# EDGAR Filing Document

**Accession Number:** 0000824142
**File Stem:** 0000824142-23-000019
**Filing Date:** 2023-2
**Character Count:** 567856
**Document Hash:** 236916f3d52113fb605e7539052cd1d0
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0000824142-23-000019.hdr.sgml**: 20230227

**ACCESSION NUMBER**: 0000824142-23-000019

**CONFORMED SUBMISSION TYPE**: 10-K

**PUBLIC DOCUMENT COUNT**: 106

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230227

**DATE AS OF CHANGE**: 20230227

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** AAON, INC.
- **CENTRAL INDEX KEY:** 0000824142
- **STANDARD INDUSTRIAL CLASSIFICATION:** AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585]
- **IRS NUMBER:** 870448736
- **STATE OF INCORPORATION:** NV
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 000-18953
- **FILM NUMBER:** 23675207

**BUSINESS ADDRESS:**
- **STREET 1:** 2425 SOUTH YUKON AVE.
- **CITY:** TULSA
- **STATE:** OK
- **ZIP:** 74107
- **BUSINESS PHONE:** 9185832266

**MAIL ADDRESS:**
- **STREET 1:** 2425 SOUTH YUKON AVE.
- **CITY:** TULSA
- **STATE:** OK
- **ZIP:** 74107

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** AAON INC
- **DATE OF NAME CHANGE:** 19920703

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** DIAMOND HEAD RESOURCES INC
- **DATE OF NAME CHANGE:** 19900808

?xml version="1.0" ? aaon-20221231

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

Washington, D.C. 20549

**FORM 10-K**

**☒** **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the fiscal year ended December 31, 2022

or

**☐** **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the transition period from _________________ to _________________

Commission file number: 0-18953

**AAON, INC.**

&nbsp;&nbsp;&nbsp;&nbsp;(Exact name of registrant as specified in its charter)

---

| | | | | |
|:---|:---|:---|:---|:---|
| | Nevada | Nevada | 87-0448736 | 87-0448736 |
| | (State or other jurisdiction | (State or other jurisdiction | (IRS Employer | (IRS Employer |
| | of incorporation or organization) | of incorporation or organization) | Identification No.) | Identification No.) |
| | 2425 South Yukon Ave., | Tulsa, | Oklahoma | 74107 |
| (Address of principal executive offices) (Zip Code) | (Address of principal executive offices) (Zip Code) | (Address of principal executive offices) (Zip Code) | (Address of principal executive offices) (Zip Code) | (Address of principal executive offices) (Zip Code) |

---

Registrant's telephone number, including area code: (918) 583-2266

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered <br> <u>Common Stock</u> <u>AAON</u> <u>NASDAQ</u>

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;☐ Yes&nbsp;&nbsp;&nbsp;&nbsp; ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;☐ Yes&nbsp;&nbsp;&nbsp;&nbsp; ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;☒ Yes&nbsp;&nbsp;&nbsp;&nbsp; ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;☒ Yes&nbsp;&nbsp;&nbsp;&nbsp; ☐ No

&nbsp;&nbsp;&nbsp;&nbsp;

------

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

---

| | | | |
|:---|:---|:---|:---|
| Large accelerated filer | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |

---

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act.)

☐ Yes&nbsp;&nbsp;&nbsp;&nbsp; ☒ No

The aggregate market value of the common equity held by non-affiliates computed by reference to the closing price of registrant's common stock on the last business day of registrant's most recently completed second quarter June 30, 2022 was $2,388.5 million based upon the closing price reported for such date on the Nasdaq Global Select Market.

As of February 22, 2023, registrant had outstanding a total of 53,481,412 shares of its $.004 par value Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of registrant's definitive Proxy Statement to be filed in connection with the 2023 Annual Meeting of Stockholders to be held May 16, 2023, incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.

------

---

| | | | |
|:---|:---|:---|:---|
| **TABLE OF CONTENTS** | **TABLE OF CONTENTS** | **TABLE OF CONTENTS** | **TABLE OF CONTENTS** |
| **Item Number and Caption** | **Item Number and Caption** | **Item Number and Caption** | **Page**<br>**Number** |
| **PART I** | | | |
|  | 1. | Business. | <u>[2](#i6b9a041723e54da7a151d85043255d9f_16)</u> |
|  | 1A. | Risk Factors. | <u>[10](#i6b9a041723e54da7a151d85043255d9f_19)</u> |
|  | 1B. | Unresolved Staff Comments. | <u>[15](#i6b9a041723e54da7a151d85043255d9f_22)</u> |
|  | 2. | Properties. | <u>[15](#i6b9a041723e54da7a151d85043255d9f_25)</u> |
|  | 3. | Legal Proceedings. | <u>[16](#i6b9a041723e54da7a151d85043255d9f_28)</u> |
|  | 4. | Mine Safety Disclosure. | <u>[16](#i6b9a041723e54da7a151d85043255d9f_31)</u> |
| **PART II** |  |  |  |
|  | 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. | <u>[17](#i6b9a041723e54da7a151d85043255d9f_37)</u> |
|  | 6. | Reserved. | <u>[18](#i6b9a041723e54da7a151d85043255d9f_40)</u> |
|  | 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations. | <u>[18](#i6b9a041723e54da7a151d85043255d9f_43)</u> |
|  | 7A. | Quantitative and Qualitative Disclosures About Market Risk. | <u>[30](#i6b9a041723e54da7a151d85043255d9f_58)</u> |
|  | 8. | Financial Statements and Supplementary Data. | <u>[31](#i6b9a041723e54da7a151d85043255d9f_61)</u> |
|  | 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. | <u>[69](#i6b9a041723e54da7a151d85043255d9f_154)</u> |
|  | 9A. | Controls and Procedures. | <u>[70](#i6b9a041723e54da7a151d85043255d9f_157)</u> |
|  | 9B. | Other Information. | <u>[72](#i6b9a041723e54da7a151d85043255d9f_160)</u> |
| **PART III** |  |  |  |
|  | 10. | Directors, Executive Officers and Corporate Governance. | <u>[72](#i6b9a041723e54da7a151d85043255d9f_166)</u> |
|  | 11. | Executive Compensation. | <u>[72](#i6b9a041723e54da7a151d85043255d9f_169)</u> |
|  | 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | <u>[72](#i6b9a041723e54da7a151d85043255d9f_172)</u> |
|  | 13. | Certain Relationships and Related Transactions, and Director Independence. | <u>[72](#i6b9a041723e54da7a151d85043255d9f_175)</u> |
|  | 14. | Principal Accountant Fees and Services. | <u>[72](#i6b9a041723e54da7a151d85043255d9f_178)</u> |
| **PART IV** |  |  |  |
|  | 15. | Exhibits and Financial Statement Schedules. | <u>[73](#i6b9a041723e54da7a151d85043255d9f_184)</u> |
|  |  | Signatures | <u>[75](#i6b9a041723e54da7a151d85043255d9f_187)</u> |

---

------

**Forward-Looking Statements**

This Annual Report on Form 10-K (or statements otherwise made by the Company or on the Company's behalf from time to time in other reports, filings with the Securities and Exchange Commission ("SEC"), news releases, conferences, website postings, presentations or otherwise) includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not historical facts are forward-looking statements and involve risks and uncertainties. For all of these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", "confident", "outlook", "project", "should", "will", and variations of such words and other words of similar meaning or similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Important factors that could cause results to differ materially from those in the forward-looking statements include, among others:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• market conditions and customer demand for our products;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the timing and extent of changes in raw material and component prices;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• naturally-occurring events, pandemics, and other disasters causing disruption to our manufacturing operations, product deliveries and production capacity;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the impact caused by inflationary cost pressures, national or global health issues, such as the coronavirus pandemic ("COVID-19"), any variants or similar outbreaks (including the response thereto) and their effects on, among other things, demand for our products, supply chain disruptions, our liquidity and financial position, results of operations, stock price, payment of dividends, our ability to secure new orders, our ability to convert backlog to revenue and impacts to the operations status of our facilities;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• natural disasters and extreme weather conditions, including, without limitation, their effects on locations where our products are manufactured;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the effects of fluctuations in the commercial/industrial new construction market;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the timing of introduction and market acceptance of new products;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the timing and extent of changes in interest rates, as well as other competitive factors during the year;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• general economic, market or business conditions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• creditworthiness of our customers and their access to capital;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• changing technologies;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the material failure, interruption of service, compromised data or information technology security, phishing emails, cybersecurity breaches or other impacts to our information technology and related systems and networks (including any of the foregoing of third-party vendors and other contractors who provide information technology or other services);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• costs and results of litigation, including trial and appellate costs;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• economic, market or business conditions in the specific industry and market in which our businesses operate;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• future levels of capital expenditures, research and development and indebtedness, including, without limitation, our ability to reduce indebtedness and risks associated with the same;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• legal, regulatory, and environmental issues, including, without limitation, compliance of our products with mandated standards and specifications; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• integration of acquired businesses and our ability to realize synergies and cost savings.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Except as required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events, occurrences or developments after the date on which such statement is made. For a discussion of risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, please see Item 1A "Risk Factors" included in this Annual Report on Form 10-K, and as otherwise disclosed from time to time in our other filings with the SEC.

------

**PART I**

**Item 1. Business.**

**Overview**

AAON, Inc., a Nevada corporation, ("AAON Nevada") was incorporated on August 18, 1987. Our operating subsidiaries include AAON, Inc., an Oklahoma corporation ("AAON Oklahoma"), AAON Coil Products, Inc., a Texas corporation ("AAON Coil Products"), and BasX, Inc., an Oregon corporation ("BASX"). Unless the context otherwise requires, references in this Annual Report to "AAON", the "Company", "we", "us", "our", or "ours" refer to AAON Nevada and our subsidiaries.

We are engaged in the engineering, manufacturing, marketing, and sale of premium air conditioning and heating equipment consisting of standard, semi-custom, and custom rooftop units, data center cooling solutions, cleanroom systems, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils, and controls.

***Business Segments***

The Company conducts its business through three business segments: AAON Oklahoma, AAON Coil Products, and BASX.

*AAON Oklahoma:* AAON Oklahoma designs, manufactures, sells, and services standard, semi-custom, and custom heating, ventilation, and air conditioning ("HVAC") systems, designs and produces controls solutions for all of our HVAC units, and sells retail parts to customers through our two retail part stores in Tulsa, Oklahoma as well as online. Through our Norman Asbjornson Innovation Center ("NAIC") research and development laboratory facility in Tulsa, Oklahoma, the Company is able to test units under various environmental conditions. AAON Oklahoma includes the operations of our Tulsa, Oklahoma and Parkville, Missouri facilities, our NAIC research and development laboratory facility and two retail parts locations.

*AAON Coil Products:* AAON Coil Products designs and manufactures a selection of our standard, semi-custom, and custom HVAC systems. AAON Coil Products also designs and manufactures various heating and cooling coils to be used in HVAC systems, mostly for the benefit of AAON Oklahoma and AAON Coil Products. AAON Coil Products consists of operations at our Longview, Texas facilities.

*BASX:* BASX provides product development design and manufacturing of custom engineered air handling systems including high efficiency data center cooling solutions, cleanroom HVAC systems, commercial/industrial HVAC systems, and modular solutions. Additionally, BASX designs and manufactures cleanroom environmental control systems to support hospital surgical suites, pharmaceutical process facilities, semiconductor and electronics manufacturing, laboratory and isolation and modular cleanrooms for facility flexibility. BASX consists of operations at our Redmond, Oregon facility.

For more information on our business segments' financial position and results of operations, refer to Note 22, "Segments," of the notes to consolidated financial statements.

***Business and Marketing Strategy***

Our products serve the commercial, industrial, data center cooling solutions, and cleanroom new construction and replacement markets within the HVAC equipment industry. Our business strategy involves mass customization that uses flexible computer-aided manufacturing systems to produce standard, semi-custom, and custom equipment and combines the low unit costs of mass production processes with the flexibility of individual customization. Through a collaborative effort with our independent representative sales offices, we design and manufacture the precise semi-custom product offering that best serves the customer's needs.

------

Our marketing strategy focuses on customers and markets that demand HVAC equipment with higher performance, greater energy efficiency, and best indoor air quality. We manufacture equipment with more capabilities than the standard offerings found in the HVAC equipment industry. We further focus on developing a company culture focused upon customer satisfaction, reducing product delivery channel time and cost, and continuing with the goal of product and manufacturing technology leadership and innovation. Our product mix, with a heavy investment in research and development, has an emphasis on energy efficiency, environment, and indoor air quality.

We are committed to designing and manufacturing innovative HVAC products of the highest quality, efficiency, and performance. As such, we are committed to meeting certification standards of the relevant standard setting bodies, including the Air-Conditioning, Heating, and Refrigeration Institute ("AHRI"); the American National Standards Institute ("ANSI"); American Society of Heating, Refrigeration and Air-Conditioning Engineers ("ASHRAE"); the Air Movement and Control Association ("AMCA") and the International Organization for Standardization ("ISO").

To date, our sales have been primarily derived from the domestic market. Foreign sales accounted for approximately $27.6 million, $14.8 million, and $11.7 million of our net sales in 2022, 2021, and 2020, respectively. As a percentage of net sales, foreign sales accounted for approximately 3.1%, 3.0%, and 2.0% of our net sales in each of those years, respectively.

***Products - AAON Oklahoma and AAON Coil Products***

Our rooftop and condensing unit markets primarily consist of units installed on commercial or industrial structures of generally less than ten stories in height. Our air handling units, self-contained units, geothermal/water-source heat pumps, and coils are suitable for all sizes of commercial and industrial buildings.

The size of these markets is determined primarily by the number of commercial and industrial building completions and replacement demand from existing buildings. The replacement market consists of products installed to replace existing units/components that are worn or damaged and products to upgrade certain components, such as low leakage dampers, high efficiency heat exchangers and modern controls components.

The commercial and industrial new construction markets are subject to cyclical fluctuations in that they generally lag behind the housing market. The housing market, in turn, is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, the state of the economy and other macroeconomic factors. When new construction is down, we emphasize the replacement market.

Based on our 2022 combined sales of $771.1 million at AAON Oklahoma and AAON Coil Products, we estimate that we have approximately a 12% share of the greater than five ton rooftop market and a 2% share of the less than five ton market. The ratio of sales for new construction versus replacement is related to various factors. Generally, the cyclicality of the new construction market impacts this ratio the most over an economic cycle.

We purchase certain components, fabricate sheet metal and tubing and then assemble and test the finished products. Our primary finished products consist of a single unit system containing heating and cooling in a self-contained cabinet, referred to in the industry as "unitary products". Our other finished products are coils, air handling units, condensing units, makeup air units, energy recovery units, rooftop units, geothermal/water-source heat pumps, and controls.

We offer three groups of rooftop units: the RQ Series, consisting of five cooling sizes ranging from two to six tons; the RN Series, offered in 28 cooling sizes ranging from six to 140 tons; and the RZ Series, which is offered in 15 cooling sizes ranging from 45 to 261 tons.

The RQ series and RN Series, 2 to 50 tons, feature the option of our Zero Degree Cold Climate Air-Source Heat Pumps. Our Zero Degree Cold Climate Air-Source Heat Pumps are a critical solution to meet the increasing demand for building decarbonization in cold climates. With variable speed operation, these heat pumps provide energy efficient heating and cooling throughout the seasons and the heat pump heating performance has been tested in the NAIC down to an ambient temperature of 0<sup>o</sup>F.

We also offer the SA, SB and M2 Series as indoor packaged, water-cooled or geothermal/water-source heat pump self-contained units with cooling capacities of three to 70 tons.

Our condensing unit, the CF Series, is available from 2 to 70 tons.

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Our air handling units consist of the indoor H3 and V3 Series and the modular M2 Series, as well as air handling unit configurations of the RQ, RN, RZ, and SA Series units.

Our energy recovery option applicable to our RQ, RN, RZ, and SB units, as well as our H3, V3, and M2 Series air handling units, responds to the U.S. Clean Air Act mandate to increase fresh air in commercial structures. Our products are designed to compete on the higher quality end of standardized products.

Our RN, RQ, M2, and SB Series, are AHRI certified in accordance with ANSI/AHRI/ASHRAE/ISO 13256.

Our unitary products (RQ and RN Series) are certified with AHRI and the US Department of Energy to ANSI/AHRI 210/240 up to 5 tons capacity and ANSI/AHRI 340/360 up to 63 tons capacity.

Performance characteristics of our products range in cooling capacity from 2 to 261 tons and in heating capacity from 7,200 to 4,500,000 British Thermal Units ("BTUs"). Many of our products far exceed these minimum standards and are among the highest efficiency products currently available in the market.

A typical commercial building installation requires one ton of air conditioning for every 300-400 square feet or, for a 100,000 square foot building, 250 tons of air conditioning, which can involve multiple units.

Our packaged rooftop units with two stage or variable speed compressors are optimized with high efficiency evaporator and condenser coils and variable speed fans, leading to an AHRI Certified performance up to 20.3 SEER and 22.5 IEER. AAON H3/V3 Series energy recovery wheel air handling units provide energy efficient 100% outside air ventilation by recovering energy that would otherwise be exhausted from a building.

We design and produce controls solutions for all of our HVAC units including rooftop units, air handlers and water-source heat pumps. We provide factory-developed and tested controls options for variable air volume systems associated with those units and other HVAC related equipment.

We offer several controls options: the Orion Controller, Pioneer Gold, Pioneer Silver, terminal block for field installed controls, and factory installed customer provided controls. Most of our controls are Underwriters Laboratories category ZPVI2 compliant and BACnet Testing Laboratories certified which ensures our products meet internationally recognized standards for safety, traceability, conformance, and production quality. Our economizer function is California Title 24 certified to minimize energy consumption. Our proven sequences of operation optimize the performance of our HVAC units.

Out of the box, our controls are user-friendly and configurable to provide a variety of HVAC unit application options, but we are also able to customize our controls to meet customers' unique requirements. We have controls solutions that enhance our products unique features and capabilities.

***Products - BASX***

The products BASX manufactures are highly engineered and customized products, fully complementing our existing business. BASX data center cooling solutions are focused on providing highly configurable, purpose-built equipment with a focus on efficiency, speed of deployment, and quality. High-performance air-cooled chiller solutions are provided with indirect airside economization and optional adiabatic assisted cooling, and are designed to integrate with high performance computing systems requiring direct to chip cooling. White space process cooling solutions include fan coil walls, computer room air handling ("CRAH") units, overhead fan coils, in-row coolers, and chilled water air handlers. Packaged solutions include coupled economizing chillers with integrated air handling units, direct evaporative coolers, and packaged direct expansion ("DX") solutions with airside economizers.

BASX cleanroom products are built to provide environmental control serving critical processes and high-fidelity control for precise industry requirements. Process cooling solutions include recirculation air handling units and make up air handling units including integration of piping systems and controls. Environmental control solutions include modular cleanroom environments, fan filter units, filtered ceiling grids with integral flush mount lighting, pressurized plenums with integral ceiling grids, and hospital surgical suites.

BASX custom air handling products are primarily used in commercial, industrial, healthcare, and institutional facilities employing chilled water cooling, packaged direct expansion, heating hot water, indirect gas direct heat, humidification, dehumidification, filtration, and integrated controls. BASX manufactures plenum fans for

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integration into air handling units as well as for replacement applications. BASX also offers integrated sound performance solutions.

***Air Quality Products***

The Coronavirus Disease 2019 ("COVID-19") pandemic fueled a great deal of concern over best practices in the design and operation of building HVAC systems. In order to mitigate the spread of COVID-19, influenza, and other similar type respiratory diseases, we have performed significant research on what affects the transmission of these diseases and how AAON HVAC systems can be best designed. The American Society of Heating, Refrigeration and Air-Conditioning Engineers ("ASHRAE"), a professional association with a goal of advancing HVAC systems designs and construction, established an Epidemic Task Force in 2020 and determined several recommendations to mitigate the spread of the virus, including humidity control, air filtration, increased outdoor air ventilation, and air disinfection.

*Humidity control* - We continue to lead the market in developing energy efficient humidity control with the use of variable capacity compressors and modulating hot gas reheat. Designing HVAC systems with superior humidity control allows building management to maintain ASHRAE's recommended ambient relative humidity levels of 40%-60%, the ideal level to inactivate viruses in the air and on surfaces.

*Air Filtration* - We standardized a design that uses a backward curved fan wheel, which can accommodate higher airflow and static pressure required for the ASHRAE recommended MERV 13 filtration, the minimum filter level for virus mitigation, with very little reconfiguration. Prior to 2020, a vast majority of commercial buildings used filtration levels of MERV 4 to MERV 8, which has always been acceptable for filtering out typical particulates in the air stream.

*Outdoor Air Ventilation* - Our innovative use of energy recovery wheels and energy recovery plates combined with its superior humidity control design can help building management follow outdoor ventilation air recommendations while limiting an increase of energy usage and maintaining recommended humidity levels.

*Air Disinfection* - Our basic design characteristics allow for an easy installation of ultraviolet lighting equipment. In addition to this equipment offered as options in new units sold, our basic design characteristics allow for easy installation in units already used in the field.

Overall, we are well positioned to accommodate the heightened demand for features that can help mitigate virus transmission and improve indoor air quality. The features that ASHRAE recommends require premium designs and configurations that are standard in our units. As a result, we are able to incorporate air quality features into our units at a minimal price premium and with no delivery delay.

***Representatives***

As of December 31, 2022, we employ a sales staff of 69 individuals and utilize approximately 64 independent manufacturer representatives' organizations ("Representatives") having 127 offices to market our products primarily in the United States and Canada. Sales are made directly to the contractor or end user, with shipments being made from our Tulsa, Oklahoma, Longview, Texas, Parkville, Missouri, or Redmond, Oregon facilities to the job site.

Historically, our products and sales strategy focused on niche markets. However, market trends related to the COVID-19 pandemic and indoor air quality, decarbonization and energy efficiency, and higher energy prices, have positioned us to focus on a wider spectrum of the nonresidential HVAC equipment industry. The targeted markets for our equipment are customers seeking products of higher performance and better quality than those offered, and/or options not offered, by standardized manufacturers.

To support and service our customers and the ultimate consumer, we provide parts availability through our Representatives' sales offices, as well as our two Tulsa, Oklahoma operated retail parts stores, to serve the local markets. We also have factory service organizations at each of our facilities. Additionally, a number of the Representatives we utilize have their own service organizations, which, in connection with us, provide the necessary warranty work and/or normal service to customers.

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We have a program focused on increasing service capabilities across our North America Representative network, by assisting Representatives with business plans, providing training, and creating a cohesive network of service organizations to better meet the operational and maintenance needs of our customer base.

***Warranties***

Our product warranty policy is the earlier of one year from the date of first use or 18 months from date of shipment for parts only, including controls; 18 months for data center cooling solutions and cleanroom systems; five years for compressors (if applicable); 15 years on aluminized steel gas-fired heat exchangers (if applicable); 25 years on stainless steel heat exchangers (if applicable); and ten years on gas-fired heat exchangers in our historical RL products (if applicable). Our warranty policy for the RQ series covers parts for two years from date of unit shipment. Our warranty policy for the WH and WV Series geothermal/water-source heat pumps covers parts for five years from the date of installation.

The Company also sells extended warranties on parts for various lengths of time ranging from six months to ten years. Revenue for these separately priced warranties is deferred and recognized on a straight-line basis over the separately priced warranty period.

***Major Customers***

One customer, Texas AirSystems LLC, accounted for 10% or more of our sales during 2022, 2021, and 2020. No other customer accounted for more than 10% of our sales during 2022, 2021, and 2020. One customer, Texas AirSystems LLC, accounted for more than 10% of our accounts receivable balance at December 31, 2022. No customers accounted for more than 10% of our accounts receivable balance at December 31, 2021.

***Backlog***

Our backlog as of February 1, 2023 was approximately $547.3 million, compared to approximately $347.6 million as of February 1, 2022. The current backlog consists of orders considered by management to be firm and our goal is to fill orders within approximately 25 weeks after an order is deemed to become firm; however, the orders are subject to cancellation by the customers in which case, cancellation charges apply up to the full price of the equipment.

***Competition***

Our AAON Oklahoma and AAON Coil Products product offerings primarily compete with Lennox (Lennox International, Inc.), Trane (Trane Technologies plc), York International (Johnson Controls International PLC), Carrier (Carrier Global Corporation), and Daikin (Daikin Industries). Our BASX product offerings primarily compete with Vertiv (Vertiv Holdings Co.), STULZ (STULZ Air Technology Systems, Inc.), Munters, Silent Aire (Johnson Controls International PLC), Nortek (Nortek Air Management), and Engineered Air.

All of our publicly traded competitors are substantially larger and have greater resources than we do. Our products compete on the basis of total value, quality, function, serviceability, efficiency, availability of product, reliability, product line recognition, and acceptability of sales outlets. Historically, our premium equipment was sold at a higher average price compared to most of the competition. In the replacement market and other owner-controlled purchases, we have been successful at taking market share due to the total value proposition and lower cost of ownership our products provide to building owners over the life span of the equipment. In the new construction market where the contractor is the purchasing decision maker, we were often at a competitive disadvantage because of the emphasis placed on initial cost. However, due to operational efficiency improvements we made over the last several years, the cost of our semi-custom equipment is more comparable to the standard equipment market. As a result, the value proposition of our higher quality equipment is now more attractive, making us more competitive in both the new construction and replacement markets.

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**Resources**

***Sources and Availability of Raw Materials***

The most important materials we purchase are steel, copper, and aluminum. We also purchase from other manufacturers certain components, including coils, compressors, electric motors, and electrical controls used in our products. We attempt to obtain the lowest possible cost in our purchases of raw materials and components, consistent with meeting specified quality standards. We are not dependent upon any one source for raw materials or the major components of our manufactured products. By having multiple suppliers, we believe that we will have adequate sources of supplies to meet our manufacturing requirements for the foreseeable future.

We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months. We expect to receive delivery of raw materials from our contracts for use in our manufacturing operations.

***Working Capital Practices***

Working capital practices in the industry center on inventories and accounts receivable. Our management regularly reviews our working capital with a view of maintaining the lowest level consistent with requirements of anticipated levels of operation and expected supply chain restraints. Our working capital requirements are generally met by cash flow from operations and a bank revolving credit facility, which currently permits borrowings up to $200.0 million and had a $71.0 million outstanding balance at December 31, 2022. Borrowings available under the revolving credit facility at December 31, 2022, were $128.2 million. We believe that we will have sufficient funds available to meet our working capital needs for the foreseeable future.

***Research and Development***

Our products are engineered for performance, flexibility, and serviceability. This has become a critical factor in competing in the HVAC equipment industry. We must continually develop new and improved products in order to compete effectively and to meet evolving regulatory standards in all of our major product lines.

We self-sponsor our Research and Development ("R&D") activities, rather than needing to be customer-sponsored. R&D activities have involved the RQ, RN, and RZ (rooftop units), H3, SA, V3, and M2 (air handling units), CB (condensing unit), and the SA and SB (self-contained units), as well as component evaluation and refinement, development of control systems and new product development. R&D expenses incurred were approximately $46.8 million, $16.6 million, and $17.4 million in 2022, 2021, and 2020, respectively. The significant increase for the year ended December 31, 2022 was related to the inclusion of a full year of operations of BASX (Note 4) as well as our commitment to product performance and innovation.

Our NAIC research and development laboratory facility includes many unique capabilities, which, to our knowledge, exist nowhere else in the world. A few features of the NAIC include supply, return, and outside sound testing at actual load conditions, testing of up to a 300 ton air conditioning system, up to a 540 ton chiller system, and 80 million BTU/hr of gas heating test capacity. Environmental application testing capabilities include -20 to 140°F testing conditions, up to 8 inches per hour rain testing, up to 2 inches per hour snow testing, and up to 50 mph wind testing. We believe we have the largest sound-testing chamber in the world for testing heating and air conditioning equipment and are not aware of any similar labs that can conduct this testing while putting the equipment under full environmental load. The unique capabilities of the NAIC will enable us to lead the industry in the development of quiet, energy efficient commercial and industrial heating and air conditioning equipment.

The NAIC currently houses twelve testing chambers. These testing chambers allow us to meet and maintain AHRI and U.S. Department of Energy ("DOE") certification and solidify the Company's industry position as a technological leader in the manufacturing of HVAC equipment. Current voluntary industry certification programs and government regulations only go up to 63 tons of air conditioning as that is the largest environmental chamber currently available for testing outside of our facility. The NAIC contains both a 100 ton and a 540 ton chamber, allowing us to uniquely prove to customers our capacity and efficiency on these larger units.

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The NAIC was designed to test products well beyond the standard AHRI rating points and allows us to offer testing services on our equipment throughout our range of product application. This capability is vital for critical facilities where the units must perform properly and allows our customers to verify the performance of our units in advance, rather than after installation. These same capabilities will enable AAON to develop a new extended range of operational products and prove their capabilities.

Our Parkville, Missouri location is home to our new Electronics Prototyping Lab ("Lab") featuring a fully functional SMD (Surface Mount Device) production line. The production line incorporates automated pick-and-place equipment able to quickly and accurately place devices as small as 0.1mm by 0.2mm, the same technology scale used in cell phones. The production line also includes a profiled reflow oven to assure reliability in the finished prototypes. The Lab has allowed us to increase our speed to market and incorporate cutting-edge technology into our control designs. In addition, it allows our Controls Engineering team to utilize their hardware and software skills to outpace our Competitors in responding to market changes and upsets.

***Patents, Trademarks, Licenses, and Concessions***

We do not consider any patents, trademarks, licenses, or concessions to be material to our business operations, other than those described below.

We hold several patents that relate to the design and use of our products. We consider these patents important, but no single patent is material to the overall conduct of our business. We proactively obtain patents to further our strategic intellectual property objectives. We own certain trademarks we consider important in the marketing of our products and services, and we protect our marks through national registrations and common law rights. Our patents have legal terms of 20 years with expiration dates ranging from 2023 to 2039.

The Company's trademarks, certain of which are material to its business, are registered or otherwise legally protected in the U.S.

**Seasonality**

Historically, sales of our products were moderately seasonal with the peak period being May-October of each year due to timing of construction projects being directly related to warmer weather. However, in recent years, given the increase in demand of our products and increase in our backlog, sales has become more constant throughout the year.

**Environmental & Regulatory Matters**

Laws concerning the environment that affect or could affect our operations include, among others, the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, regulations promulgated under these Acts and any other federal, state or local laws or regulations governing environmental matters. We believe that we are in compliance with these laws and that future compliance will not materially affect our earnings or competitive position.

Since our founding in 1987, we have maintained a commitment to design, develop, manufacture, and deliver heating and cooling products to perform beyond all expectations and to demonstrate our quality and value to our customers. Our equipment is designed with energy efficiency in mind, without sacrificing premium features and options. In addition to our high standard of product performance, is a commitment to sustainability for our employees, our stockholders, and our customers. We strive to conduct our business in a socially responsible and ethical manner with a focus on environmental stewardship, team member safety and community engagement. We comply with industry regulations and requirements while pursuing responsible economic growth and profitability.

In 2022, we published our fourth annual environmental, social, and governance ("ESG") report sharing our approach in the material areas of stakeholder engagement, innovation and efficiency, environmental responsibility, climate change, occupational health and safety, talent attraction and retention, diversity and inclusion, community engagement and investment, corporate governance and ethics and compliance. The report also highlights achievements and long-term targets related to greenhouse gas emissions, hazardous waste recycling, and non-fossil fuel consuming products. We participate in a sustainability benchmarking initiative (The Sustainability Alliance Scor3card) through which we monitor and report in the material areas of energy, material management, water,

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community stewardship, transportation, communication, and health. We achieved Platinum level in this program in 2022 and 2021. Our ESG committee provides oversight for ESG activities, ESG report development and an internal grassroots sustainability committee provides education opportunities, communications and recommendations to the Company on a regular basis.

We are committed to environmental responsibility and continue to make progress toward reducing greenhouse gas ("GHG") emissions, increasing hazardous waste recycling from our facilities and increasing the percentage of non-fossil fuel powered units we produce. Our approach toward emissions reduction and climate change includes product solutions for our customers and improvements to our own facilities. Approximately one-quarter of our energy portfolio is currently derived from renewable sources, and the Company's Scope 1 and 2 emissions (emissions that occur from sources that are controlled or owned by an organization and emissions associated with the purchase of electricity, steam, heat, or cooling) are being tracked. We opted into an additional percentage of renewable energy at our Tulsa, Oklahoma facilities in 2022, continued to invest and partner on projects that reduce GHG emissions globally and selected to begin the transition to the lower global warming potential R-454B refrigerant starting in 2023. We continue to develop and manufacture non-fossil fuel consuming units to provide the most sustainable commercial HVAC equipment in the market and announced the zero degree cold air-source heat pump in 2022 as a critical solution that meets the increasing demand for building decarbonization in cold climates.

In the area of energy efficiency and conservation, our Tulsa, Oklahoma and Longview, Texas facilities have transitioned to over 95% LED lighting in our facilities leading to considerable cost savings and reduced energy consumption. Our Redmond, Oregon facilities are installing LED lights into any new fixtures in their current facility and working towards retrofitting old fixtures to LED. We participate in an energy demand response program through the public utility provider to reduce demand during peak hours. Energy efficiency has been a priority not only in product development, but also in overall capital investments which include the acquisition of new, energy efficient equipment for the production floor, new high-speed overhead facility doors, the installation of new HVAC equipment, building control systems, the application of heat and light reflective material to production facilities, along with other behavioral-based energy efficiency changes. We are tracking our energy usage intensity before and after these updates.

In the area of material management, we focus on recycling, reducing, reusing and sourcing more environmentally-friendly materials into our processes. At our Tulsa, Oklahoma and Longview, Texas facilities, we recycled over 14,928 tons and 13,793 tons of metal in 2022 and 2021, respectively. Also, through our partnership with a waste to energy facility, we successfully diverted over 668 tons and 460 tons of waste from landfills in 2022 and 2021, respectively. We have identified hazardous waste recycling partners for paint products at both our Tulsa, Oklahoma and Longview, Texas facilities. We also recycle paper, wood, and cardboard where available. We continue to innovate ways to reduce and reuse shipping packaging between facilities and identify new opportunities to reduce or reuse items in our production and administrative areas.

**Human Capital Resources**

Our employees are not represented by unions or other collective bargaining agreements. Management considers its relations with our employees to be good. The following table represents the number of our direct employees and contract personnel we employed on each respective date:

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| | | | |
|:---|:---|:---|:---|
| | **As of**<br>**February 22, 2023** | **As of**<br>**February 22, 2022** | **As of**<br>**February 23, 2021** |
| AAON Oklahoma | 2474 | 1979 | 1778 |
| AAON Coil Products | 681 | 574 | 490 |
| BASX<sup>1</sup> | 511 | 328 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Total employees | 3666 | 2881 | 2268 |
| <sup>1</sup> BASX was acquired by the Company on December 10, 2021. | <sup>1</sup> BASX was acquired by the Company on December 10, 2021. | <sup>1</sup> BASX was acquired by the Company on December 10, 2021. | <sup>1</sup> BASX was acquired by the Company on December 10, 2021. |

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Our key human capital measures include employee safety, turnover, absenteeism, and production. We frequently benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located. We believe that our compensation and employee benefits are competitive and allow us to attract and retain skilled and unskilled labor throughout our organization. Some of our notable health, welfare, and retirement benefits include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Employee medical plan (with 175% employer health saving plan match)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 401(k) Plan (with 175% employer match)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Profit sharing bonus plan

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Tuition assistance program

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Paid time off

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Paid parental leave

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Military pay

**Available Information**

Our Internet website address is http://www.aaon.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, will be available free of charge through our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information on our website is not a part of, or incorporated by reference into, this annual report on Form 10-K.

