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Agreement And Plan Of Merger

Agreement and Plan of Merger

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 This Agreement and Plan of Merger involves

DERMA SCIENCES, INC. | Baker, Donelson, Bearman, Caldwell Berkowitz, PC | BD Acquisition Group, LLC | BIOD, LLC | DERMA SCIENCES, INC | DP MERGER SUB ONE, LLC

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Title: AGREEMENT AND PLAN OF MERGER
Governing Law: Delaware     Date: 8/11/2016
Industry: Medical Equipment and Supplies     Law Firm: Thompson Hine;Baker Donelson     Sector: Healthcare

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Exhibit 2.1

 

 

 

AGREEMENT AND PLAN OF MERGER

 

By and Among

 

Derma Sciences, Inc.,

 

DP Merger Sub One, LLC,

 

BioD, LLC ,

 

And

 

Cynthia Weatherly

 

 

   

July 27, 2016

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

  

TABLE OF CONTENTS

 

 

 

Page

 

 

 

Article I The Merger

1

1.1

The Merger

1

1.2

Closing; Effective Time

2

1.3

Effect of the Merger

2

1.4

Certificate of Formation; Limited Liability Company Agreement

2

1.5

Managers and Officers

2

 

 

 

Article II Conversion of Units; Merger Consideration

2

2.1

Conversion of Interests

2

2.2

Merger Consideration

3

2.3

Unit Table

3

2.4

Payments at Closing

3

2.5

Closing Payment

5

2.6

Per Share Signing Value

7

2.7

Withholding

7

2.8

Working Capital Adjustments

7

2.9

Reserved **** Collections Adjustment

10

2.10

Base Accounts Receivable Collections Adjustment

12

2.11

Earn Out

13

2.12

Product Payments

17

2.13

Post-Closing Operation of the Company

20

2.14

Representative; Binding Action; Lock-Up

20

2.15

Certain Adjustments

23

 

 

 

Article III Representations and Warranties of the Company

23

3.1

Organization and Good Standing

23

3.2

Authority

23

3.3

Capitalization; Subsidiaries; Indebtedness

24

3.4

No Conflict

24

3.5

Financial Statements

25

3.6

Absence of Certain Developments

25

3.7

Title to Assets

27

3.8

Tax Matters

27

3.9

Contracts and Commitments

29

3.10

Intellectual Property Rights

30

3.11

FDA and Other Regulatory Matters

33

3.12

Health Care Law Matters

35

3.13

Litigation

36

3.14

Brokerage

36

3.15

Environmental and Safety Matters

36

3.16

Insurance

37

3.17

Labor and Employment Matters

37

3.18

Employee Benefit Plans

38

3.19

Compliance with Laws; Permits

41

3.20

Related Party Transactions

41

3.21

Real Property

41

3.22

Absence of Undisclosed Liabilities

42

  

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

  

3.23

Accounts Receivable

42

3.24

Customers and Suppliers

42

3.25

Certain Payments

42

3.26

Bank Accounts

42

3.27

BD Acquisition Group

42

3.28

Full Disclosure

43

3.29

No Other Representations and Warranties

43

 

 

 

Article IV Representations and Warranties of Parent and Merger Sub

43

4.1

Organization, Power and Authority

43

4.2

Authorization; No Breach

43

4.3

No Conflict

43

4.4

Brokerage

44

4.5

Merger Sub

44

4.6

Litigation

44

4.7

Availability of Funds

44

4.8

Capitalization

44

4.9

Issuance of Parent Shares

44

4.10

SEC Filings

45

4.11

Independent Investigation

46

 

 

 

Article V Certain Covenants

46

5.1

Certain Actions to Close Transactions

46

5.2

Conduct of Business Before the Closing

47

5.3

Access to Information

47

5.4

No Solicitation of Other Bids

48

5.5

Notice of Certain Events

48

5.6

General

49

5.7

Tax Matters

49

5.8

Indemnification of Officers and Managers of the Company

51

5.9

Board Observer

52

5.10

Conduct of Business by Parent Before the Closing

52

5.11

****

53

5.12

Repurchase Rights

53

 

 

 

Article VI Conditions to Closing

53

6.1

Conditions to Each Party’s Obligation to Effect the Merger

53

6.2

Conditions to Obligations of Parent and Merger Sub

53

6.3

Conditions to Obligations of the Company

55

 

 

 

Article VII Termination

56

7.1

Termination

56

7.2

Effect of Termination

57

 

 

 

Article VIII Indemnification

57

8.1

Survival

57

8.2

General Indemnification

58

8.3

Exclusive Remedy

60

8.4

Indemnification Procedures

60

8.5

Payments

61

8.6

Merger Consideration Adjustment Treatment

61

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

 

Article IX Definitions

62

9.1

Definitions

62

9.2

Other Definitional Provisions

73

 

 

 

Article X Miscellaneous

74

10.1

Expenses

74

10.2

Remedies

74

10.3

Consent to Amendments; Waivers

74

10.4

Successors and Assigns

74

10.5

Press Releases and Communications

74

10.6

Severability

75

10.7

Counterparts

75

10.8

Entire Agreement

75

10.9

No Third Party Beneficiaries

75

10.10

Schedules and Exhibits

75

10.11

Governing Law

76

10.12

Dispute Resolution.

76

10.13

Notices

76

10.14

No Strict Construction

78

  

SCHEDULES, ANNEXES, AND EXHIBITS

 

Schedules

 

Disclosure Schedules

 

Annexes

 

 

 

Annex A

**** Products

 

 

Exhibits

 

 

 

Exhibit A

Unit Table

Exhibit B

Parent Shares/Cash Allocation Procedures

Exhibit C

Base Accounts Receivable

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

   

AGREEMENT AND PLAN OF MERGER

 

This Agreement and Plan of Merger , this (“ Agreement ”), dated as of July 27, 2016, is entered into by and among Derma Sciences, Inc., a Delaware corporation (“ Parent ”), DP Merger Sub One, LLC, a Delaware limited liability company of which Parent is the sole member (“ Merger Sub ”), BioD, LLC, a Delaware limited liability company (the “ Company ”), and Cynthia Weatherly, as Representative. BD Acquisition Group, LLC, a Delaware limited liability company (“ BD Acquisition Group”), joins in this Agreement solely for the purposes set forth in Section 5.12. Capitalized terms used in this Agreement and not otherwise defined have the meanings given to them in Article IX below.

 

RECITALS

 

A.   Parent, Merger Sub, the Company and Representative wish to effect a business combination through a merger of Merger Sub with and into the Company, on the terms and conditions set forth in this Agreement and in accordance with the applicable provisions of the Delaware Limited Liability Company Act (the “ Act ”).

 

B.   The Board of Managers of the Company has unanimously adopted and approved this Agreement, approved the Merger and the other transactions contemplated by this Agreement, and determined that this Agreement, the Merger and the other transactions contemplated by this Agreement are advisable to and in the best interest of the Equity Owners.

 

C.   As a condition and inducement to Parent and Merger Sub entering into this Agreement, the holders of at least 65% of the Voting Interests (as defined in the Company LLC Agreement) have entered into on or before the date hereof an irrevocable written consent to approve and adopt this Agreement and approve the Merger and the other transactions contemplated by this Agreement, and all applicable notice periods under applicable Law have been complied with or waived in connection therewith.

 

D.   The board of directors of Parent, Parent, as the sole member of Merger Sub, and the board of managers of Merger Sub have each unanimously adopted and approved this Agreement, approved the Merger and the other transactions contemplated by this Agreement, and determined that this Agreement, the Merger and the other transactions contemplated by this Agreement are in their best interests.

 

E.   Parent, Merger Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger, and also to prescribe various conditions to the Merger.

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows:

 

Article I
The Merger

 

1.1       The Merger . Upon the terms and subject to the conditions of this Agreement and in accordance with the Act, at the Effective Time, (a) Merger Sub will merge with and into the Company (the “ Merger ”), and (b) the separate limited liability company existence of Merger Sub will cease and the Company will continue its limited liability company existence under the Act as the surviving limited liability company of the Merger (the “ Surviving Company ”).

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

 

1.2       Closing; Effective Time.

 

(a)     Upon the terms and subject to the conditions set forth herein, including the satisfaction or waiver of the conditions set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions), the transactions contemplated hereby will close (the “ Closing ”) and all deliveries to be made at the time of Closing will occur electronically at 9:00 a.m. Eastern Time on the third Business Day after the last of the conditions to Closing set forth in Article VI have been satisfied or waived or at such other time or on such other date as Parent and Representative may mutually agree upon in writing. The date of the Closing is referred to as the “ Closing Date .” The Closing will be deemed effective at 11:59 p.m. Eastern Time on the Closing Date for tax and accounting purposes.

 

(b)     As soon as practicable on the Closing Date, the Company and Parent will cause a certificate of merger (the “ Certificate of Merger ”) to be executed, acknowledged, and filed with the Secretary of State of the State of Delaware as provided in accordance with the relevant provision of the Act. The Merger will become effective (i) at the time the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware or (ii) at such later date or time as the Company and Parent may agree and specify in the Certificate of Merger (the time specified in (i) or (ii), as applicable, being the “ Effective Time ”).

 

1.3       Effect of the Merger . The Merger will have the effects set forth herein and in the applicable provisions of the Act. Without limiting the generality of the foregoing, and subject thereto, from and after the Effective Time, all property, rights, privileges, immunities, powers, franchises, licenses and authority of the Company and Merger Sub will vest in the Surviving Company, and all debts, liabilities, obligations, restrictions and duties of each of the Company and Merger Sub will become the debts, liabilities, obligations, restrictions and duties of the Surviving Company.

 

1.4       Certificate of Formation; Limited Liability Company Agreement .

 

(a)     The certificate of formation of the Company as in effect immediately before the Effective Time, with such amendments thereto as are included in the Certificate of Merger, will be the certificate of formation of the Surviving Company until thereafter amended in accordance with applicable Law.

 

(b)     The limited liability company agreement of Merger Sub in effect immediately before the Effective Time, but amended to reflect “BioD, LLC” rather than “DP Merger Sub One, LLC” as the name of the Surviving Company, will be the limited liability company agreement of the Surviving Company until thereafter amended in accordance with the terms thereof and as provided by applicable Law.

 

1.5       Managers and Officers . The managers and officers of Merger Sub in office immediately before the Effective Time will be the managers and officers of the Surviving Company at the Effective Time and thereafter until duly removed or until successors are duly elected or appointed and qualified, except that Russ Olsen will be added as both an additional manager and the Chief Executive Officer of the Surviving Company as of the Effective Time.

 

Article II
Conversion of Units; Merger Consideration

 

2.1       Conversion of Interests . At the Effective Time, by virtue of the Merger and without any action on the part of any party:

 

(a)     Each Equity Interest of Merger Sub issued and outstanding immediately before the Effective Time will be converted into and become one newly issued limited liability company membership interest of the Surviving Company, so that, after the Effective Time, Parent will be the holder of all of the issued and outstanding Equity Interests of the Surviving Company.

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

  

(b)     Each Unit issued and outstanding immediately before the Effective Time will be converted into and represent the right to receive an amount equal to the Per Unit Share of each payment of Merger Consideration that is payable to Former Equity Owners (whether at the Closing or at any time or times thereafter), under the terms of and subject to the procedures and limitations set forth in this Article II. From and after the Effective Time, each holder of any Units will have no rights with respect thereto, other than to receive amounts with respect thereto pursuant to the immediately preceding sentence.

 

2.2        Merger Consideration . The aggregate consideration to be paid by Parent in connection with the Merger (the “ Merger Consideration ”), a portion of which may be paid in Parent Shares as provided in Section 2.5 , will be equal to the sum of:

 

(a)     an amount equal to $21,300,309 (the “ Base Merger Consideration ”), as reduced by the net amount, if any, of the Estimated Adjustment provided for in Section 2.8(a)(ii) and the Post-Closing Working Capital Adjustment provided for in Section 2.8(b)(iv); plus

 

(b)     the amount, if any of the First Earn Out Consideration; plus

 

(c)     the amount, if any, of the Second Earn Out Consideration; plus

 

(d)     the amount, if any, of any Product Payments made pursuant to Section 2.12; plus

 

(e)     the amount of the Company Transaction Expenses; minus

 

(f)      the amount, if any, of the Reserved **** Collections Adjustment provided for in Section 2.9; and minus

 

(g)    the amount, if any, of the Base Accounts Receivable Collections Adjustment provided for in Section 2.10.

 

2.3       Unit Table . Attached as Exhibit A is a spreadsheet (the “ Unit Table ”), prepared by the Company, setting forth the name and address (as reflected on the Company’s records), of each Equity Owner and, in addition, as to each such Equity Owner, the following information (in each case as of the date of this Agreement and assuming no change in holdings of Equity Owners through the Effective Time): (a) the number of Class A Units, Class B Units, and/or Class C Units (as such terms are defined in the Company LLC Agreement) held by the Equity Owner; and (b) the Equity Owner’s resulting Sharing Ratio. For the avoidance of doubt, the parties acknowledge that the Sharing Ratios are expressed as percentages and that the sum of all Sharing Ratios added together equals 100%. At the Effective Time, each Equity Owner will become a Former Equity Owner. Payments to be made to Former Equity Owners pro rata pursuant to this Agreement will be made in proportion to their respective Sharing Ratios.

