Form 8-K GENEREX BIOTECHNOLOGY For: Oct 03

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): October 3, 2018

 

GENEREX BIOTECHNOLOGY CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware		000-29169		98-0178636
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S Employer Identification No.)

 

10102 USA Today Way, Miramar, Florida		33025
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code: (416) 364-2551

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 1.01 Entry into a Material Definitive Agreement.

Item 2.01 Completion of Acquisition or Disposition of Assets.

 

On October 3, 2018, NuGenerex Distribution Solutions, LLC (“NuGenerex”), a wholly-owned subsidiary of Generex Biotechnology Corporation (“Generex”), entered into an Asset Purchase Agreement (the “Agreement”) with Veneto Holdings, L.L.C. (“Veneto”), pursuant to which NuGenerex has purchased, and will purchase, certain assets of Veneto and its subsidiaries (the “Assets”). The Agreement contains provisions regarding payment terms, confidentiality and indemnification, as well as other customary provisions.

 

The Agreement provides for a bifurcated closing, the first of which took place on October 3, 2018 (the “First Closing”). At the First Closing, NuGenerex purchased the operating assets of (a) seven dispensing pharmacies, (b) a wholesale pharmacy purchasing company, and (c) an in-network laboratory (the “First Closing Assets”). In consideration of the sale, transfer, and assignment of the First Closing Assets on the First Closing Date, NuGenerex executed and delivered to Veneto a secured promissory note in the principal amount of $15,000,000 (the “Promissory Note”) guaranteed by Generex and Generex’s Chief Executive Officer, Joseph Moscato. The terms of the Note are described below in Item 2.03.

 

NuGenerex intends to complete the acquisition of Assets from Veneto at a second closing (the ‘Second Closing”) on or before November 1, 2018. The Assets to be acquired at the Second Closing (“Second Closing Assets”) consist primarily of Veneto’s interests in, and contracts with, Management Service Organizations (MSO’s) serving pharmacies, laboratories, and other ancillary service providers. The Agreement is subject to a number of closing conditions that must be satisfied prior to the Second Closing, and either party may terminate the Agreement if the Second Closing does not occur on or before November 1, 2018. As described below, these closing conditions include significant funding to be obtained by NuGenerex, and there is no assurance that the Second Closing will occur.

 

The aggregate purchase price for the Assets, is $30,000,000 including the Promissory Note. At the Second Closing, this amount will be paid as follows: (i) NuGenerex will pay the principal of the Promissory Note plus interest to Veneto, (ii) $9,000,000 will be paid by NuGenerex into a trust or other fiduciary account acceptable to Veneto to be used exclusively for satisfaction of certain contingent liabilities of Veneto and subsidiaries of Veneto not being acquired by NuGenerex (for a period of time to be agreed to by Generex’s lender) (iii) $3,000,000 will be paid by NuGenerex into an escrow account to secure potential obligations of Veneto in respect of the Second Closing date working capital and under the indemnification provisions of the Agreement and (iv) the balance will be payable directly to Veneto in cash.

 

Generex has received a non-binding letter of intent from a lender to provide the funds necessary to complete the Second Closing (as opposed to Generex equity or convertible instruments). The lender is continuing its due diligence at this time, and has not yet supplied definitive loan documents.

 

NuGenerex has entered into a temporary fee-for-service arrangement with Veneto and one of its subsidiaries for Veneto to provide managements, personnel, operational, administrative and other services with respect to the First Closing Assets pending the Second Closing. At the Second Closing, all of Veneto personnel providing these services are expected to become employees or consultants of NuGenerex, and Veneto will no longer provide the services. If the Agreement terminated without a Second Closing, those arrangements will continue for one year from the First Closing.

 

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

On October 3, 2018, in connection with the consummation of the transactions contemplated by the Agreement, Generex issued to Veneto a promissory note in the original principal amount of $15,000,000 (the “Note”). The Note calls for payment in full on the Second Closing with interest at an annual rate of 5.0%. The Note is guaranteed by Generex and Joseph Moscato, and secured by a first priority security interest in Generex’s assets other than the First Closing Assets. If the Agreement is terminated and the Second Closing does not occur, Generex will have 90 days after termination of the Agreement to repay the loan. The Note has standard events of default for non-payment of principal or interest, certain events of insolvency and bankruptcy of the maker and other uncured, non-monetary defaults.

 

 

This Current Report contains summaries of the material terms of the Agreement and the Note. The summaries of these documents are subject to, and are qualified in their entirety by, reference to these agreements, which are filed as exhibits hereto and incorporated herein by reference

 

Item 7.01 Regulation FD Disclosure.

 

On October 9, 2018 the Company issued a press release regarding the acquisition. A copy of the press release is attached as Exhibit 99.1 hereto and incorporated herein by reference.

 

The foregoing information in Item 7.01 of this Current Report on Form 8-K, together with the transcript of the conference call attached hereto as Exhibit 99.1, is being furnished pursuant to this Item 7.01 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and it shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or under the Exchange Act, whether made before or after the date hereof, except as expressly set forth by specific reference in such filing to Item 7.01 of this Current Report on Form 8-K.

 

By filing this Current Report on Form 8-K and furnishing this information, Generex makes no admission as to the materiality of Item 7.01 in this report or the transcript of the conference call attached hereto as Exhibit 99.1. The information contained in the transcript of the conference call is summary information that is intended to be considered in the context of Generex’s filings with the SEC and other public announcements that Generex makes, by press release or otherwise, from time to time. Generex undertakes no duty or obligation to publicly update or revise the information contained in this report, although it may do so from time to time as its management believes is appropriate. Any such updating may be made through the filing of other reports or documents with the SEC, through press releases or through other public disclosure.

 

Forward-Looking Statements

 

Statements in this report may contain certain forward-looking statements. All statements included concerning activities, events or developments that the Generex expects, believes or anticipates will or may occur in the future are forward-looking statements. Actual results could differ materially from the results discussed in the forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and involve known and unknown risks, uncertainties and other factors that may cause actual results and performance to be materially different from any future results or performance expressed or implied by forward-looking statements. Known risks and uncertainties also include those identified from time to time in the reports filed by Generex with the Securities and Exchange Commission, which should be considered together with any forward-looking statement. No forward-looking statement is a guarantee of future results or events, and one should avoid placing undue reliance on such statements. Generex undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Generex cannot be sure when or if it will be permitted by regulatory agencies to undertake additional clinical trials or to commence any particular phase of clinical trials. Because of this, statements regarding the expected timing of clinical trials or ultimate regulatory approval cannot be regarded as actual predictions of when Generex will obtain regulatory approval for any “phase” of clinical trials or when it will obtain ultimate regulatory approval by a particular regulatory agency. Generex claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act. Additional information on these and other risks, uncertainties and factors is included in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents filed with the SEC.

 

  

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of a Business Acquired.

In accordance with Item 9.01(a), the Consolidated Financial Statements of Veneto Holdings, L.L.C. as of and for the years ended December 31, 2016 and 2017, and as of and for the six months ended June 30, 2018 and 2017, will be filed by amendment to this Current Report within 71 days after the date of this Current Report.

 

(c) Pro forma financial information.

Pro Forma financial information required by Item 9.01(c) will be filed by amendment to this Current Report within 71 days after the date of this Current Report.

 

(d) Exhibits. 

The list of exhibits called included in this Current Report is incorporated by reference to the Exhibit Index filed with this report.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		GENEREX BIOTECHNOLOGY CORPORATION.
Date: October 9, 2018		/s/ Mark A. Fletcher
		Mark A. Fletcher
		Executive Vice President and General Counsel

 

 

Exhibit Index

 

Exhibit No.		Description
10.1		Asset Purchase Agreement by and between Veneto Holdings, L.L.C. and NuGenerex Distribution Solutions, LLC effective October 3, 2018.
10.2		Promissory Note in the amount of $15,000,000 from NuGenerex Distribution Solutions, LLC to Veneto Holdings, LLC
99.3		Press Release dated October 9, 2018

 

 

 

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “Agreement”) is dated October 3, 2018 (the “Execution Date”), by and between Veneto Holdings, L.L.C., a Texas limited liability company (the “Seller”), and NuGenerex Distribution Solutions, LLC, a Delaware limited liability company (the “Buyer”). The Seller and the Buyer are referred to collectively herein as the “Parties” and each a “Party.”

RECITALS

A.       The Seller and its Subsidiaries are engaged in the business of providing (i) certain specialty pharmacy services and products, (ii) surgical products and services, (iii) diagnostic testing for screening human blood, urine and/or saliva samples for the presence of narcotics, medications, alcohol and other drugs and substances, (iv) durable medical equipment services, and (v) similar ancillary healthcare services, and of providing management services for the foregoing businesses. To the extent the foregoing activities of Seller are related to the Assets (as defined herein) transferred to Buyer under this Agreement, they are collectively referred to as the “Business.”

B.       The Seller desires to, and to cause its Subsidiaries to, sell, assign and transfer certain assets, properties and rights of the Seller and its Subsidiaries to the Buyer, and the Buyer desires to purchase such certain assets, properties and rights from the Seller and its Subsidiaries, on the terms and conditions hereinafter set forth.

C.       The Buyer desires to assume from the Seller and its Subsidiaries, and the Seller desires to, and to cause its Subsidiaries to, assign to the Buyer all of the Assumed Liabilities (as defined herein), on the terms and conditions hereinafter set forth.

D.       As additional consideration, and as a material inducement to the Buyer to enter into this Agreement and to consummate the transactions described herein, the Seller desires to make certain representations, warranties, indemnities, covenants and agreements relating to the sale of the Business.

NOW, THEREFORE, in consideration of the mutual covenants of the Parties as hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

In addition to the capitalized terms defined elsewhere in this Agreement, the following capitalized terms shall have the meanings specified in this Article I.

“Accounts Receivable” means all trade and other accounts and accounts receivable arising out of the Seller’s conduct of the Business and which are payable to the Seller, including any security held by the Seller for the payment thereof existing on the Closing Date, including, without limitation, the detailed information regarding Accounts Receivable provided in connection with Section 4.8.

“Action” means any suit, action, arbitration, cause of action, claim, complaint, criminal prosecution, investigation, Audit, governmental or other administrative proceeding, whether at law or at equity, before or by any Court or Governmental Authority (including the Food and Drug Administration (FDA), Department of Health and Human Services (DHS), the Drug Enforcement Administration (DEA), state Medicaid agencies, state pharmacy boards and other federal, state or county Governmental Authorities with jurisdiction over the dispensing, compounding, or distribution of pharmaceutical products or over the provision of health care items or services), or before any arbitrator or other tribunal.

“Actual Working Capital” has the meaning set forth in Section 3.2(a)(ii).

“Affiliate” means, with respect to any Person, any other Person: (i) which owns, directly or indirectly, at least ten percent (10%) of the voting or economic interests in such Person; (ii) in which such Person owns, directly or indirectly, more than ten percent (10%) of the voting or economic interests; or (iii) in which more than ten percent (10%) of the voting or economic interests are owned, directly or indirectly, by a Person who has a relationship with such Person described in clause (i) or (ii) above. In addition, any Person who is a director or executive officer of Seller shall be deemed an Affiliate of Seller.

“Affiliated Group” means an affiliated group as defined in Section 1504 of the Code (or analogous combined, consolidated or unitary group defined under state, local or foreign income Tax law).

“Agreement” has the meaning set forth in the preamble to this Agreement.

“Asbestos Liabilities” means any Liabilities arising from, relating, to, or based on the presence or alleged presence of asbestos or asbestos-containing materials in any product or item designed, sold, marketed, installed, stored, transported, handled, or distributed at any time, or otherwise based on the presence or alleged presence of asbestos or asbestos-containing materials at any property or facility in any structure, including without limitation, any Liability arising from, relating to or based on any personal or bodily injury or illness.

“Assigned Contract” has the meaning set forth in Section Error! Reference source not found..

“Assigned Personal Property Lease” has the meaning set forth in Section 4.14.

“Assets” has the meaning set forth in Section 2.1(a).

“Asset Schedule” has the meaning set forth in Section 2.1(a).

“Assumed Liabilities” has the meaning set forth in Section 2.2.

“Audit” means (i) any audit or review by a Governmental Authority with respect to federal and state health care programs or by a health care contractor or (ii) any audit or review by a Governmental Authority not covered in clause (i) above that is outside the Ordinary Course of Business.

“Bill of Sale” has the meaning set forth in Section 2.5.

“Business” has the meaning set forth in the Recitals.

“Business Day” means a day other than Saturday, Sunday or a public holiday on which banks are required or permitted by Law to be closed under the Laws of the State of Texas.

“Business Licenses” has the meaning set forth in Section 4.22.

“Buyer” has the meaning set forth in the preamble to this Agreement.

“Buyer Disclosure Schedule” has the meaning set forth in the preamble to Article V.

“Buyer Indemnified Parties” has the meaning set forth in Section 10.2.

“COBRA” means the requirements of Part 6 of Subtitle B of Title I of ERISA and Code §4980B and of any similar state Law.

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

“Closing” has the meaning set forth in Section 3.5.

“Closing Date” has the meaning set forth in Section 3.5.

“Closing Working Capital” has the meaning set forth in Section 3.2(a)(i).

“Confidential Information” means any information concerning the business and affairs of the Seller with respect to the Business that (i) is not already generally available to the public or (ii) after the date of this Agreement, does not become generally available to the public.

“Contracts” means any and all agreements, contracts, commitments, purchase orders, licenses, leases, notes, bonds and other instruments, whether written or oral, to which the Seller is a party or by any of the Assets is bound.

“Contribution” has the meaning set forth in Disclosure Schedule 4.3.

“Controlled Group” has the meaning set forth in Code §1563.

“Disclosure Schedule” has the meaning set forth in the preamble to Article IV.

“DMEiq” means DMEiq, LLC, a Delaware limited liability company, which is a Subsidiary of the Seller.

“DMEiq Units” means the 90% membership interest of DMEiq owned by Seller.

“Eligible Insurance Proceeds” has the meaning set forth in Section 10.5(g).

“Employee Benefit Plan” means any written or oral plan, program, arrangement or agreement which the Seller or any ERISA Affiliate sponsors, maintains or contributes to or has any obligation to maintain or contribute to, or has any direct or indirect liability for, whether contingent or otherwise, and under which any current or former officer or director, employee, leased employee or consultant (or their respective beneficiaries) of the Seller or any ERISA Affiliate has any present or future right to receive compensation or other benefit, including without limitation, (i) any “employee benefit plan” (as such term is defined in ERISA §3(3)); (ii) the Veneto Long Term Incentive Compensation Plan; and (iii) any other employee benefit plan, agreement, program, policy, arrangement or payroll practice, whether or not subject to ERISA, including any pension, profit-sharing, savings, retirement, severance pay, termination, executive compensation, incentive compensation, deferred compensation, bonus, stock purchase, stock option, phantom stock, other equity-based compensation, change-in-control, retention, salary continuation, vacation, sick leave, disability, death benefit, group insurance, hospitalization, medical, dental, life (including all individual life insurance policies as to which the Seller is the owner, the beneficiary, or both), Code Section 125 “cafeteria” or “flexible” benefit, employee loan, educational assistance or other similar benefit plan, policy or arrangement.

“Employee Pension Benefit Plan” has the meaning set forth in ERISA §3(2).

“Employee Welfare Benefit Plan” has the meaning set forth in ERISA §3(1).

“Employment Agreements” has the meaning set forth in Section 8.13.

“Environmental, Health, and Safety Requirements” means all federal, state, local, and foreign statutes, regulations, ordinances, and similar provisions having the force or effect of Law, all judicial and administrative Orders and determinations, all contractual obligations, and all common law concerning public health and safety, worker health and safety, pollution, or protection of the environment, including, without limitation, all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances, or wastes, chemical substances, or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise, or radiation.

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

“ERISA Affiliate” means each entity that is treated as a single employer with Seller for purposes of Code §414.

“Escrow Agent” has the meaning set forth in Section 3.1(ii).

“Escrow Agreement” has the meaning set forth in Section 3.1(ii).

“Escrowed Purchase Price” has the meaning set forth in Section 3.1(ii).

“Excluded Assets” has the meaning set forth in Section 2.1(c).

“Excluded Assets Schedule” has the meaning set forth in Section 2.1(c).

“Excluded Liabilities” has the meaning set forth in Section 2.3.

“Excluded Subsidiaries” means Medoc Health Services, L.L.C., Total Rx Care, LLC, Forman Pharmacy Management, LLC, Smile Pharmaceutical, Inc., Luna Pharmacy Management, LLC, Pure Pharmacy, LLC, Groth Pharmacy Management, LLC, Pharmacare Texas, Inc. and any entity which has been formed by the Seller but does not conduct any Business operations or own any of the Assets at the time of Closing.

“Execution Date” has the meaning set forth in the preamble to this Agreement.

“Financial Statements” has the meaning set forth in Section 4.8.

“First Closing” has the meaning set forth in Section 3.5.

“First Closing Assets” has the meaning set forth in Section 2.1(a).

“First Closing Assumed Liabilities” has the meaning set forth in Section 2.2.

“First Closing Date” has the meaning set forth in Section 3.5.

“First Closing Transferring Employees” has the meaning set forth in Section 2.4.

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

“Governmental Authority” means any federal, state, local, provincial, municipal, foreign, or other governmental agency, authority, department, commission, board, bureau, Court or instrumentality of any country or territory, and includes any authority having governmental or quasi-governmental powers, including any administrative or regulatory agency or commission.

“HDDL” means High Desert Diagnostic Laboratory, Inc., an Arizona Corporation, which is a Subsidiary of the Seller.

“HDDL Shares” means the equity securities of HDDL owned by Seller.

“Health Care Law” means (a) Title XVIII of the Social Security Act, as amended, governing the Medicare program, and final rules and final regulations adopted pursuant thereto; (b) Titles V, XIX, XX and XXI of the Social Security Act; (c) Section 1128B(b) of the Social Security Act, 42 U.S.C. § 1320a-7b(b), as amended (Criminal Penalties Involving Medicare or State Health Care Programs), commonly referred to as the “Anti-Kickback Statute” and the regulations adopted pursuant thereto and any comparable state or local laws and regulations; (d) 31 U.S.C. §§ 3729 et seq. commonly known as the “False Claims Act” and regulations adopted pursuant thereto and any comparable state or local laws and regulations; (e) 42 U.S.C. § 1395nn, commonly referred to as the “Stark Statute” and regulations adopted pursuant thereto and any comparable state or local laws and regulations; (f) 42 U.S.C. § 1320a-7a; 42 U.S.C. § 1320a-7 and the regulations adopted pursuant thereto; (g) 31 U.S.C. § 3801 et. seq. commonly known as the Federal Program Fraud Civil Remedies Act and regulations adopted pursuant thereto; (h) all federal and state laws relating to the administration of health care claims or benefits or processing or payment for health care services, treatment or supplies furnished by Providers, including but not limited to those applicable to Medicare Parts A, B, C, and D, to the State Medicaid Program, and to the SAIF Program; (i) all federal and state laws and regulations governing the pharmacy practice, including those governing the prescribing and handling of controlled substances and those emanating from the FDA, DEA, and the State Board of Pharmacy; (j) the regulations, ordinances and rules promulgated pursuant to Health Care Laws, as amended from time to time, and in existence as of the Execution Date or subsequently amended or enacted prior to the Closing Date; and (k) the Health Insurance Portability and Accountability Act  of 1996, 42 U.S.C. §§ 1320d-1329d-8, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), enacted as Title XIII of the American Recovery and Reinvestment Act of 2009, Public Law 111-5, and its implementing regulations (collectively, “HIPAA”) and any analogous or similar state Law or regulation.

“Indebtedness” means with respect to any Person, without duplication, (i) all obligations of such Person for borrowed money, whether current or funded, secured or unsecured, (ii) all obligations of such Person for the deferred purchase price of any property or services, (iii) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of a default may be limited to repossession or sale of such property), (iv) all obligations of such Person secured by a purchase money mortgage or other lien to secure all or part of the purchase price of property subject to such mortgage or lien, (v) all obligations under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases in respect of which such Person is liable as lessee, (vi) any obligation of such Person in respect of bankers’ acceptances or letters of credit, (vii) any obligations secured by liens on property acquired by such Person, whether or not such obligations were assumed by such Person at the time of acquisition of such property, (viii) all obligations of a type referred to in clause (i), (ii), (iii), (iv), (v), (vi), or (vii) above which is directly or indirectly guaranteed by such Person or which it has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which it has otherwise assured a creditor against loss, and (ix) any refinancings of any of the foregoing obligations. Notwithstanding the foregoing, for the avoidance of doubt, “Indebtedness” shall not include any trade payables or other current liabilities reflected in the Financial Statements or incurred by the Seller after the date of the Most Recent Balance Sheet in the Ordinary Course of Business, to the extent taken into account in the calculation of Working Capital, or any other amounts taken into account in the calculation of Working Capital.