Copies of any materials we file with the SEC can also be obtained free of charge through the SEC's website at http://www.sec.gov, at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, or by calling the SEC at 1-800-732-0330.

**Item 1A. Risk Factors.**

The following risks and uncertainties may affect our performance and results of operations. The discussion below contains "forward-looking statements" as outlined in the Forward-Looking Statements section above. Our ability to mitigate risks may cause our future results to materially differ from what we currently anticipate. Additionally, the ability of our competitors to react to material risks will affect our future results.

***<u>Risks Related to the COVID-19 Pandemic</u>***

**Our business, results of operations, financial condition, cash flows, and stock price can be adversely affected by pandemics, epidemics, or other public health emergencies, such as COVID-19.**

In March 2020, the World Health Organization characterized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The outbreak resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, "shelter in place" and "stay at home" orders, travel restrictions, business curtailments, school closures, vaccination or testing mandates and other measures. In addition, governments and central banks in several parts of the world enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.

We are considered a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Although we have continued to operate our facilities to date consistent with federal guidelines and state and local orders, the outbreak of COVID-19 and any preventive or protective actions taken by governmental authorities may have a material adverse effect on our operations, supply chain, customers, and transportation networks, including business shutdowns or disruptions. During 2022 and 2021 we experienced price increases in our components and raw materials, especially copper and steel, which appear to be a result of COVID-19, as well supply chain challenges related to certain manufacturing parts.

Even though the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets which may adversely impact our stock price and our ability to access capital markets. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this Annual Report, such as those relating to our products and financial performance.

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***<u>Risks Related to Our Business</u>***

**Our business can be hurt by economic conditions**.

Our business is affected by a number of economic factors, including the level of economic activity in the markets in which we operate. Sales in the commercial and industrial new construction markets correlate to the number of new homes and buildings that are built, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, and other macroeconomic factors over which we have no control. In the HVAC business, a decline in economic activity as a result of these cyclical or other factors typically results in a decline in new construction and replacement purchases which could impact our sales volume and profitability.

**Our results of operations and financial condition could be negatively impacted by the loss of a major customer.**

From time to time in the past we derived a significant portion of our sales from a limited number of customers, and such concentration may continue in the future. In 2022, 2021, and 2020, one customer, Texas AirSystems LLC accounted for more than 10% of our sales. The loss of, or significant reduction in sales to, a major customer could have a material adverse effect on our results of operations, financial condition and cash flow. Further, the addition of new major customers in the future could increase our customer concentration risks as described above.

**Our results of operations and financial condition could be negatively impacted by the loss of a major third-party representative.**

We are dependent on our third-party representatives to market and sell our products. If such relationships were terminated for any reason, it could materially and adversely affect our ability to generate revenues and profits. Certain of our competitors with greater financial resources than us could target our third-party representatives for exclusive sales channels. We may not be able to secure additional third-party representatives who will effectively market our products in certain geographical areas. In addition, adding new representatives requires additional administrative efforts and costs. If we are unable to establish new representative relationships or continue current relationships, our business, financial condition, and results of operations could be materially and adversely affected.

**We may incur material costs as a result of warranty and product liability claims that would negatively affect our profitability**.

The development, manufacture, sale and use of our products involve a risk of warranty and product liability claims. Our product liability insurance policies have limits that, if exceeded, may result in material costs that would have an adverse effect on our future profitability. An excess of or significant claim(s) could lead to the cancellation of our polices and the loss of and inability to find additional insurance carriers. In addition, warranty claims are not covered by our product liability insurance and there may be types of product liability claims that are also not covered by our product liability insurance.

**We depend on our senior leadership team and the loss of our Chief Executive Officer or one or more key employees or an inability to attract and retain highly skilled employees could adversely affect our business**.

Our success depends largely upon the continued services of our officers and senior leadership team. In particular, our Chief Executive Officer ("CEO"), Gary D. Fields, is critical to our vision, strategic direction, culture, and overall business success. Furthermore, Mr. Fields' extensive industry knowledge and sales-channel experience would be difficult to replace. We also rely on our senior leadership team in the areas of research and development, marketing, production, sales, and general and administrative functions. From time to time, there may be changes in our senior leadership team resulting from the hiring or departure of senior leadership team members, which could disrupt our business. While we have a robust succession plan in place for each one of our officers and senior leadership team members, the loss of one or more could have a serious adverse effect on our business.

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We do not maintain key-man insurance for Gary D. Fields or any other member of our senior leadership team. Other than the employment agreements negotiated with certain employees of BASX, we do not have employment agreements with our officers or senior leadership team members that require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. The employment agreements with the employees of BASX guarantee certain compensation, such as salary and benefits, and employment terms. We do not believe the terms or conditions of these agreements are outside the standard expectation of another employee at a similar level.

**Operations may be affected by natural disasters, especially since most of our operations are performed at a single location.**

Natural disasters such as tornadoes, ice storms and fires, as well as accidents, acts of terror, infection, and other factors beyond our control could adversely affect our operations. Our facilities are in areas where tornadoes are likely to occur, and the majority of our operations are at our Tulsa, Oklahoma facilities. With the acquisition of BASX in 2021, we now have operations in an area that is, historically, effected by wild fires. The effects of natural disasters and other events could damage our facilities and equipment and force a temporary halt to manufacturing and other operations, and such events could consequently cause severe damage to our business. We maintain insurance against these sorts of events; however, this is not guaranteed to cover all the losses and damages incurred. Furthermore, we may experience increases in our insurance premium costs in relation to these matters that may have a material adverse effect upon our business, liquidity, financial condition, or results of operations.

**If we are unable to hire, develop or retain employees, it could have an adverse effect on our business.**

We compete to hire new employees and then seek to train them to develop their skills. We may not be able to successfully recruit, develop, and retain the personnel we need. Unplanned turnover or failure to hire and retain a diverse, skilled workforce, could increase our operating costs and adversely affect our results of operations.

**Variability in self-insurance liability estimates could impact our results of operations.** 

We self-insure for certain employee health insurance and workers' compensation insurance coverage up to a predetermined level, beyond which we maintain stop-loss insurance from a third-party insurer. Our aggregate exposure varies from year to year based upon the number of participants in our insurance plans. We estimate our self-insurance liabilities using an analysis provided by our claims administrator and our historical claims experience. Our accruals for insurance reserves reflect these estimates and other management judgments, which are subject to a high degree of variability. If the number or severity of claims for which we self-insure increases, it could cause a material and adverse change to our reserves for self-insurance liabilities, as well as to our earnings.

***<u>Risks Related to Our Brand and Product Offerings</u>***

**We may not be able to compete favorably in the highly competitive HVAC business**.

Competition in our various markets could cause us to reduce our prices or lose market share, which could have an adverse effect on our future financial results. Substantially all of the markets in which we participate are highly competitive. The most significant competitive factors we face are product reliability, product performance, service, manufacturing lead-times, and price, with the relative importance of these factors varying among our product line. Other factors that affect competition in the HVAC market include the development and application of new technologies and an increasing emphasis on the development of more efficient HVAC products. Moreover, new product introductions are an important factor in the market categories in which our products compete. Several of our competitors have greater financial and other resources than we have, allowing them to invest in more extensive research and development. We may not be able to compete successfully against current and future competition and current and future competitive pressures faced by us may materially adversely affect our business and results of operations.

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**We may not be able to successfully develop and market new products**.

Our future success will depend upon our continued investment in research and new product development and our ability to continue to achieve new technological advances in the HVAC industry. Our inability to continue to successfully develop and market new products or our inability to implement technological advances on a pace consistent with that of our competitors could lead to a material adverse effect on our business and results of operations. Furthermore, our continued investment in new product development may render certain legacy products and components obsolete resulting in increased inventory obsolescence expense that may have a material adverse effect upon our financial condition or results of operations.

***<u>Risks Related to Material Sourcing and Supply</u>***

**We may be adversely affected by problems in the availability, or increases in the prices, of raw materials and components**.

Problems in the availability, or increases in the prices, of raw materials or components could depress our sales or increase the costs of our products. We are dependent upon components purchased from third parties, as well as raw materials such as steel, copper and aluminum. Occasionally, we enter into cancellable and non-cancellable contracts on terms from six to 18 months for raw materials and components. However, if a key supplier is unable or unwilling to meet our supply requirements, we could experience supply interruptions or cost increases, either of which could have an adverse effect on our gross profit.

**We risk having losses resulting from the use of non-cancellable contracts.**

Historically, we have attempted to limit the impact of price fluctuations on commodities by entering into non-cancellable contracts with our major suppliers for periods of six to 18 months. We expect to receive delivery of raw materials from our contracts for use in our manufacturing operations. These contracts are not accounted for using hedge accounting since they meet the normal purchases and sales exemption.

***<u>Risks Related to Electronic Data Processing and Digital Information</u>***

**Our business is subject to the risks of interruptions by cybersecurity attacks.**

We depend upon information technology infrastructure, including network, hardware and software systems to conduct our business. Despite our implementation of network and other cybersecurity measures, our information technology system and networks could be disrupted due to technological problems, a cyber-attack, acts of terrorism, severe weather, a solar event, an electromagnetic event, a natural disaster, the age and condition of information technology assets, human error, or other reasons. To date, we have not experienced a material impact to our business or operations resulting from cyber-security or other similar information attacks, but due to the ever-evolving attack methods, as well as the increased amount and level of sophistication of these attacks, our security measures may not be adequate to protect against highly targeted sophisticated cyber-attacks, or other improper disclosures of confidential and/or sensitive information. Additionally, we may have access to confidential or other sensitive information of our customers, which, despite our efforts to protect, may be vulnerable to security breaches, theft, or other improper disclosure. Any cyber-related attack or other improper disclosure of confidential information could have a material adverse effect on our business, as well as other negative consequences, including significant damage to our reputation, litigation, regulatory actions, and increased cost.

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**We are reliant on information technology.**

We are reliant on information technology in all aspects of our business, operated and maintained by the Company as well as under control of third parties. If we do not invest sufficient capital in a timely manner to acquire, develop, or implement new information technologies or maintain or upgrade current information technologies, we could suffer outages as well as be at a competitive disadvantage within our industry which could have a material adverse effect upon our financial condition and results of operations.

***<u>Risks Related to Governmental Regulation and Policies</u>***

**Exposure to environmental liabilities could adversely affect our results of operations**.

Our future profitability could be adversely affected by current or future environmental laws. We are subject to extensive and changing Federal, state and local laws and regulations designed to protect the environment in the United States and in other parts of the world. These laws and regulations could impose liability for remediation costs and result in civil or criminal penalties in case of non-compliance. Compliance with environmental laws increases our costs of doing business. Because these laws are subject to frequent change, we are unable to predict the future costs resulting from environmental compliance.

**We are subject to potentially extreme governmental regulations and policies.**

We always face the possibility of new governmental regulations, policies and trade agreements which could have a substantial or even extreme negative effect on our operations and profitability. Several intrusive component part governmental regulations are in process. If these proposals become final rules, the effect would be the regulation of compressors and fans in products for which the Department of Energy does not have current authority. This could affect equipment we currently manufacture and could have an impact on our product design, operations, and profitability.

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as "conflict minerals", originating from the Democratic Republic of Congo and adjoining countries. As a result, in August 2012, the SEC adopted annual disclosure and reporting requirements for those companies who use conflict minerals in their products. Accordingly, we began our reasonable country of origin inquiries in fiscal year 2013, with initial disclosure requirements beginning in May 2014. There are costs associated with complying with these disclosure requirements, including for due diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply, and pricing of materials used in our products. As there may be only a limited number of suppliers offering "conflict free" conflict minerals, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement.

Our operations could be negatively impacted by new legislation as well as changes in regulations and trade agreements, including tariffs and taxes. Unfavorable conditions resulting from such changes could have a material adverse effect on our business, financial condition and results of operations.

**We are subject to adverse changes in tax laws.**

Our tax expense or benefits could be adversely affected by changes in tax provisions, unfavorable findings in tax examinations, or differing interpretations by tax authorities. We are unable to estimate the impact that current and future tax proposals and tax laws could have on our results of operations. We are currently subject to state and local tax examinations for which we do not expect any major assessments.

**We are subject to international regulations that could adversely affect our business and results of operations.** 

Due to our use of Representatives in foreign markets, we are subject to many laws governing international relations, including those that prohibit improper payments to government officials and commercial customers, and restrict

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where we can do business, what information or products we can supply to certain countries and what information we can provide to a non-U.S. government, including but not limited to the Foreign Corrupt Practices Act, U.K. Bribery Act and the U.S. Export Administration Act. Violations of these laws, which are complex, may result in criminal penalties or sanctions that could have a material adverse effect on our business, financial condition and results of operations.

**Changes in legislation or government regulations or policies could adversely effect on our results of operations.**

Our sales, gross margins and profitability could be directly impacted by changes in legislation or government regulations or policies. Specifically, changes in environmental and energy efficiency standards and regulations related to global climate change are being implemented to curtail the use of hydrofluorocarbons which are used in refrigerants that are essential to many of our products. Our inability or delay in developing or marketing products that match customer demand while also meeting applicable efficiency and environmental standards may negatively impact our results.

We are transitioning to a new refrigerant with lower global warming potential for our HVAC systems and must be fully compliant under current governmental regulations by 2025. We expect to incur costs associated with this transition related to the purchase of the new refrigerant as well as additional sensors and detectors on our HVAC systems. In addition, we expect to incur cost to our facilities, specifically costs to store and use the new refrigerant in production; however, we do not expect these costs to be significant. Due to the increased flammability of the new refrigerant, the insurance industry may require higher premiums for companies once the conversion begins. Furthermore, due to the expected increased demand of the newer refrigerants as well as the older hydrofluorocarbon refrigerants (as they are phased out), we expect to see increased manufacturing costs related to purchases of refrigerants and could see higher costs for future warranty claims.

Future legislation or regulations relating to environmental policies, product certification, product liability, taxes, amount and availability of tax incentives and other matters, may impact the results of each of our operating segments and our consolidated results.

**Item 1B. Unresolved Staff Comments.**

None.

**Item 2. Properties.**

Our manufacturing areas are heavy industrial type buildings, with some coverage by overhead cranes, containing manufacturing equipment designed for sheet metal fabrication, metal stamping and tube forming. The manufacturing equipment contained in the facilities consists primarily of automated sheet metal fabrication equipment, supplemented by presses and tube bending equipment. Assembly lines consist of cart-type and roller-type conveyor lines with variable line speed adjustment. Subassembly areas and production line manning are based upon line rates set by production management.

We own and lease our properties and facilities, as further described below. We believe that all of our facilities are well maintained and are in good condition and suitable for the conduct of our business.

***AAON Oklahoma***

Our plant and office facilities in Tulsa, Oklahoma, consist of a 342,000 square foot building (327,000 square feet of manufacturing/warehouse space and 15,000 square feet of office space) located on a 12-acre tract of land at 2425 South Yukon Avenue; a 940,000 square foot manufacturing/warehouse building and a 70,000 square foot office building located on an approximately 79-acre tract of land across the street from the original facility (2440 South Yukon Avenue); and a 40,000 square foot building used as warehouse space located on a 6-acre tract. We also lease a 198,000 square foot warehouse space which is used for additional inventory storage.

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In addition to a retail parts store location at our Tulsa facilities, we also own a 13,500 square foot stand alone building (7,500 square foot warehouse and 6,000 square foot office) which is utilized as an additional retail parts store to provide our customers more accessibility to our products. The stand alone parts store building is on approximately one acre and is located at 9528 E 51st St in Tulsa, Oklahoma.

Our Tulsa location is also home to our engineering research and development laboratory, the Norman Asbjornson Innovation Center ("NAIC"). The three-story, 134,000 square foot stand alone facility is both an acoustical and a performance measuring laboratory. This facility currently consists of twelve test chambers, allowing AAON to meet and maintain industry certifications. This facility is located west of the 940,000 square foot manufacturing/warehouse building at 2440 South Yukon Avenue.

In 2023, our Exploration Center will open at our Tulsa location. The Exploration Center is a 28,000 square foot facility located adjacent to the NAIC. The Exploration Center will provide an immersive and educational experience of our products, solutions and our people and also serve as an event hub for our stakeholders, including our customers, employees, Representatives and investors. The Exploration Center will add a dimension of customer engagement that doesn't currently exist, showcasing our products and our competitors products and allowing our customers to interact with our employees.

Our operations in Parkville, Missouri, are conducted in a leased plant/office at 8500 NW River Park Drive, containing approximately 51,000 square feet. This location is home to our Controls design and manufacturing facilities. In October 2022, we modified the existing lease to expand to approximately 86,000 square feet and expect to be able to utilize the additional space beginning in the second quarter of 2023.

***AAON Coil Products***

Our plant and office facilities in Longview, Texas, consist of a 263,000 square foot building (256,000 square feet of manufacturing/warehouse space and 7,000 square feet of office space) located on a 13-acre tract of land, a 222,000 square foot building (210,000 square feet of manufacturing/warehouse space and 12,000 square feet of office space) located on an approximately 22-acre tract of land, and a 5,000 square foot building utilized as a retail parts store which we lease to a Representative of the Company. All of these facilities are located on Gum Springs Road.

In January 2023, we purchased additional real property and improvements consisting of 64,000 square feet of warehouse space located on a 10-acre tract of land at 115 Kodak Boulevard in Longview, Texas.

***BASX***

Our operations in Redmond, Oregon, are conducted in a plant/office at 3500 SW 21st Place, containing approximately 194,000 square feet (169,000 square feet of manufacturing/warehouse space and 25,000 square feet of office space) on a 13-acre tract of land and a leased manufacturing/warehouse building containing approximately 15,000 square feet at 2895 SW 13th Street. Additionally, we lease an office of approximately 4,000 square feet located at 1725 Blankenship Road, West Linn, Oregon.

In August 2022, we purchased additional real property of approximately one-acre adjacent to the plant/office at 3500 SW 21st Place, to facilitate future growth of our operations at BASX.

**Item 3. Legal Proceedings.**

See Note 18 of the Consolidated Financial Statements.

**Item 4. Mine Safety Disclosure.**

Not applicable.

**PART II**

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**Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.**

**Market Information -** Our common stock is quoted on the NASDAQ Global Select Market under the symbol "AAON". As of the close of business on February 22, 2023, there were 955 holders of record of our common stock.

**Dividends -** At the discretion of the Board of Directors, we pay cash dividends. Board approval is required to determine the date of declaration and amount for each cash dividend payment.

Our cash dividends for the three years ended December 31, 2022 are as follows:

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| | | | |
|:---|:---|:---|:---|
| **Declaration Date** | **Record Date** | **Payment Date** | **Dividend per Share** |
| May 15, 2020 | June 3, 2020 | July 1, 2020 | $0.19 |
| November 10, 2020 | November 27, 2020 | December 18, 2020 | $0.19 |
| May 17, 2021 | June 3, 2021 | July 1, 2021 | $0.19 |
| November 9, 2021 | November 26, 2021 | December 17, 2021 | $0.19 |
| May 18, 2022 | June 3, 2022 | July 1, 2022 | $0.19 |
| November 8, 2022 | November 28, 2022 | December 16, 2022 | $0.24 |

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The following is a summary of our share-based compensation plans as of December 31, 2022:

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| | | | |
|:---|:---|:---|:---|
| **EQUITY COMPENSATION PLAN INFORMATION** | **EQUITY COMPENSATION PLAN INFORMATION** | **EQUITY COMPENSATION PLAN INFORMATION** | **EQUITY COMPENSATION PLAN INFORMATION** |
| Plan category | (a)<br>Number of securities to be issued upon exercise of outstanding options, warrants and rights | (b)<br>Weighted-average exercise price of outstanding options, warrants and rights | (c)<br>Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| The 2007 Long-Term Incentive Plan | 119208 | $22.62 |  |
| The 2016 Long-Term Incentive Plan | 1257805 | $42.31 | 3599896 |

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Repurchases during the fourth quarter of 2022, which include repurchases from our open market, 401(k) and employee repurchase programs, were as follows:

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| | | | | |
|:---|:---|:---|:---|:---|
| **ISSUER PURCHASES OF EQUITY SECURITIES** | **ISSUER PURCHASES OF EQUITY SECURITIES** | **ISSUER PURCHASES OF EQUITY SECURITIES** | **ISSUER PURCHASES OF EQUITY SECURITIES** | **ISSUER PURCHASES OF EQUITY SECURITIES** |
|  | (a)<br>Total<br>Number<br>of Shares<br>(or Units | (b)<br>Average<br>Price<br>Paid<br>(Per Share | (c)<br>Total Number<br>of Shares (or<br>Units) Purchased<br>as part of<br>Publicly Announced | (d)<br>Maximum Number (or<br>Approximate Dollar<br>Value) of Shares (or<br>Units) that may yet be<br>Purchased under the |
| Period | Purchased) | or Unit) | Plans or Programs | Plans or Programs |
| October 2022 | 87049 | $55.33 | 87049 |  |
| November 2022 | 23 | 65.00 | 23 |  |
| December 2022 | 196 | 76.66 | 196 |  |
| Total&nbsp;&nbsp;&nbsp;&nbsp; | 87268 | $55.38 | 87268 |  |

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**Comparative Stock Performance Graph**

The following performance graph compares our cumulative total shareholder return for the Company's common stock for the five-year period ending on December 31, 2022, compared to an overall stock market index (the NASDAQ Composite Index) and the Company's peer group index (S&P 600 Capital Goods Industry Group Index). We believe the S&P 600 Capital Goods Industry Group Index best represents our relative peer group based on our current business and market capitalization. The graph assumes that $100 was invested at the close of trading December 31, 2017, with the reinvestment of dividends since that date. This table is not intended to forecast future performance of our Common Stock.

![aaon-20221231_g1.jpg](aaon-20221231_g1.jpg)

This stock performance graph is not deemed to be "soliciting material" or otherwise be considered to be "filed" with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (Exchange Act) or to the liabilities of Section 18 of the Exchange Act, and should not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent the Company specifically incorporates it by reference into such a filing.

**Item 6. Reserved.**

**Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.**

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**Overview**

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity of the Company for the year ended December 31, 2022. This discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, *Financial Statements and Supplementary Data*. A detailed discussion of the year to year changes for the years ended December 31, 2021 and 2020 is not included herein and can be found in Part II, Item 7, *Management's Discussion and Analysis of Financial Condition and Results of Operations* section of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

**Description of the Company**

We engineer, manufacture, market, and sell premium air conditioning and heating equipment consisting of standard, semi-custom, and custom rooftop units, data center cooling solutions, cleanroom systems, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pump, coils, and controls. These products are marketed and sold to retail, manufacturing, educational, lodging, supermarket, data centers, medical and pharmaceutical, and other commercial industries. We market our products to all 50 states in the United States and certain provinces in Canada.

Our business can be affected by a number of economic factors, including the level of economic activity in the markets in which we operate. The uncertainty of the economy negatively impacted the commercial and industrial new construction markets in 2020 and the first half of 2021. Since August 2021, however, nonresidential construction has been recovering. In the third quarter of 2022, the market returned to pre-pandemic levels. Currently, architectural billings and nonresidential construction starts are at historically high levels, signaling the nonresidential construction market will continue to be strong over the next nine to 12 months. Furthermore, although some economic indicators are suggesting the general economy is slowing, the replacement market remains strong. Nevertheless, both the new construction and replacement markets are cyclical. If the domestic economy were to slow or enter a recession, this could result in a decrease in our sales volume and profitability. Sales in the commercial and industrial new construction markets generally lag the housing market, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, the state of the economy and other macroeconomic factors over which we have no control. Sales in the replacement markets are driven by various factors, including general economic growth, the Company's new product introductions, fluctuations in the average age of existing equipment in the market, government regulations and stimulus, change in market demand between more customized, higher performing HVAC equipment and lower priced standard equipment, as well as many other factors. When new construction is down, we emphasize the replacement market.

We sell our products to property owners and contractors mainly through a network of independent manufacturers' Representatives. This go-to-market strategy is unique compared to most of our larger competitors in that most control their sales channel. We value the independent sales channel as we think it is a more effective way of increasing market share. Although we concede full control of the sales process with this strategy, the entrepreneurial aspect of the independent sales channel attracts the most talent and provides greater financial incentives for its salespeople. Furthermore, the independent sales channel sells different types of equipment from various manufacturers, allowing it to operate with more of a solutions-based mindset, as opposed to an internal sales department of a manufacturing company that is incentivized to only sell its equipment regardless if it is the best solution for the end customer. We also have a small internal sales force that supports the relationships between the Company and our sales channel partners. BASX sells highly customized products for unique applications for a more concentrated customer base and an internal sales force is more effective for such products.

The principal components of cost of sales are labor, raw materials, component costs, factory overhead, freight out, and engineering expense. The principal high volume raw materials used in our manufacturing processes are steel, copper, and aluminum, and are obtained from domestic suppliers. We also purchase from domestic manufacturers certain components, including coils, compressors, motors, and electrical controls.

The price levels of our raw materials fluctuate given that the market continues to be volatile and unpredictable as a result of the uncertainty related to the U.S. economy and global economy. For the year ended December 31, 2022, the prices for copper, galvanized steel, stainless steel and aluminum increased approximately 13.4%, 14.5%, 61.0%, and 14.0%, respectively, from 2021.

We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months. We expect to receive delivery of raw materials from our contracts for use in our manufacturing operations.

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We occasionally increase the price of our products to help offset any inflationary headwinds. In 2021, we implemented three price increases. In 2022, we implemented two significant price increases as well as a recurring 1% monthly price increase effective June 1, 2022.

Additionally, we continue to experience challenges in a tight labor market, especially the hiring of both skilled and unskilled production labor. We have implemented the following wage increases to remain competitive and to attract and retain employees:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In March 2021, we awarded annual merit raises for an overall 5.0% increase to wages.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In July 2021, we increased starting wages for our production workforce by 7.0%.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In October 2021, we implemented a cost of living increase of 3.5% in place for all employees

below our Senior Leadership Team ("SLT") which consists of officers and key members of management.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In March 2022, we awarded annual merit raises for an overall 3.0% increase to wages.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In October 2022, we implemented a cost of living increase of 3.5% in place for all employees

below the SLT level.

We will continue to implement human resource initiatives to retain and attract labor to further improve productivity and production efficiencies.

**Backlog**

The following table shows our historical backlog levels:

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| | |
|:---|:---|
| **December 31, 2022** | **December 31, 2021** |
| *(in thousands)* | *(in thousands)* |
| $548022 | $260164 |

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The Company has increased our backlog both through the acquisition of BASX and organic growth due primarily to favorable lead times and increased overall demand.

**Consolidated Results of Operations**

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| | | |
|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** |
| | **2022** | **2021** |
|  | *(in thousands)* | *(in thousands)* |
| Net Sales | $888788 | $534517 |
| Cost of Sales | 651216 | 396687 |
| Gross Profit | 237572 | 137830 |
| Selling, general and administrative expenses | 110823 | 68598 |
| Gain on disposal of assets | (12) | (21) |
| Income from operations | $126761 | $69253 |

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The following are highlights of our results of operations, cash flows, and financial condition:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Our backlog has been at record levels during all of 2022. New bookings from BASX were a record for that business as it benefited from a strong pipeline of projects in the data center and semiconductor markets. Revenue synergies from the BASX acquisition has increased bookings for AAON Coil Products as well. Bookings continue to be strong primarily due to our favorable lead times and strong end-market demand.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Net sales for 2022 grew 66.3% to $888.8 million due to organic growth, the addition of BASX revenues and price increases realized during the year.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Overall gross margin increased 90 basis points in 2022, as the increased costs of material and labor were offset by increased efficiencies of operations as well as price increases.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We continue to invest in the future growth of the Company as evidenced by our $54.0 million in capital expenditures and $22.0 million for the purchase of the BASX building.

We report our financial results based on three reportable segments: AAON Oklahoma, AAON Coil Products, and BASX, which are further described in Item 1 and Item 8. The Company's chief decision maker ("CODM"), our CEO, allocates resources and assesses the performance of each operating segment using information about the operating segment's net sales and income from operations. The CODM does not evaluate operating segments using asset or liability information.

**Segment Operating Results for the Years Ended December 31, 2022 and 2021**

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| | **For the years ended December 31,** | **For the years ended December 31,** | **For the years ended December 31,** | **For the years ended December 31,** | | |  |
| | **2022** | **Percent of Sales**<sup>2</sup> | **2021** | **Percent of Sales**<sup>2</sup> |<br> **$ Change** |<br>**% Change** |  |
|  | *(in thousands)* | *(in thousands)* | *(in thousands)* | *(in thousands)* | *(in thousands)* | *(in thousands)* |  |
| **Net Sales**<sup>3</sup> |  |  |  |  |  |  |  |
| AAON Oklahoma | $663845 | 74.7% | $463845 | 86.8% | $200000 | 43.1% |  |
| AAON Coil Products | 107290 | 12.1% | 66589 | 12.5% | 40701 | 61.1% |  |
| BASX<sup>1</sup> | 117653 | 13.2% | 4083 | 0.8% | 113570 | 2781.5% |  |
| &nbsp;&nbsp;&nbsp;&nbsp; Net sales | $888788 |  | $534517 |  | $354271 | 66.3% |  |
| **Cost of Sales**<sup>3</sup> |  |  |  |  |  |  |  |
| AAON Oklahoma | $490862 | 73.9% | 336977 | 72.6% | $153885 | 45.7% |  |
| AAON Coil Products | 73979 | 69.0% | 56514 | 84.9% | 17465 | 30.9% |  |
| BASX<sup>1</sup> | 86375 | 73.4% | 3196 | 78.3% | 83179 | 2602.6% |  |
| &nbsp;&nbsp;&nbsp;&nbsp; Cost of sales | $651216 | 73.3% | $396687 | 74.2% | $254529 | 64.2% |  |
| **Gross Profit**<sup>3</sup> |  |  |  |  |  |  |  |
| AAON Oklahoma | $172983 | 26.1% | $126868 | 27.4% | $46115 | 36.3% |  |
| AAON Coil Products | 33311 | 31.0% | 10075 | 15.1% | 23236 | 230.6% |  |
| BASX<sup>1</sup> | 31278 | 26.6% | 887 | 21.7% | 30391 | 3426.3% |  |
| &nbsp;&nbsp;&nbsp;&nbsp; Gross profit | $237572 | 26.7% | $137830 | 25.8% | $99742 | 72.4% |  |
| <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021. |  |
| <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021. | <sup>2</sup> Cost of sales and gross profit for each segment are calculated as a percentage of the respective segment's net sales. Total cost of sales and total gross profit are calculated as a percentage of total net sales. |
| <sup>3</sup> Presented after intercompany eliminations. | <sup>3</sup> Presented after intercompany eliminations. | <sup>3</sup> Presented after intercompany eliminations. | <sup>3</sup> Presented after intercompany eliminations. | <sup>3</sup> Presented after intercompany eliminations. | <sup>3</sup> Presented after intercompany eliminations. | <sup>3</sup> Presented after intercompany eliminations. | <sup>2</sup> Cost of sales and gross profit for each segment are calculated as a percentage of the respective segment's net sales. Total cost of sales and total gross profit are calculated as a percentage of total net sales. |

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Total net sales increased $354.3 million, or 66.3%, with the addition of inorganic sales from the acquisition of BASX contributing to 19.5% of our growth. Net sales also grew through price increases of $100.0 million and organic sales volumes, product mix and other of $149.8 million.

AAON Coil Products gross profit increased significantly to 31.0%. Price increases were realized more quickly for AAON Coil Products given their smaller backlog, which is the primary driver of the increase in gross margin for this segment. Additionally, the new manufacturing building for AAON Coil Products was completed in early 2021, resulting in increased capacity and operational efficiencies during 2022 as compared to 2021.

As shown in the table below, we've experienced increases in the cost of our raw materials. We have implemented multiple price increases during 2021 and 2022 to counteract the increased cost of material. Some of the 2022 price increases have yet to be realized. Additionally, in order to attract new employees and remain competitive in tight labor markets, we implemented several wage increases in late 2021 and throughout 2022.

**Raw Material Costs**

Twelve month average raw material cost per pound as of December 31:

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| | | | |
|:---|:---|:---|:---|
| | **2022** | **2021** | **% Change** |
| Copper | $5.60 | $4.94 | 13.4% |
| Galvanized Steel | $0.95 | $0.83 | 14.5% |
| Stainless Steel | $3.30 | $2.05 | 61.0% |
| Aluminum | $2.20 | $1.93 | 14.0% |

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**Selling, General and Administrative Expenses**

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| | | | | |
|:---|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Percent of Sales** | **Percent of Sales** |
| | **2022** | **2021** | **2022** | **2021** |
|  | *(in thousands)* | *(in thousands)* |  |  |
| Warranty | $8497 | $6351 | 1.0% | 1.2% |
| Profit Sharing | 14009 | 8526 | 1.6% | 1.6% |
| Salaries & Benefits | 41351 | 23458 | 4.7% | 4.4% |
| Stock Compensation | 7025 | 5543 | 0.8% | 1.0% |
| Advertising | 2353 | 1616 | 0.3% | 0.3% |
| Depreciation & Amortization | 8050 | 2924 | 0.9% | 0.5% |
| Insurance | 3755 | 3010 | 0.4% | 0.6% |
| Professional Fees | 5754 | 7245 | 0.6% | 1.4% |
| Donations | 1134 | 738 | 0.1% | 0.1% |
| Other | 18895 | 9187 | 2.1% | 1.7% |
| Total SG&A | $110823 | $68598 | 12.5% | 12.8% |

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Warranty expense increased consistent with our increase in net sales but decreased as a percentage of sales, as we continue to focus on our commitment to reliability and quality.

Salaries and benefits increased $17.9 million, with a full year of BASX included accounting for $10.5 million of the increase. The remaining increase was primarily attributable to overall increased headcount and the impact of employee pay increases that went into effect during 2021 and in 2022.

Depreciation and amortization expense at BASX was $4.5 million, accounting for the majority of the change period over period. Profit sharing increased for AAON Oklahoma and AAON Coil Products by $4.8 million due to increased operating results, while profit sharing at BASX increased by $0.7 million as a result of a full year of BASX's employee incentive program.

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Professional fees decreased mostly due to the transaction costs associated with the acquisition of BASX (Note 4) of $4.4 million included in 2021. Excluding $3.8 million of other SG&A at BASX, other SG&A increased $5.9 million attributable mainly to consulting services and increased travel expenses due to lighter COVID-19 restrictions in 2022.

**Income Taxes**

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| | | | | |
|:---|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Effective Tax Rate** | **Effective Tax Rate** |
| | **2022** | **2021** | **2022** | **2021** |
|  | *(in thousands)* | *(in thousands)* |  |  |
| Income tax provision | $24157 | $10424 | 19.4% | 15.1% |

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During the year ended December 31, 2022, the Company recorded an excess tax benefit of $3.0 million as compared to $5.4 million in 2021, a decrease of 45.3%. The decrease was primarily due to timing of stock option exercises and restricted stock vesting and our high stock price during the first and second quarter of 2021.