 

2.4       Payments at Closing .

 

(a)     Not less than two Business Days before the Closing, the Company will deliver to Parent a spreadsheet, in the form of Schedule 2.4, setting forth in detail (1) an updated version of the Unit Table showing all of the information noted in Section 2.3 as to each Equity Owner as of immediately before the Effective Time; (2) as to each such Equity Owner, whether that Equity Owner is an Accredited Investor or a Non-Accredited Investor; (3) as to each Accredited Investor, whether that Accredited Investor has made a “Stock Election,” a “Cash Election,” a “Mixed Election,” or “No Election” and each Accredited Investor’s “Cash-Election Percentage” and/or “PS-Election Percentage” (as each such term is defined in the Parent/Shares Cash Allocation Procedures set out in Exhibit B); and (4) the amounts of Company Transaction Expenses that will be outstanding at Closing as well as the names and addresses of all Persons who will be entitled to receive Company Transaction Expenses upon the occurrence of the Closing (the “ Closing Payment Spreadsheet ”).

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

 

(b)     At Closing, Parent will pay the Closing Payment in a mixture of (x) Parent Shares with an aggregate value of $7,455,108 (rounded downward to the nearest multiple of a whole number of Parent Shares, the “ Closing Payment Parent Shares ”), and (y) cash equal to the remainder of the Closing Payment (in the aggregate, the “ Closing Payment Cash ”), all of which, Closing Payment Parent Shares and Closing Payment Cash, will be paid as follows:

 

(i)      To the Company’s transfer agent (the “ Transfer Agent ”) to be held as issued and outstanding Parent Shares reserved solely for purposes of holding and making distributions thereof in accordance with the terms of this Agreement, a portion of the Closing Payment Parent Shares (all of which will be legended as contemplated by Section 2.5(d) and as contemplated by Section 2.5(e)) (collectively, the “ Escrowed Shares ”):

 

(A) Parent Shares with an aggregate value of $700,000 (the “ General Escrow PS Amount ”);

 

(B) Parent Shares with an aggregate value of $237,596 (the “ Reserved **** Collections Escrow PS Amount ”); and

 

(C) Parent Shares with an aggregate value of $175,000 (the “ Base Accounts Receivable Collections Escrow PS Amount ”);

 

(ii)     To the Former Equity Owners receiving Parent Shares, the remainder of the Closing Payment Parent Shares after reduction by the Escrowed Shares (all of which will be legended as contemplated by Section 2.5(d));

 

(iii)    To the Persons indicated, an amount in the aggregate equal to the Closing Payment Cash, as follows:

 

(A)    to the Escrow Agent, the following amounts, in cash, each to be held and disbursed by the Escrow Agent in accordance with the terms of the Escrow Agreement:

 

(I)      $1,300,000 (the “ General Escrow Cash Amount ” and, together with the General Escrow PS Amount, the “ General Escrow Amount ”);

 

(II)    $441,250 (the “ Reserved **** Collections Escrow Cash Amount ” and, together with the Reserved **** Collections Escrow PS Amount, the “ Reserved **** Collections Escrow Amount ”);

 

(III)    $325,000 (the “ Base Accounts Receivable Collections Escrow Cash Amount ,” and, together with the Base Accounts Receivable Collections Escrow PS Amount, the “ Base Accounts Receivable Collections Escrow Amount” );

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

  

(B)   to Representative, $10,000, in cash, (the “ Expense Fund Amount ”) in order to establish the Former Equity Owner Expense Fund; and

 

(C)   to the Paying Agent, for disbursement to the Former Equity Owners, the portion of the Closing Payment Cash remaining after the payments provided for in Section 2.4(b)(iii)(A) and (B) above (the “ Net Closing Cash ”).

 

(c)     At Closing, Parent will pay to each Person set forth on the Closing Payment Spreadsheet, an amount, in cash, equal to the Company Transaction Expenses set forth opposite such Person’s name.

 

(d)     Parent will effect the transfer of the Closing Payment Parent Shares provided for in Section 2.4(b)(ii), which shall be represented by book entry positions, through the Transfer Agent. Parent will instruct the Transfer Agent to: (i) reserve for issuance at the Effective Time a number of Parent Shares equal to the Parent Share Limit; (ii) reflect on its records the Parent Shares being issued to each Former Equity Owner receiving Parent Shares (other than Escrowed Shares) as a part of the Closing Payment; and (iii) send notice to the Former Equity Owners receiving Parent Shares of such Parent Shares being issued as a part of the Closing Payment promptly following the Closing Date, pursuant to mailing instructions provided by such Former Equity Owner or the Representative. The Transfer Agent shall set up separate accounts for each category of Escrowed Shares with all such Escrowed Shares held as provided in Section 2.4(b)(i).

 

(e)     Parent will make the payments provided for in Section 2.4(b)(iii)(A) by wire transfer of immediately available funds pursuant to wire transfer instructions to be provided by Escrow Agent. Parent will make the payments provided for in Sections 2.4(b)(iii)(B) and 2.4(c) by wire transfer of immediately available funds pursuant to wire transfer instructions to be provided by Representative concurrently with the Closing Payment Spreadsheet. Parent will pay the Net Closing Cash provided for in Section 2.4(b)(iii)(C) and will deliver the Closing Payment Parent Shares in accordance with Section 2.5 .

 

2.5       Closing Payment .

 

(a)     Parent will make the Closing Payment in accordance with and subject to the following limitations:

 

(i)      The maximum aggregate number of Parent Shares to be used by Parent to pay consideration to all Former Equity Owners (whether as part of the Closing Payment, as part of any Escrowed Shares, or as part of any later payment of Merger Consideration) will not exceed the Parent Share Limit;

 

(ii)     That portion of the Closing Payment to be paid to any Non-Accredited Investor will be paid entirely in cash out of that portion of the Net Closing Cash referred to in Section  2.4(b)(iii)(C);

 

(iii)    Subject to the limitations set forth in Sections 2.5(a)(i) and (ii) , that portion of the Closing Payment to be paid to any Accredited Investor will be paid in such combination of (A) Parent Shares and (B) cash as is determined pursuant to the Parent Shares/Cash Allocation Procedures.

 

For the avoidance of doubt, if and to the extent any portion of the Closing Payment to be made to any Former Equity Owner is withheld as contemplated by Section 2.7 , unless otherwise determined by Parent, that withholding will be deducted from the Net Closing Cash and any amount so withheld will be treated as having been paid to the Former Equity Owner for all purposes of this Agreement.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

  

(b)     Parent will deliver that portion of the Closing Payment Parent Shares that is to be paid to each Former Equity Owner through the Transfer Agent so that the Parent Shares so delivered will be held in the name of the Former Equity Owner immediately after the Closing; except that in the case of any Former Equity Owner who has not delivered to Parent, by not later than two Business Days before the Closing, an accredited investor letter in such form as Parent may reasonably require, the completion of the transfer of the Parent Shares to the Former Equity Owner will be delayed by the Transfer Agent until Parent has received such an accredited investor letter from the Former Equity Owner after the Closing.

 

(c)     Parent will deliver the Escrowed Shares to the Transfer Agent to be held as contemplated in Section 2.4(b)(i).

 

(d)     Each book-entry confirmation representing any of the Closing Payment Parent Shares (including the Escrowed Shares) will be subject to stop transfer instructions and will be stamped or otherwise imprinted with a legend substantially in the following form:

 

“THE SECURITIES REPRESENTED BY CONFIRMATION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER.”

 

(e)      Each book-entry confirmation representing any of the Escrowed Shares will be subject to stop transfer instructions and will be stamped or otherwise imprinted with a legend (the “ Escrow Legend ”) substantially in the following form:

 

“THE SALE OR OTHER TRANSFER OF THESE SECURITIES REPRESENTED BY CONFIRMATION, WHETHER VOLUNTARY OR BY OPERATION OF LAW, IS SUBJECT TO CERTAIN RESTRICTIONS, AS WELL AS A POTENTIAL OBLIGATION TO SURRENDER THE SECURITIES, BY ACTION OF THE REPRESENTATIVE, IN CERTAIN CIRCUMSTANCES, ALL AS SET FORTH IN AN AGREEMENT AND PLAN OF MERGER BETWEEN DERMA SCIENCES, INC., DB MERGER SUB ONE, LLC, BIOD, LLC, AND CYNTHIA WEATHERLY AS REPRESENTATIVE, DATED JULY 27, 2016. A COPY OF SUCH AGREEMENT MAY BE OBTAINED FROM THE SECRETARY OF DERMA SCIENCES, INC.”

 

(f)      Parent will pay that portion of the Net Closing Cash that is to be paid to each Former Equity Owner in accordance with the Closing Payment Spreadsheet and by wire transfer of immediately available funds pursuant to wire transfer instructions to be provided by Representative concurrently with the Closing Payment Spreadsheet; except that in the case of any Former Equity Owner who has not delivered to Parent a duly executed and valid Form W-9 (or Form W-8BEN in the case of a non-resident alien individuals or foreign entities) (any such duly executed and Valid Form W-9 or Form W-8BEN, as the case may be, a “ Valid Form W-9 or W-8BEN ”) or with respect to which wire transfer instructions have not been so delivered, Parent will retain the cash that would otherwise have been paid to that Former Equity Owner, to be held until Parent has received a duly executed and Valid Form W-9 or W-8BEN or wire transfer instructions, as the case may be, and then paid by Parent to the Former Equity Owner.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

 

(g)     No interest will be paid to or accrued in favor of any Former Equity Owner with respect to payments of any Merger Consideration that is paid at any time after the Closing Date in accordance with any provision of this Section 2.5 .

 

(h)    Any portion of the Closing Payment that remains unclaimed by the Former Equity Owners after the first anniversary of the Closing Date will be returned to Parent, upon demand, and any such Former Equity Owner who has not delivered a Valid Form W-9 or W-8BEN or an accredited investor letter, as the case may be, on or before that first anniversary, may thereafter look only to Parent for payment of the Closing Payment. Notwithstanding the foregoing, Parent will not be liable to any Former Equity Owner for any amounts paid to a Government Entity pursuant to applicable abandoned property, escheat or similar applicable Laws. Any amounts remaining unclaimed by Former Equity Owners by the second anniversary of the Closing Date (or such earlier date, immediately before such time when the amounts would otherwise escheat to or become property of any Government Entity) will become, to the extent permitted by applicable Laws, the property of Parent free and clear of any claims or interest of any Person previously entitled thereto.

 

(i)     Parent Shares/Cash Allocation Procedures . Attached as Exhibit B are the procedures (the “ Parent Shares/Cash Allocation Procedures ”) to be used to determine, as to that portion of the Closing Payment (and as to that portion of any Earn Out Payment or Product Payment) that is to be made to any Accredited Investor, the part thereof that will be paid in Parent Shares, on the one hand, and the part thereof that will be paid in cash, on the other hand.

 

2.6       Per Share Signing Value . The per share value of Parent Shares used to make any portion of the Closing Payment will be equal to the volume weighted average price per share for all transactions in Parent Shares reported on The NASDAQ Stock Market LLC during the ten most recent consecutive trading days ending immediately before the date of this Agreement (the “ Per Share Signing Value ”).

 

2.7       Withholding . Notwithstanding any provision contained herein to the contrary, each of the Paying Agent, the Escrow Agent, the Surviving Company, Representative and Parent will be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this Agreement such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of applicable Law. If the Paying Agent, the Escrow Agent, the Surviving Company, Representative or Parent, as the case may be, so withholds amounts, such amounts will be treated for all purposes of this Agreement as having been paid to such Person in respect of which the Paying Agent, the Escrow Agent, the Surviving Company, Representative or Parent, as the case may be, made such deduction and withholding.

 

2.8       Working Capital Adjustments . The Base Merger Consideration will be subject to adjustment as follows:

 

(a)     Pre-Closing Working Capital Adjustment .

 

(i)          Pre-Closing Statement . At least three Business Days before the Closing Date, the Company will deliver to Parent (A) a balance sheet of the Company as of June 30, 2016, and (B) an estimate of the Closing Working Capital (the “ Estimated Closing Working Capital ”), together with all worksheets, working papers, line item details for accounts, schedules and other data reasonably requested by Parent to support such estimate (collectively, the “ Pre-Closing Statement ”). The Company represents that the Estimated Closing Working Capital included in the Pre-Closing Statement has been determined, and that the Pre-Closing Statement has been prepared, in accordance with GAAP.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

  

(ii)         Estimated Adjustment . As the adjustment contemplated by Section 2.2 , the Base Merger Consideration will be decreased by the amount, if any, by which the Estimated Closing Working Capital falls short of the $**** amount shown as the consolidated working capital of the BioD Companies in the June 30, 2016 Financial Statements (any such shortfall, the “ Estimated Adjustment ”). The Base Merger Consideration, as determined for purposes of the Closing after the adjustment set forth in this Section 2.8(a)(ii) , is referred to herein as the “ Closing Payment .”

