:

“Affiliate” means any person or entity directly or indirectly Controlling, Controlled by, or under common Control with Seller.  

“Area” means the United States and Canada.

“Competing Enterprise” means any person or entity that is substantially engaged in Seller's business, except that any business related to any asset that is not a Purchased Asset shall not be deemed a “Competing Enterprise”.

“Control” means the power to direct the management and affairs of a person.

“Trade Secrets” means information of Seller which derives economic value, actual or potential, from not being generally known and not being readily ascertainable by proper means to other persons who can obtain economic value from its disclosure or use and which is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality, but shall not include Excluded Information.  Trade Secrets may include both technical or non-technical data, including without limitation,  (a) any process, machine, pattern, compilation, program, method, technique, formula, chemical formula, composition of matter, or device which (1) is not generally known or which Seller, has a reasonable basis to believe may not be generally known, (2) is being used or studied by Seller and is not described in a printed patent or in any literature already published and distributed externally by Seller, and (3) is not readily ascertainable from inspection of a product of Seller; (b) any engineering, technical, or product specifications including those of features used in any current product of Seller or which may be so used, or the use of which is contemplated in a future product of Seller; (c) any application, operating system, communication system, or other computer software (whether in source or object code) and all flow charts, algorithms, coding sheets, routines, subroutines, compilers, assemblers, design concepts, test data, documentation, or manuals related thereto, whether or not copyrighted, patented, or patentable; or (d) information concerning the customers, suppliers, products, pricing strategies of Seller, personnel assignments and policies of Seller, or matters concerning the financial affairs and management of Seller; provided however, that Trade Secrets shall not include any Excluded Information.  As used herein, “Excluded Information” means Proprietary Information (i) which has been voluntarily disclosed to the public by Seller, (ii) independently developed and disclosed by parties other than Seller, or (iii) that otherwise enters the public domain through lawful means or without misappropriation by Seller.

Section 9.2

Non-Solicitation of Employees.  

Until the third (3rd) anniversary of the Closing Date, Seller shall not directly or indirectly solicit, offer employment to, or hire any employee of Purchaser or any of its subsidiaries if (i) such employee is then an employee of Purchaser or any of Purchaser’s subsidiaries, or (ii) such employee has terminated such employment within 180 days of such solicitation or offer.

Section 9.3

Non-Solicitation of Customers.  

Until the fifth (5th) anniversary of the Closing Date, neither Seller nor any Affiliate shall, within the Area, on such Seller’s own behalf, on behalf of any Affiliate, or an behalf of any Competing Enterprise, solicit, contact, call upon, communicate with, or attempt to communication with any customer or prospect of Seller or any representative of any such customer or prospect of Seller, with a view to the sale or provision of any product, deliverable, or service competitive with any product, deliverable, or service sold, provided, or under development by Seller on the Closing Date.

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Section 9.4

Covenant Not to Compete by Seller.  

Until the fifth (5th) anniversary of the Closing Date, Seller agree that, neither Seller nor any of Affiliate will, directly or indirectly, own, manage, operate, join, control, or be employed or engaged by, nor participate in the ownership, management, operation, or control of, any Competing Enterprise.  

Section 9.5

Trade Secrets.  

Seller for itself and each Affiliate acknowledges and agrees that all Trade Secrets, and all physical embodiments thereof, are a part of the Purchased Assets and are confidential to and shall be and remain the sole and exclusive property of Purchaser.  Seller for itself and each Affiliate agrees that all Trade Secrets will be held in trust and strictest confidence, that each Affiliate shall protect such Trade Secrets from disclosure, and that each Affiliate will make no use of such Trade Secrets without the prior written consent of Purchaser.  The obligations of confidentiality contained in this Section 9.5 shall apply from the date of this Agreement and with respect to all Trade Secrets at all times thereafter, until such Trade Secret is no longer a trade secret under applicable law.

Section 9.6

Remedies.  

Seller for itself and any Affiliate covenants and agrees that Purchaser by virtue of the consummation of the transactions contemplated by this Agreement will utilize the Purchased Assets in and throughout the Area, and that great loss and irreparable damage would be suffered by Purchaser if Seller should breach or violate any of the terms or provisions of the covenants and agreements set forth in this Section.  Seller for itself and any Affiliate, further acknowledges and agrees that each such covenant and agreement is reasonably necessary to protect and preserve unto Purchaser the benefit of its bargain in the acquisition of the Purchased Assets, including, without limitation, the good will thereof.  Therefore, in addition to all the remedies provided in this Agreement, or available at law or in equity, Seller for itself and any Affiliate jointly and severally agrees Purchaser shall be entitled to a temporary restraining order and a permanent injunction to prevent a breach or contemplated breach of any of the covenants or agreements of Seller contained in this Section 9.6.  The existence of any claim, demand, action, or cause of action of Seller against Purchaser shall not constitute a defense to the enforcement by Purchaser of any of the covenants or agreements herein whether predicated upon this Agreement or otherwise, and shall not constitute a defense to the enforcement by Purchaser of any of its rights hereunder.  

