Item
1.01. Entry into a Material Definitive Agreement.
On
August 10, 2021 (the “Effective Date”), ProPhase Labs, Inc. (the “Company”) and ProPhase Precision Medicine,
Inc. (“ProPhase Precision”), a wholly-owned subsidiary of the Company, entered into a Stock Purchase Agreement (the “Stock
Purchase Agreement”) with Nebula Genomics, Inc., a privately-owned personal genomics company (“Nebula”), each of the
stockholders of Nebula (the “Seller Parties”), and Kamal Obbad, as Seller Party Representative. Pursuant to the terms of
the Stock Purchase Agreement, ProPhase Precision acquired all of the issued and outstanding shares of common stock of Nebula (the “Nebula
Shares”) from the Seller Parties on the Effective Date (the “Nebula Acquisition”), for a purchase price of $10,800,000,
plus all cash and accounts receivable and other amounts payable to Nebula as of the closing, minus (i) all outstanding indebtedness of
Nebula as of the closing, (ii) all transaction expenses owed and unpaid by Nebula as of the closing, and (iii) the Noteholder Amount
as defined below. The Seller Parties have the right to receive cash or shares of the Company’s
common stock, par value $0.0005 per share (the “Company Shares”), calculated based on a purchase price of $7.46 per Company
Share (the “Per Share Purchase Price”), which is equal to the average closing price of the Company’s Shares on Nasdaq
for the five trading days preceding the signing of the Stock Purchase Agreement. The
aggregate purchase price paid for the Nebula Shares was approximately $14.6 million, subject to post-closing adjustments (the “Purchase
Price”).
A portion of the
Purchase Price equal to $6,668,896 (the “Noteholder Amount”) was withheld to satisfy certain amounts due and owing to the
holders (the “Nebula Noteholders”) of certain Nebula convertible promissory notes (the “Nebula Notes”). The Nebula
Noteholders have the right to receive cash pursuant to the terms of their Nebula Notes or Company Shares, calculated based on the
Per Share Purchase Price, to satisfy all outstanding amounts owed to them under the Nebula Notes. Any portion of the Noteholder
Amount not used to repay the Nebula Notes due to a Nebula Noteholder having forgiven any portion of principal under such holder’s
Nebula Note will be added back to the Purchase Price. In the event a portion of the Noteholder Amount is not used because a Nebula Noteholder
has elected to receive Company Shares, then such amount will remain a deduction to the Purchase Price and be kept by the Company. In
the event a portion of the Noteholder Amount is not used because a Nebula Noteholder has elected to forgive interest and not exchange
it for Company Shares, then the amount will remain a deduction to the Purchase Price and will be kept by the Company.
In
addition to the Noteholder Amount, an additional $1,080,000 (the “Escrow Amount”) was deducted from the Purchase Price. The
Escrow Amount will be held in escrow by Citibank, N.A. (the “Escrow Agent”) until February 23, 2023 (“Escrow Termination
Date”), pursuant to the terms and conditions of an escrow agreement entered into with the Escrow Agent, as security for the indemnification
obligations of the Seller Parties. At the Escrow Termination Date, the remaining amount, if any, of the Escrow Amount, less any amount
reasonably necessary to pay any claim with respect to which a notice of claim has been timely and properly given, will be delivered to
the Seller Parties, as applicable.
The
Stock Purchase Agreements contains customary representations, warranties and covenants. In addition, certain key employees of Nebula
have entered into two-year non-competition and non-solicitation agreements.
The
assertions embodied in the representations and warranties included in the Stock Purchase Agreement were made solely for purposes of the
contract between the parties to the Stock Purchase Agreement, and may be subject to important qualifications and limitations agreed to
by the parties in connection with negotiating its terms. Moreover, the representations and warranties are subject to a contractual standard
of materiality that may be different from what may be viewed as material to stockholders of the Company, and the representations and
warranties may have been used to allocate risk between the parties to the Stock Purchase Agreement rather than establishing matters as
facts.
Both
the Company and the Seller Parties have agreed to indemnify the other for losses arising from certain breaches of representations and
warranties, covenants and other liabilities specified in the Stock Purchase Agreement, subject to certain limitations.
The
foregoing description of the Stock Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to
the full text of the Stock Purchase Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein
by reference.