 

(b)     Post-Closing Working Capital Adjustment .

 

(i)          Closing Statement . As promptly as practicable, but in any event within 45 days after the Closing Date, Parent will deliver to Representative (i) an unaudited balance sheet of the Company as of the Closing Date and (ii) its calculation of the Closing Working Capital, together with all worksheets, working papers, line item details for accounts, schedules and other data reasonably requested by Representative to support such calculation (collectively, the “ Closing Statement ”). The Closing Statement will be prepared in accordance with GAAP.

 

(ii)         Dispute . Within 45 days following delivery of the Closing Statement by Parent, if Representative has any objection to Parent’s calculation of the Closing Working Capital or any other items set forth in the Closing Statement, Representative will deliver to Parent a written statement setting forth her objections to the Closing Statement (an “ Objections Statement ”), which statement will identify in reasonable detail any and all items and amounts to which Representative objects (such items and amounts so specified in reasonable detail in the Objections Statement, the “ Disputed Items ”). If Representative does not deliver an Objections Statement to Parent within such 45 day period, the Closing Statement as prepared by Parent will be final, binding and non-appealable by the parties. If Representative delivers an Objections Statement, Representative and Parent will negotiate in good faith to resolve any Disputed Items. If Representative and Parent are not able to reach a final resolution with respect to any Disputed Item within 30 days after the delivery of the Objections Statement to Parent, Representative and Parent will jointly engage PricewaterhouseCoopers (or, if PricewaterhouseCoopers is either Parent’s accountants or the Company’s accounts, then such impartial nationally recognized firm of independent certified public accountants, other than Parent’s accountants or the Company’s accountants, appointed by mutual agreement of Parent and the Representative) (in either case, the “ Accounting Firm ”) to resolve any unresolved Disputed Items. If the parties so engage the Accounting Firm, each party will submit to the Accounting Firm, not later than 30 days after the date on which the Accounting Firm is engaged, a written statement with its position on each Disputed Item (which, in the case of Parent, will be consistent with the position taken in the Closing Statement and, in the case of Representative, will be consistent with the position taken in the Objections Statement), together with such supporting documentation as may be reasonably requested by the Accounting Firm. Representative and Parent will each be entitled to meet with the Accounting Firm and will each use their respective commercially reasonable efforts to cause the Accounting Firm to resolve such dispute as soon as practicable, but in any event within 30 days after the date on which the Accounting Firm receives the statements prepared by Representative and Parent. The Accounting Firm will determine the amount of the Closing Working Capital based in accordance with GAAP and its final determination will be, in the aggregate, neither more favorable to Parent than the position taken by Parent in the Closing Statement, nor more favorable to Representative than the position taken by Representative in the Objections Statement. The Accounting Firm will provide a calculation of the Closing Working Capital to both parties based on its resolution of the Disputed Items, and the Closing Working Capital as so calculated will be final, binding and non-appealable by the parties. Each party will bear its own costs and expenses in connection with the resolution of any such dispute by the Accounting Firm. The costs and expenses of the Accounting Firm will be paid by the parties in inverse proportion to the extent to which the dollar amount of Closing Working Capital contended for by each party (in the Closing Statement and in the Objections Statement, respectively) matches the dollar amount of the Closing Working Capital as determined by the Accounting Firm. As an example only, if: Parent, in the Closing Statement, contended that Closing Working Capital should be $X; Representative, in the Objections Statement, contended that Closing Working Capital should be $X + $100,000; and the Accounting Firm determined Closing Working Capital to be $X + $70,000, Parent would be required to pay 70% of the costs and expenses of the Accounting Firm and Representative would be required to pay the remaining 30% of those costs and expenses.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

 

(iii)        Access . For purposes of complying with the terms set forth in this Section 2.8(b) , Representative, on the one hand, and Parent, on the other hand, will, and Parent will cause the Company to, cooperate with and provide the other party, the Accounting Firm and their respective representatives with access (upon reasonable notice and during normal business hours) to the books, records (including work papers, schedules, memoranda and other documents), supporting data, facilities and employees of the Company as may be reasonably requested in connection with review of the Closing Statement and the resolution of any Disputed Items.

 

(iv)        Adjustment .

 

(A) If the Closing Working Capital (as finally determined pursuant to this Section 2.8(b) ) is less than the smaller of (x) the Estimated Closing Working Capital, or (y) $****, the Base Merger Consideration will be decreased on a dollar-for-dollar basis by an amount equal to the amount by which the Closing Working Capital is less than the smaller of the Estimated Working Capital or $****.

 

(B) If the Closing Working Capital (as finally determined pursuant to this Section 2.8(b) ) is greater than the Estimated Closing Working Capital, the Base Merger Consideration will be increased on a dollar-for-dollar basis by an amount equal to the smaller of (x) the amount by which Closing Working Capital (as finally determined pursuant to this Section 2.8(b) ) exceeds Estimated Working Capital, or (y) the dollar amount of the Estimated Adjustment.

 

The adjustment, if any, provided for in this Section 2.8(b)(iv) is referred to in this Agreement as the “ Post-Closing Working Capital Adjustment .”

 

(v)         Payment of Adjustment .

 

(A) If the Base Merger Consideration is reduced pursuant to Section 2.8(b)(iv)(A) , Parent and Representative will deliver to the Escrow Agent and to the Transfer Agent, within five Business Days of the date of the final determination of the dollar amount of the Closing Working Capital pursuant to this Section 2.8(b) (whether by delivery from Representative to Parent of a written acceptance of the amount reflected in the Closing Statement, by the expiration of 30 days after delivery of the Closing Statement by Parent without Representative having delivered an Objections Statement, upon delivery by the Accounting Firm of its calculation, or upon other mutual agreement by Parent and Representative), joint instructions directing the Escrow Agent and the Transfer Agent to pay to Parent an aggregate amount, in cash and Escrowed Shares, free of the Escrow Legend, equal to the Post-Closing Working Capital Adjustment, with the cash portion of any such payment to be made from the General Escrow Cash Amount, by wire transfer of immediately available funds, within two Business Days of the receipt by the Escrow Agent of those instructions, and the Escrowed Shares portion of any such payment to be made from the General Escrow PS Amount, by transfer of the Escrowed Shares constituting that portion to Parent to be held as treasury shares free of the Escrow Legend.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

  

(B) If the Base Merger Consideration is increased pursuant to Section 2.8(b)(iv) , Parent will pay to the Paying Agent for disbursement to the Former Equity Owners in accordance with their Sharing Ratios, within five Business Days of the date of the final determination of the dollar amount of the Closing Working Capital pursuant to this Section 2.8(b) (whether by delivery from Representative to Parent of a written acceptance of the amount reflected in the Closing Statement, by the expiration of 30 days after delivery of the Closing Statement by Parent without Representative having delivered an Objections Statement, upon delivery by the Accounting Firm of its calculation, or upon other mutual agreement by Parent and Representative), an amount equal to the Post-Closing Working Capital Adjustment, as follows:

 

(I)      each Former Equity Owner’s Sharing Ratio will be multiplied by the aggregate amount to be paid or transferred to all Former Equity Owners (such product being, with respect to each Former Equity Owner, the “ Working Capital Pro Rata Share ”);

 

(II)    each Former Equity Owner’s Working Capital Pro Rata Share (x) will be multiplied by such Former Equity Owner’s Adjusted Cash-Election Percentage (as defined in the Parent Shares/Cash Allocation Procedures) (such product being the “ Working Capital Pro Rata Cash Share ”) and (y) will be multiplied by such Former Equity Owner’s Adjusted PS-Election Percentage (as defined in the Parent Shares/Cash Allocation Procedures) (such product being the “ Working Capital Pro Rata PS Share ”); and

 

(III)   each Former Equity Owner will receive an amount of cash equal to its Working Capital Pro Rata Cash Share and Parent Shares equal to its Working Capital Pro Rata PS Share (which such cash and Parent Shares will be paid or delivered by Parent in the same manner as the Closing Payment Parent Shares (other than the Escrowed Shares).

 

(c)     Treatment of Adjustments . Any amount to be paid pursuant to this Section 2.8 will be treated as an adjustment to the Merger Consideration for all purposes.

 

2.9        Reserved **** Collections Adjustment .

 

(a)       For purposes of this Agreement, “ Reserved **** Receivables ” means “those receivables with respect to Net Sales attributable to **** Products for the 12-month period ended June 30, 2016 that are included on Schedule 2.9, which receivables, in the aggregate, have a face value of $****. From and after the Closing Date, the Company will use at least the same degree of effort to collect the Reserved **** Receivables as it has historically used to collect receivables generally.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

 

(b)        The Company will track all collections of Reserved **** Receivables received by the Company from July 1, 2016 through October 27, 2016 (the “ October Report Date ”) and from the October Report Date through January 27, 2017 (the “ January Report Date ”). Within ten days of the October Report Date, the Company will provide a report to Parent and to Representative that sets forth the aggregate dollar amount collected by the Company with respect to all Reserved **** Receivables from July 1, 2016 through the October Report Date (the “ First Tranche of Reserved **** Collections ”). Within ten days of the January Report Date, the Company will provide a report to Parent and to Representative that sets forth the aggregate dollar amount collected by the Company with respect to all Reserved **** Receivables after the October Report Date and through the January Report Date (the “ Second Tranche of Reserved **** Collections ”).

 

(i)       By not later than three days after receipt by the Company of the October Report Date, Parent and Representative will deliver joint instructions directing the Escrow Agent and the Transfer Agent to pay to the Paying Agent for disbursement to Former Equity Owners and to transfer to Former Equity Owners, an aggregate amount, in cash and Escrowed Shares, free of the Escrow Legend, equal to the lesser of (A) **** times the First Tranche of Reserved **** Collections, or (B) the entire Reserved **** Collections Escrow Amount, subject to Sections 2.9(c) and (d).

 

(ii)     By not later than three days after receipt by the Company of the January Report Date, Parent and Representative will deliver joint instructions directing the Escrow Agent and the Transfer Agent to pay to the Paying Agent for disbursement to Former Equity Owners and to transfer to Former Equity Owners, subject to Section 2.9(c) and (d):

 

(A) from the Reserved **** Collections Escrow Amount, an aggregate amount, in cash and Escrowed Shares, free of the Escrow Legend, equal to the lesser of (A) **** times the Second Tranche of Reserved **** Collections, or (B) the entire amount remaining in the Reserved **** Collections Escrow Amount after the making of the payment provided for in Section 2.9(b)(i), and

 

(B) to pay to Parent, in cash and by transfer of Escrowed Shares, free of the Escrow Legend, the remainder, if any, of the Reserved **** Collections Escrow Amount. Any amount of cash so paid and Escrowed Shares so transferred to Parent (the “ Reserved **** Collections Adjustment ”) will constitute a reduction of the Merger Consideration as provided in Section 2.2(f).

 

(c)       Any payment of cash or transfer of Escrowed Shares to the Former Equity Owners pursuant to this Section 2.9 will be paid or transferred, as applicable, as if such cash and Escrowed Shares were a part of Net Closing Cash and/or Closing Payment Parent Shares, and will be subject to the limitations and payment procedures set forth in Section 2.5 and subject to adjustment pursuant to the Parent Shares/Cash Allocation Procedures. As to any payment or transfer pursuant to this Section 2.9, the cash portion will come from the Reserved **** Collections Escrow Cash Amount and the Escrowed Shares portion will come from the Reserved **** Collections Escrow PS Amount and will be paid or transferred as follows:

 

(i)       each Former Equity Owner’s Sharing Ratio will be multiplied by the aggregate amount to be paid or transferred to all Former Equity Owners pursuant to this Section 2.9 (such product being, with respect to each Former Equity Owner, the “ **** Collections Pro Rata Share ”);

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

  

(ii)     each Former Equity Owner’s **** Collections Pro Rata Share (x) will be multiplied by such Former Equity Owner’s Adjusted Cash-Election Percentage (as defined in the Parent Shares/Cash Allocation Procedures) (such product being the “ **** Collections Pro Rata Cash Share ”) and (y) will be multiplied by such Former Equity Owner’s Adjusted PS-Election Percentage (as defined in the Parent Shares/Cash Allocation Procedures) (such product being the “ **** Collections Pro Rata PS Share ”); and

 

(iii)    subject to Section 2.9(d) , each Former Equity Owner will receive an amount of cash equal to its **** Collections Pro Rata Cash Share and Escrowed Shares, free of the Escrow Legend equal to its **** Collections Pro Rata PS Share (which cash and Escrowed Shares will be transferred from the Reserved **** Collections Escrow Cash Amount and the Reserved **** Collections Escrow PS Amount, respectively).

