Exhibit 10.3

INVESTOR RIGHTS AGREEMENT

dated as of March     , 2017

between

POWER SOLUTIONS INTERNATIONAL, INC.,

and

WEICHAI AMERICA CORP.

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TABLE OF CONTENTS

 

         Page  

ARTICLE I DEFINITIONS AND INTERPRETATION

     1  

Section 1.1

 

Definitions

     1  

Section 1.2

 

Interpretation and Rules of Construction

     7  

ARTICLE II BOARD REPRESENTATION and management

     8  

Section 2.1

 

Board Representation Rights

     8  

Section 2.2

 

Senior Management Representation

     10  

Section 2.3

 

Related Party Transactions

     11  

ARTICLE III BOARD RESERVED MATTERS

     11  

Section 3.1

 

Acts of the Company Requiring Consultation with the Investor

     11  

Section 3.2

 

Acts of the Company Requiring Approval of the Investor

     12  

Section 3.3

 

Acts of the Company Requiring Approval of Independent Director

     13  

ARTICLE IV REGISTRATION RIGHTS

     13  

Section 4.1

 

Demand Registration

     13  

Section 4.2

 

Piggyback Registrations

     15  

Section 4.3

 

Procedures

     16  

Section 4.4

 

Expenses of Registration

     19  

Section 4.5

 

Indemnification

     20  

Section 4.6

 

Reports under the Exchange Act

     22  

Section 4.7

 

Limitations on Subsequent Registration Rights

     23  

Section 4.8

 

Termination of the Investor’s Registration Rights

     23  

Section 4.9

 

Assignment of the Investor’s Registration Rights

     23  

ARTICLE V PREEMPTIVE RIGHT

     23  

ARTICLE VI CERTAIN AGREEMENTS

     25  

Section 6.1

 

Reports

     25  

Section 6.2

 

Information Required for Financial Consolidation

     25  

Section 6.3

 

Access to Information

     25  

Section 6.4

 

Standstill Agreement

     26  

Section 6.5

 

Agreement to Issue Additional Stock

     27  

ARTICLE VII GENERAL PROVISIONS

     27  

Section 7.1

 

Confidentiality

     27  

Section 7.2

 

Termination

     28  

Section 7.3

 

Notices

     28  

 

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Section 7.4

 

Reserved

     29  

Section 7.5

 

Governing Law

     29  

Section 7.6

 

Dispute Resolution

     29  

Section 7.7

 

Severability

     30  

Section 7.8

 

No Third Party Beneficiaries

     30  

Section 7.9

 

Successors and Assigns

     31  

Section 7.10

 

Construction

     31  

Section 7.11

 

Counterparts

     31  

Section 7.12

 

Aggregation of Shares

     31  

Section 7.13

 

Investor Rights Agreement to Control

     31  

Section 7.14

 

Specific Performance

     31  

Section 7.15

 

Amendment; Waiver

     31  

Section 7.16

 

Expenses

     32  

Section 7.17

 

Public Announcements

     32  

 

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INVESTOR RIGHTS AGREEMENT

THIS INVESTOR RIGHTS AGREEMENT (this “Agreement”) is made and entered into as of
March     , 2017 between Power Solutions International, Inc., a Delaware
corporation (the “Company”), and Weichai America Corp., a company organized
under the laws of State of Illinois (the “Investor”).

RECITALS

WHEREAS, the Investor and the Company have entered into that certain Share
Purchase Agreement dated as of March 20, 2017 (the “Share Purchase Agreement”)
pursuant to which the Company has agreed to issue and sell to the Investor
certain Securities (as hereinafter defined), on the terms and conditions set
forth therein; and

WHEREAS, this Agreement is being entered into by the parties hereto in
connection with the transactions contemplated under the Share Purchase Agreement
and sets forth certain rights and obligations of the parties hereto in
connection with the transactions contemplated under the Share Purchase
Agreement.

NOW, THEREFORE, in consideration of the premises set forth above, the mutual
promises and covenants set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

Section 1.1    Definitions. In this Agreement, except to the extent otherwise
provided or that the context otherwise requires:

“Additional Warrant” has the meaning contemplated under the Share Purchase
Agreement.

“Affiliate” means (a) in the case of a Person that is a natural person, such
Person’s (i) parents, (ii) spouse and the spouse’s parents and siblings,
(iii) siblings and their spouses, (iv) descendants and their spouses (whether by
blood or adoption and including stepchildren), and (v) any entity Controlled by
such Person; and (b) in the case of a Person that is an entity, any other Person
that, directly or indirectly, through one or more intermediaries, Controls, or
is Controlled by, or is under common Control with, such first Person, including
such first Person’s subsidiaries and holding companies and the subsidiaries of
any such holding companies;

“Agreement” has the meaning set forth in the Preamble;

“Arbitral Tribunal” has the meaning set forth in Section 7.6(a);

“beneficial ownership” or “beneficially own” or similar term shall mean
beneficial ownership as defined under Rule 13d-3 under the Exchange Act;

“Board” means the board of directors of the Company;

 

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“Business Day” means any day, other than a Saturday, Sunday or a day on which
banking institutions in the People’s Republic of China, Hong Kong or the City of
New York, New York is authorized or obligated by law or executive order to
remain closed;

“Certificate of Designation” means the Company’s Certificate of Designation of
Series B Convertible Perpetual Preferred Stock filed with the Secretary of State
of the State of Delaware as of the date hereof.

“Closing” has the meaning set forth in the Share Purchase Agreement;

“Closing Date” has the meaning set forth in the Share Purchase Agreement;

“Commission” means the SEC or any other federal agency at the time administering
the Securities Act;

“Common Stock” shall mean the common stock, par value $0.001 per share, of the
Company;

“Company” has the meaning set forth in the Preamble;

“Company Certificate” means the Amended and Restated Certificate of
Incorporation of the Company in effect from time to time;

“Company Bylaws” means the Bylaws of the Company in effect from time to time;

“Confidential Information” has the meaning set forth in Section 7.1;

“Consolidated Net Income” means, with reference to any period, the net income
(or loss) of the Company and its Subsidiaries on a consolidated basis for such
period (taken as a cumulative whole), as determined in accordance U.S. generally
accepted accounting principles consistently applied, after eliminating all
offsetting debits and credits between the Company and its Subsidiaries and all
other items required to be eliminated in the course of the preparation of
consolidated financial statements of the Company and its Subsidiaries in
accordance with U.S. generally accepted accounting principles consistently
applied, and excluding all extraordinary, non-recurring or unusual gains or
losses;

“Control” (including the terms “Controlled by” and “under common Control with”)
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, as trustee or executor, by contract or
otherwise, including the ownership, directly or indirectly, of securities having
the power to elect a majority of the board of directors or similar body
governing the affairs of such Person or securities that represent a majority of
the outstanding voting securities of such Person;

“Control Restriction Period” has the meaning set forth in Section 2.3;

“Demand Notice” has the meaning set forth in Section 4.1(a);

 

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“Election Notice” has the meaning set forth in ARTICLE I Section 5.2.

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder;

“Exempt Registration” means a Registration by the Company relating solely to the
sale of Securities to participants in any employee equity incentive plan adopted
by the Company or Securities issued in connection with an acquisition or merger
by the Company;

“Final Prospectus” has the meaning set forth in Section 4.5(a);

“Founders” shall mean Gary Winemaster and Kenneth Winemaster;

“group” when used in connection with the standstill shall mean any group of
persons within the meaning of Section 13(d)(3) of the Exchange Act.

“Governmental Authority” means any federal, national, foreign, supranational,
state, provincial, local, municipal or other political subdivision or other
government, governmental, regulatory or administrative authority, agency, board,
bureau, department, instrumentality or commission or any court, tribunal,
judicial or arbitral body of competent jurisdiction or stock exchange;

“Incumbent Senior Management” has the meaning set forth in Section 2.3;

“Independent Director” means a director of the Company that satisfies the
requirements to be an “Independent Director” as such term in Section 5605(A)(2)
of the Nasdaq Listing Rules.

“Investor” has the meaning set forth in the Preamble;

“Investor Director” has the meaning set forth in Section 2.1(a);

“Issue Notice” has the meaning set forth in Section 5.1;

“Law” means any federal, national, foreign, supranational, state, provincial or
local statute, law, ordinance, regulation, rule, code, order, requirement or
rule of law (including common law), official policy, rule or interpretation of
any Governmental Authority with jurisdiction over the Company or the
Shareholders, as the case may be;

“LCIA Court” has the meaning set forth in Section 7.6(b);

“LCIA Rules” has the meaning set forth in Section 7.6(a);

“New Issuance Exceptions” means the following new issuances of Securities of the
Company:

(a)    grant of any share options or warrants under any employee incentive plans
or schemes, and issuance of any shares of Common Stock issuable upon exercise of
any share options or warrants under such employee incentive plans or schemes in
existence as of the date hereof or consented to by the Investor or to the extent
approved by the Board in accordance with Section 3.1;

 

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(b)    Common Stock issued upon conversion of the Preferred Stock or Securities
as a dividend or distribution on the Preferred Stock;

(c)    Common Stock or Preferred Stock issued upon exercise of the Warrant,
Additional Warrant or other warrants or options outstanding as of the date
hereof or that are issued pursuant to the Share Purchase Agreement;

(d)    any other issuance of Common Stock (or other Securities) in connection
with the exercise, conversion or exchange of any Securities outstanding as of
the date hereof or issued hereafter as New Securities (in each case, pursuant to
the terms of the relevant Securities as unmodified);

(e)    Securities issued in connection with a merger or acquisition of another
company or business or joint venture or strategic partnership where the
underlying transaction and terms have been previously approved by the Investor
or at least one Investor Director (provided; that, for the avoidance of doubt,
if Securities are issued in connection with a merger or acquisition of another
company or business or joint venture or strategic partnership without the prior
approval of the Investor or at least one Investor Director, such issuance of
Securities will be treated as New Securities);

(f)    Securities issued in connection with any share split, share dividend,
combination, recapitalization or similar transaction of the Company, which shall
instead be subject to a customary adjustment to the Preferred Stock and the
Warrant;