Section 9.7

Blue Penciling.  

In the event that any one or more of the provisions, or parts of any provisions, contained in this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect by a court of competent jurisdiction, the same shall not invalidate or otherwise affect any other provision hereof, and the parties hereto agree that such provisions shall be reformed to set forth the maximum limitations permitted under applicable law.  Specifically, but without limiting the foregoing in any way, each of the covenants of the parties to this Agreement contained herein shall be deemed and shall be construed as a separate and independent covenant and should any part or provision of any of such covenants be held or declared invalid by any court of competent jurisdiction, such invalidity shall in no way render invalid or unenforceable any other part or provision thereof or any other covenant of the parties not held or declared invalid. 

Section 10. General Provisions

Section 10.1

Bulk Sales Law Waiver.  

Purchaser and Seller each agree to waive compliance by the other with the provisions of the bulk sales law or comparable law of any jurisdiction to extent that the same may be applicable to the transactions contemplated by this Agreement.  Seller agrees to indemnify and hold Purchaser harmless from and against any loss, damage, liability, cost, expense or claim arising out of any failure to take any required actions under the bulk sales or comparable law of any state.

Section 10.2

Expenses.  

All expenses incurred by the parties hereto in connection with or related to the authorization, preparation, and execution of this Agreement and the Closing of the transactions contemplated hereby, including without limiting the generality of the foregoing, all fees and expenses of agents, representatives, counsel, and accountants employed by any such party, shall be borne solely and entirely by the party which has incurred the same.  

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Section 10.3

Notice.  

Any notice, request, demand, or other communication which is required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given: () if sent by email, telecopy, facsimile transmission, or other similar electronic or digital transmission method, when transmitted, provided there is evidence of delivery to the email address or telephone number of the telecopy or facsimile machine; () if sent by a nationally recognized next day delivery service that obtains a receipt on delivery, one (1) business day after it is sent; () if sent by registered or certified United States mail, five (5) days after it is deposited in the mail, addressed to the proposed recipient at the last known address of the recipient, with the proper postage affixed; () if in person, when tendered, and () in any other case, when actually received.  Any party may designate any other address to which notices shall be sent by giving notice of the address to the other parties in the same manner as provided herein.:

(a)

If to Seller:

Blendedschools.net

Attention:  Jed Friedrichsen

Email: jfriedrichsen@blendedschools.net

Telephone (573) 999-5425

Facsimile:  (814) 542-2569

With a copy to:

Timothy A. Schoonover

Babst Calland

330 Innovation Blvd., Suite 302

State College, PA 16803

Telephone: (814) 867-8055

Facsimile: (814) 867-8051

(b)

If to Purchaser:

BLSCH Acquisition, LLC

C/O Sibling Group Holdings, Inc.

1355 Peachtree Street, Suite 1150 

Atlanta, GA 30309

Attention: Legal Department

Telephone (404) 551-5274

Facsimile  (404) 890-5615

With a copy to:

Krevolin & Horst, LLC

1201 W. Peachtree St.

Suite 3250

Atlanta, GA 30309

Attention:  Gerry Balboni

Telephone:  (404) 812-3111

Facsimile:   (404) 812-3101

Any party may change the address to which notices are to be sent to it by giving written notice of such change of address to the other parties in the manner above provided for giving notice.  If delivered personally, the date on which a notice, request, instruction or document is delivered shall be the date on which such delivery is made, and if delivered by mail, the date on which such notice, request, instruction, or document is received shall be the date of delivery.

Section 10.4

Assignment; Binding Effect.  

This Agreement shall be binding upon the parties hereto and their respective successors, permitted assigns and permitted transferees.  Seller may not assign its rights or delegate its obligations hereunder without Purchaser’s consent, which shall not be unreasonably withheld.

Section 10.5

Headings.  

The Section, subsection, and other headings in this Agreement are inserted solely as a matter of convenience and for reference, and are not a part of this Agreement, provided however, that Purchaser may assign this Agreement to any Affiliate or to any successor to its assets and business upon notice to Seller.

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Section 10.6

Counterparts.  

This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one counterpart has been signed by each party and delivered to the other party hereto.

Section 10.7

Governing Law.  