 

(d)        If any Former Equity Holder has failed to provide a Valid Form 9 or 8BEN, the Escrow Agent will pay any amount that would otherwise have been payable to that Former Equity Holder pursuant to Section 2.9(b)(i) to Parent, to be held by Parent until the Former Equity Holder provides a Valid Form 9 or 8BEN and then paid to the Former Equity Holder by Parent.

 

2.10     Base Accounts Receivable Collections Adjustment .

 

(a)      For purposes of this Agreement:

 

(i)           Base Accounts Receivable ” means those accounts receivable of the BioD Companies, totaling $****, that were outstanding on June 30, 2016 and are included on the aged listing of Accounts Receivable outstanding on that date that is attached to this Agreement as Exhibit C ; and

 

(ii)          Base Collections Threshold ” means $****.

 

(b)        From the Closing Date through the first anniversary of the Closing Date (that first anniversary, the “ Base Collection Cutoff Date ”), the Company will use at least the same degree of effort to collect the Base Accounts Receivable as it has historically used to collect accounts receivables generally and will provide a status report on collections of Base Accounts Receivable to Representative at least once each calendar quarter. Not later than ten days after the Base Collection Cutoff Date, the Company will provide a report to Parent and to Representative that sets forth the aggregate dollar amount collected by the Company with respect to all Base Accounts Receivable from July 1, 2016 through the Base Collection Cutoff Date (such dollar amount, the “ Base Accounts Receivable Collections ”).

 

(c)        By not later than 30 days after the Base Collection Cutoff Date, Parent and Representative will deliver joint instructions directing the Escrow Agent and the Transfer Agent:

 

(i)       to pay to the Paying Agent for disbursement to Former Equity Owners and to transfer to Former Equity Owners (subject to Sections 2.10(d)) from the Base Accounts Receivable Collections Escrow Amount, an aggregate amount, in cash and Escrowed Shares, free of the Escrow Legend, equal to the lesser of (A) the amount by which the Base Accounts Receivable Collections exceeds the Base Collections Threshold, or (B) the entire Base Accounts Receivable Collections Escrow Amount; and

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

 

(ii)     to pay to Parent, in cash and by transfer of Escrowed Shares, free of the Escrow Legend, the remainder, if any, of the Base Accounts Receivable Collections Escrow Amount. Any amount of cash so paid and Escrowed Shares so transferred to Parent (the “ Base Accounts Receivable Collections Adjustment ”) will constitute a reduction of the Merger Consideration as provided in Section 2.2(g).

 

(d)       Any payment of cash or transfer of Escrowed Shares to the Former Equity Owners pursuant to this Section 2.10 will be paid and transferred, as applicable, as if such cash and Escrowed Shares were a part of Net Closing Cash and/or Closing Payment Parent Shares, and will be subject to the limitations and payment procedures set forth in Section 2.5 and subject to adjustment pursuant to the Parent Shares/Cash Allocation Procedures. As to any payment or transfer pursuant to this Section 2.10, the cash portion will come from the Base Accounts Receivable Collections Escrow Cash Amount and the Escrowed Shares portion will come from the Base Accounts Receivable Collections Escrow PS Amount, and will be paid or transferred as follows:

 

(i)           each Former Equity Owner’s Sharing Ratio will be multiplied by the aggregate amount to be paid or transferred to all Former Equity Owners pursuant to this Section 2.10 (such product being, with respect to each Former Equity Owner, the “ Base Accounts Receivable Collections Pro Rata Share ”);

 

(ii)          each Former Equity Owner’s Base Accounts Receivable Collections Pro Rata Share (x) will be multiplied by such Former Equity Owner’s Adjusted Cash-Election Percentage (as defined in the Parent Shares/Cash Allocation Procedures) (such product being the “ Base Accounts Receivable Collections Pro Rata Cash Share ”) and (y) will be multiplied by such Former Equity Owner’s Adjusted PS-Election Percentage (as defined in the Parent Shares/Cash Allocation Procedures) (such product being the “ Base Accounts Receivable Collections Pro Rata PS Share ”); and

 

(iii)         subject to Section 2.10(e) , each Former Equity Owner will receive an amount of cash equal to its Base Accounts Receivable Collections Pro Rata Cash Share and Escrowed Shares equal to its Base Accounts Receivable Collections Pro Rata PS Share (which cash and Escrowed Shares will be transferred from the Base Accounts Receivable Collections Escrow Cash Amount and the Base Accounts Receivable Collections Escrow PS Amount, respectively).

 

(e)        If any Former Equity Holder has failed to provide a Valid Form 9 or 8BEN, the Escrow Agent will pay any amount that would otherwise have been payable to that Former Equity Holder pursuant to 2.10(c)(i) to Parent, to be held by Parent until the Former Equity Holder provides a Valid Form 9 or 8BEN and then paid to the Former Equity Holder by Parent.

 

2.11     Earn Out . As contemplated by Section 2.2 , Former Equity Owners will be entitled to additional consideration as follows:

 

(a)       First Earn Out Consideration . If the Net Sales of the BioD Companies for the 12-month period ending on June 30, 2017 (the “ First Earn Out Year ”) exceeds the Net Sales of the BioD Companies for the 12-month period ending on June 30, 2016, the Former Equity Owners will be entitled to receive additional consideration (the “ First Earn Out Consideration ”) in an aggregate amount equal to **** times the dollar amount of that excess, subject to (i) an upper limit on the amount of the First Earn Out Consideration equal to $26,500,000, and (ii) potential offset of any portion of the First Earn Out Consideration in excess of $13,250,000 (any such excess, the “ First Year Suspense Amount ”) by any Second Year Shortfall, as provided in Section 2.11(c).

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

  

(b)       Second Earn Out Consideration . If the Net Sales of the BioD Companies for the 12-month period ending on June 30, 2018 (the “ Second Earn Out Year ”) exceeds the Net Sales of the BioD Companies for the First Earn Out Year, the Former Equity Owners will be entitled to receive additional consideration (the “ Second Earn Out Consideration ”) in an aggregate amount equal to **** times the dollar amount of that excess, subject to an upper limit on the amount of the Second Earn Out Consideration equal to $26,500, 000 minus the amount of the First Earn Out Consideration.

 

(c)       Potential Clawback. If the Net Sales of the BioD Companies for the Second Earn Out Year fall short of the Net Sales of the BioD Companies for the First Earn Out Year (the amount of any such shortfall, the “ Second Year Shortfall ”), the First Year Suspense Amount will be offset and reduced, but not below zero, by an aggregate amount equal to **** times the dollar amount of the Second Year Shortfall. To the extent any First Year Suspense Amount is so offset and reduced, it will not be paid.

 

(d)       Earn Out Statements . No later than 60 days following the end of each Earn Out Year (each such 60-day period, an “ Earn Out Review Period ”), Parent will prepare and deliver to Representative a statement (an “ Earn Out Statement ”) setting forth its calculation of Net Sales relevant to determining the amount, if any, of (i) the First Earn Out Consideration and any First Year Suspense Amount (after the First Earn Out Year), or (ii) the Second Earn Out Consideration or any offset of the First Year Suspense Amount (after the end of the Second Earn Out Year).

 

(e)       Dispute . Within 45 days following delivery of each Earn Out Statement by Parent, if Representative has any objection to Parent’s calculation of the First Earn Out Consideration, the Second Earn Out Consideration, or any First Year Suspense Amount, as the case may be, Representative will deliver to Parent a written statement setting forth her objections to the Earn Out Statement (an “ Earn Out Objections Statement ”), which statement will identify in reasonable detail any and all items and amounts to which Representative objects (such items and amounts so specified in reasonable detail in the Earn Out Objections Statement, the “ Earn Out Disputed Items ”). If Representative does not deliver an Earn Out Objections Statement to Parent within such 45 day period, the Earn Out Statement as prepared by Parent will be final, binding and non-appealable by the parties. If Representative delivers an Earn Out Objections Statement, Representative and Parent will negotiate in good faith to resolve any Earn Out Disputed Items. If Representative and Parent are not able to reach a final resolution with respect to any Earn Out Disputed Item within 30 days after the delivery of the Earn Out Objections Statement to Parent, Representative and Parent will jointly engage the Accounting Firm to resolve any unresolved Earn Out Disputed Items. If the parties so engage the Accounting Firm, each party will submit to the Accounting Firm, not later than 30 days after the date on which the Accounting Firm is engaged, a written statement with its position on each Earn Out Disputed Item (which, in the case of Parent, will be consistent with the position taken in the Earn Out Statement and, in the case of Representative, will be consistent with the position taken in the Earn Out Objections Statement), together with such supporting documentation as may be reasonably requested by the Accounting Firm. Representative and Parent will each be entitled to meet with the Accounting Firm and will each use their respective commercially reasonable efforts to cause the Accounting Firm to resolve such dispute as soon as practicable, but in any event within 30 days after the date on which the Accounting Firm receives the statements prepared by Representative and Parent. The Accounting Firm will determine the amount of the First Earn Out Consideration, the Second Earn Out Consideration, or any First Year Suspense Amount, as the case may be, in accordance with GAAP and its final determination will be, in the aggregate, neither more favorable to Parent than the position taken by Parent in the Earn Out Statement, nor more favorable to Representative than the position taken by Representative in the Earn Out Objections Statement. The Accounting Firm will provide a calculation of the First Earn Out Consideration, the Second Earn Out Consideration, or any First Year Suspense Amount, as the case may be, to both parties based on its resolution of the Earn Out Disputed Items, and the First Earn Out Consideration, the Second Earn Out Consideration, or any First Year Suspense Amount, as the case may be, as so calculated will be final, binding and non-appealable by the parties. Each party will bear its own costs and expenses in connection with the resolution of any such dispute by the Accounting Firm. The costs and expenses of the Accounting Firm will be paid by the parties in inverse proportion to the extent to which the dollar amount of the First Earn Out Consideration, the Second Earn Out Consideration, or any First Year Suspense Amount, as the case may be,, contended for by each party (in the Earn Out Statement and in the Earn Out Objections Statement, respectively) matches the dollar amount of the First Earn Out Consideration, the Second Earn Out Consideration, or any First Year Suspense Amount, as the case may be, as determined by the Accounting Firm.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

  

(f)       Access . For purposes of complying with the terms set forth in this Section 2.11 , Representative, on the one hand, and Parent, on the other hand, will, and Parent will cause the Company to, cooperate with and provide the other party, the Accounting Firm and their respective representatives with access (upon reasonable notice and during normal business hours) to the books, records (including work papers, schedules, memoranda and other documents), supporting data, facilities and employees of the Company as may be reasonably requested in connection with review of any Earn Out Statement and the resolution of any Earn Out Disputed Items.

 

(g)      Per Share Earn Out Payment Value . The per share value of Parent Shares used to make any portion of the First Earn Out Payment or the Second Earn Out Payment, as the case may be, will be equal to the volume weighted average price per share for all transactions in Parent Shares reported on The NASDAQ Stock Market LLC during the last ten consecutive trading days in the respective Earn Out Review Period (the “ Per Share Earn Out Payment Value ”).

 

(h)      Payment of Earn Out Consideration . Parent will pay (x) the First Earn Out Consideration (less any First Year Suspense Amount), and (y) the Second Earn Out Consideration and any First Year Suspense Amount remaining after the application of Section 2.11(c), as the case may be, within five Business Days of the date of the final determination of the dollar amount of the items specified in clause (x) or (y), as the case may be (whether by delivery from Representative to Parent of a written acceptance of the amount reflected in an Earn Out Statement, by the expiration of 45 days after delivery of the Earn Out Statement by Parent without Representative having delivered an Earn Out Objections Statement, upon delivery by the Accounting Firm of its calculation, or upon other mutual agreement by Parent and Representative). Parent will make each Earn Out Payment using such combination of Parent Shares, valued at the Per Share Earn Out Payment Value, and cash as Parent may determine in its sole discretion, except that:

 

(i)      the maximum aggregate number of Parent Shares to be used by Parent to pay consideration to all Former Equity Owners (whether as part of the Closing Payment, any Earn Out Payment, and/or any Product Payment) will not exceed the Parent Share Limit;

 

(ii)     no more than 35% of the aggregate amount of any Earn Out Payment will be made in Parent Shares;

 

(iii)    the portion of any Earn Out Payment to be made to any Non-Accredited Investor will be made entirely in cash; and

 

(iv)     the portions of any Earn Out Payment to be made to any Accredited Investor (A) in Parent Shares (if and to the extent Parent elects to make any part of the Earn Out Payment in Parent Shares) and (B) in cash will be determined in accordance with the Parent Shares/Cash Allocation Procedures.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

 

For the avoidance of doubt, if and to the extent any portion of the Earn Out Payment to be made to any Former Equity Owner is withheld as contemplated by Section 2.7 , unless otherwise determined by Parent, that withholding will be deducted from the cash portion of that Earn Out Payment and any amount so withheld will be treated as having been paid to the Former Equity Owner for all purposes of this Agreement.

 

(i)        Payment Procedures . Parent will make the cash portion and Parent Shares portions of any Earn Out Payment that is to be made to each Former Equity Owner through the Paying Agent and the Transfer Agent following procedures consistent with those prescribed in Section 2.5 in connection with the payment of cash and delivery of Parent Shares as part of the Closing Payment.