(g)    Securities issuable in a firmly underwritten registered public offering
of the Common Stock; or

(h)    any other issuance of Securities whereby the Investor gives a written
waiver of its rights under this Agreement at the Investor’s sole discretion,

provided that any new issuance of Securities would not constitute as a New
Issuance Exception if it would result in the Investor no longer being the
largest shareholder of the Company (for avoidance of doubt the Founders shall be
deemed as one single stockholder for the purpose of calculating the shareholding
hereunder);

“New Security” or “New Securities” has the meaning set forth in Section 5.1;

“Nasdaq” shall mean the Nasdaq Stock Market;

“Person” means any individual, partnership, corporation, association, joint
stock company, trust, joint venture, limited liability company, organization,
entity or Governmental Authority;

“Permitted Purchase” means any acquisition of Common Stock or other Securities
(i) pursuant to conversion of the Preferred Stock or exercise of the Warrant or
Additional Warrant,

 

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(ii) pursuant to exercise of preemptive rights by the Investor pursuant to
Section 5.3 of this Agreement, (iii) pursuant to the exercise of any right of
first refusal under the Shareholders Agreement, (iv) upon the conversion or
exercise of any rights under any other Securities beneficially owned by the
Investor as of the date hereof or acquired by the Investor under clauses
(i) through (iii), or any Securities issued as a distribution in respect thereof
(including through any recapitalization, spin-off or similar event), and
(v) upon issuance of any shares of Common Stock issuable upon exercise of any
share options or warrants under any employee incentive plans or schemes in
existence as of the date hereof, the Key Employee Retention Program (as defined
in the Share Purchase Agreement) or consented to by the Investor or to the
extent approved by the Board in accordance with Section 3.1.

“Preemptive Rights Closing Date” has the meaning set forth in Section 5.3;

“Preferred Stock” means the Series B redeemable convertible stock, par value
$0.001 per share, of the Company;

“Registrable Securities” means the Common Stock (including any shares or other
equity interests issued or issuable with respect to such Securities by way of
stock dividends or stock splits or in connection with a combination of
recapitalization, merger, reorganization, reclassification or similar
transaction) held by the Investor; provided that, once issued, such Securities
will not be Registrable Securities when (a) such Registrable Securities have
been sold pursuant to an effective Registration Statement under the Securities
Act, (b) such Registrable Securities have been sold pursuant to Rule 144, (c)
such Registrable Securities shall have ceased to be outstanding or (d) such
Registrable Securities are held by a Person who, together with its Affiliates,
beneficially owns less than 5% of the Company’s Common Stock then outstanding
that may be freely resold without restriction under Rule 144;

“Registration” means a registration effected by preparing and filing a
Registration Statement and the declaration or ordering of the effectiveness of
that Registration Statement, which shall be modified or supplemented, as
applicable. The terms “Register” and “Registered” have meanings correlative to
the foregoing;

“Registration Statement” means a registration statement prepared on Form S-1 or
Form F-1 under the Securities Act (or a successor form or substantially similar
form then in effect) or a Shelf Registration Statement;

“Rule 144” means Rule 144 promulgated under the Securities Act (or any successor
provision);

“Related Party Transactions” shall refer to transactions required to be
disclosed pursuant to Item 404 of Regulation S-K under the Securities Act.

“SEC” means the U.S. Securities and Exchange Commission;

“Securities” means any Common Stock or any equity interest of, or shares of any
class in the share capital (ordinary, preferred or otherwise) of, the Company
and any convertible securities, options, warrants and any other type of equity
or equity-linked securities convertible, exercisable or exchangeable for any
such equity interest or shares of any class in the share capital of the Company;

 

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“Securities Act” means the U.S. Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder;

“Shareholder” or “Shareholders” means Persons who hold the Common Stock from
time to time;

“Shareholders Agreement” means that certain Shareholders Agreement dated as of
March 20, 2017 among the Company, Investor and Founders, as it may be amended,
modified or supplemented from time to time in accordance with the terms thereof;

“Share Purchase Agreement” has the meaning set forth in Recitals;

“Shelf Registration Statement” means a registration statement prepared on Form
S-3 or Form F-3 (or a successor form or substantially similar form then in
effect) or another appropriate form for an offering to be made on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act (or any successor
provision);

“Significant Event” means the occurrence of any of the following events: (a) any
person or group shall have acquired or entered into a binding definitive
agreement that has been approved by the Board (or any duly constituted committee
thereof) to acquire beneficial ownership of more than 50% of the outstanding
Voting Securities of the Company or assets of the Company or its Subsidiaries
representing more than 50% of the consolidated earnings power of the Company and
its Subsidiaries, taken as a whole, (b) the announcement or commencement by any
person or group of a tender or exchange offer to acquire Voting Securities
which, if successful, would result in such person or group owning, when combined
with any other Voting Securities owned by such person or group, more than 50% of
the then outstanding Voting Securities, and in connection therewith, the Company
files with the SEC a Schedule 14D-9 with respect to such offer that does not
recommend that the Company’s stockholders reject such offer; or (c) the entry
into by the Company or any of its Subsidiaries of any agreement with any party
relating to any merger, sale or other business combination transaction pursuant
to which more than 50% of the outstanding Securities of the Company would be
converted into cash or securities of another person or group or more than 50% of
the then outstanding Securities of the Company would be owned by persons other
than the then current holders of shares of Common Stock of the Company, or which
would result in all or a substantial portion of the Company’s assets being sold
to any person or group; provided, however, that with respect to clauses (a), (b)
and (c) of this sentence, the Investor and its Affiliates shall not have
solicited, initiated, encouraged or taken any action to facilitate or assist or
participate with any such other person or group in connection with any of the
transactions contemplated by clauses (a), (b) and (c) of this sentence.

“Stockholder Approval” shall have the meaning accorded to such term in the Share
Purchase Agreement;

“Stockholder Proposal” shall have the meaning accorded to such term in the Share
Purchase Agreement;

 

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“Strategic Collaboration Agreement” means shall mean the strategic collaboration
agreement entered into between the Company and Weichai Power Co. Ltd. on March
20, 2017;

“Subsidiary” of any Person means any corporation, partnership, limited liability
company, joint stock company, joint venture, or other organization or entity,
whether incorporated or unincorporated, which is Controlled by such Person and,
for the avoidance of doubt, the Subsidiaries of any Person shall include any
variable interest entity over which such Person or any of its Subsidiaries
effects Control pursuant to contractual arrangements and which is consolidated
with such Person in accordance with generally accepted accounting principles
applicable to such Person;

“Trading Day” means any day on which the U.S. national stock exchange on which
the Common Stock are then listed and traded is open for trading in securities
based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time);

“Transaction Documents” mean this Agreement, the Share Purchase Agreement, the
Shareholder Agreement, and each of the other agreements and documents entered
into or delivered by the parties hereto in connection with the transactions
contemplated by the Share Purchase Agreement;

“Underwriting Election” has the meaning set forth in Section 4.1(e);

“U.S. Securities Laws” means the federal securities Laws of the United States,
including the Exchange Act and the Securities Act, and any applicable securities
Laws of any State of the United States;

“Violation” has the meaning set forth in Section 4.5(a);

“Voting Securities” means, with respect to the Company, at any time shares of
any Securities which are then entitled to vote generally in the election of
directors; provided, that for purposes of this definition any Securities which
at such time are convertible or exchangeable into or exercisable for shares of
Common Stock shall be deemed to have been so converted, exchanged or exercised;
and

“Warrant” means the 2018 Warrant (as such term is defined in the Share Purchase
Agreement).

Section 1.2    Interpretation and Rules of Construction. In this Agreement,
except to the extent otherwise provided or that the context otherwise requires:

(a)    when a reference is made in this Agreement to an Article or Section, such
reference is to an Article or Section of this Agreement;

(b)    the headings for this Agreement are for reference purposes only and do
not affect in any way the meaning or interpretation of this Agreement;

 

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(c)    the words “hereof,” “herein” and “hereunder” and words of similar import,
when used in this Agreement, refer to this Agreement as a whole and not to any
particular provision of this Agreement;

(d)    all terms defined in this Agreement have the defined meanings when used
in any certificate or other document made or delivered pursuant hereto, unless
otherwise defined therein;

(e)    the definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such term and any noun or pronoun shall
be deemed to cover all genders; and

(f)    references to a Person are also to its successors and permitted assigns.

ARTICLE II

BOARD REPRESENTATION AND MANAGEMENT

Section 2.1    Board Representation Rights.

(a)    On the Closing Date, (i) the number of members of the Board shall be
increased to seven (7) and (ii) the Company shall cause the appointment to the
Board of two (2) individuals nominated by the Investor in writing prior the
Closing, one of whom shall be appointed as the Chairman of the Board (each
director designated by the Investor by right in accordance with this Section 2.1
(including Section 2.1(d)) or otherwise is referred to herein as an “Investor
Director”); provided, that, the Company shall take all necessary steps to
convene an annual meeting of its Stockholders as soon as possible, and in any
event by no later than 180 days after the Closing, and, in connection with such
meeting, take all necessary steps to nominate three (3) Investor Directors (or
such other number as the Investor may be by right under Section 2.1(b) be
entitled to nominate) for election to the Board in accordance with Section
2.1(b).