This Agreement, the rights of the parties hereunder, and any and all disputes between the parties, shall be governed by, construed, and enforced in accordance with the laws of the State of Georgia, without regard to its conflicts of laws rules.  The parties agree that any appropriate state court sitting in Fulton County, Georgia or any Federal Court sitting in the Northern District of Georgia (Atlanta Division) (collectively, the “Permitted Courts”), shall have exclusive jurisdiction of any dispute, case, or controversy in any way related to, arising under, or in connection with this Agreement, including extra-contractual claims, and shall be a proper forum in which to adjudicate such dispute, case, or controversy, and each party irrevocably: () consents to the jurisdiction of the Permitted Courts in such actions, () agrees not to plead or claim that such litigation brought in the Permitted Courts has been brought in an inconvenient forum, and () waives the right to object, with respect to such suit, action, or proceeding, that such court does not have jurisdiction over such party.  In any suit, arbitration, mediation, or other proceeding to enforce any right or remedy under this Agreement or to interpret any provision of this Agreement, Purchaser will be entitled to recover its costs, including reasonable attorneys’ fees, and all costs and fees incurred on appeal or in a bankruptcy or similar action.

Section 10.8

Arbitration.  

Any Indemnification Claim that is not an Excluded Claim shall, any, Excluded Claim may, and any determination of the scope or applicability of this provision to arbitrate, shall, be submitted to, and settled by, arbitration in the City of Atlanta, State of Georgia, before one (1) arbitrator.  The arbitration shall be administered by JAMS pursuant to its Streamlined Arbitration Rules and Procedures.  Any award rendered shall be final and conclusive upon the parties and a judgment thereon may be entered in the highest court of the forum, state or federal, having jurisdiction.  The expenses of the arbitration shall be borne equally by the parties to the arbitration, provided that each party shall pay for and bear the cost of its own experts, evidence, and counsel's fees, and provided further, that in the discretion of the arbitrator, the arbitrator may, in the award, allocate all or part of the costs of the arbitration, including the fees of the arbitrator and the reasonable attorneys’ fees of the prevailing party.  This clause shall not preclude parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction.

Section 10.9

Partial Invalidity.  

Wherever possible, each provision hereof shall be interpreted in such manner as to be effective and valid under applicable law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision or provisions had never been contained herein unless the deletion of such provision or provisions would result in such a material change as to cause completion of the transactions contemplated hereby to be unreasonable.

Section 10.10

Survival.  

The covenants, representations, warranties, and agreements contained herein shall survive the Closing of the transactions contemplated herein, for the length of time that Purchaser or Seller, as the case may be, may assert an indemnification for a breach or violation of such covenant, representation, warranty, or agreement pursuant to Section hereof.

-20-

IN WITNESS WHEREOF, each party hereto has executed this Agreement, or caused this Agreement to be executed on its behalf by its duly authorized officers, all as of the Closing Date.

Seller:

ATTEST:

Blendedschools.net

By:________________________________

By:___________________________________

Anthony Skender, Secretary

Gregory Hoover, President

Purchaser:

BLSCH Acquisition, LLC

By:

Sibling Group Holdings, Inc., Manager

By: ___________________________________

Mack Leath, CEO

-21-DIRECTOR AGREEMENT

EXHIBIT 10.1

DIRECTOR AGREEMENT

THIS AGREEMENT made as of May 12, 2014, by and between Lightwave Logic, Inc., located at 1831 Lefthand Circle, Suite C, Longmont, CO 80501 (the “Company”); and George Lauro (“Director”) whose address is 110 Kensington Drive, Canton, Massachusetts 02021.

WHEREAS, the Company and the Director desire to enter into an agreement which will set forth the terms and conditions upon which the Director shall serve as a director on the Company’s Board of Directors commencing on the date hereof.

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties have agreed, and do hereby agree, as follows:

Section 1: Appointment.

The Company’s Board of Directors appoints the Director as a member of the Company’s Board of Directors effective on the date hereof, and the Director accepts such appointment upon the terms and conditions set forth. The Director shall serve as a member of the Company’s Board of Directors until his successor is appointed or elected and shall qualify. However, neither the Company, nor any other person, shall be required to cause the continuation, election, or re-appointment of the Director as a member of the Company’s Board of Directors.

Section 2: Indemnification

The Director shall receive the full benefits, protection, and rights of full and complete indemnification from the Company in connection with his position with the Company as a member of the Company’s Board of Directors to the fullest extent permitted by law.   Further, the Director shall be named as an insured on the Company’s underwritten officer and director liability insurance policy. The Director shall execute the Indemnification Agreement attached hereto as Appendix A, which is incorporated into this Agreement.

Section 3: Compensation.