 

(j)        No Interest . No interest will be paid to or accrued in favor of any Former Equity Owner with respect to payments of any Earn Out Payment in accordance with any provision of this Section 2.11 .

 

(k)       Unclaimed Interests . Any portion of an Earn Out Payment that remains unclaimed by the Former Equity Owners after the first anniversary of the date on which such Earn Out Payment was first tendered generally to Former Equity Owners will be returned to Parent, upon demand, and any such Former Equity Owner who has not delivered a Valid Form W-9 or W-8BEN or an accredited investor letter, as the case may be, on or before that first anniversary, may thereafter look only to Parent for payment of the Earn out Payment. Notwithstanding the foregoing, Parent will not be liable to any Former Equity Owner for any amounts paid to a Government Entity pursuant to applicable abandoned property, escheat or similar applicable Laws. Any amounts remaining unclaimed by Former Equity Owners by the second anniversary of the date on which such Earn Out Payment was first tendered generally to Former Equity Owners (or such earlier date, immediately before such time when the amounts would otherwise escheat to or become property of any Government Entity) will become, to the extent permitted by applicable Laws, the property of Parent free and clear of any claims or interest of any Person previously entitled thereto.

 

(l)       Obligation Transferred to New Parent . Until the first date on which the First Earn Out Consideration and the Second Earn Out Consideration have been paid or it has been determined that no amount remains to be paid as any part of the First Earn Out Consideration (including any First Year Overage Amount that is not offset) or as any Second Earn Out Consideration (such first date, the “ Earn Out Completion Date ”), if Parent effects a sale, lease, exchange or other transfer, directly or indirectly, in one transaction or a series of related transactions, of all or substantially all of the assets of Parent or the Company or a merger, consolidation, recapitalization or other transaction in which any Person other than Parent or any Subsidiary of Parent becomes the beneficial owner, directly or indirectly, of 50% or more of the combined voting power of all interests in Parent or the Company (in either event, a “ New Parent ”), then Parent will cause such agreement as contains the terms and conditions governing such transaction to obligate the New Parent to make the First Earn Out Consideration Payment and/or Second Earn Out Consideration Payment, as applicable, as contemplated by this Agreement. If, at the time if any at which a New Parent becomes obligated to make any Earn Out Consideration Payment, the New Parent is not a publicly traded entity, all Earn Out Consideration Payments made by the New Parent must be made in cash (and no portion thereof may be paid in stock of the New Parent).

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

  

(m)      Acceleration in Certain Events .

 

(i)       ****

 

(ii)      ****

 

(A) ****

 

(B) ****

 

(iii)     ****

 

(A) ****

 

(B) ****

 

2.12         Product Payments . As contemplated by Section 2.2 , Former Equity Owners will be entitled to additional consideration with respect to **** and **** if and to the extent so provided in the remainder of this Section 2.12 (any such additional consideration, a “ Product Payment ”):

 

(a)      **** Product Payment .

 

(i)      ****

 

(ii)     ****

 

(A) ****

 

(B) ****

 

(C) ****

 

(I)       ****

 

(II)      ****

 

****

 

(iii)     ****

 

(A) ****

 

(B) ****

 

(C) ****

 

(I)        ****

 

(II)      ****

 

****

 

(iv)      ****

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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****

 

(b)      **** Product Payment .

 

(i)        ****

 

(ii)       ****

 

(A) ****

 

(B) ****

 

(C) ****

 

(I)         ****

 

(II)        ****

 

****

 

(iii)       ****

 

(A) ****

 

(B) ****

 

(C) ****

 

(I)        ****

 

(II)       ****

 

****

 

(iv)        ****

 

****

 

(c)      Aggregate Value of Product Payments .

 

(i)        ****

 

(A) ****

 

(B) ****

 

(d)     Collar Minimum . For purposes of this Agreement, the term “ Collar Minimum ” means a dollar amount equal to (x) $42,500,000 minus (y) the Base Merger Consideration. ****

 

(e)     Collar Maximum . For purposes of this Agreement, the term “ Collar Maximum ” means a dollar amount equal to (x) $51,000,000 minus (y) the Base Merger Consideration. ****

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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(f)      Per Share Product Payment Value . The per share value of Parent Shares used to make any portion of any Product Payment will be equal to the volume weighted average price per share for all transactions in Parent Shares reported on The NASDAQ Stock Market LLC during the period of ten consecutive trading days, the last of which is the last trading day before the Business Day that is seven Business Days before the **** or the ****, as the case may be (the “ Per Share Product Payment Value ”).

 

(g)     Payment of Product Payments . Parent will make any Product Payment required by this Section 2.12 on the **** or the ****, as the case may be, using such combination of Parent Shares, valued at the Per Share Product Payment Value, and cash as Parent may determine in its sole discretion, except that:

 

(i)       the maximum aggregate number of Parent Shares to be used by Parent to pay consideration to all Former Equity Owners (whether as part of the Closing Payment, any Earn Out Payment, and/or any Product Payment) will not exceed the Parent Share Limit;

 

(ii)     no more than 35% of the aggregate amount of any Product Payment will be made in Parent Shares;

 

(iii)    the portion of any Product Payment to be made to any Non-Accredited Investor will be made entirely in cash; and

 

(iv)     the portions of any Product Payment to be made to any Accredited Investor (A) in Parent Shares and (B) in cash will be determined in accordance with the Parent Shares/Cash Allocation Procedures.

 

For the avoidance of doubt, if and to the extent any portion of the Product Payment to be made to any Former Equity Owner is withheld as contemplated by Section 2.7 , unless otherwise determined by Parent, that withholding will be deducted from the cash portion of that Product Payment and any amount so withheld will be treated as having been paid to the Former Equity Owner for all purposes of this Agreement.

 

(h)     Payment Procedures . Parent will make the cash portion and Parent Shares portions of any Product Payment that is to be made to each Former Equity Owner to the Paying Agent and/or through the Transfer Agent following procedures consistent with those prescribed in Section 2.5 in connection with the payment of cash and delivery of Parent Shares as part of the Closing Payment.

 

(i)      No Interest . No interest will be paid to or accrued in favor of any Former Equity Owner with respect to payments of any Product Payment in accordance with any provision of this Section 2.12 .

 

(j)      Unclaimed Interests . Any portion of an Product Payment that remains unclaimed by the Former Equity Owners after the first anniversary of the respective Product Payment Date will be returned to Parent, upon demand, and any such Former Equity Owner who has not delivered a Valid Form W-9 or W-8BEN or an accredited investor letter, as the case may be, on or before that first anniversary, may thereafter look only to Parent for payment of the Earn out Payment. Notwithstanding the foregoing, Parent will not be liable to any Former Equity Owner for any amounts paid to a Government Entity pursuant to applicable abandoned property, escheat or similar applicable Laws. Any amounts remaining unclaimed by Former Equity Owners by the second anniversary of the respective Product Payment Date (or such earlier date, immediately before such time when the amounts would otherwise escheat to or become property of any Government Entity) will become, to the extent permitted by applicable Laws, the property of Parent free and clear of any claims or interest of any Person previously entitled thereto.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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(k)     Obligation Transferred to New Parent . Until all Product Payments that could become payable under this Section 2.12 have been made or it has been determined that no further Product Payments could become payable, if Parent effects a sale, lease, exchange or other transfer, directly or indirectly, in one transaction or a series of related transactions, of all or substantially all of the assets of Parent or the Company or a merger, consolidation, recapitalization or other transaction in which a New Parent becomes the beneficial owner, directly or indirectly, of 50% or more of the combined voting power of all interests in Parent or the Company, then Parent will cause such agreement as contains the terms and conditions governing such transaction to obligate the New Parent to make any Product Payments that might thereafter become payable, as and when applicable, as contemplated by this Agreement. If a New Parent becomes obligated to make any Product Payment and the New Parent is not a publicly traded entity, all Product Payments made by the New Parent pursuant to this Agreement must be made in cash (and no portion thereof may be paid in stock of the New Parent).

 

(l)      Acceleration in Certain Events .

 

(i)       ****

 

(ii)     ****

 

2.13      Post-Closing Operation of the Company . Except as explicitly provided below in this Section 2.13, Parent will have sole discretion with regard to all matters relating to the operation of the BioD Companies after the Closing; provided , however that Parent covenants and agrees, until the end of the Second Earn Out Year: (i) to manage the business and affairs of the BioD Companies in good faith, (ii) not to undertake any action with the intent to limit, delay or thwart the vesting of any Earn Out Payment or Product Payment, (iii) to maintain a separate accounting of the Net Sales of the BioD Companies and complete and accurate books and records relevant to those Net Sales and allow Representative reasonable access to examine those books and records upon reasonable notice; (iv) not to prohibit the BioD Companies from selling any current or future BioD Company Products to any clinical specialty outside the Field; and (iv) ****.

 

2.14    Representative; Binding Action; Lock-Up .

 

(a)       By virtue of the approval and adoption of this Agreement by the requisite Majority Approval (as defined in the Company LLC Agreement), each of the Former Equity Owners will be deemed to have agreed to appoint Cynthia Weatherly (and by execution of this Agreement Cynthia Weatherly hereby accepts such appointment) as the agent and attorney-in-fact (“ Representative ”) for and on behalf of the Former Equity Owners, to act in the name, place and stead of each Former Equity Owner with respect to all actions required to be taken by the Former Equity Owners or Representative, on behalf of the Former Equity Owners, pursuant to this Agreement, including (i) to deliver and receive all notices and communications, (ii) to prepare and deliver Post-Closing Payment Spreadsheets and resolve any questions regarding the distribution of Post-Closing Payments, including distributions to Representative in her capacity as a Former Equity Owner; (iii) monitor and enforce the post-Closing obligations of Parent and the Surviving Company under this Agreement, including Section 2.9 ; (iv) take all actions contemplated by Section 2.8(c) with respect to the determination of Closing Working Capital and cash on hand at the Effective Time, including authorizing the payment of any adjustment under that section; and (v) to resolve or satisfy any indemnification claims for Losses incurred by Parent Indemnified Parties under Article VIII and to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of Representative for the accomplishment of the foregoing. The power of attorney granted in this Section 2.14 is coupled with an interest and is irrevocable, may be delegated by Representative and will survive the death or incapacity of any Former Equity Owner. No bond will be required of Representative, and Representative will receive no compensation for her services. The identity of Representative may be changed, and a successor Representative may be appointed, from time to time (including in the event of the resignation or the death, dissolution, disability or other incapacity of Representative) by Former Equity Owners who, immediately before the Effective Time, held at least 65% of the Class A Units, and any such successor will succeed Representative as Representative hereunder.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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(b)       Representative will not be liable to any Former Equity Owner for any act done or omitted hereunder as Representative while acting in good faith and in the exercise of reasonable judgment, even though such act or omission constitutes negligence on the part of such Representative, and any act done or omitted pursuant to the advice of counsel will be conclusive evidence of such good faith. Representative will only have the duties expressly stated in this Agreement and will have no other duty, express or implied. Representative may engage attorneys, accountants and other professionals and experts. Representative may in good faith rely conclusively upon information, reports, statements and opinions prepared or presented by such professionals, and any action taken by Representative based on such reliance will be deemed conclusively to have been taken in good faith and in the exercise of reasonable judgment. In no event will Representative be liable for punitive, exemplary, speculative, consequential or indirect damages.

 

(c)       From and after the Effective Time, a decision, act, consent or instruction of Representative within the scope of her authority will constitute a decision of the Former Equity Owners and will be final, binding and conclusive upon the Former Equity Owners. Each of Parent, the Transfer Agent, the Paying Agent and the Escrow Agent (i) may rely upon any such decision, act, consent or instruction of Representative as being the decision, act, consent or instruction of each and every Former Equity Owner; and (ii) is hereby relieved from any liability to any Person for any acts done in accordance with any such decision, act, consent or instruction of Representative.