(b)    Subject to subsections (d), (e) and (f) of this Section 2.1, in
connection with each meeting of stockholders of the Company at which Directors
are to be elected to serve on the Board, the Company shall take all necessary
steps to nominate at least such number of individuals nominated by the Investor
for election to the Board as the Investor may be by right under Section 2.1(d),
be entitled to designate as its representative on the Board (or such alternative
persons who are proposed by the Investor and notified to the Company on or prior
to any date set forth in the Company Certificate, the Company Bylaws, applicable
Law or stock exchange requirement) (which, for the avoidance of doubt, shall
initially be three (3) individuals), and the Company further agrees to use its
reasonable best efforts to cause the election or appointment of such Investor
Directors to the Board, including using its reasonable best efforts to cause the
Board to unanimously recommend that the stockholders of the Company vote in
favor of each Investor Director for election to the Board. If, for any reason, a
candidate designated as an Investor Director is reasonably determined by the
Board to be unqualified to serve on the Board because such appointment would
constitute a breach of the fiduciary duties of the Board or applicable Law or
stock exchange requirements, the Investor shall have the right to designate an
alternative Investor Director to be so appointed, and the provisions of this
Section 2.1(a) shall apply, mutatis mutandis, to such alternative Investor
Director;

 

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(c)    Each appointed or elected Investor Director will hold his or her office
as a director of the Company for such term as is provided in the Company
Certificate, the Company Bylaws or until his or her death, resignation or
removal from the Board or until his or her successor has been duly elected and
qualified in accordance with the provisions of this Agreement, the Company
Certificate, the Company Bylaws and applicable Law. If any Investor Director
ceases to serve as a director of the Company for any reason during his or her
term, the Company will use its reasonable best efforts to cause the Board to
fill the vacancy created thereby with a replacement designated by the Investor;

(d)    Subject to applicable Law and applicable stock exchange requirements, the
Investor shall have the right to designate at least (i) three (3) Investor
Directors pursuant to this Section 2.1 for so long as the Investor owns
Securities representing, in the aggregate, no less than thirty percent (30%) of
the total outstanding Common Stock (calculated on a fully-diluted as-converted
basis and excluding all Securities issued pursuant to the New Issuance
Exceptions); (ii) two (2) Investor Directors pursuant to this Section 2.1 for so
long as the Investor owns Securities representing, in the aggregate, no less
than twenty percent (20%) of the total outstanding Common Stock (calculated on a
fully-diluted as-converted basis and excluding all Securities issued pursuant to
the New Issuance Exceptions), and (iii) one (1) Investor Director pursuant to
this Section 2.1 for so long as the Investor owns Securities representing, in
the aggregate, no less than ten percent (10%) of the total outstanding Common
Stock (calculated on a fully-diluted as-converted basis and excluding all
Securities issued pursuant to the New Issuance Exceptions). Upon such time as
the Investor has exercised the Warrant in full, then (A) the Company shall,
immediately upon the exercise of the Warrant, cause the appointment to the Board
of one (1) additional individual nominated by the Investor or such additional
numbers of individuals so the Investor Directors shall constitute the majority
of the directors serving on the Board, and (B) for so long as the Investor owns
Securities representing, in the aggregate, no less than forty percent (40%) of
the total outstanding Common Stock (calculated on a fully-diluted as-converted
basis and excluding all Securities issued pursuant to the New Issuance
Exceptions), it shall have the right to designate at least four (4) Investor
Directors or any additional number of Investor Directors pursuant to this
Section 2.1 as necessary to ensure that the Investor Directors shall constitute
the majority of the directors serving on the Board.

(e)    Nothing in this Section 2.1 shall prevent the Board from acting in
accordance with its fiduciary duties or applicable Law or stock exchange
requirements or from acting in good faith in accordance with the Company
Certificate or the Company Bylaws, while giving due consideration to the intent
of this Agreement. The Board shall have no obligation to appoint or nominate any
Investor Director if such appointment or nomination would violate applicable Law
or stock exchange requirements or result in a breach by the Board of its
fiduciary duties to its stockholders; provided, however, that the foregoing
shall not affect the right of the Investor to designate an alternate Investor
Director; provided, however, that during any period when the Company is a
“controlled company” within the meaning of the Nasdaq Listing Rules, the Company
will take such measures as to avail itself of the exemptions available to it
under Rule 5615 of the Nasdaq Listing Rules of Rules 5605(b), (d) and (e)
(except for the requirements of subsection (b)(2) which pertain to executive
sessions of Independent Directors) of the Nasdaq Listing Rules, provided
further, that irrespective of whether the Company is a “controlled company”
within the meaning of the Nasdaq Listing Rules, the Investor shall have the
right to nominate all of its Investor Directors as non-Independent Directors
serving on the Board, unless prohibited by the applicable Laws and stock
exchange requirements.

 

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(f)    The rights of the Investor set forth in this Section 2.1 shall be in
addition to, and not in limitation of, such voting rights that the Investor may
otherwise have as a holder of capital stock of the Company;

(g)    The Company recognizes that individuals associated with the Investor and
its Affiliates will be Investor Directors and serve on the Board from time to
time, and that such individuals (i) will from time to time receive non-public
information concerning the Company and its Subsidiaries, and (ii) may (subject
to the obligation to maintain the confidentiality of such information in
accordance with Section 7.1) share such information with other individuals
associated with the Investor and its Affiliates. Such sharing will be for the
dual purpose of facilitating support to such individuals in their capacity as
directors and enabling the Investor, as a stockholder, to better evaluate the
Company’s performance and prospects, but not for any other purpose to the
detriment of the Company and its Affiliates. Notwithstanding the foregoing, the
Investor Directors will not share any information if the Company informs the
Investor Directors that such sharing could be reasonably expected to compromise
or otherwise adversely affect the Company’s and its Affiliates ability to assert
any attorney/client privilege or similar rights. The Company hereby irrevocably
consents to such sharing; and

(h)    So long as any Investor Director serves on the Board, the Company at its
sole cost and expense shall:

(i)    take out and maintain directors’ liability and indemnity insurance for
the Investor Directors, each policy with an insured amount and other terms and
conditions that shall be consistent with the Company’s practice; and

(ii)    indemnify and hold harmless the Investor Directors from and against any
loss or damage incurred by them for any act or omission taken or suffered by the
Investor Directors in connection with acting as a director of the Company, to
the maximum extent permitted under applicable Law.

Section 2.2    Senior Management Representation.

The Investor shall have the right to appoint one (1) individual to serve in
management role of vice president or an equivalent role and title, and once
appointed pursuant to this Section 2.2 and other requirements under applicable
Law, such individual shall be primarily responsible for oversee the
collaboration between the Parties and shall have the main duties stipulated
under the Strategic Collaboration Agreement, and shall report directly to the
CEO of the Company (such role, the “Investor Vice President”). The Investor
shall propose a qualified individual to serve as the Investor Vice President to
the Company for its consent, which shall not be unreasonably withheld or
delayed. Once such individual has been nominated by the Investor and approved
the Company, the Company shall take all necessary actions to appoint the
candidate proposed by the Investor to as the Investor Vice President, and shall
use reasonable best efforts to obtain the necessary visa and work permit and
employing him as an employee of the Company. The Investor Vice President shall
be duly appointed by the Company as the vice president of the

 

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Company at the Closing or immediately thereafter but no later than one (1) month
after Closing, subject to obtaining the requisite visa and work permit required
for such Investor Vice President if needed. In the event that the Investor Vice
President cannot be appointed by the Company within the prescribed timeline due
to the failure or delay of obtaining the requisite visa or work permit on time
the Company shall appoint the Investor Vice President immediately upon obtaining
the requisite visa and work permit without delay. The Investor Vice President
shall be invited to attend all executive meetings of the Company and shall
receive all relevant documents and information pertaining to such meetings.

Section 2.3    Related Party Transactions. The Investor acknowledges that
Related Party Transactions (including transactions pursuant to the Share
Purchase Agreement and the agreements relating thereto) shall be subject to
approval pursuant to the relevant Nasdaq Listing Rules, rules and requirements
of the SEC and other applicable Law.

ARTICLE III

BOARD RESERVED MATTERS

Section 3.1    Acts of the Company Requiring Consultation with and Approval from
the Investor.

(a)    The Company agrees not to take, permit to occur, approve, authorize or
commit to do any of the following actions set out in this Section 3.1, unless
the Company has (1) provided written notice to the Investor of its intention to
institute such actions sixty (60) days before such actions commence (it being
agreed that providing notice of a proposed action to an Investor Director shall
be deemed to be provision of notice to Investor), (2) discussed in good faith
with the Investor and considered in good faith any comments and suggestions
proposed by the Investor with the goal to obtain a consent from the Investor for
such actions, (3) presented a written summary of agreement and disagreement with
the Investor to the Board, and (4) the Board has approved such action pursuant
to Section 3.1(b) and in accordance with the Company Certificate and the Company
Bylaws:

(i)    create, participate in or terminate any partnership, consortium, joint
venture or similar business arrangement;

(ii)    approve the annual budget and business plan, or make any material
amendment to the approved annual budget and business plan that are either
(i) with respect to any line item, in excess of ten percent (10%) of such line
item amount, or (ii) with respect to the aggregate of such amended amounts,
would result in a change to the Company’s budgeted net revenue or expenses, as
applicable, in the approved the annual budget and business plan, as applicable,
by five percent (5%) or more;

(iii)    cause or permit the creation of any encumbrance upon any assets,
properties, interests or businesses, except any encumbrance (1) as contemplated
in the approved annual budget plan in effect as of such time, (2) on assets with
value not in excess of $500,000 or (3) encumbrances arising in the ordinary
course of business as a matter of law;

(iv)    subject to Section 2.3 herein, appoint, remove or replace any “C-suite
level” executive; and

 

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(v)    approve, amend, modify or terminate any employee equity incentive plans.

(b)    Notwithstanding the provisions of Section 3.1(a), but subject to the
limitations set forth in Section 3.1(c) below, the Company shall be able to
approve and effect actions set forth in Section 3.1(a) if such action is
approved by a majority of the Board (including at least one (1) Investor
Director) and in accordance with the Company Certificate and the Company Bylaws.
The Parties agree that the Investor shall be promptly informed and consulted
regarding the recruitment of the chief executive officer (“CEO”), chief
financial officer (“CFO”), and chief operating officer (“COO”) of the Company
(“COO”), and the Investor shall have the right to propose candidates for such
positions (except for the interim CEO who will replace the current CEO Gary
Winemaster) to be considered for appointment by the Board in accordance with
this Agreement, the Company Certificate and the Company Bylaws.