Pursuant to the Company’s 2007 Employee Stock Plan, the Director will receive an option to purchase up to Two Hundred Thousand (200,000) shares of common stock of the Company at the strike price of $0.763 per share (which is equal to the fair market value of the common stock on the date of grant). The options shall vest as follows: (i) fifty thousand (50,000) options shall vest on the date hereof; and (ii) the remaining options shall vest in three (3) equal annual installments of fifty thousand (50,000) options per year commencing on the 1st day of each one year anniversary of execution of this Agreement.  All of the options shall expire on May 11, 2024 and are subject to the Company’s standard Non-Statutory Stock Option Agreement for its directors.

Section 4: Duties/ Extent of Services.

The Director shall serve as a member of the Board of Directors of the Company, and shall assume the duties that the Chairman of the Board may reasonably assign.  Subject to Section 6 contained herein, nothing in this Agreement shall be con­strued to limit the Director's freedom to engage in other businesses. It is agreed, however, that the Director will devote his best efforts to the needs of the Company, and shall not allow his other business activities to materially interfere with his duties to the Company.

Section 5: Expenses.

Subject to prior approval of the Chairman of the Board of Directors, the Director is authorized to incur reasona­ble expenses on behalf of the Company in performing his duties, including expenses for travel, transportation, entertainment, and similar items, which expenses shall be paid by the Company.

Section 6: Director’s Non-Disclosure.

The Director shall execute the Director’s Non-disclosure Agreement attached hereto as Appendix B, which is incorporated into this Agreement.

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Section 7: Waiver of Breach.

The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.

Section 8: Entire Agreement

This Agreement contains the entire agreement of the parties pertaining to the appointment of the Director to the Company’s Board of Directors.

Section 9: Amendment of Agreement

No change or modification of this Agreement shall be valid unless it is in writing and signed by the party against whom the change or modification is sought to be enforced. No change or modification by the Company shall be effective unless it is approved by the Company’s Board of Directors and signed by an officer specifically authorized to sign such documents.

Section 10: Severability of Provisions

If any provision of this Agreement, the Indemnification Agreement or the Director’s Non-disclosure Agreement is invalidated or held unenforceable, the invalidity or unenforceability of that provision or provisions shall not affect the validity or enforceability of any other provision of this Agreement, the Indemnification Agreement or the Director’s Non-disclosure Agreement.

Section 11: Governing Law and Venue

All questions regarding the validity and interpretation of this Agreement shall be governed by and construed and enforced in all respects in accordance with the laws of the State of Delaware.  The sole and proper venue shall be New Castle County, Delaware.

Section 12: Arbitration of Disputes

If a dispute arises out of or relates to this Agreement, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation administered by the American Arbitration Association under its Employment Mediation Rules before resorting to arbitration, litigation or some other dispute resolution procedure.

IN WITNESS, the parties have executed this Agreement in duplicate on the date and year first above written.

  

				
	 
	 
	Director,

	 
	 
	 

	 
	 
	 

	 
	 
	/s/ George Lauro

	Witness

	 
	George Lauro

	 
	 
	 

	 
	 
	Lightwave Logic, Inc.,

	 
	 
	 

	 
	 
	 

	 
	 
	By:

	/s/ Thomas E. Zelibor

	Witness

	 
	 
	Thomas E. Zelibor, CEO

  

 

  

2

APPENDIX A

   

INDEMNIFICATION AGREEMENT

 

THIS INDEMNIFICATION AGREEMENT (the “Agreement”) is made and entered into as of May 8, 2014 between LIGHTWAVE LOGIC, INC., a Nevada corporation (the “Company”), and George Lauro (“Indemnitee”).  Capitalized terms not defined elsewhere in this Agreement are used as defined in Section 14.

 

WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or officers or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

 

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its affiliates from certain liabilities.  Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions.  At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself.  The Articles of Incorporation of the Company (the “Charter”) and the Bylaws of the Company (the “Bylaws”) require indemnification of the officers and directors of the Company.  Indemnitee may also be entitled to indemnification pursuant to the laws of the State of Nevada (“NRS”).  The Charter, the Bylaws and the NRS expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification;

 

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;

 

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

 

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; and

 

WHEREAS, this Agreement is a supplement to and in furtherance of the Charter and the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

 

NOW, THEREFORE, in consideration of Indemnitee’s agreement to serve as a director or officer of the Company from and after the date hereof, the parties hereto agree as follows:

 

1.