“Indemnified Party” has the meaning set forth in Section 10.4.

“Indemnifying Party” has the meaning set forth in Section 10.4.

“Ineligible Person” means any Person that (i) is currently excluded, debarred, suspended, or otherwise ineligible to participate in the federal health care programs or federal procurement programs, or (ii) has been convicted of a criminal offense that falls within the ambit of 42 U.S.C. § 1320a-7(a), but has not yet been excluded, debarred, suspended, or otherwise declared ineligible.

“Intellectual Property” Intellectual Property " means all intellectual property and other proprietary rights and Confidential Information relating to the Business or used in the Business, including, but not limited to, all patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); all trademarks, service marks, trade dress, trade names, corporate names; all registered and unregistered statutory and common law copyrights; all registrations, applications and renewals for any of the foregoing; all trade secrets, ideas, formulae, compositions, know-how, proposals, technical and computer data, documentation and software (including the Seller’s proprietary DigiScripts software), financial, business and marketing plans; all supplier lists and related information; all domain names and web sites; sales data and plans; all customer accounts, lists, files, programs, plans, data and related information and all other proprietary rights relating to the Business or used in the Business.

“Interim Working Capital” has the meaning set forth in Section 3.2(a)(i).

“Initial Working Capital Shortfall” has the meaning set forth in Section 3.2(a)(i).

“Inventory” means all inventory of the Seller, wherever located and whether held by Seller or third parties.

“Knowledge” means the actual, conscious knowledge (as distinguished from implied, imputed or constructive) of any Member or other equity owner of Seller, and each Manager and executive officer of Seller, without any inquiry and investigation of any kind.

“Law” means the common law of any state, or any provision of any foreign, federal, state or local law, statute, rule, regulation, order, permit, judgment, injunction, decree or other decision of any Governmental Authority including all Orders having the effect of law in each such jurisdiction and any Health Care Law.

“Leased Real Property” means all leasehold or sub-leasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures, or other interest in real property held by the Seller.

“Leases” means all leases, subleases, licenses, concessions and other agreements (written or oral), including all amendments, extensions, renewals, guaranties, and other agreements with respect thereto, pursuant to which the Seller holds any Leased Real Property.

“Letter of Credit” has the meaning set forth in Section 3.1(b).

“Liabilities” means any indebtedness, liabilities or obligations of the Seller of any nature whatsoever (whether accrued, absolute, contingent, direct, indirect, perfected, inchoate, unliquidated or otherwise, known or unknown, whether due or to become due), including, but not limited to, all Indebtedness of the Seller.

“Liens” means any claims, liens, charges, rights, restrictions, options, preemptive rights, mortgages, deeds of trust, easements, leases, hypothecations, assessments, pledges, encumbrances, claims of equitable interest or security interests of any kind or nature whatsoever.

“Losses” means losses, damages, Liabilities, actions, suits, proceedings, claims, demands, taxes, sanctions, deficiencies, assessments, judgments, costs, interest, other losses resulting from any shutdown or curtailment of operations, costs of mitigation, penalties and expenses, including, without limitation, reasonable attorneys’ fees and all amounts paid in investigation, defense or settlement of any of the foregoing, but excluding (i) any special, consequential, punitive or exemplary damages and (ii) any damages based on multiples of profit, or cash flows, or similar methodologies.

“Management Team” means Kevin Kuykendall, Moky Cheung, Roger Ivey, Richard Suedkamp, Steve Worster, Jane Lee, Brad Guy, Lazaro Martinez and Kyle Kuykendall.

“Material Adverse Effect” or “Material Adverse Change” means any effect or change that would be materially adverse to the Assets; provided, however, that the foregoing will not include any event, effect, circumstance, change, occurrence, fact or development resulting from or relating to (i) general business or economic conditions, (ii) national or international political or social conditions, including the engagement by the United States of America in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States of America or any of its territories, possessions or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States of America, (iii) financial, banking or securities markets (including any disruption thereof and any decline in the price of any security or any market index), (iv) changes in GAAP, (v) changes in Law other than Health Care Law, except to the extent that any of the events, effects, circumstances, changes, occurrences, facts or developments in the foregoing clauses (i) through (v) has had a disproportionate effect on the Seller as compared to other participants in the industry in which the Seller operates, (vi) the negotiation, execution, or delivery of this Agreement or the announcement or consummation of any of the transactions contemplated hereby, (vii) the Medoc Federal Investigation described in Disclosure Schedule 4.11, or (viii) any fact or circumstance arising after a Closing with respect to the Assets transferred during the Closing.

“Montalcino Note” means that certain Convertible Promissory Note dated January 25, 2018 by Montalcino Holdings I, LLC in favor of Seller for an amount up to $2,500,000, of which $1,500,000 has been extended.

“Most Recent Balance Sheet” has the meaning set forth in Section 4.8.

“MSOs” means the following entities: Altra Health Services, L.L.C.; Animo Health Services, L.L.C.; Ayian Health Services, L.L.C.; Bevan Health Services, L.L.C.; Boca Health Services, L.L.C.; Dominus Health Services, L.L.C.; Emmerich Health Services, L.L.C.; Fraizer Health Services, L.L.C.; Insignia Health Services, L.L.C.; Lark Health Services, L.L.C.; Krug Health Services, L.L.C.; Realm Health Services, L.L.C.; and Wain Health Services, L.L.C.

“MSO Class B Units” means the membership interests of the MSOs that are owned by the Seller.

“Net Profits Agreement” means the Net Profits Agreement, dated the Execution Date, by and between Buyer and Seller, pursuant to which Buyer will compensate Seller for the management of the First Closing Assets until the Second Closing.

“Non-Breaching Party” has the meaning set forth in Section 6.5

“Non-Competition Agreements” has the meaning set forth in Section 8.12.

“Offset Amounts” has the meaning set forth in Section 10.5(d).

“Order” means any award, decision, injunction, decree, stipulation, determination, writ, judgment, order, ruling, or verdict ordered, issued, made or rendered by any court, administrative agency or other Governmental Authority.

“Ordinary Course of Business” means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). In no event shall (a) any action by the Seller (other than the placing of a purchase order by such Person or the acquisition of inventory in the normal course of business) that will result in an obligation of the Seller to expend more than fifty thousand dollars ($50,000) and (b) the placing of a purchase order by the Seller (other than the acquisition of inventory in the normal course of business) that will result in an obligation of the Seller to expend more than fifty thousand dollars ($50,000) be considered to be in the Ordinary Course of Business.

“Organizational Documents” means (i) in the case of a corporation, its certificate of incorporation and bylaws and (ii) in the case of a limited liability company, its certificate of formation and operating agreement, in each case with all amendments thereto.

“Party” or “Parties” has the meaning set forth in the preamble to this Agreement.

“Payment Program” means Medicare, TRICARE, FEHBP, Medicaid, Workers’ Compensation, SAIF, and any and all health maintenance organizations, preferred provider organizations, health benefit plans, health insurance plans, and other third-party reimbursement and payment programs, in each case to the extent applicable to the Business of the Seller.

“Permit” means any license, permit, consent, approval, authorization, registration, filing, waiver, qualification or certification from any Governmental Authority, including all pending applications therefor or renewals thereof.

“Permitted Liens” means (i) Liens for Taxes and other governmental charges not yet due and payable or that are being contested in good faith by appropriate proceedings, which proceedings, if determined adversely, would not have a Material Adverse Effect on Seller, (ii) landlords’, mechanics’, carriers’, warehousemen’s, workers’, repairers’ and other similar Liens arising or incurred in the Ordinary Course of Business relating to obligations which are not individually, or in the aggregate, material, for sums not yet due and payable or which are being contested in good faith, (iii) other Liens or imperfections on property which are not material in amount or do not materially detract from the value of or materially impair the existing use of the property affected by such Lien or imperfections, (iv) Liens relating to deposits made in the Ordinary Course of Business in connection with workers’ compensation, unemployment insurance and other types of social security or to secure the performance of leases, trade contracts or other similar agreements, (v) purchase money security interests in respect of personal property arising or incurred in the ordinary course of business and listed in the Disclosure Schedule, (vi) any Liens arising in the Ordinary Course of Business, to the extent that the related Liability therefor is included in the computation of Working Capital, (vii) any Liens to be released at Closing, and (viii) Liens arising as a result of the Buyer’s acts, including any Liens granted to any lender at the Closing in connection with any financing of the Purchase Price.

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, any other business entity, or a governmental entity (or any department, agency, or political subdivision thereof).

“Personal Property Leases” has the meaning set forth in Section 4.14.

“Pre-Closing Statement” has the meaning set forth in Section 3.2(a)(i).

“Prepaid Items” means all prepaid items, deposits and other similar assets of the Seller existing on the Closing Date which are specifically listed in the Asset Schedule.

“Professional Licenses” has the meaning set forth in Section 4.22.

“Purchase Price” has the meaning set forth in Section 3.1.

“Purchase Price Note” has the meaning set forth in Section 3.1.

“Rapport” means Rapport Services, LLC, a Delaware limited liability company, which is a Subsidiary of the Seller.

“Rapport Class B Units” has the meaning set forth in Disclosure Schedule 4.3.

“Real Property” has the meaning set forth in Section 4.15.

“Regulatory Advisories” means (i) any written directives, instructions, guidelines, bulletins, manuals, requirements, policies and standards issued by Centers for Medicare and Medicaid Services (CMS), and (ii) orders, decrees, opinions, instructions, guidance documents, memoranda, manual instructions, program memoranda, opinion letters, or other public issuances promulgated pursuant to Health Care Laws, as amended from time to time, and in existence as of the execution of this Agreement or subsequently amended or enacted prior to Closing.

“Second Closing” has the meaning set forth in Section 3.5.

“Second Closing Date” has the meaning set forth in Section 3.5.

“Seller” has the meaning set forth in the preamble to this Agreement.

“Seller Employees” has the meaning set forth in Section 2.4.

“Seller Indemnified Parties” has the meaning set forth in Section 10.3.

“Significant Payment Program” has the meaning set forth in Section 4.11(g).

“Significant Payment Program Schedule” has the meaning set forth in Section 4.11(g).

“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association, or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (ii) if a limited liability company, partnership, association, or other business entity (other than a corporation), a majority of the partnership or membership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof and for this purpose, a Person or Persons own a majority ownership interest in such a business entity (other than a corporation) if such Person or Persons shall be allocated a majority of such business entity’s gains or losses or shall be or control any managing director or general partner of such business entity (other than a corporation); provided, however, that each of the MSOs shall be deemed a Subsidiary for purposes of this Agreement for periods prior to the consummation of the Contribution and Rapport shall be deemed a Subsidiary for purposes of this Agreement for periods after the consummation of the Contribution. The term “Subsidiary” shall include all Subsidiaries of such Subsidiary.

“Systems” has the meaning set forth in Section 4.28.

“Target Working Capital” has the meaning set forth in Section 3.2(a)(i).

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

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

“Terminated Personal Property Lease” shall have the meaning set forth in Section 4.14.

“Third-Party Claim” has the meaning set forth in Section 10.4.

“Threshold Amount” has the meaning set forth in Section 10.5(a).

“Transaction Documents” means each of the agreements, documents, certificates and instruments being delivered pursuant to this Agreement.

“Transfer Tax” means any stamp or other sales, use, transfer or transaction Tax arising as a result of the consummation of any of the transactions described herein.

“Transferring Employees” has the meaning set forth in Section 2.4.

“Vendor Services Agreement” means the Vendor Services Agreement, dated the Execution Date, by and between Buyer and Seller, pursuant to which Seller will manage the First Closing Assets until the Purchase Price Note is repaid in full.

“WARN” means Worker Adjustment and Retraining Notification Act of 1988, as amended, and its interpretive regulations.

“Working Capital” has the meaning set forth in Section 3.2(a)(i).

ARTICLE II

Assets and liabilIties

2.1 Acquired Assets.

(a)               Subject to the terms and the conditions set forth in this Agreement and on the basis of the representations and warranties herein, the Seller agrees to, and to cause its applicable Subsidiaries to, sell, convey, transfer, assign and deliver to the Buyer, and the Buyer agrees to purchase, receive and accept, as applicable, from the Seller and such Subsidiaries all of the Seller’s and such Subsidiaries’ right, title and interest in and to the assets and properties of every kind, character and description, used in or for the benefit of the Business, whether tangible, intangible, real, personal or mixed, set forth in Schedule 2.1(a) hereto (collectively referred to hereinafter as the “Assets”). Schedule 2.1(a) is referred to herein as the “Asset Schedule.” Schedule 2.1(a) also identifies certain of the Assets (the “First Closing Assets”) that are to be sold, conveyed, transferred, assigned and delivered to the Buyer on the First Closing Date. The Seller has used reasonable efforts to (i) list all of the Assets on the Asset Schedule, (ii) properly identify which Assets are First Closing Assets, and to appropriately list categories or subsets of Assets required to be listed on the Disclosure Schedule in response to the representations and warranties contained in this Agreement. Between the First Closing and Second Closing, the Parties shall cooperate to revise the Asset Schedule to add any Assets that reasonably should have been included in the Asset Schedule and revise the identification of the First Closing Assets to include all Assets that reasonably should be considered first Closing Assets, to remove Assets that should not reasonably be considered First Closing Assets and to add any Assets to Disclosure Schedules that reasonably should have been contained in the Disclosure Schedules. Provided that the any failure to include any Assets, or properly identify any First Closing Assets, has not had a Material Adverse Effect on Buyer’s ownership or operation of the First Closing Assets, such failures shall not be deemed a breach of this Agreement (including a breach of any representation or warranty) if such failures are corrected in accordance with this Section 2.1(a).

(b)               Without limitation of the foregoing, the Assets shall include, in each case in respect of the Seller and its Subsidiaries (other than the Excluded Subsidiaries), all the tangible property, furniture, fixtures and equipment, cash on hand at the Second Closing, Accounts Receivable (to the extent transferable under applicable Law), notes receivable (to the extent listed on the Asset Schedule), the Montalcino Note, inventory (including office supplies), tenant improvements (to the extent related to a lease which is an Assigned Contract), goodwill, software, Intellectual Property, Prepaid Items, Assigned Contracts, Assigned Personal Property Leases, the Rapport Class B Units, the DMEiq Units, the HDDL Shares, books and records (including all customer lists and all patient lists to the extent transferable under applicable Law, but excluding any patient medical records and files to the extent required to be retained by the Seller and any communications which are subject to attorney-client privilege), any Seller policies and procedures relating to the Business, telephone and email addresses, all Permits and certificates of need to the extent transferable to the Buyer, all benefits, proceeds and other amounts payable under any Seller policy of insurance to the extent (i) such amounts are payable for losses suffered or payable by Buyer or (ii) such amounts are payable with respect to an Assumed Liability or other liability included in the calculation of Working Capital.

(c)               Excluded Assets. Notwithstanding anything contained in Section 2.1, the Buyer is not purchasing the Seller’s insurance proceeds other than those specifically identified in Section 2.1(b), Accounts Receivable not transferable under applicable Law, all benefits, proceeds and other amounts payable under any Seller policy of insurance, assets owned by the Excluded Subsidiaries as of the Closing, Contracts (other than Assigned Contracts) any Employee Benefit Plan (other than Assumed Plans, if any), Medicare or Medicaid provider numbers, any claims of the Seller for any federal, state or local Tax refunds or Tax loss carry-forward benefits, the original corporate or limited liability company books and records of the Seller (for clarity, the original books of account are not Excluded Assets), any claims, counterclaims or other rights associated with any Excluded Liability, or any of the assets set forth on Schedule 2.1(c) (such assets being referred to as the “Excluded Assets”).

(d)       Nonassignable Assets. Notwithstanding anything to the contrary in this Agreement, this Agreement shall not constitute an agreement to assign any interest in any instrument, Contract, Lease or other agreement or arrangement or any claim, right or benefit, if an assignment without the consent of a third party would constitute a breach or violation thereof and would adversely affect the Seller’s ability to convey the interest or impair the interest as conveyed to the Buyer. If the consent of a third party which is required in order to assign any such interest is not obtained on or prior to the Closing Date, or if an attempted assignment would be ineffective or would affect the Seller’s ability to convey the interest unimpaired, then, at the Buyer’s request, the Seller shall cooperate with the Buyer in any reasonable arrangement, including performance by the Seller or the Buyer, as the case may be, as agent for the other, in order to cause the Buyer to receive the benefits of such interest, and to accept the burdens and perform the obligations, under any such instrument, Contract, Lease or other agreement or arrangement or any such claim, right or benefit all as of the Closing; provided, however, that (i) such alternative arrangement does not impose any adverse economic consequence to either the Seller or the Buyer, (ii) such alternative arrangement does not violate any Law and does not result in the material breach of the arrangement and (iii) the Parties will continue to use their commercially reasonable efforts after the Closing to obtain the applicable third party consent. Any transfer or assignment to the Buyer by the Seller of any interest under any such instrument, Contract, Lease or other agreement or arrangement or any such claim, right or benefit that requires the consent of a third party shall be made subject to such consent or approval being obtained.

2.2              Assumed Liabilities. As of the Closing Date, the Seller and its applicable Subsidiaries shall assign to the Buyer, and the Buyer shall assume the obligations of the Seller and its applicable Subsidiaries arising from the use of the Assets on or after the Closing Date, including without limitation obligations under those agreements and contracts designated specifically on Disclosure Schedule 4.17 as Assigned Contracts, except to the extent that any such executory obligations result from, arise out of, relate to, or are caused by, any one or more of the following: (a) a breach of any of the Assigned Contracts occurring prior to the Closing Date; (b) a breach of warranty, infringement or violation of Law occurring prior to the Closing Date; or (c) an event or condition occurring or existing prior to the Closing Date which, through the passage of time or the giving of notice or both, would constitute a breach or default by the Seller under any of the Assigned Personal Property Leases or Assigned Contracts (collectively, the “Assumed Liabilities”). Schedule 2.2 also identifies certain of the Assumed Liabilities (the “First Closing Assumed Liabilities”) that are to be assigned to, and assumed by, Buyer on the First Closing Date.

2.3              Excluded Liabilities. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE BUYER DOES NOT ASSUME AND SHALL NOT BE LIABLE FOR ANY OF THE DEBTS, OBLIGATIONS OR LIABILITIES OF THE SELLER, THE BUSINESS OR ANY AFFILIATE OF THE SELLER, WHENEVER ARISING AND OF WHATEVER TYPE OR NATURE. In particular, but without limiting the foregoing, the Buyer shall not assume, and shall not be deemed by anything contained in this Agreement (other than to the extent expressly provided in Section 2.2 “Assumed Liabilities”) to have assumed and shall not be liable for any Indebtedness or Liabilities of the Seller, any Affiliate of the Seller or the Business whether known or unknown, contingent, absolute or otherwise and whether or not they would be included or disclosed in financial statements prepared in accordance with GAAP (the “Excluded Liabilities”). Without limitation of the foregoing, the Excluded Liabilities shall include (other than to the extent expressly provided in Section 2.2 “Assumed Liabilities”) Indebtedness and Liabilities: (a) under any real estate lease or any contract or agreement to which the Seller is a party or by which the Seller or the Business is bound that has not been listed as an Assigned Contract on Disclosure Schedule 4.17; (b) with respect to any Assigned Contract or Assigned Personal Property Lease, arising from the period prior to the Closing Date; (c) arising out of any collective bargaining agreement to which the Seller is a party; (d) for any Employee Benefit Plan and any employment related matters in respect of periods prior to the Closing Date; (e) for any obligation for Taxes arising from the period prior to the Closing Date; (f) for any Liability for local or state Transfer Tax and other taxes that may be imposed upon the sale or assignment of the Assets pursuant to this Agreement and the Bill of Sale, regardless of when such obligations may become known and due; (g) for any damages or injuries to persons or property or for any tort or strict liability arising from events, actions or inactions in the Business or the operation of the Business prior to the Closing Date; (h) arising out of any litigation against the Seller arising with respect to the period prior to the Closing Date, whether or not threatened or pending on or before the Closing Date; (i) any capital leases of the Seller; (j) any Indebtedness of the Seller or the Business to any bank, institutional lender or other party charging interest or Indebtedness of the Seller to any of its shareholders, partners, members or owners (including any Indebtedness from any shareholder, partner, member or owner of the Seller); or (k) for amounts due or that may become due to Medicare, Medicaid or any other health care reimbursement or payment intermediary or contractor, or other third party payor on account of any form of payment adjustment, audit, assessment, recovery or recoupment whatsoever, including fines and penalties, arising from the period prior to the Closing Date. The intent and objective of the Buyer and the Seller is that, except for the Assumed Liabilities explicitly assumed by the Buyer hereunder, the Buyer does not assume, and no transferee liability shall attach to the Buyer pertaining to, any of the Excluded Liabilities.