(c)    Notwithstanding the provisions of Section 3.1(a) and Section 3.1(b), but
subject to the limitations set forth in Section 3.1(c) below, prior to obtaining
Stockholder Approval, the Company shall not be permitted to approve and effect
the following actions without the consent of the Investor (which consent shall
not be unreasonably withheld or delayed):

(i)    issue or authorize the issuance of any securities (other than in
connection with the Company’s existing employee incentive plans);

(ii)    incur or guarantee any indebtedness for borrowed money of any Person,
other than (A) the incurrence or guarantee of indebtedness under the Company’s
existing credit facilities as in effect on the date hereof (including any
renewal, extension, refinancing or replacement of such credit facilities on
substantially the same or similar terms) in an aggregate amount not to exceed
the maximum amount authorized under the agreements evidencing such indebtedness,
or (B) any other indebtedness incurred in the ordinary course of business in an
aggregate amount up to $5,000,000;

(iii)    amend or propose to amend the certificate of incorporation or bylaws of
the Company; or

(iv)    (A) acquire the assets or securities of any Person for consideration in
excess of $5,000,000, (B) dispose of the assets or equity securities of the
Company with a fair market value in excess of $5,000,000 or for consideration in
excess of $5,000,000, or (C) undertake any transaction other than in the
ordinary course of business with a value in excess of $10,000,000, in each case
individually or in the aggregate.

Section 3.2    Acts of the Company Requiring Approval of the Investor. In
addition to any other approvals required under the Company Certificate, the
Company Bylaws and applicable Law, none of the following actions by the Company
and its Subsidiaries may be approved, adopted, authorized, or taken or otherwise
may occur (whether by merger, consolidation, recapitalization or otherwise)
without the prior written approval by (i) the Investor or (ii) any Investor
Director then serving on the Board:

(a)    any declaration of dividends or other distributions by the Company or any
of its Subsidiaries, other than intra-company dividends or distributions made by
wholly-owned subsidiaries of the Company;

 

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(b)    the creation of any new class of equity security of the Company or any of
its Subsidiaries, the repurchase, redemption or other retirement for value of
equity securities of the Company (or any of its Subsidiaries or securities
exchangeable or exercisable for, or convertible into, any such equity
securities, and the amendment of the rights, preferences or privileges provided
to any class of equity security (other than (A) intra-company issuances and
repurchases among the Company and its wholly-owned Subsidiaries, (B) repurchases
of equity securities held by members of management of the Company and its
subsidiaries made in the ordinary course in connection with the termination of
employment); and

(c)    any increase or decrease in the size of the Board, other than the
increase in the size of the Board to seven (7) members as required by
Section 2.1 and the Stock Purchase Agreement.

Section 3.3    Acts of the Company Requiring Approval of Independent Director.
From the Closing Date and ending on the earlier of (a) the fifth anniversary of
the Closing Date or (b) the occurrence of, following the Closing Date, the
Company’s Consolidated Net Income for any two consecutive full fiscal years
(starting with the Company’s 2017 fiscal year) is negative, none of the
following actions by the Company and its Subsidiaries may be approved, adopted,
authorized, or taken or otherwise may occur without the prior written approval
by at least one Independent Director then serving on the Board, provided that
such Independent Director shall not be an Investor Director:

(a)    merger, consolidation or other business combination transaction, or the
sale of material assets of the Business outside the ordinary course of business;

(b)    amendment to any of the Company’s organizational documents that will have
material adverse impact on the rights of the stockholders;

(c)    change of the Company’s primary business address from its current
location;

(d)    insolvency or bankruptcy proceeding or other reorganization of the
Company;

(e)    reduction in labor force in excess of 20% of the labor force of the
Company as of the date hereof; or

(f)    change in the size of the Board other than as contemplated hereunder.

ARTICLE IV

REGISTRATION RIGHTS

Section 4.1    Demand Registration.

(a)    Request by the Investor. Subject to the terms of this ARTICLE IV, for so
long as the Investor beneficially owns a number of Common Stock (including
Common Stock issuable upon conversion of the Preferred Stock) that, in
aggregate, is equal to at least five percent (5%) of the outstanding shares of
Common Stock of the Company, the Investor may by written notice to the Company
(a “Demand Notice”) request the Company to effect the Registration of all or
part of the Registrable Securities owned by the Investor. Each request must
specify the number

 

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of Registrable Securities for which registration is requested and the intended
method or methods of distribution thereof. Upon receipt of such a request, the
Company shall as soon as practicable cause the Registrable Securities specified
in such Demand Notice to be Registered and/or qualified for sale and
distribution in such jurisdictions as the Investor may reasonably request, to
the extent necessary to permit the disposition (in accordance with the intended
methods as aforesaid). The Company shall use its reasonable best efforts to
cause such Registration and/or qualification to be complete as soon as
practicable, but in no event later than ninety (90) days, after receipt of the
Demand Notice. The Company shall be obligated to effect no more than one
(1) Registration requested by the Investor during any twelve-month period;
provided that a Registration shall not be deemed to have been effected under
this Section 4.1 if (i) less than all Registrable Securities set forth in such
Demand Notice are Registered in such Registration or (ii) prior to the sale of
all of the Registrable Securities included in the applicable registration
relating to such request, such Registration is adversely affected by any stop
order, injunction or other order or requirement of the Commission (other than
any such stop order, injunction, or other requirement of the Commission prompted
by act or omission of the Investor). The Investor acknowledges and agrees that
the Company is not current in its reporting obligations under the U.S.
Securities Laws and that it will not be able to effect a Registration while the
Company is not current in its reporting obligations under the U.S. Securities
Laws, provided that the Company shall use its reasonable best efforts to become
current in its reporting obligations under the U.S. Securities Laws as soon as
practicable.

(b)    Limitation. The Company shall not be obligated to Register or qualify
Registrable Securities pursuant to Section 4.1(a) above, if the aggregate
offering price of the Registrable Securities to be Registered under the Demand
Notice is less than $3,000,000.

(c)    Right of Deferral. If, after receiving a Demand Notice, the Company
furnishes to the Investor a certificate signed by an officer or director of the
Company stating that, in the good faith judgment of the Board, it would
materially interfere with a bona fide business, acquisition or divestiture or
financing transaction of the Company or is reasonably likely to require
premature disclosure of information, the premature disclosure of which would
reasonably be expected to materially and adversely affect the Company, then the
Company shall have the right to defer such filing for a period not exceeding
ninety (90) days from the receipt of a Demand Notice; provided, that the Company
shall not utilize this right more than once in any twelve (12) month period; and
provided further that the Company shall not Register any other Securities during
such ninety (90) day period (other than Exempt Registrations). In the event that
the Company exercises such right, the Investor shall be entitled to withdraw its
Demand Notice by written notice to the Company and such withdrawn Demand Notice
shall not constitute a request by such Investor to effect a Registration under
Section 4.1(a).

(d)    Shelf Registration. The Company shall use its reasonable best efforts to
facilitate its eligibility under U.S. Securities Laws to use a Shelf
Registration Statement. Upon the written request of the Investor, and provided
that the Company is eligible to use a Shelf Registration Statement, the Company
shall file a Shelf Registration Statement covering all of the Registrable
Securities of the Investor as soon as practicable, but in no event later than
thirty (30) days, after receipt of such request. Unless such Shelf Registration
Statement shall become automatically effective, the Company shall use its
reasonable best efforts to cause the Shelf Registration Statement to become or
be declared effective by the Commission for all of the Registrable

 

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Securities of the Investor as promptly as practicable after the filing thereof.
The Company shall use its reasonable best efforts to keep such Shelf
Registration Statement (or a successor Registration Statement filed with respect
to the Registrable Securities) continuously effective (including by filing a new
Shelf Registration Statement if the initial Shelf Registration Statement
expires) in order to permit the prospectus or any prospectus supplement related
thereto to be lawfully delivered and the Shelf Registration Statement useable
for resale of such Registrable Securities until such Registration Securities may
be sold without restriction or limitation under Rule 144.

(e)    Underwriting Election. The Investor may request to distribute its or its
Affiliates’ Registrable Securities in an underwritten offering by notifying the
Company in writing (the “Underwriting Election”). Upon receipt of an
Underwriting Election, the Company shall use its reasonable best efforts to
cause such Registration or “takedown” of such Shelf Registration Statement to be
in the form of a firm commitment underwritten offering and the managing
underwriters for such offering shall be internationally reputable investment
banking firms selected by the Company. If such investment banking firm is not
one of the bulge bracket investment banks, the investment banking firm selected
by the Company should be reasonably acceptable to the Investor.

Section 4.2    Piggyback Registrations.

(a)    Registration of the Company’s Securities. Subject to Section 4.2 (c)
hereof, for so long as the Investor beneficially owns a number of Common Stock
(including Common Stock issuable upon conversion of the Preferred Stock) that,
in aggregate, is equal to at least five percent (5%) of the Common Stock of the
Company, if the Company proposes to Register for its own account any of its
Securities (other than a registration statement on S-4 or S-8 or Shelf
Registration Statement (or any substitute form that may be adopted by the SEC)
for securities to be offered in a transaction of the type referred to in Rule
145 under the Securities Act or to employees of the Company pursuant to any
employee benefit plan, respectively), or for the account of any holder of
Securities any of such holder’s Securities, in connection with the public
offering of such Securities, the Company shall promptly give the Investor
written notice of such Registration and, upon the written request of the
Investor given within fifteen (15) days after delivery of such notice, the
Company shall use its reasonable best efforts to include in such Registration
any Registrable Securities thereby requested by the Investor. If the Investor
decides not to include all or any of its Registrable Securities in such
Registration by the Company, the Investor shall nevertheless continue to have
the right to include any Registrable Securities in any subsequent Registration
Statement or Registration Statements as may be filed by the Company with respect
to offerings of its Securities upon the terms and conditions set forth herein.

(b)    Right to Terminate Registration. The Company shall have the right to
terminate or withdraw any Registration that was initiated by it under this
Section 4.2 prior to the effectiveness of such Registration whether or not the
Investor has elected to participate therein. The expenses of such withdrawn
Registration shall be borne by the Company, in accordance with Section 4.4
hereof.

