UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): September 19, 2013
 
WHERE FOOD COMES FROM, INC.
(Exact Name of Registrant as Specified in its Charter)
 
Colorado
(State or Other Jurisdiction of
Incorporation)
333-133624
(Commission File Number)
43-1802805
(I.R.S. Employer Identification No.)
 
221 Wilcox, Suite A
 
Castle Rock, Colorado
80104
(Address of Principal Executive Offices)
(Zip Code)
 
(303) 895-3002
(Registrant’s Telephone Number, Including Area Code)
 
Not applicable
(Former name or former address, if changed since last report.)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
   
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
 
Item 2.01
Completion of Acquisition

On September 16, 2013, (the “Closing”), an Asset Purchase and Contribution Agreement (the “Purchase Agreement”), dated August 29, 2013, was entered into by and among Where Food Comes From, Inc. (“WFCF” or the “Company”), Validus Verification Services LLC (the “Buyer” or “Validus”), Praedium Ventures, LLC (the “Seller”), and each of the members of the Seller (“Seller Members”).

Pursuant to the Purchase Agreement, WFCF caused Validus to be organized to purchase and acquire certain audit, assessment and verification business assets of the Seller. The Company acquired a 60% interest in Validus in exchange for aggregate consideration of approximately $1.5 million, which includes $565,000 in cash and 708,681 shares (the “Shares”) of common stock of WFCF valued at approximately $940,000 based upon the closing price of our stock on September 16, 2013, of $1.32 per share.

The Purchase Agreement provides for a period of eighteen months to support any indemnification claims by Validus for breach of Seller representations, warranties and covenants. The Purchase Agreement also includes non-dilution provisions.

The Sellers, Validus and the Company each made customary representations, warranties and covenants in the Purchase Agreement, including, among others, covenants with respect to the conduct of their respective businesses during the interim period between the execution of the Purchase Agreement and the Closing and certain actions the parties agreed not to take during such interim period.

The Sellers have made certain additional customary covenants, including not soliciting or initiating discussions, engaging in negotiations or providing any non-public information concerning alternative business combination transactions with respect to the transaction and covenants not to compete.

On September 16, 2013, the Company, Validus and the Seller also entered into an Operating Agreement, which will, among other things, entitle WFCF to designate two managers and Seller to designate one manager to serve on the board of directors of Validus. The Operating Agreement provides WFCF the right of first refusal on the remaining 40% of the outstanding stock.

As a condition to the Purchase Agreement, an Employment Agreement between Validus and Earl Dotson was entered into effective as of September 16, 2013. The term of the Employment Agreement is 30 months and expires on March 16, 2016. It provides for a base salary of approximately $163,000 and incentive compensation of up to 35% of base salary. The Employment Agreement also contains certain customary covenants, including non-disclosure of confidential information and covenants not to compete.

The transaction was financed through cash on hand.

A copy of the Purchase Agreement, the Operating Agreement, and the Employment Agreement (the “Agreements”) are attached as Exhibit 2.1, 2.2 and 2.3, respectively, and is incorporated herein by reference. The forgoing descriptions of the Agreements do not purport to be complete and are qualified in their entirety by reference to the Purchase Agreement, the Operating Agreement, and the Employment Agreement.

Validus’ unaudited reported revenue for the year ended 2012 was approximately $1.8 million.
 
 
 
 
 
Item 3.02
Unregistered Sales of Equity Securities
 
On September 16, 2013, the Company issued the Shares to the Sellers as partial consideration under the Purchase Agreement in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.
 
Item 7.01 Regulation FD Disclosure
 
On September 17, 2013, the Company issued a press release announcing the completion of the Acquisition. A copy of the press release is included as Exhibit 99.1 hereto and is incorporated herein by reference.
 
Item 9.01
Financial Statements and Exhibits
 
(a) Financial statements of businesses acquired

Financial statements of the business acquired will be filed by amendment to this Current Report on Form 8-K (the “Report”) no later than 71 days following the date that this Report is required to be filed.

(b) Pro forma financial information

Pro forma financial information will be filed by amendment to this Report no later than 71 days following the date that this Report is required to be filed.

(d) Exhibits

Exhibit No.
 
Description
 
 
Asset Purchase and Contribution Agreement, dated as of September 16, 2013 by and among Praedium Ventures, LLC; the Members of Praedium Ventures, LLC; Where Food Comes From, Inc. and Validus Verification Services LLC
     
 
Amended and Restated Operating Agreement of Validus Verification Services LLC, dated as of September 16, 2013.
     
2.3  
Employment Agreement, effective September 16, 2013, by and between Validus Verification Services LLC and Earl Dotson
     
99.1   Press Release, September 17, 2013
 
 
 
 
 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
WHERE FOOD COMES FROM, INC.
(Registrant)
   
 
By:
/s/ John Saunders
Date: September 19, 2013
 
John Saunders
   
Chief Executive Officer
 
 
 
Where Food Comes From Inc. 8-K
Exhibit 2.1

ASSET PURCHASE AND CONTRIBUTION AGREEMENT

BY AND AMONG

PRAEDIUM VENTURES, LLC (FORMERLY KNOWN AS VALIDUS VENTURES, LLC),

THE MEMBERS OF PRAEDIUM VENTURES, LLC,

WHERE FOOD COMES FROM, INC.

AND

VALIDUS VERIFICATION SERVICES LLC

September 16, 2013
 
 
 
 
 
TABLE OF CONTENTS
 
ARTICLE I - DEFINITIONS
 
1
       
ARTICLE II - PURCHASE AND SALE OF THE PURCHASED ASSETS
 
7
       
2.1
Assets to be Purchased and Contributed
 
7
       
2.2
Excluded Assets
 
8
       
2.3
Consideration
 
8
       
2.4
Post-Closing Net Working Capital Adjustment; Transaction Period
 
9
       
2.5
Liabilities
 
11
       
2.6
Allocation of Consideration
 
13
       
2.7
Assignment of Contracts and Rights
 
13
       
2.8
Tax Treatment of Contribution
 
13
       
2.9
The Closing Date
 
13
       
ARTICLE III - CONDITIONS TO CLOSING
 
14
       
3.1
Conditions to the Buyer’s Obligations
 
14
       
3.2
Conditions to the Seller’s and the Seller Members’ Obligations
 
15
       
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE SELLER
 
15
       
4.1
Organization and Power
 
15
       
4.2
Authorization of Transactions
 
16
       
4.3
Capitalization
 
16
       
4.4
[Intentionally Omitted]
 
16
       
4.5
Absence of Conflicts
 
16
       
4.6
Financial Statements
 
16
       
4.7
Absence of Undisclosed Liabilities Compliance with Legal Requirements; Proceedings
 
17
       
4.8
Absence of Certain Developments
 
17
       
4.9
Title to Purchased Assets
 
18
       
4.10
Taxes
 
18
       
4.11
Contracts and Commitments
 
18
       
4.12
Purchased IP
 
19
       
4.13
Brokerage
 
19
       
4.14
Governmental Licenses and Permits
 
19
       
4.15
Employees
 
20
       
4.16
Employee Benefit Plans
 
20
       
4.17
Affiliate Transactions
 
20
 
 
i
 
 
4.18
Environmental Matters
 
21
       
4.19
Disclosure
 
21
       
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF THE SELLER MEMBERS
 
21
       
5.1
Enforceability
 
21
       
5.2
No Conflicts
 
21
       
5.3
Litigation
 
22
       
5.4
Brokerage
 
22
       
5.5
Interest in Competing Business
 
22
       
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF THE BUYER
 
22
       
6.1
Organization and Power
 
22
       
6.2
Authorization
 
22
       
6.3
No Violation
 
22
       
6.4
Litigation
 
22
       
6.5
Brokerage
 
22
       
6.6
Consents
 
23
       
ARTICLE VII - COVENANTS OF THE PARTIES
 
23
       
7.1
Employees
 
23
       
7.2
Payment of All Taxes Resulting from Purchase of Purchased Assets
 
23
       
7.3
Tax Matters; Cooperation
 
23
       
7.4
Use of Validus Name
 
24
       
7.5
Confidentiality; Restrictive Covenants
 
24
       
7.6
Line of Credit
 
25
       
7. 7
Satisfaction of Retained Liabilities
 
25
       
ARTICLE VIII - SURVIVAL INDEMNIFICATION AND RELATED MATTERS
 
26
       
8.1
Survival
 
26
       
8.2
Limitations
 
26
       
8.3
Legal Proceedings
 
26
       
8.4
Exclusive Remedies
 
27
       
ARTICLE IX - ADDITIONAL AGREEMENTS
 
27
       
9.1
Press Releases and Announcements
 
27
       
9.2
Further Assurances
 
27
       
9.3
Expenses
 
27
       
ARTICLE X - MISCELLANEOUS
 
27
 
 
ii
 
 
10.1
Amendment
 
27
       
10.2
Waiver
 
27
       
10.3
Notices
 
28
       
10.4
Binding Agreement; Assignment
 
28
       
10.5
Severability
 
28
       
10.6
No Strict Construction
 
28
       
10.7
Captions
 
28
       
10.8
Entire Agreement
 
28
       
10.9
Counterparts
 
28
       
10.10
Governing Law
 
29
       
10.11
Parties in Interest
 
29
       
10.12
Exhibits and Schedules
 
29
       
10.13
Certain Interpretive Matters and Definitions
 
29
 
 
iii
 
 
 
LIST OF EXHIBITS
   
Exhibit A
Form of Bill of Sale, Assignment and Assumption Agreement
Exhibit B
Form of Dotson Employment Agreement
Exhibit C
Example Terms for Services Agreement
   
LIST OF SCHEDULES
   
Schedule 1
Members of Seller
Schedule 1.1
Net Working Capital
Schedule 2.1(b)
Transferred Tangible Personal Property
Schedule 2.1(i)
Transferred Licenses and Accreditations
Schedule 2.4(e)
Accounts Receivable
Schedule 3.1(b)
Required Consents
Schedule 3.1(g)
Qualifications
Schedule 4.3
Capitalization
Schedule 4.5
Absence of Conflicts
Schedule 4.6(a)
Latest Balance Sheet
Schedule 4.7
Compliance With Laws; Proceedings
Schedule 4.8
Developments
Schedule 4.9
Assets
Schedule 4.10
Taxes
Schedule 4.11
Contracts
Schedule 4.12
Purchased IP
Schedule 4.14(a)
Governmental Licenses
Schedule 4.14(b)
Accreditations
Schedule 4.16
Employee Benefit Plans
Schedule 4.17
Affiliate Transactions
Schedule 4.18
Environmental Matters
Schedule 7.1
Employees to be Hired
Schedule 10.3
Notices
 
 
iv
 
 
ASSET PURCHASE AND CONTRIBUTION AGREEMENT
 
This Asset Purchase and Contribution Agreement (this “ Agreement ”) is made as of September 16, 2013, by and among (i) Praedium Ventures, LLC (formerly known as Validus Ventures, LLC), a Delaware limited liability company (the “ Seller ”), (ii) the members of Seller as listed on Schedule 1 attached hereto (the “ Seller Members ”), (iii) Validus Verification Services LLC, a Colorado limited liability company (the “ Buyer ”) and (iv) Where Food Comes From, Inc., a Colorado corporation (“ WFCF ”). The Seller Members, the Seller, WFCF and the Buyer are sometimes referred to herein individually as a “ Party ” and collectively as the “ Parties .”

STATEMENT OF PURPOSE

A.            The Seller Members own one hundred percent (100%) of the membership interest of the Seller.

B.            WFCF caused Buyer to be organized to purchase and acquire certain audit, assessment and verification business assets of Seller, as more fully described herein; thereafter, Buyer will operate as a separate business pursuant to its operating agreement.

C.            The Seller desires to sell and transfer to the Buyer, and the Buyer desires to purchase and accept from the Seller, those assets of the Seller, on the terms and conditions more specifically described herein.

D.            As part of the Consideration hereunder, Seller will be issued at the Closing a certain number of units of membership interest of Buyer in exchange for its contribution of a portion of the Purchased Assets to Buyer, all pursuant to the terms and conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises made herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, agree as follows:

ARTICLE I - DEFINITIONS

Capitalized terms are used throughout this Agreement. Some of these terms are defined in the body of the Agreement’s text; other terms are defined below:

“ Accreditations ” shall have the meaning set forth in Section 4.14(b).

“ Acquired Business ” means the business of Seller involving conducting all auditing services, assessment services and verification services, including but not limited to animal welfare, worker care, environmental, food safety and quality and residue level testing for compliance with proprietary standards developed by Seller and/or the standards developed by and/or adopted by and other industries, associations or organizations, including, but not limited to, the standards of United Egg Producers (UEP), American Humane Society (AHS), American Feed Industry Association (AFIA), American Protein Producers Institute (APPI), Hazard Analysis Critical Control Point (HACCP), USDA Process Verified Program Dairy, Professional Animal Auditor Certification Organization (PAACO), Safe Quality Foods (SQF), and Global Good Agricultural Practices (GlobalGAP).
 
 
 
 

“ Acquired Data ” means the data collected by Seller prior to the Closing Date from the performance of audits, assessments, and verifications and the information collected by Seller prior to the Closing pertaining to the auditors, assessors and verifiers used in the Acquired Business.

“ Affiliate ” means and includes, with respect to a specified Person, any Person that directly or indirectly controls, is controlled by or is under common control with such specified Person.

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

“ Ancillary Agreements ” means the License Agreement, the Bill of Sale, Assignment and Assumption Agreement, the Dotson Employment Agreement, the Sublease and the other agreements to be delivered in connection with this Agreement.

“ Cash Consideration ” means a cash amount equal to $565,000, increased or decreased, as applicable, on a dollar-for-dollar basis for the cumulative adjustments required by the following:

(i)           if the Net Working Capital exceeds $150,000, the Cash Consideration shall not be adjusted and Seller will keep and collect on all accounts receivables over $150,000; and

(ii)          if the Working Capital is less than $150,000, the Cash Consideration shall be decreased by the amount by which the Working Capital is less than $150,000.

“ CERCLA ” means the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601, et seq.), as amended, and all rules, regulations and standards issued thereunder.

“ Claim ” means any claim, demand, action or cause of action for payment or performance of any debt, account, covenant, contract, promise, loss, reimbursement, compensation, liability or expense including attorney’s fees, of any and every kind, nature or description whatsoever, at law or in equity.

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

“ Contract ” means any agreement, contract, lease, consensual obligation, promise, understanding or undertaking (whether oral or written).

“ Database ” means the organized collection of the Acquired Data.

“ Database Applications ” or “ Database Apps ” means the software applications for mobile devices used by auditors, assessors, verifiers when conducting audits, assessments and verifications and for interfacing with the DBMS for uploading and downloading data to and from the Database.

“ Database Management System ” or “ DBMS ” means the computer software which provides all data entry, query, reporting and scheduling functionality used in connection with the Acquired Business, including the source code and object code therefore, and any supporting documentation describing its organizational structure, functionalities, security and integrity features.

“ Designated Representations ” means the representations and warranties contained in Sections 4.1 (Organization and Power), 4.2 (Authorization of Transactions), 4.3 (Capitalization) and 4.9 (Title to Purchased Assets).
 
 
2
 

“ Effective Time ” means 11:59 p.m. on the Closing Date.

“ Employee Plan ” has the meaning set forth in Section 4.16(a).

“ Environmental Liabilities ” means any Liabilities (including any notices, penalties, orders, Claims or other assertions of obligations or liabilities) that are (a) related to environmental issues (including on-site or off-site contamination and disposal, passive migration of Pollutants, personal injury and property damage, and releases of Pollutants into the air, surface or subsurface soil or water), and (b) based upon or related to any provision of applicable Environmental Requirements.

“ Environmental Requirements ” means all Legal Requirements and Licenses concerning pollution or protection of the environment and/or human health, including without limitation all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, Release, threatened Release, control, or cleanup of any Pollutants.

“ GAAP ” means United States generally accepted accounting principles in all material respects in relation to the Financial Statements, consistently applied.

“ Governmental Authority ” means any domestic or foreign government, including any federal, provincial, state, territorial, municipal or local government, and any government agency, court, department, tribunal, commission or other authority exercising executive, legislative, judicial, regulatory, administrative or other functions of, or pertaining to, government and any official of any of the foregoing.

“ Independent Accounting Firm ” means GHP Horwath, P.C.

“ Knowledge ” means, with respect to an individual, that such individual will be deemed to have knowledge of a particular fact or other matter if that individual is actually aware of that fact or matter after making reasonable inquiry with respect to the particular matter in question. As applied to the Seller in this Agreement, “ Knowledge ” means that either Earl Dotson or Jeff Smouse is actually aware of a particular fact or other matter after making reasonable inquiry with respect to the particular matter in question. As applied to the Buyer in this Agreement, “ Knowledge ” means that either John Saunders and Leann Saunders is actually aware of a particular fact or other matter after making reasonable inquiry with respect to the particular matter in question.

“ Legal Requirement ” means and includes any federal, state, provincial, local, municipal, foreign, international, multinational or judicial Order, constitution, law, ordinance, regulation, rule or principle of common law, regulation, statute, or treaty, as the same are in effect or enacted on or prior to the Closing Date.

“ Liability ” means, with respect to any Person, any liability or obligation of such Person of any kind, whether known or unknown, absolute or contingent, disputed or undisputed, due or to become due, vested or unvested, determined, determinable or otherwise, and whether or not the same is required to be accrued on the financial statements of such Person.

“ Lien ” means any security interest, pledge, bailment (in the nature of a pledge or for purposes of security), mortgage, deed of trust, conditional sales and title retention agreement (including any lease in the nature thereof), charge, encumbrance, restrictions on transfer, voting trust arrangement, proxy or other similar arrangement or interest in real or personal property.
 
 
3
 

 “ Management ” means generation, production, handling, distribution, processing, use, storage, treatment, operation, transportation, recycling, reuse and/or disposal, as those terms are defined in CERCLA, RCRA and other Environmental Requirements (including as those terms are further defined, construed, or otherwise used in rules, regulations, standards, guidelines and publications issued pursuant to, or otherwise in implementation of, such Environmental Requirements).

“ Material Adverse Change ” means, with respect to any Person, a change that is materially adverse to the business, assets, liabilities, prospects, operating results, contracts, financial condition or operations of such Person, taken as a whole, including as a result of any materially adverse change to the assets, customer and supplier relations or employee and sales representative relations of such Person, other than any such change that relates to or results from (a) any change in the general economic, political, financial, market or other conditions generally affecting the U.S. or any foreign economy as a whole or the industry in which the Seller’s Business operates, (b) any seasonal fluctuations in the industry in which the Seller’s Business operates (provided that the exceptions contained in clauses (a) and (b) will not apply to the extent such changes have a disproportionate effect on the Seller when compared to other companies operating in the industry), (c) any force majeure circumstances or acts of God such as fire, earthquake, hurricane, flood, tsunami, etc., or (d) any acts of war, insurrection, sabotage or terrorism, national emergency or strike.

“ Net Working Capital ” means with respect to the Acquired Business, (i) the Accounts Receivable that are less than 90 days old and other working capital assets (excluding cash) as set forth on Schedule 1.1 , minus (ii) the trade accounts payable, accrued third party commissions and other trade accruals (excluding indebtedness and taxes) as set forth on Schedule 1.1 , with the sum of clauses (i) and (ii) for purposes of this definition not to be less than $150,000; in each case of clauses (i) and (ii) determined in accordance with GAAP consistently applied using the accounting principles used to prepare the Financial Statements. 

“ Order ” means any order, injunction, judgment, decree, ruling, writ, arbitration decision, award or assessment of a Governmental Authority or arbitrator.

“ Other Property ” means any real property used in the operation of the Acquired Business that was, at or prior to the Closing Date, sold, owned, operated, leased, managed or controlled by the Seller.

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

“ Pollutant ” includes any “hazardous substance” and any “pollutant or contaminant” as those terms are defined in CERCLA; any “hazardous waste” as that term is defined in RCRA; and any “hazardous material” as that term is defined in the Hazardous Materials Transportation Act (49 U.S.C. § 1801 et seq.), as amended; and including any petroleum product or byproduct, solvent, flammable or explosive material, radioactive material, asbestos, polychlorinated biphenyls (PCBs), toxic chemical, dioxins, dibenzofurans, contaminant, heavy metals (to the extent they do not occur naturally), radon gas, mold, mold spores and mycotoxins and radiation; and including any other substance or material that is reasonably determined to present a threat, hazard or risk to human health or the environment and is regulated by or under an Environmental Requirement.

“ Proceeding ” means any action, arbitration, audit, demand, examination, hearing, Claim, complaint, charge, investigation, litigation, proceeding, mediation or suit (whether civil, criminal, administrative, judicial or investigative, whether public or private) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Authority, arbitrator or mediator.
 
 
4
 

“ Purchased Intellectual Property” or “Purchased IP ” means all the following items: the patents, patent applications, patent disclosures and inventions and any reissue, continuation, continuation-in-part, division, extension or reexamination thereof; trademarks, service marks, logos, trade names (including the trade name “Validus” and derivations thereof), corporate names and Internet domain names, together with all goodwill associated therewith, copyrights and copyrightable works; and all registrations, applications and renewals for any of the foregoing; trade secrets and confidential information; computer software and software systems (including data, databases and related documentation; but excluding Excluded Assets ); and all copies and tangible embodiments of the foregoing (in whatever form or medium), in each case as specifically set forth on Schedule 4.12 .

“ RCRA ” means the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq .), as amended, and all rules, regulations and standards issued thereunder.

“ Records ” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

 “ Release ” means any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, placing, discarding, abandonment, migration or disposing into the environment of any Pollutant (including the placing, discarding or abandonment of any barrel, container or other receptacle containing any Pollutant).

“ Removal ,” “ Remedial ” and “ Response ” actions include the types of activities covered by CERCLA, RCRA, and other Environmental Requirements, and whether the activities are (a) those that might be taken by a Governmental Authority or (b) those that a Governmental Authority or any other person might seek to be taken by a third party who is or has been engaged in the Management of Pollutants.

“ Representative ” means, with respect to a particular Person, any director, officer, manager, member, partner, stockholder, employee, agent, consultant, advisor, accountant, financial advisor, legal counsel or other representative of that Person.

“ Restricted Territory ” means (a) an area encompassing the United States of America, and (b) in the event that all of the preceding subsection (a) shall be determined by judicial action to be unenforceable, an area encompassing any State in which the Acquired Business has been engaged or has been proposed to be engaged by the Seller at any time prior to the Closing Date.

“ Rollover Equity ” means the 1,000,306 units of membership interest in Buyer having an initial agreed value of $1,000,306 as of the Closing Date, and such units shall be subject to all terms set forth in the limited liability agreement of Buyer.

“ Seller Contract ” means any Contract to which the Seller is a party.

“ Seller ERISA Affiliate ” means any entity or trade or business which, together with Seller, would constitute a single employer under Sections 414(b), (c), (m) or (o) of the Code, or under Sections 4001(a)(14) of ERISA.
 
 
5
 

“ Seller’s Employee Liability ” means any claims, Liabilities, costs, expenses or compensation that exist, that arise by reason of, or that are in any way connected with or based on (i) an employee’s employment relationship with the Seller, including any claims arising out of facts or circumstances existing or arising prior to the Closing, and/or the termination of such relationship (whether or not the affected employee is hired by the Seller or any of its Affiliates), (ii) any foreign, federal, state, county or municipal fair employment practices act and/or any law, ordinance or regulation promulgated by any foreign, federal, state, county, municipality or other state subdivision as applied to employees of the Seller for all periods prior to the Closing, (iii) interference with and/or breach of contract with employees of the Seller that occurred prior to the Closing, (iv) interference with business relationships, contractual relationships or employment relationships involving employees of the Seller and any third party that occurred prior to the Closing and (v) all claims by employees of the Seller not hired by the Buyer or its Affiliates.

“ Seller’s Employee Plan Liability ” means with respect to Seller, any claims, Liabilities, costs, expenses or compensation which exist, which arise by reason of, or which are in any way connected with or based on, any Employee Plan sponsored, administered, maintained or contributed to by Seller or by any Seller ERISA Affiliate, or connected with or based on any Employee Plan for which Seller or any Seller ERISA Affiliate could incur Liability, or regardless of whether such Liability involves employees of Seller, and regardless of when or how such Liability arises.

“ Seller Transaction Expenses ” means all costs and expenses incurred by or on behalf of the Seller, the Seller Members and their respective Affiliates in connection with the preparation, execution and performance of this Agreement, including, without limitation, all fees and out of pocket expenses due all attorneys, accountants and financial advisors of the Seller, the Seller Members and their respective Affiliates.

“ Tax ” or “ Taxes ” means any federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax, of any kind whatsoever, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing.

“ Tax Benefit ” means any refund, credit or other reduction in otherwise required Tax payments.

“ Tax Contest ” means any audit, Claim, dispute or controversy relating to Taxes.

“ Tax Returns ” means returns, declarations, reports, claims for refund, information returns or other documents (including any supporting schedules, statements or information required to be attached thereto) filed or required to be filed in connection with the determination, assessment or collection of Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes.

“ Transaction ” means the transactions contemplated by this Agreement and the other agreements contemplated hereby.

“ Transaction Period ” the period of eighteen (18) months beginning on the Closing Date.

“ Transferred Tangible Property ” shall have the meaning set forth in Section 2.1(b).

“ Treasury Regulations ” means regulations (including temporary regulations) promulgated by the United States Department of Treasury with respect to the Code or other federal tax statutes, as amended.

“ WFCF Closing Share Price ” is the price per share of the WFCF Stock Consideration, as of the Closing Date, determined in accordance with this Agreement.
 
 
6
 

“ WFCF Stock Consideration ” means 708,681 shares of WFCF’s stock that are of the same class that are currently publicly traded; such number of shares being the number of shares having a total value of $935,459.

ARTICLE II - PURCHASE AND SALE OF THE PURCHASED ASSETS

2.1           Assets to be Purchased and Contributed .  Pursuant to the terms and subject to the conditions set forth in this Agreement, at the Closing and effective as of the Effective Time, Seller shall sell, convey, assign, transfer and deliver to the Buyer, and the Buyer shall purchase and acquire from the Seller, free and clear of any Liens, all the Seller’s right, title and interest in and to the Seller’s property and assets identified in this Section 2.1, used in or relating to the Acquired Business (hereinafter collectively referred to as the “ Purchased Assets ”):

(a)           all of Seller’s audit, assessment and verification tools used in the Acquired Business, including the processes, procedures, systems, and documents, including without limitation all forms and checklists, associated or used in connection with the Acquired Business;

(b)           the tangible personal property that is expressly identified on Schedule 2.1(b) (“ Transferred Tangible Property ”);

(c)           the Purchased IP;

(d)           the Database Apps;

(e)           a copy of the Database and DBMS;

(f)           the Acquired Data;

(g)          all of the Scheduled Contracts (as defined under Section 4.11(b)), provided that upon written notice to Seller at any time following the Closing the Buyer shall have the right to cause Seller to assign to Buyer any other Seller Contracts (i) that were not disclosed to Buyer on Schedule 4.11 and (ii) that are useful or necessary to the operation of the Acquired Business (and to the extent any such other Seller Contract is not assignable, Seller and Seller Members shall use best efforts to ensure that Buyer is afforded the benefits of such Seller Contract in accordance with Section 2.7);

(h)          all data and Records relating to the operations of the Acquired Business, including customer lists and Records, research and development reports and Records, production reports and Records, creative materials, advertising materials, promotional materials, studies, reports, correspondence and other similar documents and Records and copies of (i) all financial and accounting Records relating to the Acquired Business and, subject to Legal Requirements, (ii) all personnel Records and other Records described in Section 2.2(d) for employees of the Seller that become employees of the Buyer;

(i)            all intangible rights and property of the Seller, going concern value and goodwill, not otherwise within Purchased IP which specifically relates to the Acquired Business;

(j)            all Claims of the Seller against third parties relating to the Purchased Assets (but not to any Excluded Assets), whether known or unknown, contingent or noncontingent;
 
 
7
 

(k)           all accounts receivable relating to the Acquired Business totaling not less than $150,000 in the aggregate after adjusting for net working capital and excluding any accounts receivable that are at least 90 days old;

(l)            the Licenses and Accreditations identified on Schedule 2.1(l) (the “ Transferred Licenses and Accreditations ”), but solely to the extent transferrable by Seller to Buyer.

Notwithstanding the foregoing, the transfer of the Purchased Assets pursuant to this Agreement shall not include the assumption of any Liability related to the Purchased Assets unless the Buyer expressly assumes that Liability pursuant to the Bill of Sale, Assignment and Assumption Agreement.