The decrease in excess tax benefits was partially offset by an increase of $1.8 million in research and development tax credits as defined under Section 41 of the Internal Revenue Code. To qualify for the research and development tax credits, we perform annual studies that identifies, documents, and supports eligible expenses related to qualified research and development activities. Eligible expenses include but are not limited to supplies, material and internal wages. With the addition of BASX in December 2021 (Note 4), we identified additional eligible expenses related to qualified research and development activities.

**Liquidity and Capital Resources**

Our working capital and capital expenditure requirements are generally met through net cash provided by operations and the use of the revolving bank line of credit based on our current liquidity at the time.

***Working Capital -*** Our unrestricted cash and cash equivalents increased $2.6 million from December 31, 2021 to December 31, 2022. As of December 31, 2022, we had $5.9 million in cash and cash equivalents and restricted cash.

***Revolving Line of Credit*** *-* Our revolving credit facility ("Revolver"), as amended and restated, provides for maximum borrowings of $200.0 million. As of December 31, 2022 and December 31, 2021, we had an outstanding balance under the Revolver of $71.0 million and $40.0 million, respectively. We had one standby letter of credit totaling $0.8 million as of December 31, 2022 and 2021, respectively. Borrowings available under the Revolver at December 31, 2022, were $128.2 million. The Revolver expires on May 27, 2027.

Any outstanding loans under the Revolver bear interest at the daily compounded secured overnight financing rate ("SOFR") plus the applicable margin. Applicable margin, ranging from 1.25% - 1.75%, is determined quarterly based on the Company's leverage ratio. The Company is also subject to letter of credit fees, ranging from 1.25% - 1.75%, and a commitment fee, ranging from 0.10% - 0.20%. The applicable fee percentage is determined quarterly based on the Company's leverage ratio. At December 31, 2022 and 2021, the weighted average interest rate of our Revolver was 3.0% and 1.3%, respectively. Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income and were not material for the years ended December 31, 2022 and 2021.

If SOFR cannot be determined pursuant to the definition, as defined by the Revolver agreement, any outstanding effected loans will be deemed to have been converted into alternative base rate ("ABR") loans. ABR loans would bear interest at a rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus 0.50%, or (c) daily simple SOFR for a one-month tenor in effect on such day plus 1.00%.

At December 31, 2022, we were in compliance with our financial covenants, as defined by the Revolver. These covenants require that we meet certain parameters related to our leverage ratio. At December 31, 2022, our leverage ratio was 0.46 to 1.0, which meets the requirement of not being above 3 to 1.

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***New Market Tax Credit Obligation*** *-* On October 24, 2019, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the "Investor") and a certified Community Development Entity under a qualified New Markets Tax Credit ("NMTC") program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the "Project"). In connection with the NMTC transaction, the Company received a $23.0 million NMTC allocation for the Project and secured low interest financing and the potential for future debt forgiveness related to the Project.

Upon closing of the NMTC transaction, the Company provided an aggregate of approximately $15.9 million to the Investor, in the form of a loan receivable, with a term of twenty-five years, bearing an interest rate of 1.0%. This $15.9 million in proceeds plus capital contributed from the Investor was used to make an aggregate $22.5 million loan to a subsidiary of the Company. This financing arrangement is secured by equipment at the Company's Longview, Texas facilities and a guarantee from the Company, including an unconditional guarantee of NMTCs.

***Stock Repurchase*** *-* The Board has authorized stock repurchase programs for the Company. The Company may purchase shares on the open market from time to time. The Board must authorize the timing and amount of these purchases and all repurchases are in accordance with the rules and regulations of the SEC allowing the Company to repurchase shares from the open market.

Our open market repurchase programs are as follows:

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| | | |
|:---|:---|:---|
| **Agreement Execution Date** | **Authorized Repurchase $** | **Expiration Date** |
| March 13, 2020 | $20 million | November 9, 2022 |
| November 3, 2022 | $50 million | \*\*<sup>1</sup> |
| <sup>1</sup> Expiration Date is at Board's discretion. The Company is authorized to effectuate repurchases of the Company's common stock on terms and conditions approved in advance by the Board. | <sup>1</sup> Expiration Date is at Board's discretion. The Company is authorized to effectuate repurchases of the Company's common stock on terms and conditions approved in advance by the Board. | <sup>1</sup> Expiration Date is at Board's discretion. The Company is authorized to effectuate repurchases of the Company's common stock on terms and conditions approved in advance by the Board. |

---

The Company also had a stock repurchase arrangement by which employee-participants in our 401(k) Plan were entitled to have shares in AAON, Inc. stock in their accounts sold to the Company. The 401(k) Plan was amended in June 2022 to discontinue this program. No additional shares have been purchased by the Company under this arrangement since June 2022.

Lastly, the Company repurchases shares of AAON, Inc. stock from certain of its directors and employees for payment of statutory tax withholdings on stock transactions. All other repurchases from directors or employees are contingent upon Board approval. All repurchases are done at current market prices.

Our repurchase activity is as follows:

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **2022** | **2022** | **2022** | **2021** | **2021** | **2021** |
|  | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* |
| Program | Shares | Total $ | $ per share | Shares | Total $ | $ per share |
| Open market | 122112 | $6823 | $55.87 |  | $— | $— |
| 401(k) | 103936 | 5913 | 56.89 | 297772 | 20876 | 70.11 |
| Directors and employees | 17228 | 1019 | 59.15 | 22526 | 1590 | 70.59 |
| Total | 243276 | $13755 | $56.54 | 320298 | $22466 | $70.14 |

---

---

| | | | |
|:---|:---|:---|:---|
| | **Inception to Date** | **Inception to Date** | **Inception to Date** |
|  | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* |
| Program | Shares | Total $ | $ per share |
| Open market | 4327367 | $81616 | $18.86 |
| 401(k) | 8308368 | 171789 | 20.68 |
| Directors and employees | 2044955 | 23360 | 11.42 |
| Total | 14680690 | $276765 | $18.85 |

---

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***Dividends*** - At the discretion of the Board of Directors, we pay cash dividends. Board approval is required to determine the date of declaration and amount for each cash dividend payment.

Our recent dividends are as follows:

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| | | | |
|:---|:---|:---|:---|
| **Declaration Date** | **Record Date** | **Payment Date** | **Dividend per Share** |
| May 17, 2021 | June 3, 2021 | July 1, 2021 | $0.19 |
| November 9, 2021 | November 26, 2021 | December 17, 2021 | $0.19 |
| May 18, 2022 | June 3, 2022 | July 1, 2022 | $0.19 |
| November 8, 2022 | November 28, 2022 | December 16, 2022 | $0.24 |

---

Based on historical performance and current expectations, we believe our cash and cash equivalents balance, the projected cash flows generated from our operations, our existing committed revolving credit facility (or comparable financing), and our expected ability to access capital markets will satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations in 2023 and the foreseeable future.

***Off-Balance Sheet Arrangements -*** We are not party to any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources.

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**Statement of Cash Flows**

The table below reflects a summary of our net cash flows provided by operating activities, net cash flows used in investing activities, and net cash flows provided by financing activities for the years indicated.

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| | | |
|:---|:---|:---|
| | **2022** | **2021** |
|  | *(in thousands)* | *(in thousands)* |
| **Operating Activities** |  |  |
| Net Income | $100376 | $58758 |
| Income statement adjustments, net | 38516 | 46566 |
| Changes in assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Accounts receivable | (56306) | (9737) |
| &nbsp;&nbsp;&nbsp;Income taxes | 18195 | (1136) |
| &nbsp;&nbsp;&nbsp;Inventories | (71409) | (45955) |
| &nbsp;&nbsp;&nbsp;Contract assets | (9402) | 1886 |
| &nbsp;&nbsp;&nbsp;Prepaid expenses and other long-term assets | (2367) | 1374 |
| &nbsp;&nbsp;&nbsp;Accounts payable | 11574 | 10899 |
| &nbsp;&nbsp;&nbsp;Contract liabilities | 13882 | (229) |
| &nbsp;&nbsp;&nbsp;Extended warranties | 1314 | 447 |
| &nbsp;&nbsp;&nbsp;Accrued liabilities and other long-term liabilities | 16945 | (1690) |
| Net cash provided by operating activities | 61318 | 61183 |
| **Investing Activities** |  |  |
| Capital expenditures | (54024) | (55362) |
| Cash paid for building (Note 4) | (22000) |  |
| Cash paid in business combination, net of cash acquired | (249) | (103430) |
| Other | 60 | 73 |
| Net cash used in investing activities | (76213) | (158719) |
| **Financing Activities** |  |  |
| Borrowings under revolving credit facility | 225758 | 40000 |
| Payments under revolving credit facility | (194754) |  |
| Principal payments on financing lease | (115) |  |
| Stock options exercised | 23140 | 21148 |
| Repurchase of stock | (12737) | (20876) |
| Employee taxes paid by withholding shares | (1018) | (1590) |
| Cash dividends paid to stockholders | (22917) | (19947) |
| Net cash provided by financing activities | $17357 | $18735 |

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*<u>Cash Flows from Operating Activities</u>*

The Company currently manages cash needs through working capital as well as drawing on its line of credit as needed. Collections and payments cycles are on a normal pattern and fluctuate due to timing of receipts and payments.

The decrease in cash flows from receivables was a result of a larger volume of sales in the fourth quarter of 2022 in addition to higher priced receivables at the end of 2022. The Company has also increased the purchase of inventory to take advantage of favorable pricing opportunities and also to mitigate the impact of future supply chain disruptions on our operations. Payment terms for BASX jobs typically require upfront cash to fund the job resulting in cash inflows related to our contract liabilities.

The increase in cash flows from income taxes is primarily due to the 2017 Tax Cuts & Jobs Act, which requires research and development expenses incurred after December 31, 2021 to be capitalized and amortized over 5 years. This defers our current period income tax deduction which increased our income tax payments for 2022.

The increase in cash flows from accrued and other long-term liabilities is primarily related to the increase in amounts due to Representatives (timing of receipts and payments), employee profit sharing, and increases in accrued payroll and employee benefits.

*<u>Cash Flows from Investing Activities</u>*

Net cash outflows from investing activities decreased in 2022 as compared to 2021 primarily due to the cash paid for the acquisition of BASX (Note 4) in December 2021. The cash paid for building is related to the purchase of the BASX office and manufacturing facility in May 2022 (Note 4).

Our capital expenditure program for 2023 is estimated to be approximately $135.0 million. Many of these projects are subject to review and cancellation at the discretion of our CEO and Board of Directors without incurring substantial charges.

*<u>Cash Flows from Financing Activities</u>*

The change in cash from financing activities in 2022 is primarily related to borrowings under our revolving credit facility to manage our working capital needs, especially strategic purchases of inventory to avoid supply chain delays and the funding of the BASX building in May 2022, offset by repayments we were able to make due to our increased operating results and financial condition.

Cash flow changes related to stock option exercised is affected by the timing of stock options exercised by our employees. The decrease in our repurchase of stock was the result of the discontinuance of the 401(k) buyback program in June 2022. Cash dividends paid to stock holders increased to $22.9 million both due to the increase in number of shares outstanding and the increase in dividend per share from $0.19 to $0.24 for the December 2022 dividend payment. We expect to continue paying cash dividends.

**Commitments and Contractual Agreements**

We are occasionally party to short-term, cancellable and occasionally non-cancellable, contracts with major suppliers for the purchase of raw material and component parts. We expect to receive delivery of raw materials for use in our manufacturing operations. These contracts are not accounted for as derivative instruments because they meet the normal purchase and normal sales exemption. We had no material contractual purchase obligations as of December 31, 2022, except as noted below.

On April 27, 2022, the Company entered into a purchase and sale agreement with a third party manufacturer to purchase certain assets to design and manufacture fan wheels for the purchase price of $6.5 million. As of December 31, 2022, we have paid approximately $3.5 million related to this agreement, which is included in other long-term assets and property, plant and equipment with the remaining $3.0 million included in accounts payable and other long-term assets on our consolidated balance sheets. The final payment will be made in 2023.

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**Contingencies**

We are subject to various claims and legal actions that arise in the ordinary course of business. We closely monitor these claims and legal actions and frequently consult with our legal counsel to determine whether they may, when resolved, have a material adverse effect on our financial position, results of operations or cash flows and we accrue and/or disclose loss contingencies as appropriate. See Note 18 of the Consolidated Financial Statements for additional information with respect to specific legal proceedings.

**Critical Accounting Estimates**

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America ("US GAAP") and the Company's discussion and analysis of its financial condition and operating results require management to make estimates and assumptions about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, and expenses in our consolidated financial statements and related notes. We base our estimates, assumptions, and judgments on historical experience, current trends, and other factors believed to be relevant at the time our consolidated financial statements are prepared. However, because future events and their effects cannot be determined with certainty, actual results could differ from our estimates and assumptions, and such differences could be material. We believe the following critical accounting policies affect our more significant estimates, assumptions and judgments used in the preparation of our consolidated financial statements. We discuss these estimates with the Audit Committee of the Board of Directors periodically.

***Inventor*y** - Inventories are valued at the lower of cost or net realizable value using the first-in, first-out ("FIFO") method. Raw material or component inventory typically transfers from one stage of manufacturing to another at a standard cost. The standard cost is set by management to reflect the actual costs incurred. We continually monitor standard costs to ensure that standard costs reasonably reflect the FIFO value of the inventory produced and make manual adjusts the value of inventory accordingly. Our manual adjustments from standards to actual inventory costs require applying judgment regarding a number of factors, including changes in inventory quantities during the period and recent versus historical inventory purchase costs.

Raw material or component inventory typically transfers from one stage of manufacturing to another where it accumulates additional costs directly incurred with the production of finished goods, including estimated standard labor and overhead costs. Labor and overhead costs associated with the manufacturing of our products are capitalized into inventory on an estimated standard basis. These include certain direct and indirect costs such as compensation, manufacturing, and facility costs associated with manufacturing support functions. We continually monitor our labor and overhead standard costs to ensure that standard costs reasonably reflects our actual costs and make manual adjusts the value of inventory accordingly. Our manual adjustments from standard to actual labor and overhead costs contain uncertainties that require management to make assumptions and to apply judgment regarding a number of factors, including inventory turns, supply usage, manufacturing efficiencies, and historical production costs.

***Inventory Reserves*** – We establish a reserve for inventories based on the change in inventory requirements due to product line changes, the feasibility of using obsolete parts for upgraded part substitutions, the required parts needed for part supply sales and replacement parts, and for estimated shrinkage. Assumptions used to estimate inventory reserves include future manufacturing requirements and industry trends. Evolving technology and changes in product mix or customer demand can significantly affect the outcome of this analysis.

***Warranty Accrual*** – A provision is made for estimated warranty costs at the time the product is shipped and revenue is recognized. Our product warranty policy is the earlier of one year from the date of first use or 18 months from date of shipment for parts only; 18 months for data center cooling solutions and cleanroom systems; an additional four years for compressors (if applicable); 15 years on aluminized steel gas-fired heat exchangers (if applicable); 25 years on stainless steel heat exchangers (if applicable); and ten years on gas-fired heat exchangers in our historical RL products (if applicable). Our warranty policy for the RQ series covers parts for two years from date of unit shipment. Our warranty policy for the WH and WV Series geothermal/water-source heat pumps covers parts for five years from the date of installation. Warranty expense is estimated based on the warranty period, historical warranty trends and associated costs, and any known identifiable warranty issue.

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Due to the absence of warranty history on new products, an additional provision may be made for such products. Our estimated future warranty cost is subject to adjustment from time to time depending on changes in actual warranty trends and cost experience. Should actual claim rates differ from our estimates, revisions to the estimated product warranty liability would be required.

***Share-Based Compensation*** – We measure and recognize compensation expense for all share-based payment awards made to our employees and directors, including stock options, restricted stock awards, performance stock units ("PSUs"), and key employee awards ("Key Employee Awards") based on their fair values at the time of grant. Compensation expense is recognized on a straight-line basis over the service period of stock options, restricted stock awards, and PSUs. Compensation expense is recognized for the Key Employee Awards on a straight line basis over the service period when the performance condition is determined to be probable. Forfeitures are accounted for as they occur. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The fair value of the PSUs is estimated on the date of grant using the Monte Carlo Model. The use of the Black-Scholes-Merton option valuation model and the Monte Carlo Model requires the input of subjective assumptions such as: the expected volatility, the expected term of the grant, forward-looking market conditions, risk-free rate, and expected dividend yield for stock options. The fair value of restricted stock awards and Key Employee Awards is based on the fair market value of AAON common stock on the respective grant dates. The fair value of restricted stock awards is reduced for the present value of dividends.

***Definite-Lived Intangible Assets*** – Definite-lived intangible assets include various customer relationships and intellectual property acquired in business combinations. The fair value of customer relationships and intellectual property is estimated based on management's judgments and assumptions or third party valuation models. These models requires the use of subjective inputs and assumptions such as expected useful lives, growth of existing customers, attrition of customers, future margins and expenses, discount rates, and future revenue growth. These inputs and assumptions can be inherently uncertain and can significantly affect the outcome of the estimates and analysis. We amortize our definite-lived intangible assets on a straight-line basis over the estimated useful lives of the assets. Our definite-lived intangible assets have estimated used lives of between 14 and 30 years. We evaluate the carrying value of our amortizable intangible assets for potential impairment when events and circumstances warrant such a review.

***Goodwill and Indefinite-Lived Intangible Assets*** – Goodwill represents the excess of the consideration paid for the acquired businesses over the fair value of the individual assets acquired, net of liabilities assumed. Indefinite-lived intangible assets consist of trademarks and trade names. The fair value of trademarks and trade names is estimated based on management's judgments and assumptions or third party valuations. These models require the use of subjective inputs such as royalty rate, discount rate, and terminal value.

Goodwill and indefinite-lived intangible assets are not amortized, but instead are evaluated for impairment at least annually. We perform our annual assessment of impairment during the fourth quarter of our fiscal year, and more frequently if circumstances warrant.

To perform this assessment, we first consider qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit and indefinite-lived intangible assets exceeds their carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit and indefinite-lived assets does not exceed their carrying amount, we calculate the fair value for the reporting unit and indefinite-lived assets and compare the amount to their carrying amount. If the fair value of a reporting unit and indefinite-lived asset exceeds their carrying amount, the reporting unit and indefinite-lived assets are not considered impaired. If the carrying amount of the reporting unit and indefinite-lived assets exceeds their fair value, the reporting unit and indefinite-lived assets are considered to be impaired and the balance is reduced by the difference between the fair value and carrying amount of the reporting unit and indefinite-lived assets.

We performed a qualitative assessment as of December 31, 2022 to determine whether it was more likely than not that the fair value of the reporting unit and indefinite-lived assets was greater than the carrying value of the reporting unit and indefinite-lived assets. Based on these qualitative assessments, we determined that the fair value of the reporting unit and indefinite-lived assets was more likely than not greater than the carrying value of the reporting unit and indefinite-lived assets.

Estimates and assumptions used to perform the impairment evaluation are inherently uncertain and can significantly affect the outcome of the analysis. The estimates and assumptions we use in the annual impairment assessment

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included macro-industry trends, market participant considerations, historical profitability, including free cash flows, and forecasted multi-year operating results. Changes in operating results and other assumptions could materially affect these estimates. A considerable amount of management judgment and assumptions are required in performing the impairment tests.

***Contingent Consideration*** – As part of a business combination, we agreed to issue shares of the Company's common stock based on certain milestones in accordance with the acquisition agreement. This contingent consideration is valued at fair value on the acquisition date and is included in goodwill and additional paid-in capital on the consolidated balance sheets.

The fair value of the contingent consideration was determined using the Option Pricing Method through a Monte Carlo simulation, as this model is appropriate for contingent considerations for which the payoff structure is nonlinear. The use of this model requires the input of subjective inputs and assumptions such as: future earnings, the expected volatility of future earnings, risk-free rate, discount rate, and future stock performance. These inputs and assumptions can be inherently uncertain and can significantly affect the outcome of the estimates and analysis.

**New Accounting Pronouncements**

Changes to U.S. GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of accounting standards updates ("ASUs") to the FASB's Accounting Standards Codification.

We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements and notes thereto.

**Item 7A. Quantitative and Qualitative Disclosures About Market Risk.**

**Commodity Price Risk**

We are exposed to volatility in the prices of commodities used in some of our products and, occasionally, we use cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months to manage this exposure.

**Interest Rate Risk**

We are exposed to changes in interest rates related to our outstanding debt. As of December 31, 2022, we had an outstanding balance of $71.0 million. For each one percentage point increase in the interest rate applicable to our outstanding debt, our annual income before taxes would decrease by approximately $0.7 million.

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**Item 8. Financial Statements and Supplementary Data.**

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

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| | |
|:---|:---|
| | <u>Page</u> |
| Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248) | <u>[32](#i6b9a041723e54da7a151d85043255d9f_67)</u> |
| Consolidated Balance Sheets | <u>[34](#i6b9a041723e54da7a151d85043255d9f_70)</u> |
| Consolidated Statements of Income | <u>[35](#i6b9a041723e54da7a151d85043255d9f_73)</u> |
| Consolidated Statements of Stockholders' Equity | <u>[36](#i6b9a041723e54da7a151d85043255d9f_76)</u> |
| Consolidated Statements of Cash Flows | <u>[37](#i6b9a041723e54da7a151d85043255d9f_79)</u> |
| Notes to Consolidated Financial Statements | <u>[38](#i6b9a041723e54da7a151d85043255d9f_82)</u> |

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

Board of Directors and Stockholders

AAON, Inc.

**Opinion on the financial statements** 

We have audited the accompanying consolidated balance sheets of AAON, Inc. (a Nevada corporation) and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 *Internal Control—Integrated Framework* issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), and our report dated February 27, 2023 expressed an unqualified opinion.

**Basis for opinion** 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

**Critical audit matter**

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

*Inventory – manual inventory adjustments* 

As described in Note 2 to the financial statements, the Company reports inventory using the first in, first out ("FIFO") method, which involves manual adjustments recorded to the general ledger such as inventory variance, inventory allowance and labor and overhead adjustments, which had the potential to be larger or require more judgment during the year ended December 31, 2022, where the Company experienced changes in the prices of certain raw materials due to the COVID-19 pandemic, as well as supply chain challenges. These manual adjustments have been identified as a critical audit matter.

The principal considerations for our determination such manual inventory adjustments are a critical audit matter are these manual adjustments require substantial use of management estimates and require the Company to have effective inventory valuation processes. Significant management judgments and estimates utilized to determine manual inventory adjustments are subject to estimation uncertainty and require significant auditor subjectivity in evaluating the reasonableness of those judgments and estimates.

Our audit procedures related to the manual inventory adjustments included the following, among others.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We tested the design and operating effectiveness of controls over inventory valuation, including the standard cost updates in the accounting system and the completeness and accuracy of the inputs to the inventory variance calculation and any related adjustments.

------

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We recalculated the Company's standard costing of inventory which approximated FIFO by obtaining FIFO buildups and inspected underlying documents for a sample of raw materials.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We assessed the reasonableness of management's inventory reserve by recalculating the reserve using management's inputs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We tested labor and overhead rate changes by recalculating the rates used and tested any adjustments recorded to the general ledger.

/s/ GRANT THORNTON LLP

We have served as the Company's auditor since 2004.

Tulsa, Oklahoma

February 27, 2023

------

---

| | | |
|:---|:---|:---|
| **AAON, Inc. and Subsidiaries** | **AAON, Inc. and Subsidiaries** | **AAON, Inc. and Subsidiaries** |
| **Consolidated Balance Sheets** | **Consolidated Balance Sheets** | **Consolidated Balance Sheets** |
| | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
| **Assets** | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* |
| Current assets: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents | $5451 | $2859 |
| &nbsp;&nbsp;&nbsp;&nbsp;Restricted cash | 498 | 628 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable, net of allowance for credit losses of $477 and $549, respectively | 127158 | 70780 |
| &nbsp;&nbsp;&nbsp;&nbsp;Income tax receivable |  | 5723 |
| &nbsp;&nbsp;&nbsp;&nbsp;Inventories, net | 198939 | 130270 |
| &nbsp;&nbsp;&nbsp;&nbsp;Contract assets | 15151 | 5749 |
| &nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other | 1919 | 2071 |
| Total current assets | 349116 | 218080 |
| Property, plant and equipment: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Land | 8537 | 5016 |
| &nbsp;&nbsp;&nbsp;&nbsp;Buildings | 169156 | 135861 |
| &nbsp;&nbsp;&nbsp;&nbsp;Machinery and equipment | 342045 | 318259 |
| &nbsp;&nbsp;&nbsp;&nbsp;Furniture and fixtures | 30033 | 23072 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total property, plant and equipment | 549771 | 482208 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less: Accumulated depreciation | 245026 | 224146 |
| &nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment, net | 304745 | 258062 |
| Intangible assets, net | 64606 | 70121 |
| Goodwill | 81892 | 85727 |
| Right of use assets | 7123 | 16974 |
| Other long-term assets | 6421 | 1216 |
| Total assets | $813903 | $650180 |
| **Liabilities and Stockholders' Equity** |  |  |
| Current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | $45513 | $29020 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued liabilities | 78630 | 50206 |
| &nbsp;&nbsp;&nbsp;&nbsp; Contract liabilities | 21424 | 7542 |
| Total current liabilities | 145567 | 86768 |
| Revolving credit facility, long-term | 71004 | 40000 |
| Deferred tax liabilities | 18661 | 31993 |
| Other long-term liabilities | 11508 | 18843 |
| New market tax credit obligation (a) | 6449 | 6406 |
| Commitments and contingencies (Note 18) |  |  |
| Stockholders' equity: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Common stock, $.004 par value, 100,000,000 shares authorized, 53,425,184 and 52,527,985 issued and outstanding at December 31, 2022 and 2021, respectively  | 214 | 210 |
| &nbsp;&nbsp;&nbsp;&nbsp;Additional paid-in capital | 98735 | 81654 |
| &nbsp;&nbsp;&nbsp;&nbsp;Retained earnings | 461765 | 384306 |
| Total stockholders' equity | 560714 | 466170 |
| Total liabilities and stockholders' equity | $813903 | $650180 |
| &nbsp;&nbsp;&nbsp;&nbsp; (a) Held by variable interest entities (Note 17) |  |  |

---

The accompanying notes are an integral part of these consolidated financial statements.

------

---

| | | | |
|:---|:---|:---|:---|
| **AAON, Inc. and Subsidiaries** | **AAON, Inc. and Subsidiaries** | **AAON, Inc. and Subsidiaries** | **AAON, Inc. and Subsidiaries** |
| **Consolidated Statements of Income** | **Consolidated Statements of Income** | **Consolidated Statements of Income** | **Consolidated Statements of Income** |
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** | **2020** |
|  | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* |
| Net sales | $888788 | $534517 | $514551 |
| Cost of sales | 651216 | 396687 | 358702 |
| Gross profit | 237572 | 137830 | 155849 |
| Selling, general and administrative expenses | 110823 | 68598 | 60491 |
| Gain on disposal of assets and insurance recoveries | (12) | (21) | (6478) |
| Income from operations | 126761 | 69253 | 101836 |
| Interest (expense) income, net | (2627) | (132) | 88 |
| Other income, net | 399 | 61 | 51 |
| Income before taxes | 124533 | 69182 | 101975 |
| Income tax provision | 24157 | 10424 | 22966 |
| Net income | $100376 | $58758 | $79009 |
| Earnings per share: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Basic | $1.89 | $1.12 | $1.51 |
| &nbsp;&nbsp;&nbsp;&nbsp;Diluted | $1.86 | $1.09 | $1.49 |
| Cash dividends declared per common share: | $0.43 | $0.38 | $0.38 |
| Weighted average shares outstanding: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Basic | 53054986 | 52404199 | 52168679 |
| &nbsp;&nbsp;&nbsp;&nbsp;Diluted | 54097072 | 53728989 | 53061169 |

---

The accompanying notes are an integral part of these consolidated financial statements.

------

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **AAON, Inc. and Subsidiaries** | **AAON, Inc. and Subsidiaries** | **AAON, Inc. and Subsidiaries** | **AAON, Inc. and Subsidiaries** | **AAON, Inc. and Subsidiaries** | **AAON, Inc. and Subsidiaries** |
| **Consolidated Statements of Stockholders' Equity** | **Consolidated Statements of Stockholders' Equity** | **Consolidated Statements of Stockholders' Equity** | **Consolidated Statements of Stockholders' Equity** | **Consolidated Statements of Stockholders' Equity** | **Consolidated Statements of Stockholders' Equity** |
| | **Common Stock** | **Common Stock** | **Paid-in** | **Retained** | |
| | **Shares** | **Amount** | **Capital** | **Earnings** | **Total** |
|  | *(in thousands)* | *(in thousands)* | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| Balance at December 31, 2019 | 52079 | $208 | $3631 | $286301 | $290140 |
| Net income |  |  |  | 79009 | 79009 |
| Stock options exercised and restricted | 712 | 3 | 21415 |  | 21418 |
| &nbsp;&nbsp;&nbsp;&nbsp;stock awards granted |  |  |  |  |  |
| Share-based compensation |  |  | 11342 |  | 11342 |
| Stock repurchased and retired | (566) | (2) | (31227) |  | (31229) |
| Dividends |  |  |  | (19815) | (19815) |
| Balance at December 31, 2020 | 52225 | 209 | 5161 | 345495 | 350865 |
| Net income |  |  |  | 58758 | 58758 |
| Stock options exercised and restricted | 623 | 2 | 21146 |  | 21148 |
| &nbsp;&nbsp;&nbsp;&nbsp;stock awards granted |  |  |  |  |  |
| Share-based compensation |  |  | 11812 |  | 11812 |
| Stock repurchased and retired | (320) | (1) | (22465) |  | (22466) |
| Contingent consideration (Note 4) |  |  | 66000 |  | 66000 |
| Dividends |  |  |  | (19947) | (19947) |
| Balance at December 31, 2021 | 52528 | 210 | 81654 | 384306 | 466170 |
| Net income |  |  |  | 100376 | 100376 |
| Stock options exercised and restricted | 1140 | 5 | 23135 |  | 23140 |
| &nbsp;&nbsp;&nbsp;&nbsp;stock awards granted |  |  |  |  |  |
| Share-based compensation |  |  | 13700 |  | 13700 |
| Stock repurchased and retired | (243) | (1) | (13754) |  | (13755) |
| Contingent consideration (Note 4) |  |  | (6000) |  | (6000) |
| Dividends |  |  |  | (22917) | (22917) |
| Balance at December 31, 2022 | 53425 | $214 | $98735 | $461765 | $560714 |

---

The accompanying notes are an integral part of these consolidated financial statements.

------

---

| | | | |
|:---|:---|:---|:---|
| **AAON, Inc. and Subsidiaries** | **AAON, Inc. and Subsidiaries** | **AAON, Inc. and Subsidiaries** | **AAON, Inc. and Subsidiaries** |
| **Consolidated Statements of Cash Flows** | **Consolidated Statements of Cash Flows** | **Consolidated Statements of Cash Flows** | **Consolidated Statements of Cash Flows** |
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** | **2020** |
| **Operating Activities** | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income | $100376 | $58758 | $79009 |
| &nbsp;&nbsp;&nbsp; Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 35106 | 30343 | 25634 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of debt issuance costs | 43 | 43 | 43 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of right of use assets | 324 | 73 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for credit losses on accounts receivable, net of adjustments | (72) | 43 | 153 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for excess and obsolete inventories | 2740 | 629 | 1108 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Share-based compensation | 13700 | 11812 | 11342 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on disposition of assets and insurance recoveries | (12) | (21) | (6478) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign currency transaction loss (gain) | 41 | (1) | (12) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income on note receivable | (22) | (24) | (24) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes | (13332) | 3669 | 13027 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in assets and liabilities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | (56306) | (9737) | 19859 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes | 18195 | (1136) | (3815) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories | (71409) | (45955) | (9726) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contract assets | (9402) | 1886 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other long-term assets | (2367) | 1374 | (2364) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | 11574 | 10899 | (2155) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contract liabilities | 13882 | (229) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Extended warranties | 1314 | 447 | 1010 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued liabilities and other long-term liabilities | 16945 | (1690) | 2203 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by operating activities | 61318 | 61183 | 128814 |
| **Investing Activities** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Capital expenditures | (54024) | (55362) | (67802) |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash paid for building (Note 4) | (22000) |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash paid in business combination, net of cash acquired | (249) | (103430) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from sale of property, plant and equipment | 12 | 19 | 60 |
| &nbsp;&nbsp;&nbsp;&nbsp;Insurance proceeds |  |  | 6417 |
| &nbsp;&nbsp;&nbsp;&nbsp;Principal payments from note receivable | 48 | 54 | 52 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net cash used in investing activities | (76213) | (158719) | (61273) |
| **Financing Activities** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Borrowings under revolving credit facility | 225758 | 40000 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Payments under revolving credit facility | (194754) |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Principal payments on financing lease | (115) |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Stock options exercised | 23140 | 21148 | 21418 |
| &nbsp;&nbsp;&nbsp;&nbsp;Repurchase of stock | (12737) | (20876) | (30060) |
| &nbsp;&nbsp;&nbsp;&nbsp;Employee taxes paid by withholding shares | (1018) | (1590) | (1169) |
| &nbsp;&nbsp;&nbsp;&nbsp;Dividends paid to stockholders | (22917) | (19947) | (19815) |
| &nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by (used in) financing activities | 17357 | 18735 | (29626) |
| **Net increase (decrease) in cash, cash equivalents and restricted cash** | 2462 | (78801) | 37915 |
| **Cash, cash equivalents and restricted cash, beginning of year** | 3487 | 82288 | 44373 |
| **Cash, cash equivalents and restricted cash, end of year** | $5949 | $3487 | $82288 |

---

The accompanying notes are an integral part of these consolidated financial statements.

------

**AAON, Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

**December 31, 2022** 

**1. Business Description**

AAON, Inc. is a Nevada corporation which was incorporated on August 18, 1987. Our operating subsidiaries include AAON, Inc., an Oklahoma corporation, AAON Coil Products, Inc., a Texas corporation, and BasX, Inc., an Oregon corporation (collectively, the "Company"). The consolidated financial statements include our accounts and the accounts of our subsidiaries.

We are engaged in the engineering, manufacturing, marketing, and sale of premium air conditioning and heating equipment consisting of standard, semi-custom, and custom rooftop units, data centers cooling solutions, cleanroom systems, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils, and controls.

***Impact of COVID-19 Pandemic***

The magnitude of the impact of the COVID-19 pandemic remains unpredictable and could unfavorably impact our business. However, the direct effects of the COVID-19 pandemic has had no significant impact on our planned cash outflows for raw materials, dividend payments, or capital expenditures.

Although future disruptions and costs are expected to be temporary, there is still significant uncertainty around the duration and overall impacts to our business operations. We are continually monitoring the progression of the pandemic, including new COVID-19 variants, and their potential effect on our consolidated financial position, results of operations and cash flows.

***Inflation and Labor Market***

In late 2021 and throughout 2022, we have witnessed increases in our raw material and component prices. Due to our favorable liquidity position, we continue to make strategic purchases of materials when we see opportunities. We continue to manage the increase in the cost of raw materials through price increases for our products. We have also experienced supply chain challenges related to specific manufacturing parts, which we have managed through our strong vendor relationships as well as expanding our list of vendors.