(c)    Underwriting Requirements. In connection with any offering involving an
underwriting of the Company’s Securities, the Company shall not be required to
Register the

 

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Registrable Securities of the Investor under this Section 4.2 unless the
Investor’s Registrable Securities are included in the underwriting and the
Investor enters into an underwriting agreement in customary form with the
underwriters and setting forth such terms for the underwriting. In the event the
underwriters advise the Investor seeking Registration of Registrable Securities
pursuant to this Section 4.2 in writing that, in their reasonable opinion,
market factors (including the aggregate number of Registrable Securities
requested to be Registered, the general condition of the market, and the status
of the Persons proposing to sell securities pursuant to the Registration)
require a limitation of the number of Securities to be underwritten, the
underwriters may exclude some or all Registrable Securities from the
Registration and underwriting; provided that the Company shall include the
Company’s Securities in such registration, in the priority listed below: (i) in
the event the Company initiated such piggyback registration, the Company shall
include in such piggyback registration first, the Securities the Company
proposes to register and second, the Securities of all other selling security
holders, including the Registrable Securities requested to be included by the
Investor to be included in such piggyback registration in an amount that,
together with the Securities the Company proposes to register, shall not exceed
the maximum offering size and shall be allocated among such selling security
holders on a pro rata basis; and (ii) in the event any holder of Securities
initiated such piggyback registration, the Company shall include in such
piggyback registration first, the Securities such initiating security holder
proposes to register, second, pro rata among any other Securities requested to
be registered pursuant to a contractual right of registration (including
Securities requested to be Registered by the Investor pursuant to this
Section 4.2) and third, any Securities the Company proposes to register, in an
amount that, together with the Securities the initiating security holder and the
other selling security holders propose to register, shall not exceed the maximum
offering size; provided further that the number of the Registrable Securities
that are included in an underwriting must not be reduced below thirty percent
(30%) of the total number of Registrable Securities requested by the Investor to
be included in the Registration. If the Investor (or its Affiliate) disapproves
of the terms of any underwriting, the Investor (or such Affiliate) may elect to
withdraw therefrom by written notice to the Company and the underwriters
delivered at least ten (10) days prior to the effective date of the Registration
Statement. Any Registrable Securities excluded or withdrawn from the
underwriting shall be withdrawn from the Registration.

(d)    Exempt Registration. The Company shall have no obligation to Register any
Registrable Securities under this Section 4.2 in connection with an Exempt
Registration.

(e)    Not a Demand Registration. Registration pursuant to this Section 4.2
shall not be deemed to be a Registration as described in Section 4.1(a). There
shall be no limit on the number of times the Investor may participate in
Registration of Registrable Securities under this Section 4.2.

Section 4.3    Procedures. Whenever required under this ARTICLE IV to effect the
Registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:

(a)    prepare and file with the Commission a Registration Statement with
respect to those Registrable Securities and use its reasonable best efforts to
cause that Registration Statement to become effective, and, keep the
Registration Statement effective and current for the

 

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earlier of ninety (90) days or until the date on which all Registrable
Securities included in such Registration Statement shall have been sold or shall
have otherwise ceased to be Registrable Securities; provided, that a Shelf
Registration shall be kept effective and current for the earlier of eighteen
(18) months or until the date on which all Registrable Securities included in
such Registration Statement shall have been sold or shall have otherwise ceased
to be Registrable Securities, subject to Section 4.1; provided further that
before filing such Registration Statement or any amendments thereto, the Company
will furnish to the counsel selected by the Investor copies of all such
documents proposed to be filed;

(b)    prepare and file with the Commission amendments and supplements to that
Registration Statement and the prospectus or prospectus supplement used in
connection with the Registration Statement as may be necessary to comply with
the provisions of U.S. Securities Law with respect to the disposition of all
Securities covered by the Registration Statement;

(c)    furnish to the Investor and underwriters the number of copies of a
prospectus, including a preliminary prospectus, required by U.S. Securities
Laws, and any other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by the Investor;

(d)    use its reasonable best efforts to Register and qualify the Securities
covered by the Registration Statement under U.S. Securities Laws, as reasonably
requested by the Investor or underwriters; provided that the Company shall not
be required to qualify to do business, subject itself to taxation in or file a
general consent to service of process in any such jurisdictions; and provided
further that in the event any jurisdiction in which the Securities shall be
qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the Securities be borne by the selling
Shareholders, those expenses shall be payable by such selling Shareholders on a
pro rata basis;

(e)    in the event of any underwritten public offering, enter into and perform
its obligations under an underwriting agreement in customary form (including
indemnification provisions and procedures customary in underwritten offerings)
and take all such other actions reasonably requested by the underwriters to
expedite or facilitate the underwritten disposition of such Registrable
Securities (including making its officers and management team available for
investor road shows, sales events, marketing activities and other meetings) and
in connection therewith in any underwritten offering, (i) make such
representations and warranties to the underwriters and the Investor with respect
to the business of the Company and its Subsidiaries, and the Registration
Statement, prospectus and documents incorporated or deemed to be incorporated by
reference therein, in each case, in customary form and confirm the same if and
when requested, (ii) furnish opinions of counsel to the Company, addressed to
the underwriters covering the matters customarily covered in such opinions
requested in underwritten offerings, (iii) use its reasonable best efforts to
obtain “comfort” letters from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any business acquired by the Company for which financial
statements or financial data are included in the Registration Statement) who
have certified the financial statements included in the Registration Statement,
addressed to the underwriters, such letters to be in customary form and covering
matters of the type customarily covered in “comfort” letters and (iv) deliver
such documents and certificates as may be reasonably requested by the Investor

 

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whose Registrable Securities being sold in connection therewith, its counsel and
the underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in the underwriting agreement or other agreement
entered into by the Company;

(f)    promptly notify the Investor: (i) when the Registration Statement, the
prospectus or any prospectus supplement related thereto or post-effective
amendment to the Registration Statement has been filed, and, with respect to the
Registration Statement or any post-effective amendment thereto, when the same
has become effective; (ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus used in connection
with the Registration Statement or any additional information; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings by any Person for
that purpose; and (iv) of the receipt by the Company of any written notification
with respect to the suspension of the qualification of any Registrable
Securities for sale in any jurisdiction or the initiation or overt threat of any
proceeding for such purpose;

(g)    notify the Investor, at any time when a prospectus relating thereto is
required to be delivered under U.S. Securities Laws, of the happening of any
event as a result of which the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing and promptly prepare a post-effective amendment to such
Registration Statement or a supplement to the related prospectus and file any
other required document, and prepare and furnish to the Investor and
underwriters a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary, so that, as thereafter delivered to the
Investor and any underwriters, the prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing;

(h)    use its reasonable best efforts to prevent the issuance or obtain the
withdrawal of any order suspending the effectiveness of any Registration
Statement at the earliest practicable time;

(i)    if any such Registration Statement refers to the Investor by name or
otherwise as the holder of any Securities, and if the Investor is advised by
counsel that it is or may be deemed to be a control person in relation to, or an
Affiliate of, the Company, then the Investor shall have the right to require
(i) the insertion therein of language, in form and substance satisfactory to the
Investor, to the effect that the holding by the Investor is not to be construed
as a recommendation by the Investor of the investment quality of the Company’s
Securities covered thereby and that such holding does not imply that the
Investor will assist in meeting any future financial requirements of the
Company, or (ii) in the event that such reference to the Investor by name or
otherwise is not, based on the advice of the counsels to the Company, the
Investor and if applicable, the underwriters, required by the Securities Act or
any similar federal statute then in force, the deletion of the reference to the
Investor;

 

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(j)    if requested by the Investor or the underwriters, include in a prospectus
supplement or amendment to the Registration Statement such information as
reasonably required to be included therein in order to permit the intended
method of distribution of the Registrable Securities and make all required
filings of such prospectus supplement or such amendment as soon as practicable
after the Company’s receipt of such request;

(k)    provide a transfer agent and registrar for all Registrable Securities
Registered pursuant to the Registration Statement and, where applicable, a
number assigned by the Committee on Uniform Securities Identification Procedures
for all those Registrable Securities, in each case not later than the effective
date of the Registration;

(l)    subject to the execution of confidentiality agreements reasonably
satisfactory in form and substance to the Company, pursuant to the reasonable
request of the Investor or underwriters, make available for inspection by the
Investor, any underwriters participating in any disposition pursuant to a
Registration Statement and any attorneys or accountants or other agents retained
by any such underwriters or selected by the Investor, all financial and other
records, pertinent corporate documents, and properties of the Company, and cause
the Company’s officers, directors, employees, and independent accountants to
supply all information reasonably requested by the Investor, underwriters,
attorneys, accountants, or agents, in each case, as necessary or advisable to
verify the accuracy of the information in such Registration Statement and to
conduct appropriate due diligence in connection therewith;

(m)    use its reasonable best efforts to cause the transfer agent to remove
restrictive legends on certificates representing the securities covered by such
Registration Statement, as appropriate and settle any offering or sale of
Registrable Securities, including with respect to the transfer of physical stock
certificates into book-entry form in accordance with any procedures reasonably
requested by the Investor or underwriters;

(n)    cooperate with the Investor and the underwriters to facilitate the timely
delivery of Registrable Securities to be sold and to enable such Registrable
Securities to be issued in such denominations and registered in such names as
the Investor may reasonably request at least two (2) Business Days prior to the
closing of any sale of Registrable Securities; and

(o)    use its reasonable best efforts to cause the Registrable Securities to be
listed on the Nasdaq.

Section 4.4    Expenses of Registration. All expenses incurred in connection
with Registrations, filings or qualifications pursuant to a Registration shall
be borne by the Company, whether or not any Registration Statement is filed or
becomes effective, provided that any underwriters’ discounts and selling
commissions, in each case related to Registrable Securities Registered in
accordance with this Agreement, shall be borne by the Investor on a pro rata
basis based on the Investor’s relative percentage of Registrable Securities
included in such Registration. In addition, the Company shall be responsible for
all of its internal expenses incurred in connection with the consummation of the
transactions contemplated by this ARTICLE IV (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on the
Nasdaq.

 

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Section 4.5    Indemnification.

(a)    Company Indemnification.