2.2           Excluded Assets .  All assets and rights of Seller that are not included in the Purchased Assets (collectively, the “ Excluded Assets ”) are not part of the purchase and sale contemplated hereunder, are excluded from the Purchased Assets and shall remain the property of the Seller after the Closing, including without limitation:

(a)            Seller’s right, title and interest in the Database and the Database Management System;

(b)            all tangible and intangible assets and properties of the Seller that are not used in or necessary for the operation of the Acquired Business;

(c)            all tangible personal property and other tangible assets of Seller located at Seller’s facility that are not used in, not related to, and not necessary for the operation of the Acquired Business;

(d)            all personnel Records and other Records relating to the Acquired Business that the Seller is required by law to retain in its possession;

(e)            Seller’s rights under any Contract that (i) is not a Scheduled Contract and (ii) does not in any way relate to the Acquired Business;

(f)            Seller’s rights under any License or Accreditation that (i) is not any of the Transferred Licenses and Accreditations and (ii) does not in any way relate to the Acquired Business;

(g)           all cash and cash equivalents of the Seller;

(h)           all accounts receivable of the Seller that (i) do not relate to the Acquired Business and (ii) for those accounts receivable that do relate to the Acquired Business are either (A) at least 90 days old or (B) represent collections that total in excess of $150,000 in the aggregate after adjusting for net working capital; and

(i)            all rights of the Seller under this Agreement, the Ancillary Agreements to which the Seller is a party and the other documents delivered to the Seller pursuant to Section 3.2 .

2.3           Consideration .
 
(a)           The consideration for the Purchased Assets (the “ Consideration ”) will be comprised of the following, adjusted in accordance with Section 2.4 :

(i)           the Cash Consideration;
 
 
8
 

(ii)          the WFCF Stock Consideration;

(iii)         the Rollover Equity; and

(iv)         the assumption of the Assumed Liabilities.

(b)           In accordance with Section 2.8 , at the Closing:

(i)           the Buyer shall deliver an amount equal to the Cash Consideration to the Seller by wire transfer of immediately available funds to an account designated by the Seller; in addition Buyer shall provide Seller with the WFCF Stock Consideration and the Rollover Equity, both evidenced by certificates representing the allocable equity stake in each respective company.

(ii)          the Buyer, the Seller and the Seller Members, as applicable, shall deliver the opinions, certificates and other agreements, documents and instruments required to be delivered by or on behalf of such Party pursuant to Article III below.

2.4           Post-Closing Net Working Capital Adjustment; Transaction Period .

(a)           [Intentionally left blank.]

(b)            Determination of the Cash Consideration on the Closing Date . No later than three (3) days prior to the Closing Date, the Seller shall prepare and deliver to the Buyer a good faith estimate of the Cash Consideration as of the Effective Time (including an estimate of Net Working Capital as of the Effective Time (such estimate, the “ Estimated Closing Working Capital ”). The Seller also shall provide a closing statement setting forth the Seller’s good faith estimate as of the Effective Time of the Cash Consideration.

(c)            Determination of the Cash Consideration based on the Final Balance Sheet . Within ninety (90) days following the Closing Date, the Buyer shall prepare and deliver to the Seller a final balance sheet of the Seller as of the Closing Date (the “ Final Balance Sheet ”) together with a statement reflecting the calculation of the Cash Consideration (in each case as determined by reference to the Final Balance Sheet). The Buyer also shall provide a statement setting forth the Cash Consideration as determined by reference to the Final Balance Sheet. The Final Balance Sheet shall be prepared by the Buyer in accordance with GAAP, applied on a basis consistent with the basis on which the Latest Balance Sheet was prepared, and utilizing the same principles, practices and policies as those used in preparing the Latest Balance Sheet and the Financial Statements referred to in Section 4.6 hereof.
 
 
9
 

(d)            Review by the Seller . The Seller shall have thirty (30) days following the date the Buyer delivers the Final Balance Sheet to dispute the Final Balance Sheet and the calculation of Cash Consideration, by providing the Buyer with written notice of such dispute. During such thirty day period, the Seller and the Buyer shall make available to each other all information, documents, books and records of the Acquired Business and other access to the employees, assets or properties relating to the Acquired Business reasonably requested in order to evaluate the Final Balance Sheet. The Seller’s objection notice shall specify in reasonable detail any proposed adjustment to the Final Balance Sheet and the calculation of Cash Consideration and the basis therefor, including in each case a specific dollar amount and a reasonably detailed explanation of how such proposed adjustment was calculated. If the Seller has not given the Buyer written notice of any objections to the Final Balance Sheet or the calculation of Cash Consideration during such thirty (30) day period, then these statements shall be deemed to be agreed upon by the Parties, and the adjustments contemplated by Section 2.4(e) below shall be made based on such statements. If the Seller delivers an objection notice (it being agreed that the objection notice shall specify in reasonable detail any proposed adjustment to the Final Balance Sheet and the calculation of Cash Consideration and the basis therefor, and any line item that is not so specified shall be deemed to be agreed upon by the Parties) to the Buyer prior to the expiration of the 30-day period in accordance with this Section 2.4(d), the Buyer and the Seller shall attempt to resolve all disputes within twenty (20) days thereafter, and any written resolution, signed by each of Buyer and the Seller, as to a disputed adjustment shall be final, binding, conclusive and non-appealable for all purposes hereunder. If the parties are unable to resolve their dispute within twenty (20) days from the date an objection notice is delivered, then the Buyer and the Seller shall engage the Independent Accounting Firm to resolve the issues in dispute, and in connection with such engagement, the Buyer and the Seller shall execute any engagement, indemnity and other agreements as the Independent Accounting Firm may require as a condition to such engagement. The Independent Accounting Firm shall proceed to resolve the issues in dispute employing such procedures and conducting such investigations or inquiries as it deems necessary. The Parties shall request that the Independent Accounting Firm shall make its final determination with respect to the dispute within forty-five (45) days of its engagement, and such report shall be final and binding on the Parties absent fraud, intentional misconduct or manifest error. The fees and disbursements of the Independent Accounting Firm shall be allocated between the Seller and the Buyer in the same proportion that the aggregate amount of disputed items that were determined in favor of the other Party (as finally determined by the Independent Accounting Firm) bears to the total amount of disputed items submitted by the Parties. In acting under this Agreement, the Independent Accounting Firm shall be entitled to the privileges and immunities of arbitrators.

(e)            Adjustment to Cash Consideration .

(i)            Recalculation . If the amount of Cash Consideration calculated pursuant to Section 2.4(b) (based on the Estimated Closing Working Capital) differs from the amount of Cash Consideration pursuant to Section 2.4(c) (based on the Final Balance Sheet) (whether an increase or a decrease), then the Cash Consideration shall be recomputed as set forth in this Agreement by using the actual amounts as determined pursuant to Section 2.4(d) rather than the estimated amounts. To the extent that any of the Accounts Receivable listed on Schedule 2.4(e) have not been collected by the Buyer as of the date that is ninety (90) days following the Closing, the aggregate amount of such outstanding Accounts Receivable that exceeds any reserve reflected in the Estimated Closing Working Capital shall be deducted from Net Working Capital for purposes of the calculation of Cash Consideration. If the Company collects any outstanding Accounts Receivable after ninety (90) days following the Closing and after the adjustments to the consideration pursuant to this Section 2.4(e) are made, the Buyer will pay to the Seller the amount of such previously-deducted Accounts Receivable within five (5) business days of receipt by the Buyer of such payment.

(ii)           Increased Cash Consideration . In the event that the Cash Consideration as recalculated pursuant to Section 2.4(e)(i) (the “ Adjusted Cash Consideration ”) exceeds the Cash Consideration paid at Closing, then the Buyer shall immediately, but in no event later than five (5) business days after the date the Cash Consideration is deemed final pursuant to Section 2.4(d), pay the amount of such excess to the Seller by wire transfer of immediately available U.S. dollar funds to the accounts designated by the Seller.

(iii)          Decreased Cash Consideration . In the event that the Adjusted Cash Consideration is less than the Cash Consideration paid at Closing, then the Sellers shall immediately, but in no event later than five (5) business days after the date the Cash Consideration is deemed final pursuant to Section 2.4(d), pay an amount equal to the difference between the Cash Consideration paid at Closing and the Adjusted Cash Consideration (the “ Reduction Amount ”) to the Buyer by wire transfer of immediately available U.S. dollar funds to the account designated by the Buyer.
 
 
10
 

(f)            Agreements Relating to WFCF Stock Consideration .

(i)           Seller agrees not to sell, transfer or otherwise distribute any of the WFCF Stock Consideration anytime during the first twelve (12) months following the Closing Date; thereafter, Seller may sell or transfer (i) up to twenty percent (20%) of the WFCF Stock Consideration during the period beginning on the first anniversary of the Closing Date and ending on the eighteen (18) month anniversary of the Closing Date, so long as such sales or transfers comply with the Securities Act Rule 144 and any other applicable federal or state law, rule or regulation pertaining to the sale or transfer of securities and (ii) after such period, other than compliance with the Securities Act Rule 144 and any other applicable federal or state law, rule or regulation pertaining to transfer of securities, Seller shall be subject to restrictions on the sale or disposition of WFCF Stock Consideration.

(ii)           Adjustments to WFCF Stock Consideration after the Closing Date . If during the Transaction Period, any WFCF stock is issued at less than the WFCF Closing Share Price to any third party for the purpose of raising equity capital, Seller shall be issued additional WFCF shares as if the WFCF Stock Consideration had been based upon such lower price.

2.5           Liabilities .

(a)           Assumed Liabilities . On the Closing Date the Buyer shall assume and agree to discharge only the following Liabilities of the Seller (the “ Assumed Liabilities ”) by delivery of the Bill of Sale, Assignment and Assumption Agreement to the Seller:

(i)           any Liability of the Seller arising after the Effective Time under the Scheduled Contracts described in Schedule 4.11 or any other Seller Contract transferred to Buyer pursuant to Section 2.1(b) (other than (a) any Liability arising out of or relating to a breach or default that occurred prior to the Effective Time, (b) any Liability arising out of or relating to the Scheduled Contracts that are used to fund any Employee Plan of the Seller or (c) any Scheduled Contracts that relate to Retained Liabilities);

(ii)          any Liability arising out of the ownership or operation by the Buyer of the Purchased Assets or the Acquired Business after the Effective Time (other than any Retained Liability or any liability for which the Buyer is entitled to indemnification pursuant to Article VIII );

(iii)         any trade payable to the extent included in Net Working Capital.

(b)           Retained Liabilities . The Retained Liabilities shall remain the sole responsibility of, and shall be retained, paid, performed and discharged solely by, the Seller. “ Retained Liabilities ” shall mean every Liability of the Seller other than the Assumed Liabilities, including:

(i)           any Liability under any Seller Contract assumed by the Buyer pursuant to Section 2.5(a) that arises after the Effective Time but that arises out of or relates to any breach or default that occurred prior to the Effective Time;

(ii)          any Liability relating to or arising out of intercompany payables between any of the Seller Members, the Seller or their respective Affiliates;
 
 
11
 

(iii)         any Liability for Taxes, including (A) any Taxes arising as a result of the Seller’s operation of Acquired Business or ownership of the Purchased Assets prior to the Effective Time, (B) any Taxes that will arise as a result of the sale of the Purchased Assets pursuant to this Agreement, (C) any deferred Taxes of any nature and (D) any personal property Taxes, real property Taxes, ad valorem taxes or similar taxes with respect to the ownership of the Purchased Assets by the Seller for periods prior to the Closing regardless of when such Taxes are due;

(iv)         any Liability under any Contract not assumed by Buyer under Section 2.5(a) , including Contracts covered by Section 2.7 as a result of the failure of the Seller to obtain required consents;

(v)          any Environmental Liabilities arising out of or relating to the Seller’s operation of Acquired Business or ownership of the Purchased Assets prior to the Effective Time or Seller’s leasing, ownership or operation of the Other Property prior to the Effective Time;

(vi)         any Seller’s Employee Liability;

(vii)        any Seller’s Employee Plan Liability;

(viii)       any Liability to any shareholder, member or Affiliate of Seller or the Seller Members, including any Liability to indemnify, reimburse or advance amounts to any officer, director, employee or agent of Seller;

(ix)         any Liability arising out of any Proceeding pending as of the Effective Time (including the matters set forth on Schedule 4.7 ) or any Liability arising out of any Proceeding commenced after the Effective Time and arising out of or relating to any occurrence or event happening prior to the Effective Time;

(x)          any Liability arising out of or resulting from any of Seller’s compliance or noncompliance with any Legal Requirement or Order of any Governmental Authority that is applicable to Seller;

(xi)         any Liability of Seller under this Agreement or any other document executed in connection with the Transaction;

(xii)        any Liability of Seller relating to any product or service provided by Seller in whole or in part prior to the Effective Time;

(xiii)       any Liability of Seller based upon any of Seller’s acts or omissions occurring after the Effective Time;

(xiv)       any Liability for Seller Transaction Expenses; and

(xv)        any Liability arising out of (A) the ownership or operation of the Purchased Assets or the Acquired Business prior to the Effective Time other than the Assumed Liabilities and (A) the ownership or operation of the Seller’s assets (other than the Purchased Assets) or the Seller’s other businesses (other than the Acquired Business) at any time before and after the Effective Time.
 
 
12
 

2.6           Allocation of Consideration .  The Consideration shall be allocated, for tax purposes, among each item or class of the Purchased Assets and the non-compete obligations pursuant to Schedule 2.6 hereof for purposes of all applicable tax reporting requirements arising out of the Transaction (the “ Allocation ”), which Allocation shall be prepared by the Buyer’s independent accountant (the “Buyer’s Accountant”). The Allocation shall be in accordance with Section 1060 of the Code and the Treasury Regulations thereunder (and any similar provision of state or local law, as appropriate). The Buyer and the Seller shall report, act and file Tax Returns (including, without limitation, IRS Form 8594) in all respects and for all purposes consistent with such Allocation. Neither the Buyer nor the Seller shall take any position (whether in audits, Tax Returns or otherwise) that is inconsistent with such Allocation, unless required to do so by applicable Legal Requirements.

2.7           Assignment of Contracts and Rights .  Anything contained in this Agreement to the contrary notwithstanding, this Agreement shall not constitute an agreement or attempted agreement to transfer, sublease or assign any assumed Contract or any Claim or right with respect to any benefit arising thereunder or resulting therefrom, if an attempted transfer, sublease or assignment thereof, without the required consent of any other party thereto, would constitute a breach thereof or in any way affect the rights of the Buyer or the Seller thereunder. The Seller Members and the Seller shall use their respective best efforts to obtain the consent of any such third party to the transfer, sublease or assignment thereof to the Buyer in cases in which such consent is required for such transfer, sublease or assignment. If any such consent is not obtained, the Seller Members and the Seller shall use their respective best efforts to cooperate with the Buyer in reasonable and lawful arrangements designed to provide for the Buyer the benefits thereunder, including (a) adherence to reasonable procedures established by the Buyer for the immediate transfer to the Buyer of any payments or other funds received by the Seller thereunder and (b) enforcement for the benefit of the Buyer of any and all rights of the Seller thereunder against the other party or parties thereto arising out of the breach or cancellation thereof by such other party or parties or otherwise. Nothing contained in this Section 2.7 shall be construed to negate or diminish, as between the Seller Members, the Seller and the Buyer, the covenants and obligations of the Seller Members and the Seller to transfer and deliver the Purchased Assets to the Buyer as provided in this Agreement.

2.8           Tax Treatment of Contribution .  The parties agree to treat the Transaction for U.S. federal income tax purposes in accordance with example 1 of Treasury Regulation Section 1.707-3(f) as (1) a taxable sale by the Seller of the appropriate portion of the Purchased Assets to the Buyer in exchange for the Cash Consideration (as adjusted) and the WCFC Stock Consideration and a proportionate share of the Assumed Liabilities under Code Section 707(a)(2)(B) and the accompanying Treasury Regulations and (2) a nontaxable contribution by the Seller of the remaining Purchased Assets and remaining Assumed Liabilities to the Buyer in exchange for the Rollover Equity under Code Section 721. The parties agree to report, act and file tax returns for U.S. federal income tax purposes and all other tax purposes consistent with such treatment.

2.9           The Closing Date .  The closing of the Transaction (the “ Closing ”) shall take place at the offices of Womble Carlyle Sandridge & Rice, LLP in Charlotte, North Carolina, on September 16, 2013 via the exchange of documents and signatures by facsimile or electronic transmission, or at such other place or on such other date as is mutually acceptable to the Buyer and the Seller. The date of the Closing is referred to herein as the “ Closing Date ” and the Closing shall be deemed effective as of the Effective Time.
 
 
13
 

ARTICLE III - CONDITIONS TO CLOSING

3.1           Conditions to the Buyer’s Obligations .  The obligation of the Buyer to consummate the Transaction is subject to the satisfaction or written waiver of the following conditions on or before the Closing Date:

(a)             Required Consents, Transferred Licenses and Accreditations . The consents or waivers of third parties and the authorizations, Transferred Licenses and Accreditations, Orders or approvals of, or declarations or filings with, or expiration of waiting periods imposed by, the entities set forth on Schedule 3.1(a) (the “ Required Consents ”) shall have been filed, issued, occurred or been obtained, and copies of same shall have been provided to the Buyer.

(b)             Key Contracts . Buyer shall have entered into new agreements with, or been assigned Seller’s rights under Seller’s agreements with, or have obtained written commitments for new agreements between the Buyer and the following organizations: the American Humane Society, United Egg Producers, American Feed Industry Association, and Animal Protein Producers Industry.

(c)            [Intentionally Omitted]

(d)             Releases . The Seller shall have received or obtained releases from third parties of any and all Liens relating to the Purchased Assets, all on terms reasonably satisfactory to the Buyer.

(e)             Bill of Sale, Assignment and Assumption Agreement . The Buyer and the Seller shall have entered into a Bill of Sale, Assignment and Assumption Agreement, in a form attached as Exhibit A (the “ Bill of Sale, Assignment and Assumption Agreement ”).

(f)             Good Standing Certificates . The Seller shall have delivered to the Buyer a certificate from the Secretary of State (or other applicable governmental entity) of its jurisdiction of incorporation and each jurisdiction listed on Schedule 3.1(f) in which the Seller is qualified to do business as to such entity’s good standing and payment of all taxes in such jurisdiction.

(g)            Termination of Employee Agreements . Except for obligations assumed by Seller under Section 3.2(e), Seller shall have terminated (or assigned to Buyer) each of the following for all individuals whose duties related to the Acquired Business and who Seller does not intend to continue employing: (i) existing employment agreements, including without limitation the agreement with Brian Bennett; (ii) independent contractor agreements with independent contractors providing service for the Acquired Business; and (iii) other arrangements with employees of the Seller involved in the Acquired Business.

(h)            Sublease . The Buyer and Seller shall have entered into a Sublease for Buyer’s use of a certain portion of Seller’s office (the “Sublease”).

(i)             Broker’s Acknowledgement and Release . Seller shall have delivered to the Buyer a release from Seller’s broker in which such broker acknowledges his or her payment in full by Seller pursuant to a separate arrangement with Seller and further releasing any and all claims or Liens, or potential claims or Liens, on the Acquired Business or any of the Purchased Assets.

(j)             Closing Documents . On the Closing Date, the Seller or the Seller Members shall have delivered to the Buyer such other documents or instruments as the Buyer may reasonably request in connection with this Agreement to effect the Transaction.
 
 
14
 

(k)             Acquired Data, Database, Database Apps and Database Management System . On the Closing Date, the Seller shall have delivered to Buyer (i) the Database Apps, (ii) the Acquired Data, (iii) a copy of the Database, and (iv) a copy of the DBMS, all in fully functioning, downloadable, interactive and replicable form, as applicable.

(l)             Evidence of Deletion of Acquired Data . On the Closing Date, the Seller shall have delivered to Buyer a written certification that the Acquired Data has been deleted from Seller’s retained copy of the Database.

3.2           Conditions to the Seller’s and the Seller Members’ Obligations .  The obligation of the Seller and the Seller Members to consummate the Transaction is subject to the satisfaction or written waiver of the following conditions on or before the Closing Date:

(a)             Governmental Consents . All authorizations, Transferred Licenses and Accreditation, consents, Orders or approvals of, or declarations or filings with, or expiration of waiting periods imposed by, any Governmental Authority necessary for the consummation of the Transaction shall have been filed, occurred or been obtained.

(b)            Bill of Sale, Assignment and Assumption Agreement . The Buyer and the Seller shall have entered into a Bill of Sale, Assignment and Assumption Agreement.

(c)             Dotson Employment Agreement . Buyer and Earl Dotson shall have entered into an employment agreement, in the form attached hereto as Exhibit B and otherwise acceptable to the Buyer and Earl Dotson (the “ Dotson Employment Agreement ”).

(d)            Bennett Employment Agreement . Buyer shall have assumed Seller’s obligations under Seller’s employment agreement with Brian Bennett or shall have entered into a new employment agreement with Brian Bennett, which agreement relieves Seller of any obligation to pay severance to Mr. Bennett in connection with his termination by Seller and subsequent employment by Buyer.

(e)             Ancillary Agreements . The Buyer and the Seller shall have entered into each of the other Ancillary Agreements to which it is a party.

(f)             Closing Documents . On or prior to the Closing Date, the Buyer shall have delivered to the Seller all such other documents or instruments as the Seller may reasonably request to effect the Transaction.

ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE SELLER

As a material inducement to the Buyer to enter into this Agreement and to close hereunder, the Seller and the Seller Members hereby represent and warrant to the Buyer that, as of the Closing Date:

4.1           Organization and Power .  The Seller is a limited liability company, duly organized, validly existing and in good standing in the State of Delaware and is qualified to conduct the Acquired Business in every jurisdiction in which the nature of the Acquired business or its ownership of the Purchased Assets requires it to be so qualified, except where the failure to do so would not have a material adverse effect on the Acquired Business. All such jurisdictions in which the Seller is qualified for purposes of the Acquired Business are set forth on the Schedule 3.1(f) .
 
 
15
 

4.2           Authorization of Transactions .  The Seller has full limited liability company power and authority to execute and deliver this Agreement and the Ancillary Agreements to which the Seller is a party and to consummate the Transaction. No other proceedings on the part of the Seller are necessary to approve and authorize the execution and delivery of this Agreement and the Ancillary Agreements and the consummation of the Transaction. This Agreement and each Ancillary Agreement to which the Seller is a party, has been duly executed and delivered by the Seller and each constitutes the valid and binding agreement of the Seller enforceable against it in accordance with its terms.

4.3           Capitalization .  The capitalization of the Seller is completely and accurately set forth on Schedule 4.3 . The Seller Members together are the record and beneficial owner of all the equity interests of Seller, free and clear of all Liens.

4.4          [ Intentionally Omitted ] .

4.5           Absence of Conflicts .  Except as set forth on Schedule 4.5 , the execution and delivery of this Agreement and the consummation or performance of the Transaction in accordance with the terms of this Agreement do not and will not, directly or indirectly (with or without notice or lapse of time or both), (a) contravene, conflict with, or result in a violation of or a default under any provision of the governing or organizational documents of the Seller; (b) contravene, conflict with, or result in a violation of, or give any Governmental Authority or other Person the right to challenge the Transaction under, any Legal Requirement or Order to which the Seller or any of the assets owned or used by the Seller may be subject; (c) contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Authority the right to revoke, withdraw, suspend, cancel, terminate or modify, any License that is held by the Seller; (d) contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity, vesting or performance of, or to cancel, terminate, or modify, any contract or agreement to which the Seller is a party or by which it is bound; (e) result in the imposition or creation of any Lien upon or with respect to any of the Purchased Assets and (f) cause Buyer to become subject to, or to become liable for payment of, any Tax, except for federal and state income taxes which may be imposed upon the Seller and Seller Members as a result of the closing of the transactions contemplated by this Agreement.

4.6           Financial Statements .

(a)           The Seller has furnished the Buyer with copies of the (i) unaudited balance sheet of the Seller as of April 30, 2013 (the “ Latest Balance Sheet ”), and the related statements of income and cash flows for the four-month period then ended; (ii) reviewed balance sheet and statements of income and cash flows of the Seller for the fiscal years ended December 31, 2010; (iii) audited balance sheet and statements of income and cash flows of the Seller for the fiscal year ended December 31, 2011 and December 31, 2012; and (iv) pro forma financials for the Acquired Business (and Facility Certificate Institute) prepared by Seller’s management for fiscal years ended on December 31 of 2010, 2011, 2012 and the first fiscal quarter of 2013. The Latest Balance Sheet is attached hereto as Schedule 4.6(a) . Each of the foregoing financial statements (including in all cases the notes thereto, if any) (the “ Financial Statements ”) is accurate and complete in all material respects, are consistent in all material respects with the books and records of the Seller, present fairly in all material respects the financial condition, results of operations and cash flows of the Seller as of the times and for the periods referred to therein, and have been prepared in conformity with the accounting principles historically utilized by the Seller and applied on a consistent basis during each period and on a basis consistent with that of prior periods.
 
 
16
 

(b)           The accounts receivable that are reflected on the Latest Balance Sheet or on the accounting records of the Seller as of the Closing Date (collectively, the “ Accounts Receivable ”) are recorded in accordance with GAAP and represent or will represent (i) valid obligations arising from sales actually made or services actually performed by the Seller in the ordinary course of business consistent with past practice, and (ii) amounts due to the Seller with respect to arm’s length transactions entered into in the ordinary course of business. Unless paid prior to the Closing Date, the Accounts Receivable are or will be as of the Closing Date, current and collectible net of the respective reserves shown on the Latest Balance Sheet or on the accounting records of the Seller as of the Closing Date (which reserves are calculated consistent with past practice). Except as set forth on Schedule 2.4(e) , there is no contest, Claim, or right of set-off, other than returns in the ordinary course of business consistent with past practice, under any contract with any obligor of an Accounts Receivable relating to the amount or validity of such Accounts Receivable. Schedule 2.4(e) contains a complete and accurate list of all Accounts Receivable as of the Closing and the aging of such Accounts Receivable.

4.7           Absence of Undisclosed Liabilities Compliance with Legal Requirements; Proceedings .

(a)           Except as set forth on Schedule 4.7 , the Seller does not have any Liabilities, and there is no existing condition, situation or set of circumstances which would reasonably be expected to result in such a Liability, other than (i) Liabilities provided for in the 2009 Audited Financial Statements or disclosed in the notes thereto and (ii) undisclosed Liabilities which, individually or in the aggregate, are not material to the Seller, taken as a whole.

(b)           Without limiting the generality of the foregoing, except as set forth on Schedule 4.7 , to the Knowledge of Seller, the Seller has complied in all material respects with all applicable Legal Requirements.

(c)           Except as set forth on Schedule 4.7 , (i) there are no Proceedings pending, in which the Seller is actually named as a party, or, to the Knowledge of the Seller, threatened against the Seller or the Acquired Business by or before any arbitrator or Governmental Authority; and (ii) there are no Orders binding on the Seller with respect to the Acquired Business. There are no judgments outstanding against the Seller. To the Knowledge of the Seller, there are no grounds on which any such Proceedings might be commenced which are likely to result in a Material Adverse Change with respect to the Seller. In the last eight (8) months, there have been no other events or occurrences out of the ordinary course of business or inconsistent with the past practices of the Acquired Business.

4.8           Absence of Certain Developments .  Except as set forth on Schedule 4.8 and except as expressly contemplated by this Agreement, since January 1, 2013 (i) there has been no material adverse change with respect to the Acquired Business or any of the Purchased Assets and (ii) the Seller has not:

(a)           sold, leased, licensed, assigned, abandoned or transferred any portion of its tangible assets or Purchased IP relating to the Acquired Business;

(b)           incurred any physical damage, destruction or other casualty loss (whether or not covered by insurance) affecting any of its real or personal property relating to the Acquired Business in an aggregate amount greater than $5,000;

(c)           entered into any settlement, conciliation or similar agreement or waived any rights of value involving Claims in excess of $5,000 relating to the Purchased Assets or the Acquired Business; or

(d)           waived any rights relating to the Acquired Business, other than waivers in the ordinary course of business and in accordance with past custom and practice.
 
 
17
 

4.9           Title to Purchased Assets .  Except as set forth on Schedule 4.9 , the Seller has good and marketable title to (or in the case of assets identified as leased in the books and records of the Seller, a valid leasehold interest in) the Purchased Assets, free and clear of all Liens. The Purchased Assets constitute all the assets, tangible and intangible, necessary to operate the Acquired Business, in the manner presently operated by the Seller, except for the Excluded Assets. Upon delivery by the Buyer to the Seller of the Consideration in accordance with Section 2.3, valid and marketable title to the Purchased Assets will pass to the Buyer, free and clear of any Lien.