2.4              Employees. Prior to the Second Closing Date, (a) the Buyer or an Affiliate of the Buyer shall offer employment, effective as of the Second Closing Date, to each employee of the Seller who is principally employed in the Business (collectively, the “Seller Employees”), provided that such employee (i) is listed on Schedule 2.4 as prepared by the Buyer and attached hereto, (ii) agrees to the release of his or her employment files to the Buyer or an Affiliate of the Buyer prior to the Second Closing, and (iii) passes a pre-employment drug test and/or background check conducted at the Buyer’s expense and in a timely manner, if so requested, and (c) the Seller will terminate in a lawful manner the employment of the Seller Employees who have accepted the Buyer’s or its Affiliate’s offer of employment. Those Seller Employees who accept the Buyer’s or its Affiliate’s offer of employment as of the Second Closing Date shall be designated on Schedule 2.4 as “Transferring Employees” and referred to hereinafter as such and to receive credit from the Buyer or its Affiliate for prior service to the Seller for all employment-related purposes. The Seller acknowledges and agrees that it is responsible for paying to the Transferring Employees all compensation and benefits accrued up to the Second Closing Date and the Seller shall pay, or arrange to pay, all such undisputed amounts prior to the Closing Date. Schedule 2.4 sets forth with respect to each Seller Employee such person’s position, date of hire, current salary, accrued and maximum PTO and amount of any other accrued benefits (including, without limitation, bonuses and vacation) to which such person may be entitled or for which such person has made written claim to the Seller. If applicable, the Seller shall provide an updated Schedule 2.4 at the Second Closing. Except as otherwise provided in the Employment Agreements, all Transferring Employees shall be employees at will, subject to the Buyer’s or its Affiliate’s employment policies. Nothing herein shall obligate the Buyer or an Affiliate of the Buyer to employ the Transferring Employees for any specific time period. Nothing in this Section shall be construed to grant any employee any rights as a third-party beneficiary. The Seller shall retain all Liabilities with respect to any and all Seller Employees who are not Transferring Employees; provided that the Seller shall have paid, or provided to pay, to all Seller Employees prior to the Second Closing the amount of all compensation and benefits accrued up to the Second Closing Date. The Seller and its ERISA Affiliates shall provide coverage under COBRA to all “M&A qualified beneficiaries” associated with the transactions described in this Agreement in accordance with Treasury Regulation §54.4980B-9 and any Seller Employees who have a “qualifying event” under Section 4980B of the Code prior to the Second Closing Date or who do not become Transferred Employees in connection with the transactions described in this Agreement. The Buyer or an Affiliate of the Buyer shall provide coverage under COBRA to all Transferring Employees and their beneficiaries who have a “qualifying event” under Section 4980B of the Code following the Second Closing Date. The Seller shall be liable for any Liabilities arising under WARN or any similar foreign, state or local Law for any “plant closing” or “mass layoff” as those terms are defined in WARN (or the comparable statute) occurring prior to the Closing Date or in connection with the transactions described in this Agreement. The Seller shall notify the Buyer in writing of the termination of any Seller Employee that has occurred within 90 days preceding the Closing Date. Schedule 2.4 also identifies certain of the Transferring Employees (the “Second Closing Transferring Employees”) that are to be offered employment with the Buyer as of the Second Closing Date.

2.5              Instruments of Transfer. The sale of the Assets and the assumption of the Assumed Liabilities as herein provided shall be effected at each Closing by that certain Assignment and Assumption and Bill of Sale in the form attached hereto as Exhibit A (the “Bill of Sale”).

2.6              Payment of Sales Taxes. The Seller covenants and agrees to pay any and all Transfer Taxes payable by reason of the transfer and conveyance of the Assets hereunder. The Seller will prepare and deliver and if necessary file at or before the Closing all Transfer Tax returns and other filings necessary to vest in the Buyer full right, title and interest in the Assets without any requirement for the Buyer to withhold any consideration in respect of Taxes.

ARTICLE III

purchase price

3.1              Purchase of Assets by the Buyer. Subject to any adjustments set forth in this Agreement, including without limitation pursuant to Section 3.2, and in reliance on the Seller’s representations, warranties and covenants, the purchase price to be paid by the Buyer to Seller for the Assets and the other rights set forth herein (collectively with any payments made in connection with any adjustments, the “Purchase Price”) shall be as follows:

(a)       First Closing. At the First Closing, Buyer shall issue to Seller a secured note, in form and substance satisfactory to Seller (the “Purchase Price Note”), in the original principal amount of Fifteen Million Dollars ($15,000,000).

(b)       Second Closing. At the Second Closing, Buyer shall pay to Seller the sum of Thirty Million Dollars ($30,000,000), which shall consist of the following:

(i)                 a repayment of the $15,000,000 Purchase Price Note plus interest thereon (whereupon Seller will return the Purchase Price Note to Buyer marked as paid in full);

(ii)              Nine Million Dollars ($9,000,000) to be paid into a trust or other fiduciary account acceptable to the Seller at Closing; such trust or fiduciary account shall be used solely for the purpose of investigating, for the purposes of satisfying, defending, maintaining insurance coverage with respect to and otherwise protecting the Seller, the Subsidiaries (including the Excluded Subsidiaries) and their managers, members, officers, employees and other personnel with respect to certain potential contingent liabilities of Seller and its past and present Affiliates during a period of time to be specified in the Letter of Credit and thereafter to be paid to Seller according to the terms and conditions directed by Seller. The funds in such account shall not be distributed to the members of the Company, or used for any purposes other than as stated in this paragraph (ii) until the earlier of the following (x) settlement with the Government Agencies with respect to all Members, Managers, and Affiliates, or (y) receipt of written notification or other indication from Government Agencies known to be conducting investigations or inquiries to the effect that such Government Agencies are terminating their investigation or inquiry without the requirement of any penalty or imposition of any liability, or (y) five (5) years from the Second Closing Date.

(iii)            Three Million Dollars ($3,000,000) (the “Escrowed Purchase Price”) to be paid into an escrow account with a third party escrow agent mutually acceptable to the Buyer and the Seller (the “Escrow Agent”) at Closing, which shall be released from escrow as set forth in Section 3.2(a)(i), Section 3.3 and Section 10.5, and more specifically set forth in the escrow agreement agreed upon among the Escrow Agent, the Buyer and the Seller, in substantially the form of Exhibit B hereto (the “Escrow Agreement”); and

(iv)             The balance to be paid to the Seller in cash by wire transfer of immediately available funds.

3.2              Adjustments to Purchase Price.

(a)               Working Capital Adjustment.

(i)                 Working Capital Amount. As used herein, “Working Capital” means the consolidated current assets of the Seller and its Subsidiaries minus the consolidated current liabilities of the Seller and its Subsidiaries, in each case after giving effect to the elimination of the Excluded Assets and Excluded Liabilities and determined in accordance with GAAP and in a manner consistent with the Most Recent Balance Sheet and sample working capital calculation set forth therein attached hereto as Annex I (provided the presentation and calculations in the Most Recent Balance Sheet and sample calculation are not inconsistent with GAAP).^[1] The Working Capital as of 12:01 a.m. on the Second Closing Date (the “Closing Working Capital”) shall equal at least Three Million Dollars ($3,000,000) (the “Target Working Capital”). Within five (5) days prior to the Second Closing, the Seller shall in good faith prepare and deliver to the Buyer a preliminary balance sheet and the preliminary calculation of Closing Working Capital (the “Pre-Closing Statement”). At the Second Closing, any shortfall between the Working Capital set forth on the Pre-Closing Statement (the “Interim Working Capital”) and the Target Working Capital (the “Initial Working Capital Shortfall”) shall be deducted from the cash portion of the Purchase Price paid to Seller at the Second Closing. At the Second Closing, the Buyer shall pay to the Seller the amount, if any, by which the Interim Working Capital exceeds the Target Working Capital in cash by wire transfer of immediately available funds.

(ii)              Post-Closing Calculation of Actual Working Capital. Within forty-five (45) days after the Closing Date, the Buyer shall deliver to the Seller a schedule which sets forth in reasonable detail the Buyer’s calculation of the Working Capital as of the Second Closing Date based on Buyer’s calculation of the Working Capital (the “Actual Working Capital”) and any required payment based thereon. The Buyer’s calculation of the Actual Working Capital shall be conclusive on the Seller unless, within thirty (30) days of the Seller’s receipt of the Buyer’s calculation of the Actual Working Capital, the Seller delivers to the Buyer a written notice of dispute with respect thereto. Upon receipt by the Buyer of the Seller’s written notice of dispute, the Parties will use reasonable best efforts to negotiate in good faith with respect thereto for thirty (30) days as to the amount of the Actual Working Capital and any required payment based thereon. If the Buyer and the Seller are unable to agree upon the proper amount of the Actual Working Capital within such thirty (30) days, the Buyer and the Seller agree to resolve such dispute in accordance with Section 3.2(b).

(iii)            Working Capital Adjustments. If the Actual Working Capital is determined to be less than the Interim Working Capital, the amount of the Initial Working Capital Shortfall shall be deducted from the shortfall between the Actual Working Capital and the Target Working Capital, (i) to the extent the shortfall does not exceed $100,000 Buyer and the Seller shall promptly execute the necessary documents instructing the Escrow Agent to pay the Buyer the amount of any such deficiency in cash from the Escrowed Purchase Price and (ii) to the extent the shortfall exceeds $100,000, at Buyer’s option clause (i) shall apply or Seller shall pay such amount to Buyer within fifteen calendar days after determination of the shortfall in accordance with this Agreement. If the Actual Working Capital is determined to be more than the Interim Working Capital, the Buyer shall promptly pay to Seller the amount of such surplus in cash by wire transfer of immediately available funds.

(b)               Disputes. If the Buyer and the Seller are unable to resolve a dispute regarding any adjustments to the Purchase Price set forth in this Section 3.2, the Buyer and Seller will select an independent accounting firm to make a determination of the amount of the relevant adjustment to the Purchase Price. In the event the Parties are unable to agree on an independent accounting firm, the Parties will select by lot an independent regional, multi-state accounting firm to make such determination. Such determination will be made within sixty (60) days after such selection and will be binding upon the Parties. The accounting firm shall only decide the specific items under dispute by the Parties, solely in accordance with the terms of this Agreement. In resolving any items under dispute, the accounting firm may not assign a value to any item greater than the greatest value for such item claimed by either Party or less than the smallest value for such item claimed by either Party. The accounting firm’s determination shall be based solely on presentations by the Buyer and the Seller (i.e., not on independent review) and on the definitions and other terms included herein. The fees, costs and expenses of the accounting firm so selected will be borne by the Party whose positions generally did not prevail in such determination, as determined by such accounting firm, or if the accounting firm determines that neither Party is fairly to be found to be the prevailing Party, then such fees, costs and expenses will be borne 50% by the Buyer and 50% by the Seller. From the Second Closing Date until the amount of any adjustment to the Purchase Price and any required payment based thereon is finally determined and paid, both Parties, at their own expense, upon reasonable notice to the other Party and during normal business hours, shall be given full access to all books, records or other information of the other Party relating in any way to the calculation of the adjustment to the Purchase Price. Within ten (10) Business Days after the accounting firm determines the amount of the adjustment to the Purchase Price, (A) the Buyer and the Seller shall execute the necessary documents instructing the Escrow Agent to disburse the amount of any adjustment to the Purchase Price in favor of the Buyer from the Escrowed Purchase Price in accordance with Section 3.2(a)(iii) or (B) the Buyer shall pay the Seller the amount of any adjustment to the Purchase Price in favor of the Seller in accordance with Section 3.2(a)(iii).

3.3              Pro-Rations. All Ordinary Course of Business expenses incurred and not accrued in the computation of Working Capital with respect to the Assets or the Assumed Liabilities will be pro-rated as of the Closing Date, such that the Buyer is responsible for amounts incurred on and after the Closing Date and the Seller is responsible for amounts incurred prior to the Closing Date.

3.4              Allocation of Consideration. The Buyer and the Seller acknowledge and agree that the consideration shall be allocated to the Assets in accordance with Section 1060 of the Code, as set forth on Schedule 3.4 hereto. The Seller further acknowledges and agrees that (a) the covenant not to compete set forth in the Non-Competition Agreements required to be executed by the Seller and each of its members and managers is a material inducement to the Buyer to enter into this Agreement, and the Buyer is doing so in reliance upon full compliance by the Seller agreeing to be bound by such covenant; and (b) in light of such reliance, the amount allocated herein to the covenant not to compete is not intended by the Parties as a measure of damages that might be incurred by the Buyer in the event of a breach of such covenant. The Buyer and the Seller agree to report the transactions described in this Agreement for federal and state income Tax purposes in accordance with such allocation. The Parties shall execute all forms required to be filed for Tax purposes with any taxing authority in a manner consistent with the allocation on Schedule 3.4 hereto. The Parties agree to amend Schedule 3.4 to reflect changes arising from any Purchase Price adjustments under Section 3.2 above, provided any such changes to Schedule 3.4 will be mutually agreeable to the Parties hereto.

3.5              Closing. The sale of the First Closing Assets and assumption of the First Closing Assumed Liabilities shall be consummated and effective at a closing (the “First Closing”), held concurrently with the execution and delivery of this Agreement (the “First Closing Date”). At the First Closing, the Seller and Buyer will provide the other with the closing deliverables applicable to the First Closing Assets and First Closing Assumed Liabilities and set forth on Schedule 3.5. The sale of the other Assets and assumption of the other Assumed Liabilities shall be consummated and effective at a closing (the “Second Closing”), held on the fifth Business Day following the satisfaction or waiver of the conditions set forth in Articles VIII and IX, or at such other time or date as the Parties hereto may mutually agree in writing (the “Second Closing Date”), at the offices of Seller. References herein to the “Closing” and “Closing Date” shall mean the First Closing or Second Closing, and First Closing Date or Second Closing Date, as applicable. To the extent practicable, each Closing shall occur electronically, with the parties exchanging all signature pages to the documents specified herein via email delivery and by an exchange of executed counterpart copies of this Agreement and the other Closing documents via email and overnight courier between counsel for the Seller and counsel for the Buyer. Each Closing shall be effective as of 12:01 a.m. on the Closing Date.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE SELLER

The Seller represents and warrants to the Buyer that the statements contained in this Article IV are true and correct in all material respects as of the date of this Agreement and will be true and correct in all material respects as of the Second Closing Date (as though made then and as though the Second Closing Date were substituted for the date of this Agreement throughout this Article IV), except as set forth in the Disclosure Schedule delivered by the Seller to the Buyer on the Execution Date (the “Disclosure Schedule”). The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Article IV and shall apply to the specific representation or warranty to which such lettered or numbered paragraphs of the Disclosure Schedule applies and any other paragraph in this Article IV to which the application of such disclosure is reasonably apparent on its face. Unless the context otherwise requires, all references to the Seller, Seller’s conduct of the Business, its financial condition, assets, liabilities and operation shall include the Seller’s applicable Subsidiaries (other than Excluded Subsidiaries).

4.1              Organization, Qualification, and Power. Each of the Seller, Rapport DMEiq, and HDDL is a limited liability company or corporation duly formed and in good standing under the Laws of the jurisdiction of its formation. The Seller is duly authorized to conduct business and in good standing under the Laws of each jurisdiction where such qualification is required, except where the failure to be so qualified would not have a Material Adverse Effect on the Assets or Business. The Seller has the limited liability company power and authority to carry on the Business and to own and use the properties owned and used by it. Disclosure Schedule 4.1 lists the managers and officers of the Seller. The Seller has delivered or made available to counsel to the Buyer true and correct copies of the Organizational Documents of Seller, Rapport, DMEiq and HDDL, and all actions by written consent or otherwise of the board of managers and the shareholders, partners, members, or owners of the Seller.

4.2              Evaluation and Authorization of the Transaction. The Seller expressly confirms that it has negotiated, at arm’s length, the terms of this Agreement. The Seller has such knowledge and experience in financial and business matters as to be capable of evaluating the merits, risks and suitability of the transactions contemplated by this Agreement and is entering into this Agreement with a full understanding of all of the attendant terms, conditions and risks and willingly assumes those terms, conditions and risks. The Seller has had the opportunity to conduct its own due diligence prior to executing this Agreement and has evaluated the merits and risks of the transactions contemplated by this Agreement based exclusively on its own independent review and consultations with such investment, legal, tax, accounting and other advisers as it deemed necessary and has made its own decisions concerning this Agreement and the transactions contemplated hereby. The Seller has full limited liability company power and authority to execute and deliver this Agreement, each of the Transaction Documents to which Seller is a party and to perform its obligations hereunder and thereunder. This Agreement and each Transaction Document to which Seller is a party constitutes the valid and legally binding obligation of the Seller, enforceable in accordance with its terms and conditions, except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other Laws of general application relating to or affecting the enforcement of creditors’ rights generally, or (ii) Laws relating to the availability of specific performance, injunctive relief or other equitable remedies. Except as set forth on Disclosure Schedule 4.2, the Seller does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Authority in order to execute and deliver this Agreement and the Transaction Documents or for the Seller to consummate the transactions described in this Agreement or the Transaction Documents. The execution, delivery and performance of this Agreement and the Transaction Documents and all other agreements described herein have been duly authorized by the Seller.

4.3              MSOs; Contribution. Each of the MSOs is a limited liability company duly formed and in good standing under the Laws of the jurisdiction of its formation. Each MSO is duly authorized to conduct business and in good standing under the Laws of each jurisdiction where such qualification is required, except where the failure to be so qualified would not have a Material Adverse Effect on the Assets or Business. The Seller has delivered or made available to counsel to the Buyer true and correct copies of the Organizational Documents of each of the MSOs. The MSO Class B Units represent a 1% ownership interest in the equity securities of each of the MSOs. The MSOs constitute all of the Seller’s existing entity Affiliates which are or, in the past twelve (12) months have been, engaged in the type of activities, business or contractual relationships, as the MSOs other than other entities that have been dissolved or permanently ceased operations and the Excluded Subsidiaries; provided, however, that the MSOs will be dissolved in connection with the consummation of the Contribution and their business will be continued by Rapport. Disclosure Schedule 4.3 describes the formation of Rapport and the consummation of the Contribution. After giving effect to the Contribution, the membership interests of Rapport described on Disclosure Schedule 4.3 will constitute all of the issued and outstanding membership interests of Rapport. The DMEiq Units constitute a 90% equity interest in DMEiq. The HDDL Shares constitute a 100% interest of the equity securities of HDDL. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that would require the Seller to issue, sell, or otherwise cause to become outstanding (i) any membership interests of Rapport other than pursuant to the Contribution (ii) any membership interests of DMEiq, or (iii) any equity securities of HDDL. There are no outstanding or authorized stock appreciation, phantom stock or membership interest, profit participation, or similar rights with respect to Rapport, DMEiq, or HDDL. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of Rapport’s membership interests, DMEiq’s membership interests, or HDDL’s equity securities.

4.4              Non-contravention. Except as set forth in Disclosure Schedule 4.4, neither the execution and the delivery of this Agreement and the Transaction Documents, nor the consummation of the transactions described herein including without limitation the transfer of the Assets, will (a) violate in any material respect any applicable Law, constitution, injunction, Order, ruling, charge, or other restriction of any Governmental Authority to which the Seller is subject or any provision of the Seller’s organizational documents, if applicable, (b) in any material respect conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Seller is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Lien upon any of its assets), except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, failure to give notice, or Lien would not have a Material Adverse Effect, or (c) result in the creation or imposition of any Lien upon the Assets that will not be discharged at Closing by Seller. To the Knowledge of the Seller, the execution and delivery of this Agreement and the Transaction Documents, and the performance of the Seller hereunder and thereunder, will not materially reduce or delay receipt of the ongoing Medicare, Medicaid, insurance carrier, managed care organization or other third-party payments or reimbursements which the Seller is receiving as of the date hereof.

4.5              Brokers’ Fees. The Seller has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions described in this Agreement.