Additionally, we continue to experience challenges in a tight labor market, especially the hiring of both skilled and unskilled production labor. We have implemented the following wage increases to remain competitive and to attract and retain employees:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In March 2021, we awarded annual merit raises for an overall 5.0% increase to wages.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In July 2021, we increased starting wages for our production workforce by 7.0%.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In October 2021, we implemented a cost of living increase of 3.5% in place for all employees

below our Senior Leadership Team ("SLT") which consists of officers and key members of management.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In March 2022, we awarded annual merit raises for an overall 3.0% increase to wages.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In October 2022, we implemented a cost of living increase of 3.5% in place for all employees

below the SLT level.

We will continue to implement human resource initiatives to retain and attract labor to further improve productivity and production efficiencies.

Despite efforts to mitigate the impact of inflation, supply chain issues and the tight labor market, future disruptions, while temporary, could negatively impact our consolidated financial position, results of operations and cash flows.

------

***First Quarter 2021 Planned Maintenance and Adverse Weather***

During the fourth quarter of 2020, we made the strategic decision to shut down our Tulsa, OK and Longview, TX manufacturing facilities to perform planned and necessary maintenance during the last week of December 2020 as well several days in early January 2021.

In February 2021, record-breaking winter storms affected Oklahoma and Texas, causing sustained below freezing temperatures, hazardous driving conditions, rolling blackouts, water main breaks, and a host of other weather related issues. In addition to significant absenteeism as a result of employees being unable to travel to and from work due to inadequate transportation and/or hazardous road conditions, the Company made the decision to shut down the Tulsa, OK and Longview, TX plants for several days. This decision was based on the expected employee absenteeism as well as the expected rolling blackouts caused by the increased demand on the electrical and natural gas power grids.

***WH Series and WV Series Water Source Heat Pump Units***

As part of the normal course of business, management is continually monitoring the profitability of the Company's various product series offerings. During the third quarter of 2022, management made the decision to no longer produce our small packaged geothermal/water-source heat pump units consisting of the WH Series horizontal configuration and WV Series vertical configuration, from one-half to 12 1/2 tons ("WH/WV"). These WH/WV units are produced solely out of the AAON Oklahoma facility. Production of the remaining WH/WV backlog is expected to continue through the first quarter of 2023.

A majority of the long-lived assets used in the production of these units will be immediately reallocated to other product production, providing us additional manufacturing capacity with minimal costs. The workforce from the these production lines will also be reallocated to other product production lines. Management has identified some related components and parts that cannot be used in other products or sold through our parts business; therefore, we have increased our provision for excess and obsolete inventory (Note 7), within cost of sales on our consolidated statements of income, by approximately $1.2 million during the year ended December 31, 2022.

***Change in Estimate***

During the first quarter of 2022, a review of the Company's useful lives for certain sheet metal manufacturing equipment at our Longview, Texas facilities resulted in a change in estimate that increased the useful lives from between ten and twelve years to fifteen years. This determination was based on recent and estimated future production levels as well as management's knowledge of the equipment and historical and future use of the equipment. The change in estimate was made prospectively and resulted in a decrease to depreciation expense within cost of sales on our consolidated statements of income of $1.8 million during the year ended December 31, 2022.

We do not believe the impact of these events had a material adverse effect on our consolidated financial position, results of operations and cash flows.

**2. Summary of Significant Accounting Policies**

***Principles of Consolidation***

These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.

Our financial statements consolidate all of our affiliated entities in which we have a controlling financial interest. Because we hold certain rights that give us the power to direct the activities of two variable interest entities ("VIEs") (Note 17) that most significantly impact the VIEs economic performance, combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, we have a controlling financial interest in those VIEs.

On December 10, 2021, we closed on the acquisition of all of the issued and outstanding equity ownership of BasX, LLC, doing business as BASX Solutions. (Note 4). On December 29, 2021, BasX, LLC converted to a C-Corporation, BasX, Inc. ("BASX"), and is subject to income tax. We have included the results of BASX's operations in our consolidated financial statements beginning December 11, 2021.

------

***Cash and Cash Equivalents***

We consider all highly liquid temporary investments with original maturity dates of three months or less to be cash equivalents. Cash and cash equivalents consist of bank deposits and highly liquid, interest-bearing money market funds.

The Company's cash and cash equivalents are held in a few financial institutions in amounts that exceed the insurance limits of the Federal Deposit Insurance Corporation. However, management believes that the Company's counterparty risks are minimal based on the reputation and history of the institutions selected.

***Restricted Cash***

Restricted cash held at December 31, 2022 and December 31, 2021 consists of bank deposits and highly liquid, interest-bearing money market funds held for the purpose of the Company's qualified New Markets Tax Credit program (Note 17) to benefit an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations.

The Company's restricted cash is held in a financial institutions in amounts that exceed the insurance limits of the Federal Deposit Insurance Corporation. However, management believes that the Company's counterparty risks are minimal based on the reputation and history of the institutions selected.

***Accounts and Note Receivable***

Accounts and note receivable are stated at amounts due from customers, net of an allowance for credit losses. We generally do not require that our customers provide collateral; however, our billings and customer payment terms can vary based on product type as a way to manage collections risk. The Company determines its allowance for credit losses by considering a number of factors, including the credit risk of specific customers, the customer's ability to pay current obligations, historical trends, economic and market conditions, and the age of the receivable. Accounts are considered past due when the balance has been outstanding for ninety days past negotiated credit terms. Past due accounts are generally written-off against the allowance for credit losses only after all collection attempts have been exhausted.

***Concentration of Credit Risk***

Our customers are concentrated primarily in the domestic commercial and industrial new construction and replacement markets. To date, our sales have been primarily to the domestic market, with foreign sales accounting for approximately 3.1%, 3.0%, and 2.0% of revenues for the years ended December 31, 2022, 2021, and 2020, respectively.

One customer, Texas AirSystems LLC, accounted for more than 10.0% of our sales during 2022, 2021, and 2020. No other customer accounted for more than 10.0% of our sales during 2022, 2021, and 2020. One customer, Texas AirSystems LLC, accounted for more than 10.0% of our accounts receivable balance at December 31, 2022. No customers accounted for more than 10.0% of our accounts receivable balance at December 31, 2021.

***Inventories***

Inventories are valued at the lower of cost or net realizable value using the first-in, first-out ("FIFO") or average cost method. Cost in inventory includes purchased parts and materials, direct labor and applied manufacturing overhead. We establish an allowance for excess and obsolete inventories based on product line changes, the feasibility of substituting parts and the need for supply and replacement parts.

------

***Property, Plant and Equipment***

Property, plant, and equipment, including significant improvements, are recorded at cost, net of accumulated depreciation; except for property, plant, and equipment acquired in a business combination which is recorded at fair value. Repairs and maintenance and any gains or losses on disposition are included in operations.

Depreciation is computed using the straight-line method over the following estimated useful lives:

---

| | |
|:---|:---|
| Buildings and leasehold improvements | 3 - 40 years |
| Machinery and equipment | 3 - 20 years |
| Furniture and fixtures | 3 - 15 years |

---

On April 22, 2020, our plant and office facilities in Tulsa, Oklahoma experienced hail related weather damage and we filed a property insurance claim which carried a $500,000 deductible. We did not experience any significant structural damage or any operational interruption as a result of this weather event. In November 2020, we reached a final settlement with our insurance carrier, resulting in a net cumulative gain of $6.4 million, which is included in the consolidated statements of income. The received proceeds were used to make improvements to the current roof at our plant and office facilities in Tulsa, Oklahoma to extend the overall useful life.

In January 2023, we purchased additional real property and improvements for our AAON Coil Products operations in Longview, Texas for $3.6 million. This additional property consists of 64,000 square feet of warehouse space that will enable the continued growth of our AAON Coil Products operations.

***Business Combinations***

The Company applies the acquisition method of accounting for business acquisitions. The results of operations of the businesses acquired by the Company are included as of the respective acquisition date. The acquisition date fair value of the consideration transferred, including the fair value of any contingent consideration, is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. To the extent the acquisition date fair value of the consideration transferred exceeds the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. The Company may adjust the preliminary purchase price allocation, as necessary, as it obtains more information regarding asset valuations and liabilities assumed that existed but were not available at the acquisition date, which is generally up to one year after the acquisition closing date. Acquisition related expenses are recognized separately from the business combination and are expensed as incurred.

***Fair Value Financial Instruments and Measurements***

The carrying amounts of cash and cash equivalents, receivables, accounts payable, and accrued liabilities approximate fair value because of the short-term maturity of the items. The carrying amount of the Company's revolving line of credit, and other payables, approximate their fair values either due to their short term nature, the variable rates associated with the debt or based on current rates offered to the Company for debt with similar characteristics.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Fair value is based upon assumptions that market participants would use when pricing an asset or liability. We use the following fair value hierarchy, which prioritizes valuation technique inputs used to measure fair value into three broad levels:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Level 1: Quoted prices in active markets for identical assets and liabilities that we have the ability to access at the measurement date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Level 2: Inputs (other than quoted prices included within Level 1) that are either directly or indirectly observable for the asset or liability, including (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in inactive markets, (iii) inputs other than quoted prices that are observable for the asset or liability, and (iv) inputs that are derived from observable market data by correlation or other means.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Level 3: Unobservable inputs for the asset or liability including situations where there is little, if any, market activity for the asset or liability. Items categorized in Level 3 include the estimated fair values of

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property, plant and equipment, intangible assets, contingent consideration, and goodwill acquired in a business combination.

The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall into different levels of the fair value hierarchy. The lowest level input that is significant to a fair value measurement determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to a fair value measurement requires judgment, considering factors specific to the asset or liability.

***Definite-Lived Intangible Assets***

Our definite-lived intangible assets include various trademarks, service marks, and technical knowledge acquired in business combinations (Note 4). We amortize our definite-lived intangible assets on a straight-line basis over the estimated useful lives of the assets. We evaluate the carrying value of our amortizable intangible assets for potential impairment when events and circumstances warrant such a review.

Amortization is computed using the straight-line method over the following estimated useful lives:

Intellectual property 30 years <br> Customer relationships 14 years

***Goodwill and Indefinite-Lived Intangible Assets***

Goodwill represents the excess of the consideration paid for the acquired businesses over the fair value of the individual assets acquired, net of liabilities assumed. Indefinite-lived intangible assets consist of trademarks and trade names and are also subject to at least annual impairment testing. Goodwill and indefinite-lived intangible assets are not amortized, but instead are evaluated for impairment at least annually. We perform our annual assessment of impairment during the fourth quarter of our fiscal year, and more frequently if circumstances warrant.

To perform this assessment, we first consider qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit and indefinite-lived intangible assets exceeds their carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit and indefinite-lived assets does not exceed their carrying amount, we calculate the fair value for the reporting unit and indefinite-lived assets and compare the amount to their carrying amount. If the fair value of a reporting unit and indefinite-lived asset exceeds their carrying amount, the reporting unit and indefinite-lived assets are not considered impaired. If the carrying amount of the reporting unit and indefinite-lived assets exceeds their fair value, the reporting unit and indefinite-lived assets are considered to be impaired and the balance is reduced by the difference between the fair value and carrying amount of the reporting unit and indefinite-lived assets.

We performed a qualitative assessment as of December 31, 2022 to determine whether it was more likely than not that the fair value of the reporting unit and indefinite-lived assets was greater than the carrying value of the reporting unit and indefinite-lived assets. Based on these qualitative assessments, we determined that the fair value of the reporting unit and indefinite-lived assets was more likely than not greater than the carrying value of the reporting unit and indefinite-lived assets.

Estimates and assumptions used to perform the impairment evaluation are inherently uncertain and can significantly affect the outcome of the analysis. The estimates and assumptions we use in the annual impairment assessment included market participant considerations and future forecasted operating results. Changes in operating results and other assumptions could materially affect these estimates. A considerable amount of management judgment and assumptions are required in performing the impairment tests.

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The changes in the carrying amount of goodwill were as follows:

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| | | |
|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** |
| | **2022** | **2021** |
|  | *(in thousands)* | *(in thousands)* |
| Balance, beginning of period | $85727 | $3229 |
| Additions due to acquisitions (Note 4) |  | 82498 |
| Decreases due to acquisition adjustments (Note 4) | (3835) |  |
| Balance, end of period | 81892 | 85727 |

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***Contingent Consideration***

As part of a business combination, we agreed to issue shares of the Company's common stock based on certain milestones in accordance with the acquisition agreement. This contingent consideration is valued at fair value on the acquisition date and is included in additional paid-in capital on the consolidated balance sheets.

***Impairment of Long-Lived Assets***

We review long-lived assets for possible impairment when events or changes in circumstances indicate, in management's judgment, that the carrying amount of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset or asset group to its estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the undiscounted cash flows are less than the carrying amount of the asset or asset group, an impairment loss is recognized for the amount by which the carrying amount of the asset or asset group exceeds its fair value.

***Research and Development***

The costs associated with research and development for the purpose of developing and improving new products are expensed as incurred. For the years ended December 31, 2022, 2021, and 2020 research and development costs amounted to approximately $46.8 million, $16.6 million, and $17.4 million, respectively. The significant increase for the year ended December 31, 2022 was related to the inclusion of a full year of operations of BASX (Note 4), as well as our commitment to product performance and innovation.

***Advertising***

Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2022, 2021, and 2020 was approximately $2.4 million, $1.6 million, and $0.8 million, respectively.

***Shipping and Handling***

We incur shipping and handling costs in the distribution of products sold that are recorded in cost of sales. Shipping charges that are billed to the customer are recorded in revenues and as an expense in cost of sales. For the years ended December 31, 2022, 2021, and 2020 shipping and handling fees amounted to approximately $24.4 million, $14.4 million, and $14.3 million, respectively.

***Income Taxes***

Income taxes are accounted for under the asset and liability method. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. Excess tax benefits and deficiencies are reported as an income tax benefit or expense on the statement of income and are treated as discrete items to the income tax provision in the reporting period in which they occur. We establish accruals for unrecognized tax positions when it is more likely than not that our tax return positions may not be fully sustained. The Company records a valuation allowance for deferred tax assets when, in the opinion of management, it is more likely than not that deferred tax assets will not be realized.

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***Share-Based Compensation***

The Company recognizes expense for its share-based compensation based on the fair value of the awards that are granted. The Company's share-based compensation plans provide for the granting of stock options, restricted stock, and performance stock units ("PSUs"). In conjunction with the acquisition of BASX (Note 4), we awarded performance awards to key employees ("Key Employee Awards") of BASX.

The fair values of stock options are estimated at the date of grant using the Black-Scholes-Merton option valuation model. The fair value of the PSUs is estimated on the date of grant using the Monte Carlo Model. The use of the Black-Scholes-Merton option valuation model and the Monte Carlo Model requires the input of subjective assumptions such as: the expected volatility, the expected term of the grant, expected market performance, risk-free rate, and expected dividend yield for stock options. The fair value of restricted stock awards and Key Employee Awards is based on the fair market value of AAON common stock on the respective grant dates. The fair value of restricted stock awards is reduced for the present value of dividends. The Key Employee Awards do not accrue dividends.

Share-based compensation expense is recognized on a straight-line basis over the service period of the related share-based compensation award. Historically, stock options and restricted stock awards, granted to employees, vested at a rate of 20% per year. Restricted stock awards granted to directors historically vest over the shorter of directors' remaining elected term or one-third each year. Beginning March 2021, all new grants of stock options and restricted stock awards granted to employees, vest at a rate of 33.3% per year. Forfeitures are accounted for as they occur.

Historically, if the employee or director is retirement eligible (as defined by the Long Term Incentive Plans) or becomes retirement eligible during service period of the related share-based compensation award, the service period is the lesser of 1) the grant date, if retirement eligible on grant date, or 2) the period between grant date and retirement eligible date. All share-based compensation awards granted on or after March 1, 2020 to retirement eligible employees or directors contain a one-year employment requirement (minimum service period) or the entire award is forfeited. Forfeitures are accounted for as they occur.

The PSUs cliff vest at the end of their respective service period. Share-based compensation expense is recognized on a straight-line basis over the service period of PSUs. The PSUs are subject to several service and market conditions, as defined by the PSU agreement, which allows the holder to retain a pro-rata amount of awards as a result of certain termination conditions, retirement, change in common control, or death. Forfeitures are accounted for as they occur.

The Key Employee Awards cliff vest on December 31, 2023. Share-based compensation expense is recognized on a straight-line basis over the service period of the Key Employee Awards when it is probable that the performance conditions will be satisfied. The Key Employee Awards are subject to several service and performance conditions, as defined by the Key Employee Award agreement, which allows the holder to retain an amount of the awards as a result of certain termination conditions or change in common control. Forfeitures are accounted for as they occur.

***Derivative Instruments***

In the course of normal operations, the Company occasionally enters into contracts such as forward priced physical contracts for the purchase of raw materials that qualify for and are designated as normal purchase or normal sale contracts. Such contracts are exempted from the fair value accounting requirements and are accounted for at the time product is purchased or sold under the related contract. The Company does not engage in speculative transactions, nor does the Company hold or issue financial instruments for trading purposes.

***Revenue Recognition***

Due to the highly customized nature of many of the Company's products and each product not having an alternative use to the Company without significant costs to the Company, the Company recognizes revenue over time as progress is made toward satisfying the performance obligations of each contract. The Company has formal cancellation policies and generally does not accept returns on these units. As a result, many of the Company's products do not have an alternative use and therefore, for these products we recognize revenue over the time it takes to produce the unit.

Contract costs include direct materials, direct labor, installation, freight and delivery, commissions and royalties. Other costs not related to contract performance, such as indirect labor and materials, small tools and supplies,

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operating expenses, field rework and back charges are charged to expense as incurred. Provisions for estimated losses on contracts in progress are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income, and are estimated and recognized by the Company throughout the life of the contract. The aggregate of costs incurred and income recognized on uncompleted contracts in excess of billings is shown as a contract asset within our consolidated balance sheets, and the aggregate of billings on uncompleted contracts in excess of related costs incurred and income recognized is shown as a contract liability within out consolidated balance sheets.

For all other products that are part sales or standardized units, the Company recognizes revenue, presented net of sales tax, when it satisfies the performance obligation in its contracts. As the primary performance obligation in such a contract is delivery of the requested manufactured equipment, we satisfy the performance obligation when the control is passed to the customer, generally at time of shipment. Final sales prices are fixed based on purchase orders.

Sales allowances and customer incentives are treated as reductions to sales and are provided for based on historical experiences and current estimates.

Historically, sales of our products were moderately seasonal with the peak period being May-October of each year due to timing of construction projects being directly related to warmer weather. However, in recent years, given the increases in demand of our product and increases in our backlog, sales has become more constant throughout the year.

***Product Warranties***

A provision is made for the estimated cost of maintaining product warranties to customers at the time the product is sold based upon historical claims experience by product line. The Company records a liability and an expense for estimated future warranty claims based upon historical experience and management's estimate of the level of future claims. Changes in the estimated amounts recognized in prior years are recorded as an adjustment to the liability and expense in the current year.

The Company also sells extended warranties on parts for various lengths of time ranging from six months to 10 years. Revenue for these separately priced warranties is deferred and recognized on a straight-line basis over the separately priced warranty period.

***Representatives and Third Party Products***

We are responsible for billings and collections resulting from all sales transactions, including those initiated by our independent manufacturer representatives ("Representatives"). Representatives are national companies that are in the business of providing heating, ventilation, and air conditioning ("HVAC") units and other related products and services to customers. The end user customer orders a bundled group of products and services from the Representative and expects the Representative to fulfill the order. These other related products and services may include controls purchased from another manufacturer to operate the unit, start-up services, and curbs for supporting the unit ("Third Party Products"). All are associated with the purchase of a HVAC unit but may be provided by the Representative or another third party. Only after the specifications are agreed to by the Representative and the customer, and the decision is made to use an AAON HVAC unit, will we receive notice of the order. We establish the amount we must receive for our HVAC unit ("minimum sales price"), but do not control the total order price that is negotiated by the Representative with the end user customer. The Representatives submit the total order price to us for invoicing and collection. The total order price includes our minimum sales price and an additional amount which may include both the Representatives' fee and amounts due for additional products and services required by the customer. The Company is considered the principal for the equipment we design and manufacture and records that revenue gross. The Company has no control over the Third Party Products to the end customer and the Company is under no obligation related to the Third Party Products. Amounts related to Third Party Products are not recognized as revenue but are recorded as a liability and are included in accrued liabilities on the consolidated balance sheets.

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The Representatives' fee and Third Party Products amounts ("Due to Representatives") are paid only after all amounts associated with the order are collected from the customer. The amount of payments to our Representatives was $39.1 million, $43.9 million, and $50.0 million for each of the years ended December 31, 2022, 2021, and 2020, respectively.

***Insurance Reserves***

Under the Company's insurance programs, coverage is obtained for significant liability limits as well as those risks required to be insured by law or contract. It is the policy of the Company to self-insure a portion of certain expected losses related primarily to workers' compensation and medical liability. Provisions for losses expected under these programs are recorded based on the Company's estimates of the aggregate liabilities for the claims incurred.

***Leases***

New leases entered into by the Company are assessed at lease inception for proper lease classification. At December 31, 2022, all of our leases are classified as operating leases.

We have entered into various short-term operating leases with an initial term of twelve months or less. These leases are not recorded on our consolidated balance sheets as of December 31, 2022 and 2021, and the rent expense for these short-term leases is not significant.

As our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Our incremental borrowing rate represents the interest rate which we would pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term in a similar economic environment.

Expense related to these leases is recognized on straight-line basis over the lease term. Certain of our leases contain escalating lease payments based on predefined increases. Most leases contain options to renew or terminate. Right-of-use assets and lease liabilities reflect only the options which the Company is reasonably certain to exercise.

The Company's leases generally require us to pay for insurance, taxes, utilities, and other operating costs. These payments are not included in the right-of-use asset or lease liability and are expensed as incurred.

***Use of Estimates***

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because these estimates and assumptions require significant judgment, actual results could differ from those estimates and could have a significant impact on our results of operations, financial position, and cash flows. We reevaluate our estimates and assumptions as needed, but at a minimum on a quarterly basis. The most significant estimates include, but are not limited to, inventory valuation, inventory reserves, warranty accrual, workers' compensation accrual, medical insurance accrual, income taxes, useful lives of property, plant, and equipment, estimated future use of leased property, share-based compensation, business combinations, revenue percentage of completion and estimated costs to complete. Actual results could differ materially from those estimates.

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**3. Revenue Recognition**

The following tables show disaggregated net sales by reportable segment (Note 22) by major source, net of intercompany sales eliminations.

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| | | | | |
|:---|:---|:---|:---|:---|
| | **Year Ended December 31, 2022** | **Year Ended December 31, 2022** | **Year Ended December 31, 2022** | **Year Ended December 31, 2022** |
| | **AAON Oklahoma** | **AAON Coil Products** | **BASX**<sup>1</sup> | **Total** |
|  | *(in thousands)* | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| Rooftop Units | $579363 | $— | $— | $579363 |
| Condensing Units | 302 | 46287 |  | 46589 |
| Air Handlers |  | 47442 | 14434 | 61876 |
| Outdoor Mechanical Rooms | 612 | 855 |  | 1467 |
| Cleanroom Systems |  |  | 47020 | 47020 |
| Data Center Cooling Solutions |  |  | 53522 | 53522 |
| Water-Source Heat Pumps | 11529 | 8797 |  | 20326 |
| Part Sales | 52927 |  | 671 | 53598 |
| Other | 19112 | 3909 | 2006 | 25027 |
|  | $663845 | $107290 | $117653 | $888788 |
|  | **Year Ended December 31, 2021** | **Year Ended December 31, 2021** | **Year Ended December 31, 2021** | **Year Ended December 31, 2021** |
|  | **AAON Oklahoma** | **AAON Coil Products** | **BASX**<sup>1</sup> | **Total** |
|  | *(in thousands)* | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| Rooftop Units | $398461 | $— |  | $398461 |
| Condensing Units | 762 | 25989 |  | 26751 |
| Air Handlers |  | 26589 | 95 | 26684 |
| Outdoor Mechanical Rooms | 820 | 464 |  | 1284 |
| Cleanroom Systems |  |  | 2288 | 2288 |
| Data Center Cooling Solutions |  |  | 1688 | 1688 |
| Water-Source Heat Pumps | 10831 | 10343 |  | 21174 |
| Part Sales | 41127 | 1 |  | 41128 |
| Other | 11844 | 3203 | 12 | 15059 |
|  | $463845 | $66589 | $4083 | $534517 |
|  | **Year Ended December 31, 2020** | **Year Ended December 31, 2020** | **Year Ended December 31, 2020** | **Year Ended December 31, 2020** |
|  | **AAON Oklahoma** | **AAON Coil Products** | **BASX**<sup>1</sup> | **Total** |
|  | *(in thousands)* | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| Rooftop Units | $400946 | $— |  | $400946 |
| Condensing Units | 900 | 20249 |  | 21149 |
| Air Handlers |  | 23931 |  | 23931 |
| Outdoor Mechanical Rooms | 2355 | 487 |  | 2842 |
| Water-Source Heat Pumps | 10663 | 8390 |  | 19053 |
| Part Sales | 32561 |  |  | 32561 |
| Other | 11532 | 2537 |  | 14069 |
|  | $458957 | $55594 |  | $514551 |
| <sup>1</sup> BASX was acquired by the Company on December 10, 2021, as such, the only applicable periods presented for BASX is the year ended December 31, 2022 and December 11, 2021 through December 31, 2021. | <sup>1</sup> BASX was acquired by the Company on December 10, 2021, as such, the only applicable periods presented for BASX is the year ended December 31, 2022 and December 11, 2021 through December 31, 2021. | <sup>1</sup> BASX was acquired by the Company on December 10, 2021, as such, the only applicable periods presented for BASX is the year ended December 31, 2022 and December 11, 2021 through December 31, 2021. | <sup>1</sup> BASX was acquired by the Company on December 10, 2021, as such, the only applicable periods presented for BASX is the year ended December 31, 2022 and December 11, 2021 through December 31, 2021. | <sup>1</sup> BASX was acquired by the Company on December 10, 2021, as such, the only applicable periods presented for BASX is the year ended December 31, 2022 and December 11, 2021 through December 31, 2021. |

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Other sales include freight, extended warranties and miscellaneous revenue.

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**4. Business Combination**

On November 18, 2021, the Company entered into a membership interest purchase agreement (the "MIPA Agreement") to acquire of all of the issued and outstanding equity ownership of BasX, LLC, an Oregon limited liability company, doing business as BASX Solutions. We closed this transaction on December 10, 2021 for a purchase price of (i) $100.0 million payable in cash (not including working capital adjustments), and (ii) up to $80.0 million in the aggregate of contingent consideration payable in shares of the Company's stock, par value $0.004 per share (the "Shares").

The $80.0 million of contingent consideration payable consists of $78.0 million payable to the former owners of BasX, LLC and $2.0 million payable to key employees of BasX, LLC whom are now employed by the Company. The potential future issuance of the Shares is contingent upon BASX meeting certain post-closing earn-out milestones during each of 2021, 2022, and 2023 under the terms of the MIPA Agreement (Note 16). The Company funded the acquisition cash portion of the purchase price and related transaction costs with cash on hand.

Additionally, as a condition to closing, the Company entered into a real estate purchase agreement with BasX Properties, LLC, an affiliate of BasX, LLC, to acquire the principal real property and improvements utilized by BASX for an additional $22.0 million, subject to customary closing conditions and adjustments. The Company closed this real estate transaction on May 31, 2022, which terminated the related lease (Note 5).

We incurred $4.4 million in transaction fees related to the acquisition which are included in selling, general, and administrative expenses on our consolidated statement of income for the year ended December 31, 2021. We have included the results of BASX's operations in our consolidated financial statements beginning December 11, 2021.

We applied pushdown accounting, allowable under ASC 805 "Business Combinations," to "pushdown" our stepped-up basis in the assets acquired and liabilities assumed to BASX's subsidiary financial statements. The decision to apply pushdown accounting is irrevocable. Goodwill was calculated and recognized consistent with acquisition accounting, resulting in the pushdown of $78.7 million in goodwill as of December 31, 2022.

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The following table presents the allocation of the consideration paid to the assets acquired and liabilities assumed in the acquisition described above, which was still preliminary at December 31, 2021. The revisions indicated below were recorded during the first quarter of 2022. The revisions were the result of updates to our preliminary estimates and third party valuation models. The impact of such revisions on consolidated net income were not significant.

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| | | | |
|:---|:---|:---|:---|
| | **Final Allocation** | **Estimated Allocation as of December 31, 2021** | **Revisions** |
|  |  | *(in thousands)* |  |
| Accounts receivable | 13699 | $13699 | $— |
| Inventories | 2725 | 2725 |  |
| Contract assets | 7635 | 7635 |  |
| Prepaid expenses and other | 341 | 341 |  |
| Property, plant and equipment | 15611 | 15611 |  |
| Right of use assets | 13169 | 13169 |  |
| Intangible assets | 68413 | 70329 | (1916) |
| Goodwill | 78663 | 82498 | (3835) |
| Accounts payable | (9388) | (9388) |  |
| Accrued liabilities | (3807) | (3807) |  |
| Contract liabilities | (7771) | (7771) |  |
| Lease liabilities | (15611) | (15611) |  |
| Contingent Consideration - shares of AAON | (60000) | (66000) | 6000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Consideration paid | $103679 | $103430 | $249 |

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The Company recognized the following definite and indefinite-lived intangible assets as part of the acquisition:

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| | | | |
|:---|:---|:---|:---|
| | **Final Allocation** | **Estimated Allocation as of December 31, 2021** | **Revisions** |
|  | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| Definite-lived intangible assets |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intellectual property | $6295 | $6479 | $(184) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Customer relationships | 47547 | 48684 | (1137) |
|  | 53842 | 55163 | (1321) |
| Indefinite-lived intangible assets |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trademarks | 14571 | 15166 | (595) |
| Total intangible assets acquired | $68413 | $70329 | $(1916) |

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Goodwill is the excess of the consideration paid for the acquired businesses over the fair value of the individual assets acquired, net of liabilities assumed. Goodwill represents a premium paid to acquire the skilled workforce and expanded market opportunities. Goodwill of $47.1 million was tax deductible upon completion of the final allocation of consideration paid to the assets acquired and liabilities acquired. Future additional amounts of goodwill related to the contingent consideration may become tax deductible in the future if the earn out provisions of the MIPA are achieved.

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*Pro Forma Results of Operations (unaudited)*

The operations of BASX have been included in our consolidated statements of income since the closing date on December 10, 2021. The following unaudited pro forma consolidated results of operations for the years ended December 31, 2021 and 2020 are presented as if the combination had been made on January 1, 2020.

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| | | |
|:---|:---|:---|
| | ***(unaudited)*** | ***(unaudited)*** |
| | **Years ended December 31,** | **Years ended December 31,** |
|  | **2021** | **2020** |
|  | *(in thousands, except per share data)* | *(in thousands, except per share data)* |
| Revenues | $611158 | $562563 |
| Net income | 63491 | 80507 |
| Earnings per share: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic | $1.21 | $1.54 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dilutive | $1.18 | $1.52 |

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These unaudited pro forma results include adjustments necessary in connection with the acquisition.

The unaudited consolidated pro forma financial information was prepared in accordance with GAAP and is not necessarily indicative of the results of operations that would have occurred if the acquisition had been completed on the date indicated, nor is it indicative of the future operating results of the Company.

The unaudited pro forma results do not reflect events that either have occurred or may occur after the acquisition date, including, but not limited to, the anticipated realization of operating synergies in subsequent periods. These results also do not give effect to certain charges that the Company expects to incur in connection with the acquisition, including, but not limited to, additional professional fees and employee integration.

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**5. Leases**

The Company has lease arrangements for certain administrative, manufacturing and warehousing facilities and equipment. Currently, all leases are classified as operating leases.

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| | | | |
|:---|:---|:---|:---|
| | | **December 31,** | **December 31,** |
| |<br>**Balance Sheet Classification** | **2022** | **2021** |
|  |  | *(in thousands)* | *(in thousands)* |
| Right-of-use assets | Right of use assets | $7123 | $16974 |
| Current lease liability | Accrued liabilities | 1254 | 1580 |
| Noncurrent lease liability | Other long-term liabilities | 5993 | 15467 |

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Through the acquisition of BASX (Note 4), we acquired various leases for plant/office space and equipment, which were classified as operating leases. Through May 2022, BASX's manufacturing and office facility in Redmond, Oregon was leased from a related party (Note 21). On May 31, 2022, we completed the real estate transaction discussed in Note 4 and the associated operating lease was terminated.

Since 2018, the Company has leased the manufacturing, engineering and office space used by our operations in Parkville, Missouri. In October 2022, the Parkville, Missouri lease was amended to expand our manufacturing and office space from 51,000 square feet to 86,000 square feet. The amended lease will provide for 31,000 square feet of additional manufacturing and engineering space and for 4,000 square feet of additional office space. The amended lease extends the lease term through December 31, 2032.

In November 2022, the Company entered into a lease arrangement for additional storage facilities in Tulsa, Oklahoma to support our operations. The lease will add an additional 198,000 square feet to our operations. The lease term will expire October 31, 2025.

In June 2022, the Company entered into a lease agreement for land and facilities in Tulsa, Oklahoma to support our manufacturing operations. This lease was classified as a finance lease as the Company had the option to and was reasonably certain to purchase the underlying assets in 2023. However, during the third quarter of 2022, it was determined that the Company would no longer purchase the land or facility and terminate the lease due to unforeseen facility structural issues. We vacated the property and cancelled the lease at the end of 2022.

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**6. Accounts Receivable**

Accounts receivable and the related allowance for credit losses are as follows:

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| | | |
|:---|:---|:---|
| | **December 31,** | **December 31,** |
| | **2022** | **2021** |
|  | *(in thousands)* | *(in thousands)* |
| Accounts receivable | $127635 | $71329 |
| Less: Allowance for credit losses | (477) | (549) |
| &nbsp;&nbsp;&nbsp;&nbsp; Total, net | $127158 | $70780 |

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| | | | |
|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
| | **2022** | **2021** | **2020** |
| Allowance for credit losses: | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance, beginning of period | $549 | $506 | $353 |
| &nbsp;&nbsp;&nbsp;&nbsp;Provisions for expected credit losses, net of adjustments | 359 | 43 | 153 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable written off, net of recoveries | (431) |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, end of period | $477 | $549 | $506 |

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**7. Inventories**

The components of inventories and the related changes in the allowance for excess and obsolete inventories are as follows:

---

| | | |
|:---|:---|:---|
| | **December 31,** | **December 31,** |
| | **2022** | **2021** |
|  | *(in thousands)* | *(in thousands)* |
| Raw materials | $194159 | $124480 |
| Work in process | 3501 | 3049 |
| Finished goods | 5806 | 4528 |
|  | 203466 | 132057 |
| Less: Allowance for excess and obsolete inventories | (4527) | (1787) |
| &nbsp;&nbsp;&nbsp;&nbsp; Total, net | $198939 | $130270 |

---

---

| | | | |
|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
| | **2022** | **2021** | **2020** |
| Allowance for excess and obsolete inventories: | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, beginning of period | $1787 | $3261 | $2644 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions for excess and obsolete inventories | 2852 | 629 | 1108 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories written off | (112) | (2103) | (491) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Balance, end of period | $4527 | $1787 | $3261 |

---

During the third quarter of 2022, we made the decision to no longer produce our small packaged geothermal/water-source heat pump units consisting of the WH Series horizontal configuration and WV Series vertical configuration (Note 1). Some related components and parts cannot be used in other products or sold through our parts business. As a result, we increased our provision for excess and obsolete inventory, within cost of sales on our consolidated statements of income, by approximately $1.2 million during the year ended December 31, 2022.