4.10         Taxes .  The Seller has filed all Tax Returns for all applicable Taxes, for all years and periods, and portions thereof for which the due date (with extension) falls on or before the Closing Date. Each such Tax Return has been, or will be, prepared in all material respects, in compliance with all applicable Legal Requirements, and all such Tax Returns are, or will be, complete and correct in all material respects as of the respective filing dates. All Taxes payable by the Seller and all assessments for Taxes of the Seller have been paid or will be paid by the Seller when due. Except as set forth on Schedule 4.10 , there are no Claims or investigations by any Governmental Authority pending or, to the Seller’s Knowledge, threatened against the Seller with respect to any Taxes. The Seller has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any Person. There are no outstanding agreements or waivers extending the statutory period of limitations applicable to any Tax Returns required to be filed by, or that include or are treated as including, the Seller or with respect to any Tax assessment or deficiency affecting the Seller. Except as set forth on Schedule 4.10 , no unresolved Claim has been made, or to the Knowledge of Seller is expected to be made, by any Governmental Authority in a jurisdiction where the Seller does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. The Seller has no liability for Taxes of another Person arising as a result of the Seller at any time being a member of an Affiliated Group or as a result of liability as a successor or transferee, by contract or otherwise. There are no Liens on any of the Purchased Assets that arose in connection with any failure (or alleged failure) to pay any Tax, and the Seller has no Knowledge of any basis for assertion of any Claims attributable to Taxes which, if adversely determined, would result in any such Lien. The Seller has made available to the Buyer true, correct and complete copies of all Tax Returns, examination reports, and statements of deficiencies filed, assessed against or agreed to by the Seller since December 31, 2012.

4.11         Contracts and Commitments .

(a)            Schedule 4.11 describes each Seller Contract used in or relating to the Acquired Business.

(b)           Except as specifically contemplated by this Agreement or disclosed on Schedule 4.11 , (i) the Seller has no Knowledge of any cancellation, breach or anticipated breach by any party to any Contract required to be disclosed on Schedule 4.11 (the “ Scheduled Contracts ”), (ii) the Seller has performed in all material respects all obligations required to have been performed by it in connection with the Scheduled Contracts, (iii) the Seller does not have Knowledge of any claim of default under any Scheduled Contract, (iv) the Seller does not have a present expectation or intention of not fully performing any obligation pursuant to any Scheduled Contract, and (v) to the Knowledge of the Seller, no customer or supplier of the Seller that is a party to any Scheduled Contract has indicated to the Seller that (A) it has terminated its relationship with the Seller or that it will stop or materially decrease the rate of business done with the Seller, (B) it desires to renegotiate its contract with the Seller or materially change the pricing or other terms of its business with the Seller or (C) in the case of a customer, any of its projects are being materially delayed.

(c)           The Seller has provided the Buyer with a true, accurate, complete and correct copy of all of the Scheduled Contracts, together with all written amendments, waivers or other changes thereto, and Schedule 4.11 includes a materially accurate and complete written description of any oral contracts of the type required to be listed on Schedule 4.11 .
 
 
18
 

4.12         Purchased IP .

(a)             Schedule 4.12(a) sets forth a complete and correct list of (i) the Purchased IP of Seller that is used in or necessary for the operation of the Acquired Business; (ii) all material computer software owned or used by the Seller used in or necessary for the operation of the Acquired Business; (iii) all licenses or similar agreements to which the Seller is a party either as licensee or licensor for the Purchased IP.

(b)            Except as set forth on Schedule 4.12(b) , (i) the Seller owns and possesses all right, title and interest in and to, or has a valid and enforceable license to use, each of the Purchased IP used in the operation of the Acquired Business as currently conducted, free and clear of all Liens, and such Purchased IP constitutes all the Purchased IP necessary to operate the Acquired Business, as currently conducted; (ii) no Claim by any third party contesting the validity, enforceability, use or ownership of any Purchased IP used in or necessary to the operation of the Acquired Business that are owned or licensed by the Seller has been made, is currently outstanding or, to the Knowledge of the Seller, is threatened, and, to the Knowledge of the Seller, there are no grounds for same; (iii) the Seller has not received any notices of, nor does the Seller have Knowledge of, any facts which indicate a likelihood of, any infringement or misappropriation by, or conflict with, any third party with respect to any Purchased IP that is used in or necessary to the operation of the Acquired Business; (iv) to the Knowledge of Seller has not infringed or misappropriated any intellectual property rights of any third parties and, to the Knowledge of Seller, the operation of the Acquired Business, as presently conducted, does not infringe or misappropriate any third party intellectual property right; (v) to the Knowledge of the Seller, no third party has infringed, misappropriated or otherwise conflicted with any of the Purchased IP of Seller used in or necessary for the operation of the Acquired Business; and (vi) following the Closing, all Purchased IP of Seller currently used in the Acquired Business will be owned or available for use by the Seller on terms and conditions identical in all material respects to those in effect on the date hereof.

4.13         Brokerage .  The Seller does not have any liability or obligations to pay any fees or commissions to any broker, finder or agent with respect to the Transaction for which the Seller, or the Buyer could become liable or obligated.

4.14         Governmental Licenses and Permits .

(a)            Schedule 4.14(a) contains a complete listing of all permits, licenses franchises, certificates, approvals and other authorizations of Governmental Authorities or other similar rights (excluding (i) Accreditations described in paragraph (b) below and (ii) those set forth on Schedule 4.12 , but including all licenses, permits and other authorizations that are required pursuant to any Environmental Requirements for the operation of the Acquired Business) (collectively, the “ Licenses ”) held or possessed by the Seller for the conduct of the Acquired Business, and, other than the Accreditations, no other material licenses are required in the conduct of the Acquired Business.

(c)            (b)           Schedule 4.14(b) contains a complete listing of (i) all of current accreditations from any Governmental Authorities or non-governmental regulatory body providing standards for certification or accreditation (e.g. ISO certification), which have been issued to Seller and are utilized in the Acquired Business (the “ Accreditations ”) and (ii) all of Seller’s pending applications for any Accreditation.
 
 
19
 

4.15         Employees .  To the Knowledge of the Seller, no employee to be hired by the Buyer and listed on Schedule 7.1 is subject to a noncompetition or confidentiality agreement with any third party that restricts such employee’s activities on behalf of the Seller. Each current and former employee, consultant and officer of the Seller has executed an agreement or agreements with the Seller regarding confidentiality and proprietary information and inventions assignments and disclosures, each substantially in the form or forms delivered to the counsel for the Buyer (the “ Intellectual Property Agreements ”). To the Knowledge of Seller, no current or former employee of the Seller has excluded works or inventions from his or her assignment of inventions pursuant to such current or former employee’s Intellectual Property Agreement. To the Knowledge of Seller, none of Seller’s current or former employees is in violation of an Intellectual Property Agreement.

4.16         Employee Benefit Plans .

(a)           Except as set forth on Schedule 4.16 , the Seller does not maintain, contribute to, or have any liability or potential liability with respect to, (i) any “employee benefit plan” (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)), or (ii) any other plan, program, policy, practice, arrangement or contract providing benefits or payments to current or former employees (or to their beneficiaries or dependents) of the Seller, including any bonus plan, plan for deferred compensation, nonqualified retirement plan, severance plan, stock option or stock purchase plan, employee health or other welfare benefit plan or other arrangement formal or informal (the benefit plans described in the foregoing clauses (i) and (ii), an “ Employee Plan ”). For purposes of this Section 4.16, the “Seller” shall be deemed to include any entity required to be aggregated in a controlled group or affiliated service group with the Seller for purposes of ERISA or the Code (including, without limitation, under Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA), at any relevant time. Each item listed on Schedule 4.16 is an Employee Plan.

(b)           The Seller has received a determination letter from the Internal Revenue Service with respect to Seller’s 401(k) plan maintained by the Seller, and nothing has occurred since the date of such determination that could adversely affect the qualification of such plan.

(c)           The Seller does not have any material liability or potential material liability with respect to any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA) that is subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code or any similar federal, state or provincial law, rule or regulation (a “ Pension Plan ”) or any “multiemployer plan” (as such term is defined in Section 3(37) of ERISA), and the Seller has not incurred any liability under Title IV of ERISA or any Legal Requirement or to the Pension Benefit Guaranty Corporation (the “ PBGC ”). No Pension Plan of the Seller has incurred any “accumulated funding deficiency” (as defined in Section 302 of ERISA or Section 412 of the Code), whether or not waived; the fair market value of the assets of each Pension Plan equals or exceeds the present value of the vested and nonvested benefit liabilities (determined on a plan termination basis); no reportable event within the meaning of Section 4043 of ERISA or any similar Legal Requirement has occurred with respect to any Pension Plan; the PBGC has not threatened the termination of any Pension Plan; and the Seller has no liability or potential liability with respect to any Pension Plan that has been terminated in the past five years.

4.17         Affiliate Transactions .  Except as disclosed on Schedule 4.17 , to the Knowledge of the Seller, neither any former or current officer, director or member of the Seller listed on Schedule 4.17 , nor any individual related by blood, marriage or adoption to any of the foregoing individuals, or any entity in which any such Person owns any beneficial interest, (i) is a party to any agreement, contract, commitment or transaction with the Seller or that pertains to the Acquired Business, (ii) has any interest in any property, real or personal or mixed, tangible or intangible, used in or pertaining to the Acquired Business or (iii) is engaged in competition with the Seller with respect to the Acquired Business.
 
 
20
 

4.18         Environmental Matters .

(a)           Except as set forth on Schedule 4.18 , to the Knowledge of the Seller, the Seller has complied in all material respects with all Environmental Requirements in the conduct of Acquired Business.

(b)           Except as set forth on Schedule 4.18 , the Seller has not received any written or oral notice, report or other written information regarding any actual or alleged violation of Environmental Requirements or any Environmental Liabilities (including Environmental Liabilities that could in the future arise as a result of an existing violation of Environmental Requirements), relating to the Acquired Business.

(c)           The Seller has not in connection with the operation of the Acquired Business: (i) treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled or Released any Pollutant; or (ii) owned or operated any property or facility, in a manner that has given or would reasonably be expected to give rise to Environmental Liabilities (including Environmental Liabilities that could in the future arise as a result of an existing violation of Environmental Requirements).

(d)          [Intentionally Omitted]

(e)           The Seller has furnished to Buyer all documents in its possession or control containing material information regarding any material Environmental Liability under any applicable Environmental Requirement or with respect to any Pollutants, relating to the operation of the Acquired Business.

4.19         Disclosure .  Neither this Agreement, nor any of the schedules hereto, contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they were made, not misleading. There exists no undisclosed fact or circumstance which, to the Knowledge of Seller, materially and adversely affects or could reasonably foreseeably affect the present business, properties or condition, financial or otherwise, of the Seller.

ARTICLE V - REPRESENTATIONS AND WARRANTIES OF THE SELLER MEMBERS

As a material inducement to the Buyer to enter into this Agreement, the Seller Members hereby represent and warrant to the Buyer that, as of the Closing Date:

5.1           Enforceability .  This Agreement constitutes a valid and binding obligation of the Seller Members, enforceable against the Seller Members in accordance with its terms.

5.2           No Conflicts .  Except as set forth in Schedule 4.5 , the execution and delivery by the Seller Members of this Agreement and the Ancillary Agreements to which the Seller Members are a party does not, and the performance by the Seller Members of their obligations under this Agreement and the Ancillary Agreements to which the Seller Members are a party, does not and will not:

(a)           contravene, conflict with or result in a violation of or default under any Legal Requirement applicable to the Seller Members or any of the Seller Members assets and properties or require any consent or approval of or any notice or filing with any Governmental Authority or regulatory body or other third party; or

(b)           contravene, conflict with or result in a breach or violation of, or default under, or give rise to any right of acceleration or termination of, any of the terms, conditions or provisions of, any note, bond, lease, license, agreement or other instrument or obligation to which the Seller Members are a party or by which the Seller Members’ assets or properties are bound, which could reasonably be expected to affect the Seller Members’ performance of its obligations under this Agreement or the consummation of the Transaction.
 
 
21
 

5.3           Litigation .  There are no Proceedings pending or, to the Seller Members’ Knowledge, threatened against or affecting the Seller Members at law or in equity, or before or by any Governmental Authority, which could reasonably be expected to affect the Seller Members’ performance of its obligations under this Agreement or the consummation of the Transaction.

5.4           Brokerage .  The Seller Members have not incurred and will not incur, directly or indirectly, as a result of any action taken or permitted to be taken by or on behalf of the Seller Members, any liability or obligation to pay any fees or commissions to any broker, finder or agent in connection with the execution and performance of the Transaction for which the Buyer could become liable or obligated.

5.5           Interest in Competing Business .  No Seller Member owns any equity interest in any business that competes with the Acquired Business.

ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF THE BUYER

As a material inducement to the Seller and the Seller Members to enter into this Agreement, the Buyer and WFCF, jointly and severally, hereby represent and warrant to the Seller and the Seller Members that as of the date hereof:

6.1           Organization and Power .  The Buyer is a limited liability company validly existing and in good standing under the laws of the State of Colorado, with full power and authority to enter into this Agreement and to perform its obligations hereunder.

6.2           Authorization .  The execution, delivery and performance of this Agreement and the Ancillary Agreements by the Buyer and the consummation of the Transaction contemplated hereby have been duly and validly authorized by all requisite action on the part of the Buyer, and no other proceedings on its part are necessary to authorize the execution, delivery or performance of this Agreement or the Ancillary Agreements to which it is a party. This Agreement and the Ancillary Agreements each constitute a valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms.

6.3           No Violation .  The Buyer is not subject to or obligated under its governing or organizational documents, any applicable Legal Requirement, or any agreement, instrument, license, franchise or permit, or subject to any Order, which would be breached or violated by its execution, delivery or performance of this Agreement or the Ancillary Agreements to which it is a party.

6.4           Litigation .  There are no Proceedings, Orders or investigations pending or, to the best of the Buyer’s Knowledge, threatened against or affecting the Buyer at law or in equity, or before or by any Governmental Authority, which would adversely affect the Buyer’s performance of its obligations under this Agreement or the Ancillary Agreements or the consummation of the Transaction.

6.5           Brokerage .  The Buyer has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the Transaction for which the Seller or the Seller Members could become liable or obligated.
 
 
22
 

6.6           Consents .  No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any Governmental Authority or third party on the part of the Buyer is required in connection with the consummation of the Transaction.

6.7           SEC Reports .  Since December 31, 2009, WFCF has timely filed all reports required to be filed by it with the SEC (collectively, the “Reports”). As of their respective dates, the Reports complied in all material respects with all rules and regulations promulgated by the SEC and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Since the date of the financial statements included in the most recent set of such Reports, as of the date hereof, there has been no material adverse change in the financial position or results of operations of Buyer.

ARTICLE VII - COVENANTS OF THE PARTIES

7.1           Employees .  The Buyer and the Seller have, upon mutual agreement, contacted the persons listed on Schedule 7.1 regarding the Transaction for the purpose of making offers of employment with or other engagement by the Buyer to be effective as of the Effective Time, which shall be contingent upon the occurrence of the Closing and the consummation of the Transaction. The Seller has informed those persons (i) that their employment with or engagement by the Seller will terminate on the Closing Date and (ii) that they will be offered employment or other engagement by the Buyer. The Seller hereby releases those persons listed on Schedule 7.1 that accept employment or engagement with Buyer at the Closing from any non-solicitation or non-competition agreement to which they may be subject with the Seller after Closing that is contrary to this Agreement.

7.2           Payment of All Taxes Resulting from Purchase of Purchased Assets .  The Seller Members will cause the Seller to pay in a timely manner all Taxes (including, without limitation, sales, use or other transfer taxes) resulting from or payable in connection with the sale of the Purchased Assets pursuant to this Agreement, with the exception of any Taxes that are the obligation of the Buyer or the Buyer’s Affiliates, pursuant to applicable Legal Requirements.

7.3           Tax Matters; Cooperation .

(a)            Payroll Reporting Requirements . The Seller and the Buyer hereby agree to utilize the “ Standard Procedure ” set forth in Revenue Procedure 2004-53, or a corresponding future revenue procedure or other administrative pronouncement from the IRS, with regard to the reporting requirements attributable to wages paid or to be paid to all persons employed by Seller prior to the Closing Date that become employees of Buyer from and after the Closing Date.

(b)            Post-Closing Cooperation . The Seller and the Buyer shall cooperate with each other after the Closing in providing any information reasonably necessary to permit the filing of Tax Returns or responding to audits or other inquiries of any taxing Governmental Authority. The Seller shall cooperate with and provide to the Buyer any information or documentation necessary for the Buyer to obtain a sale for resale or any other exemption from Taxes under state or local law. Such cooperation shall include the retention and (upon the other Party’s request) the provision of books and records and other information that are reasonably relevant to any such Tax Return or audit or inquiry and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided. The Seller and the Buyer agree to give the other Party reasonable written notice prior to transferring, destroying or discarding any such books and records or information and, if the other Party so requests, the Seller or the Buyer, as the case may be, shall allow the other Party to take possession of such books and records or other information before such transfer, destruction or discard.
 
 
23
 

7.4           Use of Validus Name .  Immediately after Closing, the Seller and the Seller Members shall cease transacting business under or otherwise using for any purpose the names “Validus” or any name similar thereto and shall take all actions necessary to withdraw or terminate their authority to transact business anywhere under such names within fifteen (15) days after Closing.

7.5           Confidentiality; Restrictive Covenants .

(a)           Confidentiality . Each of the Seller and the Seller Members acknowledge and agree that (i) he, she or it has, or may have, access to Confidential Information and that such Confidential Information does and will constitute valuable, special and unique property of the Buyer from and after the Closing Date and (ii) for a period of five (5) years after the Closing Date, neither he, she or it nor any of his, her or its Affiliates will, directly or indirectly, disclose, reveal, divulge or communicate to any Person other than authorized officers, directors, members and employees of the Buyer any Confidential Information, or use or otherwise exploit any Confidential Information for his or its own benefit or the benefit of anyone other than the Buyer in a manner inconsistent with the business interest of Buyer. The term “Confidential Information” shall mean the following information and items as related to the Acquired Business: (a) corporate information, including plans, strategies, methods, policies, resolutions, negotiations; (b) marketing information, including strategies, trade secrets, methods, customer identities or other information about customers, prospect identities or other information about prospects, or market analyses or projections; (c) financial information, including cost and performance data, price lists; (d) operational and technological information, including plans, specifications, manuals, forms, templates, software, designs, procedures, formulas, discoveries, inventions, improvements, concepts and ideas; and (e) any written document, memorandum, report, correspondence, drawing or other material, or computer software or program, developed or prepared by any employee or agent of either party which incorporates, references or uses any information described above. The term “ Confidential Information ”, for purposes of this Section 7.5(a) does not include, and there shall be no obligation hereunder with respect to, information that (a) is generally available to the public or the industries in which the Acquired Business is conducted on the date of this Agreement, (b) becomes generally available to the public other than as a result of an impermissible disclosure by the Seller or any of the Seller Members or their Affiliates or Representatives, (c) the Seller or any of the Seller Members learn from other sources where such sources have not violated their confidentiality obligation to the Buyer, (d) is independently developed by the Seller or any of the Seller Members after the date hereof or (e) is required by a court of competent jurisdiction to be disclosed, provided that the Seller or any of the Seller Members give written notice to the Buyer of such disclosure and allow the Buyer to seek a protective order or otherwise limit the disclosure and provided further that such information shall be excluded from the term “Confidential Information” only to the extent required to comply with such court order.

(b)           Seller and Seller Members Restrictive Covenants . For a period of five (5) years with respect to the Seller and Earl Dotson, and for a period of two (2) years with respect to the Seller Members, excluding Earl Dotson (each such period of time, as applicable, a “ Restricted Period ”), Seller, Earl Dotson and the other Seller Members will not, directly or indirectly, nor permit their Affiliates to:

(i)           own, manage, operate, control or participate in the ownership, management, operation or control of any business, whether in corporate, proprietorship or partnership form or otherwise, engaged in the Acquired Business anywhere in the Restricted Territory, other than (a) as an employee of, or consultant to, the Buyer or WFCF or (b) owning shares of stock of any corporation having a class of equity securities actively traded on a national securities exchange or on the Nasdaq Stock Market which represent, in the aggregate, not more than two percent (2%) of such corporation’s fully-diluted shares;
 
 
24
 

(ii)          induce or attempt to induce, or cause any officer, director, employee, consultant or contractor of the Buyer involved in the Acquired Business to leave the employ of the Buyer or any of its Affiliates, or in any way interfere with the relationship between the Buyer or such Affiliates on the one hand, and any such officer, director, employee, consultant or contractor, on the other hand; or

(iv)         induce, or attempt to induce, any customer, salesperson, distributor, supplier, vendor, manufacturer, representative, agent, jobber, licensee or other Person transacting business in the Restricted Territory with the Buyer or any of its Affiliates to reduce or cease doing business with the Buyer, or in any way interfere with the relationship between any such customer, salesperson, distributor, supplier, vendor, manufacturer, representative, agent, jobber, licensee or business relation, on the one hand, and the Buyer on the other hand.

(c)           Remedies; Reformation . The Parties hereto specifically acknowledge and agree that the remedy at law for any breach of the foregoing covenants in this Section 7.5 may be inadequate and that the Buyer or the Seller, as applicable, in addition to any other relief available to it, shall be entitled to such temporary and permanent injunctive relief without the necessity of proving actual damage or posting any bond whatsoever. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 7.5 is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. In the event that any court will not reform such covenants, then the Parties hereto agree that such provisions shall be reformed to set forth the maximum limitations permitted by applicable Legal Requirements.

(d)          Seller’s Retained Business (a/k/a Praedium Ventures, LLC) . During the Restricted Period, the noncompetition and non-solicitation covenants of the Seller and Seller Members set forth above in Section 7.5(b) shall not limit or restrict Seller or Seller Members from conducting or practicing the business and operations engaged in by Seller prior to entering into this Agreement, provided that such business and operations do not involve conducting auditing services, assessment services and/or verification services or otherwise involve the use, sale, transfer or license of the Seller’s copy of the Database and/or DBMS in any manner in connection with providing auditing services, assessment services and/or verification services.

7.6           Line of Credit .  Not later than 30 days after the Closing, Buyer and WFCF shall make a good faith effort to secure a line of credit or other financing sufficient to meet the working capital needs of Buyer. None of the Seller Members shall be required to provide any guarantees in connection with such financing.

7.7           Satisfaction of Retained Liabilities .  The Seller will, and the Seller Members will cause the Seller to, pay or satisfy, or make adequate provision for the payment or satisfaction, in full of all the Retained Liabilities and other Liabilities of the Seller under this Agreement.

7.8           Services Agreement .   The Buyer and Seller will enter into a Services Agreement that sets forth the terms under which employees of Seller will perform certain services for Buyer and employees of Buyer will perform services for Seller (the “Services Agreement”). See Exhibit C for example of terms for the Services Agreement.
 
 
25
 

ARTICLE VIII - SURVIVAL INDEMNIFICATION AND RELATED MATTERS

8.1           Survival .  The representations and warranties contained in this Agreement shall survive the Closing for eighteen (18) months following the Closing Date except for (i) the representations and warranties contained in Sections 4.10 (Taxes) and 4.18 (Environmental Matters), each of which shall survive for thirty (30) days past applicable statute of limitations (as it may be extended), and (ii) the representations and warranties contained in the other Designated Representations which shall survive without limitation.

(a)           Seller agrees to indemnify Buyer with respect to, and hold Buyer harmless from, any loss, liability or expense (including, but not limited to, reasonable legal fees) (each, a “ Loss ”) which Buyer may directly or indirectly incur or suffer by reason of, or which results, arises out of or is based upon (i) the inaccuracy of any representation or warranty made by Seller or Seller Member in this Agreement, (ii) the failure of Seller or Seller Member to comply with any covenants or other commitments made by Seller in this Agreement, or (iii) any Retained Liability.

(b)           Buyer and WFCF agree to indemnify Seller with respect to, and hold Seller harmless from, any Loss which Seller may directly or indirectly incur or suffer by reason of, or which results, arises out of or is based upon (i) the inaccuracy of any representation or warranty made by Buyer in this Agreement, (ii) the conduct of the Acquired Business by Buyer subsequent to the Closing Date or (iii) the failure of Buyer to comply with any covenants made by Buyer in this Agreement.

8.2           Limitations .  The indemnification obligations of Seller and Buyer under Section 8.1 shall be subject to the following limitations:

(a)           Except as provided in (b) through (d) below, Seller’s indemnification obligations pursuant to Section 8.1 shall survive for 18 months following the Closing and Seller’s aggregate liability for indemnification pursuant to Section 8.1 shall not exceed an amount equal to (and shall not be recoverable from a source other than) the WFCF Stock Consideration and the Rollover Equity;

(b)           Seller’s indemnification obligations pursuant to Section 8.1(a)(i) in respect of any Loss arising out of or in connection with fraud or intentional misconduct or a breach of a Designated Representation shall survive for the duration of the statute of limitations applicable to such matters and shall not exceed an amount equal to the amount of the Consideration;

(c)           Seller’s indemnification obligations pursuant to Section 8.1(a)(i) in respect of any Loss arising out of or in connection with a breach of the representation contained in Section 4.10 (Taxes) or in Section 4.18 (Environmental Maters) shall survive for the duration of the statute of limitations applicable to such matters and will not be subject to a cap.

(d)           Except in respect of any Loss arising out of or in connection with fraud or intentional misconduct or a breach of a Designated Representation, in no event shall either Party be liable to another Party pursuant to Section 8.1 unless and until the aggregate amount of all such Losses exceeds $50,000, after which point the liability shall be for the Losses in excess of the foregoing threshold.

8.3           Legal Proceedings .  In the event Buyer or Seller become involved in any legal, governmental or administrative proceeding which may result in indemnification claims hereunder, such party shall promptly notify the other party in writing and in full detail of the filing, and of the nature of such proceeding. The other party may, at its option and expense but only upon the consent of the Indemnified Party, defend and control any such proceeding if the proceeding could give rise to an indemnification obligation hereunder. In such event the party being indemnified shall have the right to retain legal counsel at its own expense and shall have the right to approve any settlement of any dispute giving rise to such proceeding, provided that such approval may not be withheld unreasonably by the party being indemnified. The party being indemnified shall reasonably cooperate with the indemnifying party in such proceeding.
 
 
26
 

8.4           Exclusive Remedies .  Except for injunctive action or other equitable remedies, as otherwise provided in Section 2.4 or with respect to fraud Claims, the remedies provided in this Article VIII shall be the exclusive remedies of the Parties after the Closing in respect of any matter arising out of or in connection with this Agreement and any certificate executed in connection herewith for monetary damages arising under this Agreement.

ARTICLE IX - ADDITIONAL AGREEMENTS

9.1           Press Releases and Announcements .  No press releases related to this Agreement and the Transaction, or other announcements to the employees, customers or suppliers of the Seller, shall be issued without the mutual approval of the Buyer and the Seller (which approval shall not be unreasonably withheld or delayed), except for any public disclosure which Buyer or the Seller in good faith believes is required by law or regulation (in which case the disclosure shall be prepared jointly by the Buyer and the Seller).

9.2           Further Assurances .  The Parties hereto each agree to execute such other documents or agreements as may be necessary or desirable for the implementation of this Agreement and the consummation of the Transaction. In addition, the Buyer agrees to cooperate reasonably with the Seller to the extent the Seller requests access to documents, employees or data in the event that the Seller or the Seller Members become the subject of an audit or investigation by a Governmental Authority. In the event that following the Closing, the Seller Members, the Seller or any of their respective Affiliates receive or come into the possession of any of the Purchased Assets (including without limitation any payments relating to the Accounts Receivable or Claims included in the Purchased Assets), the Seller Members and the Seller shall, and shall cause their respective Affiliates to, immediately notify the Buyer and transfer or pay over such Purchased Assets to the Buyer. Seller will cooperate with the Buyer and use commercially reasonable efforts to assist the Buyer with the transfer to Buyer from the Seller of any Transferred Licenses and Accreditations necessary for the operation of the Purchased Assets following the Closing.

9.3           Expenses .  Except as otherwise provided herein, the Buyer on the one hand, and the Seller and the Seller Members on the other, will pay all of their own fees, costs and expenses (including, without limitation, fees, costs and expenses of legal counsel, accountants, investment bankers, brokers or other representatives and consultants and appraisal fees, costs and expenses) incurred in connection with the negotiation of this Agreement, the performance of their obligations hereunder and the consummation of the Transaction.