4.6              Title to Assets. The Seller and/or its subsidiaries are the sole and exclusive legal, equitable and beneficial owner of all right, title and interest in, and have good, clear, indefeasible, insurable and marketable title to, all of the Assets free of all Liens, other than Permitted Liens. The Assets are all of the assets, properties and rights the Seller uses in connection with all of the business operations of Seller as currently conducted (exclusive of the business conducted by the Excluded Subsidiaries). To the Knowledge of the Seller, all of the Assets have been maintained in accordance with normal industry practice, and are in reasonably good operating condition and repair, ordinary wear and tear excepted. During the past three (3) years, there has not been any Material Adverse Effect on the operations of the Business due to the condition of any of the Assets. The Seller will convey to the Buyer on the Closing Date all of the Assets free and clear of any Lien other than Permitted Liens.

4.7              Subsidiaries. The Seller does not have, and in the past twelve (12) months has not had any Subsidiaries other than (i) the Excluded Subsidiaries, (ii) those listed on Disclosure Schedule 4.7 and (iii) Subsidiaries which had no assets or operations immediately prior to the date hereof.

4.8              Financial Statements. Attached hereto as Disclosure Schedule 4.8 are the following financial statements (collectively the “Financial Statements”): (a) the audited balance sheet of the Seller and its Subsidiaries on a consolidated basis as of December 31, 2015, December 31, 2016 and December 31, 2017 and the related statement of income and cash flows for the years then ended and the related statement of income and cash flows for the twelve-month period then ended, (b) the unaudited balance sheet of the Business (giving pro forma effect to the elimination of the Excluded Assets and Excluded Liabilities) on a consolidated basis as of July 31, 2018 (the “Most Recent Balance Sheet”) and the related statement of income and cash flows for the seven-month period then ended; and (c) net Accounts Receivable aging and the net accounts payable aging of the Business, both as of July 31, 2018. The Financial Statements (including the notes thereto) have been prepared in accordance with GAAP throughout the periods covered thereby and in all material respect present fairly the financial condition, including the Assets and Liabilities, of the Business as of such dates and the results of operations of the Business for such periods, provided, however, that the Financial Statements are subject to normal year-end adjustments (which will not be material individually or in the aggregate) and lack footnotes and other presentation items.

4.9              Events Subsequent to Most Recent Fiscal Year End. Since July 31, 2018, there has not been any Material Adverse Change. Without limiting the generality of the foregoing, except as set forth on Disclosure Schedule 4.9 or in the Ordinary Course of Business, since that date:

(a)               The Seller has not sold, leased, transferred, or assigned any assets used in the Business, tangible or intangible, outside the Ordinary Course of Business;

(b)               Except for this Agreement and the Transaction Documents, the Seller has not entered into any agreement, contract, lease, or license outside the Ordinary Course of Business;

(c)               The Seller has not accelerated, terminated, made material modifications to, or canceled any agreement, contract, lease, license or Permit relating to the Business and to which the Seller is a party or by which it is bound other than in accordance with their respective terms or in the Ordinary Course of Business;

(d)               The Seller has not imposed any Lien upon any of the Assets, tangible or intangible, other than in the Ordinary Course of Business that will not be discharged at Closing;

(e)               The Seller has not made any material capital expenditures in respect of the Business outside the Ordinary Course of Business;

(f)                The Seller has not transferred, assigned, or granted any license or sublicense of any rights under or with respect to any Intellectual Property included in the Assets;

(g)               The Seller has not experienced any material damage, destruction, or loss (whether or not covered by insurance) to the Assets;

(h)               The Seller has not made any loan to, or entered into any other transaction with, any of its directors, managers, officers, contractors, consultants or employees outside the Ordinary Course of Business;

(i)                 The Seller has not entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement other than in accordance with their respective terms or consistent with past practice;

(j)                 The Seller has not granted any increase in excess of two percent (2%) in the base compensation of any of the Transferring Employees;

(k)               The Seller has not made any other change in material employment terms for any of the Transferring Employees outside the Ordinary Course of Business;

(l)                 The Seller has not conducted its cash management customs and practices (including, but not limited to, the timing of collection of receivables and payment of payables and other current liabilities) and maintained its books and records other than in the Ordinary Course of Business consistent with past custom and practice;

(m)             The Seller has not changed any accounting policy or tax elections or practices; and

(n)               The Seller has not committed to any of the foregoing.

4.10          Undisclosed Liabilities. Except as set forth on Disclosure Schedule 4.10, to the Knowledge of the Seller, the Seller does not have any material Liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due, including any Liability for Taxes) of the nature that would require disclosure on a balance sheet prepared in accordance with GAAP, including without limitation any Liability relating to or arising from sexual harassment claims or non-compliance with applicable Law, except for (a) Liabilities set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) and (b) Liabilities that have arisen after the date of the Most Recent Balance Sheet in the Ordinary Course of Business. Except as set forth on Disclosure Schedule 4.10, as of the Closing, the Seller will not have and will not be subject to any Indebtedness.

4.11          Compliance with Laws.

(a)               To the Seller’s Knowledge, the Seller is, at each Closing Date, in compliance in all material respects with all Laws with respect to the operation of the Business. Except as set forth on Disclosure Schedule 4.11, the Seller has not received any written notice to the effect that, or otherwise been advised that, it is not in any material respect out of in compliance with Laws applicable to the operation of the Business, including without limitation any written notice to the effect that each is not in compliance in any material respect with any Health Care Law or written notice to the effect that each is the subject of any health care plan Audit or review; and Seller has not entered into any settlement or agreement with any Governmental Authority, Governmental Authority contractor or private payor with respect to any Audit, review or alleged non-compliance with any applicable Health Care Law, and the Seller is not presently subject to any settlement to pay/withhold payments for health care items or services with a Governmental Authority, Governmental Authority contractor, or third-party payor.

(b)               Except as set forth in Disclosure Schedule 4.11, neither the Seller nor its shareholders, partners, members, owners, directors, officers, employees, contractors, or agents, nor to the Knowledge of the Seller any health care provider with which the Seller maintains a Contract, (i) is an Ineligible Person, (ii) has been assessed a civil monetary penalty under Section 1128A of the Social Security Act or any regulations promulgated thereunder, (iii) has been convicted of any criminal offense relating to the delivery of any item or service under a federal health care program relating to the unlawful manufacture, distribution, prescription, or dispensing of a prescription drug or a controlled substance or (iv) is a party to or subject to any investigation, audit, review, action or proceeding concerning any of the matters described above in clauses (i) through (iii). Notwithstanding anything contained in this Agreement to the contrary, the Seller has advised the Buyer that, in the Ordinary Course of Business, (i) commercial payors routinely audit and/or challenge claims for payment and (ii) Governmental Authorities routinely perform unannounced and periodic inspections of licensed facilities, consistent with standard industry practices; and accordingly, the Seller’s representations and warranties contained in this Agreement regarding payment for health care items and related audits and reviews are qualified to such extent.

(c)               To the Knowledge of the Seller, the Seller and its directors, officers, employees, contractors, and agents in connection with their actions for or on behalf of the Seller, are in compliance in all material respects with the following Laws, in each case to the extent applicable to the Business: (i) all federal Laws relating to health care fraud and abuse, including: the Anti-Kickback Law, 42 U.S.C. § 1320a-7b, 42 C.F.R. § 1001.952, the Civil Monetary Penalties Act, 42 U.S.C. § 1320a-7a, the federal physician self-referral prohibition, 42 U.S.C. § 1395nn, 42 C.F.R. § 411.351 et seq., the False Claims Act, 31 U.S.C. § 3729 et seq.; (ii) any and all state Laws relating to health care fraud and abuse; (iii) all Laws of the Medicare and Medicaid programs applicable to the Business as presently conducted, including the Medicare Part D program, Medicare Advantage program, and any other federally funded health care program; (iv) state Laws relating to Medicaid, Workers’ Compensation/SAIF or any other state health care or health insurance programs; (v) federal or state Laws relating to billing or claims for reimbursement submitted to any third-party payor; and (vi) any other federal or state Laws relating to fraudulent, abusive or unlawful practices connected in any way with the provision of health care items or services, or the billing for or claims for reimbursement for such items or services provided to a beneficiary of any state, federal or other governmental health care or health insurance program or any private payor.

(d)               To the extent Seller is not in compliance with Regulatory Advisories material to the Business, neither Seller nor its past or present Affiliates have received written notice from any Government Authority, accrediting organization or third party payor that Seller’s noncompliance violates a Health Care Law.

(e)               The Seller has maintained all records in all material respects as required by applicable federal and state agencies and private entities with which the Seller has contracted including, without limitation, the federal and state Medicare and Medicaid programs and other governmental agencies and private entities in connection with its operation of the Business.

(f)                Except as set forth on Disclosure Schedule 4.11, there is no pending, outstanding, open, assessed, concluded or, to the Knowledge of the Seller, credibly threatened in writing, Audit, review, investigation, or civil, administrative or criminal proceeding relating to the Seller or Seller’s past and present Affiliates, including the Excluded Subsidiaries, or any of their participation in any Payment Program from which the Seller (together with its past and present Affiliates, including the Excluded Subsidiaries) received more than 10% of its revenue during 2017, including any audit or review by any State Medicaid Agency, Medicaid Integrity Contractor, Recovery Audit Contractors, Zone Program Integrity Contractor, Part D or other Medicare contractor; the Seller is not subject to, nor has Seller nor its past and present Affiliates, including the Excluded Subsidiaries, been subjected to, any pre-payment utilization review by any Governmental Authority, Governmental Authority contractor, or third-party payor. No Payment Program has requested or, to the Knowledge of the Seller, credibly threatened in writing any unresolved recoupment, refund, or set-off from the Seller or its past and present Affiliates, including the Excluded Subsidiaries and to the Knowledge of the Seller there is no basis for any such demand. Except as set forth on Disclosure Schedule 4.11, other than in the Ordinary Course of Business, no Payment Program has imposed an unresolved fine, penalty or other sanction on the Seller or its past and present Affiliates, including the Excluded Subsidiaries, and no past overpayment or audit assessments are outstanding or still being paid off; none of the Seller or the Seller’s employees (while employed by the Seller) has been excluded from participation in any Payment Program. To the Knowledge of the Seller, none of the Seller or Seller’s employees or contractors has submitted to any Payment Program any intentionally false or fraudulent claim for payment, nor has the Seller or any of the Seller’s employees at any time knowingly violated in any material respect any condition for participation, or any rule, regulation, policy or standard of, any Payment Program; except with respect to the Excluded Subsidiaries, to the Knowledge of the Seller, all billing practices of the Seller and its past and present Affiliates, including the Excluded Subsidiaries with respect to all Payment Programs have been in compliance in all material respects with all applicable Laws, and all regulations and policies of all such Payment Programs. Except with respect to the Excluded Subsidiaries, to the Knowledge of the Seller, neither the Seller, Seller’s Affiliates, nor any of their employees has billed for or received any payment or reimbursement materially in excess of amounts permitted by Law or the rules and regulations of Payment Programs or contracts therewith.

(g)               All agreements between the Seller and any Payment Program from which the Seller, together with its past and present Affiliates, including the Excluded Subsidiaries, received more than $50,000 in 2017 were entered into in the Ordinary Course of Business and Disclosure Schedule 4.11(g) sets forth and true and correct list of all such agreements between the Seller and Payment Programs. The Seller has provided access to the Buyer true and correct copies of all such agreements in its possession or control. Except as set forth on Disclosure Schedule 4.11(g), the Seller is in compliance in all material respects with each Payment Program’s agreements, and except with respect to the Excluded Subsidiaries, to the Knowledge of the Seller the Seller and its past and present Affiliates, have properly charged and billed in all material respects in accordance with the terms of those agreements. Except as set forth on Disclosure Schedule 4.11(g), the Seller has not received written notice of cancellation of or intent to cancel, or written notice to make a material modification or intent to make a material modification of any of Seller’s current Payment Program agreements during the twelve (12) months prior to the Execution Date. Disclosure Schedule 4.11(g) contains a “Significant Payment Program Schedule” showing those entities that were the ten (10) largest sources of revenue to the Business during the twelve (12) month period ended December 31, 2017 (each, a “Significant Payment Program”). Except as set forth in the Significant Payment Program Schedule, during the twelve (12) months prior to the Closing Date, no Significant Payment Program has terminated or adversely altered in any material respect its business relationship with the Seller or, except in connection with negotiations of new or extended contracts with Significant Payment Programs in the Ordinary Course of the Business, given written or to the Knowledge of the Seller, oral notice to any entity or Person involved in the Business of its intention to terminate or materially alter its business relationship with the Seller.

(h)               To the Knowledge of the Seller, in light of its size and scope of the Business, the Seller has implemented reasonable policies, procedures, and training programs, including a corporate compliance program, designed for its agents and employees to comply with all applicable Laws, including laws, regulations, directives and opinions of Governmental Authorities.

(i)                 The Seller has filed all regulatory reports, schedules, statements, documents, filings, submissions, forms, registrations and other documents, together with any amendments required to be made with respect thereto, that it was required to file with any Governmental Authority, including state boards of medicine, pharmacy, health and insurance regulatory authorities, and any applicable federal regulatory authorities, and has timely paid all fees and assessments due and payable in connection therewith, the failure of which would have a Material Adverse Effect on the Business.

(j)                 The Seller and its past and present Affiliates, including the Excluded Subsidiaries, have complied in all material respects with all applicable requirements of the Occupational Safety and Health Act and all applicable state equivalents, and with all applicable regulations promulgated under any such legislation, and with all orders, judgments, and decrees of any tribunal under such legislation, that apply to the Business and, except as set forth on Disclosure Schedule 4.11(i), the Seller has not received any written notice alleging any violation thereof.

(k)       Notwithstanding any provision to the contrary, Buyer recognizes, acknowledges, and agrees that no matter that is disclosed on Schedule 4.11 shall serve as a basis for any claim that Seller has breached any warranty or representation under this Agreement.

4.12          Tax Matters.

(a)               All Tax Returns required to be filed by or with respect to the Seller or the Business have been filed or an extension to file has been timely filed. All such Tax Returns were true and correct in all material respects. All Taxes due and owing by the Seller (whether or not shown on any Tax Return) have been paid or timely contested. The Seller currently is not the beneficiary of any extension of time within which to file any Tax Return required to be filed by or with respect to the Seller or the Business. There are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of the Business.

(b)               There is no material dispute or claim currently pending concerning any Tax liability of the Seller either (i) claimed or raised by any Governmental Authority in writing or (ii) as to which the Seller has Knowledge based upon personal contact with any agent of such Governmental Authority.

(c)               The Seller is not a party to or bound by any Tax allocation or sharing agreement. The Seller (i) has not been a member of an Affiliated Group filing a consolidated federal Income Tax Return (other than a group the common parent of which was Target) and (ii) does not have any liability for the Taxes of any Person (other than Seller) under Reg. §1.1502-6 (or any similar provision of state, local, or foreign Law), as a transferee or successor.

(d)               All Taxes required to be withheld with respect to any payments made by the Seller have been withheld and paid over to the appropriate Governmental Authority or are held in separate accounts for such purpose.

(e)               The Seller is not a foreign person within the meaning of section 1445(f)(3) of the Code.

(f)                None of the Assets: (i) is property required to be treated as owned by another Person pursuant to former Section 168(f)(8) of the Code; (ii) is “tax-exempt use property” within the meaning of Section 168(h) of the Code; or (iii) directly or indirectly secures any debt the interest on which is excludable from gross income under Section 103(a) of the Code.

4.13          Intellectual Property. Disclosure Schedule 4.13 contains a true and correct list of all of the Intellectual Property, including, but not limited to, all trade and corporate names and registered and unregistered product names and trademarks used by the Seller in connection with the Business or the products used during the past three (3) years, all licenses and other rights granted by the Seller to any third party with respect to such Intellectual Property and all such licenses and other rights granted by any third party to the Seller except for licenses covering “off the shelf” or downloadable software that is generally available to the public and has not been materially modified or customized. Except as set forth on Disclosure Schedule 4.13, (a) the Seller owns and possesses all right, title and interest in and to, or has a valid license to, all of the Intellectual Property necessary for the operation of the Business as presently conducted and none of such Intellectual Property has been abandoned; (b) no claim by any third party contesting the validity, enforceability, use or ownership of any such Intellectual Property has been made against the Seller, is currently outstanding or, to the Knowledge of the Seller, is credibly threatened in writing, and to the Knowledge of the Seller, there is no reasonable basis for any such claim; (c) none of the Seller or any registered agent thereof has received any written notices of an allegation of any infringement or misappropriation by, or other conflict with, any third party with respect to such Intellectual Property, nor has any such Person received any claims of infringement or misappropriation of or other conflict with any Intellectual Property of any third party; (d) to the Knowledge of the Seller, the Seller has not infringed, misappropriated or otherwise violated in any material respect any Intellectual Property of any third party, nor to the Knowledge of the Seller will any infringement, misappropriation or other conflict with respect to the Intellectual Property occur as a result of the transactions described herein; and (e) to the Knowledge of the Seller, no other Person is infringing, misappropriating or otherwise violating, or has infringed, misappropriated or otherwise violated, such Intellectual Property.

4.14          Leases of Personal Property. For the purposes of this Agreement, “Personal Property Leases” means any lease, conditional or installment sale contract, Lien or similar arrangement to which any tangible personal property used by the Seller in connection with the operation of the Business is subject. Except as set forth on Disclosure Schedule 4.14, none of the tangible personal property used by the Seller in connection with the operation of the Business is subject to a Personal Property Lease. The Seller has delivered or made available to the Buyer a true and correct copy of each Personal Property Lease listed on Disclosure Schedule 4.14. All of such Personal Property Leases are valid, binding and enforceable against the Seller in all material respects in accordance with their respective terms and are in full force and effect in accordance with their terms, except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other Laws of general application relating to or affecting the enforcement of creditors’ rights generally, or (ii) Laws relating to the availability of specific performance, injunctive relief or other equitable remedies. The Seller is not in material default under any of such Personal Property Leases and there has not been asserted in writing, either by or against the Seller under any of such Personal Property Leases, any written notice of default, set-off or claim of default. To the Knowledge of the Seller, the parties to such Personal Property Leases other than the Seller are not in default of their respective obligations under any of such Personal Property Leases. To the Knowledge of the Seller, there has not occurred any event which, with the passage of time or giving of notice (or both), would constitute such a default or breach under any of such Personal Property Leases by any party thereto. Each Personal Property Lease is separately designated on Disclosure Schedule 4.14, as either a Personal Property Lease that the Seller has agreed to assign and that the Buyer has agreed to assume (each, an “Assigned Personal Property Lease”) or as a Personal Property Lease that shall be paid off by the Seller prior to Closing at its own expense or paid off at Closing with a portion of the Purchase Price (each, a “Terminated Personal Property Lease”).

4.15          Real Property. The Seller does not own any Real Property. Disclosure Schedule 4.15 sets forth a true and correct description of all Leased Real Property used in connection with the Business (the “Real Property”). The Seller has the right to use the Real Property which it leases from third parties to conduct the Business as currently conducted. The possession of the Real Property by the Seller has not been disturbed and the Seller has not received in writing any claim adverse to the Seller’s rights in such Real Property. To the Knowledge of the Seller, all improvements, fixtures and all structures on the Real Property installed by the Seller and the current uses of the Real Property conform in all material respects to all applicable federal, state and local laws, building, health and safety and other ordinances, laws, rules and regulations. To the Knowledge of the Seller, applicable zoning laws permit the presently existing improvements and the conduct and continuation of the Business as being conducted on the Real Property.

4.16          Tangible Assets. To the Knowledge of the Seller, the buildings, machinery, equipment, and other tangible assets owned or leased by the Seller and to the extent included in the Assets, considered as a whole and not on an asset by asset basis, are free from material defects (patent and latent), have been maintained in accordance with normal industry practice, and are in good operating condition and repair (subject to normal wear and tear).

4.17          Contracts.

(a)               Disclosure Schedule 4.17 lists each Contract that the Seller has agreed to assign and that the Buyer has agreed to assume in connection with the transactions contemplated herein (each, an “Assigned Contract”) and provides with respect to each Assigned Contract (i) the names of the contracting parties, (ii) the effective date, and (iii) the name of the Contract. The Seller has made available to the Buyer a true and correct copy of each written agreement listed in Disclosure Schedule 4.17 (as amended to date) and a written summary setting forth the material terms and conditions of each oral agreement referred to in Disclosure Schedule 4.17. With respect to each Assigned Contract: (A) the agreement is legal, valid, binding, enforceable, against the Seller and in full force and effect in accordance with their terms in all material respects; (B) the Seller is not, and to the Knowledge of the Seller, no other Party is, in material breach or default, and to the Knowledge of the Seller no event has occurred that with notice or lapse of time would constitute a material breach or default, or permit termination, modification, or acceleration, under the agreement; and, (C) to the Knowledge of the Seller, no other Party has repudiated any material provision of the agreement. Each of the Assigned Contracts listed in Disclosure Schedule 4.17 may be assigned to Buyer hereunder without any change or modification after the consummation of the transactions described in this Agreement, without obtaining any consent, approval, novation or waiver of any third party, other than the consents, approvals, novations and waivers set forth on Disclosure Schedule 4.17.