------

**8. Intangible Assets**

Our intangible assets consist of the following:

---

| | | |
|:---|:---|:---|
| | **December 31,** | **December 31,** |
| | **2022** | **2021** |
| Definite-lived intangible assets | *(in thousands)* | *(in thousands)* |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intellectual property | $6295 | $6479 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Customer relationships | 47547 | 48684 |
| Less: Accumulated amortization | (3807) | (208) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total, net | 50035 | 54955 |
| Indefinite-lived intangible assets |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trademarks | 14571 | 15166 |
| Total intangible assets, net | $64606 | $70121 |

---

Amortization expense recorded in cost of sales is as follows:

---

| | | | |
|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
| | **2022** | **2021** | **2020** |
|  | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| Amortization expense | $3599 | $246 | $234 |

---

Excluding the impact of any future acquisitions, the Company anticipates amortization expense to be approximately $3.6 million for each of the years ended 2023 through 2027.

**9. Supplemental Cash Flow Information**

---

| | | | |
|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
| | **2022** | **2021** | **2020** |
| Supplemental disclosures: | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest paid | $2412 | $— | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes paid, net | 19293 | 7891 | 13754 |
| Non-cash investing and financing activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-cash capital expenditures | 1919 | (3714) | 2843 |

---

------

**10. Warranties**

The Company has product warranties with various terms from one year from the date of first use or 18 months for parts, data center cooling solutions, and cleanroom systems to 25 years for certain heat exchangers. The Company has an obligation to replace parts if conditions under the warranty are met. A provision is made for estimated warranty costs at the time the related products are sold based upon the warranty period, historical trends, new products, and any known identifiable warranty issues.

Changes in the warranty accrual are as follows:

---

| | | | |
|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
| | **2022** | **2021** | **2020** |
| Warranty accrual: | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, beginning of period | $13769 | $13522 | $12652 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payments made | (6584) | (6734) | (5751) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions | 8497 | 6351 | 6621 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assumed in business combination (Note 4) |  | 630 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Balance, end of period | $15682 | $13769 | $13522 |
| Warranty expense: | $8497 | $6351 | $6621 |

---

------

**11. Accrued Liabilities and Other Long-Term Liabilities**

Accrued liabilities were comprised of the following:

---

| | | |
|:---|:---|:---|
| | **December 31,** | **December 31,** |
| | **2022** | **2021** |
|  | *(in thousands)* | *(in thousands)* |
| Warranty | $15682 | $13769 |
| Due to representatives | 15545 | 7995 |
| Payroll | 11901 | 8423 |
| Profit sharing | 5451 | 1489 |
| Workers' compensation | 367 | 308 |
| Medical self-insurance | 1178 | 1943 |
| Customer prepayments | 3750 | 5931 |
| Donations, short-term | 637 | 438 |
| Accrued income taxes | 12472 |  |
| Employee vacation time | 6329 | 4362 |
| Extended warranties, short-term | 1330 | 1593 |
| Lease liability, short-term | 1254 | 1580 |
| Other | 2734 | 2375 |
| &nbsp;&nbsp;&nbsp;&nbsp; Total | $78630 | $50206 |

---

Other long-term liabilities were comprised of the following:

---

| | | |
|:---|:---|:---|
| | **December 31,** | **December 31,** |
| | **2022** | **2021** |
|  | *(in thousands)* | *(in thousands)* |
| Lease liability | $5993 | $15467 |
| Extended warranties | 4539 | 3042 |
| Donations and other | 976 | 334 |
| &nbsp;&nbsp;&nbsp;&nbsp; Total | $11508 | $18843 |

---

**12. Revolving Credit Facility**

On November 24, 2021, we amended our revolving credit facility to provide for maximum borrowings of $100.0 million, with an option to increase to $200.0 million. On May 27, 2022, we amended our $100.0 million Amended and Restated Loan Agreement dated November 24, 2021 ("Revolver"), to provide for maximum borrowings of $200.0 million. As of December 31, 2022 and December 31, 2021, we had an outstanding balance under the Revolver of $71.0 million and $40.0 million, respectively. We had one standby letter of credit totaling $0.8 million as of December 31, 2022 and 2021, respectively. Borrowings available under the Revolver at December 31, 2022, were $128.2 million. The Revolver expires on May 27, 2027.

Any outstanding loans under the Revolver bear interest at the daily compounded secured overnight financing rate ("SOFR") plus the applicable margin. Applicable margin, ranging from 1.25% - 1.75%, is determined quarterly based on the Company's leverage ratio. The Company is also subject to letter of credit fees, ranging from 1.25% - 1.75%, and a commitment fee, ranging from 0.10% - 0.20%. The applicable fee percentage is determined quarterly based on the Company's leverage ratio. At December 31, 2022 and 2021, the weighted average interest rate of our Revolver was 3.0% and 1.3%, respectively. Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income and were not material for the years ended December 31, 2022 and 2021, respectively.

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If SOFR cannot be determined pursuant to the definition, as defined by the Revolver agreement, any outstanding effected loans will be deemed to have been converted into alternative base rate ("ABR") loans. ABR loans would bear interest at a rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus 0.50%, or (c) daily simple SOFR for a one-month tenor in effect on such day plus 1.00%.

At December 31, 2022, we were in compliance with our financial covenants, as defined by the Revolver. These covenants require that we meet certain parameters related to our leverage ratio. At December 31, 2022, our leverage ratio was 0.46 to 1.0, which meets the requirement of not being above 3 to 1.

The previous revolving credit facility, prior to November 24, 2021, allowed for maximum borrowings of $30.0 million with an interest rate of LIBOR plus 2.0%. There were no fees associated with the unused portion of committed amounts under the previous revolving credit facility.

**13. Income Taxes**

The provision for income taxes consists of the following:

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| | | | |
|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
| | **2022** | **2021** | **2020** |
|  | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| Current | $37489 | $6755 | $9939 |
| Deferred | (13332) | 3669 | 13027 |
| &nbsp;&nbsp;&nbsp;&nbsp; Income tax provision | $24157 | $10424 | $22966 |

---

The provision for income taxes differs from the amount computed by applying the statutory Federal income tax rate before the provision for income taxes.

The reconciliation of the Federal statutory income tax rate to the effective income tax rate is as follows:

---

| | | | |
|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
| | **2022** | **2021** | **2020** |
| Federal statutory rate | 21.0% | 21.0% | 21.0% |
| State income taxes, net of Federal benefit | 4.1% | 1.8% | 5.3% |
| Change in valuation allowance | —% | 1.0% | —% |
| Excess tax benefits related to share-based compensation (Note 14) | (2.4)% | (7.8)% | (3.2)% |
| Return to provision | (0.3)% | —% | 0.1% |
| Research and development tax credits | (2.1)% | (1.1)% | (0.9)% |
| Other | (0.9)% | 0.2% | 0.2% |
| &nbsp;&nbsp;&nbsp;&nbsp; Effective tax rate | 19.4% | 15.1% | 22.5% |

---

On May 21, 2021, the State of Oklahoma enacted House Bill 2960, effectively reducing the corporate income tax rate in Oklahoma from 6% to 4%. This resulted in a benefit of $0.8 million included in the table above under State income taxes, net of Federal benefit, for the year ending December 31, 2021.

We earn investment tax credits from the state of Oklahoma's investment tax credit program. We use the flow-through method of accounting for the investment tax credits earned on eligible tangible asset expenditures. Under this method, the investment tax credits are recognized as a reduction to our Oklahoma income tax expense in the year they are used. As of December 31, 2022, we have credit carryforwards totaling $3.1 million that have estimated expirations starting in 2035.

We also earn research and development tax credits as defined under Section 41 of the Internal Revenue Code. To qualify for the research and development tax credits, we perform annual studies that identifies, documents, and

------

supports eligible expenses related to qualified research and development activities. Eligible expenses include but are not limited to supplies, material and internal wages. With the addition of BASX in December 2021 (Note 4), we identified additional eligible expenses related to qualified research and development activities.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.

The significant components of the Company's deferred tax assets and liabilities are as follows:

---

| | | |
|:---|:---|:---|
| | **December 31,** | **December 31,** |
| | **2022** | **2021** |
|  | *(in thousands)* | *(in thousands)* |
| Deferred income tax assets (liabilities): | Deferred income tax assets (liabilities): |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Allowance for credit losses and inventory reserves | $1337 | $625 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Warranty accrual | 4184 | 3675 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other accruals | 4814 | 1406 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Share-based compensation | 7440 | 7568 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research & development expenses | 11265 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Oklahoma investment credit carryforward | 3115 | 3404 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other, net | 2339 | 4112 |
|  | 34494 | 20790 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Valuation allowance | (3115) | (3404) |
| Net deferred income tax assets | 31379 | 17386 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property & equipment | (50040) | (49379) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total deferred income tax liabilities | (50040) | (49379) |
| Net deferred income tax liabilities | $(18661) | $(31993) |

---

In accordance with the 2017 Tax Cuts & Jobs Act, under Internal Revenue Code Section 174, research and development expenses incurred after December 31, 2021 are required to be capitalized and amortized over 5 years. The amortization requirements for tax purposes is a mid-year convention, meaning that the tax amortization is 10% in the year of acquisition, 20% in the following 4 years, and 10% in the final year. Estimated Section 174 research and developments costs for the year ended December 31, 2022 were $46.8 million. This resulted in a reduction of our deferred tax liability of approximately $11.3 million for the year ended December 31, 2022.

Realization of deferred tax assets, including the associated credit carryforwards, is dependent upon generating sufficient taxable income in the appropriate tax jurisdiction. We believe that it is more likely than not that we may not realize the benefit of our Oklahoma investment tax credit carryforward and, accordingly, have established a valuation allowance against this deferred tax asset.

The amount of income tax that we pay annually is dependent on various factors, including the timing of certain deductions. These deductions can vary from year to year and, consequently, the amount of income taxes paid in future years will vary from the amounts paid in prior years.

We file income tax returns in the U.S., state and foreign income tax jurisdictions. We are subject to U.S. income tax examinations for the tax years 2018 to present, and to non-U.S. income tax examinations for the tax years 2017 to present. In addition, we are subject to state and local income tax examinations for tax years 2017 to present. The Company continues to evaluate its need to file returns in various state jurisdictions. Any interest or penalties would be recognized as a component of income tax expense.

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**14. Share-Based Compensation**

On May 22, 2007, our stockholders adopted a Long-Term Incentive Plan (as amended, "LTIP") which provided an additional 3.3 million shares that could be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance units, and performance awards. Under the LTIP, the exercise price of shares granted may not be less than 100% of the fair market value at the date of the grant.

On May 24, 2016, our stockholders adopted the 2016 Long-Term Incentive Plan ("2016 Plan") which provides for approximately 8.9 million shares, comprised of 3.4 million new shares provided for under the 2016 Plan, approximately 0.4 million shares that were available for issuance under the previous LTIP that are now authorized for issuance under the 2016 Plan, approximately 2.6 million shares that were approved by the stockholders on May 15, 2018, and an additional 2.5 million shares that were approved by the stockholders on May 12, 2020.

Under the 2016 Plan, shares can be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance awards, dividend equivalent rights, and other awards. Under the 2016 Plan, the exercise price of shares granted may not be less than 100% of the fair market value at the date of the grant. The 2016 Plan is administered by the Compensation Committee of the Board of Directors or such other committee of the Board of Directors as is designated by the Board of Directors (the "Committee"). Membership on the Committee is limited to independent directors. The Committee may delegate certain duties to one or more officers of the Company as provided in the 2016 Plan. The Committee determines the persons to whom awards are to be made, determines the type, size and terms of awards, interprets the 2016 Plan, establishes and revises rules and regulations relating to the 2016 Plan and makes any other determinations that it believes necessary for the administration of the 2016 Plan.

***Options***

The following weighted average assumptions were used to determine the fair value of the stock options granted on the original grant date for expense recognition purposes for options granted during the years ended December 31, 2022, 2021, and 2020 using a Black Scholes-Merton Model:

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| | | | |
|:---|:---|:---|:---|
| | **2022** | **2021** | **2020** |
| **Directors and SLT**<sup>1</sup>**:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Expected dividend yield | $0.38 | $0.38 | $0.33 |
| &nbsp;&nbsp;&nbsp;&nbsp;Expected volatility | 36.07% | 35.78% | 31.63% |
| &nbsp;&nbsp;&nbsp;&nbsp;Risk-free interest rate | 2.31% | 0.51% | 0.64% |
| &nbsp;&nbsp;&nbsp;&nbsp;Expected life (in years) | 4.0 | 4.0 | 5.0 |
| **Employees:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Expected dividend yield | $0.39 | $0.38 | $0.32 |
| &nbsp;&nbsp;&nbsp;&nbsp;Expected volatility | 37.49% | 38.67% | 31.39% |
| &nbsp;&nbsp;&nbsp;&nbsp;Risk-free interest rate | 2.35% | 0.32% | 0.67% |
| &nbsp;&nbsp;&nbsp;&nbsp;Expected life (in years) | 3.0 | 3.0 | 5.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;<sup>1</sup> Senior Leadership Team ("SLT") consists of officers and key members of management. | &nbsp;&nbsp;&nbsp;&nbsp;<sup>1</sup> Senior Leadership Team ("SLT") consists of officers and key members of management. | &nbsp;&nbsp;&nbsp;&nbsp;<sup>1</sup> Senior Leadership Team ("SLT") consists of officers and key members of management. | &nbsp;&nbsp;&nbsp;&nbsp;<sup>1</sup> Senior Leadership Team ("SLT") consists of officers and key members of management. |

---

The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. Volatility is based on historical volatility of our stock over time periods equal to the expected life at grant date.

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The following is a summary of stock options vested and exercisable as of December 31, 2022:

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| | | | | |
|:---|:---|:---|:---|:---|
|<br>**Range of**<br>**Exercise**<br>**Prices** |<br>**Number**<br>**of**<br>**Shares** | **Weighted<br>Average**<br>**Remaining**<br>**Contractual**<br>**Life** | **Weighted**<br>**Average**<br>**Exercise**<br>**Price** |<br>**Intrinsic**<br>**Value** |
|  |  |  |  | *(in thousands)* |
| $20.92 - 41.37 | 1031134 | 5.14 | $36.60 | $39926 |
| $42.42 - 54.20 | 247535 | 7.03 | 44.68 | 7583 |
| $54.29 - 79.92 | 98344 | 8.10 | 72.38 | 294 |
| Total | 1377013 | 5.69 | $40.61 | $47803 |

---

A summary of option activity under the plans is as follows:

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| | | |
|:---|:---|:---|
| **Options** |<br>**Shares** | **Weighted<br>Average<br>Exercise**<br>**Price** |
| &nbsp;&nbsp;&nbsp;&nbsp;Outstanding at December 31, 2021 | 3365469 | $42.88 |
| &nbsp;&nbsp;&nbsp;&nbsp;Granted | 465515 | 55.40 |
| &nbsp;&nbsp;&nbsp;&nbsp;Exercised | (597761) | 38.71 |
| &nbsp;&nbsp;&nbsp;&nbsp;Forfeited or Expired | (192876) | 49.56 |
| &nbsp;&nbsp;&nbsp;&nbsp;Outstanding at December 31, 2022 | 3040347 | $45.20 |
| &nbsp;&nbsp;&nbsp;&nbsp;Exercisable at December 31, 2022 | 1377013 | $40.61 |

---

The total pre-tax compensation cost related to unvested stock options not yet recognized as of December 31, 2022 is $12.9 million and is expected to be recognized over a weighted-average period of 1.6 years.

The total intrinsic value of options exercised during the years ended December 31, 2022, 2021, and 2020 was $16.0 million, $22.6 million, and $15.5 million, respectively. The cash received from options exercised during the year ended December 31, 2022, 2021, and 2020 was $23.1 million, $21.1 million, and $21.4 million, respectively. The impact of these cash receipts is included in financing activities in the accompanying consolidated statements of cash flows.

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***Restricted Stock***

The fair value of restricted stock awards is based on the fair market value of AAON common stock on the respective grant dates, reduced for the present value of dividends. At December 31, 2022, unrecognized compensation cost related to unvested restricted stock awards was approximately $4.4 million which is expected to be recognized over a weighted average period of 1.6 years.

A summary of the unvested restricted stock awards is as follows:

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| | | |
|:---|:---|:---|
| **Restricted stock** |<br>**Shares** | **Weighted<br>Average<br>Grant Date**<br>**Fair Value** |
| &nbsp;&nbsp;&nbsp;&nbsp;Unvested at December 31, 2021 | 161225 | $46.08 |
| &nbsp;&nbsp;&nbsp;&nbsp;Granted | 68020 | 53.97 |
| &nbsp;&nbsp;&nbsp;&nbsp;Vested | (72936) | 45.31 |
| &nbsp;&nbsp;&nbsp;&nbsp;Forfeited | (11483) | 48.23 |
| &nbsp;&nbsp;&nbsp;&nbsp;Unvested at December 31, 2022 | 144826 | $50.00 |

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***PSUs***

We have awarded performance restricted stock units ("PSUs") to certain officers and employees under our 2016 Plan. Unlike our restricted stock awards, these PSUs are not considered legally outstanding and do not accrue dividends during the vesting period. These PSUs vest based on the level of achievement with respect to the Company's total shareholder return ("TSR") benchmarked against similar companies included in the capital goods sector of the S&P Smallcap 600 Index. The TSR measurement period is three years. At the end of the measurement period, each award will be converted into AAON common stock at 0% to 200% of the PSUs held, depending on overall TSR as compared to the S&P SmallCap 600 Index benchmark companies.

The total pre-tax compensation cost related to unvested PSUs not yet recognized as of December 31, 2022 is $2.0 million and is expected to be recognized over a weighted average period of approximately 2.0 years.

The following weighted average assumptions were used to determine the fair value of the PSUs granted on the original grant date for expense recognition purposes for PSUs granted during the years ended December 31, 2022 and 2021, using a Monte Carlo Model:

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| | | |
|:---|:---|:---|
| | **2022** | **2021** |
| Expected dividend rate | $0.38 | $0.38 |
| Expected volatility | 37.60% | 39.10% |
| Risk-free interest rate | 2.00% | 0.28% |
| Expected life (in years) | 2.80 | 2.80 |

---

The expected term of the PSUs is based on their remaining performance period. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. Volatility is based on historical volatility of our stock over time periods equal to the expected life at grant date.

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A summary of the unvested PSUs is as follows:

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| | | |
|:---|:---|:---|
| | **Shares** | **Weighted Average Grant Date Fair Value** |
| Unvested at December 31, 2021 | 16851 | $87.78 |
| Granted | 50839 | 44.74 |
| Vested |  |  |
| Forfeited | (5031) | 62.14 |
| Unvested at December 31, 2022<sup>1</sup> | 62659 | $54.92 |
| <sup>1</sup> Consists of 14,817 PSUs cliff vesting December 31, 2024 and 47,842 PSUs cliff vesting December 31, 2025. | <sup>1</sup> Consists of 14,817 PSUs cliff vesting December 31, 2024 and 47,842 PSUs cliff vesting December 31, 2025. | <sup>1</sup> Consists of 14,817 PSUs cliff vesting December 31, 2024 and 47,842 PSUs cliff vesting December 31, 2025. |

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***Key Employee Awards***

Subject to the MIPA Agreement (Note 4), the Company granted awards to key employees of BASX ("Key Employee Awards"). Unlike our restricted stock awards under the 2016 Plan, the Key Employee Awards are not considered legally outstanding and do not accrue dividends during the vesting period. The potential future issuance of the Key Employee Awards is contingent upon BASX meeting certain post-closing earn-out milestones during each of the years ending 2021, 2022, and 2023 as defined by the MIPA Agreement and continued employment with the Company. At the end of the earn-out period, ending December 31, 2023, each eligible Key Employee Award will vest and be converted into AAON common stock. The fair value of Key Employee Awards was based on the fair market value of AAON common stock on the grant date.

The total pre-tax compensation cost related to unvested Key Employee Awards not yet recognized as of December 31, 2022 is $1.0 million and is expected to be recognized over a weighted average period of approximately 1.0 year.

A summary of the unvested Key Employee Awards is as follows:

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| | | |
|:---|:---|:---|
| | **Shares** | **Weighted Average Grant Date Fair Value** |
| Unvested at December 31, 2021 | 26599 | $80.18 |
| Granted |  |  |
| Vested |  |  |
| Forfeited |  |  |
| Unvested at December 31, 2022 | 26599 | $80.18 |

---

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***Summary of Share-based Compensation***

A summary of share-based compensation is as follows for the years ended December 31, 2022, 2021, and 2020:

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| | | | |
|:---|:---|:---|:---|
| | **2022** | **2021** | **2020** |
| **Grant date fair value of awards during the period:** | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| &nbsp;&nbsp;&nbsp;&nbsp;Options | $6522 | $7010 | $12615 |
| &nbsp;&nbsp;&nbsp;&nbsp;Restricted stock | 3671 | 2517 | 3316 |
| &nbsp;&nbsp;&nbsp;&nbsp;PSUs | 2275 | 1622 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Key employee awards |  | 1572 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total | $12468 | $12721 | $15931 |

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| | | | |
|:---|:---|:---|:---|
| | **2022** | **2021** | **2020** |
| **Share-based compensation expense:** | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| &nbsp;&nbsp;&nbsp;&nbsp;Options | $8585 | $8724 | $8312 |
| &nbsp;&nbsp;&nbsp;&nbsp;Restricted stock | 3105 | 2519 | 3030 |
| &nbsp;&nbsp;&nbsp;&nbsp;PSUs | 958 | 525 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Key employee awards | 1052 | 44 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total | $13700 | $11812 | $11342 |

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`

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| | | | |
|:---|:---|:---|:---|
| | **2022** | **2021** | **2020** |
| **Income tax benefit related to share-based compensation:** | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| &nbsp;&nbsp;&nbsp;&nbsp;Options | $2715 | $4571 | $2698 |
| &nbsp;&nbsp;&nbsp;&nbsp;Restricted stock | 241 | 837 | 519 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total | $2956 | $5408 | $3217 |

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**15. Employee Benefits**

***Defined Contribution Plan - 401(k*)** 

We sponsor a defined contribution plan (the "Plan"). Eligible employees may make contributions in accordance with the Plan and IRS guidelines. In addition to the traditional 401(k), eligible employees are given the option of making an after-tax contribution to a Roth 401(k) or a combination of both. The Plan provides for automatic enrollment and for an automatic increase to the deferral percentage at January 1st of each year and each year thereafter. Eligible employees are automatically enrolled in the Plan at a 6.0% deferral rate and currently contributing employees deferral rates will be increased to 6.0% unless their current rate is above 6.0% or the employee elects to decline the automatic enrollment or increase. Administrative expenses are paid for by Plan participants. The Company paid no administrative expenses for the years ended 2022, 2021, and 2020.

The Company matches 175.0% up to 6.0% of employee contributions of eligible compensation. Additionally, Plan participant forfeitures are used to reduce the cost of the Company contributions.

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| | | | |
|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
| | **2022** | **2021** | **2020** |
|  | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| &nbsp;&nbsp;&nbsp;&nbsp;Contributions, net of forfeitures, made to the defined contribution plan | $15475 | $9724 | $9091 |

---

------

***Profit Sharing Bonus Plans*** 

We maintain a discretionary profit sharing bonus plan under which approximately 10.0% of pre-tax profit from AAON Oklahoma and AAON Coil Products is paid to eligible employees on a quarterly basis in order to reward employee productivity. Eligible employees are regular full-time employees of AAON Oklahoma or AAON Coil Products who are actively employed and working on the first and last days of the calendar quarter and who were employed full-time for at least three full months prior to the beginning of the calendar quarter, excluding the Company's senior leadership team.

BASX has a separate employee incentive program (EIP), under which 5.0% of BASX's pre-tax profit, plus certain add backs, is paid ratably to eligible employees based on days-of-pay during the fiscal year. Eligible employees are regular full-time and part-time employees who have worked during the year and are still employed when the EIP payment is made following the end of the fiscal year, excluding members of BASX's senior leadership team and any employee paid commissions or royalties.

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| | | | |
|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
| | **2022** | **2021** | **2020** |
|  | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| &nbsp;&nbsp;&nbsp;&nbsp;Profit sharing bonus plan and employee incentive plan expense | $14009 | $8526 | $11593 |

---

***Employee Medical Plan*** 

At AAON Oklahoma and AAON Coil Products, we self-insure for our employees' health insurance, and make medical claim payments up to certain stop-loss amounts. We estimate our self-insurance liabilities using an analysis provided by our claims administrator and our historical claims experience. Eligible employees are regular full-time employees who are actively employed and working. Participants are expected to pay a portion of the premium costs for coverage of the benefits provided under the Plan. In addition, the Company matches 175.0% of a participating AAON Oklahoma and AAON Coil Products employee's allowed contributions to a qualified health saving account to assist employees with our heath insurance plan deductibles.

BASX is insured for healthcare coverage through a third party. Eligible employees are regular full-time employees who are actively employed and working. Participants are expected to pay a portion of the premium costs for coverage of the benefits provided under the Plans. In addition, the Company contributes certain amounts for BASX's employees enrolled in a high deductible plan to a qualified health savings account to assist employees with health insurance plan deductibles.

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| | | | |
|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
| | **2022** | **2021** | **2020** |
|  | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| &nbsp;&nbsp;&nbsp;&nbsp;Medical claim payments | $10459 | $9640 | $9060 |
| &nbsp;&nbsp;&nbsp;&nbsp;Health saving account contributions | 3862 | 3482 | 3476 |

---

**16. Stockholders' Equity**

***Stock Repurchase*** 

The Board has authorized two active stock repurchase programs for the Company. The Company may purchase shares on the open market from time to time. The Board must authorize the timing and amount of these purchases and all repurchases are in accordance with the rules and regulations of the SEC allowing the Company to repurchase shares from the open market.

------

Our open market repurchase programs are as follows:

---

| | | |
|:---|:---|:---|
| **Agreement Execution Date** | **Authorized Repurchase $** | **Expiration Date** |
| March 5, 2019 <sup>1</sup> | $20 million | March 4, 2020 |
| March 13, 2020 | $20 million | November 9, 2022 |
| November 3, 2022 | $50 million | \*\*<sup>2</sup> |
| <sup>1</sup> The 2018 and 2019 purchase authorizations were executed under 10b5-1 programs. | <sup>1</sup> The 2018 and 2019 purchase authorizations were executed under 10b5-1 programs. | <sup>1</sup> The 2018 and 2019 purchase authorizations were executed under 10b5-1 programs. |
| <sup>2</sup> Expiration Date is at Board's discretion. The Company is authorized to effectuate repurchases of the Company's common stock on terms and conditions approved in advance by the Board. | <sup>2</sup> Expiration Date is at Board's discretion. The Company is authorized to effectuate repurchases of the Company's common stock on terms and conditions approved in advance by the Board. | <sup>2</sup> Expiration Date is at Board's discretion. The Company is authorized to effectuate repurchases of the Company's common stock on terms and conditions approved in advance by the Board. |

---

The Company repurchases shares of AAON stock from employees for payment of statutory tax withholdings on stock transactions. All other repurchases from directors or employees are contingent upon Board approval. All repurchases are done at current market prices.

Lastly, the Company also had a stock repurchase arrangement by which employee-participants in our 401(k) Plan were entitled to have shares of AAON stock in their accounts sold to the Company. The 401(k) Plan was amended in June 2022 to discontinue this program. No additional shares have been purchased by the Company under this arrangement since June 2022.

Our repurchase activity is as follows:

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| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| | **2022** | **2022** | **2022** | **2021** | **2021** | **2021** | **2020** | **2020** | **2020** |
|  | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* |
| Program | Shares | Total $ | $ per share | Shares | Total $ | $ per share | Shares | Total $ | $ per share |
| Open market | 122112 | $6823 | $55.87 |  | $— | $— | 103689 | $4987 | $48.10 |
| 401(k) | 103936 | 5913 | 56.89 | 297772 | 20876 | 70.11 | 438921 | 25073 | 57.12 |
| Directors & employees | 17228 | 1019 | 59.15 | 22526 | 1590 | 70.59 | 23272 | 1169 | 50.23 |
| &nbsp;&nbsp;&nbsp;&nbsp; Total | 243276 | $13755 | $56.54 | 320298 | $22466 | $70.14 | 565882 | $31229 | $55.19 |

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Our repurchase activity since Company inception, including our current authorized stock repurchase programs are as follows:

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| | | | |
|:---|:---|:---|:---|
| | **Inception to Date** | **Inception to Date** | **Inception to Date** |
|  | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* |
| Program | Shares | Total $ | $ per share |
| Open market | 4327367 | $81616 | $18.86 |
| 401(k) | 8308368 | 171789 | 20.68 |
| Directors & employees | 2044955 | 23360 | 11.42 |
| &nbsp;&nbsp;&nbsp;&nbsp; Total | 14680690 | $276765 | $18.85 |

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***Dividends***

At the discretion of the Board of Directors, we pay cash dividends. Board approval is required to determine the date of declaration and amount for each cash dividend payment.

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Our cash dividends for the three years ended December 31, 2022 are as follows:

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| | | | |
|:---|:---|:---|:---|
| **Declaration Date** | **Record Date** | **Payment Date** | **Dividend per Share** |
| May 15, 2020 | June 3, 2020 | July 1, 2020 | $0.19 |
| November 10, 2020 | November 27, 2020 | December 18, 2020 | $0.19 |
| May 17, 2021 | June 3, 2021 | July 1, 2021 | $0.19 |
| November 9, 2021 | November 26, 2021 | December 17, 2021 | $0.19 |
| May 18, 2022 | June 3, 2022 | July 1, 2022 | $0.19 |
| November 8, 2022 | November 28, 2022 | December 16, 2022 | $0.24 |

---

We paid cash dividends of $22.9 million, $19.9 million, and $19.8 million in 2022, 2021, and 2020, respectively.

***Contingent Shares Issued in BASX Acquisition***

On December 10, 2021, we closed on the acquisition of BASX (Note 4). Under the MIPA Agreement, we committed to $78.0 million in the aggregate of contingent consideration to the former owners of BASX, which is payable in approximately 1,037,000 shares of AAON stock, par value $0.004 per share. The shares do not accrue dividends.

Under the MIPA Agreement, the potential future issuance of the shares is contingent upon BASX meeting certain post-closing earn-out milestones during each of the years ended 2021, 2022, and 2023. We estimated the fair value of contingent consideration related to these shares to be approximately $60.0 million, which is included in additional paid-in capital on the consolidated balance sheets. As of December 31, 2022, 486,286 shares related to the 2021 earn-out milestone have been issued to the former owners of BASX as part of a private placement exempt from registration with the SEC under Rule 506(b), which are included in common stock on the consolidated statements of stockholders' equity. No additional shares have been issued as of February 22, 2023.

**17. New Markets Tax Credit**

On October 24, 2019, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the "Investor") and a certified Community Development Entity under a qualified New Markets Tax Credit ("NMTC") program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the "Project"). In connection with the NMTC transaction, the Company received a $23.0 million NMTC allocation for the Project and secured low interest financing and the potential for future debt forgiveness related to the Project.

Upon closing of the NMTC transaction, the Company provided an aggregate of approximately $15.9 million to the Investor, in the form of a loan receivable, with a term of twenty-five years, bearing an interest rate of 1.0%. This $15.9 million in proceeds plus capital contributed from the Investor was used to make an aggregate $22.5 million loan to a subsidiary of the Company. This financing arrangement is secured by equipment at the Company's Longview, Texas facilities and a guarantee from the Company, including an unconditional guarantee of NMTCs.

This transaction also includes a put/call feature that either of which can be exercised at the end of the seven-year compliance period. The Investor may exercise its put option or the Company can exercise the call, both of which could serve to trigger forgiveness of a portion of the debt. The value attributable to the put/call is nominal. The Investor's interest of $6.4 million is recorded in New market tax credit obligation on the consolidated balance sheets. The Company incurred approximately $0.3 million of debt issuance costs related to the above transactions, which are being amortized over the life of the transaction.

The Investor is subject to 100 percent recapture of the NMTC it receives for a period of seven years, as provided in the Internal Revenue Code and applicable U.S. Treasury regulations in the event that the financing facility of the Borrower under the transaction (AAON Coil Products, Inc.) becomes ineligible for NMTC treatment per the Internal Revenue Code requirements. The Company is required to be in compliance with various regulations and contractual provisions that apply to the NMTC arrangement. Noncompliance with applicable requirements could result in the Investor's projected tax benefits not being realized and, therefore, require the Company to indemnify the Investor for any loss or recapture of the NMTC related to the financing until such time as the recapture provisions have expired

------

under the applicable statute of limitations. The Company does not anticipate any credit recapture will be required in connection with this financing arrangement.

The Investor and its majority owned community development entity are considered VIEs and the Company is the primary beneficiary of the VIEs. This conclusion was reached based on the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the ongoing activities of the VIEs, collecting and remitting interest and fees and NMTC compliance, were all considered in the initial design and are not expected to significantly affect performance throughout the life of the VIE;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• contractual arrangements obligate the Company to comply with NMTC rules and regulations and provide various other guarantees to the Investor and community development entity;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the Investor lacks a material interest in the underling economics of the project; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the Company is obligated to absorb losses of the VIEs.

Because the Company is the primary beneficiary of the VIEs, they have been included in the consolidated financial statements. There are no other assets, liabilities or transaction in these VIEs outside of the financing transactions executed as part of the NMTC arrangement.

**18. Commitments and Contingencies**

***Havtech Litigation***

On January 24, 2022, one of the Company's former independent sales representative firms, Havtech, LLC (and its affiliate, Havtech Parts Division, LLC, collectively "Plaintiffs"), filed a complaint (the "Complaint") in the Circuit Court for Howard County, Maryland (*Havtech, LLC, et al., v. AAON, Inc., et al.*). The Complaint challenged the Company's termination of its business relationship with Plaintiffs. The Company removed the action to the United States District Court for the District of Maryland (Northern Division) and moved to dismiss the Complaint. Plaintiffs' First Amended Complaint ("First Amended Complaint") was entered by the court on July 28, 2022. The First Amended Complaint asserts that the Company improperly terminated Plaintiffs and seeks damages alleged to be no less than $48.6 million, plus fees and costs. The Company filed its Answer to First Amended Complaint on January 31, 2023. The Company believes that Plaintiffs' claims are without merit and intends to vigorously defend itself.

***Other Matters***

The Company is involved from time to time in claims and lawsuits incidental to our business arising from various matters, including alleged violations of contract, product liability, warranty, environmental, regulatory, personal injury, intellectual property, employment, tax and other laws. We closely monitor these claims and legal actions and frequently consult with our legal counsel to determine whether they may, when resolved, have a material adverse effect on our financial position, results of operations or cash flows and we accrue and/or disclose loss contingencies as appropriate. We do not believe these matters will have a material adverse effect on our business, financial position, results of operations or cash flows.

We are occasionally party to short-term, cancellable and occasionally non-cancellable, fixed price contracts with major suppliers for the purchase of raw material and component parts. We expect to receive delivery of raw materials for use in our manufacturing operations. These contracts are not accounted for as derivative instruments because they meet the normal purchase and normal sales exemption. We had no material contractual purchase obligations as of December 31, 2022, except as noted below.