ARTICLE X - MISCELLANEOUS

10.1         Amendment .  This Agreement may be amended or modified in whole or in part at any time by an agreement in writing among the Seller Members, the Seller and the Buyer.

10.2         Waiver .  Any term or provision of this Agreement may be waived in writing at any time by the Seller and the Buyer. Any waiver affected pursuant to this Section 10.2 shall be binding. No failure to exercise and no delay in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude the exercise of any other right, power or privilege. No waiver of any breach of any covenant or agreement hereunder shall be deemed a waiver of a preceding or subsequent breach of the same or any other covenant or agreement.
 
 
27
 

10.3         Notices .  All notices, requests, demands, claims and other communications hereunder shall be in writing and shall be deemed duly given when personally delivered, one business day after being sent by reputable overnight courier service (charges prepaid), or when telecopied (so long as such telecopied message is that same day sent by reputable overnight courier (charges prepaid)) to the intended recipient as set forth on Schedule 10.3 , or to such other address or to the attention of such other person as the recipient Party has specified by prior written notice to the sending Party.

10.4         Binding Agreement; Assignment .  This Agreement and all the provisions hereof will be binding upon and inure to the benefit of the Parties and their respective successors, heirs, beneficiaries, representatives and permitted assigns; provided , however , that, except as permitted in the following sentence, neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by any Party without the prior written consent of the other Parties. Upon notice to the Seller and the Seller Members, Buyer (i) may assign any or all of its rights and obligations under this Agreement to any Affiliate of the Buyer and (ii) may make a collateral assignment of its rights hereunder to any lender to Buyer or any of its Affiliates.

10.5         Severability .  Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law and if the rights or obligations of any Party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance here from and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.

10.6         No Strict Construction .  The language used in this Agreement will be deemed to be the language jointly chosen by the Parties hereto to express their mutual intent, and no rule of strict construction will be applied against any Person.

10.7         Captions .  The captions used in this Agreement are for convenience of reference only and do not constitute a part of this Agreement and will not be deemed to limit, characterize or in any way affect any provision of this Agreement, and all provisions of this Agreement will be enforced and construed as if no captions had been used in this Agreement.

10.8         Entire Agreement .  The terms of this Agreement (including the Exhibits and Schedules hereto) and other documents and instruments referenced herein, are intended by the parties as a final expression of their agreement with respect to the subject matter hereof and thereof and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement constitutes the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial proceeding, if any, involving this Agreement.

10.9         Counterparts .  This Agreement may be executed in one or more counterparts (including by facsimile or .pdf file), each of which shall be deemed an original but all of which taken together will constitute one and the same instrument.
 
 
28
 

10.10       Governing Law .  All questions concerning the construction, validity and interpretation of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of Colorado without giving effect to any choice of law or conflict of law provision (whether of the State of Colorado or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Colorado.

10.11       Parties in Interest .  Other than Persons entitled to receive indemnification under Article VIII, nothing in this Agreement, express or implied, is intended to confer on any Person other than the Parties and their respective successors and assigns any rights or remedies under or by virtue of this Agreement.

10.12       Exhibits and Schedules .  The Exhibits, Schedules and constitute a part of this Agreement and are incorporated into this Agreement for all purposes.

10.13       Certain Interpretive Matters and Definitions .

(a)           Unless the context otherwise requires, (i) all references to Sections, Articles or Schedules are to Sections, Articles or Schedules of or to this Agreement, (ii) each term defined in this Agreement has the meaning assigned to it, (iii) “or” is disjunctive but not necessarily exclusive, (iv) words in the singular include the plural and vice versa, (v) words of any gender include each other gender; (vi) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement, (vii) each accounting term not otherwise defined herein has the meaning assigned to it in accordance with GAAP, and (viii) the word “including” and similar terms following any statement will not be construed to limit the statement to matters listed after such word or term, whether or not a phrase of nonlimitation such as “without limitation” is used. All references to “$” or dollar amounts will be to lawful currency of the United States of America. Any representation or warranty contained herein as to the enforceability of a contract shall be subject to the effect of any bankruptcy, insolvency, reorganization, moratorium or other similar law affecting the enforcement of creditors’ rights generally and to general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law).

(b)           No provision of this Agreement will be interpreted in favor of, or against, either of the parties hereto by reason of the extent to which either such Party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof.

[Signature Pages Follow]
 
 
29
 

Signature Page To The Asset Purchase and Contribution Agreement

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
 
SELLER:  
   
PRAEDIUM VENTURES, LLC (FORMERLY KNOWN AS VALIDUS VENTURES, LLC)
 
     
By:
/s/ Earl W. Dotson
 
Name:
Earl W. Dotson  
Title:
President and Chief Manager  
 
SELLER MEMBERS:  
     
/s/ Earl W. Dotson  
Earl W. Dotson  
   
   
/s/ Barry J. Brodbeck  
Barry J. Brodbeck  

   
DDR FARMS, LLC
 
     
By:
/s/ Rick Rehmeier
 
Name:
Rick Rehmeier  
Title: Member  
     
     
/s/ Jeff Allen Smouse  
Jeff Allen Smouse
 
     
     
/s/ Dennis Pate  
Dennis Pate    
     
     
/s/ Karen Labenze  
Karen Labenze  
     
 
 
 
 
 
THE BUYER:  
   
VALIDUS VERIFICATION SERVICES LLC
 
     
By:
/s/ John Saunders
 
Name:
John Saunders  
Title:
Manager  
 
WFCF:
 
   
WHERE FOOD COMES FROM, INC.
 
     
By:
/s/ John Saunders
 
Name:
John Saunders  
Title:
Chief Executive Officer  
 
 
 
 

Exhibit A

Bill of Sale, Assignment and Assumption Agreement

[See attached.]
 
 
 
 

Exhibit B

Dotson Employment Agreement

[See attached.]
 
 
 
 

Exhibit C

Example Terms for Services Agreement
 
1)
Staff Division
   
 
Validus Verfication Services LLC (“NewValidus”) Staff :
 
 
Matt Jones
Karla Renda
Brittany Pacha
Jonathan Tubbs
Larry Kubicek
Scott Core
Glee Goodner
Brian Bennett
 
 
Staff Shared between NewValidus and Praedium Ventures, LLC (“Praedium”) :
 
 
Earl Dotson (75%)
Denise Veldhuizen (50%)
Lane Thornburgh (50%)
 
 
Staff not identified as shared will track time utilized by other company. This will be billed to other company at cost plus a 15% markup. The markup will cover each applicable employee’s share of overhead and lost opportunity to generate profit for employer company. This chargeback method will be applied to both NewValidus and Praedium employees.
   
2)
Shared overhead costs
   
 
Reasonable efforts will be taken to directly charge overhead costs to appropriate company:
   
 
Common costs
   
 
Property insurance
 
Office supplies
 
Postage/shipping
   
 
Telephone
 
Utilities
 
Building maintenance
 
Equipment maintenance
 
Other common costs as identified
 
 
 
 
 
 
NewValidus will be charged a percentage of common costs based on number of NewValidus employees in the DSM location divided by total NewValidus and Praedium employees at the DSM location. This allocation will be adjusted for changes in staff numbers.
   
 
Furniture and equipment usage
 
Praedium will maintain ownership of all furniture and office content. Praedium will not charge NewValidus for use of furniture and equipment.
 
NewValidus will need to purchase new furniture or equipment when old wears out/breaks for each NewValidus staff person.
   
3)
Shared marketing costs
   
 
Reasonable efforts will be taken to directly charge marketing costs to appropriate company.
   
 
Common costs
   
 
Government relations (split 50/50)
 
Other common marketing costs as identified, will be allocated based on estimated usage by each company.
 
 
 
Where Food Comes From Inc. 8-K
Exhibit 2.2
 
EXECUTION VERSION
 
AMENDED AND RESTATED OPERATING AGREEMENT
OF
VALIDUS VERIFICATION SERVICES LLC

A COLORADO LIMITED LIABILITY COMPANY

THE LIMITED LIABILITY COMPANY UNITS REPRESENTED BY THIS OPERATING AGREEMENT HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES ACTS OR LAWS OF ANY STATE IN RELIANCE UPON EXEMPTIONS UNDER THOSE ACTS. THE SALE OR OTHER DISPOSITION OF SUCH MEMBERSHIP UNITS IS RESTRICTED AS STATED IN THIS OPERATING AGREEMENT, AND IN ANY EVENT IS PROHIBITED UNLESS THE LLC RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO IT AND ITS COUNSEL THAT SUCH SALE OR OTHER DISPOSITION CAN BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES ACTS AND LAWS. BY ACQUIRING MEMBERSHIP UNITS REPRESENTED BY THIS OPERATING AGREEMENT, EACH MEMBER REPRESENTS THAT IT WILL NOT SELL OR OTHERWISE DISPOSE OF ITS MEMBERSHIP UNITS WITHOUT COMPLYING WITH THE PROVISIONS OF THIS OPERATING AGREEMENT AND REGISTRATION OR OTHER COMPLIANCE WITH THE AFORESAID ACTS AND THE RULES AND REGULATIONS ISSUED THEREUNDER.

 
 
 
 
TABLE OF CONTENTS
OF THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
VALIDUS VERIFICATION SERVICES LLC

A COLORADO LIMITED LIABILITY COMPANY

   
Page
     
Article I Formation 1
   
Section 1.1 Formation; General Terms; Effective Date. 
  1
Section 1.1 Name. 
  2
Section 1.2 Purposes. 
  2
Section 1.3 Registered Agent; Registered Office. 
  2
Section 1.4 Commencement and Term. 
  2
     
Article II Capital Accounts; Capital; Units 
  2
Section 2.1 Capital. 
  2
Section 2.2 Additional Capital Contributions; Participation Rights. 
  3
Section 2.3 Liability of Members. 
  3
Section 2.4 Maintenance of Capital Accounts; Capital Amount; Withdrawals; Interest. 
  4
Section 2.5 Classes of Units. 
  4
     
Article III Distributions 
  4
Section 3.1 Tax Distributions. 
  4
Section 3.2 Discretionary Distributions. 
  5
Section 3.3 Withholding. 
  6
Section 3.4 Noncash Distributions and Noncash Liquidating Distributions. 
  6
     
Article IV Allocations 
  6
Section 4.1 Profits and Losses. 
  6
Section 4.2 Code Section 704(c) Tax Allocations. 
  7
Section 4.3 Miscellaneous. 
  7
     
Article V Management 7
  8
Section 5.1 Management by Board; Specific Acts Authorized; Delegation of Authority by the Board. 
  8
Section 5.2 Limitation of Liability. 
  10
Section 5.3 Indemnification. 
  11
Section 5.4 Restrictions on Certain Actions. 
  12
     
Article VI Transfer of Interests; Restrictive Covenants 
  16
Section 6.1 In General. 
  16
Section 6.2 Limited Exception for Transfers of Interests. 
  16
 
 
i
 
 
Section 6.3 Rights of Assignees. 
  17
Section 6.4 Admission as a Member. 
  17
Section 6.5 Distributions and Allocations With Respect to Transferred Units. 
  17
Section 6.6 Right of First Refusal. 
  18
Section 6.7 Right of Co-Sale. 
  19
Section 6.8 Drag-Along Transaction. 
  19
Section 6.9 Put Option; Call Option. 
  20
Section 6.10 Limited Power of Attorney. 
  21
     
Article VII Cessation of Membership 
  21
Section 7.1 When Membership Ceases. 
  21
Section 7.2 Deceased, Incompetent or Dissolved Members. 
  21
Section 7.3 Consequences of Cessation of Membership. 
  22
     
Article VIII Dissolution, Winding Up And Liquidating Distributions 
  22
Section 8.1 Dissolution Triggers. 
  22
Section 8.2 Winding Up; Termination. 
  22
Section 8.3 Liquidating Distributions. 
  22
     
Article IX Books and Records 
  22
Section 9.1 Books and Records. 
  22
Section 9.2 Taxable Year; Accounting Methods. 
  23
Section 9.3 Information. 
  23
     
Article X Miscellaneous 
  23
Section 10.1 Notices. 
  23
Section 10.2 Binding Effect. 
  24
Section 10.3 Construction. 
  24
Section 10.4 Entire Agreement; No Oral Agreements; Amendments to the Agreement.
  24
Section 10.5 Headings. 
  24
Section 10.6 Severability. 
  24
Section 10.7 Additional Documents. 
  24
Section 10.8 Variation of Pronouns. 
  25
Section 10.9 Governing Law. 
  25
Section 10.10 Waiver of Action for Partition. 
  25
Section 10.11 Counterpart Execution; Facsimile Execution. 
  25
Section 10.12 Tax Matters Member. 
  25
Section 10.13 Time of the Essence. 
  25
Section 10.14 Expenses. 
  25
Section 10.15 Exhibits. 
  25
 
Exhibit A:          Information Exhibit
Exhibit B:          Glossary of Terms
Exhibit C:          Regulatory Allocations Exhibit
 
 
ii
 

AMENDED AND RESTATED OPERATING AGREEMENT
OF
VALIDUS VERIFICATION SERVICES LLC

A COLORADO LIMITED LIABILITY COMPANY

THIS SECOND AMENDED AND RESTATED OPERATING AGREEMENT is made and entered into as of the Effective date by and among Validus Verification Services LLC, a Colorado limited liability company (the “ LLC ”), the initial Managers and the Members whose names, addresses and taxpayer identification numbers are listed on the Information Exhibit attached hereto as Exhibit A . Unless otherwise indicated, capitalized words and phrases in this Amended and Restated Operating Agreement (this “ Agreement ”) shall have the meanings set forth in the Glossary of Terms attached hereto as Exhibit B .

RECITALS:

WHEREAS , the LLC was formed pursuant to the Act on August 7, 2013 upon the filing of the Certificate of Formation with the Secretary of State of the State of Colorado; and

WHEREAS , effective as of the Effective Date and pursuant to the terms of that certain Asset Purchase and Contribution Agreement, dated as of September 16, 2013 (the “ Purchase Agreement ”), by and between the LLC and Praedium Ventures, LLC (formerly known as Validus Ventures, LLC), a Delaware limited liability company (“ Praedium ”), Praedium acquired Units in the LLC; and

WHEREAS , the parties hereto now wish to amend and restate the Existing LLC Agreement in connection with the Closing of the transactions contemplated by the Purchase Agreement for the purposes of, among other things, (i) admitting certain Persons as Members and (ii) setting forth the provisions regarding the governance and management of the LLC.

NOW, THEREFORE , in consideration of the mutual promises of the parties hereto, and other good and valuable consideration, the receipt and legal sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree that the operating agreement of the LLC shall be amended and restated to read as follows:

ARTICLE I

FORMATION
 
Section 1.1 Formation; General Terms; Effective Date.    The LLC was formed upon the filing of the Articles of Organization with the Secretary of State of the State of Colorado. To the extent not previously a Member, each Person listed on the attached Information Exhibit shall be admitted to the LLC as a Member upon their execution of this Agreement. This Agreement shall be effective as of September 16, 2013 (the “ Effective Date ”).

 
 
 
 
The rights and obligations of the Members and the terms and conditions of the LLC shall be governed by the Act and this Agreement, including all the Exhibits to this Agreement. To the extent the Act and this Agreement are inconsistent with respect to any subject matter covered in this Agreement, this Agreement shall govern.

The Board shall cause to be executed and filed on behalf of the LLC all other instruments or documents, and shall do or cause to be done all such filing, recording or other acts, including the filing of the LLC’s annual report with the Secretary of State of the State of Colorado, as may be necessary or appropriate from time to time to comply with the requirements of law for the continuation and operation of a limited liability company in Colorado and in the other states and jurisdictions in which the LLC shall transact business.

Section 1.2 Name.    The name of the LLC shall be “Validus Verification Services LLC”. The name of the LLC shall be the exclusive property of the LLC and no Member shall have any commercial rights in the LLC’s name or any derivation thereof, even if the name contains such Member’s own name or a derivation thereof. The LLC’s name may be changed only by an amendment to the Certificate of Formation adopted by the Board.

Section 1.3 Purposes.    The nature of the business or purposes to be conducted or promoted by the LLC is to engage in any lawful act or activity for which limited liability companies may be organized under the Act. The LLC may engage in any and all activities necessary, desirable or incidental to the accomplishment of the foregoing. Notwithstanding anything herein to the contrary, nothing set forth herein shall be construed as authorizing the LLC to possess any purpose or power, or to do any act or thing, forbidden by law to a limited liability company organized under the laws of the State of Colorado.

Section 1.4 Registered Agent; Registered Office.    The LLC’s registered agent and registered office are set forth in the Certificate of Formation and may be changed from time to time by the Board pursuant to the provisions of the Act.

Section 1.5 Commencement and Term.    The LLC commenced at the time and on the date appearing in the Certificate of Formation and shall continue until it is dissolved, its affairs are wound up and final liquidating distributions are made pursuant to this Agreement.

ARTICLE II

CAPITAL ACCOUNTS; CAPITAL; UNITS
 
Section 2.1 Capital.    As of the Effective Date and after giving effect to the transactions contemplated by the Purchase Agreement, each Member agrees and acknowledges that each Member’s aggregate Capital and the number of Units held by each Member is reflected opposite such Member’s name on the Information Exhibit.

 
2
 
 
Section 2.2 Additional Capital Contributions; Participation Rights. (a)           Subject to the receipt of the approvals required by Section 5.4, the Board may from time to time authorize and cause the LLC to issue additional Interests, secured or unsecured debt obligations of the LLC, debt obligations of the LLC convertible into Interests, options or warrants to purchase Interests, or any combination of the foregoing (collectively, “ New Securities ”) with such terms and conditions and in exchange for such cash or other property as it may determine; provided , however , no Member shall have any obligation to contribute additional capital to the LLC except to the extent such Member exercises its participation rights pursuant to this Section 2.2 (in which case such Member shall be obligated to contribute capital to the LLC for the New Securities it elected to purchase) and pursuant to Section 3.4. The LLC shall offer to each Member holding Units the right to purchase all or any portion of that number of the New Securities being issued equal to (x) the number of New Securities being issued times (y) a fraction, the numerator of which is the number of Units held by such Member and the denominator is the number of Units held by all Members, on the same terms and subject to the same conditions as the proposed issuance to others. Any New Securities not initially subscribed for by the holders of Units (the “ Unsubscribed Securities ”) shall be reoffered (iteratively, as necessary) to those Persons electing initially to purchase their full proportionate share of New Securities hereunder in proportion to the number of Units held by them or in such other amounts as they may agree. Any Unsubscribed Securities not subscribed for by the Members in accordance with the previous sentence may be offered to those Persons selected by the Board in its sole discretion, including any Member or its Affiliates.

(b)           The LLC shall not (i) issue or sell any equity securities of any of its Subsidiaries, or any securities convertible into, or exchangeable or exercisable for, any equity securities of any of its Subsidiaries, or any debt obligations convertible into equity securities of any of its Subsidiaries, or any combination of the foregoing (collectively, the “ Other Securities ” ), or (ii) except in connection with the exercise by lenders to the LLC of rights and remedies under any pledge agreement, permit any of its Subsidiaries to issue or sell any Other Securities to any Person that is a Member or an Affiliate of a Member without offering the Members holding Units the right to purchase such Other Securities to the same extent that such Members would be entitled under the provisions of this Section 2.2 if such issuance or sale of Other Securities were an issuance of New Securities, and no Member shall, or shall permit any of its Affiliates to, acquire any Other Securities other than pursuant to an issuance or sale in accordance with this sentence. The Board shall determine the timing and such other procedures as may be necessary and appropriate to enable the holders of Units to exercise their rights under this Section 2.2, provided that in no event shall such Persons be given less than ten (10) days nor more than thirty (30) days prior notice before being required to commit to purchase any New Securities or Other Securities which they may initially become entitled to purchase pursuant to this Section 2.2.

Section 2.3 Liability of Members.    No Member shall be liable for any debts or losses of capital or profits of the LLC or be required to guarantee the liabilities of the LLC. Except as set forth in Sections 2.1, 2.2 (to the extent such Member exercises its participation rights) and 3.4 of this Agreement, no Member shall be required to contribute or lend funds to the LLC. In no event shall any Member be liable with respect to, or be required to contribute capital to restore, a negative or deficit balance in such Member’s Capital Account upon the dissolution or liquidation or at any other time of either the LLC or such Member’s Interest except in the case and to the extent of a distribution made in violation of the express provisions of this Agreement.

 
3
 
 
Section 2.4 Maintenance of Capital Accounts; Capital Amount; Withdrawals; Interest.    Separate Capital Account and Capital amounts shall be maintained for each of the Members.  No Member shall be entitled to withdraw or receive any part of its Capital Account or Capital amount or receive any distribution with respect to its Interest except as provided in this Agreement. No Member shall be entitled to receive any interest on its Capital Account or Capital amount except as provided in this Agreement. Each Member shall look solely to the assets of the LLC for distributions with respect to its Interest and, except as otherwise provided in this Agreement, shall have no right or power with respect to its Interest to demand or receive any property or cash from the LLC. No Member shall have priority over any other Member as to LLC distributions or allocations relating to its Units except as provided in this Agreement. The Capital Account of each Member on the Effective Date after giving effect to the transactions contemplated by the Purchase Agreement is equal to the Capital set forth opposite such Member’s name on the Information Exhibit.

Section 2.5 Classes of Units.    Each Member shall hold an Interest. Each Member’s Interest shall be denominated in Units, and the relative rights, privileges, preferences and obligations with respect to each Member’s Interest shall be determined under this Agreement and the Act to the extent herein provided based upon the number and the class of Units held by such Member with respect to its Interest. The number and class of Units held by each Member on the Effective Date is set forth opposite each Member’s name on the Information Exhibit. Units shall have all the rights, privileges, preferences and obligations as are specifically provided for in this Agreement. This Agreement shall not be amended to provide for any additional classes of Units without the unanimous consent of the Members. On the Effective Date, 2,500,765 Units are issued and are outstanding.

Section 2.6 Line of Credit; Working Capital Requirements . WFCF will make a good faith effort to secure a line of credit or other financing sufficient from WFCF or a third party financial institution to meet the working capital requirements of the LLC. No Member will be required to provide any guarantees in connection with such financing. In the event that WFCF provides a line of credit or other financing pursuant to this Section 2.6, the terms of such financing shall be on market terms as determined by the Board in good faith. Subject to the receipt of the approvals set forth in Section 5.4, the Board determines in good faith that the LLC requires working capital for the operation of its business in the ordinary course of business the Board shall have the authority to cause the LLC to obtain working capital debt financing from WFCF or a third party financial institution on market terms.

ARTICLE III

DISTRIBUTIONS
 
Section 3.1 Tax Distributions.    The Board shall determine in its sole discretion if distributions pursuant to this Section 3.1 shall be made quarterly or annually. Within fifteen (15) days following the end of each Tax Estimation Period (in the event of quarterly distributions) and ninety (90) days following the end of each Tax Estimated Period (in the event of annual distributions), to the extent of available cash (as determined by the Board), the LLC shall distribute to the Members cash in an amount equal to (A) the excess, if any, of (i) the LLC’s Cumulative Adjusted Taxable Income computed through the end of the Tax Estimation Period in question over (ii) the LLC’s Cumulative Adjusted Taxable Income computed from the Effective Date through the end of the immediately preceding Tax Estimation Period (but in no event shall the amount described in this clause (ii) be less than the greater of zero or the LLC’s greatest amount of positive Cumulative Adjusted Taxable Income as of the end of any preceding Tax Estimation Period) (the excess of (i) over (ii) referred to as, the “ Current Net Positive Allocable Income ”), multiplied by (B) forty percent (40%). Additionally, in the event that based on the LLC’s tax returns the Board determines that the LLC’s Cumulative Adjusted Taxable Income computed through the end of any calendar year is more than the amount used for purposes of computing the amount distributable pursuant to the previous sentence, the LLC shall distribute to the Members within ninety (90) days after the end of that calendar year an amount equal to (i) such excess multiplied by (ii) forty percent (40%) for the last Tax Estimation Period during that calendar year (the “ True-Up Tax Distribution ”). Tax distributions pursuant to this Section 3.1 with respect to each Tax Estimation Period shall be made to the Members in proportion to the Current Net Positive Allocable Income in such Tax Estimation Period that is allocable to them based on their entitlement to distributions pursuant to Section 3.2(b). In the event that the LLC fails to make tax distributions in the amounts required by this Section 3.1, the LLC shall accrue on its books the amount of any unpaid tax distributions owed to the Members and shall pay such accrued amounts as soon as practicable thereafter.

 
4
 
 
Section 3.2 Discretionary Distributions.    Prior to the dissolution of the LLC (including, without limitation, a Capital Transaction that results in a dissolution of the LLC), the LLC shall distribute cash or property, subject to Sections 3.1 and 3.5, in such amounts, at such times and as of such record dates as the Board shall determine in the following order of priority:

(a)           First, to the holders of Units in proportion to the Capital held by them until the Capital of all holders of Units is zero; and

(b)           The balance, to the holders of Units in proportion to the number of such Units held by them.

Capital shall be computed as of the date of the distribution.

Section 3.3 Excess Annual Adjusted Taxable Income Distribution.
 If the LLC has Annual EBITDA for the preceding calendar year in excess of $150,000 (the amount of any such excess, the “ Excess Annual EBITDA ”), any Member shall have the right upon written notice delivered to the LLC at any time during the first three (3) months of any calendar year to require the LLC to distribute to the Members an aggregate amount equal to the product of (x) twenty percent (20%) and (y) the Excess Annual EBITDA, which distribution shall be made to the Members within ten (10) business days in the following order of priority:

(a)           First, to the holders of Units in proportion to the Capital held by them until the Capital of all holders of Units is zero; and

(b)           The balance, to the holders of Units in proportion to the number of such Units held by them.

Capital shall be computed as of the date of the distribution. “ Annual EBITDA ” means for the sum of (a) the net income (or net deficit) of the LLC for the preceding calendar year plus (b) to the extent deducted from revenue in computing net income for such period, the sum of (i) interest expense, (ii) income tax expense, and (iii) depreciation and amortization. The Annual EBITDA shall be calculated by the LLC’s accountants using GAAP, consistently applied, and in accordance with the historical practices of the LLC.

 
5
 
 
Section 3.4 Withholding.    In the event any federal, foreign, state or local jurisdiction requires the LLC to withhold taxes or other amounts with respect to any Member’s allocable share of Profits, taxable income or any portion thereof, or with respect to distributions, the LLC shall withhold from distributions or other amounts then due to such Member an amount necessary to satisfy the withholding responsibility and shall pay any amounts withheld to the appropriate taxing authorities. In such a case, for purposes of this Agreement the Member for whom the LLC has paid the withholding tax shall be deemed to have received the withheld distribution or other amount due and to have paid the withholding tax directly and such Member’s share of cash distributions or other amounts due shall be reduced by a corresponding amount.

If it is anticipated that at the due date of the LLC’s withholding obligation the Member’s share of cash distributions or other amounts due is less than the amount of the withholding obligation, the Member with respect to which the withholding obligation applies shall pay to the LLC the amount of such shortfall within thirty (30) days after notice of such shortfall is given to such Member by the LLC. In the event a Member fails to make the required payment when due hereunder, and the LLC nevertheless pays the withholding, in addition to the LLC’s remedies for breach of this Agreement, the amount paid shall be deemed a recourse loan from the LLC to such Member bearing interest at the Default Rate, and the LLC shall apply all distributions or payments that would otherwise be made to such Member toward payment of the loan and interest, which payments or distributions shall be applied first to interest and then to principal until the loan is repaid in full.

Section 3.5 Noncash Distributions and Noncash Liquidating Distributions.    The Board may cause the LLC to make distributions to the Members in property (valued for such purpose at its fair market value determined in good faith by the Board) other than in cash in accordance with the provisions of Section 3.2 or Section 8.3, as applicable, so long as such non-cash property is distributed among all the Members entitled to receive such distributions in proportion to the total amounts each Member is entitled to receive in respect of such distributions taking into the account the priority of distributions expressly set forth in this Agreement.