 

(d)      The Former Equity Owner Expense Fund will be held and administered by Representative in accordance with the terms of this Section 2.14(d) . Representative will have the right to pay (or reimburse himself to the extent she has advanced) the out-of-pocket costs and expenses associated with the performance of her duties hereunder (collectively, “ Former Equity Owner Expenses ”) from the Former Equity Owner Expense Fund, without notice to or consent of any other Person. Representative will (i) maintain the Former Equity Owner Expense Fund in an interest-bearing bank account dedicated exclusively to the payment of Former Equity Owner Expenses; (ii) not commingle the funds in such account with any of her other assets; (iii) maintain such account free of liens, attachments or encumbrances; and (iv) hold such account in trust and disburse the funds in such account exclusively in accordance with this Agreement. If at any time the balance of the Former Equity Owner Expense Fund is insufficient to pay or reimburse the full amount of Former Equity Owner Expenses, then Representative will have the right to charge the excess to the Former Equity Owners, with each Former Equity Owner being severally liable for his or her proportionate share thereof (based on the relative Unit holdings of all Former Equity Owners immediately before the Effective Time). If, at the time any Post-Closing Payment becomes due and payable, the remaining balance of the Former Equity Owner Expense Fund is less than the Expense Fund Amount, Representative will have the right to specify in the applicable Post-Closing Payment Spreadsheet that a portion of such Post-Closing Payment, up to the amount required to restore the balance of the Former Equity Owner Expense Fund to the Expense Fund Amount, will be deposited with Representative and deducted from the amount otherwise payable to the Former Equity Owners as contemplated by Section 2.11(h) . At such time or times as Representative determines, in her reasonable judgment, that the remaining balance in the Former Equity Owner Expense Fund exceeds the amount required to cover the Former Equity Owner Expenses that she reasonably expects to be incurred, Representative will distribute the excess funds to the Paying Agent for disbursement to the Former Equity Owners in accordance with their Sharing Ratios. Further, as soon as practicable after the date on which the final obligation of Representative under this Agreement has been discharged or such other date as Representative deems appropriate, the Representative will pay any amounts remaining in the Former Equity Owner Expense Fund to the Paying Agent for disbursement to the Former Equity Owners, in accordance with their Sharing Ratios.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

 

(e)       For so long as any amount remains in the Escrow Account, Parent will cause the Surviving Company to provide Representative with reasonable access to information about the Surviving Company and the reasonable assistance of the officers and employees of Parent and the Surviving Company for purposes of determining the ultimate disposition of those funds.

 

(f)      Lock-Up .

 

(i)      From the Closing Date through the date that is 180 days after such date and from any Earn Out Payment Date or Product Payment Date and the date that is 30 days after such date (each such 180-day or 30-day period being, a “ Lock-Up Period ”), no Former Equity Owner may, without the prior written consent of Parent and then only in compliance with all applicable securities laws: (A) offer, pledge, sell, contract to sell, grant any option or contract to purchase, purchase any option or contract to sell, or otherwise dispose of, directly or indirectly, any of the Parent Shares issued on the Closing Date, the applicable Earn Out Payment Date, or the applicable Product Payment Date, as the case may be, or (B) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Parent Shares issued on such applicable date, whether any such transaction described in clause (A) or (B) above is to be settled by delivery of Parents Shares, in cash or otherwise.

 

(ii)     During any Lock-Up Period, no Former Equity Owner may make any demand for or exercise any right with respect to, the registration of any Parent Shares issued on the applicable date without the prior written consent of Parent.

 

(iii)   Parent will enter stop transfer instructions with the Transfer Agent and registrar relating to the transfer of Parent Shares issued on the applicable date to ensure compliance by Former Equity Owners with the foregoing provisions. By accepting Parent Shares as part of the consideration to be received in the Merger, as part of an Earn Out Payment, or as part of a Product Payment, as applicable, each Former Equity Owner will be deemed to have consented to the entry of those stop transfer instructions.

 

(iv)     For the avoidance of doubt:

 

(A) the 180-day Lock-Up Period will apply only with respect to Parent Shares issued to Former Equity Owners on the Closing Date (and not to any other Parent Shares); and

 

(B) any 30-day Lock-Up Period will apply only with respect to Parent Shares issued to Former Equity Owners on a particular Earn Out Payment Date or a particular Product Payment Date (and not to any other Parent Shares).

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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(v)      The parties acknowledge that none of the Parent Shares issued to Former Equity Owners pursuant to this Agreement will be registered pursuant to the Securities Act. Subject to the Lock-Up Periods set forth in this Section 2.14(f), the parties intend that all such Parent Shares will become freely tradable six months after the Closing Date pursuant to the exemption available under Rule 144 under the Securities Act (“ Rule 144 ”) after satisfaction of the holding periods required by Rule 144. As the availability of the exemption under Rule 144 depends, in part, on Parent remaining current in its reporting obligations under the Exchange Act, Parent shall use its reasonable best efforts to remain current until the expiration of the holding periods under Rule 144 applicable to the Parent Shares issued pursuant to this Agreement

 

2.15     Certain Adjustments . If, at any time during the period between (a) the date of this Agreement and (b) the first date on which no further Earn Out Payment or Product Payment may thereafter become payable under this Agreement, any change in the outstanding shares of capital stock of Parent occurs (or for which the relevant record date will occur) as a result of any reclassification, recapitalization, stock split (including a reverse stock split) or subdivision or combination or readjustment of shares, or any stock dividend or stock distribution with a record date during such period, the Merger Consideration, the Per Share Signing Value, the Per Share Earn Out Value, and any other dependent items, as applicable, will be equitably and proportionately adjusted, if necessary and without duplication, to reflect such change.

 

Article III
Representations and Warranties of the Company

 

The Company represents and warrants to Parent and Merger Sub as follows:

 

3.1       Organization and Good Standing . Each of the BioD Companies and BD Acquisition Group LLC is a limited liability company duly organized, validly existing, and in good standing under the Laws of the State of Delaware. The BioD Companies are qualified to do business in the jurisdictions set forth on Schedule 3.1 , which constitute all such qualifications that are required given the character of each of the BioD Companies’ assets and properties or in which the transaction of the Business makes such qualification necessary, except where the failure to be so qualified is not material to the conduct of the BioD Companies’ business.

 

3.2       Authority .

 

(a)       Each of the BioD Companies has all requisite power and authority necessary to own and operate its properties and to carry on the Business as now conducted. The copies of the Certificates of Formation and LLC Agreements of each of the BioD Companies and of BD Acquisition Group LLC made available to Parent are complete and correct and reflect all amendments made thereto at any time before the date of this Agreement. The minute books and other books and records of each of the BioD Companies are substantially correct and complete.

 

(b)      The Company has all requisite power and authority necessary to execute and deliver this Agreement and the other Ancillary Agreements to which it is or will be party and to perform its obligations hereby and thereby. The execution, delivery and performance by the Company of this Agreement and the other Ancillary Agreements to which it is or will be a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly and validly executed and delivered by the Company and (assuming this Agreement constitutes a legal, valid and binding obligation of Parent, Merger Sub, and Representative) constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as limited by (x) applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights, and (y) general principles of equity that restrict the availability of equitable remedies.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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3.3       Capitalization; Subsidiaries; Indebtedness .

 

(a)      The authorized, issued and outstanding Units are set forth on the Unit Table. The Units set forth on the Unit Table constitute all of the issued and outstanding Equity Interests in the Company and all of the issued and outstanding Units are validly issued, fully paid and non-assessable.

 

(b)       Except as disclosed on Schedule 3.3(b) , there are (i) no outstanding subscriptions, options, calls, convertible debt, contracts, commitments, understandings, restrictions, arrangements, warrants, or other rights, including any rights plan, or any right of conversion or exchange under any outstanding security, instrument, or other agreement, obligating any of the BioD Companies to issue, deliver, or sell, or cause to be issued, delivered or sold, additional Equity Interests of any of the BioD Companies or obligating any BioD Company to grant, extend or enter into any such agreement or commitment, and (ii) no voting trusts, proxies, or other agreements or understandings to which any BioD Company is a party or bound with respect to the voting of any of the Equity Interests of any of the BioD Companies or which restrict the transfer of any such Equity Interest (in each case including the Units). Except as set forth on Schedule 3.3(b) , there are no outstanding contractual obligations of any BioD Company to repurchase, redeem, or otherwise acquire any Equity Interest of any BioD Company. None of the BioD Companies is under any obligation to register the offer and sale or resale of its securities under the Securities Act and the rules and regulations promulgated thereunder.

 

(c)       The Company is the sole member of the Company Subsidiaries. The Company does not have any Subsidiaries or hold any Equity Interest of any Person other than the Company Subsidiaries.

 

(d)       Except as set forth on Schedule 3.3(d) , none of the BioD Companies has any Indebtedness.

 

(e)       The information set forth on the Unit Table is complete and accurate as of the date of execution of this Agreement, and the information set forth on the updated Unit Table will be complete and accurate as of the Effective Time.

 

3.4       No Conflict . Except as set forth on Schedule 3.4 , the consummation of the transactions contemplated by this Agreement and the execution and delivery by the Company of all agreements and instruments contemplated hereby to which the Company is a party, and the fulfillment of and compliance with the respective terms hereof and thereof by the Company, does not and will not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under (whether with or without the passage of time, the giving of notice or both), (iii) result in the creation of any Lien upon the Units or any asset or property of any of the BioD Companies, (iv) give any third party the right to modify, terminate or accelerate any obligation under, (v) result in a violation of, or (vi) require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any third party or any Government Entity pursuant to, (A) the Certificates of Formation, the LLC Agreements, or any other Organizational Documents of any of the BioD Companies, (B) any Law or any Order to which the BioD Companies or any of their respective assets or properties is subject, or (C) any Contracts or Leases.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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3.5       Financial Statements .

 

(a)       Attached hereto as Schedule  3.5(a) are (i) the 2014 Audited Financial Statements and the 2015 Audited Financial Statements (collectively, the “ Audited Financial Statements ”); (ii) the consolidated balance sheets of the BioD Companies as of December 31, 2013, and the related statements of income, members’ equity, and cash flows for the fiscal year then ended, together with the notes thereto, if any, all as prepared by management of the Company and used by the Company for general management purposes; and (iii) the consolidated balance sheets of the BioD Companies as of June 30, 2016, and the related statements of income, members’ equity, and cash flows for the six month period then ended, all as prepared by management of the Company and used by the Company for general management purposes (the “ June 30, 2016 Financial Statements ” and, together with the items set forth in (ii), the “ Management Financial Statements ”). The consolidated balance sheet of the BioD Companies as of December 31, 2015, included in the 2015 Audited Financial Statements is referred to in this Agreement as the “ 12/31/15 Balance Sheet .”

 

(b)       The Management Financial Statements fairly present in all material respects the financial position of the BioD Companies at the dates of the balance sheets included therein and the results of its operations for the respective periods indicated therein.

 

(c)       The Audited Financial Statements (i) have been prepared from, and are in accordance with, the books and records of the BioD Companies and fairly reflect all of the properties, assets, Liabilities and transactions of the BioD Companies, in all material respects, (ii) fairly present, in all material respects, the financial condition of the BioD Companies, and (iii) accurately reflect, in all material respects, the operating results and cash flows of the BioD Companies, in each case at the date and for the time period indicated. The Audited Financial Statements have been prepared in accordance with GAAP consistently applied.

 

(d)       The books of account of the BioD Companies to which Parent and its representatives have been provided access are true, accurate and complete in all material respects.

 

3.6       Absence of Certain Developments . Except as set forth on Schedule 3.6 , since December 31, 2015, each of the BioD Companies has operated in the Ordinary Course of Business and (i) there has not been any event, change, occurrence or circumstance that has had, or could reasonably be expected to have, a Material Adverse Effect, and (ii) none of the BioD Companies has (except as contemplated by this Agreement or any Ancillary Agreement):

 

(a)        mortgaged, pledged, or subjected to any Lien (except Permitted Liens) any of its assets or properties;

 

(b)        sold, leased, conveyed, assigned, pledged, or transferred any portion of its tangible assets or transferred, assigned, or licensed any of the BioD Intellectual Property;

 

(c)        issued, sold, or transferred any of its Equity Interests, securities convertible into its Equity Interests, or warrants, options, or other rights to acquire its Equity Interests, or any bonds or debt securities;

 

(d)        purchased, leased, or otherwise acquired any property or assets of any Person for an amount in excess of $50,000 individually (in the case of a lease, per annum) or $500,000 in the aggregate (in the case of a lease, for the entire term of the lease, not including an option term);

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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(e)       declared or paid any dividends or distributions on or in respect of any of its Equity Interests or redeemed, purchased, or acquired any Equity Interest of any Person;

 

(f)        incurred any Indebtedness or waived any material right or claim, including any write-off of any accounts receivable not made in the Ordinary Course of Business, or made any capital contributions to, investment in, or any loan to any other Person;

 

(g)       made any capital expenditures or commitments therefor, except in the Ordinary Course of Business in accordance with its existing capital expenditure budget;

 

(h)      paid, discharged, or satisfied any Liability in excess of $50,000, other than the repayment of trade obligations or note obligations pertaining to the Company’s revolving line of credit at Triumph Bank;

 

(i)       failed to promptly pay and discharge any current Liability;

 

(j)       terminated any Material Contract (other than as a result of the expiration of the term of such Material Contract pursuant to its terms) or executed any amendment or modification of any Material Contract;

 

(k)      made any material changes in its Employee Benefit Plans or made any changes in wages, salary, or other compensation with respect to its officers, managers, or employees, or made any material changes to the terms of any agreement with any employee;

 

(l)       adopted, amended, modified, or terminated any bonus, profit sharing, incentive, severance, or other plan, agreement or commitment for the benefit of any employee, officer, or manager;

 

(m)     adopted any plan of merger, consolidation, reorganization, liquidation, or dissolution or filing of a petition in bankruptcy under any provisions of federal or state bankruptcy Law or consented to the filing of any bankruptcy petition against it under any similar Law;

 

(n)       except as required by Law, made or entered into any (i) new Tax election or change in any Tax election, (ii) amendment of any Tax Return, (iii) settlement or compromise of any Tax audit, (iv) change in any Tax accounting method or practice, or (v) agreement with respect to Taxes;

 

(o)       made any change in any accounting methods, elections, principles or practices used by the Company, except as required by GAAP or as disclosed in the 2015 Audited Financial Statements or Management Financial Statements;

 

(p)       made any change in cash management practices and policies, practices, and procedures with respect to the collection of accounts receivable, establishment of reserves for doubtful accounts, accrual of accounts receivable, prepayment of expenses, payment of trade accounts payable, accrual of other expenses, deferral of revenue, and acceptance of customer deposits, other than those changes required by the Company’s auditor during the Company’s 2014 and 2015 financial audits;

 

(q)       paid, loaned, or advanced (other than the payment of salary and benefits in the Ordinary Course of Business) any amounts to, or sold, transferred or leased any of its assets to, or entered into any other transactions with, any of its Affiliates, or made any loan to, or entered into any other transaction with, any of its employees, managers, or officers (other than compensation, standard employee-related agreements, and the payment, advance, or reimbursement of expenses, in each case, in the Ordinary Course of Business);

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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(r)       commenced or settled any litigation; or

 

(s)       agreed (whether in writing or orally) to do any of the foregoing.