(b)               Schedule 4.17 lists each contract, other than the Assigned Contracts, to which Seller is a party pursuant to which Seller has any material obligation or liability (“Other Contracts”). Buyer will have no liability under any of the Other Contracts.

4.18          Accounts Receivable. All Accounts Receivable of the Seller included as part of Working Capital are reflected properly on the Seller’s books and records, are valid receivables for services or items rendered, subject to the reserve, if any, for bad debts set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practice of the Business. As of the date of this Agreement, except as set forth on Disclosure Schedule 4.18, the Seller has not received any written notice of any unresolved demand for recoupment, overpayment, set-off, penalty, or fine arising in connection with Audits or reviews conducted by Medicare, Medicaid, Workers’ Compensation/SAIF, government contractor or any other Payment Program and, the Seller does not have any Knowledge that there is any basis for any such recoupment, overpayment, set-off, penalty or fine. Since December 31, 2017, the Seller has not changed any principle or practice with respect to the recordation of Accounts Receivable or the calculation of reserves therefor, or any material collection, discount or write-off policy or procedure, except as may have been required by changes in GAAP.

4.19          Powers of Attorney. There are no outstanding powers of attorney executed on behalf of the Seller relating to the conduct of the Business or the ownership of the Assets.

4.20          Insurance. Disclosure Schedule 4.20 sets forth the following information with respect to each material insurance policy (including policies providing property, casualty, liability, and workers’ compensation coverage and bond and surety arrangements), to the extent being assigned to the Buyer at the Closing, with respect to which either the Seller is a party, a named insured, or otherwise the beneficiary of coverage:

(a)               the name, address, and telephone number of the agent;

(b)               the name of the insurer, the name of the policyholder, and the name of each covered insured;

(c)               the policy number and the period of coverage;

(d)               the scope (including an indication of whether the coverage is on a “claims made”, occurrence, or other basis) and amount (including a description of how deductibles and ceilings are calculated and operate) of coverage; and

(e)               a description of any retroactive premium adjustments or other material loss-sharing arrangements.

With respect to each such insurance policy: (A) to the Knowledge of the Seller the policy is legal, valid, binding enforceable, and in full force and effect in accordance with their terms in all material respects; (B) neither the Seller nor, to the Knowledge of the Seller, any other party to the policy is in material breach or default (including with respect to the payment of premiums or the giving of notices), and to the Knowledge of the Seller no event has occurred that, with notice or the lapse of time, would constitute such a material breach or default, or permit termination, modification or acceleration, under the policy; and (C) to the Knowledge of the Seller no party to the policy has repudiated any material provision thereof. Disclosure Schedule 4.20 describes any material self-insurance arrangements affecting the Seller.

4.21          Legal Proceedings. Except as disclosed in Schedule 4.21, there is no Action pending or, to the Knowledge of the Seller credibly threatened in writing, against the Seller or any of Seller’s officers or directors (in their capacities as such), and the Seller has not received any written claim, complaint, incident, report, audit, review, threat or written notice of any such Action. Disclosure Schedule 4.21 also sets forth any Actions relating to the Business or the Assets against the Seller and its officers or directors (in their capacities as such) that have been concluded or settled since December 31, 2017. The Seller has heretofore made available to the Buyer a list setting forth generally a description of all pending settlements regarding such actual or credibly threatened in writing Actions binding on the Seller and relating to the Business or the Assets. There are no outstanding Orders against, involving or affecting the Business or the Assets.

4.22          Licenses and Permits. Disclosure Schedule 4.22 contains a true and correct list of all Permits which are necessary for the ownership or operation of the Business, or that have been issued, granted or otherwise made available to the Seller (the “Business Licenses”), other than Permits the failure to have obtained do not have a Material Adverse Effect. Each Business License is valid and in full force and effect in accordance with its terms, no Business License is subject to any Lien, limitation, restriction, probation or other qualification other than under applicable Law or the terms of the Business License, and the Seller has not received any written notice of default under any Business License or, to the Knowledge of the Seller, any basis for the assertion of any default thereunder. Disclosure Schedule 4.22 specifies the holder of each Business License. The Seller has not received written notice of any Action, and there is no Action pending or, to the Knowledge of the Seller, credibly threatened in writing that would reasonably be expected to result in the termination, revocation, limitation, suspension, restriction or impairment of any Business License the effect of which would have a Material Adverse Effect or the imposition of any material fine, penalty or other sanctions for violation of any legal or regulatory requirements relating to any Business License nor, to the Knowledge of the Seller, is there any basis therefor. To the Knowledge of the Seller, the Seller has, and has had at all relevant times, all Permits that are or were necessary in order to enable the Seller to own, operate and conduct the Business. None of the Business Licenses will be adversely affected by the consummation of the transactions described herein, but the Seller makes no representation or warranty regarding the transferability of any Business License. To the Knowledge of the Seller, all employees, agents and contractors performing services on behalf of the Seller in connection with the Business have all licenses, registrations and accreditations (the “Professional Licenses”) required in to order to perform such services and the licenses, registrations and accreditations of which the Seller has Knowledge are listed on Disclosure Schedule 4.22 and to the Knowledge of the Seller are valid and in full force and effect in accordance with their terms. The Seller has not received written notice of any Action nor any Action pending or credibly threatened in writing that would reasonably be expected to result in the termination, revocation, limitation, suspension, restriction or impairment of any Professional License or the imposition of any fine, penalty or other sanctions for violation of any legal or regulatory requirements relating to any Professional License the result of which would have a Material Adverse Effect on the Business.

4.23          HIPAA Compliance.

(a)               To the Knowledge of the Seller, the Seller has at all times been in compliance in all material respects with all applicable Laws relating to privacy, security, data protection, and the collection and use of health information and personal data gathered, accessed, collected, or used in the course of the operations of the Seller, including HITECH and HIPAA; and all applicable state and federal Laws regarding the privacy and security of health information and personal data. To the Knowledge of the Seller, the Seller has the necessary agreements with all of the Seller’s “business associates” as such term is defined by and as such agreements are required by HIPAA. No Action has been asserted in writing or, to the Knowledge of the Seller, has been credibly threatened in writing or commenced against the Seller alleging non-compliance in any material respect with HIPAA, a data security violation, or a violation of any Person’s privacy, personal information, or data rights. To the Knowledge of the Seller, the Seller has at all times complied in all material respects with all rules, policies, and procedures established by the Seller from time to time and as applicable with respect to privacy, security, data protection, or the collection and use of health information or personal data gathered or accessed in the course of the operations of the Seller. No Actions have been asserted in writing or, to the Knowledge of the Seller, credibly threatened in writing against the Seller by any Person alleging a violation of such Person’s privacy, personal, or confidentiality rights under any such rules, policies, or procedures. The Seller is in compliance in all material respects with the terms of all business associate and business associate subcontractor agreements to which it is a party.

(b)               With respect to all health information and personal data described in Section (a), to the Knowledge of the Seller, the Seller has taken all material steps reasonably intended (including implementing and monitoring compliance with adequate measures with respect to technical and physical security) to protect such information against loss and against unauthorized access, use, modification, disclosure, or other misuse. To the Knowledge of the Seller, there has been no unauthorized access to or other misuse of such information which would reasonably be expected to adversely impact the Business. To the Knowledge of the Seller, the Seller maintains systems, policies and procedures reasonably intended to respond to complaints received alleging violation of applicable privacy or security standards and to identify and report all Breaches of Unsecured Protected Health Information as defined by HIPAA, all material respects in accordance with Seller’s legal and contractual obligations. To the Knowledge of the Seller, all breaches of Unsecured Protected Health Information have been documented and reported to affected individuals and to federal and state authorities in compliance in all material respects with applicable Law.

4.24          Employees.

(a)               The Seller is not a party to or bound by any collective bargaining agreement, nor has the Seller experienced any strike or labor grievance, claim of unfair labor practices, or other collective bargaining dispute within the three (3) years preceding the Closing Date. To the Knowledge of the Seller, the Seller has not committed any material unfair labor practice. To the Knowledge of the Seller, no organizational effort is presently being made by any Transferring Employees or any union or labor organization to represent all or any portion of the Transferring Employees, and, the Seller does not have any Knowledge of any such organizational effort being credibly threatened in writing.

(b)               With respect to this transaction, any notice required under any Law or collective bargaining agreement has been given, and all bargaining obligations with any employee representative have been, or prior to the Closing Date will be, satisfied.

(c)               Within the past three (3) years, the Seller has not implemented any “plant closing” or “mass layoff” (as those terms are defined in WARN or a similar foreign, state or local Law) that would implicate WARN or any similar foreign, state, or local Law and no such action will be implemented without advance notification to the Buyer.

(d)               To the Knowledge of the Seller, the Seller has complied in all material respects with all applicable Laws relating to the employment and employment practices relating to the Transferring Employees, including provisions thereof relating to income and payroll Taxes, wages, work hours, overtime, minimum wage, worker and employee classification, occupational safety and health, equal opportunity, discrimination, harassment, immigration, occupational safety and health and collective bargaining. To the Knowledge of the Seller, each Transferring Employee who is classified by the Seller as an “employee” or as an “independent contractor” is correctly classified under applicable Law and each Transferring Employee is correctly classified as an “exempt” or “non-exempt” employee under applicable Law.

(e)               Except as set forth on Disclosure Schedule 4.24, there are no administrative charges or complaints pending or, to the Knowledge of the Seller, credibly threatened in writing by any current or former employee or independent contractor of the Seller in connection with the Business or the Assets concerning employment and employment practices before any federal or state court, the U.S. Equal Employment Opportunity Commission, the U.S. Department of Labor, the Internal Revenue Service, any similar state or local agency or any arbitral authority.

(f)                The Seller has maintained all employee files relating to the Transferring Employees in a true and correct manner, and to the Knowledge of the Seller such files contain all materials that the Seller is required by Law to maintain. To the Knowledge of the Seller, the Seller has obtained and retained I-9 forms for all Transferring Employees. To the Knowledge of the Seller, all of the Transferring Employees are lawfully authorized to work in the United States.

(g)               Set forth on Schedule 2.4 is a list of the names of the employees and consultants of the Business as of the date hereof, together with the title or job classification of each such person and the total compensation (with wages and bonuses, if any, separately detailed) paid in 2018 (if applicable), the current rate of pay for each such person on the date of this Agreement and the date of any increase to such person’s rate of pay within the last twelve months. Except as set forth on Schedule 2.4, the employment or services of all of the Transferring Employees listed on Schedule 2.4 are employed or provide services “at will” and, except as set forth on Schedule 2.4, none of the Transferring Employees has an employment agreement or understanding, whether oral or written, with the Seller which is not terminable on notice by the Seller without cost or other liability to the Seller other than costs or restrictions imposed by applicable Law. Except as set forth on Schedule 2.4, no Transferring Employee listed thereon has received any bonus or increase in compensation in the past twelve (12) months and, other than as set forth on Schedule 2.4, there has been no “general increase” in the compensation or rate of compensation payable to any Transferring Employees of the Seller in the past twelve (12) months. In the past twelve (12) months there has been no promise to any Transferring Employee of the Seller orally or in writing of any bonus or increase in compensation, except for increases in the Ordinary Course of Business consistent with the past compensation practices of the Seller and obligations incurred under existing Employee Benefit Plans. As of the Closing, the Seller will not have any accrued but unpaid bonuses to any Transferring Employees that will not be paid or provided for by the Seller in connection with the Closing.

(h)               In the 12-month period immediately preceding the Closing Date, to the Knowledge of the Seller, the Seller has had reasonably adequate levels of employee staffing to conduct the Business as currently conducted in accordance with the Seller’s historical staffing patterns and practices.

(i)                 Other than pharmacists, pharmacy technicians and certain categories of laboratory employees listed on Disclosure Schedule 4.24, Seller has no employees whose duties require any Permit related to health care.

4.25          Employee Benefits.

(a)               Disclosure Schedule 4.25 lists each and every Employee Benefit Plan currently maintained and offered by the Seller that is being assigned to the Buyer at the Closing. The Seller has delivered or made available to the Buyer true and correct copies (or in the case of an unwritten Employee Benefit Plan, a written description) of all Employee Benefit Plans currently offered and maintained by the Seller, along with, to the extent applicable to each such Employee Benefit Plan: (i) the most recent summary plan description and all summaries of material modifications related to it; (ii) all contracts and agreements relating to the administration or funding of each such Employee Benefit Plan, including without limitation, all trust agreements, third party administrator agreements, service provider agreements and insurance contracts; (iii) COBRA forms and related notices used by the Seller; (iv) for the prior three plan years, Form 5500; (v) the most recent determination or opinion letter, if any, issued by the Internal Revenue Service; (vi) the most recent nondiscrimination tests performed under the Code (including 401(k) and 401(m) tests), if any; and (vii) for the three years prior to the Closing Date, all written correspondence to from any Governmental Authority (other than routine correspondence in the Ordinary Course of Business).

(b)               Each such Employee Benefit Plan that is being assigned to the Buyer at the Closing (and each related trust, insurance contract, or fund) to the Knowledge of the Seller has been maintained, funded and administered in all material respects in accordance with the terms of such Employee Benefit Plan and complies in form and in operation in all material respects with the applicable requirements of ERISA, the Code, and other applicable Laws.

(c)               To the Knowledge of the Seller, all required reports and descriptions (including Form 5500 annual reports, summary annual reports, and summary plan descriptions) have been timely filed and/or distributed in accordance in all material respects in compliance with the applicable requirements of ERISA and the Code with respect to each such Employee Benefit Plan currently offered and maintained by the Seller. To the Knowledge of the Seller, the requirements of COBRA have been met in all material respects with respect to each such Employee Benefit Plan.

(d)               To the Knowledge of the Seller, all contributions (including all employer contributions and employee salary reduction contributions) that are due have been made within the time periods prescribed by ERISA and the Code to each such Employee Benefit Plan that is an Employee Pension Benefit Plan and that is being assigned to the Buyer and all contributions for any period ending on or before the Closing Date that are not yet due have been made to each such Employee Pension Benefit Plan or accrued in accordance with the past custom and practice of the Business. All premiums or other payments for all periods ending on or before the Closing Date have been paid with respect to each such Employee Benefit Plan that is an Employee Welfare Benefit Plan and that is being assigned to the Buyer.

(e)               To the Knowledge of the Seller, each such Employee Benefit Plan that is being assigned to the Buyer and that is intended to meet the requirements of a “qualified plan” under Code §401(a) has received a determination from the Internal Revenue Service that such Employee Benefit Plan is so qualified, and no facts or circumstances exist that would adversely affect the qualified status of any such Employee Benefit Plan.

(f)                To the Knowledge of the Seller, there have been no Prohibited Transactions with respect to any Employee Benefit Plan currently maintained or offered by the Seller or any ERISA Affiliate under Section 4975 of the Code or Section 502(i) of ERISA. To the Knowledge of the Seller, no Fiduciary has any liability for material breach of fiduciary duty or any other material failure to act or comply in connection with the administration or investment of the assets of any such Employee Benefit Plan. No Action with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or, to the Knowledge of the Seller, credibly threatened in writing.

(g)               Neither the Seller nor any ERISA Affiliate has ever maintained, established, sponsored, participated in or contributed to, or is obligated to contribute to, or otherwise incurred any Liabilities under, any (i) “multiemployer plan” within the meaning of Section 3(37) of ERISA, (ii) an Employee Benefit Plan that is subject to Section 302 of ERISA, Title IV of ERISA or Section 412 of the Code, (iii) “multiple employer plan” within the meaning of Section 413(c) of the Code, (iv) “multiple employer welfare arrangement” within the meaning of Section 3(40) of ERISA, or (v) Employee Benefit Plan that provides post-employment or retiree life insurance, health benefits or other welfare benefits to any person after such person’s termination of service with the Seller, except as may be required by applicable Law.

(h)               The Seller does not sponsor, maintain or contribute to, or have any Liabilities under, any Employee Benefit Plans outside of the United States.

(i)                 To the Knowledge of the Seller, the Seller is not currently liable for any payment to any trust or other fund or to any Governmental Authority with respect to unemployment compensation benefits, social security, disability benefits, workers’ compensation or other benefits or obligations for current or former employees (other than routine payments to be made in the normal course of business, consistent with the Seller’s Ordinary Course of Business).

(j)                 Neither the execution and delivery of this Agreement nor the consummation of the transactions described in this Agreement will: (i) entitle any Transferring Employee to severance pay or any other payment (including forgiven debt) from the Seller, the Buyer or any Employee Benefit Plan currently offered or maintained by the Seller; (ii) result in a benefit payable to any person that would constitute an “excess parachute payment” (as defined in Section 280G(b)(1) of the Code); (iii) result in any benefit or right becoming established or increased, or accelerate the time of payment or vesting of any benefit, under any such Employee Benefit Plan, including without limitation any gross up payment with respect to liability for excise taxes under Sections 409A or 4999 of the Code; or (iv) require the Seller or the Buyer to transfer or set aside any assets to fund or otherwise provide any benefits for any Transferring Employee.

4.26          Guaranties. The Seller is not a guarantor or otherwise is responsible for any liability or obligation (including indebtedness) of any other Person, in each case to the extent that such liability would adversely impact the Business or the Assets.

4.27          Environmental, Health, and Safety Matters.

(a)               Each of the Seller and its predecessors and Subsidiaries has complied and are in compliance, in each case in all material respects, with all Environmental, Health, and Safety Requirements applicable to the Business.

(b)               Without limiting the generality of the foregoing, each of the Seller and its Subsidiaries has obtained, has complied, and is in compliance with, in each case in all material respects, all material Permits, licenses and other authorizations that are required pursuant to Environmental, Health, and Safety Requirements for the occupation of the facilities included in the Assets and the operation of the Business; and a list of all such material Permits, licenses and other authorizations is set forth on Disclosure Schedule 4.27.

(c)               None of the Seller nor its Subsidiaries has received any written notice, report or other information regarding any actual or alleged material violation of Environmental, Health, and Safety Requirements, or any material liabilities or potential material liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), including any material investigatory, remedial or corrective obligations, relating to any of the facilities included in the Assets arising under Environmental, Health, and Safety Requirements.

(d)               Except as set forth on Disclosure Schedule 4.27, none of the following exists at any property or facility operated by the Seller that is included in the Assets: (1) underground storage tanks, (2) asbestos-containing material in any friable and damaged form or condition, (3) materials or equipment containing polychlorinated biphenyls, or (4) landfills, surface impoundments, or disposal areas, in case other than in material compliance with applicable Law.

(e)               In connection with its conduct of the Business, none of the Seller, nor, to the Knowledge of the Seller, any of its predecessors or Subsidiaries has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, manufactured, distributed, or released any substance, including without limitation any hazardous substance, or owned or operated any property or facility (and no such property or facility is contaminated by any such substance) other than in material compliance with applicable Laws, including any material liability for fines, penalties, response costs, corrective action costs, personal injury, property damage, natural resources damages or attorneys’ fees, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”) or the Solid Waste Disposal Act, as amended or any other Environmental, Health, and Safety Requirements.

(f)                To the Knowledge of the Seller, neither this Agreement nor the consummation of the transactions that are the subject of this Agreement will result in any material obligations for site investigation or cleanup, or notification to or consent of government agencies or third parties, pursuant to any of the so-called “transaction-triggered” or “responsible property transfer” Environmental, Health, and Safety Requirements.

(g)               None of the Seller nor, to the Knowledge of the Seller, its predecessors or Subsidiaries has designed, manufactured, sold, marketed, installed, or distributed products or other items containing asbestos at any facility included in the Assets, and none of such entities is or will become subject to any Asbestos Liabilities, in case other than in material compliance with applicable Law.

(h)               The Seller has furnished or made available to the Buyer all environmental audits, reports and other material environmental documents in the possession or under the reasonable control of Seller that relate to any facility included in the Assets.