On April 27, 2022, the Company entered into a purchase and sale agreement with a third-party manufacturer to purchase certain assets to design and manufacture fan wheels for the purchase price of $6.5 million. As of December 31, 2022, we have paid approximately $3.5 million related to this agreement, which is included in other long-term assets and property, plant and equipment, with the remaining $3.0 million included in accounts payable and other long-term assets on our consolidated balance sheets. The final payment will be made in 2023.

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**19. New Accounting Pronouncements**

Changes to U.S. GAAP are established by the FASB in the form of accounting standards updates ("ASUs") to the FASB's Accounting Standards Codification. We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements and notes thereto.

**20. Earnings Per Share**

Basic net income per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share assumes the conversion of all potentially dilutive securities and is calculated by dividing net income by the sum of the weighted average number of shares of common stock outstanding plus all potentially dilutive securities. Dilutive common shares consist primarily of stock options and restricted stock awards.

The following table sets forth the computation of basic and diluted earnings per share:

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| | | | |
|:---|:---|:---|:---|
| | **2022** | **2021** | **2020** |
| **Numerator:** | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* | *(in thousands, except share and per share data)* |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income | $100376 | $58758 | $79009 |
| **Denominator:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic weighted average shares | 53054986 | 52404199 | 52168679 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effect of dilutive shares related to stock based compensation<sup>1</sup> | 842783 | 1301698 | 892490 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effect of dilutive shares related contingent consideration<sup>2</sup> | 199303 | 23092 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted weighted average shares | 54097072 | 53728989 | 53061169 |
| **Earnings per share:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic | $1.89 | $1.12 | $1.51 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dilutive | $1.86 | $1.09 | $1.49 |
| **Anti-dilutive shares:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares | 605480 | 304029 | 364787 |
| <sup>1</sup> Dilutive shares related to stock options, restricted stock, PSUs and Key Employee Awards (Note 14) | <sup>1</sup> Dilutive shares related to stock options, restricted stock, PSUs and Key Employee Awards (Note 14) | <sup>1</sup> Dilutive shares related to stock options, restricted stock, PSUs and Key Employee Awards (Note 14) | <sup>1</sup> Dilutive shares related to stock options, restricted stock, PSUs and Key Employee Awards (Note 14) |
| <sup>2</sup> Dilutive shares related to contingent shares issued to former owners of BASX (Note 4) | <sup>2</sup> Dilutive shares related to contingent shares issued to former owners of BASX (Note 4) | <sup>2</sup> Dilutive shares related to contingent shares issued to former owners of BASX (Note 4) | <sup>2</sup> Dilutive shares related to contingent shares issued to former owners of BASX (Note 4) |

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**21. Related Parties**

The Company sells units to an entity owned by a member of the CEO/President's immediate family. This entity is also one of the Company's Representatives and as such, the Company makes payments to the entity for third party products. Additionally, the Company purchases some supplies from entities controlled by two of the Company's board members and a member of the Company's executive management team. The Company also periodically makes sales to a board member for parts. From December 10, 2021 through May 31, 2022 (Note 4**)**, the Company leased a manufacturing and office facility in Redmond, Oregon from an entity in which certain members of BASX management have an ownership interest. This facility was purchased 100% by the Company on May 31, 2022.

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Following is a summary of transactions and balances with affiliates:

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| | | | |
|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
| | **2022** | **2021** | **2020** |
|  | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| Sales to affiliates | $5789 | $3752 | $3475 |
| Payments to affiliates | 1318 | 185 | 256 |
|  |  | **December 31,** | **December 31,** |
|  |  | **2022** | **2021** |
|  |  | *(in thousands)* | *(in thousands)* |
| Due from affiliates |  | $432 | $547 |

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**22. Segments**

The Company has determined that it has three reportable segments for financial reporting purposes. Management evaluates the performance of its business segments primarily on gross profit. The Company's chief decision maker ("CODM"), our CEO, allocates resources and assesses the performance of each operating segment using information about the operating segment's net sales and income from operations. The CODM does not evaluate operating segments using asset or liability information.

*AAON Oklahoma:* AAON Oklahoma designs, manufactures, sells, and services standard, semi-custom, and custom heating, ventilation, and air conditioning ("HVAC") systems, designs and produces controls solutions for all of our HVAC units, and sells retail parts to customers through our two retail part stores in Tulsa, Oklahoma as well as online. Through our Norman Asbjornson Innovation Center ("NAIC") research and development laboratory facility in Tulsa, Oklahoma, the Company is able to test units under various environmental conditions. AAON Oklahoma includes the operations of our Tulsa, Oklahoma and Parkville, Missouri facilities, our NAIC research and development laboratory facility and two retail parts locations.

*AAON Coil Products:* AAON Coil Products designs and manufactures a selection of our standard, semi-custom, and custom HVAC systems. AAON Coil Products also designs and manufactures various heating and cooling coils to be used in HVAC systems, mostly for the benefit of AAON Oklahoma and AAON Coil Products. AAON Coil Products consists of operations at our Longview, Texas facilities.

*BASX:* BASX provides product development design and manufacturing of custom engineered air handling systems including high efficiency data center cooling solutions, cleanroom HVAC systems, commercial/industrial HVAC systems, and modular solutions. Additionally, BASX designs and manufactures cleanroom environmental control systems to support hospital surgical suites, pharmaceutical process facilities, semiconductor and electronics manufacturing, laboratory and isolation and modular cleanrooms for facility flexibility. BASX consists of operations at our Redmond, Oregon facility.

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The following table summarizes certain financial data related to our segments. Transactions between segments are recorded based on prices negotiated between the segments. The Gross Profit amounts shown below are presented after elimination entries.

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| | | | |
|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
| | **2022** | **2021** | **2020** |
|  | *(in thousands)* | *(in thousands)* | *(in thousands)* |
| **Net Sales** |  |  |  |
| AAON Oklahoma |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp; External sales | $663845 | $463845 | $458957 |
| &nbsp;&nbsp;&nbsp;&nbsp; Inter-segment sales | 3251 | 2504 | 2683 |
| AAON Coil Products |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp; External sales | 107290 | 66589 | 55594 |
| &nbsp;&nbsp;&nbsp;&nbsp; Inter-segment sales | 30932 | 24250 | 21552 |
| BASX<sup>1</sup> |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp; External sales | 117653 | 4083 |  |
| &nbsp;&nbsp;&nbsp;&nbsp; Inter-segment sales | 79 |  |  |
| Eliminations | (34262) | (26754) | (24235) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net sales | $888788 | $534517 | $514551 |
| **Gross Profit** |  |  |  |
| AAON Oklahoma | $172983 | $126868 | $140099 |
| AAON Coil Products | 33311 | 10075 | 15750 |
| BASX<sup>1</sup> | 31278 | 887 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross profit | $237572 | $137830 | $155849 |

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| | | |
|:---|:---|:---|
| | **December 31,** | **December 31,** |
| | **2022** | **2021** |
|  | *(in thousands)* | *(in thousands)* |
| **Long-lived assets** |  |  |
| AAON Oklahoma | $213731 | $183840 |
| AAON Coil Products | 68013 | 62534 |
| BASX | 35578 | 28662 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total long-lived assets | $317322 | $275036 |
| **Intangible assets and goodwill** |  |  |
| AAON Oklahoma | $3229 | $3229 |
| AAON Coil Products |  |  |
| BASX | 143269 | 152619 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total intangible assets and goodwill | $146498 | $155848 |
| <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements beginning December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements beginning December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements beginning December 11, 2021. |
| <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements beginning December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements beginning December 11, 2021. | <sup>1</sup> BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements beginning December 11, 2021. |

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**Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.**

None.

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**Item 9A. Controls and Procedures.**

*(a) Evaluation of Disclosure Controls and Procedures*

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2022.

Based upon the evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective at December 31, 2022 to ensure the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

*(b) Management's Annual Report on Internal Control over Financial Reporting*

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Our internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In making our assessment of internal control over financial reporting, management has used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in the 2013 *Internal Control—Integrated Framework*. Based on our assessment, our management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2022.

The effectiveness of the Company's internal control over financial reporting as of December 31, 2022 has been audited by Grant Thornton LLP, our independent registered public accounting firm, as stated in their report which is included in this Item 9A of this report on Form 10-K.

(c) *Changes in Internal Control over Financial Reporting*

There have been no changes in internal control over financial reporting that occurred during the fourth quarter of 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

Board of Directors and Stockholders

AAON, Inc.

**Opinion on internal control over financial reporting**

We have audited the internal control over financial reporting of AAON, Inc. (a Nevada corporation) and subsidiaries (the "Company") as of December 31, 2022, based on criteria established in the 2013 *Internal Control—Integrated Framework* issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 *Internal Control—Integrated Framework* issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated financial statements of the Company as of and for the year ended December 31, 2022, and our report dated February 27, 2023 expressed an unqualified opinion on those financial statements.

**Basis for opinion**

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting ("Management's Report"). Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

**Definition and limitations of internal control over financial reporting**

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP

Tulsa, Oklahoma

February 27, 2023

------

**Item 9B. Other Information.**

None.

**PART III**

**Item 10. Directors, Executive Officers and Corporate Governance.**

The information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is incorporated by reference to the information contained in our definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with our annual meeting of stockholders scheduled to be held on May 16, 2023.

**Code of Ethics**

We adopted a code of ethics that applies to our principal executive officer, principal financial officer, and principal accounting officer or persons performing similar functions, as well as other employees and directors. Our code of ethics can be found on our website at www.aaon.com. We will also provide any person without charge, upon request, a copy of such code of ethics. Requests may be directed to AAON, Inc., 2425 South Yukon Avenue, Tulsa, Oklahoma 74107, attention Rebecca A. Thompson, or by calling (918) 382-6216.

**Item 11. Executive Compensation.**

The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K is incorporated by reference to the information contained in our definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with our annual meeting of stockholders scheduled to be held on May 16, 2023.

**Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.**

The information required by Item 403 and Item 201(d) of Regulation S-K is incorporated by reference to the information contained in our definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with our annual meeting of stockholders scheduled to be held May 16, 2023.

**Item 13. Certain Relationships and Related Transactions, and Director Independence.**

The information required to be reported pursuant to Item 404 of Regulation S-K and paragraph (a) of Item 407 of Regulation S-K is incorporated by reference in our definitive proxy statement relating to our annual meeting of stockholders scheduled to be held May 16, 2023.

Our Code of Conduct guides the Board of Directors in its actions and deliberations with respect to related party transactions. Under the Code, conflicts of interest, including any involving the directors or any Named Officers, are prohibited except under any guidelines approved by the Board of Directors. Only the Board of Directors may waive a provision of the Code of Conduct for a director or a Named Officer, and only then in compliance with all applicable laws, rules and regulations. We have not entered into any new material related party transactions and have no preexisting material related party transactions in 2022, 2021, or 2020.

**Item 14. Principal Accountant Fees and Services.**

This information is incorporated by reference in our definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with our annual meeting of stockholders scheduled to be held May 16, 2023.

------

**PART IV**

---

| | |
|:---|:---|
| **Item 15.** | **Exhibits and Financial Statement Schedules.** |

---

---

| | | | |
|:---|:---|:---|:---|
| (a) | Financial statements. | Financial statements. | Financial statements. |
|  | (1) | The consolidated financial statements and the report of independent registered public accounting firm are included in Item 8 of this Form 10-K. | The consolidated financial statements and the report of independent registered public accounting firm are included in Item 8 of this Form 10-K. |
|  | (2) | The consolidated financial statements other than those listed at item (a)(1) above have been omitted because they are not required under the related instructions or are not applicable. | The consolidated financial statements other than those listed at item (a)(1) above have been omitted because they are not required under the related instructions or are not applicable. |
|  | (3) | The exhibits listed at item (b) below are filed as part of, or incorporated by reference into, this Form 10-K. | The exhibits listed at item (b) below are filed as part of, or incorporated by reference into, this Form 10-K. |
| (b) | Exhibits: | Exhibits: |  |
|  | (3) | (A) | Amended and Restated Articles of Incorporation (ii) |
|  |  | (B) | Amended and Restated Bylaws (i) |
|  | (4.1) |  | Amended and Restated Loan Agreement (dated November 24, 2021) and related documents (iii) |
|  | (4.2) |  | First Amendment to the Amended and Restated Loan Agreement (dated May 27, 2022) and related documents (viii) |
|  | <u>[(4.](aaon_10k123122ex416.htm)[1](aaon_10k123122ex416.htm)[6)](aaon_10k123122ex416.htm)</u> |  | Description of Securities |
|  | (10.1) |  | AAON, Inc. 1992 Stock Option Plan, as amended (v) |
|  | (10.2) |  | AAON, Inc. 2007 Long-Term Incentive Plan, as amended (vi) |
|  | (10.3) |  | AAON, Inc. 2016 Long-Term Incentive Plan (iv) |
|  | <u>[(21)](aaon_10k123122ex21.htm)</u> |  | List of Subsidiaries |
|  | <u>[(23)](aaon_10k123122ex23.htm)</u> |  | Consent of Grant Thornton LLP |
|  | <u>[(31.1)](aaon_10k123122ex311.htm)</u> |  | Certification of CEO |
|  | <u>[(31.2)](aaon_10k123122ex312.htm)</u> |  | Certification of CFO |
|  | <u>[(32.1)](aaon_10k123122ex321.htm)</u> |  | Section 1350 Certification – CEO |
|  | <u>[(32.2)](aaon_10k123122ex322.htm)</u> |  | Section 1350 Certification – CFO |
|  | <u>[(99.1)](aaon_10k123122ex991.htm)</u> |  | Membership Interest Purchase Agreement - Acquisition of BASX, LLC (dated November 18, 2021) (vii) |
|  | (101) | (INS) | Inline XBRL Instance Document |
|  | (101) | (SCH) | Inline XBRL Taxonomy Extension Schema |
|  | (101) | (CAL) | Inline XBRL Taxonomy Extension Calculation Linkbase |
|  | (101) | (DEF) | Inline XBRL Taxonomy Extension Definition Linkbase |
|  | (101) | (LAB) | Inline XBRL Taxonomy Extension Label Linkbase |
|  | (101) | (PRE) | Inline XBRL Taxonomy Extension Presentation Linkbase |
|  | (104) |  | Cover Page Interactive Data File (embedded within the Inline XBRL Document and included in Exhibit 101) |
|  | (i) |  | Incorporated herein by reference to the exhibits to our Form 8-K dated May 15, 2020. |
|  | (ii) |  | Incorporated herein by reference to exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. |
|  | (iii) |  | Incorporated herein by reference to exhibit to our Form 8-K dated November 24, 2021. |

---

------

(iv) Incorporated herein by reference to our Form S-8 Registration Statement No. 333-212863 dated August 2, 2016, our Form S-8 Registration Statement No. 333-226512 dated August 2, 2018, and our Form S-8 Registration Statement No. 333-241538 dated August 6, 2020.

(v) Incorporated herein by reference to exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 1991, and to our Form S-8 Registration Statement No. 333-52824.

(vi) Incorporated herein by reference to our Form S-8 Registration Statement No. 333-151915, Form S-8 Registration Statement No. 333-207737.

(vii) Incorporated herein by reference to exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

(viii) Incorporated herein by reference to the exhibits to our Form 8-K dated May 27, 2022.

------

**SIGNATURES**

Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

---

| | | | |
|:---|:---|:---|:---|
| | | AAON, INC. | AAON, INC. |
| Dated: | February 27, 2023 | By: | /s/ Gary D. Fields |
|  |  |  | Gary D. Fields, Chief Executive Officer |

---

------

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

---

| | | |
|:---|:---|:---|
| Dated: | February 27, 2023 | /s/ Gary D. Fields |
|  |  | Gary D. Fields<br>Chief Executive Officer, President, and Director<br>(principal executive officer) |
| Dated: | February 27, 2023 | /s/ Rebecca A. Thompson |
|  |  | Rebecca A. Thompson<br>Chief Financial Officer<br>(principal financial officer) |
| Dated: | February 27, 2023 | /s/ Christopher D. Eason |
|  |  | Christopher D. Eason<br>Chief Accounting Officer<br>(principal accounting officer) |
| Dated: | February 27, 2023 | /s/ Norman H. Asbjornson |
|  |  | Norman H. Asbjornson<br> Director |
| Dated: | February 27, 2023 | /s/ Angela E. Kouplen |
|  |  | Angela E. Kouplen <br>Director |
| Dated: | February 27, 2023 | /s/ Caron A. Lawhorn |
|  |  | Caron A. Lawhorn <br>Director |
| Dated: | February 27, 2023 | /s/ Stephen O. LeClair |
|  |  | Stephen O. LeClair<br>Director |
| Dated: | February 27, 2023 | /s/ A.H. McElroy II |
|  |  | A.H. McElroy II<br>Director |
| Dated: | February 27, 2023 | /s/ David R. Stewart |
|  |  | David R. Stewart<br>Director |
| Dated: | February 27, 2023 | /s/ Bruce Ware |
|  |  | Bruce Ware<br>Director |
| Dated: | February 27, 2023 | /s/ Luke A. Bomer |
|  |  | Luke A. Bomer<br>Secretary |

---

## Exhibit 4.16

**Exhibit 4.16**

**DESCRIPTION OF THE REGISTRANT'S SECURITIES**

**REGISTERED PURSUANT TO SECTION 12 OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

As of February 27, 2023, AAON, Inc., a Nevada corporation, ("AAON") has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), our Common Stock.

**Description of Common Stock**

The following description of our Common Stock is a summary based on and qualified by our Amended and Restated Articles of Incorporation of AAON, Inc. (as further amended to date, the "Articles of Incorporation") and our Bylaws (as amended to date, the "Bylaws").

**Authorized Capital Shares**

Our authorized capital shares consist of 100,000,000 shares of common stock, $0.004 par value per share ("Common Stock"), and 5,000,000 shares of series preferred stock, $0.001 par value per share ("Preferred Stock"). The outstanding shares of our Common Stock are fully paid and nonassessable.

**Voting Rights**

Holders of Common Stock are entitled to one vote per share on all matters voted on by the stockholders, including the election of directors. Our Common Stock does not have cumulative voting rights.

**Dividend Rights**

Subject to the rights of holders of outstanding shares of Preferred Stock, if any, the holders of Common Stock are entitled to receive dividends, if any, as may be declared from time to time by the Board of Directors in its discretion out of funds legally available for the payment of dividends.

**Liquidation Rights**

Subject to any preferential rights of outstanding shares of Preferred Stock, if any, holders of Common Stock will share ratably in all assets legally available for distribution to our stockholders in the event of dissolution.

**Other Rights and Preferences**

Our Common Stock has no sinking fund or redemption provisions or preemptive, conversion or exchange rights.

**Listing**

The Common Stock is traded on The Nasdaq Stock Market LLC under the trading symbol "AAON."

## Ex-21

**Exhibit 21**

**LIST OF SUBSIDIARIES OF AAON, INC.**

---

| | |
|:---|:---|
| **Subsidiary** | **Jurisdiction of Organization** |
| AAON, Inc. | Oklahoma |
| AAON Coil Products, Inc. | Texas |
| BasX, Inc. | Oregon |

---

## Ex-23

**Exhibit 23**

**CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

We have issued our reports dated February 27, 2023, with respect to the consolidated financial statements and internal control over financial reporting included in the Annual Report of AAON, Inc. on Form 10-K for the year ended December 31, 2022. We consent to the incorporation by reference of said reports in the Registration Statements of AAON, Inc. on Forms S-8 (File No. 333-151915, File No. 333-207737, File No. 333-212863, File No. 333-226512, and File No. 333-241538).

/s/ GRANT THORNTON LLP

Tulsa, Oklahoma

February 27, 2023

## Exhibit 31.1

**Exhibit 31.1**

**CERTIFICATION**

I, Gary D. Fields, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.I have reviewed this Annual Report on Form 10-K of AAON, Inc.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including our consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c)evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d)disclosed in this report any change in the registrant's internal controls over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
| Dated: | February 27, 2023 | |
| | | /s/ Gary D. Fields |
| | | Gary D. Fields<br>Chief Executive Officer |

---

## Exhibit 31.2

**Exhibit 31.2**

**CERTIFICATION**

I, Rebecca A. Thompson, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.I have reviewed this Annual Report on Form 10-K of AAON, Inc.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including our consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c)evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d)disclosed in this report any change in the registrant's internal controls over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
| Dated: | February 27, 2023 | |
| | | /s/ Rebecca A. Thompson |
| | | Rebecca A. Thompson<br>Chief Financial Officer |

---

## Exhibit 32.1

**Exhibit 32.1**

**CERTIFICATION PURSUANT TO**

**18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Annual Report of AAON, Inc. (the "Company"), on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary D. Fields, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The information contained in the Report fairly presents, in all material respects, the financial condition and our results of operations.

---

| | | |
|:---|:---|:---|
| Dated: | February 27, 2023 | |
| | | /s/ Gary D. Fields |
| | | Gary D. Fields<br>Chief Executive Officer |

---

## Exhibit 32.2

**Exhibit 32.2**

**CERTIFICATION PURSUANT TO**

**18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Annual Report of AAON, Inc. (the "Company"), on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Rebecca A. Thompson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The information contained in the Report fairly presents, in all material respects, the financial condition and our results of operations.

---

| | | |
|:---|:---|:---|
| Dated: | February 27, 2023 | |
| | | /s/ Rebecca A. Thompson |
| | | Rebecca A. Thompson<br>Chief Financial Officer |

---

## Exhibit 99.1

**Exhibit 99.1**

**MEMBERSHIP INTEREST PURCHASE AGREEMENT**

&nbsp;&nbsp;&nbsp;&nbsp;This Membership Interest Purchase Agreement (this "***<u>Agreement</u>***") is entered into as of the 18<sup>th</sup> day of November, 2021, by and among D-VELOPMENT, LLC, an Oregon limited liability company ("***<u>D-Velopment</u>***"), JVK HOLDINGS, LLC, an Arizona limited liability company ("***<u>JVK</u>***"), Randa K. Brooks, an individual ("***<u>Brooks</u>***"), Matthew J. Tobolski in his capacity as trustee of the TOBOLSKI FAMILY TRUST ("***<u>TFT</u>***"), DAVE BENSON, an individual ("***<u>Benson</u>***"), JOHN N. KUCERA, an individual ("***<u>Kucera</u>***"), Matt Toboloski, an individual ("***<u>Tobolski</u>***"), and AAON, INC., a Nevada corporation ("***<u>Buyer</u>***"). D-Velopment, JVK, Brooks and TFT are sometimes referred to collectively herein as the "***<u>Sellers</u>***" or individually as a "***<u>Seller</u>***"; Benson, Kucera, Brooks and Tobolski are sometimes referred to collectively herein as the "***<u>Principals</u>***" or individually as a "***<u>Principal</u>***", and the Sellers and the Principals are sometimes referred to collectively herein as the "***<u>Seller Parties</u>***" or individually as a "***<u>Seller Party</u>***".

**<u>RECITALS</u>:**

&nbsp;&nbsp;&nbsp;&nbsp;**A.**&nbsp;&nbsp;&nbsp;&nbsp;Sellers collectively own all of the issued and outstanding equity ownership interests (the "***Membership Interests***") of BASX, LLC, an Oregon limited liability company (the "***<u>Company</u>***").

&nbsp;&nbsp;&nbsp;&nbsp;**B.**&nbsp;&nbsp;&nbsp;&nbsp;Sellers desire to sell to Buyer, and Buyer desires to purchase from Sellers, the Membership Interests, subject to the terms and conditions set forth in this Agreement.

**ARTICLE I**

**DEFINITIONS**

&nbsp;&nbsp;&nbsp;&nbsp;Unless otherwise defined elsewhere in this Agreement, capitalized terms shall be given the meanings assigned to such terms in this ***<u>Article I</u>***:

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>AAON Signing VWAP</u>***" means the volume-weighted average price per share of AAON Common Stock for a five (5) day trading period, starting with the opening of trading on the fifth (5<sup>th</sup>) trading day prior to the Calculation Date and ending with the closing of trading on the day prior to the Calculation Date, rounded to the nearest cent, as reported on Bloomberg Finance L.P.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>AAON Common Stock</u>***" means shares of common stock, par value $0.004 per share, of AAON, Inc., a Nevada corporation.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Accredited Investor</u>***" has the meaning set forth in Regulation D promulgated under the Securities Act.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Acquisition Proposal</u>***" has the meaning set forth in ***<u>Section 5.03(a)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Action</u>***" means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Affiliate</u>***" of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term "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, by contract or otherwise.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Ancillary Documents</u>***" means the Employment Agreements, the REPA, the Restricted Stock Grants and the amendment to the Facility Lease contemplated by Section 8.01(e).

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Adjusted EBITDA</u>***" means, for the applicable period, the Company's earnings before interest, income taxes, depreciation and amortization, subject to the following additional adjustments, all as set forth in the example of calculation of the Company's Adjusted EBITDA on ***<u>Exhibit "A"</u>*** attached hereto

------

and incorporated herein. In the event of supply chain disruptions in a given year that have 1) a material impact on the timely shipment of orders by the Company or 2) require the use of alternative sourcing of components that adversely affect profit margin, EBITDA shall be adjusted for that year to reflect the quantifiable impact of such disruptions on a project by project basis in an amount determined by Sellers, subject to the approval of the Board of Directors of Buyer, which approval shall not be unreasonably withheld. To the extent an adjustment is made in one year, an equal and opposite adjustment shall be made in the subsequent year.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Audited Financial Statements</u>***" has the meaning set forth in ***<u>Section 3.06</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Balance Sheet</u>***" has the meaning set forth in ***<u>Section 3.06</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Balance Sheet Date</u>***" has the meaning set forth in ***<u>Section 3.06</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Basket</u>***" has the meaning set forth in ***<u>Section 8.04(a)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Benefit Plan</u>***" has the meaning set forth in ***<u>Section 3.20(a)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Brooks Restricted Stock Grant</u>***" means the Restricted Stock Grant to be entered into as Closing by Brooks and Buyer, pursuant to which Brooks' rights to potentially receive her respective portion of the 2021 Contingent Consideration, the 2022 Contingent Consideration and the 2023 Contingent Consideration shall be defined.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Business Day</u>***" means any day except Saturday, Sunday or any other day on which commercial banks located in Tulsa, Oklahoma are authorized or required by Law to be closed for business.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Buyer Employee Benefit Plans</u>***" means (i) that certain AAON, Inc. 2007 Long-Term Incentive Plan, originally adopted by the Buyer on March 13, 2007 and approved by the Buyer's shareholders on May 22, 2007, as amended, and (ii) that certain AAON, Inc. 2016 Long-Term Incentive Plan, originally adopted by the Buyer on February 24, 2016 and approved by the Buyer's shareholders on May 24, 2016, as amended.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Buyer's Accountants</u>***" means Grant Thornton LLP.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Calculation Date</u>***" means the close of business on the fifth (5<sup>th</sup>) Business Day immediately preceding the public announcement of the signing of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>CARES Act</u>***" means Coronavirus Aid, Relief, and Economic Security Act, as amended.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Cause</u>***" shall be as defined in the Employee Restricted Stock Grants.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>CERCLA</u>***" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Closing</u>***" has the meaning set forth in ***<u>Section 2.05</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Closing Date</u>***" has the meaning set forth in ***<u>Section 2.05</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Closing Date Payment</u>***" has the meaning set forth in ***<u>Section 2.04(a)(i)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Closing Indebtedness Certificate</u>***" means a certificate executed by a Manager of the Company certifying on behalf of the Company an itemized list of all outstanding Indebtedness as of the close of business on the Closing Date and the Person to whom such outstanding Indebtedness is owed and an aggregate total of such outstanding Indebtedness.

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&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Closing Transaction Expenses Certificate</u>***" means a certificate executed by a Manager of the Company, certifying the amount of Transaction Expenses remaining unpaid as of the close of business on the Closing Date (including an itemized list of each such unpaid Transaction Expense with a description of the nature of such expense and the person to whom such expense is owed).

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Closing Working Capital</u>***" means: (a) the Current Assets of the Company, less (b) the Current Liabilities of the Company, determined as of the close of business on the Closing Date as calculated pursuant to the Closing Working Capital Statement.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Closing Working Capital Statement</u>***" has the meaning set forth in ***<u>Section 2.04(b)(i)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Code</u>***" means the Internal Revenue Code of 1986, as amended.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Company Intellectual Property</u>***" means all Intellectual Property that is owned by the Company.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Company IP Agreements</u>***" means all licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, waivers, releases, permissions and other Contracts, whether written or oral, relating to Intellectual Property to which the Company is a party, beneficiary or otherwise bound.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Company IP Registrations</u>***" means all Company Intellectual Property that is subject to any issuance, registration or application by or with any Governmental Authority or authorized private registrar in any jurisdiction, including issued patents, registered trademarks, domain names and copyrights, and pending applications for any of the foregoing.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Company IT Systems</u>***" means all Software, computer hardware, servers, networks, platforms, peripherals, and similar or related items of automated, computerized, or other information technology (IT) networks and systems (including telecommunications networks and systems for voice, data and video) owned, leased, licensed, or used (including through cloud-based or other third-party service providers) by the Company.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Construction Loan</u>***" means that certain construction loan in the original maximum amount of $6,000,000.00 (with such loan amount subsequently increased by at least an additional $3,704,679.00) to the Real Estate Owner made by UMB Bank, N.A., evidenced by a Promissory Note dated as of July 8, 2020, as such loan may have been or may hereafter be amended, modified, substituted or replaced.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Construction Loan Guaranty</u>***" means that certain Unconditional and Continuing Guaranty and Subordination Agreement dated as of July 8, 2020, made by the Company and certain other parties thereto in favor of UMB Bank, N.A., as such instrument may have been or may hereafter be amended or modified, pursuant to which the Company has delivered its guaranty of the Construction Loan.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Contracts</u>***" means all contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other agreements, commitments and legally binding arrangements, whether written or oral.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>COVID-19</u>***" means SARS-CoV-2 or COVID-19, and any evolutions or mutations thereof or related or associated epidemics, pandemics or outbreaks.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Current Assets</u>***" means cash and cash equivalents, accounts receivable, inventory, costs in excess of billings, and prepaid expenses, but excluding (a) the portion of any prepaid expense of which Buyer will not receive the benefit following the Closing, (b) deferred Tax assets, and (c) receivables from any of the Company's Affiliates, managers, members, employees or officers and any of their respective Affiliates, other than those receivables arising in the normal course of the Company's business, determined in accordance with GAAP, except to the extent that BasX Properties, LLC is not included in the financial statements, applied using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the Audited Financial Statements for the most recent fiscal year end as if such accounts were being prepared and audited as of a fiscal year end.

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&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Current Liabilities</u>***" means accounts payable, accrued Taxes, billings in excess of costs, and accrued expenses, but excluding payables to any of the Company's Affiliates, directors, employees, officers or stockholders and any of their respective Affiliates (other than accrued expenses for payroll, employee incentive plans, PTO, and similar expenses, which will be on the balance sheet as of the Closing Date, scheduled for payment on the next regularly scheduled payment date therefor), deferred Tax liabilities, Transaction Expenses and the current portion of any Indebtedness of the Company, determined in accordance with GAAP, except to the extent that BasX Properties, LLC is not included in the financial statements, applied using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the Audited Financial Statements for the most recent fiscal year end as if such accounts were being prepared and audited as of a fiscal year end.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Disclosure Schedules</u>***" means the Disclosure Schedules delivered by Sellers and Buyer concurrently with the execution and delivery of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Disputed Amounts</u>***" has the meaning set forth in ***<u>Section 2.04(c)(iii)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Dollars</u>***" or "***<u>$</u>***" means the lawful currency of the United States.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>D-Velopment Restricted Stock Grant</u>***" means the Restricted Stock Grant to be entered into as of Closing by D-Velopment and Buyer, pursuant to which D-Velopment's rights to potentially receive its respective portion of the 2021 Contingent Consideration, the 2022 Contingent Consideration and the 2023 Contingent Consideration shall be defined.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>EBITDA Targets</u>***" means, collectively, the 2021 EBITDA Target, the 2022 EBITDA Target and the 2023 EBITDA Target.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Employment Agreements</u>***" means employment agreements to be entered into as of the Closing by the Company with Benson, Tobolski, Jeff Fehr, Chris Swarr and Mark Nordstrom, on terms and conditions acceptable to the Buyer and each respective employee.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Encumbrance</u>***" means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Environmental Attributes</u>***" means any emissions and renewable energy credits, energy conservation credits, benefits, offsets and allowances, emission reduction credits or words of similar import or regulatory effect (including emissions reduction credits or allowances under all applicable emission trading, compliance or budget programs, or any other federal, state or regional emission, renewable energy or energy conservation trading or budget program) that have been held, allocated to or acquired for the development, construction, ownership, lease, operation, use or maintenance of the Company as of: (i) the date of this Agreement; and (ii) future years for which allocations have been established and are in effect as of the date of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Environmental Claim</u>***" means any Action, Governmental Order, lien, fine, penalty, or, as to each, any settlement or judgment arising therefrom, by or from any Person alleging liability of whatever kind or nature (including liability or responsibility for the costs of enforcement proceedings, investigations, cleanup, governmental response, removal or remediation, natural resources damages, property damages, personal injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief) arising out of, based on or resulting from: (a) the presence, Release of, or exposure to, any Hazardous Materials; or (b) any actual or alleged non-compliance with any Environmental Law or term or condition of any Environmental Permit.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Environmental Law</u>***" means any applicable Law, and any Governmental Order or binding agreement with any Governmental Authority: (a) relating to pollution (or the cleanup thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including ambient air, soil, surface water or groundwater, or subsurface strata); or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage,

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recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, production, disposal or remediation of any Hazardous Materials. The term "Environmental Law" includes, without limitation, the following (including their implementing regulations and any state analogs): the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; and the Occupational Safety and

Health Act of 1970, as amended, 29 U.S.C. §§ 651 *et seq*.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Environmental Notice</u>***" means any written directive, notice of violation or infraction, or notice respecting any Environmental Claim relating to actual or alleged non-compliance with any Environmental Law or any term or condition of any Environmental Permit.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Environmental Permit</u>***" means any Permit, letter, clearance, consent, waiver, closure, exemption, decision or other action required under or issued, granted, given, authorized by or made pursuant to Environmental Law.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>ERISA</u>***" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>ERISA Affiliate</u>***" means all employers (whether or not incorporated) that would be treated together with the Company or any of its Affiliates as a "single employer" within the meaning of Section 414 of the Code or Section 4001 of ERISA.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Estimated Closing Working Capital</u>***" has the meaning set forth in Section ***<u>2.04(a)(ii)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Estimated Closing Working Capital Statement</u>***" has the meaning set forth in ***<u>Section 2.04(a)(ii)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Excluded Matter</u>***" means any adverse effect, change, or event, directly arising from or related to any adverse change in or effect on the business of the Company (a) that is cured before the Closing or (b) directly related to the announcement, pendency or completion of the transactions contemplated by this Agreement (including, but not limited to, any action required by any Governmental Entity in order to consummate, or as a condition to consummating, the transactions contemplated by this Agreement).