 

3.7       Title to Assets .

 

(a)       Except as set forth on Schedule 3.7(a) , each of the BioD Companies has good and valid title to, or a valid leasehold interest in, the properties and assets, tangible or intangible, that are personal property and that are either used or held for use by it (wherever located), that are (i) reflected on the 12/31/15 Balance Sheet or (ii) that were acquired after December 31, 2015, in each case free and clear of all Liens, except for Permitted Liens.

 

(b)       The assets and properties referred to in (a) above, taken as a whole, are free from any material defects, have been maintained in accordance with normal industry practice, and are in an operating condition and repair (subject to normal wear and tear) adequate and suitable for the purposes for which such assets and properties are presently used. Without liming the generality of the foregoing, each of the BioD Companies owns or holds a valid leasehold interest in, or a valid license to use, all the assets, properties and rights, whether tangible or intangible, necessary for the conduct of its business as presently conducted subject to any required consents set forth on Schedule 3.4 .

 

3.8       Tax Matters . Except as set forth on Schedule 3.8:

 

(a)       The BioD Companies have timely filed all Tax Returns that each of them was required to file for Pre-Closing Tax Periods and have paid all Taxes owed, whether or not shown on any Tax Return. All such Tax Returns as have been filed were true, accurate, and complete in all material respects.

 

(b)       The BioD Companies have timely and properly withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, member, creditor, customer, or other party and have complied with all information reporting and backup withholding provisions of applicable Law.

 

(c)       There are no Liens for Taxes (other than Permitted Liens for current Taxes not yet due and payable) upon any assets of the BioD Companies.

 

(d)       There is no dispute or claim concerning any Tax liability of any of the BioD Companies, including but not limited to any as claimed or raised by any Taxing Authority in writing. All Tax deficiencies asserted, or assessments made, against the BioD Companies as a result of any examinations by any Taxing Authority have been fully paid.

 

(e)       None of the BioD Companies has agreed to any extension or waiver of any statute of limitations period that has not expired in respect of any Tax Return. None of the BioD Companies has agreed to nor is subject to any extension of time with respect to a Tax assessment or deficiency. None of the BioD Companies is currently the beneficiary of any extension of time within which to file any Tax Return.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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(f)       No federal, state, local, or foreign Tax audits, examinations, or investigations or administrative or judicial Tax Proceedings are currently ongoing, pending, or have been threatened with respect to any BioD Company in respect of any Tax.

 

(g)       No claim has been made by a Taxing Authority in a jurisdiction where any BioD Company does not file Tax Returns that such BioD Company may be subject to taxation by that jurisdiction.

 

(h)      None of the BioD Companies is a party to any Tax allocation, Tax indemnity, or Tax sharing agreements or similar arrangements.

 

(i)       The BioD Companies have collected all sales, use, or value added taxes required to be collected by applicable Law, and have timely remitted, or will remit on a timely basis, such amounts to the appropriate Taxing Authorities.

 

(j)       The Company has provided Parent with correct and complete copies of all Tax Returns filed by or with respect to the BioD Companies, and all examination reports and statements of deficiencies issued to, assessed against, or agreed to by the BioD Companies for all taxable periods ending after December 31, 2012.

 

(k)      None of the BioD Companies has been a member of a consolidated, affiliated, combined, or unitary Tax group, and none of the BioD Companies has any liability for Taxes of any Person under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign Tax Law), as a transferee or successor, by contract or otherwise.

 

(l)       None of the BioD Companies will be required to include in a Post-Closing Tax Period taxable income attributable to income of such BioD Company that accrued and was received in a Pre-Closing Tax Period but was not recognized in any such period for any reason, including (i) the installment method of accounting, (ii) the long-term contract method of accounting, or (iii) a “closing agreement” as described in Section 7121 of the Code (or any provision of any state, local or foreign Tax Law having a similar effect).

 

(m)     None of the BioD Companies has agreed to, and is not required to, make any adjustment under Section 481(a) of the Code by reason of any change in accounting method or otherwise.

 

(n)      None of the BioD Companies has made any payments of, is not obligated to make any payments of, and is not a party to any agreement or agreements that, individually or collectively, provide for the payment by any of the BioD Companies of, any amount of salaries or compensation for services (i) that is not deductible under Sections 162(a)(1) or 404 of the Code or (ii) that is an “excess parachute payment” pursuant to Section 280G of the Code.

 

(o)      None of the BioD Companies has been a party to a “reportable transaction” (as such term is defined in Treasury Regulation Section 1.6011-4(b)).

 

(p)      Since the formation thereof and through the Closing Date, (i) each of the BioD Companies has been (and will be) treated as a partnership for U.S. federal and applicable state, local and foreign income Tax purposes, (ii) neither any BioD Company, nor any other Person on behalf of any BioD Company, has made (or will make) an election to be treated as other than a partnership pursuant to Treasury Regulations Section 301.7701-3 (or any similar provision of applicable state, local or foreign Tax Law); and (iii) no BioD Company is (or ever has been) a publicly traded partnership under Section 7704 of the Code.

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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3.9       Contracts and Commitments .

 

(a)       Except as set forth on Schedule 3.9(a), none of the BioD Companies is a party to or bound by any of the following (whether written or oral):

 

(i)      any pension, profit sharing, Unit option, employee Unit purchase, or other plan or arrangement providing for deferred or other compensation to employees;

 

(ii)     any collective bargaining agreement or any other Contract with any labor union or other similar organization, or any severance agreements, programs, policies, or arrangements;

 

(iii)    any management agreement or Contract for (1) the employment of any officer, individual employee, or other Person on a full-time, part-time, consulting, or other basis or (2) that provides for the payment of any cash or other compensation or benefits upon the consummation of the transactions contemplated hereby;

 

(iv)     any Contract involving any Government Entity;

 

(v)      any Contract relating to borrowed money or other Indebtedness, or the mortgaging, pledging, or otherwise placing a Lien on any asset or group of assets of any of the BioD Companies, or any letter of credit arrangements, or any guarantee therefor;

 

(vi)     any Contract that requires the payment of any fee or penalty in excess of $10,000 in the event of any failure to perform or late performance of such Contract by any of the BioD Companies;

 

(vii)    any Contract under which the any BioD Company is a (A) lessee of or holds or operates any personal property owned by any other party, except for any lease of personal property under which the aggregate annual rental payments do not exceed $50,000 or (B) lessor of or permits any third party to hold or operate any property, real or personal, owned or controlled by the BioD Companies;

 

(viii)    any Contract with an annual value in excess of $50,000 pursuant to which a third party distributes the BioD Companies’ goods;

 

(ix)     any Contract (or group of related Contracts) with the same party continuing over a period of more than six months from the date or dates thereof, involving more than $50,000 annually in services provided by any of the BioD Companies or $50,000 annually payable by the BioD Companies;

 

(x)      any Contract granting any Person any option, right of first refusal, or preferential or similar right to purchase any of the assets of the BioD Companies;

 

(xi)    any Contract relating to the ownership of, Investments in, or loans and advances to any Person, including Investments in joint ventures and minority equity investments, or contracts or agreements that involve the sharing of profits, losses, costs, or Liabilities with any other Person;

 

(xii)    any Contract relating to Licensed Intellectual Property (other than any “shrink-wrap,” “click-wrap,” or other similar non-customized software that is licensed solely pursuant to a non-exclusive license or is generally available for less than an aggregate amount per application of $5,000);

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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(xiii)   any broker, dealer, franchise, agent, sales representative, sales, or distribution Contract with an annual value in excess of $50,000;

 

(xiv)   any power of attorney or other similar Contract or grant of agency;

 

(xv)    any Contract with an annual value in excess of $50,000 that includes any “take or pay,” “meet or release,” “most favored nation,” or other similar pricing or delivery provisions or any Contract with a group purchasing organization;

 

(xvi)   any Contract that provides for the indemnification of any Person, including, but not limited to, any managers, officers, or employees of the BioD Companies;

 

(xvii)    any Contract that relates to the acquisition or disposition of any Equity Interests or all or substantially all of the assets of any other Person (whether by merger, sale of Equity Interests, sale of assets, or otherwise);

 

(xviii)     any Contract that limits or purports to limit any of the BioD Companies from engaging in any line of business or in any geographic area or during any period of time ;

 

(xix)      any nondisclosure or confidentiality agreements with any third party, including, but not limited to, managers, officers, and employees of the BioD Companies executed within the prior twelve months;

 

(xx)     any other Contract, other than a Lease or a Contract previously disclosed in this subsection (a), that is material to the operations and business prospects of the BioD Companies or involves a consideration in excess of $50,000 annually, whether or not in the Ordinary Course of Business.

 

(b)       All of the Contracts set forth or required to be set forth on Schedule 3.9(a) (collectively, the “ Material Contracts ”) are valid, binding, and enforceable as to the applicable BioD Company and, to the Knowledge of the Company, as to the other parties thereto, in each case in accordance with their respective terms. Complete and correct copies of each Material Contract (including all material modifications, amendments, schedules, exhibits and supplements thereto and waivers thereunder which are in effect as of the date hereof) have been made available to Parent. Each of the Material Contracts is in full force and effect without penalty in accordance with its respective terms. Except as set forth on Schedule 3.9(b) , none of the BioD Companies nor, to the Knowledge of the Company, any other party to any Material Contract is in breach of or default under (or is alleged to be in breach of or default under), or has provided or received any notice of any intention to terminate, any Material Contract. Except as set forth on Schedule 3.9(b) , no event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of default under any Material Contract or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss of any benefit thereunder.

 

3.10    Intellectual Property Rights .

 

(a)      Schedule 3.10(a) is a true, accurate and complete list of the Owned Intellectual Property, whether owned exclusively or non-exclusively, that is subject to any issuance, registration, application or other filing by, to or with any Government Entity or authorized private registrar in any jurisdiction (collectively, “ BioD Intellectual Property Registrations ”), including registered trademarks, domain names and copyrights, registered social media usernames and other digital source identifiers, issued patents, and pending applications for any of the foregoing, all as of the date hereof, with owner(s), countries, title or mark, registration and application numbers and filing and expiration dates indicated, as applicable.

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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(i)      Schedule 3.10(a)(i) is a true, accurate and complete list of the Licensed Intellectual Property that is subject to any issuance, registration, application or other filing by, to or with any Government Entity or authorized private registrar in any jurisdiction (collectively, “ Licensed Intellectual Property Registrations ”), including registered trademarks, domain names and copyrights, registered social media usernames and other digital source identifiers, issued patents, and pending applications for any of the foregoing, all as of the date hereof, with owner(s), countries, title or mark, registration and application numbers and filing and expiration dates indicated, as applicable.

 

(ii)     Except as set forth on Schedule 3.10(a)(ii) , the BioD Companies have the exclusive right to use and possess the BioD Intellectual Property for the life thereof for any purpose.

 

(iii)    Schedule 3.10(a)(iii) lists (A) any Contract that relates to the BioD Intellectual Property or the Intellectual Property Rights of another Person (excluding software shrink-wrap and click wrap licenses) that is not a Material Contract and (B) other Intellectual Property Rights, except for trade secrets, that are not BioD Intellectual Property Registrations, but are used in the Business. The BioD Companies, in the period ending twelve (12) months following the date hereof, do not intend to submit any applications for registration of any Intellectual Property Rights, that, if such application were submitted before the date hereof, would constitute BioD Intellectual Property Registrations. All required filings and fees related to the BioD Intellectual Property Registrations have been timely filed with and paid to the relevant Governmental Entities and authorized registrars, solely in the name of the Company or the Company Subsidiaries, as applicable. The BioD Intellectual Property Registrations are valid, subsisting, enforceable, in full force and effect and are in good standing, and with respect to the BioD Intellectual Property Registrations, all fees, payments, and filings due within ninety (90) days after the Closing Date have been duly made, and are not subject to any Taxes or other fees, other than periodic filing and maintenance fees, all of which have been paid in the ordinary course. The BioD Intellectual Property constitutes all of the Intellectual Property Rights necessary to operate, in all material respects, the Business.