4.28          Business Continuity. The Seller has not experienced bugs, failures, breakdowns, or continued substandard performance in the past twelve (12) months that has caused any substantial and material disruption or interruption in or to the use of any of the computer software, computer hardware (whether general or special purpose), telecommunications capabilities (including all voice, data and video networks) and other similar or related items of automated, computerized, and/or software systems and any other networks or systems and related services that are included in the Assets (collectively, the “Systems”). The Seller has not received written notice of failure to have secured, and to the Knowledge of the Seller, the Seller has obtained and possesses valid licenses (including a sufficient number of licenses) to use all of the software programs presently on the computers and other software-enabled electronic devices that it owns or leases or that it has otherwise provided to any of the Transferring Employees for their use in connection with the Business, and the Seller is using the most recent versions of such software programs that are reasonably suitable for operation of the Business.

4.29          Certain Business Relationships. None of the Seller and its Subsidiaries and their members, as the case may be, has been involved in any material business arrangement or relationship with the Seller within the past 12 months other than as reflected in the Financial Statements, and the Assets do not include any material asset, tangible or intangible, that is used in the business of any other such party that has had a material business arrangement or relationship with the Seller within the past 12 months.

4.30          Solvency and Value of Transfer. There is no bankruptcy or insolvency proceeding of any character including without limitation, bankruptcy, receivership, reorganization, dissolution or arrangement with creditors voluntary or involuntary, by or, to the Knowledge of the Seller, against the Seller, and the Seller has not taken any action to institute any such proceedings. The Seller is not insolvent under any bankruptcy, receivership, or insolvency law. The Seller’s sale of the Assets has not been undertaken with the intention to hinder, delay or defraud the Seller’s current or future creditors.

except as specifically set forth in this article iv or in any certificates or other documents delivered at the closing, the buyer acknowledges and agrees that the contemplated transactions shall be without representation or warranty, express or implied.

without limiting the generality of the foregoing, except as so specifically set forth, the seller has not made, and the seller shall not be deemed to have made, any representation or warranty in any other verbal or written communication or written document relating to the assets or the business, including but not limited to, any offering memorandum, information memorandum or similar document, whether prepared or transmitted by the seller or any representative of the seller (such other verbal or written communications or written documents are referred to collectively as the “communications”).

no cost estimate, projections or other predictions, data or other statement contained in any communications shall be deemed to be a representation or warranty hereunder or otherwise.

no person has been authorized by the seller to make any representation or warranty (other than those contained in this section) relating to the seller, the assets or the business, or otherwise in connection with the contemplated transactions herein, and, if made, such representation or warranty must not be relied upon as having been authorized by the seller.

in particular, and without limiting in any way the generality of the foregoing, buyer expressly acknowledges that, except as expressly set forth herein, the assets are sold on an “as-is,” “where-is” basis with all defects, and no representation or warranty is made by the seller with respect to (i) the condition, fitness for a particular purpose, merchantability, suitability, functionality or lack of defects of the assets, (ii) post-closing matters, including future or forecasted costs, revenues or profits that may be generated from the business or (iii) markets, customers or suppliers.

notwithstanding any other provision of this agreement, in no event will a party’s and its affiliates’ cumulative liability of any kind for any one or more matters arising from or related to this agreement exceed the sum of three million dollars in the aggregate (the “Cap”). With respect to Seller’s and Seller’s Affiliates’ liability, the Cap shall include consideration of the three million dollars set aside in the Escrowed Purchase Price described in section 3.1(b) of this Agreement, and without regard for the prior use of such Escrowed Purchase Price funds. This limitation of liability shall survive notwithstanding the failure of any essential purpose of this Agreement. This limitation of liability shall not apply in the event and to the extent of a Party’s Losses arising from (i) any fraud by the other party, (ii) breach of the Seller’s representations and warranties contained in Sections 4.1 (Organization, Qualification, and Power), 4.2 (Authorization of the Transaction), 4.6 (Title to Assets, last sentence only) and 4.12 (Tax Matters) hereof, (iii) breach of the Buyer’s representations and warranties contained in Sections 5.1 (Organization of the Buyer) and 5.2 (Authorization of the Transaction) hereof, (iv) contractual payment obligations related to the Excluded Liabilities, (v) the Buyer’s obligation to pay the Purchase Price, (vi) any adjustments to the Purchase Price or other payments under Section 3.2, (vii) any claim relating to a breach of the Non-Competition Agreements, AND (VII) BREACH OF THE SELLER’S COVENANTS IN SECTION 3.2(A)(II) OR SECTION 7.6 OF THIS AGREEMENT.

ARTICLE V

BUYER’S REPRESENTATIONS AND WARRANTIES

The Buyer represents and warrants to the Seller that the statements contained in this Article V are true and correct as of the date of this Agreement and will be true and correct as of the Second Closing Date (as though made then and as though the Second Closing Date were substituted for the date of this Agreement throughout this Article V), except as set forth in the Disclosure Schedule delivered by the Buyer to the Seller on the date hereof (the “Buyer Disclosure Schedule”). The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Article V and shall apply solely to the specific representation or warrant to which such lettered or numbered paragraphs of the Disclosure Schedule applies, except as explicitly set forth therein (i.e., explicit cross-references).

5.1              Organization of the Buyer. The Buyer is duly organized, validly existing, and in good standing under the Laws of the jurisdiction of its formation or incorporation.

5.2              Authorization of Transaction. The Buyer has full power and authority (including full corporate or other entity power and authority, as applicable) to execute and deliver this Agreement, each of the Transaction Documents to which the Buyer is a party and to perform its obligations hereunder and thereunder. The Buyer has full power and authority to carry on the Business on and after the Closing Date. Disclosure Schedule 3.1 lists the directors and officers of the Buyer. The Buyer has delivered or made available to counsel to the Seller true and correct copies of the Organizational Documents of the Buyer. This Agreement and each Transaction Document to which the Buyer is a party constitutes the valid and legally binding obligation of the Buyer, enforceable in accordance with its terms and conditions. The Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Authority in order to execute and deliver this Agreement and the Transaction Documents or for Buyer to consummate the transactions described in this Agreement. The execution, delivery and performance of this Agreement and the Transaction Documents and all other agreements described herein have been duly authorized by the Buyer.

5.3              Non-contravention. Neither the execution and delivery of this Agreement and the Transaction Documents, nor the consummation of the transactions described herein, will (a) violate any Law constitution, injunction, Order, ruling, charge, or other restriction of any Governmental Authority to which the Buyer is subject or any provision of the Buyer’s organizational documents, if applicable, or (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Buyer is a party or by which it is bound or to which any of its assets are subject. The Buyer does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Authority in order to execute and delivery this Agreement and the Transaction Documents or for the Parties to consummate the transactions described in this Agreement and the Transaction Documents, except where the failure to give notice, to file, or to obtain any authorization, consent, or approval would not have a Material Adverse Effect.

5.4              Brokers’ Fees. The Buyer has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions described in this Agreement save and except for the payment of Business Combination and debt financing advisory fees to Brooks, Houghton & Company, Inc.

5.5              Litigation. There is no pending or threatened Action against the Buyer or any Affiliate of the Buyer that could materially interfere with the Buyer’s ability to perform its obligations under this Agreement.

5.6              Due Diligence. The Buyer acknowledges and agrees that, prior to executing this Agreement, the Seller has afforded to the Buyer free and full access to the books, records and facilities of the Seller, that the Buyer has had ample opportunity to conduct such due diligence investigation and that the Buyer has made such investigations and conducted such due diligence of the Business and the Assets as the Buyer deems necessary or appropriate.

5.7              Extent of the Seller’s Representations. The Buyer acknowledges that the Seller has made no representations and/or warranties (a) regarding the continued profitability of the Business following the Closing or (b) except as expressly set forth in this Agreement, with respect to the condition or character of the Assets or the use or uses to which the Assets may be put. Except as expressly provided herein, the Assets are hereby sold in “AS IS, WHERE IS” condition and the Seller hereby disclaims any and all warranties as to the condition of the Assets. The Buyer has not relied upon the accuracy or completeness of any express or implied representation, statement or information of any nature made or provided by or on behalf of the Seller or the Business, except for the representations and warranties expressly set forth in Article IV of this Agreement or in any of the other Transaction Documents.

5.8              Undertakings to Close Hereunder. The Buyer shall use its best efforts to perform and fulfill all conditions and obligations on its part to be performed and fulfilled under this Agreement.

ARTICLE VI

PRE-CLOSING COVENANTS

The Parties agree as follows with respect to the period between the Execution Date and the earlier of (i) the consummation of the Second Closing or (ii) the termination of the obligations of the Parties to consummate the Second Closing:

6.1              Conduct of the Seller’s Business Pending Closing. The Seller agrees that, except as indicated on Schedule 6.1, unless the Buyer shall consent in writing, (a) the Business shall be conducted only in, and the Seller shall not take any action except in, the Ordinary Course of Business, (b) the Seller shall use commercially reasonable efforts to keep available the services of the Transferring Employees and to preserve the current relationships of the Business with such of the patients, suppliers, payors, facilities and other persons with which the Seller has significant business relations in order to preserve substantially intact the Business, and (c) the Seller shall preserve intact the Assets and (d) the Seller will use commercially reasonable efforts to preserve its existing Permits, franchises, rights and privileges pertinent to the Business. By way of amplification and not limitation, between the Execution Date and the Closing Date, the Seller shall not, and shall neither cause nor permit any of Seller’s Affiliates, officers, directors, employees and agents to, directly or indirectly, do, or agree to do, any of the following with respect to the Business or the Assets (except as indicated on Schedule 6.1), without the prior written consent of the Buyer, which consent shall not be unreasonably withheld, delayed or conditioned:

(a)             Sell, pledge, dispose of, grant, transfer, lease, license, guarantee, encumber, or authorize the sale, pledge, disposition, grant, transfer, lease, license, guarantee or encumbrance of the Business, or any of the Assets except in the Ordinary Course of Business and in a manner reasonably consistent with past practice; provided that the aggregate amount of any such sale or disposition (other than a sale or disposition of products or other inventory in the Ordinary Course of Business consistent with past practice, as to which there shall be no restriction on the aggregate amount);

(b)            Acquire (including, without limitation, by merger, consolidation or acquisition of stock or assets) for or in connection with the Business any interest in any corporation, partnership, other business organization, person or any division thereof or any assets, other than (i) acquisitions of any assets in the Ordinary Course of Business and in a manner reasonably consistent with past practice, as to which there shall be no restriction on the aggregate amount, or (ii) purchases of Inventory for resale (whether for cash or pursuant to an exchange) except in the Ordinary Course of Business and in a manner reasonably consistent with past practice;

(c)             Incur any Indebtedness or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any Person for borrowed money in the aggregate in excess of $10,000;

(d)            Enter into, amend, terminate, cancel or affirmatively make any material change in any Assigned Contract;

(e)             Make or authorize any capital expenditure, dividends or distributions except in the Ordinary Course of Business and in a manner reasonably consistent with past practice, such as S corporation tax distributions;

(f)              Increase the compensation payable or to become payable to any Seller Employee by more than Five Thousand Dollars ($5,000) or grant any rights to severance or termination pay to, or enter into any employment or severance agreement with, any Seller Employee, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any Seller Employee other than in accordance with a written agreement or Employee Benefit Plan;

(g)            Modify any material accounting policies, procedures or methods in any material respect;

(h)            Enter into any agreements limiting in any material respect the conduct of Seller’s Business the result of which would be a Material Adverse Effect;

(i)              Take any action that would result in the representations and warranties set forth in Article IV becoming false or inaccurate;

(j)              Take any action or fail to take any action that would result in a Material Adverse Effect; or

(k)            Permit or cause any of the Seller’s Affiliates to do any of the foregoing or agree or commit to do any of the foregoing.

6.2              Notice by Seller of Certain Events. The Seller shall give prompt written notice to the Buyer upon the Seller’s Knowledge of (a) any written notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the consummation of the transactions described in this Agreement; (b) any written notice or other communication from any Governmental Authority in connection with the transactions described in this Agreement; (c) any Actions commenced or, to the Seller’s Knowledge, credibly threatened in writing against, relating to or involving or otherwise affecting the Seller, the Business or the Assets or the transactions described in this Agreement; (d) the occurrence of a breach or default or event that, with notice or lapse of time or both, would become a breach or default under this Agreement or any Contract or Personal Property Lease; and (e) any Material Adverse Effect or change, event or circumstance which is likely to delay or impede the ability of the Seller to consummate the transactions described in this Agreement or to fulfill its obligations set forth herein.

6.3              General. Each of the Parties will use its or his reasonable best efforts to take all action and to do all things necessary in order to consummate and make effective the transactions described in this Agreement including, without limitation, satisfaction, but not waiver, of the Closing conditions set forth in Articles VIII and IX below.

6.4              Notices and Consents. The Seller will give any notices to third parties and use its commercially reasonable best efforts to obtain the items set forth in Disclosure Schedule 6.4. Each of the Parties will give any notices to, make any filings with, and use its or his commercially reasonable best efforts to obtain any authorizations, consents, and approvals of Governmental Authorities in connection with the matters referred to in Section 4.3 and Section 5.3 above.

6.5              Notice of Inaccuracy of Representations or Warranties. If the Buyer or the Seller shall obtain Knowledge prior to the Second Closing of an inaccuracy in or breach of any representation and warranty contained in this Agreement of the other Party, the Party obtaining such Knowledge shall give the other Party written notice of such breach or inaccuracy. If notice is given of an inaccuracy in or breach of any representation or warranty prior to the Second Closing, the Party making the representation or warranty (the “Warranting Party”), is obligated, if requested by the other party (the “Non-Breaching Party”), at the Warranting Party’s expense, to undertake to cure such inaccuracy or breach prior to the Second Closing. If such inaccuracy or breach cannot, despite reasonable efforts, be fully cured prior to the Second Closing, the Non-Breaching Party shall have the option to (a) waive the condition under Article VIII or Article IV, as applicable, and proceed with the Closing or (b) terminate this Agreement. If Non-Breaching Party waives the condition under Article VIII or Article IV, as applicable, and elects to proceed with the Second Closing, the Non-Breaching Party shall not be entitled to claim a breach and the Warranting Party shall have no responsibility to indemnify the Non-Breaching Party with respect to the representation, warranty or covenant waived.

6.6              Access. The Seller will permit representatives of the Buyer (including legal counsel and accountants) to have reasonable access at all reasonable times, upon reasonable advance notice, but in a manner so as not to interfere with the normal business operations of the Seller or the Business, to all premises, properties, personnel, books; records (including Tax records), contracts, and documents of or pertaining to the Assets or the Business. The Seller will not be required to grant access to any attorney-client privileged communications. The Buyer will treat and hold as such any Confidential Information it receives from the Seller in the course of the reviews contemplated by this Section 6.6, will not use any of the Confidential Information except in connection with this Agreement. If the Second Closing does not occur, Buyer will return to Seller all tangible embodiments (and all copies) of the Confidential Information which are in its possession except to the extent that such Confidential Information relates to the First Closing Assets, First Closing Assumed Liabilities or First Closing Transferring Employees.

6.7              Exclusivity. The Seller shall not (a) solicit, initiate, accept, consider, entertain or encourage the submission of proposals or offers from any Person with respect to the acquisition described in this Agreement or any similar transaction wherein such Person would acquire all or any portion of the assets or ownership interests in the Seller, or any merger, consolidation, or business combination, directly or indirectly, with or for the Seller, or all or substantially all of the Business or Assets, or (b) participate in any negotiations regarding, or, except as required by legal process (including pursuant to discovery or agreements existing on the date hereof), furnish to any Person (other than the Buyer) information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any person or entity (other than the Buyer) to do or seek any of the foregoing. The Seller shall refrain from entering into any agreement or consummating any transactions that would interfere with the consummation of the transactions described in this Agreement. The Seller shall promptly notify the Buyer if it receives any written inquiry, proposal or offer described in this Section 6.7 or any verbal inquiry, proposal or offer described in this Section 6.7 that is competitive with the terms of the transactions described in this Agreement, and the Seller shall inform such inquiring person or entity of the existence of this Agreement and make such inquiring Person aware of the Seller’s obligations hereunder. The notification to the Buyer under this Section 6.7 shall include the identity of the Person making such inquiry, offer, or other proposal, the terms thereof, and any other information with respect thereto as the Buyer may reasonably request. The Seller shall not provide any Confidential Information concerning the Business or the Seller’s assets to any third party other than in the Ordinary Course of Business consistent with past practice.

6.8              Maintenance of Real Property. The Seller will use commercially reasonable efforts to shall maintain the Real Property, including all of the improvements in substantially the same condition as existed on the date of this Agreement, ordinary wear and tear excepted, and shall not demolish or remove any of the existing improvements, or erect new improvements on the Real Property or any portion thereof, without the prior written consent of the Buyer.

6.9              Monthly Reports. The Seller shall provide to the Buyer Seller’s internally prepared consolidated financial statements for the months of August and September 2018 as promptly as practicable.

ARTICLE VII

POST-CLOSING COVENANTS

7.1              General. In case at any time after each Closing any further actions are necessary to carry out the purposes of this Agreement, each of the Parties will take such further actions (including the execution and delivery of such further instruments and documents) as any other Party may reasonably request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Article X below). The Seller acknowledges and agrees that from and after each Closing, the Buyer will be entitled to possession of all documents, books, records (including Tax records), agreements, and financial data of any sort relating to the Assets acquired by the Buyer, including without limitation the documents, books, records (including tax records), agreements and financial data of any sort relating to the Assets so acquired, but Buyer agrees to provide the Seller and its professional advisors or representative reasonable access to all such documents, books, records (including tax records), agreements and financial data so transferred to Buyer, and to make copies thereof, to file or pay taxes, to defend or bring an Action, or for any other reasonable purpose.

The Buyer and Seller have used reasonable efforts to identify and disclose all of the Assets, Contracts, Liabilities and other matters for which identification, disclosure, assignment, assumption and bifurcation between First Closing and Second Closing are required and contemplated under this Agreement and the Schedules hereto in response to the representations and warranties contained in this Agreement. Between the First Closing and Second Closing, the Parties shall cooperate to revise these identifications and disclosures as may be reasonably necessary to accomplish the parties’ purposes and intent of this Agreement. Provided that any failure to complete this identification and disclosure process has not had a Material Adverse Effect on Buyer’s rights or responsibilities under this Agreement, such failures shall not be deemed a breach of this Agreement (including a breach of any representation or warranty) if such failures are corrected in accordance with this Section 7.1.

7.2              Litigation Support. In the event and for so long as any Party actively is contesting or defending against any Action, charge, complaint, claim, or demand in connection with (a) any transaction described in this Agreement or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Business, the Parties will cooperate with each other and their respective counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the contest or defense, all at, the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Article X below).

7.3              Transition. The Seller shall use commercially reasonable efforts to refrain from taking take any action that is designed or intended to discourage any lessor, licensor, customer, supplier, or other business associate of the Business from maintaining the same business relationships with the Business after the Closing as it maintained with the Business prior to the Closing.

7.4              Rent Reimbursement. On a monthly basis after the First Closing, the Buyer will reimburse the Seller for the rent expense in respect of the 17^th floor lease at its administrative headquarters through December 31, 2018.

7.5              Montalcino Note. Upon the occurrence of the Second Closing, the Buyer agrees to convert its rights to repayment of the current outstanding advances under the Montalcino Note in the amount of One Million Five Hundred Thousand Dollars ($1,500,000) into a six percent (6%) equity ownership in Apeture Bio, LLC and in accordance with the terms of the Montalcino Note. Buyer agrees that immediately upon such conversion all rights under the Montelcino Note shall cease; Buyer shall have no further right or obligation to advance funds under such Note; and Buyer shall have no right to require Montelcino I to convert any further amounts advanced into equity. If any provision of this Section 7.5 conflicts with the Montalcino Note, the provisions of this Section 7.5 shall control.

7.6              Debt Repayment. To the extent any of the Subsidiaries (other than the Excluded Subsidiaries) have any obligations to BBVA Compass pursuant to a line of credit or term loan, or any other obligations for borrowed money, outstanding on or after the Second Closing, Seller shall use its retained cash and Proceeds of the Purchase Price to satisfy such debts.

ARTICLE VIII

CONDITIONS TO OBLIGATION OF THE BUYER TO SECOND CLOSING

The obligation of the Buyer to consummate the transactions to be performed by it in connection with the Second Closing is subject to satisfaction of the conditions set forth below.