Indemnity of Indemnitee.  The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time.  In furtherance of the foregoing indemnification, and without limiting the generality thereof:

 

(a)

Proceedings Other Than Proceedings by or in the Right of the Company.  Indemnitee shall be entitled to the rights of indemnification provided in this Section l(a) if, by reason of his Corporate Status, Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding other than a Proceeding by or in the right of the Company.  Pursuant to this Section 1(a), Indemnitee shall be indemnified against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him, or on his behalf, in connection with such Proceeding or any claim, issue or matter therein; provided, however no indemnification against such Expenses shall be made if the liability was incurred because Indemnitee breached or failed to perform a duty he owes to the Company and the breach or failure to perform constitutes any of the following:  (i) a willful failure to deal fairly with the Company or its stockholders in connection with a matter in which Indemnitee has a material conflict of interest; (ii) a violation of criminal law, unless Indemnitee had reasonable cause to believe his conduct was lawful or no reasonable cause to believe his conduct was unlawful; (iii) a transaction from which Indemnitee derived an improper personal profit; or (iv) willful misconduct.

3

 

(b) 

Proceedings by or in the Right of the Company.  Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his Corporate Status, Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company.  Pursuant to this Section 1(b), Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee, or on Indemnitee’s behalf, in connection with such Proceeding; provided, however no indemnification against such Expenses shall be made if the liability was incurred because Indemnitee breached or failed to perform a duty he owes to the Company and the breach or failure to perform constitutes any of the following:  (i) a willful failure to deal fairly with the Company or its stockholders in connection with a matter in which Indemnitee has a material conflict of interest; (ii) a violation of criminal law, unless Indemnitee had reasonable cause to believe his conduct was lawful or no reasonable cause to believe his conduct was unlawful; (iii) a transaction from which Indemnitee derived an improper personal profit; or (iv) willful misconduct.  The termination of a proceeding by judgment, order, settlement or conviction, or upon a plea of no contest or an equivalent plea, does not, by itself, create a presumption that indemnification of Indemnitee is not required under this subsection.

 

(c) 

Indemnification for Expenses of a Party Who is Wholly or Partly Successful.  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.  If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter.  For purposes of this Section 1(c) and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

 

2. 

Additional Indemnity.  In addition to, and without regard to any limitations on, the indemnification provided for in Section 1 of this Agreement, the Company shall and hereby does indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of Indemnitee.  The only limitation that shall exist upon the Company’s obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 hereof) to be unlawful.

 

3. 

Contribution.

 

(a) 

Whether or not the indemnification provided in Sections 1 and 2 hereof is available, in respect of any threatened, pending or completed Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee.  The Company shall not, without Indemnitee’s prior written consent, enter into any such settlement of any Proceeding (in whole or in part) unless such settlement (i) provides for a full and final release of all claims asserted against Indemnitee and (ii) does not impose any Expense, judgment, fine, penalty or limitation on Indemnitee.

 

(b) 

Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), the Company shall contribute to the amount of Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such Proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which the law may require to be considered.  The relative fault of the Company and all officers, directors or 

4

employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.

 

(c) 

The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.

 

(d)  

To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

 

4. 

Indemnification for Expenses of a Witness.  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness, or is made (or asked to) respond to discovery requests, in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

 

5. 

Advancement of Expenses.  Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee’s Corporate Status within thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses.  Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free.

 

6.  

Procedures and Presumptions for Determination of Entitlement to Indemnification.  It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the NRS and public policy of the State of Nevada.  Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:

 

(a) 

To obtain indemnification under this Agreement, Indemnitee shall make a written request to the Company for indemnification, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification, which request shall designate one of the following means for determining his right to indemnification:  (i) by a majority vote of a quorum of the Board or a committee of directors, consisting of directors not at the time parties to the same or related Proceedings; (ii) by Independent Counsel selected by a quorum of the Board or its committee in the manner prescribed in subsection (i) or, if unable to obtain such a quorum or committee, by a majority vote of the full Board, including directors who are parties to the same or related Proceedings; (iii) by a panel of three arbitrators consisting of one arbitrator selected by those directors entitled under (ii) to select Independent Counsel, one arbitrator selected by Indemnitee and one arbitrator selected by the two arbitrators previously selected or (iv) by the stockholders of the Company; provided, however, that if a Change in Control has occurred, the determination with respect to Indemnitee’s entitlement to indemnification shall be made by Independent Counsel. Indemnitee may apply to a court of competent jurisdiction for review of an adverse determination under this section. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification.  Notwithstanding the foregoing, any failure of Indemnitee to provide such a request to the Company, or to provide such a request in a timely fashion, shall not relieve the Company of any liability that it may have to Indemnitee unless, and to the extent that, such failure actually and materially prejudices the interests of the Company.