 

(b)      Except as disclosed on Schedule 3.10(b) , (1) no Order, claim, or Action has been issued or initiated, is pending or is threatened, that challenges the BioD Companies’ ownership of or the legality, validity, use or enforceability of any of the Owned Intellectual Property and (2) no Order, claim, or Action has been issued or initiated, is pending or is threatened, that challenges the BioD Companies’ use of or the legality, validity, use or enforceability of any of the Licensed Intellectual Property. The BioD Companies have taken commercially reasonable actions to maintain and sufficiently protect all of the Owned Intellectual Property against potential infringements or misappropriation and will continue to maintain and protect those rights before the Closing so as not to adversely affect the validity or enforcement of such items. The execution or delivery of this Agreement, or performance of the BioD Companies’ obligations hereunder, will not cause the diminution, termination, or forfeiture of any BioD Intellectual Property, and the BioD Companies will not owe any payments to any party as a result of the consummation of the transactions contemplated hereby. Except as set forth on Schedule 3.10(b)(i) , no Person (a) other than the BioD Companies, owns or has any other right in or to, or has claimed any ownership or other right in or to, any of the Owned Intellectual Property material to or used by the Business or (b) is infringing upon any of the Owned Intellectual Property material to or used by the Business. There is not, and there has not been, any Action pending, or threatened, whether or not resolved or settled, with respect to the representations set forth in (a) or (b) of the foregoing sentence. Except as set forth on Schedule 3.10(b)(ii) , the Owned Intellectual Property is not the subject of any license and the BioD Intellectual Property is not subject to any other agreement or arrangement that requires payment by any of the BioD Companies to any Person with respect to the use by one or more of the BioD Companies of the BioD Intellectual Property or any obligation to grant any right to any Person to the Owned Intellectual Property or any right to any Person to the BioD Companies’ rights in the Licensed Intellectual Property. Except as set forth on Schedule 3.10(b)(ii), none of the BioD Companies is obligated to pay any royalty or other payment with respect to any Intellectual Property Rights of any other Person, and no such rights are necessary to operate the current Business.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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(c)      To the Knowledge of the Company, the BioD Companies have not interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property Rights of third parties, and, except as set forth on Schedule 3.10(c) , the BioD Companies have not received any written charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation (including any claim that the BioD Companies must license or refrain from using any Intellectual Property Rights of any third party). Except as set forth on Schedule 3.10(c) , to the Knowledge of the Company, no third party has interfered with, infringed upon, misappropriated or otherwise come into conflict with the Owned Intellectual Property.

 

(d)       Except as set forth on Schedule 3.10(d) , all Persons who have participated in the creation or development of Intellectual Property Rights on behalf of the BioD Companies have executed and delivered to the BioD Companies a valid and enforceable agreement: (i) providing for the nondisclosure by such Person of any confidential information of the BioD Companies; and (ii) providing for (A) the assignment by such Person to the BioD Companies of any and all Intellectual Property Rights arising out of such Person’s employment by, engagement by or contract with the BioD Companies or (B) a perpetual, exclusive license for such Intellectual Property. Except as set forth on Schedule 3.10(d) , (xi) no Person has retained any right, title, or interest in or to any Owned Intellectual Property and (xii) no manager, officer, shareholder, employee, consultant, contractor, agent, or other representative of the BioD Companies owns or claims any rights in (nor has any of them made application for) any Intellectual Property Rights owned or used by the BioD Companies.

 

(e)      The BioD Companies have taken commercially reasonable measures to protect the secrecy, confidentiality, and value of all of their “trade secrets” (as such are determined under any applicable Law), the Owned Intellectual Property, and the BioD Companies’ rights in the Licensed Intellectual Property. Each of the BioD Companies has entered into a confidentiality and non-disclosure agreement with each of its managers, officers and employees, and consultants, contractors and/or agents contributing to the Intellectual Property Rights of the BioD Companies, to protect the confidentiality and value of such Intellectual Property Rights, and except as set forth on Schedule 3.10(e) , to the Knowledge of Company there has not been any material breach by any of the foregoing of any such agreement. The BioD Companies have not taken any action nor failed to take any action that directly or indirectly caused any BioD Intellectual Property to enter the public domain or in any way adversely affect its value to Parent, or its ownership thereof.

 

(f)       No funding from any Government Entity or facilities of a university, college, other educational institution or non-profit organization was used in the development of any of the Owned Intellectual Property, and no Government Entity, university, college, other educational institution or non-profit organization has a claim or right to claim any right in the Owned Intellectual Property. No employee or contractor of the BioD Companies who was involved and contributed to the creation or development of any Owned Intellectual Property has performed services for a Government Entity, university, college, other educational institution, or non-profit organization during a time period when such employee or contractor also was involved in or contributed to the creation or development of the Owned Intellectual Property.

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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3.11     FDA and Other Regulatory Matters .

 

(a)       Except as set forth in  Schedule 3.11(a) , if applicable, none of the BioD Companies has received any notice or other communication from any Government Entity (i) contesting the uses of or the labeling and promotion of any of the products sold by the BioD Companies (“ BioD Company Products ”) or (ii) otherwise alleging any violation of any Law by any of the BioD Companies with respect to any BioD Company Products, excluding all observations communicated in FDA Form 483s resolved prior to 2013.

 

(b)       There have been no seizures conducted or threatened by the FDA or any other Government Entity, and no recalls, market withdrawals, field notifications, notifications of misbranding or adulteration, safety alerts conducted or adverse regulatory actions, requested, or threatened by the FDA or by any other Government Entity, in each case relating to any of the BioD Companies or the Business, any of their assets, or the BioD Company Products.

 

(c)       Certain Filings and Lists.

 

(i)      The BioD Companies have filed and maintained their respective Tissue Establishment Registrations in accordance with 21 CFR Part 1271 with FDA as processors and distributors of human cells, tissues and cellular- and tissue-based products (HCT/Ps). No filing or submission to FDA or any other Government Entity contains any material omission or material false information.

 

(ii)     Schedule 3.11(c)(ii) : (1) lists all BioD Company Products (by SKU); (2) describes them by product category, general description, and type of product that each is “regulated as” (e.g., Section 361); (3) shows the applicable BioD Company’s status with respect to each BioD Company Product (e.g., “manufacturer”); and (4) indicates: (A) which BioD Company Products are commercialized, marketed, sold or placed in interstate commerce in the United States under an approved or cleared FDA authority (e.g., traditional, abbreviated or special 510(k), IDE, or IND); (B) which BioD Company Products are commercialized, marketed, or sold solely pursuant to a Tissue Establishment Registration, (C) which BioD Company Products are commercialized, marketed or sold outside the United States under an approved or cleared authority from another Government Entity; and (D) which BioD Company Products are not so commercialized, marketed, sold, or placed in interstate commerce under an approved or cleared authority or pursuant to a Tissue Establishment Registration, and indicating why such BioD Company Products are being so commercialized, marketed, sold or placed without such authority. Schedule 3.11(c)(ii) also lists all traditional, abbreviated or special 510(k) submissions, IDE submissions, IND submissions and similar submissions (e.g., relating to CE Markings) related to the Business and currently pending with the FDA or any Government Entity outside the United States.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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(d)     Product Safety.

 

(i)       None of the BioD Companies has been required to file with FDA a report concerning an adverse reaction or an adverse event (including MedWatch) or to file any other report or provide information to any product safety agency (other than FDA), commission, board or other Government Entity of any jurisdiction, concerning actual or potential hazards with respect to any BioD Company Product. Each BioD Company Product complies with all material product safety standards of each applicable product safety agency, commission, board, or other Government Entity.

 

(ii)     Each BioD Company Product is, and at all relevant times has been, fit for the ordinary purposes for which it is intended to be used and conforms to any promises or affirmations of fact made in all regulatory filings pertaining thereto and made on the container or label for such BioD Company Product or in connection with its sale. Each BioD Company Product is recovered, processed, packaged, labeled, handled, stored and shipped in keeping with cGTP and current product release specifications.

 

(iii)    None of the BioD Companies has received any written notice that such BioD Company has, and there is no reasonable basis for any Action against any of the BioD Companies for, any Liability arising out of any injury to any person or property as a result of a BioD Company Product.

 

(e)       Except as set forth on Schedule 3.11(e)(i) , all operations of the BioD Companies (i) are compliant with all applicable Good Tissue Practices as defined by 21 CFR Part 1271 and any similar Permits or Laws of any other Government Entity, including those relating to investigational use, premarket approval and applications or abbreviated applications to market a new BioD Company Product, and (ii) have achieved and maintained all applicable state licensures as listed on Schedule 3.11(e)(ii); and (iii) have achieved and maintained American Association of Tissue Banks accreditation. There is no pending or threatened Action to audit, repeal, fail to renew or challenge any such licensure or accreditation. Each BioD Company’s personnel have all training necessary to provide its services. Each BioD Company has compliance programs in place to promote compliance with all legal requirements.

 

(f)       Each of the BioD Companies has consistently obtained and maintained any necessary Institutional Review Board (“IRB”) approvals of clinical trials or modifications thereto, conducted, supervised, or monitored by such BioD Company. In no clinical trial conducted, supervised or monitored by any BioD Company has IRB approval ever been suspended, terminated, put on clinical hold, or voluntarily withdrawn because of deficiencies attributed to such BioD Company.

 

(g)       Schedule 3.11(g) sets forth a complete and accurate listing of all preclinical and clinical studies, together with the dates and brief descriptions of such studies, previously or currently undertaken or sponsored by any of the BioD Companies with respect to any BioD Company Product.  All material information regarding the efficacy, safety and utility of the BioD Company Products has been collected and maintained in accordance with accepted industry practices for companies of the size and nature of the BioD Companies and will be readily accessible to Parent after the Effective Time.  The Company has heretofore provided to Parent all material correspondence and contact information (including 483 inspection reports, untitled letters, warning letters, cease and desist letters, and consents) between the BioD Companies and FDA or any other Government Entity regarding the BioD Company Products, and, to the extent provided to any of the BioD Companies, between FDA and other Government Entities relating thereto.

 

**** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

CONFIDENTIAL

 

3.12      Health Care Law Matters .

 

(a)      Compliance with Health Care Laws. Each of the BioD Companies and all representatives acting on their behalf (with respect to actions taken on any BioD Company’s behalf) are in compliance in all material respects with all applicable Health Care Laws, including with respect to such BioD Company’s business, properties, assets, and the BioD Company Products.

 

(b)      Filings. All material reports, documents, claims and notices required to be filed, maintained or furnished to the FDA or to any Government Entity by each BioD Company or representatives acting on their behalf (with respect to actions taken on any BioD Company’s behalf) have been so filed, maintained or furnished, and all such reports, documents, claims and notices were complete and correct in all material respects on the date filed (or were corrected in or supplemented by a subsequent filing).

 

(c)       Certain Statements. Neither any BioD Company nor, to the Knowledge of the Company, any representative acting on their behalf (with respect to actions taken on any BioD Company’s behalf) has, in connection with any requirement under any Health Care Law: (i) made an untrue statement of a material fact or fraudulent statement to the FDA or other government agency, (ii) failed to disclose a material fact required to be disclosed to the FDA or other government agency, or (iii) committed an act, made a statement, or failed to make a statement that, at the time such disclosure was made, constituted a violation of any Health Care Law or would reasonably be expected to provide a basis for the FDA to invoke its policy respecting “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities,” as set forth in 56 Fed. Reg. 46191 (September 10, 1991), in each case relating to any BioD Company, any BioD Company’s business, any BioD Company’s assets, or the BioD Company Products.

 

(d)       Proceedings. To the Knowledge of the Company, there are no facts, circumstances, or conditions that currently exist that would reasonably be expected to form the basis for any Action by a Government Entity against or affecting any of the BioD Companies, any BioD Company’s business, any BioD Company’s assets, or the BioD Company Products relating to any Health Care Law.

 

(e)       Prohibited Transactions. Neither any BioD Company nor any representative acting on behalf of any BioD Company is a party to any Contract (including any consulting agreement or speaking arrangement) with any Health Care Professional who is in a position to (i) make or influence referrals to or otherwise generate business to or for any of the BioD Companies, or (ii) provide services, lease space, lease equipment or engage in any other venture or activity with any BioD Company, other than in each case Contracts that are in compliance with all applicable Health Care Laws. Neither any of the BioD Companies nor any representative acting on behalf of any BioD Company has directly or indirectly: (i) offered or paid any remuneration, in cash or in kind, to, or made any financial arrangements with, any Health Care Professional in order to illegally obtain business or payments from such Health Care Professional in violation of any Health Care Law; or (ii) given or agreed to give, or has knowledge that there has been made or that there is any illegal agreement to make


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