(i)    To the extent permitted by applicable Law, the Company will indemnify and
hold harmless the Investor, each Person who controls the Investor (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and their respective officers, directors, members, managers, shareholders,
agents and employees and any underwriter for the Company and each Person who
controls such underwriter (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) from and against all losses, claims,
costs, damages or liabilities (whether joint or several) to which they may
become subject under applicable Laws or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations (each a
“Violation”): (i) any untrue statement (or alleged untrue statement) of a
material fact contained in such Registration Statement, including any
preliminary prospectus or Final Prospectus contained therein or any amendments
or supplements thereto, (ii) the omission (or alleged omission) to state in the
Registration Statement, including any preliminary prospectus or Final Prospectus
contained therein or any amendments or supplements thereto, a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of U.S.
Securities Laws, or any rule or regulation promulgated under U.S. Securities
Laws. The Company will reimburse any Person intended to be indemnified pursuant
to this Section 4.5(a) for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action.

(ii)    The indemnity agreement contained in this Section 4.5(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld or delayed), nor shall the Company be
liable for any such loss, claim, damage, liability or action to the extent that
it arises out of or is based upon a Violation that occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such Registration by the Investor, underwriter or controlling Person.

(iii)    The foregoing indemnity of the Company is subject to the condition
that, insofar as they relate to any defect in a preliminary prospectus but such
defect has been eliminated or remedied in the amended prospectus on file with
the Commission at the time the applicable Registration becomes effective (the
“Final Prospectus”), such indemnity shall not inure to the benefit of any Person
if a copy of the Final Prospectus was timely furnished to the Investor or
underwriter and was not furnished to the Person asserting the loss, liability,
claims or damages at or prior to the time such action is required by the
Securities Act.

(b)    Investor Indemnification.

(i)    To the extent permitted by applicable Law, the Investor will indemnify
and hold harmless the Company, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act)
and each of their respective officers, directors, partners, members, managers,
shareholders, accountants, attorneys, agents and

 

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employees from and against all losses, claims, costs, damages or liabilities
(whether joint or several) to which any of the foregoing Persons may become
subject, under U.S. Securities Laws or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise out of or
are based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such Registration Statement, including any preliminary
prospectus or Final Prospectus contained therein or any amendments or
supplements thereto, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse any Person intended to be indemnified
pursuant to this Section 4.5(b) for any legal or any other expenses reasonably
incurred by them in connection with investigating or defending any such claim,
loss, damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such Registration Statement, including any
preliminary prospectus or Final Prospectus contained therein or any amendments
or supplements thereto, in reliance upon and in conformity with written
information furnished to the Company and signed by the Investor and intended to
be specifically for use therein.

(ii)    The indemnity contained in this Section 4.5(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Investor (which
consent shall not be unreasonably withheld), and in no event shall the aggregate
indemnity under this Section 4.5(b) (including any reimbursement of any
expenses) exceed the net proceeds (less underwriting discounts and selling
commissions) from the offering received by the Investor. The Investor will not
be required to enter into any agreement or undertaking in connection with any
Registration providing for any indemnification or contribution on the part of
the Investor greater than the Investor’s obligations under this Section 4.5.

(c)    Notice of Indemnification Claim. Promptly after receipt by an indemnified
party under Section 4.5(a) or Section 4.5(b) of notice of the commencement of
any action (including any governmental action), such indemnified party will, if
a claim in respect thereof is to be made against any indemnifying party under
Section 4.5(a) or Section 4.5(b), deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall have the
right to participate in and to assume the defense thereof with counsel
reasonably satisfactory to the indemnifying party. An indemnified party
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonably incurred fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. It is understood and agreed that
the Indemnifying Party shall not, in connection with any proceeding or related
proceeding in the same jurisdiction, be liable for the fees and expenses of more
than one separate firm (in addition to any local counsel) for all Indemnified
Parties and that all such fees and expenses shall be reimbursed as they are
incurred. The failure to deliver written notice to the indemnifying party within
a reasonable time of the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such indemnifying party of
liability to the indemnified party under this Section 4.5to the extent the
indemnifying party is so prejudiced, but the omission to deliver written notice
to the indemnifying party will not relieve it of any liability that it may have
to any indemnified party otherwise than under this Section 4.5.

 

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(d)    Contribution. If any indemnification provided for in Section 4.5(a) or
Section 4.5(b) is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, liability, claim, damage or
expense referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party, on the one hand, and of the indemnified party, on the
other hand, in connection with the statements or omissions that resulted in such
loss, liability, claim, damage or expense, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties’ relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 4.5(b) were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 4.5(d), (i) the
Investor as an indemnifying party shall not be required to contribute any amount
in excess of the amount that the Investor has otherwise been, or would otherwise
be, required to pay pursuant to this Section 4.5(d) by reason of such untrue or
alleged untrue statement or omission or alleged omission and (ii) no Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to a contribution from any Person who was
not guilty of such fraudulent misrepresentation.

Section 4.6    Reports under the Exchange Act. With a view to making available
to the Investor the benefits of Rule 144 or pursuant to a Registration on a
Shelf Registration Statement, the Company agrees to use reasonable best efforts
to:

(a)    make and keep public information available, as those terms are understood
and defined in Rule 144 under the Securities Act, at all times so long as the
Company remains subject to the periodic reporting requirements under Sections 13
or 15(d) of the Exchange Act;

(b)    file with the Commission in a timely manner all reports and other
documents required of the Company under all U.S. Securities Laws;

(c)    promptly furnish to the Investor upon request (i) a written statement by
the Company that it has complied with the reporting requirements of all U.S.
Securities Laws or, at any time after so qualified, that it qualifies as a
registrant whose securities may be resold pursuant to a Shelf Registration
Statement, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents as may be filed by the Company with
the Commission, and (iii) such other information as may be reasonably requested
in availing the Investor of any rule or regulation of the Commission, that
permits the selling of any such securities without Registration or pursuant to a
Shelf Registration Statement; and

 

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(d)    if the Company is no longer subject to the periodic reporting
requirements under Section 13 or 15(d) of the Exchange Act, prepare and furnish
to the Investor and make publicly available in accordance with Rule 144(c) such
information as is required for the Investor to sell shares under Rule 144, and
take such further action as any holder of the Investor shares may reasonably
request to the extent required from time to time to enable such Person to sell
the shares without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144.

Section 4.7    Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the approval of the
Investor, enter into any agreement with any holder or prospective holder of any
Securities that would (i) grant such holder or prospective holder any
registration rights more favorable to such holder or prospective holder than
those rights granted pursuant to this ARTICLE IV, (ii) allow such holder or
prospective holder to demand Registration of their securities, unless under the
terms of such agreement, such holder or prospective holder may demand such
Securities in any such Registration only to the extent that the demand of such
securities will not reduce the amount of the Registrable Securities of the
Investor that are demanded or (iii) allow such holder or prospective holder to
include such securities in any Registration filed under Section 4.1(d), Section
4.1(e) or Section 4.2, unless under the terms of such agreement such holder or
prospective holder may include such Securities in any such Registration only to
the extent that the inclusion of such securities will not reduce the amount of
the Registrable Securities of the Investor that are included.

Section 4.8    Termination of the Investor’s Registration Rights. The right of
the Investor to request Registration or inclusion of Registrable Securities in
any Registration pursuant to Section 4.1 or Section 4.2 shall terminate when all
of the Investor’s Registrable Securities may be sold without restriction or
limitation under Rule 144.

Section 4.9    Assignment of the Investor’s Registration Rights. The rights and
obligations of the Investor under this ARTICLE IV may be assigned by the
Investor to any transferee or assignee of any of the Investor’s Registrable
Securities; provided that: (a) the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the Securities with respect to which such
registration rights are being assigned and (b) such transferee or assignee
agrees in writing to be bound by and subject to the terms and conditions of this
ARTICLE IV.

ARTICLE V

PREEMPTIVE RIGHT

Section 5.1    At any time the Company proposes to issue any Securities or
transfer any Securities that have been repurchased from the open market and held
under the Company’s brokerage account or otherwise held under the Company’s
name, including any Common Stock (the “New Securities”), other than: (i) the New
Issuance Exceptions and (ii) the issuance of Common Stock on a pro rata basis in
connection with the payment of any share dividends, the Company shall notify the
Investor in writing of such proposal (an “Issue Notice”). The Issue Notice shall
specify the number and type of New Securities to be offered by the Company and
all material terms and conditions of the proposed offer (including the proposed
price or range of prices) per New Security.

 

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Section 5.2    The Investor shall have the right to purchase, or to purchase
through an Affiliate, up to a number of New Securities so as to enable the
Investor to beneficially hold, after the issue of the New Securities which are
the subject to the Issue Notice, a pro rata portion of the New Securities equal
to the percentage of the issued and outstanding Common Stock then beneficially
owned by the Investor prior to the issuance of the New Securities upon the same
terms and conditions set forth in the Issue Notice, by giving written notice to
the Company of the exercise of this right within thirty (30) days of Investor’s
receipt of the Issue Notice (the “Election Notice”). If such notice is not given
by the Investor within such thirty (30) days thereof, the Investor shall be
deemed to have elected not to exercise its preemptive rights under this ARTICLE
V with respect to the issuance described in that specific Issue Notice.

Section 5.3    If the Investor (or its Affiliate) exercises its preemptive
rights under this ARTICLE V, the closing of the purchase of the New Securities
with respect to which such right has been exercised (the “Preemptive Rights
Closing Date”) shall take place at the time of the closing of the issuance or
transfer of the New Securities, which may not be earlier than ten (10) Trading
Days after the giving of the Election Notice, provided that the Preemptive
Rights Closing Date may be extended for a maximum of sixty (60) Trading Days to
the extent required to comply with applicable Laws (including receipt of any
required regulatory approvals). The Company and the Investor (or its Affiliate
exercising preemptive rights under this ARTICLE V) will use commercially
reasonable efforts to secure any required regulatory or shareholder approvals or
other consents in a timely manner, and to comply with any applicable Law
necessary in connection with the offer, sale and purchase of, such New
Securities.