 

(b)  

In the event the determination of entitlement to indemnification is to be made by Independent Counsel, the Independent Counsel shall be selected as provided in this Section 6(b).  If a Change in Control has not occurred the Independent Counsel shall be selected by the Board (including a vote of a majority of Disinterested Directors if obtainable), and the Company shall give written notice to Indemnitee advising him of the identity of the 

5

Independent Counsel so selected. Indemnitee may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 14 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion.  Absent a proper and timely objection, the person so selected shall act as Independent Counsel.  If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit.  If a Change in Control has occurred, the Independent Counsel shall be selected by the Indemnitee (unless the Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and  approved by the Board of Directors (which approval shall not be unreasonably withheld).  If (i) an Independent Counsel is to make the determination of entitlement pursuant to this Section 6, and (ii) within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the court conducting the Proceeding or another court of competent jurisdiction in the State of Nevada for resolution of any objection which shall have been made by Indemnitee to the Company’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 6(a) hereof.  The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 6(a) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 6(b), regardless of the manner in which such Independent Counsel was selected or appointed.

 

(c)  

In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement.  Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.  Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

 

(d) 

Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise.  In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.  Whether or not the foregoing provisions of this Section 6(d) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company.  Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

 

(e) 

If the person, persons or entity empowered or selected under this Section 6 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 6(e) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 6(a) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination, the Board or the Disinterested Directors, if appropriate, resolve to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat.

 

6

(f) 

Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination.  Any Independent Counsel, member of the Board or stockholder of the Company shall act reasonably and in good faith in making a determination regarding Indemnitee’s entitlement to indemnification under this Agreement.  Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

 

(g)  

The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty.  In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding.  Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

 

(h) 

The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

 

7.  

Remedies of Indemnitee.

 

(a) 

In the event that (i) a determination is made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 5 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 6(b) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within thirty (30) days after receipt by the Company of a written request therefor or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Nevada, or in any other court of competent jurisdiction, of Indemnitee’s entitlement to such indemnification, contribution or advancement of Expenses.  Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association.  Except as set forth herein, the provisions of Nevada law (without regard to its conflict of law rules) shall apply to any such arbitration.  The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

 

(b) 

In the event that a determination shall have been made pursuant to Section 6(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 7 shall be conducted in all respects as a de novo trial, or arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 6(a).  In any judicial proceeding or arbitration commenced pursuant to this Section 7, Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 6(a) of this Agreement adverse to Indemnitee for any purpose.  If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 7, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 5 until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).

 

(c) 

If a determination shall have been made pursuant to Section 6(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 7, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s misstatement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.

 

7

(d)  

In the event that Indemnitee, pursuant to this Section 7, seeks a judicial adjudication of his rights under, or to recover damages for breach of, this Agreement, or to recover under any directors’ and officers’ liability insurance policies maintained by the Company, the Company shall pay on his behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 14 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery.

 

(e)  

The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 7 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement.  The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within thirty (30) days after receipt by the Company of a written request therefore) advance, to the extent not prohibited by law, such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.

 

(f) 

Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

 

8. 

Non-Exclusivity; Survival of Rights; Subrogation.

 

(a)  

The rights of indemnification and to receive advancement of expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, the Bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise, of the Company.  No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal.  To the extent that a change in the NRS, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Charter, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

 

(b) 

In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

 

(c) 

The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

 

(d) 

The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.

 

9.  

Exception to Right of Indemnification. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

 

(a)  

for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision;

 

8

(b)  

for (i) an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act, or similar provisions of state statutory law or common law or (ii) reimbursement to the Company of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company in each case as required under the Exchange Act; or

 

(c) 

in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Company has joined in or the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation, (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, or (iii) the Proceeding is one to enforce Indemnitee’s rights under this  Agreement.

 

10.  

Non−Disclosure of Payments. Except as expressly required by the securities laws of the United States of America, neither party shall disclose any payments under this Agreement unless prior approval of the other party is obtained. If any payment information must be disclosed, the Company shall afford Indemnitee an opportunity to review all such disclosures and, if requested, to explain in such statement any mitigating circumstances regarding the events to be reported.

 

11. 

Duration of Agreement.  All agreements and obligations of the Company contained herein shall continue upon the later of (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other Enterprise which Indemnitee served at the request of the Company; or (b) one (1) year after the final termination of any Proceeding (including any rights of appeal thereto) in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 7 of this Agreement relating thereto (including any rights of appeal of any Section 7 Proceeding).  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.

 

12. 

Security.  To the extent requested by Indemnitee and approved by the Board, the Company may at any time and from time to time provide security to Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral.  Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of Indemnitee.

 

13. 

Enforcement.

 

(a) 

The Company expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce Indemnitee to serve as an officer, director or key employee of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer, director or key employee of the Company.

 

(b) 

Without limiting any of the rights of Indemnitee under the Charter of Bylaws of the Company as they may be amended from time to time, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

 

14.  

Definitions.  For purposes of this Agreement:

 

(a)  

“Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.