&nbsp;&nbsp;&nbsp;&nbsp;***"<u>Facility Lease</u>"*** means the Commercial Lease Agreement dated February 17, 2021 between the Company as tenant and Real Estate Owner as landlord.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Financial Statements</u>***" has the meaning set forth in ***<u>Section 3.06</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Fraud</u>***" means, actual fraud as determined under the laws of the State of Nevada and the federal laws of the United States of America.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Fundamental Representations</u>***" means the representations and warranties contained in ***<u>Section 3.02</u>***, ***<u>Section 3.03</u>*** , ***<u>Section 4.01</u>***, ***<u>Section 4.02</u>***, ***<u>Section 4.03</u>*** and ***<u>Section 5.01</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>GAAP</u>***" means United States generally accepted accounting principles in effect from time to time.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Government Contracts</u>***" has the meaning set forth in ***<u>Section 3.09(a)(viii)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Governmental Authority</u>***" means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental

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authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Governmental Order</u>***" means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Hazardous Materials</u>***" means: (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether naturally occurring or manmade, that is hazardous, acutely hazardous, toxic, or words of similar import or regulatory effect under Environmental Laws; and (b) any petroleum or petroleum derived products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation, and polychlorinated biphenyls.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>HSR Act</u>***" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Indebtedness</u>***" means, without duplication and with respect to the Company, all (a) indebtedness for borrowed money; (b) obligations for the deferred purchase price of property or services (other than Current Liabilities taken into account in the calculation of Closing Working Capital), (c) long or short-term obligations evidenced by notes, bonds, debentures or other similar instruments; (d) obligations under any interest rate, currency swap or other hedging agreement or arrangement; (e) capital lease obligations; (f) any unpaid interest, prepayment penalties, premiums, costs and fees that would arise or become due as a result of the prepayment of any of the obligations referred to in the foregoing clauses (a) through (f). Indebtedness excludes indebtedness not to exceed $512,000 incurred in connection with any furniture, fixtures and equipment (and components thereof) ordered or to be ordered.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Indemnity Cap</u>***" shall initially mean an amount equal to $10,000,000; however, the Indemnity Cap shall be increased at the time of issuance of 2021 Contingent Consideration in an amount equal to 10% of the amount of 2021 Contingent Consideration actually issued; shall be further increased at the time of issuance of 2022 Contingent Consideration, in an amount equal to 10% of the amount of 2022 Contingent Consideration actually issued; and shall be further increased at the time of issuance of 2023 Contingent Consideration, in an amount equal to 10% of the amount of 2023 Contingent Consideration actually issued, provided, that in no event shall the Indemnity Cap exceed an aggregate sum of $18,000,000 .

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Independent Accountant</u>***" has the meaning set forth in ***<u>Section 2.04(c)(iii)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Insurance Policies</u>***" has the meaning set forth in ***<u>Section 3.16</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Intellectual Property</u>***" means any and all rights in, arising out of, or associated with any of the following in any jurisdiction throughout the world: (a) issued patents and patent applications (whether provisional or non-provisional), including divisionals, continuations, continuations-in-part, substitutions, reissues, reexaminations, extensions, or restorations of any of the foregoing, and other Governmental Authority-issued indicia of invention ownership (including certificates of invention, petty patents, and patent utility models) ("***<u>Patents</u>***"); (b) trademarks, service marks, brands, certification marks, logos, trade dress, trade names, and other similar indicia of source or origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications for registration, and renewals of, any of the foregoing ("***<u>Trademarks</u>***"); (c) copyrights and works of authorship, whether or not copyrightable, and all registrations, applications for registration, and renewals of any of the foregoing ("***<u>Copyrights</u>***"); (d) internet domain names and social media account or user names (including "***<u>handles</u>***"), whether or not Trademarks, all associated web addresses, URLs, websites and web pages, social media sites and pages, and all content and data thereon or relating thereto, whether or not Copyrights; (e) mask works, and all registrations, applications for registration, and renewals thereof; (f) industrial designs, and all Patents, registrations, applications for registration, and renewals thereof; (g) trade secrets, know-how, inventions (whether or not patentable), discoveries, improvements, technology, business and technical information, databases, data compilations and collections, tools, methods, processes, techniques, and other confidential and proprietary information and all rights therein ("***<u>Trade Secrets</u>***"); (h) computer programs, operating systems, applications, firmware, and other code, including all source code, object code, application programming interfaces, data files, databases, protocols, specifications, and other documentation thereof; and (i) all other intellectual or industrial property and proprietary rights.

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&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Interim Balance Sheet</u>***" has the meaning set forth in ***<u>Section 3.06</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Interim Balance Sheet Date</u>***" has the meaning set forth in ***<u>Section 3.06</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Interim Financial Statements</u>***" has the meaning set forth in ***<u>Section 3.06</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>JVK Restricted Stock Grant</u>***" means the Restricted Stock Grant to be entered into as Closing by JVK and Buyer, pursuant to which JVK's rights to potentially receive its respective portion of the 2021 Contingent Consideration, the 2022 Contingent Consideration and the 2023 Contingent Consideration shall be defined.

&nbsp;&nbsp;&nbsp;&nbsp;" ***<u>Key Employees</u>***" means the individuals listed on ***<u>Exhibit "B"</u>*** attached hereto.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Knowledge of Seller Parties or Seller Parties' Knowledge</u>***" or any other similar knowledge qualification, means the actual knowledge of any Seller Party or of any manager, director or officer of the Company, after due inquiry.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Law</u>***" means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Liabilities</u>***" has the meaning set forth in ***<u>Section 3.07</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Licensed Intellectual Property</u>***" means all Intellectual Property in which the Company holds any rights or interests granted by other Persons, including any Seller Party or any of their respective Affiliates.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Losses</u>***" means losses, damages, liabilities, deficiencies, Actions, judgments, interest, awards, penalties, fines, costs or expenses of whatever kind, including reasonable attorneys' fees and the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers; provided, however, that "***<u>Losses</u>***" shall not include punitive damages, except to the extent actually awarded to a Governmental Authority or other third party.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Material Adverse Effect</u>***" means any event, occurrence, fact, condition or change that is, or could reasonably be expected to become, individually or in the aggregate, materially adverse to (a) the business, results of operations, condition (financial or otherwise) or assets of the Company, or (b) the ability of any Seller Party to consummate the transactions contemplated hereby on a timely basis; provided, however, that "***<u>Material Adverse Effect</u>***" shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) general economic or political conditions; (ii) conditions generally affecting the industries in which the Company operates; (iii) any changes in financial or securities markets in general; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any epidemic, pandemic or outbreak of disease (including, for the avoidance of doubt, COVID-19), or any worsening of such conditions, or any Public Health Measures (as defined below) or changes therein or interpretations thereof, (vi) any action required or permitted by this Agreement, except pursuant to ***<u>Section 3.05</u>*** and ***<u>Section 5.08</u>***; (vii) any changes in applicable Laws or accounting rules, including GAAP; or (viii) the public announcement, pendency or completion of the transactions contemplated by this Agreement; provided further, however, that any event, occurrence, fact, condition or change referred to in clauses (i) through (iv) immediately above shall be taken into account in determining whether a Material Adverse Effect has occurred or could reasonably be expected to occur to the extent that such event, occurrence, fact, condition or change has a disproportionate effect on the Company compared to other participants in the industries in which the Company conducts its businesses.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Material Contracts</u>***" has the meaning set forth in ***<u>Section 3.09(a)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Material Customers</u>***" has the meaning set forth in ***<u>Section 3.15(a)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Material Suppliers</u>***" has the meaning set forth in ***<u>Section 3.15(b)</u>***.

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&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Minor Leases</u>***" means the Commercial Lease dated April 16, 2018, between the Company and Marshall Investments, LLC, the Lease Agreement dated July 1, 2020, between the Company and Myoby, LLC and the Use Agreement dated August 21, 2020, between the Company and Deschutes County Fair & Expo Center, as amended by the Addendum to Contract dated May 4, 2021.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Multiemployer Plan</u>***" has the meaning set forth in ***<u>Section 3.20(c)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Organizational Documents</u>***" of a Person means its certificate of incorporation, certificate or articles of organization or formation, bylaws, operating agreement and/or other organizational documents.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Pass-Through Tax Return</u>***" means any partnership income Tax Return filed by the Company with respect to a Tax period ending on or prior to the Closing Date to the extent that all Taxes reflected on such Tax Return are solely a liability of the Sellers.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Permits</u>***" means all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, from Governmental Authorities.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Permitted Encumbrances</u>***" has the meaning set forth in ***<u>Section 3.10(a)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Person</u>***" means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Platform Agreements</u>***" has the meaning set forth in ***<u>Section 3.12(h)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Post-Closing Adjustment</u>***" has the meaning set forth in ***<u>Section 2.04(b)(ii)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Post-Closing Tax Period</u>***" means any taxable period beginning after the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period beginning after the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Post-Closing Taxes</u>***" means Taxes of the Company for any Post-Closing Tax Period.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Pre-Closing Tax Period</u>***" means any taxable period ending on or before the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period ending on and including the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Pre-Closing Taxes</u>***" means Taxes of the Company for any Pre-Closing Tax Period.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Public Health Measures</u>***" means any closures, "shelter-in-place," "stay at home," workforce reduction, social distancing, shut down, closure, curfew or other restrictions or any other Law, orders, guidelines or recommendations pertaining to COVID-19, in each case, issued by any Governmental Authority (including the Centers for Disease Control and Prevention) in connection with COVID-19 and that are applicable to the Company.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Purchase Consideration</u>***" has the meaning set forth in ***<u>Section 2.02</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Purchased Real Property</u>***" means that certain real property located at 3500 SW 21<sup>st</sup> Place, Redmond, Oregon, and the improvements thereon, to be purchased by Buyer pursuant to the REPA.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Qualified Benefit Plan</u>***" has the meaning set forth in ***<u>Section 3.20(c)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Real Estate Owner</u>***" or "***<u>BasX Properties, LLC</u>***" means BASX Properties, LLC, an Oregon limited liability company.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>REPA</u>***" means the Real Estate Purchase Agreement to be entered into by and between Buyer and the Real Estate Owner, pursuant to which Buyer shall acquire the Purchased Real Property within ten (10) Business Days of the date of issuance of a conditional certificate of occupancy (or local equivalent) from

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the City of Redmond and all other conditions to closing set forth in the REPA have been satisfied, but in no event later than March 31, 2022.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>R&W Policy</u>***" means the buyer-side representation and warranty insurance policy to be issued by RP Underwriting, Inc. d/b/a RPUW Insurance Services to Buyer on terms and conditions satisfactory to Buyer and Sellers.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Real Property</u>***" means the real property owned, leased or subleased by the Company, together with all buildings, structures and facilities located thereon.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Release</u>***" means any actual or threatened release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment (including, without limitation, ambient air (indoor or outdoor), surface water, groundwater, land surface or subsurface strata or within any building, structure, facility or fixture).

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Representative</u>***" means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Resolution Period</u>***" has the meaning set forth in ***<u>Section 2.04(c)(ii)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Restricted Business</u>***" means the design and manufacture of HVAC systems for commercial, data room cooling and clean room and modular clean room applications, and related integrated control solutions.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Restricted Period</u>***" has the meaning set forth in ***<u>Section 5.07(a)</u>***.

"***<u>Restricted Stock Grants</u>***" means the Brooks Restricted Stock Grant, the D-Velopment Restricted Stock Grant, the JVK Restricted Stock Grant, the TFT Restricted Stock Grant and the Employee Restricted Stock Grants.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Review Period</u>***" has the meaning set forth in ***<u>Section 2.04(c)(i)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>SEC</u>***" means the United States Securities and Exchange Commission.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Securities Act</u>***" means the Securities Act of 1933, and the rules and regulations thereunder as in effect from time to time.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Sellers' Accountants</u>***" means Pittman & Brooks.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Shortfall</u>***" means the amount by which the Company's Adjusted EBITDA is less than the applicable EBITDA Target for such year.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Single Employer Plan</u>***" has the meaning set forth in ***<u>Section 3.20(c)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Software</u>***" means any and all: (a) computer programs, computer software, applications, utilities, development tools, application programming interfaces (APIs), diagnostics, and embedded systems, including any and all software implementations of algorithms, models and methodologies, in any form or medium, including source code, object code and executable code; (b) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise; (c) descriptions, schematics, flow charts and other work product used to design, plan, organize and develop any of the foregoing; and (d) all documentation, including programmer documentation, user manuals, training materials and other documentation, relating to any of the foregoing.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Statement of Objections</u>***" has the meaning set forth in ***<u>Section 2.04(c)(ii)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Straddle Period</u>***" means any taxable period beginning on or prior to and ending after the Closing Date.

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&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Subsidiary</u>***" means, with respect to any Person: (a) any corporation, partnership, limited liability company or other business entity of which a majority of the equity interests entitled to vote under ordinary circumstances in the election of directors (or in the selection of any other similar governing body in the case of an entity other than a corporation) are at the time owned or Controlled by such Person or by one or more of the other direct or indirect Subsidiaries of such Person or a combination thereof (regardless of whether, at the time, equity interests of any other class or classes shall have, or might have, voting power by reason of the occurrence of any contingency); (b) a partnership in which such Person or any direct or indirect Subsidiary of such Person is a general partner; or (c) a limited liability company in which such Person or any direct or indirect Subsidiary of such Person is a managing member or manager

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Target Working Capital</u>***" means zero dollars ($0).

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Taxes</u>***" means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Tax Return</u>***" means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Territory</u>***" means the North American continent.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>TFT Restricted Stock Grant</u>***" means the Restricted Stock Grant to be entered into as Closing by TFT and Buyer, pursuant to which TFT's rights to potentially receive its respective portion of the 2021 Contingent Consideration, the 2022 Contingent Consideration and the 2023 Contingent Consideration shall be defined.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Transaction Expenses</u>***" means all fees and expenses incurred by the Company at or prior to the Closing in connection with the preparation, negotiation and execution of this Agreement and the Ancillary Documents, and the performance and consummation of the transactions contemplated hereby and thereby, including without limitation, legal, accounting, investment banker and other third party service provider fees, fees associated with obtaining any third party approvals, consents or waivers, fees and expenses related to obtaining the release and termination of any Encumbrance on any asset of the Company, broker fees, and any severance, bonus or change of control payments related to the transactions contemplated by this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Undisputed Amounts</u>***" has the meaning set forth in ***<u>Section 2.04(c)(iii)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>Union</u>***" has the meaning set forth in ***<u>Section 3.21(b)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;"***<u>WARN Act</u>***" means the federal Worker Adjustment and Retraining Notification Act of 1988, and similar state, local and foreign laws related to plant closings, relocations, mass layoffs and employment losses.

&nbsp;&nbsp;&nbsp;&nbsp;

**ARTICLE II**

**PURCHASE AND SALE OF MEMBERSHIP INTERESTS**

&nbsp;&nbsp;&nbsp;&nbsp;**Section 2.01&nbsp;&nbsp;&nbsp;&nbsp;<u>Purchase and Sale</u>.** Subject to the terms and conditions set forth in this Agreement, at the Closing, Sellers shall sell to Buyer, and Buyer shall purchase from Sellers, the Membership Interests, on a cash-free basis, free and clear of all Encumbrances, for the consideration specified in ***<u>Section 2.02</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 2.02&nbsp;&nbsp;&nbsp;&nbsp;<u>Purchase Consideration</u>.** The aggregate purchase consideration (the "***<u>Purchase Consideration</u>***") to be delivered to the Sellers for the Membership Interests shall consist of the following:

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&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;The cumulative sum of One Hundred Million Dollars ($100,000,000.00), which sum shall be the initial Closing Date Payment, subject to adjustment as provided in ***<u>Section 2.04</u>*** below;

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;At the Closing, Buyer and each of the Sellers will enter into a restricted stock grant, pursuant to which the Sellers may receive, cumulatively, up to an additional Thirty-Six Million Five Hundred Sixty-Two Thousand Five Hundred Dollars ($36,562,500.00) in shares of AAON Common Stock (the "***<u>2021 Contingent Consideration</u>***"), with the number of shares comprising the 2021 Contingent Consideration being equal to $36,562,500.00 divided by the AAON Signing VWAP, with the Sellers' receipt of the 2021 Contingent Consideration subject to the following conditions:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;Shares of AAON Common Stock representing Twenty-Four Million Three Hundred Seventy-Five Thousand Dollars ($24,375,000.00) of the 2021 Contingent Consideration shall be received, cumulatively, by the Sellers if the Company's Adjusted EBITDA for calendar year 2021 is Eleven Million One Hundred Thousand Dollars ($11,100,000.00) or greater. Sellers' receipt of the remaining 2021 Contingent Consideration will be subject to the Company's Adjusted EBITDA for calendar year 2021 being equal to or in excess of $12,600,000 (the "***<u>2021 EBITDA Target</u>***"). If there is a Shortfall in the Company's Adjusted EBITDA for 2021 (*i.e.*, the Company's Adjusted EBITDA for 2021 is less than $12,600,000), but the Company's Adjusted EBITDA for 2021 is in excess of $11,100,000, the remaining 2021 Contingent Consideration to be received by Sellers shall be proportionate with respect to the incremental amount of the Company's Adjusted EBITDA in excess of $11,100,000. If, for example, the Company's Adjusted EBITDA for 2021 is $11,850,000, then the Sellers would be entitled to $30,468,750 in 2021 Contingent Consideration, and the remaining $6,093,750 in 2021 Contingent Consideration will be available for recapture in 2022 (and only in 2022) as described below. Any of the 2021 Contingent Consideration not earned and which is not recaptured based on the Company's Adjusted EBITDA for 2022, as described below, shall be forfeited.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;The Sellers' receipt of the 2021 Contingent Consideration shall also be subject to the terms and conditions of the Restricted Stock Grants.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;At the Closing, Buyer and each of the Sellers will enter into a restricted stock grant pursuant to which the Sellers may receive, cumulatively, up to an additional Twenty-Nine Million Two Hundred Fifty Thousand Dollars ($29,250,000) in shares of AAON Common Stock (the "***<u>2022 Contingent Consideration</u>***"), with the number of shares comprising the 2022 Contingent Consideration equal to $29,250,000 divided by the AAON Signing VWAP, with the Sellers' receipt of the 2022 Contingent Consideration subject to the following conditions:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;Shares of AAON Common Stock representing the 2022 Contingent Consideration shall be received, cumulatively, by the Sellers if the Company's Adjusted EBITDA for 2022 is equal to or in excess of $20,000,000 (the "***<u>2022 EBITDA Target</u>***"). If the Company's Adjusted EBITDA for 2022 is less than the 2022 EBITDA Target, but is in excess of the 2021 EBITDA Target, the 2022 Contingent Consideration to be received by Sellers shall be proportionate with respect to the incremental increase in the Company's Adjusted EBITDA for 2022 over the 2021 EBITDA Target. For example, assume (i) the Company's Adjusted EBITDA for 2021 equals or exceeds $12,600,000 (so there is no Shortfall for 2021), and (ii) the Company's Adjusted EBITDA for 2022 equals $16,300,000—the Sellers would be entitled to receive 50% of the 2022 Contingent Consideration, and the remaining $14,625,000 in 2022 Contingent Consideration will be available for recapture in 2023 (and only in 2023) as described below. Any of the 2022 Contingent Consideration not earned and which is not recaptured based on the Company's Adjusted EBITDA for 2023 as described below shall be forfeited.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;The Sellers' receipt of the 2022 Contingent Consideration shall also be subject to the terms and conditions of the Restricted Stock Grants.

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;At the Closing, Buyer and each of the Sellers will enter into a restricted stock grant pursuant to which the Sellers may receive, cumulatively, up to an additional Twelve Million One Hundred Eighty-Seven Thousand Five Hundred Dollars ($12,187,500) in shares of AAON Common Stock (the "***<u>2023 Contingent Consideration</u>***"), with the number of shares comprising the 2023 Contingent Consideration equal to $12,187,500 divided by the AAON Signing VWAP, with the Sellers' receipt of the 2023 Contingent Consideration subject to the following conditions:

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;Shares of AAON Common Stock representing the 2023 Contingent Consideration shall be received, cumulatively, by the Sellers if the Company's Adjusted EBITDA for 2023 is equal to or in excess of $28,000,000 (the "***<u>2023 EBITDA Target</u>***"). If the Company's Adjusted EBITDA for 2023 is less than the 2023 EBITDA Target but is in excess of the 2022 EBITDA Target, the 2023 Contingent Consideration to be received by Sellers shall be proportionate with respect to the incremental increase in the BASX Adjusted EBITDA for 2023 over the 2022 EBITDA Target. Any 2023 Contingent Consideration which is not earned shall be forfeited.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;The Sellers' receipt of the 2023 Contingent Consideration shall also be subject to the terms and conditions of the Restricted Stock Grants.

&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;At the Closing, Buyer and each of the Key Employees will enter into a restricted stock grant (each, an "***<u>Employee Restricted Stock Grant</u>***"), pursuant to which the Key Employees may receive cumulatively (I) up to an additional $937,500 in shares of AAON Common Stock (the "***<u>2021 Incentive Consideration</u>***"), with the number of shares comprising the 2021 Incentive Consideration being equal to $937,500 divided by the AAON Signing VWAP, (II) up to an additional $750,000 in shares of AAON Common Stock (the "***<u>2022 Incentive Consideration</u>***"), with the number of shares comprising the 2022 Incentive Consideration being equal to $750,000 divided by the AAON Signing VWAP, and (III) up to an additional $312,500 in shares of AAON Common Stock (the "***<u>2023 Incentive Consideration</u>***"), with the number of shares comprising the 2023 Incentive Consideration being equal to $312,500 divided by the AAON Signing VWAP, for an aggregate total of $2,000,000 (the "***<u>Incentive Consideration</u>***"). Employee Restricted Stock Agreements shall provide that Incentive Consideration shall not be paid annually but instead paid in a single lump sum as described in 2.02(h) below.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;The Key Employees' receipt of the 2021 Incentive Consideration shall be subject to the following conditions: Shares of AAON Common Stock representing $625,000.00 of the 2021 Incentive Consideration shall be earned, cumulatively, by the Key Employees if the Company's Adjusted EBITDA for calendar year 2021 is Eleven Million One Hundred Thousand Dollars ($11,100,000.00) or greater. Key Employees' receipt of the remaining 2021 Incentive Consideration will be subject to the Company's Adjusted EBITDA for calendar year 2021 being equal to or in excess of the 2021 EBITDA Target. If there is a Shortfall in the Company's Adjusted EBITDA for 2021 (*i.e.*, the Company's Adjusted EBITDA for 2021 is less than $12,600,000), but the Company's Adjusted EBITDA for 2021 is in excess of $11,100,000, the remaining 2021 Incentive Consideration to be received by Key Employees shall be proportionate with respect to the incremental amount of the Company's Adjusted EBITDA in excess of $11,100,000. Any of the 2021 Incentive Consideration not earned shall be forfeited.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;The Key Employees' receipt of the 2022 Incentive Consideration shall be subject to the following conditions: Shares of AAON Common Stock representing the 2022 Incentive Consideration shall be earned, cumulatively, by the Key Employees if the Company's Adjusted EBITDA for 2022 is equal to or in excess of the 2022 EBITDA Target. If the Company's Adjusted EBITDA for 2022 is less than the 2022 EBITDA Target, but is in excess of the 2021 EBITDA Target, the 2022 Incentive Consideration to be received by the Key Employees shall be proportionate with respect to the incremental increase in the Company's Adjusted EBITDA for 2022 over the 2021 EBITDA Target. Any of the 2022 Incentive Consideration not earned shall be forfeited.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;&nbsp;&nbsp;The Key Employees' receipt of the 2023 Incentive Consideration shall be subject to the following conditions: Shares of AAON Common Stock representing the 2023 Incentive Consideration shall be earned, cumulatively, by the Key Employees if the Company's Adjusted EBITDA for 2023 is equal to or in excess of the 2023 EBITDA Target. If the Company's Adjusted EBITDA for 2023 is less than the 2023 EBITDA Target, but is in excess of the 2023 EBITDA Target, the 2023 Incentive Consideration to be received by the Key Employees shall be proportionate with respect to the incremental increase in the Company's Adjusted EBITDA for 2023 over the 2022 EBITDA Target. Any of the 2023 Incentive Consideration not earned shall be forfeited.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;&nbsp;&nbsp;Each Employee Restricted Stock Grant with respect to Incentive Consideration shall provide that, if the full-time employment of the grantee named in such Employee Restricted Stock Grant should terminate for any reason other than involuntary termination without Cause, then any Incentive Consideration with respect to the terminated Key Employee shall be automatically forfeited. The cumulative amount of all such restricted stock payable to Key Employees that is forfeited pursuant to

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Section 2.02(e)(i), (ii), (iii) or (iv) hereof is referred to collectively as the "***<u>Forfeited Incentive Consideration</u>***". Each Employee Restricted Stock Grant with respect to Incentive Consideration shall further provide that, if the full-time employment of the grantee named in such Employee Restricted Stock Grant should terminate because of involuntary termination without Cause, then any Incentive Consideration with respect to the terminated Key Employee that has been earned for any prior calendar year shall not be deemed Forfeited Incentive Consideration, but instead shall be deemed earned and shall be paid as provided in sub-section (h) below. The Restricted Stock Grants of each Seller for each of 2021, 2022 and/or 2023, as applicable, shall be amended automatically to increase the number of shares of AAON Common Stock available to the Sellers in their respective 2021 Contingent Consideration, 2022 Contingent Consideration and 2023 Contingent Consideration, with such increase to equal such Seller's Pro-Rata Share of the Forfeited Incentive Consideration otherwise earned pursuant to the terms of this Agreement, including without limitation any Forfeited Incentive Consideration that would have been recaptured by applying the criteria stated in 2.02(b) and 2.02(c). Any such increase shall be treated by the parties hereto in all respects as an increase in Purchase Price, and ***<u>Exhibit C</u>*** (allocating the Purchase Price) shall be deemed automatically amended to proportionately increase the allocated Purchase Price.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;&nbsp;&nbsp;&nbsp;The Key Employees' receipt of the Incentive Consideration shall also be subject to the terms and conditions of their respective Employee Restricted Stock Grants.

&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;Any Shortfall in the Company's Adjusted EBITDA for 2021 may be recaptured (and the applicable portion of the 2021 Contingent Consideration described above not forfeited) on a proportionate basis to the extent that the Company's Adjusted EBITDA for 2022 exceeds the 2022 EBITDA Target, as illustrated in the following example. Assume the Shortfall for 2021 equals $1,300,000. If the Company's Adjusted EBITDA for 2022 exceeds the 2022 EBITDA Target by $1,300,000 or more, Sellers would receive 100% of the 2021 Contingent Consideration available for recapture and not previously earned and received, but if the Company's Adjusted EBITDA for 2022 only exceeds the 2022 EBITDA Target by $650,000, Sellers would only receive 50% of the 2021 Contingent Consideration available for recapture and not previously earned and received.

&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;Any Shortfall in the Company's Adjusted EBITDA for 2022 may be recaptured (and the applicable portion of the 2022 Contingent Consideration described above not forfeited) on a proportionate basis to the extent that the Company's Adjusted EBITDA for 2023 exceeds the 2023 EBITDA Target, as illustrated in the following example. Assume the Shortfall for 2022 equals $4,600,000—if the Company's Adjusted EBITDA for 2023 exceeds the 2023 EBITDA Target by $4,600,000 or more, Sellers would receive 100% of the 2022 Contingent Consideration available for recapture and not previously earned and received, but if the Company's Adjusted EBIT for 2023 only exceeds the 2023 EBITDA Target by $2,300,000, Sellers would only receive 50% of the 2022 Contingent Consideration available for recapture and not previously earned and received.

&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;Within sixty (60) days after the end of each applicable calendar year, Buyer shall prepare and deliver to Sellers a statement setting forth its calculation of Company's Adjusted EBITDA for the year just ended, which statement shall contain audited financial statements of the Company as of the applicable year end. After receipt of such statement, Sellers shall have sixty (60) days to review the calculation. During each such review period, Sellers and Sellers' Accountants shall have full access to the books and records of the Company, the personnel of, and work papers prepared by, Buyer and/or Buyer's Accountants to the extent that they relate to the calculation of the Company's Adjusted EBITDA as Sellers may reasonably request for the purpose of reviewing the statement, provided, that such access shall be in a manner that does not interfere with the normal business operations of Buyer or the Company. If Sellers notify Buyer of any disagreement with such statement, then the parties shall attempt to resolve such disagreement through good-faith negotiation and if, within the ensuing fifteen (15) days, the parties are unable to resolve their disagreement, then they shall submit such disagreement to the Independent Accountant for resolution in accordance with the procedures of ***<u>Section 2.04</u>***, mutatis mutandis. The 2021 Contingent Consideration, 2022 Contingent Consideration and 2023 Contingent Consideration payable to the Sellers, if any, shall be issued and delivered annually, within ten (10) days following the date that the amount of such contingent consideration is finally determined. The 2021 Incentive Consideration, 2022 Incentive Consideration and 2023 Incentive Consideration payable to the Key Employees, if any, shall be issued in a single delivery of shares of AAON Common Stock to each Key Employee entitled to receive same within ten (10) days following the date that 2023 Incentive Consideration is finally determined.

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&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;Interest shall accrue at a rate per annum equal to 8% per annum, compounded annually, on any 2021 Contingent Consideration, 2022 Contingent Consideration or 2023 Contingent Consideration, and on any 2021 Incentive Consideration, 2022 Incentive Consideration and 2023 Incentive Consideration, in each case that is not issued when the same is due, and such interest shall be payable on Seller's or Key Employee's demand (as the case may be).

&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;&nbsp;&nbsp;&nbsp;Buyer acknowledges that the possibility of the Sellers receiving the 2021 Contingent Consideration, the 2022 Contingent Consideration and the 2023 Contingent Consideration constitutes a material inducement for the Sellers to enter into this Agreement. Therefore during the period of time from the Closing Date through December 31, 2023: (i) the business of the Company shall be operated as and accounted for as a separate business unit of the Buyer, (ii) the Buyer, and after the Closing, the Company, shall not take, or fail to take, any action for the primary purpose or with the primary intent of avoiding or reducing the 2021 Contingent Consideration, 2022 Contingent Consideration or 2023 Contingent Consideration, and (iii) the Buyer shall not, without the prior written consent of the Sellers, make any material change in the accounting principles in place at the Company at the Closing Date that negatively effects the calculation of EBITDA other than any change required to be implemented by the Financial Accounting Standards Board.

&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;&nbsp;&nbsp;&nbsp;If prior to December 31, 2023 (i) the Company or Buyer effects a sale of all or substantially all of the assets of the Company to a third party, (ii) Buyer effects a transaction involving the Company which results in at least 50% of the equity interests of Buyer then outstanding being owned by a third party or (iii) Buyer or the Company makes a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against Buyer or the Company seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up or reorganization, arrangement, adjustment, protection, relief or composition of its debts under any applicable Law relating to bankruptcy, insolvency or reorganization, then, all conditions to earning any unpaid 2021 Contingent Consideration, 2022 Contingent Consideration and 2023 Contingent Consideration, and any unpaid 2021 Incentive Consideration, 2022 Incentive Consideration or 2023 Incentive Consideration shall be deemed satisfied and all such consideration shall be due and payable within ten (10) days of such event.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 2.03&nbsp;&nbsp;&nbsp;&nbsp;<u>Transactions to be Effected at the Closing</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;At the Closing, Buyer shall:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;deliver to Sellers:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) the Closing Date Payment, by wire transfer of immediately available funds to the accounts designated in writing by each Seller to Buyer no later than five (5) Business Days prior to the Closing Date, with each Seller to receive their respective percentage of such Closing Date Payment as set forth on Schedule 2.03(a)(i)(A); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) the Ancillary Documents and all other agreements, documents, instruments or certificates required to be delivered by Buyer at or prior to the Closing pursuant to ***<u>Section 7.03</u>*** of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;pay, on behalf of the Company or the Sellers, the following amounts:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) Indebtedness of the Company to be paid at Closing, by wire transfer of immediately available funds to the accounts and in the amounts specified on the Closing Indebtedness Certificate; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) any Transaction Expenses unpaid at Closing, by wire transfer of immediately available funds to the accounts and in the amounts specified on the Closing Transaction Expenses Certificate.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;At the Closing, Sellers shall deliver or cause to be delivered to Buyer:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;duly executed assignments of the Membership Interests to Buyer, in form and content acceptable to Buyer and its counsel, free and clear of all Encumbrances; and

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the Ancillary Documents and all other agreements, documents, instruments or certificates required to be delivered by the Seller Parties at or prior to the Closing pursuant to ***<u>Section 7.02</u>*** of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 2.04&nbsp;&nbsp;&nbsp;&nbsp;<u>Purchase Price Adjustment</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;Closing Adjustment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;At the Closing, the Closing Date Payment shall be adjusted in the following manner:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A)&nbsp;&nbsp;&nbsp;&nbsp;either (1) an increase by the amount, if any, by which the Estimated Closing Working Capital (as determined in accordance with ***<u>Section 2.04(a)(ii)</u>***) is greater than the Target Working Capital, or (2) a decrease by the amount, if any, by which the Estimated Closing Working Capital is less than the Target Working Capital;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B)&nbsp;&nbsp;&nbsp;&nbsp;a decrease by the outstanding Indebtedness of the Company as of the close of business on the Closing Date; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C)&nbsp;&nbsp;&nbsp;&nbsp;a decrease by the amount of unpaid Transaction Expenses of the Company as of the close of business on the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;The net amount after giving effect to the adjustments listed above shall be the "***<u>Closing Date Payment</u>***".

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;At least five (5) Business Days before the Closing, Sellers shall prepare and deliver to Buyer a statement setting forth its good faith estimate of Closing Working Capital (the "***<u>Estimated Closing Working Capital</u>***"), which statement shall contain an estimated balance sheet of the Company as of the Closing Date (without giving effect to the transactions contemplated herein), a calculation of Estimated Closing Working Capital (the "***<u>Estimated Closing Working Capital Statement</u>***"), and a certificate of a Manager of the Company that the Estimated Closing Working Capital Statement was prepared in accordance with GAAP, except to the extent that BasX Properties, LLC is not included in the financial statements, and in a manner consistent with the calculation example attached as ***<u>Exhibit 2.04(a)(ii)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;Post-Closing Adjustment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;Within sixty (60) days after the Closing Date, Buyer shall prepare and deliver to Sellers a statement setting forth its calculation of Closing Working Capital, which statement shall contain an audited balance sheet of the Company as of the Closing Date (without giving effect to the transactions contemplated herein), a calculation of Closing Working Capital (the "***<u>Closing Working Capital Statement</u>***") and a certificate of the Chief Financial Officer of Buyer that the Closing Working Capital Statement was prepared in accordance with GAAP, except to the extent that BasX Properties, LLC is not included in the financial statements, and in a manner consistent with the calculation example attached as ***<u>Exhibit 2.04(a)(ii)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) The post-closing adjustment shall be an amount equal to the Closing Working Capital minus the Estimated Closing Working Capital (the "***<u>Post-Closing Adjustment</u>***").