ARTICLE IV

ALLOCATIONS
 
Section 4.1 Profits and Losses.    Except as otherwise provided in the Regulatory Allocations or Exhibit or Section 4.4, Profits (and items thereof) and Losses (and items thereof) for each Fiscal Year shall be allocated among the Members such that the ending Capital Account of each Member, immediately after giving effect to such allocations, is, as nearly as possible, equal to the excess of (A) the amount of the distributions that would be made to such Member pursuant to Section 8.3 if (i) the LLC were dissolved and terminated at the end of the Fiscal Year; (ii) its affairs were wound up and each asset on hand at the end of the Fiscal Year were sold for cash equal to its Agreed Value; (iii) all liabilities of the LLC were satisfied (limited with respect to each nonrecourse liability to the Agreed Value of the assets securing such liability); and (iv) the net assets of the LLC were distributed to the Members in accordance with Section 8.3, over (B) the sum of such Member’s share of LLC Minimum Gain and share of Member Nonrecourse Debt Minimum Gain.

 
6
 
 
Section 4.2 Code Section 704(c) Tax Allocations.    For federal, state and local income tax purposes, items of taxable income, gain, loss and deduction shall be allocated among the Members in the same manner as the corresponding “book” items of income, gain, loss and deduction have been allocated among the Members pursuant to this Article IV for purposes of maintaining Capital Accounts. Income, gain, loss and deduction with respect to any Section 704(c) Property shall, solely for income tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the LLC for federal income tax purposes and its initial Agreed Value pursuant to the “traditional method” within the meaning of Treasury Regulation Section 1.704-3(b). Any elections or decisions relating to allocations under this Section 4.2 shall be determined by the Board. Notwithstanding any other provision of this Agreement, allocations pursuant to this Section 4.2 are solely for purposes of federal, state and local income taxes and shall not be taken into account in computing any Member’s Capital Account, share of Profits, Losses, allocation of Cumulative Adjusted Taxable Income or distributions (including tax distributions pursuant to Section 3.1) pursuant to any provision of this Agreement.

Section 4.3 Miscellaneous.
 
(a)            Allocations Attributable to Particular Periods. For purposes of determining Profits, Losses or any other items allocable to any period, such items shall be determined on a daily, monthly or other basis, as determined by the Board using any permissible method under Code § 706 and the Treasury Regulations promulgated thereunder.

(b)            Other Items. Except as otherwise provided in this Agreement, all items of LLC income, gain, loss, deduction, credit and any other allocations not otherwise provided for shall be divided among the Members in the same proportion as they share Profits or Losses, as the case may be, for the year.

(c)            Tax Consequences; Consistent Reporting . The Members are aware of the income tax consequences of the allocations made by this Article IV and by the Regulatory Allocations and hereby agree to be bound by and utilize those allocations as reflected on the information returns of the LLC in reporting their shares of LLC income and loss for income tax purposes. Each Member agrees to report its distributive share of LLC items of income, gain, loss, deduction and credit on its separate return in a manner consistent with the reporting of such items to it by the LLC. Any Member failing to report consistently shall notify the Internal Revenue Service of the inconsistency as required by law and shall reimburse the LLC for any legal and accounting fees incurred by the LLC in connection with any examination of the LLC by federal or state taxing authorities with respect to the year for which the Member failed to report consistently.

 
7
 
 
ARTICLE V

MANAGEMENT
 
Section 5.1 Management by Board; Specific Acts Authorized; Delegation of Authority by the Board.
 
(a)            General Authority of the Board, Size, Composition and Voting of Board . The business, property and affairs of the LLC and its Subsidiaries shall be managed by a board of managers (the “ Board ”). The Board shall consist of three (3) individuals designated pursuant to this Section 5.1(a) (each a “ Manager ”). Subject to the provisions of this Agreement and the Act, the Board shall have full, complete and exclusive authority, power and discretion to manage and control the business, property and affairs of the LLC and its Subsidiaries, to make all decisions regarding those matters and to supervise, direct and control the actions of the officers of the LLC and to perform any and all other actions customary or incident to the management of the business, property and affairs of the LLC and its Subsidiaries. The Board shall take all such reasonable actions as are necessary for the board of managers, board of directors or similar governing body of each Subsidiary (to the extent comprised of individuals and not entities) to consist of the same individuals as the Board. The Members shall have no power to participate in the management of the LLC or to vote on any matter, except for those matters requiring the consent of the Members as specified in Section 5.4, Section 6.2(c) and Section 10.4.

So long as WFCF hold Units, WFCF shall be entitled to designate two (2) Managers to serve on the Board. The initial Managers designated by WFCF are John Saunders and Leann Saunders (each a “ WFCF Manager ”). So long as Praedium (or any permitted transferee of Praedium) hold Units, Praedium (or the permitted transferees of Praedium, acting jointly) shall be entitled to designate one (1) Manager to serve on the Board. The initial Manager designated by Praedium is Earl W. Dotson (the “ Praedium Manager ”).

Each Manager shall have one vote on all matters before the Board. Unless otherwise expressly provided herein, the vote, consent, approval or ratification of any matter by those Managers holding at least a majority of the votes held by all Managers then serving on the Board shall be required and shall be sufficient in order to constitute action of the Board. The board (or similar governing body) of each Subsidiary shall, to the extent it consists of individuals and not an entity or entities, consist of the same individuals as the Board. No Member or Manager shall have the actual or apparent authority to cause the LLC or any of its Subsidiaries to become bound to any contract, agreement or obligation, and no Member or Manager shall take any action purporting to be on behalf of the LLC or any of its Subsidiaries unless such action has received the prior approval, vote or consent as required pursuant to this Agreement.

(b)            Delegation of Authority to Managers and Officers. The Board may delegate additional power and authority to one or more Managers of the LLC by written resolution of the Board, which resolution shall specify the nature, extent and duration of the Board’s delegation. The LLC may also have the following officers (“ Officers ”), who shall be appointed by the Board, and who shall report to and be responsible to the Board. The Board may remove an Officer at any time and from time to time (with or without cause) and replace such Officer with a successor. An Officer may resign at any time upon notice to the Board.

 
8
 
 
(i)            Chief Executive Officer . The chief executive officer shall generally and actively manage the operation of the LLC subject to the authority of the Board. The chief executive officer shall be responsible for the administration of the LLC, including general supervision of the policies of the LLC and general and active management of the financial affairs of the LLC. Any action required of or contemplated to be taken by the Board under this Agreement may be taken by the chief executive officer unless (i) this Agreement specifically requires the vote or approval of the Board or some or all of the Members; (ii) the Board or the Members, by resolution or otherwise, have restricted the chief executive officer’s authority to act for the LLC in such matter; or (iii) the action is outside the ordinary course of the business of the LLC as set forth in Section 1.2. The initial Chief Executive Officer shall be Earl W. Dotson.

(ii)            President . Subject to the authority of the Board and the chief executive officer, as the case may be, the president shall generally and actively manage the business of the LLC. The president shall have such other powers and perform such other duties as may be prescribed by the Board or the chief executive officer, as the case may be.

(iii)           Vice Presidents . The LLC may have one or more vice presidents, appointed by the Board, and may have such further denominations as “executive vice president”, “senior vice president”, “assistant vice president” and the like. Vice presidents shall perform such duties and have such powers as may be delegated by the Board or the chief executive officer.

(iv)           Treasurer and Chief Financial Officer. The Treasurer and Chief Financial Officer shall: (i) have custody of and be responsible for all funds and securities of the LLC; (ii) receive and give receipts for money due and payable to the LLC, and deposit such moneys in the name of the LLC in such depositories as shall be selected in accordance with this Agreement; (iii) in general, perform all of the duties incident to the office of treasurer and chief financial officer; and perform such other duties as may from time to time be assigned to him or her by the Board or the chief executive officer. The LLC may have any number of Assistant Treasurers who shall perform the functions of the Treasurer in the Treasurer’s absence or inability or refusal to act. The initial Treasurer and Chief Financial Officer shall be [John Saunders/Leann Saunders].

(v)            Secretary. The secretary shall attend all meetings of the LLC and shall record all the proceedings of the meetings in a book to be kept for that purpose. The secretary shall keep all books and records of account of the LLC and such other documents as may be required under the Act. The secretary shall perform such other duties and have such other authority as may be prescribed elsewhere in this Agreement or from time to time by the Manager or the chief executive officer, as the case may be. The secretary shall have the general duties, powers and responsibilities of a secretary of a corporation. The initial Secretary shall be [John Saunders/Leann Saunders]

(vi)           Additional Officers . In addition to the officers listed in this Section 5.1(b), from time to time, the Board may appoint other officers as it deems necessary or appropriate with such authority to operate, manage and bind the LLC as the Board or the chief executive officer delegates to such officers.

 
9
 
 
(c)            Annual Business Plan; Annual Budgets. The Officers shall prepare annually prior to December 10 th of each year a written business plan and annual budget for the LLC and the Subsidiaries, which business plan and annual budget (i) shall include as attachments, line item operating and capital expenditure budgets for the coming calendar year and (ii) shall become effective only upon approval or adoption of such plan by the Board.

(d)            Meetings of the Board. Meetings of the Board may be called by any one (1) Manager. Notice of any meeting shall be given pursuant to Section 10.1 below to all Managers not less than five (5) business days prior to the meeting. Managers holding a majority of the votes held by the then appointed Managers shall be required to constitute a quorum for the transaction of business by the Board. A notice need not specify the purpose of any meeting. Notice of a meeting need not be given to any Manager who signs a waiver of notice, a consent to holding the meeting, an approval of the minutes thereof or a written consent to action taken in lieu of such meeting, whether before or after the meeting, or who attends the meeting without protesting the lack of notice prior to the commencement of the meeting. All such waivers, consents and approvals shall be filed with the LLC’s records or made a part of the minutes of the meeting. Managers may participate in any meeting of the Managers by means of conference telephones so long as all Managers participating can hear or communicate with one another. A Manager so participating is deemed to be present at the meeting.

(e)            Board Action by Written Consent. Any action that is permitted or required to be taken by the Board may be taken or ratified by written consent setting forth the specific action to be taken, which written consent is signed by Managers holding a majority of the votes held by all Managers;   provided , however , that if such consent is not signed by all the Managers, the LLC will, to the extent practicable, notify each Manager of the action to be taken prior to the execution of the written consent and the written consent shall not be effective until 24 hours after such consent has been delivered to each Manager on the Board.

Section 5.2 Limitation of Liability.
 
(a)           Notwithstanding any other provision to the contrary contained in this Agreement, no Manager or Member shall be liable, responsible or accountable in damages or otherwise to the LLC or to any Member or assignee of a Member for any loss, damage, cost, liability or expense incurred by reason of or caused by any act or omission performed or omitted by such Person in such capacity, whether alleged to be based upon or arising from errors in judgment, negligence, gross negligence or breach of the duty of care, except with respect to any actions or omissions of such Person that constitute criminal activity, willful misconduct, fraud or a knowing violation or breach of this Agreement. Without limiting the foregoing, no Manager or Member shall in any event be liable for (i) the failure to take any action not specifically required to be taken by him under the terms of this Agreement, (ii) any action or omission taken or suffered by any other Person or (iii) any mistake, misconduct, negligence, dishonesty or bad faith on the part of any employee or agent of the LLC or its Subsidiaries appointed by such Person in good faith.

(b)           Any Manager or Member may consult, at its sole cost and expense, with legal counsel selected by it, and any act or omission suffered or taken by such Person on behalf of the LLC or in furtherance of the interests of the LLC in good faith reliance upon, and in accordance with, the prior written advice of such counsel shall be full justification for any such act or omission, and the Manager or Member shall be fully protected in so acting or omitting to act; provided , however , that if it is ultimately determined that such action was a breach of this Agreement or results in the improper receipt, directly or indirectly, of personal benefit to the Manager or Member such Person shall be accountable to the Members for such action or omission notwithstanding such prior legal advice.

 
10
 
 
(c)           Notwithstanding that it may constitute a conflict of interest, the Members, the Managers or their Affiliates may engage in any transaction with the LLC (including the purchase, sale, lease or exchange of any property or the rendering of any service or the establishment of any salary, other compensation or other terms of employment) to the maximum extent permitted by the Act.

Section 5.3 Indemnification.    To the fullest extent permitted by law, the LLC shall indemnify, defend and hold harmless, any Manager and Officer (each being referred to as an “ Indemnitee ”) who was or is a party (other than a party plaintiff suing on his or her own behalf), or who is threatened to be made such a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the LLC) arising out of, or in connection with, any actual or alleged act or omission or by reason of the fact that the Indemnitee is or was a Manager or Officer, or is or was serving at the request of the LLC as a director or officer of any other Person, against expenses (including attorneys’ fees), judgments, fines, excise taxes and amounts paid in settlement actually and reasonably incurred by the Indemnitee in connection with such action, suit or proceeding if (a) the acts, omissions or alleged acts or omissions upon which such actual or threatened action, proceeding or claims are based were not a result of fraud, self-dealing, gross negligence, willful misconduct, recklessness by such Indemnitee, and (b) the Indemnitee met the standard of conduct of (i) acting in good faith and in a manner the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the LLC and (ii) with respect to any criminal proceeding, having no reasonable cause to believe the Indemnitee’s conduct was unlawful. The termination of any action or proceeding by judgment, order, settlement or conviction or upon a plea of nolo contendere or its equivalent shall not of itself create a presumption that the Indemnitee did not act in good faith and in a manner that the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the LLC and, with respect to any criminal proceeding, had reasonable cause to believe that his or her conduct was unlawful. Any indemnification pursuant to this Section 5.3 shall only be from assets and property of the LLC and, notwithstanding anything to the contrary herein, no Member shall have any obligation to make additional Capital Contributions to the LLC in connection with any indemnification provided by the LLC.

The LLC may reimburse to each Indemnitee expenses (including reasonable legal fees) incurred by such Indemnitee in defending any claim, demand, action, suit or proceeding prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the LLC of an unsecured undertaking by or on behalf of the Indemnitee to repay such amount if it shall ultimately and finally be determined by a court of competent jurisdiction that the Indemnitee is not entitled to be indemnified therefore under this Section 5.3. In a suit brought by an Indemnitee to enforce a right to reimbursement of expenses, it shall not be a defense that the Indemnitee has not met the applicable standard of conduct set forth in Colorado law with regard to indemnification. The obligations of the LLC under this Agreement shall survive the resignation or removal of the Indemnitee as Manager or Officer of the LLC, and shall survive the termination of the LLC or this Agreement.

 
11
 
 
Section 5.4 Restrictions on Certain Actions.

(a)           Actions Requiring Member Consent.
 Notwithstanding any provision of this Agreement to the contrary, neither the Board nor any Manager, Officer or any other Person shall have the authority on behalf of the LLC to take any action set forth in this Section 5.4(a) (whether by merger, consolidation or otherwise) unless such action has received the express written consent of the Members holding more than seventy percent (70%) of the issued and outstanding Units held by all Members:

(i)           directly or indirectly redeem, purchase or otherwise acquire, or permit any of its Subsidiaries to redeem, purchase or otherwise acquire, any of the LLC’s or any Subsidiary’s equity securities (including warrants, options and other rights to acquire equity securities);

(ii)           authorize, issue, sell or enter into any agreement providing for the issuance (contingent or otherwise), or permit any of its Subsidiaries to authorize, issue, sell or enter into any agreement providing for the issuance (contingent or otherwise), of any equity securities (including profits interests) or debt securities of the LLC or any of its Subsidiaries with equity features or securities exercisable or convertible into equity securities (including profits interests) or debt securities with equity features;

(iii)           liquidate, dissolve or effect a recapitalization or reorganization of the LLC in any form of transaction, or permit any of the LLC’s Subsidiaries to do any of the foregoing;

(iv)           sell the LLC or any of its Subsidiaries, or cause the LLC or any Subsidiary to merge, convert into a corporation, consolidate or otherwise combine with or into any Person;

(v)           sell, lease, exchange or otherwise dispose (including by license) of any material portion of the assets or properties of the LLC or its Subsidiaries;

(vi)           accept additional Capital Contributions to the LLC (or enter into any agreement regarding the issuance of additional Capital Contributions or membership interests in the LLC);

(vii)          declare distributions (other than required distributions) of the LLC;

(viii)           amend the LLC’s articles of organization or this Agreement.

(b)            Actions Requiring Consent of Earl W. Dotson (as CEO of the LLC) . Notwithstanding any provision of this Agreement to the contrary but subject to Section 5.5, at any time during which Earl W. Dotson is the Chief Executive Officer of the Company, neither the Board nor any Manager, Officer or any other Person shall have the authority on behalf of the LLC to take any action set forth in this Section 5.4(b)(whether by merger, consolidation or otherwise) unless (x) such action has received the express written consent of Earl Dotson in his capacity as the Chief Executive Officer or (y) such action is expressly contemplated by the annual budget approved in accordance with Section 5.1(c):

 
12
 
 
(i)            adopt annual budgets for the LLC pursuant to Section 5.1(c);

(ii)           create, assume, incur, or become liable in respect of any indebtedness (other than trade debts or working capital financing obtained in accordance with Section 2.6);

(iii)          make loans or provide guarantees, or extend or pledge credit (except in the ordinary course of business);

(iv)            make any investment in another entity;

(v)           enter into any contracts or commitments in excess of $10,000 other than in the ordinary course of the business;

(vi)            make any political or charitable contribution.

(vii)           purchase or become a lessee of any real property;

(viii)          move the primary offices or operations of the LLC;

(ix)           take actions with respect to employment matters involving the hiring and firing of officers (other than Earl Dotson), hiring and firing of employees, setting compensation of officers and employees, and adoption of any employee benefits programs;

(x)            authorize any material transactions between the LLC and any Affiliate (including WFCF);

(xi)           form any subsidiary (or dissolve, wind up or merger of any subsidiary into any other party);

(xii)          adopt or change any major policies relating to the business or operations of the LLC, including changes in the types of services offered;

(xiii)           enter into any material transactions outside of the ordinary course of business;

(xiv)           enter into any new line of business;

(xv)          enter into, amend or terminate any partnership or joint venture agreement or other business alliance;

(xvi)         engage, change or terminate any professional advisors (accountants, attorneys, etc.); or

(xvii)        make or propose to make any change to the articles or organization, operating agreement or member control agreement of the LLC.

 
13
 
 
Section 5.5 Restrictions on Certain Actions.    Subject to receipt of the approvals required by Section 5.4, if any, neither the LLC nor any Manager or Officer shall take, or shall cause its Subsidiaries to take, any of the following actions without the prior consent of the Board (which consent shall be obtained in accordance with the requirements of Section 5.1(a) or Section 5.1(c) above) or to the extent such action is expressly contemplated by the annual budget approved in accordance with Section 5.1(c):

(a)           directly or indirectly declare or make any distributions upon any of the LLC’s equity securities (except for distributions in accordance with Section 3.1 and 3.3);

(b)           directly or indirectly redeem, purchase or otherwise acquire, or permit any of its Subsidiaries to redeem, purchase or otherwise acquire, any of the LLC’s or any Subsidiary’s equity securities (including, in the case of Subsidiaries, warrants, options and other rights to acquire equity securities);

(c)           authorize, issue, sell or enter into any agreement providing for the issuance (contingent or otherwise), or permit any of its Subsidiaries to authorize, issue, sell or enter into any agreement providing for the issuance (contingent or otherwise) of any equity securities (including profits interests) or debt securities with equity features or securities exercisable or convertible into equity securities (including profits interests) or debt securities with equity features;

(d)           sell the LLC or any of its Subsidiaries, or merge or consolidate the LLC with any Person or permit any of its Subsidiaries to merge or consolidate with any Person;

(e)           liquidate, dissolve or effect, or permit any of its Subsidiaries to, liquidate, dissolve or effect, a recapitalization or reorganization in any form of transaction;

(f)           create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, indebtedness exceeding the amounts approved therefor by the Board;

(g)           make, or permit any of its Subsidiaries to make, any loans or advances to, guarantees for the benefit of, or investments in, any Person, except for (i) reasonable advances to employees in the ordinary course of business and (ii) investments having a stated maturity no greater than one year from the date of such investment in (x) obligations of the United States government or any agency thereof or obligations guaranteed by the United States government, (y) certificates of deposit of commercial banks having combined capital and surplus of at least $50 million or (z) commercial paper with a rating of at least “Prime-1” by Moody’s Investors Service, Inc.;

(h)          sell, lease, exchange or otherwise dispose (including by license) of the assets or properties of the LLC or its Subsidiaries (other than inventory in the ordinary course) in an amount which exceeds $5,000 on an individual basis or exceeds $25,000 on a cumulative basis in any calendar year;

(i)           unless otherwise contemplated by the LLC’s annual business plan and budget which has been approved by the Board, make any capital expenditure (including research and development expenditures), except for capital expenditures which are less than $10,000 on an individual basis or less than $20,000 on a cumulative basis in any calendar year;

 
14
 
 
(j)           enter into or make a material amendment or terminate any agreement, contract or commitment (a) representing a value to the LLC or its Subsidiaries of greater than $10,000 on an individual basis or greater than $20,000 on a cumulative basis in any calendar year or (b) representing a commitment of the LLC or its Subsidiaries greater than $10,000 on an individual basis or greater than $20,000 on a cumulative basis in any calendar year, other than (i) raw materials and inventory purchases in the ordinary course of business, (ii) subcontract agreements entered into in the ordinary course of business and (iii) sales to customers in the ordinary course;

(k)           enter into any partnership, joint venture or material business alliance, create any Subsidiary, or acquire any capital stock of or other ownership interest in any Person;

(l)            amend in any material respect or terminate any agreement relating to a joint venture or a material business alliance of the LLC or any of its Subsidiaries;

(m)          create any liens upon any assets or properties of the LLC or its Subsidiaries other than in connection with obligations pursuant to Section 5.6(f) or in the ordinary course of business;

(n)           except as specifically contemplated by this Agreement, the Purchase Agreement or any of the transactions contemplated thereby, adopt, amend or terminate any (i) agreement with employees of the LLC or its Subsidiaries, (ii) plan, policy, arrangement or understanding providing any of the following benefits to any current or former employee of the LLC or its Subsidiaries: bonuses, pension, profit sharing, deferred compensation, incentive compensation, unit ownership, equity or quasi-equity purchase, equity or quasi-equity option, equity or quasi-equity appreciation rights, phantom equity or quasi-equity, retirement, vacation or severance or (iii) other material personnel practices or policies of the LLC or its Subsidiaries; provided , however , that the Chief Executive Officer in his or her sole discretion may terminate any at-will employee;

(o)           engage, appoint or remove (a) the LLC’s or its Subsidiaries’ accountants, (b) any counsel for the LLC or its Subsidiaries (including in respect of litigation and other proceedings);

(p)           commence (including the filing of a counterclaim) or settle any claim or litigation, regulatory proceeding or arbitration (other than ordinary course employer or commercial claims, including claims under studio license agreements) to which the LLC or its Subsidiaries is, or is to be, a party or by which the LLC or its Subsidiaries or any of its business, assets or properties may be affected; provided , however , that the LLC may commence or settle any routine customer collection action so long as the amount owed by the customer is less than $5,000 and there are no other issues involved in the dispute that could have a material adverse effect on the LLC;

(q)           register any of the LLC or its Subsidiaries’ securities under any securities laws;

(r)            make any change in the LLC’s or its Subsidiaries’ fiscal year;

 
15
 
 
(s)           set or change value of any goods or services contributed by any Member as a capital contribution or any distribution to any Member;

(t)           subject to Section 10.4, make any amendment or terminate any constitutive or governing document of the LLC or its Subsidiaries, including the operating agreement or certificate of formation of the LLC or its Subsidiaries or directly or indirectly redeem any Units of the LLC or its Subsidiaries;

(u)           make any political or charitable contribution in excess of the amounts approved therefor by the Board;

(v)           cause the LLC or any of its Subsidiaries to enter into any leases, contracts or guarantees relating to new office locations;

(w)          cause the LLC or any of its Subsidiaries to modify, alter or change real property lease rates;

(x)           to enter into any contract, understanding or arranging involving a liability of the LLC or any of its Subsidiaries in excess of $5,000 on an individual basis except for trade payables incurred in the ordinary course of business;

(y)           commit to do any of the foregoing; or

(z)           delegate authority to any Person to approve the taking of any action set forth.

ARTICLE VI

TRANSFER OF INTERESTS; RESTRICTIVE COVENANTS
 
Section 6.1 In General.    A Member may not Transfer all or any portion of its Interest or Units unless such Transfer complies with the provisions of this Article VI. Any Transfer that does not comply with the provisions of this Article VI shall be void.

Section 6.2 Limited Exception for Transfers of Interests.    A Member may Transfer all or any portion of its Units if each of the following conditions is satisfied:

(a)            Prior Notice. The Member proposing to effect a Transfer of such Units delivers a Transfer Notice at least twenty (20) days prior to any such proposed Transfer.

(b)            Securities Law Compliance. Either (i) the Units proposed to be transferred are registered under the Securities Act and the rules and regulations thereunder and any applicable state securities laws; or (ii) the LLC and its counsel determine, in its reasonable discretion, that the Transfer qualifies for an exemption from the registration requirements of the Securities Act, any applicable state securities laws and any securities laws of any applicable jurisdiction and, if requested by the LLC, counsel to the Member proposing to effect such Transfer provides an written legal opinion to that effect.

 
16
 
 
(c)            Member Consent . Members holding a majority of the issued and outstanding Units (but excluding for such purpose the Units held by the Member proposing the Transfer or any of its Affiliates that are also Members) shall have consented in writing to such Transfer, which consent may be given or withheld in each such Member’s sole and absolute discretion.

Any attempted Transfer not in compliance with any of the above conditions shall be null and void, and the LLC shall not recognize the attempted purchaser, assignee or transferee for any purpose whatsoever, and the Member attempting such Transfer shall have breached this Agreement for which the LLC and the other Members shall have all remedies available for breach of contract.

Section 6.3 Rights of Assignees.    If a Transfer complies with the provisions of the preceding Section 6.2, but the Person acquiring such Units is not admitted as a Member as a result of such Person’s failure to comply with the provisions of Section 6.4, such Person shall become an assignee with respect to such Units. An assignee with respect to such Units is entitled only to receive distributions and allocations with respect to such Units as set forth in this Agreement, and shall have no other rights, benefits or authority of a Member under this Agreement or the Act, including, without limitation, no right to receive notices to which Members are entitled under this Agreement, no right to vote, no right to inspect the books or records of the LLC, no right to bring derivative actions on behalf of the LLC, no right to purchase additional Interests, and no other rights of a Member under the Act or this Agreement; provided , however , that the Units of an assignee shall be subject to all of the restrictions, obligations and limitations under this Agreement and the Act, including without limitation the restrictions on Transfer contained in this Article VI.

Section 6.4 Admission as a Member.    No Person taking or acquiring, by whatever means, all or any portion of any Units and the Interest represented thereby shall be admitted as a Member unless such Person elects to become a Member and, together with its transferor, executes, acknowledges and delivers to the LLC a written assignment of such Units and Interest in such form as may be reasonably required by the Board. Any transferee shall automatically be admitted as a Member of the LLC upon compliance with this Section 6.4 and shall succeed to all of the rights of the transferor under this Agreement including the right to designate Managers. The Board shall amend the Information Exhibit from time to time to reflect the admission of Members pursuant to this Section 6.4.

Section 6.5 Distributions and Allocations With Respect to Transferred Units.    If any Units are transferred in compliance with the provisions of this Article VI, then (i) Profits, Losses and all other items attributable to such Units for such period shall be divided and allocated between the transferor and the transferee by taking into account their varying interests during such Fiscal Year in accordance with Code § 706(d) using any conventions permitted by the Code and applicable Treasury Regulations and selected by the transferor and transferee in connection with the transfer and approved by the Board; (ii) all distributions on or before the date of such Transfer shall be made to the transferor, and all distributions thereafter shall be made to the transferee; and (iii) the transferee shall succeed to and assume the Capital Account and other similar items of the transferor to the extent related to the transferred Units. Solely for purposes of making the allocations and distributions, the LLC shall recognize such Transfer not later than the end of the calendar month during which the LLC receives notice of such Transfer and all of the conditions in Section 6.2 are satisfied. If the LLC does not receive a notice stating the date the Units were transferred and such other information as the LLC may reasonably require within thirty (30) days after the end of the Fiscal Year during which the Transfer occurs, then all of such items shall be allocated, and all distributions shall be made to the Person, who, according to the books and records of the LLC on the last day of the Fiscal Year during which the Transfer occurs, was the owner of such Units. Neither the LLC nor any Member shall incur any liability for making allocations and distributions in accordance with the provisions of this Section 6.5, whether or not such Person had knowledge of any transfer of ownership of any Units.

 
17
 
 
Section 6.6 Right of First Refusal.
 