8.1              Representations and Warranties. The representations and warranties set forth in Article IV above shall be true and correct in all material respects at and as of the Second Closing Date, except to the extent that such representations and warranties are qualified by the term “material,” or contain terms such as “Material Adverse Effect” or “Material Adverse Change,” in which case such representations and warranties (as so written, including the term “material” or “Material”) shall be true and correct in all respects at and as of the Second Closing Date;

8.2              Compliance. The Seller shall have performed and complied with all of its covenants hereunder in all material respects through the Second Closing, except to the extent that such covenants are qualified by the term “material,” or contain terms such as “Material Adverse Effect” or “Material Adverse Change,” in which case the Seller shall have performed and complied with all of such covenants (as so written, including the term “material” or “Material”) in all respects through the Second Closing;

8.3              Third Party Consents. The Seller shall have procured all of the respective third-party consents, releases and pay-off letters specified on Schedule 8.3; Seller shall have assigned, or Buyer shall have obtained, the material Permits necessary for Buyer to operate the Business and the Purchased Assets as operated by Seller prior to the Second Closing; it being understood that the consent to assignment of certain Permits will be obtained subsequent to the Second Closing in accordance with industry practice, and that such assignments are subject to all applicable laws and regulations.

8.4              No Action. No Action shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (a) prevent consummation of any of the transactions described in this Agreement, (b) cause any of the transactions described in this Agreement to be rescinded following consummation, or (c) materially and adversely affect the right of the Buyer to own the Assets and to operate the Business (and no such injunction, judgment, Order or charge shall be in effect);

8.5              Seller Certificate. The Seller shall have delivered to the Buyer a certificate to the effect that each of the conditions specified above in Sections 8.1 through 8.4 are satisfied as set forth in such Sections;

8.6              Consents and Approvals. The Parties shall have received all authorizations, consents, licenses and approvals of governments and governmental agencies identified on Schedule 8.6 hereto;

8.7              Other Actions. All actions to be taken by the Seller in connection with consummation of the transactions described herein and all certificates, instruments, and other documents required to effect the transactions described herein will be reasonably satisfactory in form and substance to the Buyer;

8.8              Real Property. No damage or destruction or other change has occurred with respect to any of the Real Property or any portion thereof that, individually or in the aggregate, would materially impair the use or occupancy of the Real Property or the operation of the Business;

8.9              Good Standing. The Seller shall have delivered to the Buyer a copy of the subsistence certificate of the Seller issued on or soon before the Closing Date by the Secretary of State of the State of Texas;

8.10          Secretary Certificate. The Seller shall have delivered to the Buyer a certificate of the secretary or an assistant secretary of the Seller, dated as of the Second Closing Date, in form and substance reasonably satisfactory to the Buyer, as to: (a) the resolutions of the board of managers (or a duly authorized committee thereof) authorizing the execution, delivery, and performance of this Agreement and the transactions described herein; and (b) incumbency and signatures of the officers of the Seller executing this Agreement or any other agreement contemplated by this Agreement;

8.11          Debt Financing. As of the Second Closing Date, the Buyer or an Affiliate of the Buyer shall have arranged to enter into one or more debt financings in the amount of Thirty Million Dollars ($30,000,000) for the consummation of the transactions described in this Agreement and for the operations of the Business by the Buyer under such terms as acceptable to the Buyer, in its sole but reasonable discretion;

8.12          Non-Competition Agreements. As of the First Closing Date, each of the Seller and its managers and members shall have entered into a Non-Competition and Member Release Agreement with the Buyer substantially in the form of Exhibit D hereto (the “Non-Competition Agreement”);

8.13          Employment Agreements. As of the Second Closing Date, each of the members of the Management Team shall have entered into an Employment Agreement with the Buyer substantially in the form of Exhibit E hereto (the “Employment Agreements”); the Non-Competition Agreement will expire upon termination of this Agreement other than pursuant to clause (i) of paragraph (b) of Section 11.1 of Article XI;

8.14          Escrow Agreement. As of the Second Closing Date, the Seller, the Buyer, and Escrow Agent shall have entered into the Escrow Agreement;

8.15          Insurance. Solely to the extent that the same are being assigned to the Buyer at the Closing, insurance policies for the Seller effective following the Closing shall be available covering workers’ compensation, commercial general liability and umbrella coverage, property and crime, business auto, professional liability, and directors and officers;

8.16          Material Adverse Change to Business. There shall not have been a Material Adverse Change to the Business or Assets of the Seller;

8.17          Bill of Sale. The Seller and its applicable Subsidiaries shall have executed and delivered the Bill of Sale;

8.18          FIRPTA Affidavit. The Seller shall have delivered to Buyer an affidavit in form and substance satisfactory to Buyer that Seller is not a foreign person within the meaning of Section 1443(f)(3) of the Code; and

8.19          Contribution. The Contribution shall have been consummated as described on Disclosure Schedule 4.3.

The Buyer may waive any condition specified in this Article VIII on behalf of the Buyer if it executes a writing so stating at or prior to the Second Closing. The Seller shall immediately notify Buyer in writing if it reasonably determines that any of the conditions to the Second Closing under this Agreement will not be satisfied.

ARTICLE IX

CONDITIONS TO OBLIGATION OF THE SELLER TO SECOND CLOSING

The obligation of the Seller to consummate the transactions to be performed by them in connection with the Second Closing is subject to satisfaction of the conditions set forth below.

9.1              Representations and Warranties. The representations and warranties set forth in Article V above shall be true and correct in all material respects at and as of the Second Closing Date, except to the extent that such representations and warranties are qualified by the terms “material,” or contain terms such as “Material Adverse Effect” or “Material Adverse Change,” in which case such representations and warranties (as so written, including the term “material” or “Material”) shall be true and correct in all respects at and as of the Second Closing Date;

9.2              Compliance. The Buyer shall have performed and complied with all of its covenants hereunder in all material respects through the Second Closing, except to the extent that such covenants are qualified by the term “material,” or contain terms such as “Material Adverse Effect” or “Material Adverse Change,” in which case the Buyer shall have performed and complied with all of such covenants (as so written, including the term “material” or “Material”) in all respects through the Second Closing;

9.3              No Actions. No action, suit, or proceeding shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions described in this Agreement, or (B) cause any of the transactions described in this Agreement to be rescinded following consummation;

9.4              Buyer Certificate. The Buyer shall have delivered to the Seller a certificate to the effect that each of the conditions specified above in Sections 9.1 through 9.3 as set forth in such Sections;

9.5              Consents and Approvals. The Parties shall have received all authorizations, consents, and approvals of governments and governmental agencies referred to in Annex 9.5 hereto;

9.6              Bill of Sale. The Seller and its applicable Subsidiaries shall have executed and delivered the Bill of Sale;

9.7              Employment Agreements. The Management Team and the Buyer shall have entered into the Employment Agreements;

9.8              Escrow Agreement. The Buyer and the Escrow Agent shall have entered into the Escrow Agreement;

9.9              Contribution. The Contribution shall have been consummated as described on Disclosure Schedule 4.3; and

9.10          Other Actions. All actions to be taken by the Buyer in connection with consummation of the transactions described herein and all certificates, instruments, and other documents required to effect the transactions described herein will be reasonably satisfactory in form and substance to the Seller.

Seller may waive any condition specified in this Article IX on behalf of the Seller if it executes a writing so stating at or prior to the Closing. The Buyer shall immediately notify the Seller in writing if it reasonably determines that any of the conditions to closing under this Agreement will not be satisfied.

ARTICLE X

SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION

10.1          Survival of Representations and Warranties. No claim or suit for Losses arising from a breach of the representations and warranties of the Seller and the Buyer contained in this Agreement shall be brought more than twelve (12) months after the Second Closing Date; provided, however, that if the Second Closing does not occur, such period shall expire on the twelve (12) month anniversary of the First Closing Date. If a Party hereto determines that there has been a breach by any other Party hereto of any such representation or warranty and notifies the breaching Party in writing reasonably promptly after learning of such breach, such representation or warranty and liability therefor shall survive with respect to the specified breach until such breach has been resolved, but no Party shall have any liability after such twelve (12) month period for any matters not specified in a writing delivered within such twelve (12) month period. Notwithstanding any term in this Section 10.1, (a) the applicable statute of limitations shall be the survival period for any matter relating to (i) any alleged or actual violation of the representations and warranties made in Section 4.11 (Compliance with Laws) and Section, 4.12 (Tax Matters), or (ii) fraud or willful or intentional misrepresentation or willful omission of a material fact by a Party in connection with this Agreement and the transactions described herein, and (b) all covenants and any alleged or actual violation of the representations and warranties made in any of the following sections of this Agreement shall survive indefinitely: Sections 4.1 (Organization, Qualification, and Power), 4.2 (Authorization of the Transaction), 4.6 (Title to Assets, first and last sentences only), Sections 5.1 (Organization of the Buyer) and 5.2 (Authorization of the Transaction).

10.2          Indemnification by the Seller. Subject to the provisions of Sections 10.4 and 10.5 below, the Seller, on behalf of itself and its successors and assigns, agrees to indemnify, defend and hold the Buyer and its Affiliates, members, managers, officers, directors, employees, agents, representative, successors and permitted assigns (collectively the “Buyer Indemnified Parties”), harmless, from and against the following:

(a)               Any and all Losses which arise out of or result from or as a consequence of (i) the operation of the Seller (including the Excluded Subsidiaries) prior to the Closing Date, including any successor liability other than an Assumed Liability; (ii) any breach of a representation or warranty made by or on behalf of the Seller in this Agreement (including the Exhibits and Schedules hereto) or any other Transaction Document; and (iii) any failure by the Seller to perform, comply with or observe any one or more of its covenants, agreements or obligations contained in this Agreement or in any other agreement, instrument or document delivered to the Buyer or any of its Affiliates in connection with this Agreement or any of the transactions described in this Agreement or any of the transactions described in this Agreement.

(b)               Any and all Losses which may at any time or from time to time arise out of or result from or as a consequence of the operation of the Business prior to the Closing Date, including without limitation: (i) any Excluded Liability or Excluded Assets; (ii) any failure by the Seller to comply with the provisions of this Agreement; (iii) relating to, or the failure to discharge, any obligations of the Seller, which were incurred by them, on account of the period prior to the Closing Date (except for the Assumed Liabilities), including without limitation the following: (A) any audit or investigation or civil, administrative or criminal proceedings arising as a result of the Business prior to or as of the Closing Date whether or not the Seller or its Affiliates had Knowledge thereof as of the Closing Date, or (B) any and all federal, state or local Taxes due from the Seller in connection with the Business, or with respect to the assets thereof, applicable to or arising from any period prior to the Closing Date.

With respect to the indemnification obligations of the Seller pursuant to this Section 10.2, a Buyer Indemnified Party may proceed against the Seller for indemnification pursuant to this Article X. 

10.3          Indemnification by Buyer. Subject to the provisions of Sections 10.4 and 10.5 below, the Buyer, on behalf of itself and its successors and assigns, agrees unconditionally to indemnify, defend and hold the Seller and its permitted successors and assigns their Affiliates, members, managers, officers, directors, employees, agents, representatives, successors and permitted assigns (collectively the “Seller Indemnified Parties”) harmless, on demand, from and against the following:

(a)               Any and all Losses of every kind, nature or description which arise out of or result from or as a consequence of (i) the Buyer’s use or operation of the Assets on and after the Closing Date; (ii) any breach of a representation or warranty made by or on behalf of the Buyer in this Agreement (including the Exhibits and Schedules hereto) or in any of the Transaction Documents; or (iii) any failure by the Buyer to perform, comply with or observe any one or more of its covenants, agreements, or obligations contained in this Agreement or in any other agreement, instrument or document delivered to the Seller in connection with this Agreement or any of the transactions described in this Agreement; and

(b)               Any and all Losses which may at any time or from time to time arise out of or result from or as a consequence of (i) any Assumed Liability; (ii) any failure by the Buyer to comply with the provisions of this Agreement; and (iii) relating to, or the failure by the Buyer to discharge, any obligations of the Buyer which were incurred by the Buyer on or after the Closing Date (except for the Excluded Liabilities), including without limitation the following: (A) any audit or investigation or civil, administrative or criminal proceedings arising as a result of the Business on or after the Closing Date or (B) any and all federal, state or local Taxes due from the Buyer in connection with the Business, or with respect to the assets thereof, applicable to or arising from any period on or after the Closing Date.

10.4          Indemnification Process. Any Party seeking indemnification under this Article X (an “Indemnified Party”) shall give each Party from whom indemnification is being sought (each, an “Indemnifying Party”) notice of any matter which such Indemnified Party has determined has given rise to or would give rise to a right of indemnification under this Agreement, stating the amount of the Losses, if known, and method of computation thereof, and containing a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed or arises. The obligations and liabilities of an Indemnifying Party under this Article X with respect to Losses arising from claims of any third party which are subject to the indemnification provided for in this Article X (“Third Party Claims”) shall be governed by and contingent upon the following additional terms and conditions:

(a)               If any Indemnified Party shall receive notice of any Third Party Claim, the Indemnified Party shall give the Indemnifying Party notice of such Third Party Claim promptly following receipt by the Indemnified Party of such notice to avoid actual prejudice; provided, however, that the failure to provide such notice shall not release the Indemnifying Party from any of its obligations under this Article X except to the extent the Indemnifying Party is prejudiced by such failure.

(b)               The Indemnifying Party shall be entitled to assume and control the defense of such Third Party Claim at its sole expense and through counsel of its choice if it gives notice of its intention to do so to the Indemnified Party to avoid actual prejudice to the Indemnified Party; provided, further however, that if counsel to the Indemnifying Party advises that a conflict of interest precludes its representation of both the Indemnified Party and the Indemnifying Party, then the Indemnified Party shall be entitled to retain one firm of attorneys at the expense of the Indemnified Party.

(c)               In the event the Indemnifying Party exercises the right to undertake any such defense against any such Third Party Claim as provided above, the Indemnified Party shall cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party, at the Indemnifying Party’s expense, all witnesses, pertinent records, materials and information in the Indemnified Party’s possession or under the Indemnified Party’s control relating thereto as is reasonably required by the Indemnifying Party. Similarly, in the event the Indemnifying Party declines to take such defense and the Indemnified Party is, directly or indirectly, conducting the defense against any such Third Party Claim, the Indemnifying Party shall cooperate with the Indemnified Party in such defense and make available to the Indemnified Party, at the Indemnifying Party’s expense, all such witnesses, records, materials and information in the Indemnifying Party’s possession or under the Indemnifying Party’s control relating thereto as is reasonably required by the Indemnified Party.

(d)               If the Indemnifying Party shall have failed to assume the defense of any claim in accordance with the provisions of this Article (i.e., in time to avoid prejudice to the Indemnified Party), then the Indemnified Party shall have the right to control the defense of such claim and, if and when it is finally determined that the Indemnified Party is entitled to indemnification from the Indemnifying Party hereunder, the actual and reasonable fees and expenses of the Indemnified Party’s counsel shall be borne by the Indemnifying Party and paid by the Indemnifying Party to the Indemnified Party promptly following written demand therefor, but the Indemnifying Party shall be entitled, at its own expense, to participate in (but not control) such defense.

(e)               So long as the Indemnifying Party has assumed and is conducting the defense of the Third Party Claim in accordance with Section 10.4(b) above, (i) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be unreasonably withheld, delayed or conditioned, provided that the Indemnified Party is completely released from all claims) unless the judgment or proposed settlement involves only the payment of money damages by the Indemnifying Party and does not impose an injunction or other equitable relief upon the Indemnified Party, and (ii) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not to be withheld, conditioned or delayed unreasonably).

10.5          Limitations on Indemnification.

(a)               Threshold Amount. Except as otherwise provided in Section 10.5(c) below, the Seller will not have any liability to the Buyer Indemnified Parties pursuant to the indemnification obligations of Section 10.2(a)(ii) above, and the Buyer will not have any liability to the Seller Indemnified Parties pursuant to the indemnification obligations of Section 10.3 above, as the case may be, for Losses payable pursuant to their respective indemnification obligations until the total of all such Losses incurred by the Indemnified Party pursuant to this Agreement collectively exceeds $100,000 in the aggregate (the “Threshold Amount”), and then (subject to the terms of this Section 10.5) such indemnification by the Indemnifying Party shall apply to all such Losses (including the Threshold Amount) incurred pursuant to this Agreement.

(b)               Cap. Except as otherwise provided in Section 10.5(c) below, (i) the Seller will not have any liability to the Buyer Indemnified Parties pursuant to the indemnification obligations of Section 10.2 above for Losses that exceed $3.0 million, and (ii) the Buyer will not have any liability to the Seller Indemnification Parties pursuant to the indemnification obligations of Section 10.3 above for Losses paid by Buyer that exceed $3.0 million. Subject to the Buyer’s offset right in Section 10.5(d), all Losses of Buyer paid by the Seller under this Agreement shall be paid out of the Escrowed Purchase Price.

(c)               Fraud and Other Exceptions. The limitation on the indemnification responsibilities of the Parties set forth in Sections 10.5(a) and 10.5(b) shall not apply to any claim that is brought within twelve months of the last Closing that is based on (i) any fraud by the Seller or the Buyer, as the case may be, (ii) breach of the Seller’s representations and warranties contained in Sections 4.1 (Organization, Qualification, and Power), 4.2 (Authorization of the Transaction), 4.6 (Title to Assets, last sentence only) and 4.12 (Tax Matters) hereof, (iii) breach of the Buyer’s representations and warranties contained in Sections 5.1 (Organization of the Buyer) and 5.2 (Authorization of the Transaction) hereof, (iv) contractual payment obligations related to the Excluded Liabilities, (v) the Buyer’s obligation to pay the Purchase Price, (vi) any adjustments to the Purchase Price or other payments under Section 3.2, and (vii) any claim relating to a breach of the Non-Competition Agreements, and (vii) any claim arising from a breach of the Seller’s covenants in Section 3.2(a)(ii) or Section 7.6 of this Agreement.

(d)               Offset. In addition to any other rights or remedies available to the Buyer herein, the Buyer shall have the right to file a claim with the Escrow Agent in accordance with the terms of the Escrow Agreement to disburse any amounts to which it may be entitled under Section 10.2 hereof or any Losses resulting from a breach of this Agreement against the Escrowed Purchase Price, if any (the “Offset Amounts”); provided, however, that if the Second Closing does not occur, the Offset Amount will be realized as an offset to the payment of the Purchase Price Note. If the Buyer elects to exercise this offset right, the Buyer shall deliver prior notice to the Seller in writing by certified mail or nationally recognized overnight courier. The Seller shall have the right, but not the obligation, to pay the Buyer the Offset Amounts in cash. Notwithstanding anything to the contrary in this Agreement, the offset right set forth in this Section 10.5(d) shall only be applicable when (i) the Parties hereto agree that that the Buyer is entitled to indemnification under Section 10.2 hereof or (ii) a court or arbitrator determines that the Buyer is entitled to indemnification under Section 10.2 hereof.

(e)               Certain Damages. Notwithstanding anything to the contrary in this Article X, no Party shall be liable to any other Party for indirect, incidental, consequential, punitive or special damages, loss of profits or diminution of value arising from, in connection with, or with respect to an indemnification obligation under this Article X other than incidental, consequential, punitive or special damages resulting from fraud by a Party.

(f)                Purchase Price Adjustment. For Tax purposes, the Parties agree that any payment under Section 10.2 hereof shall be treated as an adjustment to the Purchase Price.

(g)               Eligible Insurance Proceeds. If any portion of Losses to be reimbursed by the Indemnifying Party shall be covered, in whole or in part, by third party insurance coverage (including the insurance policies maintained for the benefit of Seller prior to the Closing), then any such insurance proceeds actually received by the Indemnified Party, net of costs reasonably incurred by the Indemnified Party in seeking such collection, shall be considered “Eligible Insurance Proceeds.” For purposes of this Article X, all Losses shall be net of any Eligible Insurance Proceeds; and each Indemnified Party shall use its reasonable efforts to make any insurance claim to recover Eligible Insurance Proceeds. Any amount payable by an Indemnifying Party pursuant to this Article X shall be paid promptly and payment shall not be delayed pending any determination of Eligible Insurance Proceeds. In any case where an Indemnified Party recovers any Eligible Insurance Proceeds in respect of any Loss for which an Indemnifying Party has actually reimbursed it pursuant to this Article X, such Indemnified Party shall promptly pay over to the Indemnifying Party the amount of such Eligible Insurance Proceeds, but not in excess of the sum of (i) any amount previously paid by the Indemnifying Party to or on behalf of the Indemnified Party in respect of such claim and (ii) any amount expended by the Indemnifying Party in pursuing or defending any claim arising out of such matter.

(h)               Exclusive Remedy. Absent fraud, and except (i) with respect to the availability of specific performance or other equitable remedies for breach or non-compliance, and (ii) for the enforcement of rights under the documents and instruments executed and delivered by the parties hereto at the Closing, following the Closing, the indemnification provided by this Article X shall be the sole monetary remedy of the parties hereto with respect to claims relating to the subject matter of this Agreement.