 

(b)  

“Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

 

(i)  Acquisition of Stock by Third Party.  Any Person (as defined below), other than a trustee or other fiduciary holding securities under an employee benefit plan of the 

9

Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company is or becomes the Beneficial Owner (as defined above), directly or indirectly, of securities of the Company representing fifty (50%) or more of the combined voting power of the Company’s then outstanding securities;

 

(ii)  Change in Board of Directors.  During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement and except for any recomposition of the Board in connection with an initial public offering of the securities of the Company), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Section 14(b)(i), 14(b)(iii) or 14(b)(iv)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a least a majority of the members of the Board;

 

(iii)  Corporate Transactions.  The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity; and

 

(iv)  Liquidation.  The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Company’s assets, or, if such approval is not required, the decision by the Board to proceed with such a liquidation, sale, or disposition in one transaction or a series of related transactions.

 

(c) 

“Corporate Status” describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company, any direct or indirect subsidiary of the Company, or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the request of the Company.

 

(d) 

“Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

 

(e) 

“Enterprise” shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary.

 

(f) 

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

(g) 

“Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, or responding to, or objecting to, a request to provide discovery in any Proceeding.  Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent.  Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

 

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(h) 

“Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent:  (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder.  Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.  The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

 

(i)  

“Person” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii)  any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

 

(j)  

“Proceeding” includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was an officer or director of the Company, by reason of any action taken by him or of any inaction on his part while acting as an officer or director of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other Enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 7 of this Agreement to enforce his rights under this Agreement.

 

15.  

Severability.  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality, and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the fullest extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.  Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws.

 

16. 

Enforcement and Binding Effect.

 

(a) 

The indemnification and advancement of expenses provided by, or granted pursuant to this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise at the Company’s request, and shall inure to the benefit of Indemnitee and his or her spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

 

(b) 

The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company to expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

 

(c) 

The Company and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not he precluded from 

11

seeking or obtaining any other relief to which he may be entitled. The Company and Indemnitee further agree that Indemnitee shall be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertaking in connection therewith. The Company acknowledges that in the absence of a waiver, a bond or undertaking may be required of Indemnitee by the Court, and the Company hereby waives any such requirement of such a bond or undertaking.

 

17.  

Modification and Waiver.  No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

 

18.  

Notice By Indemnitee.  Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder.  The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.

 

19.  

Notices.  All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given:  (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.  All communications shall be sent:

 

(a)  

To Indemnitee at the address set forth below Indemnitee signature hereto.

 

(b)

To the Company at:

 

Lightwave Logic, Inc.

Attention: Thomas E. Zelibor, CEO

1831 Lefthand Circle, Suite C

Longmont, CO 80501

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

20. 

Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.  This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

21.  

Headings.  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

 

22. 

Usage of Pronouns.  Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate.

 

23. 

Governing Law and Consent to Jurisdiction.  This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Nevada, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the state and federal courts in and for the State of Nevada (the “Nevada Courts”), (ii) generally and unconditionally consent to submit to the exclusive jurisdiction of the Nevada Courts for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the Nevada Courts, and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Nevada Courts has been brought in an improper or inconvenient forum.  The foregoing consent to jurisdiction shall not constitute general consent to service of process in the state for any purpose except as provided above, and shall not be deemed to confer rights on any person other than the parties to this Agreement.

 

12

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.

 

			
	 
	COMPANY

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	By:

	/s/ Thomas E. Zelibor

	 
	 
	 

	 
	Name:

	Thomas E. Zelibor

	 
	 
	 

	 
	Title:

	Chief Executive Officer

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	INDEMNITEE

	 
	 
	 

	 
	/s/George Lauro

	 
	Name:  George Lauro

	 
	110 Kensington Drive

	 
	Canton, Massachusetts 02021

 

13

APPENDIX B

 

DIRECTOR’S NON-DISCLOSURE AGREEMENT

THIS AGREEMENT made as of May 8, 2014, by and between Lightwave Logic, Inc., located at 1831 Lefthand Circle, Suite C, Longmont, CO 80501 (the “Company”); and George Lauro (“Director”) whose address is 110 Kensington Drive, Canton, Massachusetts 02021.

WHEREAS, Company is a technology company focused on the development of a Next Generation Non-linear Optical Polymer Materials Platform for applications in high speed fiber-optic data communications and optical computing, which involves the development and utilization of information not generally known in the industry or industries in which the Company is or may become engaged.

WHEREAS, the Company desires to appoint the Director as a member of the Company’s Board of Directors and the Director accepts such appointment;

WHEREAS, in performing his services as a director for Company, Director will necessarily be given access to “secret information” (defined below), which will be identified by Company as such; and

WHEREAS, the use of the secret information by, or its disclosure to, any person or organization other than Company and its employees or Director would be highly detrimental and damaging to Company.