(a)           If at any time any holder of Units (a “ Selling Holder ”) proposes to effect a Transfer of any Units to any third party, then the Selling Holder shall deliver a written notice (the “ Sale Notice ”) to the LLC and to each of the other holders of Units stating (i) the Selling Holder’s bona fide intention to effect a Transfer of Units, (ii) the number of Units to be sold or transferred (the “ Offered Units ”), (iii) the price per Unit (the “ Offered Price ”) and terms for which the Selling Holder proposes to Transfer such Units, and (iv) to the extent known, the name and address of the proposed purchaser or transferee and that such purchaser or transferee is committed to acquire the number of Units on the stated price and terms. The LLC, upon the request of the Selling Holder, will provide a list of the addresses of the other holders of Units.

(b)           For a period of twenty (20) days (the “ LLC ROFR Exercise Period ”) after the date on which the Sale Notice is delivered to the LLC pursuant to Section 6.6(a), the other holders of Units shall have the right to purchase all or any portion of the Offered Units on the terms and conditions set forth in this Section 6.6. Each holder of Units shall have the right, exercisable upon written notice to the Selling Holder (a “ Participating Holder Notice ”) within ten (10) days after receipt of the Sale Notice, to purchase its pro rata share of the Offered Units subject to the Sale Notice and on the same terms and conditions set forth therein. The pro rata share of each holder of Units who so exercise their rights (the “ Participating Holders ”) shall be calculated as follows: The pro rata share of a Participating Holder with respect to any Offered Units covered by the Sale Notice shall be equal to the product obtained by multiplying (i) the aggregate number of such Offered Units and (ii) a fraction, the numerator of which is the number of Units owned by the Participating Holder on the date of the Sale Notice and the denominator which is the number of Units owned by all the Participating Holders.

(c)           The purchase price for the Offered Units to be purchased by any Participating Holders exercising their rights of first refusal under this Agreement will be the Offered Price, and will be payable as set forth in Section 6.6(d). If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration will be determined by the Board in good faith, which determination will be binding upon the Selling Holder and the Participating Holders, absent fraud or error.

(d)           Subject to compliance with applicable state and federal securities laws, any Participating Holder exercising its right of first refusal shall effect the purchase of any portion of the Offered Units, including the payment of the purchase price, within five (5) days after the delivery of its Participating Holder Notice. Payment of the purchase price will be made, at the option of any Participating Holder, as applicable, (i) in cash (by certified or cashiers check), or (ii) by wire transfer, as the case may be. At any such closing, the Seller Holder shall deliver the Participating Holder, as applicable, one or more certificates, properly endorsed for transfer, representing such Offered Units so purchased.

 
18
 
 
Section 6.7 Right of Co-Sale.    To the extent the holders of Units have not exercised their rights of first refusal with respect to all of the Offered Units in accordance with Section 6.6, but subject to Section 6.8, each holder of Units (a “ Co-Seller ”) shall have the opportunity to sell a pro rata portion of the remaining Offered Units (if any) (the “ Remaining Offered Units ”) which the Selling Holder proposes to sell to the third party identified in the Sale Notice on the same terms as the Selling Holder by notifying the Selling Holder in writing within fifteen (15) days following receipt of the Sale Notice; provided, that in no event shall any Co-Seller be required to provide indemnification in excess of the gross consideration received by such Co-Seller in such transaction. In the event a Co-Seller exercises its right of co-sale hereunder, the Selling Holder shall assign so much of its interest in the proposed agreement of sale as the Co-Seller shall be entitled to and shall request hereunder, and the Co-Seller shall assume such part of the obligations of the Selling Holder under such agreement as shall relate to the sale of the Units by the Co-Seller. For the purposes of this Section 6.7, the “pro rata portion” which each Co-Seller shall be entitled to sell shall be the number of Units equal to the product of the total number of remaining Offered Units proposed to be sold to such third party, multiplied by the fraction the numerator of which shall be the number of Units owned by such Co-Seller and the denominator of which shall be the total number of Units then owned by the Selling Holder and all Co-Sellers. If following receipt of the Sale Notice, any Member fails to notify the Selling Holder within the requisite period that it desires to participate in the Co-Sale transaction, then the Selling Holder may effect the transaction without the participation of such non-participating Member.

Section 6.8 Drag-Along Transaction.    If all of the Managers serving on the Board have approved a transaction that would result in the sale of all of the Units and Interests in the LLC (whether by merger or otherwise) to a third party (a “ Drag-Along Transaction ”), then, upon fifteen (15) days written notice to the Members (the “ Drag-Along Notice ”), which notice shall include substantially all of the material details of the proposed transaction, including the proposed time and place of closing and the estimated consideration to be received by the Members in such transaction, each Member shall raise no objection to such Drag-Along Transaction and be obligated to, and shall sell, transfer and deliver, or cause to be sold, transferred and delivered, to such third party, all of its Units and Interest in the same transaction at the closing thereof. Each Member shall only be required to make representations and warranties regarding the valid and authorized sale of its Units and Interest and that such Member has good and marketable title to such Units and Interest, free and clear of all liens, claims and other encumbrances. The proceeds from such Drag-Along Transaction shall be distributed to the Members in proportion to their relative entitlement to distributions pursuant to Section 8.3. Each Member and Manager shall take all reasonably necessary and customary actions in connection with the consummation of the Drag-Along Transaction, including, without limitation, the execution of such agreements, consents and instruments and the performance of such other actions as are reasonably necessary to effectuate the allocation and distribution of the aggregate consideration upon the Drag-Along Transaction as set forth herein. If the Members have any indemnification obligations in connection with a Drag-Along Transaction, (i) the terms and conditions of each such Member’s indemnification obligation shall be in proportion to the consideration received by such Member in respect of such Member’s Units and Interest in connection with the Drag-Along Transaction based upon their relative entitlement to such consideration taking into consideration the distribution tiers in Section 8.3 such that the indemnification obligations shall be in inverse order that distributions are to be made pursuant to Section 8.3 and (ii) in no event shall any Member be required to provide indemnification in excess of the gross proceeds received by such Member in such Drag Along Transaction.

 
19
 
 
Section 6.9 Put Option; Call Option.
 
(a)            Put Option; Call Option . At any time following the thirty (30) month anniversary of the Effective Date, WFCF shall have the option, but not the obligation (the “ Call Option ”), to purchase all the Units held by Praedium on the terms set forth in this Section 6.9. At any time following the thirty (30) month anniversary of the Effective Date, Praedium shall have the option, but not the obligation (the “ Put Option ”), to require WFCF to purchase all the Units held by Praedium on the terms set forth in this Section 6.9.

(b)            Exercise of the Call Option and Put Option . WFCF shall exercise the Call Option, and Praedium shall exercise the Put Option, by notifying the LLC and the other Members in writing of its desire to exercise the Call Option or Put Option, as applicable (the “ Option Notice ”).

(c)            Purchase Price of Units . The purchase price for the Units in connection with the exercise of a Call Option or Put Option, as applicable, shall be equal to the amount the selling holders of the Units would be entitled to receive upon a liquidation of the LLC assuming all of the assets of the LLC are sold for a purchase price equal to the product of (x) eight and half (8.5) and (y) the TTM EBITDA. As used in this Section 6.9, “ TTM EBITDA ” means for the trailing twelve months the sum of (a) the net income (or net deficit) of the LLC plus (b) to the extent deducted from revenue in computing net income for such period, the sum of (i) interest expense, (ii) income tax expense, and (iii) depreciation and amortization. The TTM EBITDA shall be calculated by the LLC’s accountants using GAAP, consistently applied, and in accordance with the historical practices of the LLC.

(d)            Procedure . The closing of the acquisition of any Units upon exercise of a Call Option or Put Option shall occur no later than thirty (30) days following the date of the Option Notice. The LLC will pay the purchase price (i) by delivery of cash or immediately available funds in an amount equal to forty-five percent (45%) of the purchase price and (ii) by delivery of the same class of publicly traded stock issued by WFCF having an aggregate value equal to fifty-five percent (55%) of the purchase price, with the number of issued shares of such stock of WFCF based upon the average trading value of such stock in the four weeks prior to the closing of the purchase. Each seller of Units will be required to enter into a lock-up agreement with respect to the WFCF stock consideration on terms substantially similar to those contemplated by the Purchase Agreement (including an 18 month lock-up period). Each seller of Units will be required to make customary representations and warranties regarding the valid and authorized sale of the Units, including, without limitation, that each has the authority to sell the Units and each has good and marketable title to the Units, free and clear of all liens, claims and other encumbrances.

 
20
 
 
Section 6.10 Limited Power of Attorney.    Each Member hereby makes, constitutes and appoints the Board (and the Managers serving thereon), with full power of substitution and resubstitution, its true and lawful attorney-in-fact for it and in its name, place and stead for its use and benefit, to sign, execute, certify, acknowledge, swear to, file and record any and all agreements, certificates, instruments and other documents which such Person may deem reasonably necessary, desirable or appropriate to (i) effectuate, implement and continue the valid and subsisting existence of the LLC; (ii) to effectuate the dissolution and termination of the LLC in accordance with the provisions hereof and the Act; (iii) to effectuate all other amendments of this Agreement or the Certificate of Formation made in accordance with this Agreement; (iv) to admit a Member, to effect his substitution as a Member, to effect the substitution of the Member’s assignee as a Member in accordance with this Agreement; (v) to effectuate and implement a Drag-Along Transaction in accordance with the provisions of Section 6.8; and (vi) to otherwise carry out the express provisions of this Agreement. Each Member authorizes each such attorney-in-fact to take any action necessary or advisable in connection with the foregoing, hereby giving each attorney-in-fact full power and authority to do and perform each and every act or thing whatsoever requisite or advisable to be done in connection with the foregoing as fully as such Member might or could do so personally, and hereby ratifies and confirms all that such attorney-in-fact shall lawfully do or cause to be done by virtue thereof or hereof.

This power of attorney is a special power of attorney coupled with an interest and is irrevocable, and (i) may be exercised by any such attorney-in-fact by listing the Member executing any agreement, certificate, instrument or other document with the single signature of any such attorney-in-fact acting as attorney-in-fact for such Member, (ii) shall survive the death, disability, legal incapacity, bankruptcy, insolvency, dissolution or cessation of existence of a Member and (iii) shall survive the assignment by a Member of any portion of its Interest, except for assignments of such Member’s entire Interest permitted under this Agreement.

ARTICLE VII

CESSATION OF MEMBERSHIP
 
Section 7.1 When Membership Ceases.    A Person who is a Member shall cease to be a Member upon the Transfer of such Member’s entire Interest as permitted under this Agreement. A Member is not entitled to withdraw voluntarily from the LLC.

Section 7.2 Deceased, Incompetent or Dissolved Members.    The personal representative, executor, administrator, guardian, conservator or other legal representative of a deceased individual Member or of an individual Member who has been adjudicated incompetent may exercise the rights of the Member for the purpose of administration of such deceased Member’s estate or such incompetent Member’s property. The beneficiaries of a deceased Member’s estate shall become Members of the LLC only upon compliance with the conditions of this Agreement. If a Member who is a Person other than an individual is dissolved, the legal representative or successor of such Person may exercise the rights of the Member pending liquidation. The distributees of such Person may become assignees of the dissolved Member only upon compliance with the conditions of this Agreement.

 
21
 
 
Section 7.3 Consequences of Cessation of Membership.    In the event a Person ceases to be a Member as provided in 7.1 above, the Person (or the Person’s successor in interest) shall continue to be liable for all obligations of the former Member to the LLC and, with respect to any Interest owned by such Person, shall be an assignee with only the rights and subject to the restrictions, conditions and limitations described above.

ARTICLE VIII

DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS
 
Section 8.1 Dissolution Triggers.    The LLC shall dissolve upon the first occurrence of the following events:

(a)           The determination by all the Managers serving on the Board that the LLC should be dissolved; or

(b)           The entry of a decree of judicial dissolution or the administrative dissolution of the LLC as provided in the Act.

Section 8.2 Winding Up; Termination.    Upon a dissolution of the LLC, the Managers, or, if there are no Managers, a court appointed liquidating trustee, shall take full account of the LLC’s assets and liabilities and wind up the affairs of the LLC. The Persons charged with winding up the LLC shall settle and close the LLC’s business, and dispose of and convey the LLC’s noncash assets as promptly as reasonably possible following dissolution as is consistent with obtaining the fair market value for the LLC’s assets.

Section 8.3 Liquidating Distributions.    Upon a dissolution of the LLC pursuant to Section 8.1, the LLC’s cash, the proceeds, if any, from the disposition of the LLC’s noncash assets and those noncash assets to be distributed to the Members, shall be distributed in the following order:

(a)           First, to the LLC’s creditors, including Members who are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the LLC;

(b)           Next, to the Members who are creditors whose claims are not satisfied by distributions pursuant to the preceding subsection; and

(c)           The balance, to the Members in accordance with Article III.

ARTICLE IX

BOOKS AND RECORDS
 
Section 9.1 Books and Records.    The LLC shall keep adequate books and records at its principal place of business, which shall set forth an accurate account of all transactions of the LLC as well as the other information required by the Act.

 
22
 
 
Section 9.2 Taxable Year; Accounting Methods.    The LLC shall use the Fiscal Year as its taxable year. The LLC shall report its income for income tax purposes using such method of accounting selected by the Board and permitted by law.

Section 9.3 Information.
 
(a)            Tax Information. Tax information necessary to enable each Member to prepare its state, federal, local and foreign income tax returns shall be delivered to each Member within seventy-five (75) days after the end of each tax year or as soon thereafter as is reasonably practicable.

(b)            Confidentiality . The Board has the right to keep confidential from the Members for that period of time as the Board deems reasonable, any information that the Board in good faith determines (i) to be in the nature of trade secrets, (ii) the disclosure of which may not be in the best interests of the LLC or could damage the LLC or (iii) the disclosure of which would be unlawful or would breach an agreement between the LLC and a third party. If a Member is requested or required pursuant to applicable law to disclose any confidential information regarding the LLC, that Member shall provide the Board with prompt notice of request or demand to enable the LLC to seek an appropriate protective order. If a protective order or other remedy is not obtained by the LLC, the Member shall furnish only that portion of the confidential information that is required to be disclosed and shall use reasonable efforts to obtain assurances that confidential treatment will be accorded to that portion of the confidential information that is disclosed.

(c)            Information for Members. By its execution below, each Member hereby irrevocably waives pursuant to the Act any rights it may have to any information that such Member is not otherwise entitled pursuant to the express provisions of this Agreement.

ARTICLE X

MISCELLANEOUS
 
Section 10.1 Notices.    Any notice, payment, demand or communication required or permitted to be given by any provision of this Agreement shall be in writing and shall be delivered personally to the Person or to an officer of the Person to whom the same is directed, or sent by registered or certified United States mail return receipt requested, or by nationally recognized overnight delivery service, addressed as follows: if to the LLC or the Board, to the LLC’s principal office address as set forth in the Certificate of Formation (with a copy to each Manager), or to such other address as may be specified from time to time by notice to the Members; if to a Member, to the Member’s address as set forth on the Information Exhibit, or to such other address as may be specified from time to time by notice to the Members; if to a Manager, to the address of such Manager as set forth in the records of the LLC (with a copy to the Member entitled to designate such Manager), or to such other address as such Manager may specify from time to time by notice to the Members. Any such notice shall be deemed to be delivered, given and received for all purposes as of the date and time of actual receipt.

 
23
 
 
Section 10.2 Binding Effect.    Except as otherwise provided in this Agreement, every covenant, term and provision of this Agreement shall be binding upon and inure to the benefit of the Members, and their respective heirs, legatees, legal representatives and permitted successors, transferees and assigns.

Section 10.3 Construction.    Every covenant, term and provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against any Member. No provision of this Agreement is to be interpreted as a penalty upon, or a forfeiture by, any party to this Agreement. The parties acknowledge that each party to this Agreement, together with such party’s legal counsel, has shared equally in the drafting and construction of this Agreement and, accordingly, no court construing this Agreement shall construe it more strictly against one party hereto than the other.

Section 10.4 Entire Agreement; No Oral Agreements; Amendments to the Agreement.    This Agreement constitutes the entire agreement among the Members with respect to the affairs of the LLC and the conduct of its business, and supersedes all prior agreements and understandings, whether oral or written. The LLC shall have no oral operating agreements. Any provision of this Agreement may be amended or waived upon the written consent of all the Managers serving on the Board except that, without the consent of each Member thereby affected, no amendment or waiver shall alter (i) such Member’s obligations, liabilities or rights under Section 2.1 through Section 2.5 or the provisions of Article V, (ii) such Member’s right to receive distributions, whether interim or liquidating, with respect to a specific class of Units at the same time or in the same per Unit amounts as the other holders of the same class of Units, (iii) Sections 3.2 and 8.3 (except to the extent such amendment or waiver is required in connection with or as a result of the issuance of equity securities in compliance with Section 2.2 and, to the extent required, approved pursuant to Section 5.4, (iv) such Member’s co-sale and transfer rights and obligations pursuant to Section 6.2, 6.6, 6.7 or 6.8, (v) such Member’s rights to information pursuant to Section 9.3, or (vi) this Section 10.4 or such Member’s rights and obligations pursuant to Section 10.14. Notwithstanding any provision of this Agreement to the contrary, the Board may amend and modify the provisions of this Agreement (including Articles III and VIII and Exhibit A hereto) to the extent necessary to reflect the issuance of any Interests and the admission or substitution of any Member permitted under this Agreement. Any amendment adopted consistent with the provisions of this Section 10.4 shall be binding on the Members without the necessity of their execution of the amendment or any other instrument.

Section 10.5 Headings.    Section and other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.

Section 10.6 Severability.    Every provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity or legality of the remainder of this Agreement.

Section 10.7 Additional Documents.    Each Member, upon the request of the Board, agrees to perform all further acts and execute, acknowledge and deliver any documents that may be reasonably necessary, appropriate or desirable to carry out the provisions of this Agreement.

 
24
 
 
Section 10.8 Variation of Pronouns.    All pronouns and any variations thereof shall be deemed to refer to masculine, feminine or neuter, singular or plural, as the identity of the Person or Persons may require.

Section 10.9 Governing Law.    The laws of the State of Colorado shall govern the validity of this Agreement, the construction and interpretation of its terms, the organization and internal affairs of the LLC and the limited liability of the Members.

Section 10.10 Waiver of Action for Partition.    Each of the Members irrevocably waives any right that it may have to maintain any action for partition with respect to any of the assets of the LLC.

Section 10.11 Counterpart Execution; Facsimile Execution.    This Agreement may be executed in any number of counterparts with the same effect as if all of the Members had signed the same document. Such executions may be transmitted to the LLC and/or the other Members by facsimile and such facsimile execution shall have the full force and effect of an original signature. All fully executed counterparts, whether original executions or facsimile executions or a combination, shall be construed together and shall constitute one and the same agreement.

Section 10.12 Tax Matters Member.    WFCF shall be the “tax matters partner” of the LLC within the meaning of Code § 6231(a)(7) (the “ Tax Matters Member ”), and shall serve as the Tax Matters Member of the LLC until its successor is duly designated by the Board. The Tax Matters Member shall have authority to take any action that may be taken by a “tax matters partner” under Code §§ 6221 through 6234. The Tax Matters Member shall be reimbursed by the LLC for all costs and expenses incurred in fulfilling its duties as Tax Matters Member under this Section 10.12.

Section 10.13 Time of the Essence.    Time is of the essence with respect to each and every term and provision of this Agreement.

Section 10.14 Expenses.    The LLC shall promptly reimburse the Managers for all costs and expenses incurred by the Managers in attending meetings of the Board.

Section 10.15 Exhibits.    The Exhibits to this Agreement, each of which is incorporated by reference, are:

Exhibit A:                      Information Exhibit
Exhibit B:                      Glossary of Terms
Exhibit C:                      Regulatory Allocations Exhibit

IN WITNESS WHEREOF, the Members and the Managers have executed this Agreement on the following execution pages, to be effective as of the Effective Date.

[ Signatures Appear On Following Pages]

 
25
 
 
EXECUTION PAGE
TO THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
VALIDUS VERIFICATION SERVICES LLC

A COLORADO LIMITED LIABILITY COMPANY

LLC :

VALIDUS VERIFICATION SERVICES LLC

By: /s/ John Saunders                                      
Name:  John Saunders                                     
Title: Manager

MEMBERS :

WHERE FOOD COMES FROM, INC.

By: /s/ John Saunders                                      
Name:  John Saunders                                     
Title:  Chief Executive Officer                       

PRAEDIUM, LLC

By:  /s/Earl Dotson                             
Name:  Earl Dotson                       
Title: Chief Executive Officer/President   

MANAGERS :

              /s/ John Saunders                                   
John Saunders
     
              /s/ Leann Saunders                                 
Leann Saunders

              /s/ Earl W. Dotson                                 
Earl W. Dotson

 
 
 
 
EXHIBIT A
TO THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
VALIDUS VERIFICATION SERVICES LLC

A COLORADO LIMITED LIABILITY COMPANY

INFORMATION EXHIBIT


 
Member Name and Notice Address
 
Taxpayer ID No.
 
Capital
 
Units
 
Capital Account
Where Food Comes From, Inc.
221 Wilcox Street
Castle Rock, CO 80104
 
 
$1,500,459
1,500,459
$1,500,459
Praedium Ventures, LLC
10538 Justin Drive
Urbandale, Iowa 50322
 
 
$1,000,306*
1,000,306
$1,000,306
Totals
N/A
$2,500,765
2,500,765
 
$2,500,765
 


*Agreed value of the Units issued to Praedium pursuant to the Purchase Agreement.

 
 
 
 
EXHIBIT B
TO THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
VALIDUS VERIFICATION SERVICES LLC

A COLORADO LIMITED LIABILITY COMPANY

GLOSSARY OF TERMS

Many of the capitalized words and phrases used in this Agreement are defined below. Some defined terms used in this Agreement are applicable to only a particular Section of this Agreement or an Exhibit and are not listed below, but are defined in the Section or Exhibit in which they are used.

“ Act ” shall mean the Colorado Limited Liability Company Act, as in effect in Colorado and set forth in Title 7, Chapter 80 of the Colorado Revised Statutes (or any corresponding provisions of succeeding law).

“ Affiliate ” shall mean, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any Person directly or indirectly owning or controlling ten percent (10%) or more of any class of outstanding equity interests of such Person or of any Person which such Person directly or indirectly owns or controls ten percent (10%) or more of any class of equity interests, (iii) any officer, director, general partner or trustee of such Person, or any Person of which such Person is an officer, director, general partner or trustee, or (iv) any Person who is an officer, director, general partner, trustee or holder of ten percent (10%) or more of the equity interests of any Person described in clauses (i) through (iii) of this sentence; provided, that in the case of a Person who is an individual, such terms shall also include members of such specified Person’s immediate family (as defined in Instruction 2 of Item 404(a) of Regulation S-K under the Securities Act).

“ Agreed Value ” shall mean with respect to any noncash asset of the LLC an amount determined and adjusted in accordance with the following provisions:

(a)           The initial Agreed Value of any noncash asset contributed to the capital of the LLC by any Member shall be its gross fair market value, as agreed to by the contributing Member and the LLC.

(b)           The initial Agreed Value of any noncash asset acquired by the LLC other than by contribution by a Member shall be its adjusted basis for federal income tax purposes.

(c)           The initial Agreed Value of all the LLC’s noncash assets, regardless of how those assets were acquired, shall be reduced by depreciation or amortization, as the case may be, determined in accordance with the rules set forth in Treasury Regulations § 1.704–1(b)(2)(iv)(f) and (g).

 
 
 
 
(d)           The initial Agreed Value of any noncash asset of the LLC distributed to any Member shall be adjusted to equal the gross fair market value of such asset on the date of distribution as determined by the Board.

(e)           The initial Agreed Value, as reduced by depreciation or amortization, of all noncash assets of the LLC, regardless of how those assets were acquired, shall be adjusted from time to time to equal their gross fair market values, as determined by the Board, as of the following times:

 
(i)
the acquisition of an Interest or an additional Interest in the LLC by any new or existing Member in exchange for more than a de minimis Capital Contribution;

 
(ii)
the grant of an Interest in the LLC (other than a de minimis Interest) as consideration for the provision of services to or for the benefit of the LLC by an existing Member acting in a Member capacity, or by a new Member acting in a Member capacity or in anticipation of becoming a Member;

 
(iii)
the distribution by the LLC of more than a de minimis amount of money or other property as consideration for all or part of an Interest in the LLC; and

 
(iv)
the liquidation of the LLC within the meaning of Treasury Regulation § 1.704-1(b)(2)(ii)(g).

If, upon the occurrence of one of the events described in (i), (ii), (iii) or (iv) above the Board does not set the gross fair market value of the LLC’s assets, it shall be deemed that the fair market value of all the LLC’s assets equal their respective Agreed Values immediately prior to the occurrence of the event and thus no adjustment to those values shall be made as a result of such event.

“ Agreement ” shall mean this Amended and Restated Operating Agreement of Validus Verification Services LLC (including all exhibits hereto), as amended from time to time.

“ Annual Adjusted Taxable Income ” shall mean the LLC’s cumulative items of income or gain less cumulative items of loss or deduction under the Code computed for the applicable calendar year, except that (i) gain or loss from a Capital Transaction shall be excluded, (ii) any allocation pursuant to Code § 704(c) and the Treasury Regulations promulgated thereunder shall be disregarded and (iii) the effects of any adjustment to basis under Code §§ 743 or 734 shall be excluded.

“ Annual EBITDA ” shall have the meaning set forth in Section 3.3.

“ Board ” shall mean the Board of Managers of the LLC.

 
 
 
 
“ Capital ” shall mean with respect to a Member holding Units (i) the amount set forth on the Information Exhibit under the heading “Capital” opposite such Member’s name, plus (ii) the aggregate amount of any additional Capital Contributions by such Member not reflected on the Information Exhibit less (iii) the amount of any distributions pursuant to Sections 3.2(a), 3.3(a) and 8.3(c) to such Member with respect to such Capital.

“ Capital Account ” shall mean with respect to each Member or assignee an account maintained and adjusted in accordance with the following provisions:

(a)           Each Person’s Capital Account shall be increased by such Person’s Capital Contributions, such Person’s distributive share of Profits, any items in the nature of income or gain that are allocated to such Person pursuant to the Regulatory Allocations and the amount of any LLC liabilities that are assumed by such Person or that are secured by LLC property distributed to such Person.

(b)           Each Person’s Capital Account shall be decreased by the amount of cash and the Agreed Value of any LLC property distributed to such Person pursuant to any provision of this Agreement, such Person’s distributive share of Losses, any items in the nature of loss or deduction that are allocated to such Person pursuant to the Regulatory Allocations, and the amount of any liabilities of such Person that are assumed by the LLC or that are secured by any property contributed by such Person to the LLC.

(c)           In the event all or any portion of an Interest is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the portion of the Interest so transferred.

In the event the Agreed Value of the LLC assets is adjusted pursuant to the definition of Agreed Value contained in this Agreement, the Capital Accounts of all Members shall be adjusted simultaneously to reflect the aggregate adjustments as if the LLC recognized gain or loss equal to the amount of such aggregate adjustment.

The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations § 1.704–1(b), and shall be interpreted and applied in a manner consistent with such regulations.

“ Capital Contribution ” shall mean with respect to any Member, the amount of money and the initial Agreed Value of any property contributed to the LLC with respect to the Interest of such Member.

“ Capital Transaction ” shall mean the acquisition by any Person or Persons of all or substantially all of the assets of the LLC in one or a series of related transactions.

“ Certificate of Formation ” shall mean the certificate of formation required to be filed by the LLC pursuant to the Act together with any amendments thereto.

“ Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor federal revenue law.

 
 
 
 
“ Contribution ” shall have the meaning set forth in the Recitals.

“ control ” , when used with respect to any Person, shall mean the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “ controlling ” and “ controlled ” have the meanings correlative to the foregoing.

“ Co-Seller ” shall have the meaning set forth in Section 6.7.

“ Cumulative Adjusted Taxable Income ” shall mean the LLC’s cumulative items of income or gain less cumulative items of loss or deduction under the Code computed from the Effective Date through the applicable date, except that (i) gain or loss from a Capital Transaction shall be excluded, (ii) any allocation pursuant to Code § 704(c) and the Treasury Regulations promulgated thereunder shall be disregarded and (iii) the effects of any adjustment to basis under Code §§ 743 or 734 shall be excluded.

“ Current Net Positive Taxable Income ” shall have the meaning set forth in Section 3.1.

“ Default Rate ” shall mean a per annum rate of interest equal to the greater of (i) Prime Rate plus 500 basis points or (ii) twelve percent (12%), but in no event greater than the amount of interest that may be charged and collected under applicable law.