ARTICLE XI

TERMINATION OF SECOND CLOSING

11.1          The Parties may terminate the obligation to consummate the Second Closing as provided below:

(a)               The Buyer and the Seller may terminate the consummation of the Second Closing by mutual written consent at any time prior to the Second Closing;

(b)               The Buyer may terminate the consummation of the Second Closing by giving written notice to the Seller at any time prior to the Second Closing (i) in the event Seller has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Buyer has notified the Seller of the breach, and the breach has continued without cure for a period of 30 days after the notice of breach or (ii) if the Second Closing shall not have occurred on or before November 1, 2018, by reason of the failure of any condition precedent under Article VIII hereof (unless the failure results primarily from the Buyer breaching any representation, warranty, or covenant contained in this Agreement); and

11.2          The Seller may terminate the consummation of the Second Closing by giving written notice to the Buyer at any time prior to the Second Closing (i) in the event the Buyer has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Seller has notified the Buyer of the breach, and the breach has continued without cure for a period of 30 days after the notice of breach or (ii) if the Second Closing shall not have occurred on or before November 1, 2018, by reason of the failure of any condition precedent under Article IX hereof (unless the failure results primarily from the Seller breaching any representation, warranty, or covenant contained in this Agreement).

ARTICLE XII

MISCELLANEOUS

12.1          Press Releases and Public Announcements. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the Buyer and the Seller; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable Law (in which case the disclosing Party will use its reasonable best efforts to advise the other Parties prior to making the disclosure).

12.2          No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns. Notwithstanding the foregoing, the Buyer Indemnified Parties and Seller Indemnified Parties, and their permitted successors and assigns, are intended third-party beneficiaries of Article X (Survival of Representations and Warranties; Indemnification), and shall be entitled to enforce the provisions of such Section as if a party to this Agreement.

12.3          Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they relate in any way to the subject matter hereof.

12.4          Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of his or its rights, interests, or obligations hereunder without the prior written approval of the Buyer and Seller; provided, however, that the Buyer may (a) assign any or all of its rights and interests hereunder to one or more of its Affiliates in which it owns more than 51% of the voting equity, and (b) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases the Buyer nonetheless shall remain responsible for the performance of all of its obligations hereunder).

12.5          Counterparts. This Agreement may be executed in one or more counterparts (including by means of email), each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail or other electronic delivery or transmission method (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g. www.docusign.com), and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes At the request of any Party hereto or to any such agreement or instrument, each other Party will re-execute original forms thereof and deliver them to all other Parties. No Party hereto or to any such agreement or instrument will raise the use of electronic delivery to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of electronic delivery as a defense to the formation of a contract, and each such Party forever waives any such defense, except to the extent such defense related to lack of authenticity.

12.6          Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

12.7          Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing and must be delivered by either (i) personal delivery or (ii) reputable overnight courier service, charges prepaid, providing proof of delivery. Any notice, request, demand, claim, or other communication hereunder and shall be deemed to have been duly received (i) on the date of delivery thereof, if personally delivered, or (ii) on the next business day after the sending thereof, if sent by reputable overnight courier service, and must be addressed to the intended recipient as set forth below:

If to the Seller:

 

Veneto Holdings, L.L.C.

3030 LBJ Freeway, Suite 1700

Dallas, Texas 75234

Attention: Kevin Kuykendall,

                   Chief Executive Officer

 

If to the Buyer:

 

NuGenerex Distribution Solutions, LLC

10102 USA Today Way

Miramar, Florida 33025

Attention: Mark A. Fletcher,

                   Executive Vice-President & General Counsel

 

Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.

 

12.8          Governing Law; Arbitration. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. The Parties hereto agree that all disputes or controversies arising out of or relating to this Agreement shall be resolved by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “AAA”), and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Either Party may initiate arbitration by sending written notice of its intention to arbitrate to the other Party. Such written notice will contain a reasonably detailed description of the dispute and the remedy sought. The confidential arbitration proceeding will be conducted in Dallas, Texas before an independent and impartial arbitrator mutually acceptable to the Parties. In the event that the Parties have not mutually agreed on an acceptable arbitrator within thirty (30) days after the demand for arbitration is filed, the arbitrator shall be appointed in the manner provided by Rule 13 of the Commercial Arbitration Rules of the AAA. The decision of the arbitrator will be final and binding on the Parties and their respective successors and permitted assigns. The Parties intend that this agreement to arbitrate be irrevocable. In providing a remedy under this Section 12.8, the Parties agree that the arbitrator shall not award punitive damages against either Party, and the Parties hereby mutually waive any claim for punitive damages which may be awarded in connection with any dispute subject to arbitration under this Agreement.

12.9          Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyer and Seller. No waiver by any Party of any provision of this Agreement or any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be valid unless the same shall be in writing and signed by the Party making such waiver nor shall such waiver be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

12.10      Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

12.11      Expenses. Each of the Buyer and the Seller will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions described herein (except as otherwise expressly provided in this Agreement).

12.12      Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word “including” shall mean including without limitation.

12.13      Incorporation of Exhibits, Annexes, and Schedules. The Exhibits, Annexes, and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof.

* * * * *

 

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

		Veneto Holdings, L.L.C.
		By: /s/ Kevin Kuykendall
		Name: Kevin Kuykendall
		Title: Chief Executive Officer
		NuGenerex Distribution Solutions, LLC
		By: /s/ Joseph Moscato
		Name: Joseph Moscato
		Title: Chief Executive Officer

^[1][1] Further comment reserved pending review of working capital calculation and Most Recent Balance Sheet.

 

 

PROMISSORY NOTE

 

US $15,000,000.00

October 3, 2018

 

FOR VALUE RECEIVED, NuGenerex Distribution Solutions, LLC, a Delaware Limited Liability Company (the “Maker”), having an address c/o Generex Biotechnology Corporation, 10102 USA Today Way, Miramar, FL 33025, promises to pay to the order of Veneto Holdings, L.L.C., a Texas limited liability company (the “Holder”), at the times provided in Section 2 below, the principal amount of Fifteen Million U.S. Dollars ($15,000,000.00 U.S.) (the “Principal Amount”), with interest thereon and expenses associated therewith from the date hereof in accordance with the terms hereof.

 

BACKGROUND

 

A.       The Maker and the Holder are parties to an Asset Purchase Agreement (the “Agreement”) pursuant to which the Maker is purchasing certain of the assets of the Holder and the Holder’s subsidiaries on the date hereof (the “First Closing Assets”), and the Maker has agreed to purchase, and the Holder has agreed to sell, certain other assets of the Holder and the Holder’s subsidiaries on or before a date set forth in the Agreement (the “Second Tranche Date”).

 

B.        The Maker is issuing this Note on the date hereof in accordance with the terms of the Agreement.

 

C.       The Maker’s parent, Generex Biotechnology Corporation has agreed to grant a first priority security interest to Holder in all of its assets, other than the First Closing Assets, all as more particularly set forth in the Security Agreement, dated even date herewith (the “Security Agreement”).

 

D.       Joseph Moscato, an individual and Generex Biotechnology Corporation (each a ”Guarantor” and collectively the “Guarantors”) have agreed to guaranty the Maker’s obligations under this Note, as more particularly set forth in the Guaranty Agreement, dated even date herewith (the “Guaranty”).

 

TERMS

 

1.       Interest Rate. The unpaid Principal Amount owing under this Note shall bear interest from the date first set forth above at an annual rate of five percent (5%). Simple interest shall accrue daily on the basis of a 365-day year.

 

2.       Payment Terms of Principal and Interest. The outstanding Principal Amount and accrued and unpaid interest under this Note shall be due and payable to Holder in full upon the closing of the transactions to be effected pursuant to the Purchase Agreement on the Second Tranche Date (the “Second Tranche Date Closing”). If the Purchase Agreement is terminated prior to the Second Tranche Date Closing for any reason, then the Principal Amount and all accrued interest shall be due and payable to Holder in full on the date that is ninety (90) days after either of Maker or Holder notifies the other of termination of the Purchase Agreement. This Note may be prepaid in whole or in part at any time by the Maker. The applicable due date described above is referred to herein as the “Maturity Date.” There shall be no penalty if the Maker pre-pays the Principal Amount in whole or in part.

 

3.       Default. Each of the following shall constitute an event of default (each, a “Default Event” under this Note):

 

(a)

Maker fails to pay the outstanding Principal Amount and accrued but unpaid interest under this Note on or before the Maturity Date;

 

(b)

Maker or Guarantors fail to comply with or to perform when due any other term, obligation, covenant or condition contained in this Note, the Security Agreement or the Guaranty;

 

(c)

Maker becomes insolvent, a receiver is appointed for any of Maker’s property, Maker makes an assignment for the benefit of creditors, or any proceeding is commenced either by Maker or against Maker under any bankruptcy or insolvency laws;

 

(d)

All or substantially all of Maker’s assets are sold, assigned or otherwise transferred (including by way of merger or consolidation);

 

(e)

Maker is terminated or dissolved, or ceases to exist as the result of a merger, restructuring, consolidation any other reason;

 

(f)

The change of control of Maker, whether by (i) the sale, assignment, transfer or other disposition of more than fifty percent (50%) of the outstanding ownership interests in Maker, in one or more related transfers, by the Persons who beneficially own such ownership interests; (ii) the issuance by Maker of any ownership interests, any rights to acquire ownership interests in Maker or any rights to share in the profits of Maker; or (iii) by any combination of the foregoing.

 

Upon and following an Event of Default, the interest shall accrue at the annual rate of ten percent (10%).

 

4.       Other Provisions Relating to Interest and Charges. Notwithstanding any other provision contained in this Note or in any agreement, document or instrument related to the transaction which this Note is a part: (a) the rates of interest and charges and the payment provided for herein and therein shall in no event exceed the rates and charges and the payment which would result in interest being charged at a rate equaling the maximum allowed by law; and (b) if, for any reason whatsoever, Holder ever receives as interest (or as a charge in the nature of interest) in connection with the transaction of which this Note is a part an amount which would result in interest being charged at a rate exceeding the maximum allowed by law, such amount or portion thereof as would otherwise be excessive interest shall automatically be applied toward reduction of the unpaid principal balance then outstanding hereunder. Any such amount shall not be applied toward payment of interest (or toward payment of a charge in the nature of interest).

 

5.       Limitations. The Maker’s obligations under this Note are conditioned on compliance with the following until this Note is paid in full:

 

(i) None of Seller, its subsidiaries or any individual who is a manager or member of Seller on the date of this Agreement, shall interfere with, disparage or compete with Maker’s and its subsidiaries’ operations of their business involving the First Closing Assets (the “Relevant Business”).

 

(ii) The Seller and its subsidiaries exclusively use the Maker and its subsidiaries for services related to the Relevant Business within the geographic service area of each Asset, provided that Maker and its subsidiaries provide the same level of service as Seller’s subsidiaries provided prior to the First Closing in all material respects. The parties understand and agree that the Relevant Business only includes services related to the fulfillment of prescriptions that are covered by commercial or private payors, and does not include services related to the fulfillment of prescriptions that are reimbursable by federal or state payors or programs.

 

6.       Costs. In the event that (a) the payment of principal and interest under this Note is not made at the time and in the manner required hereunder, (b) Holder incurs any costs of collection or other costs reasonably necessary for the protection of the interest of Holder with respect to this Note, or (c) Holder, upon the occurrence of an uncured Default Event, exercises its right to accelerate the maturity of the obligations hereunder, Maker agrees to pay any and all costs and expenses (regardless of the particular nature thereof and whether incurred before or after the initiation of suit or before or after judgment) that may be incurred by Holder in connection with the enforcement of its rights under this Note, including court costs and reasonable attorneys’ fees.

 

7.       Waivers. Maker, and any sureties, guarantors, and endorsers hereof severally waive presentment for payment, demand, protest, notice of protest, notice of dishonor or nonpayment, notice of intent to accelerate the indebtedness hereof or notice of such acceleration, protest and notice of protest and diligence on collecting or bringing suit against any party hereof and consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by Holder with respect to the payment or partial payments hereon, with or without notice, or other provisions of this Note, before or after the Maturity Date.

8.       Remedies. No right or remedy conferred upon or reserved to Holder, or now or hereafter existing at law or in equity or by statute or other legislative enactment, is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and concurrent, and shall be in addition to every other such right or remedy, and may be pursued singly, concurrently, successively or otherwise, at the sole discretion of Holder, and shall not be exhausted by any one exercise thereof but may be exercised as often as occasion thereof shall occur. No act of Holder shall be deemed or construed as an election to proceed under any one such right or remedy to the exclusion of any other such right or remedy.

9.       Notice and Payment. All notices or payments, as the case may be, hereunder shall be made or given to the address of the parties as follows:

 

If to Holder:

 

Veneto Holdings, L.L.C.

Attn: Kevin Kuykendall

3030 LBJ Freeway, Suite 1700

Dallas, Texas 75234

 

 

If to Maker:

 

NuGenerex Distribution Solutions, LLC

Attn: Joseph Moscato

c/o Generex Biotechnology Corporation

10102 USA Today Way, Miramar, FL 33025

 

Any notice or other communications required, contemplated or permitted by this Note by any party shall be in writing and shall be deemed served (a) when personally delivered, with proof of delivery, (b) on the next business day after delivery to a reputable overnight courier for next business day delivery, charges prepaid, providing proof of delivery, or (c) upon delivery by United States mail, registered mail or certified mail, postage prepaid, return receipt requested, with proof of delivery, addressed, in the case of deliveries made pursuant to clause (b) and (c) to the address set forth above. Any party may change the address to which payments, notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other parties notice in the manner herein set forth.

 

10.        State Law. Maker irrevocably consents to the exclusive jurisdiction of the courts of the State of Texas or the United States District Court for the Northern District of Texas in any and all actions and proceedings arising hereunder, and irrevocably agrees to service of process by certified mail, return receipt requested, to the address of Maker set forth above.

 

11.       Severability. If for any reason one or more of the provisions of this Note or their application to any person or circumstances shall be held to be invalid, illegal or unenforceable in any respect or to any extent, such provisions shall nevertheless remain valid, legal and enforceable in all such other respects and to such extent as may be permissible. In addition, any such invalidity, illegality or unenforceability shall not affect any other provisions of this Note, but this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained therein.

 

12.       Successors and Assigns. This Note inures to the benefit of Holder and binds Maker, and their respective successors and assigns; provided that Maker may not assign this Note, by operation of law or otherwise, without the express prior written consent of Holder.

 

 

Signature page follows…

 

 

IN WITNESS WHEREOF, the undersigned has executed this Note on or as of the day and year first above written.

 

		Maker:
		NUGENEREX DISTRIBUTION SOLUTIONS, LLC
		By: /s/ Joseph Moscato
		Name: Joseph Moscato
		Title: Manager
		AGREED AND ACCEPTED
		Holder:
		VENETO HOLDINGS, L.L.C.
		By: /s/ Kevin Kuykendall
		Name: Kevin Kuykendall
		Title: Chief Executive Officer

 

 

 

Generex Announces Closing of First Tranche Acquisition of

Operating Assets

 

Transaction Heralds Commencement of the Generex Acquisitions Strategy

 

Second Tranche Closing Anticipated Within 30 Days

 

MIRAMAR, FL, October 9, 2018 / (Business Wire) / -- Generex Biotechnology Corporation (www.generex.com) (OTCQB: GNBT) (http://www.otcmarkets.com/stock/GNBT/quote) (“Generex”) today provided further details in respect of its October 3, 2018 acquisition of certain operating assets of Veneto Holdings, L.L.C. (“Veneto”), a private company, and certain of its affiliated entities (collectively, the “Veneto Group”).

 

The Veneto Group is engaged in the business of providing (i) certain specialty pharmacy services and products, (ii) surgical products and services, (iii) diagnostic testing for screening human blood, urine and/or saliva samples for the presence of narcotics, medications, alcohol and other drugs and substances, (iv) durable medical equipment services, and (v) similar ancillary healthcare services such as management services for the foregoing businesses (collectively, the “Business”).

 

Pursuant to an Asset Purchase Agreement dated October 3, 2018 (the “Acquisition Agreement”), a Generex affiliate, NuGenerex Distribution Solutions, LLC (“NuGenerex”), agreed to purchase from the Veneto Group the operating assets of the Business as a going concern (the “Acquisition”).

 

“We are pleased to announce the acquisition of these Veneto Group assets and the addition of NuGenerex Distribution Solutions to the family of Generex companies, which includes NuGenerex Diagnostics (formerly Hema Diagnostics) and Antigen Express (soon to be NuGenerex Immuno-Oncology),” said Joseph Moscato, Generex President & Chief Executive Officer. “This acquisition is the culmination of our previously announced restructuring efforts and represents the next stage in our strategic plan for the future of Generex Biotechnology. The acquisition of the Veneto operating assets provides the foundation for building a new, end-to-end solution for healthcare to achieve better patient outcomes at lower costs, while providing convenience for patients, turn-key management services for doctors, and integrated ancillary health services for hospitals and payers. We have acquired an outstanding management team that has built this business from the ground up to achieve unaudited revenues of more than $66 million over the past 12 months through this first set of Veneto assets, whilst operating in only three states. The second set of Veneto asset acquisitions will complete the enterprise model, which is readily scalable using our proprietary technology and systems that drive operations and ensure regulatory compliance. With completion of the acquisitions, we will scale the business to grow from three to 30 states, providing what is expected to be a dramatic growth trajectory.”

 

Mark Schneider, Chairman of Veneto, stated: “This is an incredible milestone for our business and a testament to the outstanding team we have assembled at all levels of the organization. We are very excited about the potential this transaction will unlock for us in the year to come as it will facilitate the significant expansion of its enterprise and portfolio of ancillary services.”

 

The first tranche of the Acquisition closed on October 3, 2018 (the “First Closing Date”). On the Closing Date, NuGenerex purchased the operating assets of eight pharmacies, a wholesale pharmacy purchasing company, and an in-network laboratory (the “First Closing Assets”). In consideration of the sale, transfer, and assignment of the First Closing Assets on the First Closing Date, NuGenerex executed and delivered to Veneto a secured promissory note in the principal amount of $15,000,000 (the “Promissory Note”) guaranteed by Generex.

 

Within the next 30 days (the “Second Closing Date”), NuGenerex anticipates consummating the acquisition of the balance of the operating assets of the Business consisting primarily of Veneto’s management services organization business and two additional ancillary service companies that have been developed by Veneto (the “Second Closing Assets”). In consideration of the sale, transfer, and assignment of the Second Closing Assets, NuGenerex will pay to Veneto an aggregate purchase price of Thirty Million Dollars ($30,000,000) (the “Purchase Price”). The Purchase Price will be applied as follows: in full and final satisfaction of the Promissory Note and accrued interest thereon; to the establishment of a $9,000,000 segregated trust fund in respect of contingent liabilities of Veneto attributable to its pre-Acquisition operations (which liabilities are not being assumed by NuGenerex); to the establishment of a $3,000,000 escrow fund in respect of the settlement of the Second Closing Date working capital of the Business and Veneto indemnification obligations; and the balance will be paid to Veneto after one year.

 

Brooks, Houghton & Company, Inc. acted as the Company’s M&A advisor in respect of the Acquisition, and Eckert Semans Cherin & Mellott, LLC served as legal counsel to the Company.

 

Further particulars in respect of the Acquisition are available in the Generex Form 8-K Current Report filed with the U.S. Securities and Exchange Commission on October 9, 2018 and publicly available at www.sec.gov and the disclosures in this press release are subject to those said particulars.

 

Cautionary Note Regarding Forward-Looking Statements

 

This release and oral statements made from time to time by Generex representatives in respect of the same subject matter may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by introductory words such as "expects," "plan," "believes," "will," "achieve," "anticipate," "would," "should," "subject to" or words of similar meaning, and by the fact that they do not relate strictly to historical or current facts. Forward-looking statements frequently are used in discussing potential product applications, potential collaborations, product development activities, clinical studies, regulatory submissions and approvals, and similar operating matters. Many factors may cause actual results to differ from forward-looking statements, including inaccurate assumptions and a broad variety of risks and uncertainties, some of which are known and others of which are not. Known risks and uncertainties include those identified from time to time in the reports filed by Generex with the Securities and Exchange Commission, which should be considered together with any forward-looking statement. No forward-looking statement is a guarantee of future results or events, and one should avoid placing undue reliance on such statements. Generex undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Generex claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act.

 

SOURCE Generex Biotechnology Corporation

 

Generex Contact:

 

Generex Biotechnology Corporation

 

Joseph Moscato

646-599-6222

 

Todd Falls

800-391-6755 Extension 222

 

[email protected]

 

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