Section 5.4    In the event that the Investor (or its Affiliate) fails to
exercise its preemptive rights under this ARTICLE V within such thirty (30) days
period, or in the event that the Investor fails to consummate the purchase of
such New Securities within the specified period of time pursuant to Section 5.3
(other than as a result of breach or fault of the Company), the Company shall
thereafter be entitled to issue and sell within sixty (60) Trading Days the New
Securities not elected to be purchased by the Investor (or its Affiliate)
pursuant its preemptive rights to this ARTICLE V, at a price no less than that
specified in the Issue Notice, and otherwise upon terms and conditions no more
favorable in the aggregate to any purchaser of such New Securities than were
specified in the Issue Notice. In the event the Company has not issued and sold
such New Securities within such sixty (60) Trading Day period, the Company shall
not thereafter offer, issue or sell such New Securities without first offering
such New Securities to the Investor in the manner provided in this ARTICLE V.

Section 5.5    In the case of the offering of New Securities for a consideration
in whole or in part other than cash, including securities acquired in exchange
therefor, the consideration other than cash shall be deemed to be the fair value
thereof as determined in good faith by the Board; provided, however, that such
fair value as determined by the Board shall not exceed the aggregate market
price of the New Securities being offered as of the date the Board authorizes
the offering of such New Securities.

 

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ARTICLE VI

CERTAIN AGREEMENTS

Section 6.1    Reports. The Company will maintain proper books of account and
records in accordance with generally accepted accounting principles applied on a
consistent basis. The Company will to deliver the following to the Investor:

(a)    within ninety (90) days after the end of each fiscal year of the Company,
audited consolidated financial statements of the Company and its Subsidiaries
including audited consolidated profit and loss accounts, balance sheets and
statements of cash flow prepared in accordance with generally accepted
accounting principles (except as otherwise disclosed therein) and the auditor’s
report with respect thereto;

(b)    within forty (40) days after the end of each fiscal quarter of the
Company (other than the fourth quarter), unaudited quarterly consolidated
financial statements of the Company, including consolidated profit and loss
accounts, balance sheets and statements of cash flow of the Company for such
fiscal quarter;

(c)    no later than thirty (30) days prior to the end of each fiscal year, an
annual budget for the succeeding fiscal year consistent with the Company’s past
practices setting forth, among other things, the projected budget for operation
of business, the projected incurrence, assumption or refinancing of material
indebtedness, projected revenue and profit;

(d)    unaudited monthly revenue of the Company and its Subsidiaries and data
tracking, within thirty (30) days after the end of each month; and

(e)    such information as reasonably requested by the Investor (i) to assist
the Investor in the financial consolidation of the Company’s results, or (ii) to
comply with applicable Law, generally applicable accounting principles, or the
rules or regulations of any securities exchange;

provided that no public release or disclosure of any information provided to the
Investor pursuant to this Section 6.1 shall be made by the Investor or any of
its Affiliates or any Person that receives information from them without the
prior written consent of the Company, except to the extent (i) such information
has previously been publicly released or disclosed by the Company or (ii) as
such public release or disclosure may be required by applicable securities law
or the rules or regulations of any securities exchange, in which case the
Investor shall allow the Company reasonable time to comment on such release or
disclosure in advance of such issuance and shall make reasonable best efforts to
reflect any such comments

Section 6.2    Information Required for Financial Consolidation. The Company
acknowledges that the Investor intends to consolidate the financials of the
Company upon the conversion of the Preferred Stock acquired by the Investor
under the Share Purchase Agreement and the exercise of the Warrant. The Company
agrees to use reasonable best efforts to provide all necessary assistances and
all requisite information/documents as reasonably requested by the Investor to
achieve such purpose.

Section 6.3    Access to Information. The Company shall afford the Investor and
its directors, officers, employees, auditors and advisors, upon reasonable
notice, reasonable access

 

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to the offices, properties, facilities, and books and records and management of
the Company and its Subsidiaries; provided, however, that any such access shall
be conducted during normal business hours and in such a manner as not to
interfere with the normal operations of the Company or its Subsidiaries.

Section 6.4    Standstill Agreement. For a period commencing with the date of
this Agreement and ending on the earlier of (a) three (3) years following the
Closing Date, (b) the date when the Investor exercises the Warrant in full, or
(c) the occurrence of a Significant Event, other than a Permitted Purchase or
with the consent of at least seventy-five percent (75%) of the members of the
Board, each of the Investor and Founders agree not to, and to cause their
respective Affiliates not to, (i) acquire, offer to acquire, or agree to
acquire, by purchase or otherwise, any Securities (or beneficial ownership
thereof), or rights or options to acquire any Securities (or beneficial
ownership thereof), or any assets or businesses of the Company or its
Subsidiaries constituting a significant portion of the consolidated assets of
the Company and its Subsidiaries; (ii) make any public announcement with respect
to, or submit a proposal for or offer of (with or without conditions), any
merger, consolidation, tender or exchange offer, amalgamation, scheme of
arrangement, recapitalization, reorganization, liquidation, dissolution,
business combination, issuance or repurchase of Securities (including any tender
offer) or other extraordinary transaction involving the Company, any of the
assets of the Company or its Subsidiaries constituting a significant portion of
the consolidated assets of the Company and its Subsidiaries; (iii) advise,
encourage, support or influence any Person (except the Board) with respect to
any of the foregoing; (iv) initiate, or in any way participate, directly or
indirectly, in any “solicitation” of “proxies” to vote (as such terms are used
in the rules of the SEC), or seek to advise or influence any Person or entity
with respect to the voting of any Voting Securities of the Company, or form,
join or in any way participate in a group for the purpose of the voting of any
Voting Securities of the Company (other than as contemplated hereunder or under
the Shareholders Agreement); or (v) publicly request the Company or Board amend
or waive any provision of this paragraph (including this sentence), or contest
the validity of this paragraph (including this sentence); provided, that nothing
in the preceding clauses shall (A) restrict the Investor from making a private,
non-public, proposal to the Board for any of such matters, (B) apply to any
“beneficial ownership” of Securities acquired or deemed to be acquired by virtue
of any of the arrangements expressly contemplated under the Transaction
Documents, including any voting agreements contemplated under the Shareholders
Agreement, or (C) in any way be deemed to require any Investor Director to take
(or omitting to take) any actions in a manner he or she reasonably believes
would be inconsistent with the fiduciary duties of the Directors under
applicable Law (or obligate the Investor to cause any Investor Director to act
or omit to act in a manner in which such Investor Director reasonably believes
would be inconsistent with the fiduciary duties of the Directors under
applicable Law). In addition to any other available remedies, the Investor,
Founders or any of their Affiliates, successors or permitted assigns shall not
have the right to vote or grant consents with respect to any Securities acquired
in violation of this Section 6.4(i) and agrees to promptly sell any such
Securities and shall be restrained from voting or granting consents with respect
to all of its Securities at any annual or special meeting of the stockholders of
the Company, however called, or in connection with any action by written consent
in lieu of any such annual or special meeting of stockholders of the Company in
violation of this Section 6.4(iv) and any decision, action or transaction by
such Person made or effected in violation of this Section 6.4(iv) shall be null
and void ab initio. Notwithstanding the foregoing, if following any Permitted
Purchase made by the Founders, the Investor and its

 

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Affiliates and their respective transferees no longer hold, in the aggregate,
the largest number of shares of Common Stock of the Company (assuming the
conversion of Series B Preferred Stock into Common Stock, and with the Founders
deemed as one single shareholder for the purpose of such determination), the
Investor shall have the right to purchase such number of shares of Common Stock
or other Securities so as to enable the Investor and its Affiliates and their
respective transferees to become the holders, in the aggregate, of the largest
number of shares of Common Stock of the Company (assuming the conversion of
Series B Preferred Stock into Common Stock, and with the Founders deemed as one
single shareholder for the purpose of such determination), any such purchases
shall not be deemed to violate the provision of this Section 6.4.

Section 6.5    Agreement to Issue Additional Stock. The Investor hereby agrees
that, to the extent not reserved for issuance in December 2016 prior to the
Closing, the Company may, at its discretion, reserve Securities for issuance
under its existing employee equity incentive compensation plans or the Key
Employee Retention Program as defined in the Share Purchase Agreement, and issue
such reserved Securities to its employees pursuant to such employee incentive
compensation plan(s); provided, however, that any such reservation or issuance
of new Securities shall not exceed 500,000 shares of Common Stock or any other
Securities which by its terms are convertible into or exchangeable or
exercisable for equivalent amount of Common Stock. Notwithstanding the
foregoing, if following the issuance of such new Securities to the employees,
the Investor and its Affiliates and their respective transferees no longer hold,
in the aggregate, the largest number of shares of Common Stock of the Company
(assuming the conversion of Series B Preferred Stock into Common Stock, and with
the Founders deemed as one single shareholder for the purpose of such
determination), the Investor shall have the right to purchase such number of
shares of Common Stock or other Securities so as to enable the Investor and its
Affiliates and their respective transferees to become the holders, in the
aggregate, of the largest number of shares of Common Stock of the Company
(assuming the conversion of Series B Preferred Stock into Common Stock, and with
the Founders deemed as one single shareholder for the purpose of such
determination), any such purposes shall not be deemed to violate the provision
of Section 6.4.

ARTICLE VII

GENERAL PROVISIONS

Section 7.1    Confidentiality. Each of the Company and the Investor hereby
agrees that it will, and will cause its respective Affiliates and its and their
respective representatives to hold in strict confidence any non-public records,
books, contracts, instruments, computer data and other data and information
concerning the other parties hereto, whether in written, verbal, graphic,
electronic or any other form provided by any party hereto (except to the extent
that such information has been (a) previously known by such party on a
non-confidential basis from a source other than the other parties hereto or its
representatives, provided that such source is not prohibited from disclosing
such information to such party or its representatives by a contractual, legal or
fiduciary obligation to the other parties hereto or its representatives, (b) in
the public domain through no breach of this Agreement by such party,
(c) independently developed by such party or on its behalf, or (d) later
lawfully acquired from other sources) (the “Confidential Information”). In the
event that a party hereto is requested or required by Law, Governmental
Authority or other applicable judicial or governmental order to disclose any
Confidential

 

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Information concerning any of the other parties hereto, such party shall, to the
extent legally permissible, provide the other parties with sufficient advance
written notice of such request or requirement and, if requested by another party
hereto (at such other party’s sole expense) assist such other party in seeking a
protective order or other appropriate remedy to limit or minimize such
disclosure.