“ Depreciation ” means, for each Fiscal Year, an amount equal to the depreciation, amortization or other cost recovery deduction allowable for federal income tax purposes with respect to an asset for such Fiscal Year; provided , however , that if the Agreed Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year, Depreciation shall be an amount that bears the same ratio to such beginning Agreed Value as the federal income tax depreciation, amortization or other cost recovery deduction with respect to such asset for such Fiscal Year bears to such beginning adjusted tax basis; and, provided   further, that if the federal income tax depreciation, amortization or other cost recovery deduction for such Fiscal Year is zero, Depreciation shall be determined with reference to such beginning Agreed Value using any reasonable method selected by the Board.

“ Drag-Along Notice ” shall have the meaning set forth in Section 6.8.

“ Drag-Along Transaction ” shall have the meaning set forth in Section 6.8.

“ Effective Date ” shall have the meaning set forth in Section 1.1.

“ Excess Annual EBITDA ” shall have the meaning set forth in Section 3.3.

“ Existing LLC Agreement ” shall mean the Operating Agreement of the LLC dated as of [July __, 2013], as in effect immediately prior to the effectiveness of this Agreement.

“ Fiscal Year ” shall mean the calendar year and, with respect to the last year of the LLC, the period beginning on the preceding January 1 and ending with the date of the final liquidating distributions.

 
 
 
 
“ Information Exhibit ” shall mean the Information Exhibit attached hereto as Exhibit A .

“ Interest ” shall mean all of the rights of a Member or assignee with respect to the LLC created under this Agreement or under the Act.

“ IRS Notice ” shall have the meaning set forth in Section 2.6.

“ LLC ” shall have the meaning set forth in the introductory paragraph.

“ Managers ” shall have the meaning set forth in Section 5.1(a).

“ Members ” shall refer collectively to the Persons listed on the Information Exhibit as Members and to any other Persons who are admitted to the LLC as Members or who become Members under the terms of this Agreement until such Persons have ceased to be Members under the terms of this Agreement. “Member” means any one of the Members.

“ New Securities ” shall have the meaning set forth in Section 2.2.

“ Officers ” shall mean the Officers of the LLC as designated by the Board pursuant to Section 5.1(b). “ Officer ” means any one of the Officers.

“ Other Securities ”   shall have the meaning set forth in Section 2.2.

“ Praedium ” shall have the meaning set forth in the Recitals.

“ Person ” shall mean any natural person, partnership, trust, estate, association, limited liability company, corporation, custodian, nominee, governmental instrumentality or agency, body politic or any other entity in its own or any representative capacity.

“ Prime Rate ” as of a particular date shall mean the prime rate of interest as published on that date in the Wall Street Journal , and generally defined therein as “the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks.” If the Wall Street Journal is not published on a date for which the Prime Rate must be determined, the Prime Rate shall be the prime rate published in the Wall Street Journal on the nearest-preceding date on which the Wall Street Journal was published.

“ Profits and Losses ” shall mean, for each Fiscal Year or other period, an amount equal to the LLC’s taxable income or loss for such year or period, determined in accordance with Code § 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code § 703(a)(l) shall be included in taxable income or loss), with the following adjustments:

(a)           Any income of the LLC that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses shall be added to such taxable income or subtracted from such loss;

(b)           Any expenditures of the LLC described in Code § 705(a)(2)(B) or treated as Code § 705(a)(2)(B) expenditures pursuant to Treasury Regulations § 1.704–1(b)(2)(iv)( i ), and not otherwise taken into account in computing Profits or Losses, shall be subtracted from such taxable income or added to such loss;

 
 
 
 
(c)           Gain or loss resulting from dispositions of LLC assets with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Agreed Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Agreed Value.

(d)           In the event the Agreed Value of any LLC asset is adjusted in accordance with paragraph (d) or paragraph (e) of the definition of “Agreed Value” above, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses;

(e)           In lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year; and

(f)            Notwithstanding any other provision of this definition, any items that are specially allocated pursuant to this Agreement shall not be taken into account in computing Profits and Losses.

The amounts of the items of LLC income, gain, loss or deduction available to be specially allocated pursuant to this Agreement shall be determined by applying rules analogous to those set forth in subparagraphs (a) through (f) above.

“ Purchase Agreement ” shall have the meaning set forth in the Recitals.

“ Redemption ” shall have the meaning set forth in the Recitals.

“ Regulatory Allocations Exhibit ” shall mean the Exhibit attached hereto as Exhibit C.

“ Sale Notice ” shall have the meaning set forth in Section 6.6.

“ Section 704(c) Property ” shall have the meaning ascribed such term in Treasury Regulation § 1.704–3(a)(3) and shall include assets treated as Section 704(c) property by virtue of revaluations of LLC assets as permitted by Treasury Regulation § 1.704–1(b)(2)(iv)( f ).

“ Securities Act ” shall mean the Securities Act of 1933, as amended.

“ Selling Holder ” has the meaning set forth in Section 6.6.

“ Subsidiaries ” shall mean each of and any other person all or any portion of the equity interest of which is owned, directly or indirectly, by the LLC.

“ Tax Estimation Period ” shall mean (A) in the event that the Board elects to make quarterly tax distributions, (i) January, February and March, (ii) April and May, (iii) June, July and August, and (iv) September, October, November and December of each year during the term of the LLC, or other periods for which estimates of individual federal income tax liability are required to be made under the Code, and (B) in the event that the Board elects to make annual tax distributions, each fiscal year of the LLC; provided, that, the LLC’s first Tax Estimation Period shall begin on the Effective Date of this Agreement.

 
 
 
 
“ Transfer ” shall mean, directly or indirectly, any sale, assignment, transfer, conveyance, pledge, hypothecation or other disposition, voluntarily or involuntarily, by operation of law, with or without consideration or otherwise (including, without limitation, by way of intestacy, will, gift, bankruptcy, receivership, levy, execution, charging order or other similar sale or seizure by legal process or transfer of equity interests) of all or any portion of any Interest. “Transfer” shall also be deemed to include any sale, assignment, conveyance, pledge, hypothecation or other disposition of any equity interest in any Member (other than WFCF) that is an entity.

“ Transfer Notice ” shall mean a written notice given to the LLC of all details of any proposed Transfer of any Interest including the name of the proposed transferee, the date of the proposed Transfer of the Interest, the portion of the Member’s Interest to be transferred, the price or other consideration, if any, to be received, and a complete description of all noncash consideration to be received.

 “ Treasury Regulations ” shall mean the final and temporary Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

“ True Up Tax Distributions ” shall have the meaning set forth in Section 3.1

“ Units ” represent the basis on which Interests are denominated and the basis on which the Members’ relative rights, privileges, preferences and obligations are determined under this Agreement and the Act, and the total number and class of Units attributed to each Member shall be the number recorded on the Information Exhibit as of the relevant time.

“ Unsubscribed Securities ” shall have the meaning set forth in Section 2.2.

“ WFCF ” means Where Food Comes From, Inc., a Member.

 [The Remainder of This Page Has Intentionally Been Left Blank]

 
 
 
 
EXHIBIT C
TO THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
VALIDUS VERIFICATION SERVICES LLC

A COLORADO LIMITED LIABILITY COMPANY

REGULATORY ALLOCATIONS EXHIBIT

This Exhibit contains special rules for the allocation of items of LLC income, gain, loss and deduction that override the basic allocations of Profits and Losses in Section 4.1 of the Agreement to the extent necessary to cause the overall allocations of items of LLC income, gain, loss and deduction to have substantial economic effect pursuant to Treasury Regulations § 1.704-1(b) and shall be interpreted in light of that purpose. Subsection (a) below contains special technical definitions. Subsections (b) through (h) contain the Regulatory Allocations themselves. Subsections (i) and (j) are special rules applicable in applying the Regulatory Allocations.

(a)            Definitions Applicable to Regulatory Allocations. For purposes of the Agreement, the following terms shall have the meanings indicated:

(i)           “ Adjusted Capital Account ” means, with respect to any Member or assignee, such Person’s Capital Account (as defined in Exhibit C) as of the end of the relevant Fiscal Year increased by any amounts which such Person is obligated to restore, or is deemed to be obligated to restore pursuant to the next to last sentences of Treasury Regulations §§ 1.704-2(g)(1) (share of minimum gain) and 1.704-2(i)(5) (share of member nonrecourse debt minimum gain).

(ii)           “ LLC Minimum Gain ” has the meaning of “partnership minimum gain” set forth in Treasury Regulations § 1.704-2(d), and is generally the aggregate gain the LLC would realize if it disposed of its property subject to Nonrecourse Liabilities in full satisfaction of each such liability and for no other consideration, with such other modifications as provided in Treasury Regulations § 1.704-2(d). In the case of Nonrecourse Liabilities for which the creditor’s recourse is not limited to particular assets of the LLC, until such time as there is regulatory guidance on the determination of minimum gain with respect to such liabilities, all such liabilities of the LLC shall be treated as a single liability and allocated to the LLC’s assets using any reasonable basis selected by the Board.

(iii)           “ Member Nonrecourse Deductions ” shall mean losses, deductions or Code § 705(a)(2)(B) expenditures attributable to Member Nonrecourse Debt under the general principles applicable to “partner nonrecourse deductions” set forth in Treasury Regulations § 1.704-2(i)(2).

 
 
 
 
(iv)           “ Member Nonrecourse Debt ” means any LLC liability with respect to which one or more but not all of the Members or related Persons to one or more but not all of the Members bears the economic risk of loss within the meaning of Treasury Regulations § 1.752-2 as a guarantor, lender or otherwise.

(v)           “ Member Nonrecourse Debt Minimum Gain ” shall mean the minimum gain attributable to Member Nonrecourse Debt as determined pursuant to Treasury Regulations § 1.704-2(i)(3). In the case of Member Nonrecourse Debt for which the creditor’s recourse against the LLC is not limited to particular assets of the LLC, until such time as there is regulatory guidance on the determination of minimum gain with respect to such liabilities, all such liabilities of the LLC shall be treated as a single liability and allocated to the LLC’s assets using any reasonable basis selected by the Board.

(vi)           “ Nonrecourse Deductions ” shall mean losses, deductions, or Code § 705(a)(2)(B) expenditures attributable to Nonrecourse Liabilities (see Treasury Regulations § 1.704-2(b)(1)). The amount of Nonrecourse Deductions for a Fiscal Year shall be determined pursuant to Treasury Regulations § 1.704-2(c), and shall generally equal the net increase, if any, in the amount of LLC Minimum Gain for that taxable year, determined generally according to the provisions of Treasury Regulations § 1.704-2(d), reduced (but not below zero) by the aggregate distributions during the year of proceeds of Nonrecourse Liabilities that are allocable to an increase in LLC Minimum Gain, with such other modifications as provided in Treasury Regulations § 1.704-2(c).

(vii)           “ Nonrecourse Liability ” means any LLC liability (or portion thereof) for which no Member bears the economic risk of loss under Treasury Regulations § 1.752-2.

(viii)          “ Regulatory Allocations ” shall mean allocations of Nonrecourse Deductions provided in Paragraph (b) below, allocations of Member Nonrecourse Deductions provided in Paragraph (c) below, the minimum gain chargeback provided in Paragraph (d) below, the member nonrecourse debt minimum gain chargeback provided in Paragraph (e) below, the qualified income offset provided in Paragraph (f) below, the gross income allocation provided in Paragraph (g) below, and the curative allocations provided in Paragraph (h) below.

(b)            Nonrecourse Deductions. All Nonrecourse Deductions for any Fiscal Year shall be allocated to the Members in proportion to the number of Units held by such Member during such Fiscal Year.

(c)            Member Nonrecourse Deductions. All Member Nonrecourse Deductions for any Fiscal Year shall be allocated to the Member who bears the economic risk of loss under Treasury Regulations § 1.752-2 with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable.

(d)            Minimum Gain Chargeback. If there is a net decrease in LLC Minimum Gain for a Fiscal Year, each Member shall be allocated items of LLC income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of such net decrease in LLC Minimum Gain, determined in accordance with Treasury Regulations § 1.704-2(g)(2) and the definition of LLC Minimum Gain set forth above. This provision is intended to comply with the minimum gain chargeback requirement in Treasury Regulations § 1.704-2(f) and shall be interpreted consistently therewith.

 
 
 
 
(e)            Member Nonrecourse Debt Minimum Gain Chargeback. If there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt for any Fiscal Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt as of the beginning of the Fiscal Year, determined in accordance with Treasury Regulations § 1.704-2(i)(5), shall be allocated items of LLC income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations §§ 1.704-2(i)(4) and (5) and the definition of Member Nonrecourse Debt Minimum Gain set forth above. This Paragraph is intended to comply with the member nonrecourse debt minimum gain chargeback requirement in Treasury Regulations § 1.704-2(i)(4) and shall be interpreted consistently therewith.

(f)            Qualified Income Offset. In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations §§ 1.704-1(b)(2)(ii)( d )( 4 ), ( 5 ), or ( 6 ), items of LLC income and gain (consisting of a pro rata portion of each item of LLC income, including gross income, and gain for such year) shall be allocated to such Member in an amount and manner sufficient to eliminate any deficit in such Member’s Capital Account (as adjusted in accordance with such Treasury Regulations) created by such adjustments, allocations or distributions as quickly as possible. This provision is intended to constitute a “qualified income offset” within the meaning of Treasury Regulation § 1.704-1(b)(2)(ii)( d ) and shall be interpreted consistently therewith

(g)            Gross Income Allocation. In the event any Member has a deficit in its Adjusted Capital Account at the end of any Fiscal Year, each such Member shall be allocated items of LLC gross income and gain, in the amount of such Adjusted Capital Account deficit, as quickly as possible.

(h)            Curative Allocations. The allocations set forth in paragraphs (b) through (g) above (the “Regulatory Allocations”) are intended to comply with certain requirements of the Treasury Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of LLC income, gain, loss or deduction pursuant to this paragraph (h). Therefore, notwithstanding any other provision of this Exhibit D (other than the Regulatory Allocations), the Board shall make such offsetting special allocations of LLC income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member’s Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all LLC items were allocated pursuant to Section 4.1. In exercising its discretion under this paragraph (h), the Board shall take into account future Regulatory Allocations under paragraphs (d) and (e) above that, although not yet made, are likely to offset other Regulatory Allocations previously made under paragraphs (b) and (c) above.

 
 
 
 
(i)             Ordering. The allocations in this Exhibit to the extent they apply shall be made before the allocations of Profits and Losses under Section 4.1 and in the order in which they appear above.

(j)             Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any LLC asset pursuant to Code § 734(b) or Code § 743(b) is required, pursuant to Treasury Regulations § 1.704-1(b)(2)(iv)( m ), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Regulations.

(k)            Excess Nonrecourse Liabilities. For purposes of determining each Member’s share of Nonrecourse Liabilities, if any, of the LLC in accordance with Treasury Regulations § 1.752-3(a)(3), the Members’ interests in LLC profits shall be determined in the same manner as prescribed by paragraph (b) above.

[The Remainder of This Page Has Intentionally Been Left Blank]
 
 

Where Food Comes From Inc. 8-K
Exhibit 2.3

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into effective as of September 16, 2013, by and between Validus Verification Services LLC , a Colorado limited liability company (the " Company ") and Earl Dotson , an individual residing in Cameron, Missouri (" Executive ").

Recitals

A.          Pursuant to that certain Asset Purchase Agreement, dated as of the date hereof (the " Purchase Agreement "), by and among the Company, Praedium Ventures, LLC (formerly known as Validus Ventures, LLC), a Delaware limited liability company (" Seller "), and the members of Seller, the Company will acquire the assets of Seller relating to the Acquired Business (as that term is defined in the Purchase Agreement), as more specifically described in the Purchase Agreement.

B.          It is a condition to the closing of the transactions under the Purchase Agreement that the Executive enter into this Agreement pursuant to which the Company shall employ the Executive.

C.          The Company desires to employ the Executive, and the Executive desires to be employed by the Company, pursuant to the terms set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants, conditions and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, the parties hereto hereby agree as follows:

ARTICLE I.
EMPLOYMENT AND DUTIES

1.1)         Employment and Duties . The Company hereby employs Executive to fulfill the duties of President and Chief Executive Officer ("CEO") of the Company and Executive hereby accepts such employment. Executive further agrees to devote Executive's best efforts to the interests of the Company, and shall perform such duties as are customary in these positions or as are reasonably assigned to Executive by the board of managers (the "Board of Directors"), including employment with and performance of services for any present or future affiliate or subsidiary of the Company, as designated by the Board of Directors. The Executive shall report directly to the Board, and (i) shall have such duties, authority, discretion and responsibilities as are consistent with the duties, authority, discretion and responsibilities of a President and Chief Executive Officer in a company of similar size in a similar business and industry; and (ii) shall dedicate at least such amount of time as is consistent with and necessary for the duties, authority, discretion and responsibilities of a President and Chief Executive Officer in a company of similar size in a similar business and industry. Notwithstanding the foregoing provisions of this Section 1.1), the parties understand and agree that Executive will be simultaneously employed by Praedium Ventures, LLC ("Praedium") and serving as its President and CEO. Praedium will continue its business operations following closing of the transactions under the Purchase Agreement. The parties further acknowledge and agree that Executive's time and efforts will be divided approximately 75% for Company and 25% for Praedium.
 
 
 
 

1.2)         Location of Duties . The duties to be performed by the Executive hereunder shall be performed primarily at the Company's office location in Des Moines, Iowa, subject to reasonable travel requirements on behalf of the Company.

1.3)         Term of Employment . The term of this Agreement shall commence on September 17, 2013 (the "Effective Date"), and shall, unless earlier terminated as provided in Article III of this Agreement, continue as follows:

(a)          The initial term of this Agreement shall be thirty (30) months, expiring on March 16, 2016 at 11:59PM; and

(b)          Unless the Company or Executive has given written notice of termination of this Agreement or gives written notice of non-renewal to the other at least ninety (90) days prior to each scheduled date of expiration, the Agreement shall automatically renew for an additional term of one (1) year (each a "Renewal Year") from the scheduled date of expiration.

ARTICLE II.
COMPENSATION AND FRINGE BENEFITS

2.1)         Compensation and Fringe Benefits . For all the services rendered by Executive to the Company in any capacity, Executive shall be compensated by the Company in accordance with this Article II.

2.2)         Base Salary . The Company shall pay Executive a base salary of no less than $163,194.00 for the 2013 calendar year (prorated to reflect employment from the Effective Date), and such amount, less withholdings required by federal, state and local laws, shall constitute Executive's initial base salary. Executive shall be entitled to a four percent (4%) increase in his annual base salary for each subsequent year of employment with the Company in which the Company achieves specific annual performance milestones. The performance milestones for 2013 and 2014 are set forth at Section 2.3)( a) and(b); performance milestones for later years during the term of this Agreement shall be set forth by the Board in the Company's Business Plan beginning in 2014 for the year 2015. Executive's base salary in any given year plus any applicable four percent (4%) annual increase shall comprise the subsequent year's base salary (the "Base Salary"). The Base Salary shall be paid in accordance with the Company's regular payroll practices. During the term of this Agreement and any Renewal Year, the Base Salary shall be set annually by the Board, but shall not be less than 100% of Executive's most recent Base Salary. The Board shall provide written notice of the Executive's proposed Base Salary for each Renewal Year at least ninety (90) days prior to each scheduled date of renewal; this notice shall set forth a proposed Base Salary only, based on projections of the Company's performance with respect to the applicable annual performance milestones, and the actual Base Salary for such subsequent year shall be based on the Company's actual performance with respect to the performance milestones.
 
 
2.
 

2.3)         Annual Incentive Compensation . Executive shall be eligible for an annual four percent (4%) pay raise ("the 4% Raise") and an annual bonus ("the Performance Bonus") of up to thirty-five percent (35%) of Base Salary for each year during the Term of this Agreement, subject to achievement of specific performance milestones for 2013 and 2014 as set forth below in subsection (a) and (b) of this Section 2.3), and for each subsequent year as set forth by the Board in the Company's Business Plan beginning in the year 2014 for the year 2015.

(a)            2013 Performance Milestones and Eligible Percentage (%) of Bonus /Pay Raise .

(1)           Executive shall be eligible for an annual Performance Bonus for the 2013 calendar year (prorated to reflect employment from the Effective Date) and the 4% Raise for 2014, based on his achieving the following performance milestones:

(i)           Achieving at least 100% of forecasted gross revenue of $2,215,000; and

(ii)          Achieving at least 100% of forecasted EBITDA of $221,500.

(2)           Executive shall be entitled to receive the 4% Raise over current Base Salary for 2013 for the 2014 calendar year if Executive achieves either of the performance milestones in (a)(1)(i) or (a)(1)(ii) for the 2013 calendar year.

(3)           Executive shall be entitled to receive the annual Performance Bonus amount, less the 4% Raise, for each of the performance milestones in (a)(1)(i) and (a)(1)(ii) that are achieved for the 2013 calendar year (i.e., 50% of the Performance Bonus for each performance milestone achieved).

(b)            2014 Performance Milestones and Eligible Percentage (%) of Bonus /Pay Raise .

(1)           Executive shall be eligible for an annual Performance Bonus for the 2014 calendar year and the 4% Raise for 2015, based on his achieving the following performance milestones:

(i)           Achieving at least 100% of forecasted gross revenue of $2,547,000; and
 
 
3.
 

(ii)          Achieving at least 100% of forecasted EBITDA of $254,700.

(2)           Executive shall be entitled to the 4% Raise over current Base Salary for 2014 for the 2015 calendar year if Executive achieves either of the performance milestones in (b)(1)(i) or (b)(1)(ii) for the 2014 calendar year.

(3)           Executive shall be entitled to receive the annual Performance Bonus amount, less the 4% Raise, for each of the performance milestones in (b)(1)(i) and (b)(1)(ii) that are achieved for the 2014 calendar year (i.e., 50% of the Performance Bonus for each performance milestone achieved).

(c)            Examples . Set forth on Schedule 1, attached hereto, are several illustrative examples of the 4% Raise and the annual Performance Bonus calculations.

2.4)         Expenses . The Company shall reimburse the Executive for all reasonable expenses incurred by him in the course of performing his duties under this Agreement that are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses. Executive shall also be reimbursed at seventy five percent (75%) of Executive's driving mileage for one (1) roundtrip per week during the year between his home in Cameron, Missouri and the Company's offices in Des Moines, Iowa at the applicable rate set forth by the Internal Revenue Service.

2.5)         Health Plan and Other Benefits . The Executive shall be entitled to all rights and benefits for which he shall be eligible under any retirement, retirement savings, profit-sharing, pension or welfare benefit plan, life, disability, health, dental, hospitalization and other forms of insurance and all other so-called "fringe" benefits, on the same terms that the Company provides to other executive level employees of the Company (subject to all restrictions on participation that may apply under federal and state tax laws). Executive will not be eligible or entitled to participate in benefit plans offered by Where Food Comes From, Inc., the majority member of the Company (including without limitation, participation in any stock options plans).

2.6)         Vacations . The Executive shall be entitled to reasonable paid vacation time of fifteen (15)   business days per calendar year (including a full 15 days for the remaining portion of the 2013 calendar year); provided that the Executive shall schedule the timing and duration of his vacations in a reasonable manner taking into account the needs of the business of the Company.
 
 
4.
 

ARTICLE III.
TERMINATION OF EMPLOYMENT

3.1)         Termination . Executive's employment hereunder shall terminate (the date of such termination being the "Termination Date") on the earliest to occur of (a) Executive's death; (b) Executive's Disability (as hereinafter defined); (c) the Company's termination of Executive's employment for Cause (as hereinafter defined); (d) the Company's termination of Executive's employment for any reason other than Cause upon not less than thirty (30) days' prior written notice to Executive; (e) the Executive's notice to the Company of his resignation or termination of Executive's employment with or without Good Reason (as hereinafter defined); (f) for not achieving the performance criteria (as hereinafter defined) or (g) the effective date of non-renewal of this Agreement, delivered in writing as set forth above. For purposes of this Agreement:
 
(a)           " Disability " includes (1) being declared physically or mentally disabled by either a disability insurance carrier that provides disability insurance for Executive or by a licensed physician who has examined or is treating Executive, and such disability continues for 120 consecutive days or for a total of 180 days in any 12-month period; or (2) Executive being, for any reason, unable to maintain active participation in the Company's business for 120 consecutive days or for a total of 180 days in any 12-month period; provided, however, that nothing in this Agreement shall require, result in or permit termination by reason of Disability in violation of applicable law, including, without limitation, the Americans with Disabilities Act.

 
(b)         " Cause " shall mean:

(1)           Serious neglect by the Executive in the performance of his duties that results in a material adverse effect on the Company, which is not cured within fifteen (15) days after the Company gives the Executive written notice of such neglect;

(2)           Executive's commission of a crime involving fraud, misappropriation, embezzlement or any criminal acts (defined as punishable by imprisonment), regardless of whether such crime involves the Company;

(3)           A material breach by the Executive of this Agreement that is not cured within fifteen (15) days following the Executive's receipt of written notice of such breach from the Company;

(4)           Executive's use of any controlled substance or use of alcohol to an extent that it interferes on a continuing and material basis with the performance of his duties under this Agreement; and

(5)           Executive in his official capacity taking actions on behalf of the Company that are beyond the scope of his authority, and inconsistent with his responsibilities, as CEO.
 
 
5.
 

(c)           " Good Reason " includes Executive's resignation subsequent to the occurrence of any of the following: (1) a material adverse change in the responsibilities or duties of the Executive as set forth in this Agreement without the Executive's prior consent (other than the hiring of employees of the Company that report to the Executive or the Executive's election to reduce his responsibilities and duties pursuant to mutual agreement with the Board); (2) any material reduction in the Executive's Base Salary or benefits; (3) the principal place of performance of Executive's duties is relocated to a location more than one hundred fifty (150) miles from Cameron, Missouri; (4) the Company fails to deliver to the Executive any compensation called for by this Agreement; or (5) a material breach by the Company of this Agreement that is not cured within fifteen (15) days of receipt of such breach in writing.

(d)           " Performance Criteria " shall mean:

(1)           The Company has negative EBITDA for either of the following time periods: (i) any three (3) consecutive calendar quarters during the term of this Agreement (with the first of any such three quarters beginning after the date hereof) or (ii) any twelve-month period ending on the last day of any calendar quarter during the term of this Agreement with the first month of such twelve-month period beginning no earlier than the date hereof (EBITDA to be determined in good faith by the Board consistent with the Company's practices).

(2)           The following list of extenuating circumstances represents potential causes or events reasonably beyond the control of Executive and may be considered by the Board should performance criteria not be achieved. This includes but is not limited to the following:

(i)           A disease outbreak affecting customers of the Company that prevents or significantly delays scheduled audits under contract. For example, porcine epidemic diarrhea virus (PEDV);

(ii)          Acts of God, war, acts of terrorism, fire or flood;

(iii)         Adverse change in the Company's business resulting from changes in laws or regulations applicable to the Company's business; and

(iv)        Other similar causes or events reasonably beyond the control of Executive.

3.2)         Amount Payable upon Termination .
 
(a)            Death or Disability . In the event of Termination upon death or Termination for Disability, the Executive (or his legal representative) shall be entitled to receive in cash an amount equal to any accrued and unpaid Base Salary to the Termination Date, which amount shall be paid in accordance with the Company's existing payroll practices.

(b)            Termination for Cause . In the event of a Termination for Cause pursuant to Section 3.1)(b)(1-4), the Executive shall be entitled to receive in cash an amount equal to any accrued and unpaid Base Salary up to the Termination Date, which amount shall be paid in accordance with the Company's existing payroll practices.
 
 
6.
 

(c)            Termination without Cause . In the event of Termination without Cause, Executive shall be paid for the remaining portion of the initial thirty (30) month Term, which amount shall be paid monthly in accordance with the Company's existing payroll practices. As a condition to the Company's obligation to make this severance payment hereunder, the Executive will execute and deliver a general release in form and substance satisfactory to the Company (included as Exhibit A to this Agreement).

(d)            Termination by Executive for Good Reason . In the event that Executive resigns due to Good Reason, Executive shall be paid for the remaining portion of the initial thirty (30) month Term, which amount shall be paid in accordance with the Company's existing payroll practices. As a condition to the Company's obligation, if any, to make severance payments hereunder, the Executive will execute and deliver a general release in form and substance satisfactory to the Company (included as Exhibit A to this Agreement).