NOW THEREFORE, with the foregoing recitals being incorporated herein by reference and deemed an essential part hereof and in consideration of the mutual promises, covenants and conditions contained herein, the parties agree as follows:

Section 1. 

Secret Information

For the purposes of this Agreement, “secret information” shall mean information relating to the Company’s methods, concepts, ideas, products, and services which is of a proprietary or confidential nature, whether communicated orally or in writing, data or sample form, including, without limitation, concepts, techniques, processes, designs, cost data, computer programs, and other know-how that is disclosed to the Director by the Company.

Section 2. 

Nondisclosure of Secret Information

2.1 

Non-disclosure. Director shall not, without the prior written consent of the Company, disclose such secret information to any third party, including any third party consultant(s).  Further, Director shall only use the secret information pursuant to and for the purpose of performing his services as a director for Company. The parties acknowledge that irreparable injury and damage will result from disclosure of the secret information to unauthorized third parties or from utilization of the secret information for any purpose other than the purposes described herein. Also, Director shall take all reasonable steps to ensure that the secret information in the Director’s possession remains confidential.

The foregoing restrictions shall not be applicable to any information which:

			
	  

	(a)

	the Director can show was previously known to him prior to receipt from the Company, without breach of an obligation of confidence to any third party;

			
	  

	(b)

	is now, or hereafter, comes into the public domain as, for example, by publications, including issued United States and foreign patents, or is otherwise legally known or available to the public through sources other than the Director;

			
	  

	(c)

	is subsequently legally disclosed to the Director by a third party not owing obligations of confidence to the Company, or

			
	  

	(d)

	is, or will be, developed independently by the Director solely through his affiliates which have not been exposed directly or indirectly to the secret information, or

			
	  

	(e)

	the Director is obligated to produce as a result of a court order or other valid and legally enforceable mandate, provided that the Company has been given notice thereof and an opportunity to waive its rights or to seek a protective order or other appropriate remedy.

14

For the purposes of this Section 2, disclosures which provide specific detailed information shall not be deemed to be within the foregoing exceptions merely because they are embraced by more general disclosures in the public domain or in the Director’s possession.  In addition, any combination of features shall not be deemed to be within the foregoing exceptions merely because information about individual components are separately in the public domain or in the Director’s possession, but only if the combination itself and its principle of operation are in the public domain or in the lawful possession of the Director without restriction on disclosure.

2.2 

Return of documents. Upon termination of Director’s position as a member of the Company’s Board Of Directors, Director agrees that all documents, records, notebooks and similar repositories of or containing secret information, including copies of such materials, then in its possession, whether prepared by it or others, will be returned to the Company.

2.3  

Director acknowledges that the secret information belongs to Company, that Company claims the secret information comprises trade secrets, claims that the secret information is confidential to Company and that each of the obligations assumed by Director in this, and the other paragraphs contained herein, is a material inducement to disclose the secret information to Director.

Section 3. 

No License Granted

Nothing herein shall be deemed to confer on the Director a license or other right to use the secret information disclosed hereunder for any purpose other than the purposes expressly stated in this Agreement.  Specifically and without limitation, Director shall have no license or right to use any secret information in developing any invention, discovery, know-how, trade secret, patent, trademark, or copyright.

Section 4. 

Enforcement

In the event that the Director shall breach this Agreement, or in the event that such breach appears to be an imminent possibility, Company shall be entitled to all legal and equitable remedies afforded it by law as a result of the breach (including an injunction restraining the party or parties about to commit any breach of this Agreement, or who have committed a breach of it, without showing or proving any actual damage sustained by Company), and may, in addition to any and all other forms of relief, recover from Director all reasonable costs and attorneys' fees encountered by it in seeking any such remedy.

Section 5. 

Binding Effect

This Agreement shall be binding upon the parties to this Agreement and upon their respective executors, administrators, legal representatives, successors and assigns.

Section 6.  

Applicable Law

This Agreement shall be governed for all purposes by the laws of the State of Delaware, with New Castle County as the agreed upon proper venue. The Company shall retain all rights and remedies afforded it under the patent, trademark, copyright and other laws of the United States and the States thereof, and of other countries, including without limitation any laws designed to protect proprietary or secret information.

In witness, the parties executed this Agreement on the date first shown above.

				
	Witness

	 
	Director

	 
	 
	 

	 
	 
	 

	 
	 
	/s/ George Lauro

	Name:

	 
	George Lauro

	 
	 
	 

	Witness

	 
	Company

	 
	 
	 

	 
	 
	 

	 
	 
	By:

	/s/ Thomas E. Zelibor

	Name:

	 
	 
	Thomas E. Zelibor, CEO

15

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