Section 7.2    Termination. Unless expressly provided otherwise herein, in
addition to the other termination provisions in this Agreement, this Agreement
shall terminate, and have no further force and effect upon a written agreement
to that effect, signed by all parties hereto, provided that, notwithstanding the
foregoing, following the Closing, (1) ARTICLE IV shall survive (including with
respect to any transferee or assignee of the Investor’s Registrable Securities
to whom the rights and obligations of the Investor under ARTICLE IV were
assigned in accordance with Section 4.9) any termination of this Agreement until
the specific provisions thereof terminate in accordance with their express
terms, (2) ARTICLE V shall survive any termination of this Agreement until the
specific provisions thereof terminate in accordance with their express terms,
and (3) the Investor’s rights hereunder shall terminate to the extent that the
Investor ceases to own Securities representing, in the aggregate, at least five
percent (5%) of the total outstanding Common Stock (calculated on a
fully-diluted as-converted basis and excluding all Securities issued pursuant to
the New Issuance Exceptions).

Section 7.3    Notices. Except as may be otherwise provided herein, any notices,
consents, waivers or other communications required or permitted to be given
under the terms of this Agreement must be in writing and will be deemed to have
been delivered: (a) upon receipt, when delivered personally; (b) upon receipt,
when sent by email (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (c) one (1)
Business Day after deposit with an internationally recognized overnight courier
service; in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:

If to the Company:

Power Solutions International, Inc.

201 Mittel Dr.

Wood Dale IL 60191

Attention: Gary Winemaster, CEO

Email: Gary.Winemaster@Psiengines.com

with a copy (which shall not constitute notice) to:

Power Solutions International, Inc.

Legal Department

201 Mittel Dr., Wood Dale IL 60191

Attention: William Buzogany, General Counsel

Email: Wbuzogany@Psiengines.com

 

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If to the Investor:

Weichai America Corp.

Attention: Victory Liu

3100 Golf Road Rolling Meadows

IL 60008

Email: victor.liu@weichaiamerica.com

with a copy (which shall not constitute notice) to:

King & Wood Mallesons

20th Floor, East Tower, World Financial Center

1 Dongsanhuan Zhonglu, Chaoyang District Beijing 100020

People’s Republic of China

Attention: Xu Ping

Email: xuping@cn.kwm.com

and

O’Melveny & Myers LLP

37th Floor, Yin Tai Centre, Office Tower

No. 2 Jianguomenwai Avenue, Beijing 100022

People’s Republic of China

Attention: Ke Geng, Esq. and Nima Amini, Esq.

Email: kgeng@omm.com; namini@omm.com

A party may change or supplement the addresses given above, or designate
additional addresses, for purposes of this Section 7.3 by giving the other
parties written notice of the new address in the manner set forth above.

Section 7.4    Reserved.

Section 7.5    Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without regard to
principles of conflict of laws thereunder other than New York General
Obligations Law Section 5-1401.

Section 7.6    Dispute Resolution.

(a)    Any and all disputes which cannot be settled amicably, including any
ancillary claims of any party, arising out of, relating to or in connection with
the validity, negotiation, execution, interpretation, performance or
non-performance of this Agreement (including the validity, scope and
enforceability of this arbitration provision) shall be referred to and finally
resolved by arbitration under the Rules of Arbitration of the London Court of
International Arbitration (“LCIA Rules”) by one or more arbitrators appointed in
accordance with the LCIA Rules (the “Arbitral Tribunal”);

(b)    The arbitration shall be conducted by a sole arbitrator unless either
party objects, in which case the arbitration shall be conducted by a panel of
three arbitrators. Where the

 

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arbitration is to be conducted by a sole arbitrator, the parties shall attempt
to agree upon the selection of the sole arbitrator. If they cannot reach
agreement within 30 days from the commencement of the arbitration, the sole
arbitrator shall be appointed by the Court of the LCIA (the “LCIA Court”) in
accordance with the LCIA Rules. Where the arbitration is to be conducted by a
panel of three arbitrators, each party shall nominate one arbitrator and the two
party-nominated arbitrators shall then select the chairman of the Arbitral
Tribunal. If the two party-nominated arbitrators are unable to do so within 30
days after the commencement of the arbitration or any mutually agreed extension
thereof, the chairman shall be selected by the LCIA Court in accordance with the
LCIA Rules;

(c)    The place of arbitration shall be London;

(d)    The language of the arbitration shall be English;

(e)    Each arbitrator shall be licensed to practice law in New York;

(f)    Each party shall have the right to apply to any court of competent
jurisdiction and/or to the Arbitral Tribunal for an order or award of interim,
provisional or conservatory measures in order to maintain the status quo or to
protect its rights or property pending arbitration pursuant to this Agreement or
for the purpose of compelling a party to arbitrate and seeking temporary or
preliminary relief in aid of an arbitration hereunder, and any such application
shall not be deemed incompatible with, or a waiver of, the parties’ agreement to
arbitrate;

(g)    The Arbitral Tribunal shall have power to take whatever interim measures
it deems necessary, including injunctive relief, specific performance and other
equitable relief, including in accordance with the provisions set forth in
Section 7.14 of this Agreement;

(h)    The award rendered by the Arbitral Tribunal shall be final and binding
between the parties and not subject to appeal or other recourse; and

(i)    Recognition and enforcement of any award rendered by the Arbitral
Tribunal may be sought in any court of competent jurisdiction.

Section 7.7    Severability. If any provision of this Agreement is found to be
invalid or unenforceable, then such provision shall be construed, to the extent
feasible, so as to render the provision enforceable and to provide for the
consummation of the transactions contemplated hereby on substantially the same
terms as originally set forth herein, and if no feasible interpretation would
save such provision, it shall be severed from the remainder of this Agreement,
which shall remain in full force and effect unless the severed provision is
essential to the rights or benefits intended by the parties. In such event, the
parties shall use commercially reasonable efforts to negotiate, in good faith, a
substitute, valid and enforceable provision or agreement, which most nearly
effects the parties’ intent in entering into this Agreement.

Section 7.8    No Third Party Beneficiaries. This Agreement shall be binding
upon and inure solely to the benefit of, and be enforceable by, only the parties
hereto and their respective successors and permitted assigns and nothing herein,
express or implied, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature whatsoever, under or by reason of this
Agreement.

 

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Section 7.9    Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of, and shall be binding upon, the successors and permitted
assigns of the parties hereto. Except as otherwise provided herein, neither this
Agreement nor any of the rights, interests, or obligations hereunder shall be
assigned by any party hereto (whether by operation of law or otherwise) without
the prior written consent of the other parties.

Section 7.10    Construction. Each of the parties has participated in the
drafting and negotiation of this Agreement. If an ambiguity or question of
intent or interpretation arises, this Agreement must be construed as if it is
drafted by all the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of authorship of any of the
provisions of this Agreement.

Section 7.11    Counterparts. This Agreement may be executed in one or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other parties. A facsimile or “PDF” signature shall
be considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original.

Section 7.12    Aggregation of Shares. All Securities held or acquired by the
Investor shall be aggregated together for the purpose of determining the
availability of any rights of the Investor under this Agreement.

Section 7.13    Investor Rights Agreement to Control. If, and to the extent
that, there are inconsistencies between the provisions of this Agreement and
those of the Company Certificates and the Company Bylaws, the terms of this
Agreement shall control to the extent permissible under any applicable Law. The
parties agree to take all actions necessary or advisable, as promptly as
practicable after the discovery of such inconsistency, to amend the Company
Certificates and the Company Bylaws so as to eliminate such inconsistency to the
extent permissible under any applicable Law.

Section 7.14    Specific Performance. The parties hereto acknowledge and agree
irreparable harm may occur for which money damages would not be an adequate
remedy in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that, in addition to any other remedies at law or in
equity, the parties to this Agreement shall be entitled to injunction to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement without posting any bond or other undertaking.

Section 7.15    Amendment; Waiver. Any provision of this Agreement may be
amended, modified or supplemented only by a written instrument duly executed by
all the parties hereto. The observance of any provision in this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by the written consent of the party against whom such waiver
is to be effective. Any amendment or waiver effected in accordance with this
Section 7.15 shall be binding upon the Company and the Investor and their

 

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respective assigns. It is agreed that no delay or omission to exercise any
right, power or remedy accruing to any party, upon any breach, default or
noncompliance by another party under this Agreement, shall impair any such
right, power or remedy, nor shall it be construed to be a waiver of any such
breach, default or noncompliance, or any acquiescence therein, or of or in any
similar breach, default or noncompliance thereafter occurring.

Section 7.16    Expenses. Except as expressly provided herein, each party will
bear its own costs and expenses incurred by it or on its behalf in connection
with the Transaction Documents and the transactions contemplated thereby.

Section 7.17    Public Announcements. Without limiting any other provision of
this Agreement, the parties hereto, to the extent permitted by applicable Law,
will consult with each other before issuance, and provide each other the
opportunity to review, comment upon and concur with, and use all reasonable
efforts to agree on any press release or public statement with respect to this
Agreement and the other Transaction Documents and the transactions contemplated
hereby and thereby, and will not (to the extent practicable) issue any such
press release or make any such public statement prior to such consultation and
agreement, except as may be required by Law or any listing agreement with or
requirement of the Nasdaq or any other applicable securities exchange, provided
that the disclosing party shall, to the extent permitted by applicable Law or
any listing agreement with or requirement of the Nasdaq or any other applicable
securities exchange and if reasonably practicable, inform the other parties
about the disclosure to be made pursuant to such requirements prior to the
disclosure.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties have caused their respective duly authorized
representatives to execute this Agreement as of the date and year first above
written.

 

POWER SOLUTIONS INTERNATIONAL, INC. By:  

 

Name:  

 

Title:  

 

 

[Signature Page to Investor Rights Agreement]

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IN WITNESS WHEREOF, the parties have caused their respective duly authorized
representatives to execute this Agreement as of the date and year first above
written.

 

WEICHAI AMERICA CORP. By:  

 

Name:  

 

Title:  

 

 

[Signature Page to Investor Rights Agreement]