(e)            Termination for Not Achieving Performance Criteria . In the event of a Termination for Not Achieving Performance Criteria pursuant to Section 3.1)(d), the Executive shall be entitled to receive in cash an amount equal to one-twelfth (1/12) of the Executive's annual Base Salary hereunder (at the rate then in effect) payable monthly for the period commencing on the Termination Date and ending six (6) months after the Termination Date (such six (6) month period being hereinafter referred to as the "Severance Period"), paid in accordance with the Company's existing payroll practices. As a condition to the Company's obligation to make severance payments hereunder, Executive will execute and deliver a general release in form and substance satisfactory to the Company (included as Exhibit A to this Agreement).

(f)            Resignation or Termination Upon Expiration of the Term . In the event of Executive's resignation without Good Reason or a termination for non-renewal of this Agreement at the end of the Term or any extension thereof, the Executive shall be entitled to receive in cash an amount equal to any accrued and unpaid Base Salary to the Termination Date, which amount shall be paid in accordance with the Company's existing payroll practices.

ARTICLE IV.
NON-COMPETE AGREEMENT

4.1)         Non-Competition .

(a)           Executive agrees that, during the term of employment, as initially agreed upon or as extended in this Agreement, and for a period of 24 months   after the term of employment ends, whether voluntarily or involuntarily, Executive will not directly or indirectly anywhere in the Restricted Territory (defined below):

(1)           Induce or attempt to induce any person who is employed by or otherwise engaged to perform services for the Company to cease working for the Company, or hire or engage in any way any person who was employed with the Company at any time during Executive's employment or thereafter;
 
 
7.
 

(2)           Induce or attempt to induce any Customer (defined below), client, Vendor (defined below), or supplier of the Company to cease doing business with the Company, or contract with or engage in business with any Customer, client, Vendor or supplier of the Company; or

(3)           Engage or participate, either individually or as an employee, contractor, consultant, principal, owner, partner, agent, trustee, officer, director or shareholder of a corporation, partnership or other business entity, in any business which competes with the Company or engages in any line of business, including the Acquired Business (defined below), in which the Company is engaged now or at any time during Executive's employment, or which the Company, at any time, has stated its intention to engage. Notwithstanding the foregoing, nothing in this Article shall prohibit Executive from being a passive owner of not more than five percent (5%) of the outstanding stock of any class of a corporation which is publicly traded, so long as Executive has no active participation in the business of such corporation.

(b)           The following terms shall have the meanings set forth below for purposes of this Section 4.1(a).

(1)           " Acquired Business " shall have the meaning set forth in the Purchase Agreement.

(2)           " Customer " shall mean any natural person or business entity, or groups of natural persons or business entities that, within twelve (12) months prior to the Termination Date, purchased products or services from the Company or its subsidiaries and with whom Executive had relations or contact during such period. Customers also include prospective customers or groups of customers the Company or its subsidiaries have directly targeted or stated an intention to target, as evidenced by written business, marketing or sales plans, strategies or reports of the Company, which were prepared within the twelve (12) months prior to the Termination Date and with whom Executive had relations or contact during such period.

(3)           " Restricted Territory " means (a) an area encompassing the United States of America, and (b) in the event that all of the preceding subsection (a) shall be determined by judicial action to be unenforceable, an area encompassing any State in which Executive or the Company has engaged in the Company's Business or has proposed to engage in the Company's Business at any time during the immediately preceding two years.
 
 
8.
 

(4)           " Vendors " shall mean any natural person or business entity, or groups of natural persons or business entities that, within twelve (12) months prior to the Termination Date, sold products or services to the Company or its subsidiaries and with whom Executive had relations or contact during such period. Vendors also include prospective vendors or groups of vendors the Company or its subsidiaries have directly or indirectly targeted or intend to target, as evidenced by a business, marketing or sourcing plan, strategy or report within the twelve (12) months prior to the Termination Date and with whom Executive had relations or contact during such period.

4.2)         Executive May Continue to Work With Seller . Notwithstanding any provision of this Agreement to the contrary, nothing in this Agreement shall be deemed to prohibit Executive from working with Seller/Praedium in any capacity, or with any customer, client, vendor, or supplier of the Company (NewCo) which is also a customer, client, vendor, or supplier of Seller/Praedium, so long as such work or service by Executive on behalf of Seller is done subject to and in accordance with the restrictive covenants of Seller and Executive set forth in the Purchase Agreement.

4.3)         Acknowledgements of Executive . Executive acknowledges that the Company has expended substantial time and expense in the acquisition, research and development of processes, technology, techniques and products which are unique to the Company or not generally known to others and which could be unfairly taken or used by others in competition with the Company, and further acknowledges that competition with the Company is not based strictly on geographical location. In addition, Executive agrees that his position with the Company will place him in a position to be able to pirate business from the Company, or otherwise unjustly enrich himself at the expense of the Company, but for the restrictions contained in this Article.

4.4)         Enforcement .

 
(a)           Executive agrees that (i) the Company will be irreparably harmed, (ii) damages alone cannot adequately compensate the Company if there is a violation or breach by Executive of this Agreement, and (iii) that injunctive relief is essential for the protection of the Company.

(b)           Executive therefore agrees that the Company shall have the right, in addition to any other rights and remedies existing in its favor, to enforce its rights and the obligations under Article IV of this Agreement not only by an action or actions for damages, but also by an action or actions for specific performance, injunction and/or other equitable relief. In any such action, the Company shall not be required to post any bond or security.

(c)           Such actions to enforce or prevent any violations, whether anticipatory, continuing or future, of the provisions of this Article IV, shall include, without limitation, the extension of the non-competition period hereunder by a period equal to (i) the length of the violation plus (ii) the length of any court proceedings necessary to stop such violation.
 
 
9.
 

(d)           Failure by the Company to declare any breach or exercise any right under this Agreement shall not waive such breach, and the Company will have the right at any time to declare that breach and take any action permitted by law.

(e)           The Company's waiver of or failure to exercise its rights under this Agreement with respect to Executive's violation of any provision of Article IV of this Agreement shall not operate or be construed as a waiver of any other violation of such provision or any other provision in this Agreement.

(f)           It is the desire and intent of the Company and Executive that the provisions contained in this Article IV be enforced to the fullest extent permissible under the laws and public policy applied in each jurisdiction in which enforcement is sought. Therefore, if a court determines that the scope of the restrictions contained in this Article is too broad under law to permit enforcement of such restrictions to their full extent, then such restrictions shall be construed or re-written so as to be enforceable to the maximum extent permitted by law, and Executive hereby consents, to the extent Executive may lawfully do so, to the judicial modification of the scope of such restrictions in any proceeding brought to enforce such restrictions.

4.5)         Independent Covenants; Survival of Covenants . The covenants on the part of Executive contained in this Article IV shall be construed as an agreement independent of any other provisions of this Agreement except the obligations of the Company to make the payments required under this Agreement. The parties agree that relief for any claim or cause of action of Executive against the Company, whether predicated on this Agreement or otherwise, shall be measured in damages, and shall not constitute a defense to enforcement by the Company of those covenants. The remedies contained in Article IV herein shall, in all events, survive the termination of this Agreement and/or termination of Executive's employment.

ARTICLE V.
CONFIDENTIAL INFORMATION

5.1)         Definition . For purposes of this Agreement, "Confidential Information" shall mean any information, compilation of information, knowledge and know-how that Executive receives from the Company, becomes aware of, learns of or develops during the course of Executive's employment which is not generally known or readily ascertainable by proper means by persons who are not employees of the Company. It includes, but is not limited to, information relating to any of the business affairs of the Company, trade secrets, pricing information, marketing information, selling information, leasing information, servicing and financing information, compensation information, customer and client information, customer lists, manuals, training material, correspondence, research and development, engineering and other manufacturing processes, and any other material relating to the business of the Company. Confidential Information shall include the Acquired Data and Database Apps (as defined in the Purchase Agreement).
 
 
10.
 

5.2)        Non-Disclosure Of Confidential Information . Executive shall not in any manner or form disclose, provide or otherwise make available, in whole or in part, any Confidential Information to any person or entity except in furtherance of the Company's business during Executive's employment by the Company. Executive shall not in any manner or form use or permit others within Executive's control to use any Confidential Information for Executive's own benefit or for the benefit of any person or entity other than the Company (except customers of the company in connection with the Company's dealings with such customers), without the prior written consent of the Company. Executive shall take all necessary or advisable action, whether by instruction, agreement or otherwise, to ensure the protection, confidentiality and security of, and to satisfy Executive's obligations under this Agreement with respect to the protection, confidentiality and security of, all Confidential Information. The obligations of this Section are continuing and will survive the termination of this Agreement and/or the termination of Executive's employment with Company for any reason. However, these obligations do not apply to any Confidential Information that is now, or becomes, generally available to the public through no fault of Executive or to Executive's disclosure of any Confidential Information required by law or judicial or administrative process. These obligations shall expire if the Company ceases or abandons its business or substantially reduces its operations.

5.3)         Documents And Tangible Items . All documents and tangible items, including, but not limited to, manuals, written descriptions and other documentary evidence or manifestations of Confidential Information and Innovations provided to Executive by the Company or created by Executive for use in connection with Executive's employment with the Company are the property of the Company. Upon termination of Executive's employment with the Company, Executive shall promptly return all such documents and tangible items together with all copies, recordings, abstracts, notes, computer diskettes, computer or computer assisted data storage or reproductions of any kind made from or about the documents and tangible items or the information they contain.

5.4)         Remedies . Executive agrees that all of the provisions contained in Article V herein are necessary to protect the legitimate business interests of the Company and to prevent the unauthorized dissemination and use of Confidential Information to and by competitors of the Company. Executive also agrees that the Company will be irreparably harmed, that damages alone cannot adequately compensate the Company if there is a violation or breach by Executive of this Agreement, and that injunctive relief is essential for the protection of the Company. Executive therefore agrees that the Company shall have the right, in addition to any other rights and remedies existing in its favor, to enforce its rights and the obligations under Article V of this Agreement not only by an action or actions for damages, but also by an action or actions for specific performance, injunction and/or other equitable relief without posting any bond or security to enforce or prevent any violations, whether anticipatory, continuing or future, of the provisions of this Article V, including, without limitation, the extension of the non-competition period hereunder by a period equal to (i) the length of the violation plus (ii) the length of any court proceedings necessary to stop such violation. Failure by the Company to declare any breach or exercise any right under this Agreement shall not waive the breach, and the Company will have the right at any time to declare that breach and take any action permitted by law. The Company's waiver of or failure to exercise its rights under this Agreement with respect to Executive's violation of any provision of Article V of this Agreement shall not operate or be construed as a waiver of any other violation of such provision or any other provision in this Agreement.
 
 
11.
 

5.5)         Public Policy . It is the desire and intent of the Company and Executive that the provisions contained in this Article V be enforced to the fullest extent permissible under the laws and public policy applied in each jurisdiction in which enforcement is sought. Accordingly, if, at the time of enforcement of Article V of this Agreement, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area.

5.6)         Independent Covenants; Survival of Covenants . The covenants on the part of Executive contained in this Article V shall be construed as an agreement independent of any other provisions of this Agreement, and it is agreed that relief for any claim or cause of action of Executive against the Company, whether predicated on this Agreement or otherwise, shall be measured in damages, and shall not constitute a defense to enforcement by the Company of those covenants. The remedies contained in Article V herein shall, in all events, survive the termination of this Agreement and Executive's employment.

5.7)         Representations by Executive . Executive acknowledges and represents to the Company that the restrictions contained in this Article V have been fully negotiated, that Executive has had the opportunity to be represented by Executive's own legal counsel in connection with the drafting of the scope and duration of the restrictive covenants contained herein, that the covenants of the Company under this Agreement are adequate and fair consideration for Executive's agreement to be bound by this Article V, and that Executive possesses adequate skill, ability, and experience to gain other employment upon termination of Executive's employment with the Company without violating the covenants contained in this Article V.

ARTICLE VI.
MISCELLANEOUS

6.1)         Representations and Covenants by the Executive . The Executive represents and warrants that: (i) his execution, delivery and performance of this Agreement do not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which he is a party or by which he is bound, (ii) he is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any person or entity other than the Company and he is not subject to any other agreement that would prevent him from performing his duties for the Company or otherwise complying with this Agreement, (iii) he is not subject to or in breach of any nondisclosure agreement, including any agreement concerning trade secrets or confidential information owned by any other party, and (iv) he has the legal capacity to execute this Agreement.

6.2)         Notices . All notices given hereunder shall be in writing, and shall be personally served or sent by registered or certified mail, return receipt requested. Notices to the Company shall be given to John Saunders and Leann Saunders, managers of the Company, at 221 Wilcox St., Castle Rock, CO 80104 . Notices to Executive shall be addressed to Executive at Executive's residence address as the same appears on the records of the Company. Notices to the Company or Executive shall be sent to such other addresses as the Company or Executive shall specify in writing to the other.
 
 
12.
 

6.3)         Entire Agreement . This Agreement is the entire agreement between the parties concerning the subject matter hereof, and supersedes and replaces any existing agreement between the parties hereto relating to Executive's employment, and the Company and Executive hereby acknowledge that there are no other agreements or understandings of any nature, oral or written, regarding Executive's employment, apart from this Agreement.

6.4)         Rules of Construction . Each party has participated in the drafting of this Agreement; accordingly, any uncertainty or ambiguity shall not be interpreted against any one party.

6.5)         Modification Of Agreement . No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by Executive and the Company.

6.6)         Waiver . No waiver by either party hereto at any time of any breach of or noncompliance with any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No failure on the part of the Company to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder by the Company preclude any other or further exercise thereof or the exercise of any other right.

6.7)         Severability . It is agreed and understood by the parties hereto that if any part, term or provision of this Agreement is held unenforceable in the jurisdiction in which either party seeks enforcement of the Agreement, this Agreement shall be construed as if not containing the invalid provision or provisions. Invalidity or unenforceability of any portion or provision of this Agreement shall not affect the validity or enforceability of the remaining provisions of this Agreement, which shall remain in full force and effect, and shall govern the rights and obligations of the parties hereto.

6.8)         Governing Law & Sole Forum . This Agreement shall be construed and enforced in accordance with the laws of the State of Colorado, without regard to its choice of law provisions. By executing this Agreement, the parties do hereby agree and submit to personal jurisdiction in the State of Colorado for the purposes of any suit or proceeding arising out of this Agreement, or the performance or interpretation thereof, and agree that such suit or proceeding shall be venued solely in Denver, Colorado.

6.9)        Attorneys' Fees . In the event of any legal proceeding arising out of this Agreement, or the performance or interpretation thereof, the prevailing party shall be entitled to recover its reasonable attorneys' fees and costs from the other party.

6.10)       Binding Effect and Assignment . This Agreement shall inure to the benefit of and be binding upon Executive, the Company, and their respective heirs, executors, representatives, estates, successors and assigns, including any successor or assignee to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, or otherwise; provided, however, that this Agreement is personal in nature and Executive, or any beneficiary or legal representative of Executive, shall not assign all or any portion of Executive's obligations under this Agreement.
 
 
13.
 

6.11)       Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. Facsimile/e-mail signatures shall be deemed the same as originals.

6.12)       Headings and Recitals . The headings in this Agreement are inserted for convenience or reference only, and are not a part of this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above.
 
  VALIDUS VERIFICATION SERVICES LLC
   
  By: /s/ John Saunders
  Its: Manager
     
  EARL DOTSON
     
   
/s/ Earl Dotson
    Earl Dotson 
 
 
14.
 
 
Exhibit A
Form of General Release

THIS GENERAL RELEASE ("Release") is entered pursuant to Section 3.2)(c-e) of the Employment Agreement dated as of September 16, 2013, by and between Validus Verification Services LLC (the "Company") and Earl Dotson ("Executive").

Whereas, Executive's employment has been terminated and, pursuant to Section 3.2)(c-e) of the Employment Agreement, Executive is required to execute this Release in order to receive applicable severance payments.

Now, therefore, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Executive agree as follows:

1.            Severance Pay . In exchange for the obligations and promises of Executive as set forth herein, the Company will pay Executive the total amount of payments set forth in Section 3.2)(c-e) of the Employment Agreement. Company shall make all applicable and appropriate deductions from this total amount as required by applicable federal, state and local law. Company shall make payment of this amount on the eighth day after Executive executes and returns this executed Agreement to Company. Executive acknowledges and agrees that he is not otherwise entitled to this severance pay, and is receiving this consideration in exchange for the execution of this Release.

2.            Release of Claims . Executive hereby releases and forever discharges the Company from any and all claims, demands, suits, grievances, liabilities or causes of action of any kind whatsoever now existing that in any way relate to, are connected with, or arise directly or indirectly out of the employment of Executive by the Company up to the date of the execution of this Agreement. The claims released and waived by Executive include, but are not limited to, all claims asserted, or which could have been asserted, under federal, state, or local constitution, statute, regulation, ordinance or law that in any way relate to employment, non-vested pension benefits, harassment, discrimination or retaliation in employment, termination of employment, constructive discharge, or personal injury, including, but not limited to: Title VII of the Civil Rights Act of 1964, as amended 42 U.S.C. § 2000e, et seq. ; the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621 et seq. ; the Americans with Disabilities Act, 42 U.S.C. §§ 12101, et seq. ; the Family and Medical Leave Act, 29 U.S.C. §§ 2601, et seq. ; the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001, et seq .;   any state or local anti-discrimination statutes; any federal, state or local wage or wage payment law, including specifically the Fair Labor Standards Act, 29 U.S.C. § 201, et seq. ; any and all tort and personal injury claims; any claim that the Company breached any contract, express or implied, with Executive, made any misrepresentations to Executive, constructively discharged Executive, discharged Executive in violation of public policy or acted in any way whatsoever in violation of Executive's rights; and any and all claims for attorneys' fees.

Executive agrees not to initiate any legal proceeding or administrative process relating to any matters released herein.

For the purposes of this paragraph, the term "Company" includes the Company and its parent or subsidiary companies, its sister or affiliated companies and related entities, any name under which it does business, and its insurers, owners, successors, assigns, directors, officers, managers, employees and agents.
 
 
 
 

3.            Older Worker Benefit Protection Act Compliance . Consistent with the provisions of the Older Worker Benefit Protection Act, 29 U.S.C. § 626(f) "Waiver," modifying the Age Discrimination in Employment Act of 1967, Executive and the Company acknowledge and agree that Executive is advised in writing to consult with an attorney prior to executing this Agreement. The parties also acknowledge and agree that Executive has been given at least twenty-one (21) days within which to consider this Agreement. The parties further acknowledge and agree that Executive is given seven (7) days after accepting this Agreement within which he may revoke his acceptance of it if he so chooses.

4.            No Admission . By entering into this Release, neither party admits to any wrongdoing or liability whatsoever and, on the contrary, each expressly denies same.

5.            Severability and Enforceability . This document contains the entire agreement between Company and Executive concerning the waiver and release of all claims of any kind that may currently exist, or may have existed at any time, up to and including the date of execution of this Release. No change or modification hereof shall be valid or binding unless the same is in writing and signed by the party intended to be bound. This Release is to be interpreted to the fullest extent permitted by law. The provisions of this Release shall be deemed severable, and the invalidity or unenforceability of any one or more of the provisions in this Release shall in no way affect the validity or enforceability of any other provision in it. Notwithstanding the foregoing, the provisions, restrictions and obligations of Executive contained in Article IV and Article V of the Employment Agreement shall remain in full force and effect consistent with the terms thereof.

6.            Choice of Law . This Agreement will be governed and interpreted in accordance with the laws of the State of Colorado, without regard to principles of conflicts of laws.

IN WITNESS WHEREOF, having fully understood the terms of this Agreement and desiring to be bound, Executive and Company have duly and voluntarily executed it with full knowledge of its significance and binding effect as this ___ day of ____________, _________:
 
THE COMPANY: EXECUTIVE:
Validus Verification Services LLC Earl Dotson
 
Name: /s/ John Saunders   /s/ Earl Dotson
Title: Manager    
 
 
2.
 

SCHEDULE 1
 
EXAMPLES OF PERFORMANCE BONUS/RAISE CALCULATIONS
 
                                             
EXAMPLE 1
 
2013 PERFORMANCE MILESTONES
   
2013 ACTUAL RESULT
 
QUALIFIES FOR BONUS/RAISE
 
BONUS
   
RAISE
   
BASE SALARY
   
BONUS
   
RAISE
 
REVENUE
  $ 2,215,000     $ 2,300,000  
YES/YES
    13.5 %     4.0 %   $ 163,194     $ 22,031     $ 6,528  
                                                           
EBITDA
  $ 221,500     $ 205,000  
NO/NO
    0.0 %     0.0 %   $ 163,194     $ —     $ —  
                                                           
TOTAL BONUS AND RAISE
                                            $ 22,031     $ 6,528  
 
EXAMPLE 2
 
2013 PERFORMANCE MILESTONES
   
2013 ACTUAL RESULT
 
QUALIFIES FOR BONUS/RAISE
 
BONUS
   
RAISE
   
BASE SALARY
   
BONUS
   
RAISE
 
REVENUE
  $ 2,215,000     $ 2,300,000  
YES/YES
    13.5 %     4.0 %   $ 163,194     $ 22,031     $ 6,528  
                                                           
EBITDA
  $ 221,500     $ 230,000  
YES/NO
    17.5 %     0.0 %   $ 163,194     $ 28,559     $ —  
                                                           
TOTAL BONUS AND RAISE
                                            $ 50,590     $ 6,528  

 
 
 
 

EXAMPLE 3
 
2014 PERFORMANCE MILESTONES
   
2014 ACTUAL RESULT
 
QUALIFIES FOR BONUS/RAISE
 
BONUS
   
RAISE
   
BASE SALARY
   
BONUS
   
RAISE
 
REVENUE
  $ 2,547,000     $ 2,450,000  
NO/NO
    0.0 %     0.0 %   $ 169,722     $ —     $ —  
                                                           
EBITDA
  $ 254,700     $ 260,000  
YES/YES
    13.5 %     4.0 %   $ 169,722     $ 22,912     $ 6,789  
                                                           
TOTAL BONUS AND RAISE
                                            $ 22,912     $ 6,789  
 
EXAMPLE 4
 
2014 PERFORMANCE MILESTONES
   
2014 ACTUAL RESULT
 
QUALIFIES FOR BONUS/RAISE
 
BONUS
   
RAISE
   
BASE SALARY
   
BONUS
   
RAISE
 
REVENUE
  $ 2,547,000     $ 2,600,000  
YES/YES
    13.5 %     4.0 %   $ 169,722     $ 22,912     $ 6,789  
                                                           
EBITDA
  $ 254,700     $ 260,000  
YES/NO
    17.5 %     0.0 %   $ 169,722     $ 29,701     $ —  
                                                           
TOTAL BONUS AND RAISE
                                            $ 52,614     $ 6,789  
 
 
 
Where Food Comes From Inc. 8-K
Exhibit 99.1
 
FOR IMMEDIATE RELEASE            NEWS
September 17, 2013                    OTCQB: WFCF
 
Where Food Comes From® Acquires Controlling Interest in Validus Ventures’ Auditing Business – A Leading Third Party Verifier of Animal Welfare and Other Production Practices Covering Pork, Poultry and Dairy
 
CASTLE ROCK, Colo. – Where Food Comes From, Inc. (WFCF) (d.b.a. IMI Global, Inc.) (OTCQB: WFCF), the trusted resource for third party verification of food production practices, today announced it has acquired for cash and stock a 60% interest in the auditing business of Validus Ventures, LLC.
 
Based in Urbandale, IA, Validus is the U.S. leader in independent certification of socially responsible production practices covering pork, poultry and dairy products.  The Company provides audits and assessments to producers in order to verify responsible animal welfare, environmental, on-farm security, and worker care production practices. Validus is an ISO 9001: 2008 certified company, with more than 10 years of on-farm auditing experience.
 
In addition to providing services to over 3,000 producer and food-related customers throughout the U.S., Validus is the exclusive third-party verifier for the National Milk Producers Federation’s National Dairy FARM Animal Care program, and the exclusive auditor for the United Egg Producers’ 5 Star Food Safety Program.  Validus also audits and verifies approximately 50% of the pork industry’s market pigs in the area of animal welfare production practices.
 
“This strategic acquisition positions Where Food Comes From at the forefront of food verification in the beef, pork, poultry, dairy, and organic industries – helping us to better service producers, packers, distributors, retailers and restaurants seeking verification of food production practices,” said John Saunders, WFCF CEO.  “The tremendous synergies between our companies will translate into added value for our combined customer bases and a comprehensive services portfolio that will enable us to bundle solutions to keep costs competitive for our customers.”
 
 
 
 
 
 
“Our mission at Validus has been to provide on-farm assessments and audits ensuring that production practices meet or exceed brand expectations in the marketplace – which dovetails nicely with the service base and philosophy of Where Food Comes From,” said Earl Dotson, CEO of Validus.  “By combining our resources, we believe we can deliver an enhanced set of services that add greater value to our customers and further our goal of bringing true transparency to the food industry that consumers are demanding.”
 
As part of the transaction, the assets of Validus’ auditing operations were transferred into a newly formed company – Validus Verification Services, LLC (“VVS”) – which will be 60% owned by Where Food Comes From.  Dotson will serve as President and CEO of VVS.
 
The consulting and planning divisions of Validus will now be called Praedium Ventures, LLC, and will continue to focus on training and consultation on sustainability, crisis management and emergency action plan development, food safety including HACCP plan development and training, GAP analysis and environmental planning.
 
“Praedium will continue to support its clients through the creation of standard operating procedures and training and also work with clients to develop plans for land conservation,” said Dotson.  “Our clients should not see any changes in the high quality services we have provided and will continue to provide.  Praedium remains committed to helping the world feel good about farming.  We look forward to opportunities to partner with Where Food Comes From on projects in the future.” Dotson will also serve as President and CEO of Praedium Ventures, LLC.
 
About Where Food Comes From, Inc.
Where Food Comes From, Inc. (d.b.a. IMI Global) is America’s trusted resource for third party verification of food production practices.  The Company supports more than 9,000 farmers, ranchers, processors, retailers and restaurants with a wide variety of value-added services through their IMI Global (IMI) and International Certification Services, Inc. (ICS) verification divisions.  In addition, the Company’s Where Food Comes From® retail and restaurant labeling program utilizes the verification of product attributes to connect consumers to the sources of the food they purchase through product labeling and web-based information sharing and education.  Go to  www.wherefoodcomesfrom.com  for additional information.
 
 
 
 
 
About Validus Ventures, LLC
Validus Ventures, LLC is an ISO 9001: 2008 certified company with roots in on-farm auditing work. With concentration at the farm-level, their auditing services include animal welfare, environmental, on-farm security, and worker care for agriculture. Validus’ mission statement is to provide on-farm audits, planning, and consulting services, ensuring that production practices meet or exceed brand expectations in the marketplace. Visit  www.validusservices.com  for more information.
 
About Praedium Ventures, LLC
Praedium Ventures, LLC, formerly known as Validus Ventures, LLC, offers consulting, training and environmental planning services to help clients improve their farms and food-related businesses through the utilization of socially responsible, scientifically based and economically viable farming practices. For more information visit  www.praediumventures.com
 
CAUTIONARY STATEMENT
This news release contains "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, based on current expectations, estimates and projections that are subject to risk.  Forward-looking statements are inherently uncertain, and actual events could differ materially from the Company’s predictions.  Important factors that could cause actual events to vary from predictions include those discussed in our SEC filings.  Specifically, statements in this news release about industry leadership; and demand for, and impact and efficacy of, the Company’s products and services on the marketplace; the Company’s position at the forefront source verification in virtually every major category; the ability to translate synergies into added value for customers; the ability to bundle solutions to keep costs competitive and bring an enhanced set of services to customers; the Company’s claim of having the most complete solutions portfolio in the verification industry; the ability to bring true transparency to the food industry;  are forward-looking statements that are subject to a variety of factors, including availability of capital, personnel and other resources; competition; governmental regulation of the agricultural industry; the market for beef and other commodities; and other factors.  Financial results for the third quarter and nine-month period are not necessarily indicative of future results.  Readers should not place undue reliance on these forward-looking statements.  The Company assumes no obligation to update its forward-looking statements to reflect new information or developments.  For a more extensive discussion of the Company’s business, please refer to the Company’s SEC filings at  www.sec.gov .
 
 
 
 
 
Contacts:
 
Where Food Comes From, Inc.
John Saunders
Chief Executive Officer
303-895-3002
 
Leann Saunders
President
303-895-3002
 
Jay Pfeiffer
Pfeiffer High Investor Relations, Inc.
303-393-7044
 
Validus Verification Services LLC
Earl Dotson
Validus Verification Services
Chief Executive Officer
515-278-8002