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;Examination and Review.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;Examination. After receipt of the Closing Working Capital Statement, Sellers shall have thirty (30) days (the "***<u>Review Period</u>***") to review the Closing Working Capital Statement. During the Review Period, Sellers and Sellers' Accountants shall have full access to the books and records of the Company, the personnel of, and work papers prepared by, Buyer and/or Buyer's Accountants to the extent that they relate to the Closing Working Capital Statement and to such historical financial information (to the extent in Buyer's possession) relating to the Closing Working Capital Statement as Sellers may reasonably request for the purpose of reviewing the Closing Working Capital

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Statement and to prepare a Statement of Objections (defined below), *provided, that* such access shall be in a manner that does not interfere with the normal business operations of Buyer or the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;Objection. On or prior to the last day of the Review Period, Sellers may object to the Closing Working Capital Statement by delivering to Buyer a written statement setting forth Sellers' objections in reasonable detail, indicating each disputed item or amount and the basis for Sellers' disagreement therewith (the "***<u>Statement of Objections</u>***"). If Sellers fail to deliver the Statement of Objections before the expiration of the Review Period, the Closing Working Capital Statement and the Post-Closing Adjustment, as the case may be, reflected in the Closing Working Capital Statement shall be deemed to have been accepted by Sellers. If Sellers deliver the Statement of Objections before the expiration of the Review Period, Buyer and Sellers shall negotiate in good faith to resolve such objections within thirty (30) days after the delivery of the Statement of Objections (the "***<u>Resolution Period</u>***"), and, if the same are so resolved within the Resolution Period, the Post-Closing Adjustment and the Closing Working Capital Statement with such changes as may have been previously agreed in writing by Buyer and Sellers, shall be final and binding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;&nbsp;&nbsp;Resolution of Disputes. If Sellers and Buyer fail to reach an agreement with respect to all of the matters set forth in the Statement of Objections before expiration of the Resolution Period, then any amounts remaining in dispute ("***<u>Disputed Amounts</u>***" and any amounts not so disputed, the "***<u>Undisputed Amounts</u>***") shall be submitted for resolution to the office of Clifton Larson Allen or, if Clifton Larson Allen is unable to serve, Buyer and Sellers shall appoint by mutual agreement the office of an impartial nationally recognized firm of independent certified public accountants other than Sellers' Accountants or Buyer's Accountants (the "***<u>Independent Accountant</u>***") who, acting as experts and not arbitrators, shall resolve the Disputed Amounts only and make any adjustments to the Post-Closing Adjustment, as the case may be, and the Closing Working Capital Statement. The parties hereto agree that all adjustments shall be made without regard to materiality. The Independent Accountant shall only decide the specific items under dispute by the parties and their decision for each Disputed Amount must be within the range of values assigned to each such item in the Closing Working Capital Statement and the Statement of Objections, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;&nbsp;&nbsp;Fees of the Independent Accountant. The fees and expenses of the Independent Accountant shall be paid by Sellers, on the one hand, and by Buyer, on the other hand, based upon the percentage that the amount actually contested but not awarded to Sellers or Buyer, respectively, bears to the aggregate amount actually contested by Sellers and Buyer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;&nbsp;&nbsp;&nbsp;Determination by Independent Accountant. The Independent Accountant shall make a determination as soon as practicable within thirty (30) days (or such other time as the parties hereto shall agree in writing) after their engagement, and their resolution of the Disputed Amounts and their adjustments to the Closing Working Capital Statement and/or the Post-Closing Adjustment shall be conclusive and binding upon the parties hereto.

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;Payments of Post-Closing Adjustment. Except as otherwise provided herein, any payment of the Post-Closing Adjustment, together with interest calculated as set forth below, shall (A) be due (x) within five (5) Business Days of acceptance of the applicable Closing Working Capital Statement or (y) if there are Disputed Amounts, then within five (5) Business Days of the resolution described in clause (v) above; and (B) be paid by wire transfer of immediately available funds to such account(s) as is directed by Buyer or Sellers, as the case may be.

&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;Adjustments for Tax Purposes. Any payments made pursuant to this ***<u>Section 2.04</u>*** shall be treated as an adjustment to the Purchase Price by the parties for Tax purposes, unless otherwise required by Law.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 2.05&nbsp;&nbsp;&nbsp;&nbsp;<u>Closing</u>.** Subject to the terms and conditions of this Agreement, the purchase and sale of the Membership Interests contemplated hereby shall take place at a closing (the "***<u>Closing</u>***") to be held at 10:00 a.m., Tulsa, Oklahoma time, no later than three (3) Business Days after the last of the conditions to Closing set forth in ***<u>Article VIII</u>*** have been satisfied or waived (other than conditions which, by their nature, are to be satisfied on the Closing Date), at the offices of Johnson & Jones, P.C., 6120 South Yale Avenue, Suite 500, Tulsa, Oklahoma 74136, or remotely by exchange of documents and signatures (or their electronic counterparts), or at such other time or on such other date or at such other

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place as Sellers and Buyer may mutually agree upon in writing (the day on which the Closing takes place being the "***<u>Closing Date</u>***").

&nbsp;&nbsp;&nbsp;&nbsp;**Section 2.06.&nbsp;&nbsp;&nbsp;&nbsp;<u>Withholding Tax</u>.** Buyer shall be entitled to deduct and withhold from the Purchase Consideration all Taxes that Buyer may be required to deduct and withhold under any provision of applicable Tax Law. Neither Sellers nor Buyer is aware of any such tax required to be deducted or withheld. All such amounts shall be treated as delivered to the Sellers hereunder.

**ARTICLE III**

**REPRESENTATIONS AND WARRANTIES OF SELLERS WITH RESPECT TO THE COMPANY**

&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in the correspondingly numbered Section of the Disclosure Schedules, each of the Sellers represents and warrants to Buyer, severally but not jointly, that the statements contained in this ***<u>Article III</u>*** are true and correct as of the date hereof.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.01&nbsp;&nbsp;&nbsp;&nbsp;[Reserved]**

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.02&nbsp;&nbsp;&nbsp;&nbsp;<u>Organization, Authority and Qualification of the Company</u>.** The Company is a limited liability company duly organized, validly existing and in good standing under the Laws of the state of Oregon and has full corporate power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on its business as it has been and is currently conducted. ***<u>Section 3.02</u>*** of the Disclosure Schedules sets forth each jurisdiction in which the Company is licensed or qualified to do business, and the Company is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business as currently conducted makes such licensing or qualification necessary.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.03&nbsp;&nbsp;&nbsp;&nbsp;<u>Capitalization of the Company</u>.** 

&nbsp;&nbsp;&nbsp;&nbsp;

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;The authorized and outstanding equity securities of the Company are as set forth in ***<u>Section 3.03</u>*** of the Disclosure Schedules, and such Disclosure Schedule accurately reflects the name of each Seller and the Membership Interests owned of record by such Seller as of the date hereof and as of the date of Closing. The Membership Interests constitute the only equity interests of the Company, and such equity interests have been duly authorized and are validly issued and fully paid, and are nonassessable.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;There are no preemptive or other outstanding rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements or commitments of any character under which the Company is or may become obligated to issue or sell, or give any Person a right to subscribe for or acquire, or in any way dispose of, any shares of equity interests, or any securities or obligations exercisable or exchangeable for or convertible into any shares of equity interests, of the Company, and no securities or obligations evidencing such rights are authorized, issued or outstanding. There are no Contracts relating to the registration or voting of any equity securities or other securities of the Company to which the Company is a party.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;All dividends or other distributions declared, made or paid by the Company prior to the date hereof have been declared, made or paid in accordance with the Company's Organizational Documents and all applicable Laws.

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;True and correct copies of the Company's Organizational Documents have been provided to Buyer, and the same have not been modified, altered or amended.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.04&nbsp;&nbsp;&nbsp;&nbsp;<u>No Subsidiaries</u>.** The Company does not own, or have any interest in any shares or have an ownership interest in any other Person.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.05&nbsp;&nbsp;&nbsp;&nbsp;<u>Consents; No Conflicts</u>.** No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority or Person is required by or with respect to the Company in connection with the execution and delivery of this Agreement and the

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Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, except for such filings as may be required under the HSR Act. The execution, delivery and performance by each Seller Party of this Agreement do not and will not: (a) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to the Company; (b) except as set forth in ***<u>Section 3.05</u>*** of the Disclosure Schedules, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any Material Contract to which the Company is a party or by which the Company is bound or to which any of the Company's properties and assets are subject or any Permit affecting the properties, assets or business of the Company; or (c) result in the creation or imposition of any Encumbrance other than Permitted Encumbrances on any properties or assets of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.06&nbsp;&nbsp;&nbsp;&nbsp;<u>Financial Statements; Working Capital</u>.** 

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;Complete copies of the Company's audited financial statements consisting of the balance sheet of the Company as of December 31 in each of the years 2019 and 2020 and the related statements of income and retained earnings, and members' equity for the years then ended (the "***<u>Audited Financial Statements</u>***"), and unaudited financial statements consisting of the balance sheet of the Company as of September 30, 2021 and the related statements of income and retained earnings and members' equity for the nine-month period then ended (the "***<u>Interim Financial Statements</u>***" and together with the Audited Financial Statements, the "***<u>Financial Statements</u>***") are included in the Disclosure Schedules. The Financial Statements have been prepared in accordance with GAAP, except to the extent that BasX Properties, LLC is not included in the financial statements, applied on a consistent basis throughout the period involved, subject, in the case of the Interim Financial Statements, to normal and recurring year-end adjustments (the effect of which will not be materially adverse) and the absence of notes (that, if presented, would not differ materially from those presented in the Audited Financial Statements). The Financial Statements are based on the books and records of the Company, and fairly present in all material respects the financial condition of the Company as of the respective dates they were prepared and the results of the operations of the Company for the periods indicated. The balance sheet of the Company as of December 31, 2020 is referred to herein as the "***<u>Balance Sheet</u>***" and the date thereof as the "***<u>Balance Sheet Date</u>***" and the balance sheet of the Company as of September 30, 2021 is referred to herein as the "***<u>Interim Balance Sheet</u>***" and the date thereof as the "***<u>Interim Balance Sheet Date</u>***". The Company maintains a standard system of accounting established and administered in accordance with GAAP, except to the extent that BasX Properties, LLC is not included in the financial statements.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.07&nbsp;&nbsp;&nbsp;&nbsp;<u>Liabilities</u>.** 

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;The Company has no liabilities, obligations or commitments of any nature whatsoever (including without limitation, indebtedness for borrowed money, retention bonuses, deferred compensation, equity appreciation rights, equity options, special severance arrangements, pension or other long-term obligations), asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise ("***<u>Liabilities</u>***"), except (a) those which are adequately reflected or reserved against in the Balance Sheet as of the Balance Sheet Date, and (b) those which have been incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date and which are not, individually or in the aggregate, material in amount. As of the Closing, the Company will have no Liabilities other than trade payables and other liabilities and obligations of Company incurred in its ordinary course of business and specifically identified on ***<u>Section 3.07(a)</u>*** of the Disclosure Schedules.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth on ***<u>Section 3.07(b)</u>*** of the Disclosure Schedules, the Company has not received a loan provided or established pursuant to the CARES Act, including, but not limited to, a loan or other indebtedness by or through the Paycheck Protection Program administered by the U.S. Small Business Administration (a "***<u>PPP Loan</u>***"), and the Selling Parties hereby represent, warrant and covenant to Buyer as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;in obtaining and applying for the PPP Loan, the Company and its Affiliates satisfied all eligibility and certification requirements at the time of submission of the Company's initial application for such PPP Loan;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;all PPP-related certifications made and delivered by or on behalf of the Company were and are true, accurate and correct, and made in good faith;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;&nbsp;&nbsp;the Company and its Affiliates have complied with all loan programs that the Company has participated in under the CARES Act (or any similar legislation), including any and all restrictions on the usage of the proceeds of any such loans, including without limitation, the PPP Loan;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;&nbsp;&nbsp;no directors, managers, officers or other employees of the Company or any of its Affiliates have been debarred or otherwise prohibited from engaging in any government contracting activities;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;&nbsp;&nbsp;&nbsp; the Company and the Selling Parties have received and read the SBA Procedural Notice effective October 2, 2020 (the "***<u>SBA Notice</u>***"), which, among other things, requires the recipient of a PPP Loan to either (A) repay such PPP Loan in full or (B) complete and file with the PPP Loan lender a forgiveness application and deposit in escrow with such lender an amount equal to the outstanding balance under such PPP Loan;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;&nbsp;&nbsp;&nbsp;the Selling Parties will cause the Company comply with the terms of the SBA Notice and all other terms and conditions applicable to such PPP Loan in effect from time to time; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;&nbsp;&nbsp;&nbsp;the Selling Parties acknowledge agree that as of the Closing Date any such PPP Loan shall have been repaid or forgiven such that after the Closing Date neither Buyer nor the Company will have any obligations or liabilities whatsoever related to such PPP Loan.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.08&nbsp;&nbsp;&nbsp;&nbsp;<u>Absence of Certain Changes, Events and Conditions</u>.** Since the Balance Sheet Date, and other than in the ordinary course of business consistent with past practice, except as set forth on ***<u>Section 3.08</u>*** of the Disclosure Schedules, there has not been, with respect to the Company, any:

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;event, occurrence or development that has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;amendment of any of the Organizational Documents of the Company;

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;split, combination or reclassification of any of its equity interests;

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;issuance, sale or other disposition of any of its equity interests, or grant of any options, warrants or other rights to purchase or obtain (including upon conversion, exchange or exercise) any of its equity interests;

&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;declaration or payment of any dividends or distributions on or in respect of any of its equity interests or redemption, purchase or acquisition of any of its equity interests;

&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;material change in any method of accounting or accounting practice of the Company, except as required by GAAP or as disclosed in the notes to the Financial Statements;

&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;material change in the Company's cash management practices and its policies, practices and procedures with respect to collection of accounts receivable, establishment of reserves for uncollectible accounts, accrual of accounts receivable, inventory control, prepayment of expenses, payment of trade accounts payable, accrual of other expenses, deferral of revenue and acceptance of customer deposits;

&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;entry into any Contract that would constitute a Material Contract;

&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;incurrence, assumption or guarantee of any indebtedness for borrowed money except unsecured current obligations and Liabilities incurred in the ordinary course of business consistent with past practice;

&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;&nbsp;&nbsp;&nbsp;transfer, assignment, sale or other disposition of any of the assets shown or reflected in the Balance Sheet or cancellation of any debts or entitlements;

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&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;&nbsp;&nbsp;&nbsp;transfer or assignment of or grant of any license or sublicense under or with respect to any Company Intellectual Property or Company IP Agreements;

&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;&nbsp;&nbsp;&nbsp;abandonment or lapse of or failure to maintain in full force and effect any Company IP Registration, or failure to take or maintain reasonable measures to protect the confidentiality or value of any Trade Secrets included in the Company Intellectual Property;

&nbsp;&nbsp;&nbsp;&nbsp;(m)&nbsp;&nbsp;&nbsp;&nbsp;material damage, destruction or loss (whether or not covered by insurance) to its property;

&nbsp;&nbsp;&nbsp;&nbsp;(n)&nbsp;&nbsp;&nbsp;&nbsp;any capital investment in, or any loan to, any other Person;

&nbsp;&nbsp;&nbsp;&nbsp;(o)&nbsp;&nbsp;&nbsp;&nbsp;acceleration, termination, material modification to or cancellation of any Material Contract to which the Company is a party or by which it is bound;

&nbsp;&nbsp;&nbsp;&nbsp;(p)&nbsp;&nbsp;&nbsp;&nbsp;any material capital expenditures;

&nbsp;&nbsp;&nbsp;&nbsp;(q)&nbsp;&nbsp;&nbsp;&nbsp;imposition of any Encumbrance upon any of the Company properties, equity interests or assets, tangible or intangible;

&nbsp;&nbsp;&nbsp;&nbsp;(r)&nbsp;&nbsp;&nbsp;&nbsp;(i) grant of any bonuses, whether monetary or otherwise, or increase in any wages, salary, severance, pension or other compensation or benefits in respect of its current or former employees, officers, directors, independent contractors or consultants, other than as provided for in any written agreements or required by applicable Law, (ii) change in the terms of employment for any employee or any termination of any employees for which the aggregate costs and expenses exceed $250,000.00, or (iii) action to accelerate the vesting or payment of any compensation or benefit for any current or former employee, officer, director, independent contractor or consultant;

&nbsp;&nbsp;&nbsp;&nbsp;(s)&nbsp;&nbsp;&nbsp;&nbsp;adoption, modification or termination of any: (i) employment, severance, retention or other agreement with any current or former employee, officer, director, independent contractor or consultant, (ii) Benefit Plan or (iii) collective bargaining or other agreement with a Union, in each case whether written or oral;

&nbsp;&nbsp;&nbsp;&nbsp;(t)&nbsp;&nbsp;&nbsp;&nbsp;any loan to (or forgiveness of any loan to), or entry into any other transaction with, any of its members or current or former directors, manages, officers and employees;

&nbsp;&nbsp;&nbsp;&nbsp;(u)&nbsp;&nbsp;&nbsp;&nbsp;entry into a new line of business or abandonment or discontinuance of existing lines of business;

&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;&nbsp;&nbsp;&nbsp;adoption of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy under any provisions of federal or state bankruptcy Law or consent to the filing of any bankruptcy petition against it under any similar Law;

&nbsp;&nbsp;&nbsp;&nbsp;(w)&nbsp;&nbsp;&nbsp;&nbsp;purchase, lease or other acquisition of the right to own, use or lease any property or assets for an amount in excess of $250,000.00, individually (in the case of a lease, per annum) or $1,000,000.00 in the aggregate (in the case of a lease, for the entire term of the lease, not including any option term), except for purchases of inventory or supplies in the ordinary course of business consistent with past practice;

&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;&nbsp;&nbsp;&nbsp;acquisition by merger or consolidation with, or by purchase of a substantial portion of the assets or stock or other equity of, or by any other manner, any business or any Person or any division thereof;

&nbsp;&nbsp;&nbsp;&nbsp;(y)&nbsp;&nbsp;&nbsp;&nbsp;action by the Company to make, change or rescind any Tax election, amend any Tax Return or take any position on any Tax Return, take any action, omit to take any action or enter into any other transaction that would have the effect of increasing the Tax liability or reducing any Tax asset of Buyer in respect of any Post-Closing Tax Period; or

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&nbsp;&nbsp;&nbsp;&nbsp;(z)&nbsp;&nbsp;&nbsp;&nbsp;any Contract to do any of the foregoing, or any action or omission that would result in any of the foregoing.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.09&nbsp;&nbsp;&nbsp;&nbsp;<u>Material Contracts</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;***<u>Section 3.09(a)</u>*** of the Disclosure Schedules lists each of the following Contracts of the Company (such Contracts, together with all Contracts concerning the occupancy, management or operation of any Real Property (including without limitation, brokerage contracts) listed or otherwise disclosed in ***<u>Section 3.10(b)</u>*** of the Disclosure Schedules and all Company IP Agreements set forth in ***<u>Section 3.12(b)</u>*** of the Disclosure Schedules, being "***<u>Material Contracts</u>***"):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;each Contract of the Company involving aggregate consideration in excess of $150,000 and which, in each case, cannot be cancelled by the Company without penalty or without more than ninety (90) days' notice;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;all Contracts that require the Company to purchase its total requirements of any product or service from a third party or that contain "take or pay" provisions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;&nbsp;&nbsp;all Contracts that provide for the indemnification by the Company of any Person or the assumption of any Tax, environmental or other Liability of any Person;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;&nbsp;&nbsp;all Contracts that relate to the acquisition or disposition of any business, a material amount of stock, other equity or assets of any other Person or any real property (whether by merger, sale of stock, sale of assets or otherwise);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;&nbsp;&nbsp;&nbsp;all broker, distributor, dealer, manufacturer's representative, franchise, agency, sales promotion, market research, marketing consulting and advertising Contracts to which the Company is a party;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;&nbsp;&nbsp;&nbsp;all employment agreements and Contracts with independent contractors or consultants (or similar arrangements) to which the Company is a party and which are not cancellable without material penalty or without more than ninety (90) days' notice;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;&nbsp;&nbsp;&nbsp;except for Contracts relating to trade payables, all Contracts relating to indebtedness (including, without limitation, guarantees) of the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;&nbsp;&nbsp;&nbsp;all Contracts with any Governmental Authority to which the Company is a party ("***<u>Government Contracts</u>***");

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;&nbsp;&nbsp;&nbsp;all Contracts that limit or purport to limit the ability of the Company to compete in any line of business or with any Person or in any geographic area or during any period of time;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;&nbsp;&nbsp;&nbsp;any Contracts to which the Company is a party that provide for any joint venture, partnership or similar arrangement by the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;&nbsp;&nbsp;&nbsp;all Contracts between or among the Company on the one hand and any Seller Party or any Affiliate of any Seller Party (other than the Company) on the other hand;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii)&nbsp;&nbsp;&nbsp;&nbsp;all collective bargaining agreements or Contracts with any Union to which the Company is a party; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii)&nbsp;&nbsp;&nbsp;&nbsp;any other Contract that is material to the Company and not previously disclosed pursuant to this ***<u>Section 3.09</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;Each Material Contract is valid and binding on the Company in accordance with its terms and is in full force and effect. None of the Company or, to any of the Sellers' Knowledge, any other party thereto is in breach of or default under (or is alleged to be in breach of or default under) in any material respect, or has provided or received any written notice of any intention to terminate, any Material Contract. To Sellers' Knowledge, no event or circumstance has occurred that, with notice or lapse of time

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or both, would constitute an event of default under any Material Contract or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss of any benefit thereunder. Complete and correct copies of each Material Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been made available to Buyer.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.10&nbsp;&nbsp;&nbsp;&nbsp;<u>Title to Assets; Real Property</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;The Company owns no Real Property. The Company has good and valid title to, or a valid leasehold interest in, all Real Property and personal property and other assets reflected in the Audited Financial Statements or acquired after the Balance Sheet Date, other than properties and assets sold or otherwise disposed of in the ordinary course of business consistent with past practice since the Balance Sheet Date. All such properties and assets (including leasehold interests) are free and clear of Encumbrances except for the following (collectively referred to as "***<u>Permitted Encumbrances</u>***"):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;those items set forth in ***<u>Section 3.10(a)</u>*** of the Disclosure Schedules;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;liens for Taxes not yet due and payable;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;&nbsp;&nbsp;mechanics, carriers', workmen's, repairmen's or other like liens arising or incurred in the ordinary course of business consistent with past practice or amounts that are not delinquent and which are not, individually or in the aggregate, material to the business of the Company; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;&nbsp;&nbsp;easements, rights of way, zoning ordinances and other similar encumbrances affecting Real Property which are not, individually or in the aggregate, material to the business of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;***<u>Section 3.10(b)</u>*** of the Disclosure Schedules lists (i) the street address of each parcel of Real Property; (ii) if such property is leased or subleased by the Company, the landlord under the lease, the rental amount currently being paid, and the expiration of the term of such lease or sublease for each leased or subleased property; and (iii) the current use of such property. With respect to leased Real Property, Sellers have delivered or made available to Buyer true, complete and correct copies of any leases affecting the Real Property. The Company is not a sublessor or grantor under any sublease or other instrument granting to any other Person any right to the possession, lease, occupancy or enjoyment of any leased Real Property. The use and operation of the Real Property in the conduct of the Company's business do not violate in any material respect any Law, covenant, condition, restriction, easement, license, permit or agreement. No material improvements constituting a part of the Real Property encroach on real property owned or leased by a Person other than the Company. There are no Actions pending nor, to the Sellers' Knowledge, threatened against or affecting the Real Property or any portion thereof or interest therein in the nature or in lieu of condemnation or eminent domain proceedings.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;Except as otherwise stated on***<u>Section 3.10(c)</u>*** of the Disclosure Schedules, on or before the Closing, the Company will have acquired good and valid title to any and all leased equipment and/or assets used in the operation of the Business (other than leases for office equipment such as copiers, printers, postage machines, *etc.*, and other than the Purchased Real Property).

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.11&nbsp;&nbsp;&nbsp;&nbsp;<u>Condition and Sufficiency of Assets</u>.** Except as set forth in ***<u>Section 3.11</u>*** of the Disclosure Schedules, the buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property of the Company are structurally sound, are in good operating condition and repair (subject to ordinary wear and tear), and are adequate for the uses to which they are being put. The buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property currently owned or leased by the Company, together with all other properties and assets of the Company, are sufficient for the continued conduct of the Company's business after the Closing in substantially the same manner as conducted prior to the Closing and constitute all of the rights, property and assets necessary to conduct the business of the Company as currently conducted.

&nbsp;&nbsp;&nbsp;&nbsp;

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**Section 3.12&nbsp;&nbsp;&nbsp;&nbsp;<u>Intellectual Property</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;***<u>Section 3.12(a)</u>*** of the Disclosure Schedules contains a correct, current, and complete list of: (i) all Company IP Registrations that are not expired or abandoned, specifying as to each, as applicable: the title, mark, or design; the record owner and inventor(s), if any; the jurisdiction by or in which it has been issued, registered, or filed; the patent, registration, or application serial number; the issue, registration, or filing date; and the current status and (ii) all material unregistered Trademarks included in the Company Intellectual Property; and (iii) all proprietary Software of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;***<u>Section 3.12(b)</u>*** of the Disclosure Schedules contains a correct, current, and complete list of all Company IP Agreements that have not expired or been terminated, specifying for each the date, title, and parties thereto, and separately identifying the Company IP Agreements: (i) under which the Company is a licensor or otherwise grants to any Person any right or interest relating to any Company Intellectual Property; (ii) under which the Company is a licensee or otherwise granted any right or interest relating to the Intellectual Property of any Person; and (iii) which otherwise relate to the Company's ownership or use of Intellectual Property, in each case identifying the Intellectual Property covered by such Company IP Agreement. Sellers have provided Buyer with true and complete copies (or in the case of any oral agreements, a complete and correct written description) of all Company IP Agreements that have not expired or been terminated, including all modifications, amendments and supplements thereto and waivers thereunder. Each Company IP Agreement that has not expired or been terminated is valid and binding on the Company in accordance with its terms and is in full force and effect. Neither the Company nor, to any of the Sellers' Knowledge, any other party thereto is, or is alleged to be, in breach of or default under, or has provided or received any notice of breach of, default under, or intention to terminate (including by non-renewal), any Company IP Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in ***<u>Section 3.12(c)</u>*** of the Disclosure Schedules, the Company is the sole and exclusive legal and beneficial, and with respect to the Company IP Registrations, record, owner of all right, title, and interest in and to the Company Intellectual Property, and has the valid and enforceable right to use all other Intellectual Property used or held for use in or necessary for the conduct of the Company's business as currently conducted, in each case, free and clear of Encumbrances other than Permitted Encumbrances. The Company has entered into binding, valid and enforceable, written Contracts with each current and former employee and independent contractor [who is or was involved in or has contributed to the invention, creation, or development of any Intellectual Property during the course of employment or engagement with the Company] whereby such employee or independent contractor (i) acknowledges the Company's exclusive ownership of all Intellectual Property invented, created, or developed by such employee or independent contractor within the scope of his or her employment or engagement with the Company; (ii) grants to the Company a present, irrevocable assignment of any ownership interest such employee or independent contractor may have in or to such Intellectual Property, to the extent such Intellectual Property does not constitute a "work made for hire" under applicable Law; and (iii) irrevocably waives any right or interest, including any moral rights, regarding any such Intellectual Property, to the extent permitted by applicable Law. Sellers have provided Buyer with true and complete copies of all such Contracts. All assignments and other instruments necessary to establish, record, and perfect the Company's ownership interest in the Company IP Registrations have been validly executed, delivered, and filed with the relevant Governmental Authorities and authorized registrars.

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated hereunder, will result in the loss or material impairment of, or require the consent of any other Person in respect of, the Company's right to own or use any Company Intellectual Property or Licensed Intellectual Property.

&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;All of the Company Intellectual Property and Licensed Intellectual Property are valid and

enforceable, and all Company IP Registrations are subsisting and in full force and effect. The Company has taken all reasonable and necessary steps to maintain the Company Intellectual Property and Licensed Intellectual Property and to preserve the confidentiality of all Trade Secrets included in the Company Intellectual Property, including by requiring all Persons having access thereto to execute binding, written non-disclosure agreements. All required filings and fees related to the Company IP Registrations have been timely submitted with and paid to the relevant Governmental Authorities and authorized registrars. Sellers have provided Buyer with true and complete copies of all file histories, documents, certificates,

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office actions, correspondence, assignments, and other instruments relating to the Company IP Registrations.

&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;The conduct of the Company's business as currently and formerly conducted, including the use of the Company Intellectual Property and Licensed Intellectual Property in connection therewith, and the products, processes and services of the Company have not infringed, misappropriated or otherwise violated the Intellectual Property or other rights of any Person. To any of the Sellers' Knowledge, no Person has infringed, misappropriated or otherwise violated any Company Intellectual Property or Licensed Intellectual Property.

&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;There are no Actions (including any opposition, cancellation, revocation, review, or other proceeding), whether settled, pending, or, to any of the Sellers' Knowledge threatened (including in the form of offers to obtain a license): (i) alleging any infringement, misappropriation, or other violation by the Company of the Intellectual Property of any Person; (ii) challenging the validity, enforceability, registrability, patentability, or ownership of any Company Intellectual Property or Licensed Intellectual Property or the Company's right, title, or interest in or to any Company Intellectual Property or Licensed Intellectual Property; or (iii) by the Company or by the owner of any Licensed Intellectual Property alleging any infringement, misappropriation, or other violation by any Person of the Company Intellectual Property or such Licensed Intellectual Property. No Seller Party has Knowledge of any facts or circumstances that could reasonably be expected to give rise to any such Action. The Company is not subject to any outstanding or prospective Governmental Order (including any motion or petition therefor) that does or could reasonably be expected to materially restrict or materially impair the use of any Company Intellectual Property or Licensed Intellectual Property.

&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;***<u>Section 3.12(h)</u>*** of the Disclosure Schedules contains a correct, current, and complete list of all social media accounts used in the Company's business. The Company has complied with all terms of use, terms of service, and other Contracts and all associated policies and guidelines relating to its use of any social media platforms, sites, or services (collectively, "***<u>Platform Agreements</u>***"). There are no Actions, whether settled, pending, or to the Knowledge of Sellers threatened, alleging any (A) breach or other violation of any Platform Agreement by the Company; or (B) defamation, violation of publicity rights of any Person, or any other violation by the Company in connection with its use of social media.

&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;All Company IT Systems are in good working condition and are sufficient for the operation of the Company's business as currently conducted. In the past twenty-four (24) months, there has been no malfunction, failure, continued substandard performance, denial-of-service, or other cyber incident, including any cyberattack, or other material impairment of the Company IT Systems that has resulted or is reasonably likely to result in disruption or damage to the business of the Company. The Company has taken all commercially reasonable steps to safeguard the confidentiality, availability, security, and integrity of the Company IT Systems, including implementing and maintaining appropriate backup, disaster recovery, and Software and hardware support arrangements.

&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;&nbsp;&nbsp;&nbsp;The Company has complied with all applicable Laws and all publicly posted policies, notices, and statements concerning the collection, use, processing, storage, transfer, and security of personal information in the conduct of the Company's business. In the past twenty-four (24) months, the Company has not (i) experienced any actual, alleged, or suspected data breach or other security incident involving personal information in its possession or control or (ii) been subject to or received any written notice of any audit, investigation, complaint, or other Action by any Governmental Authority or other Person concerning the Company's collection, use, processing, storage, transfer, or protection of personal information or actual, alleged, or suspected violation of any applicable Law concerning privacy, data security, or data breach notification, and to Sellers' Knowledge, there are no facts or circumstances that could reasonably be expected to give rise to any such Action.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.13&nbsp;&nbsp;&nbsp;&nbsp;<u>Inventory</u>.** All inventory of the Company, whether or not reflected in the Balance Sheet, consists of a quality and quantity usable and salable in the ordinary course of business consistent with past practice, except for obsolete, damaged, defective or slow-moving items that have been written off or written down to fair market value or for which adequate reserves have been established. All such inventory is owned by the Company free and clear of all Encumbrances, and no inventory is held on a consignment basis. Except for the Public Health Measures and other effects on the supply of products and materials as a result of COVID-19, to any of the Sellers' Knowledge there is no

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condition materially and adversely affecting the supply of products or materials available to the Company.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.14&nbsp;&nbsp;&nbsp;&nbsp;<u>Accounts Receivable</u>.** The accounts receivable reflected on the Interim Balance Sheet and the accounts receivable arising after the date thereof (a) have arisen from bona fide transactions entered into by the Company involving the sale of goods or the rendering of services in the ordinary course of business consistent with past practice; and (b) constitute only valid, undisputed claims of the Company not subject to claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the ordinary course of business consistent with past practice. The reserve for bad debts shown on the Interim Balance Sheet or, with respect to accounts receivable arising after the Interim Balance Sheet Date, on the accounting records of the Company have been determined in accordance with GAAP, except to the extent that BasX Properties, LLC is not included in the financial statements, consistently applied, subject to normal year-end adjustments and the absence of disclosures normally made in footnotes.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.15&nbsp;&nbsp;&nbsp;&nbsp;<u>Customers and Suppliers</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;***<u>Section 3.15(a)</u>*** of the Disclosure Schedules sets forth (i) each customer who has paid aggregate consideration to the Company for goods or services rendered in an amount greater than or equal to $[2,000,000.00] for each of the three (3) most recent fiscal years (collectively, the "***<u>Material Customers</u>***"); and (ii) the amount of consideration paid by each Material Customer during such periods. Except as set forth in ***<u>Section 3.15(a)</u>*** of the Disclosure Schedules, the Company has not received any written, or to any of the Seller Parties' Knowledge oral, notice that any of the Company's Material Customers has ceased, or intends to cease after the Closing, to use its goods or services or to otherwise terminate or materially reduce its relationship with the Company.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;***<u>Section 3.15(b)</u>*** of the Disclosure Schedules sets forth (i) each supplier to whom the Company has paid consideration for goods or services rendered in an amount greater than or equal to $[$1,000,000.00] for each of the three (3) most recent fiscal years (collectively, the "***<u>Material Suppliers</u>***"); and (ii) the amount of purchases from each Material Supplier during such periods. Except as set forth in ***<u>Section 3.15(b)</u>*** of the Disclosure Schedules, the Company has not received any written, or to any of the Seller Parties' Knowledge oral, notice that any of the Company's Material Suppliers has ceased, or intends to cease, to supply goods or services to the Company or to otherwise terminate or materially reduce its relationship with the Company.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.16&nbsp;&nbsp;&nbsp;&nbsp;<u>Insurance</u>. *<u>Section 3.16</u>*** of the Disclosure Schedules sets forth a true and complete list of all current policies or binders of fire, liability, product liability, umbrella liability, real and personal property, workers' compensation, vehicular, directors' and officers' liability, fiduciary liability and other casualty and property insurance maintained by the Company and relating to the assets, business, operations, employees, officers and directors of the Company (collectively, the "***<u>Insurance Policies</u>***") and true and complete copies of such Insurance Policies have been made available to Buyer. Such Insurance Policies are in full force and effect and shall remain in full force and effect following the consummation of the transactions contemplated by this Agreement. Neither the Company nor any of the Sellers has received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of such Insurance Policies. All premiums due on such Insurance Policies have either been paid or, if due and payable prior to Closing, will be paid prior to Closing in accordance with the payment terms of each Insurance Policy. The Insurance Policies do not provide for any retrospective premium adjustment or other experience-based liability on the part of the Company. All such Insurance Policies (a) are valid and binding in accordance with their terms; (b) are provided by carriers who are financially solvent; and (c) have not been subject to any lapse in coverage. Except as set forth on ***<u>Section 3.16</u>*** of the Disclosure Schedules, there are no claims related to the business of the Company pending under any such Insurance Policies as to which coverage has been questioned, denied or disputed or in respect of which there is an outstanding reservation of rights. The Company) is not in default under, or has otherwise failed to comply with, in any material respect, any provision contained in any such Insurance Policy. The Insurance Policies are of the type and in the amounts customarily carried by Persons conducting a business similar to the Company and are sufficient for compliance with all applicable Laws and Contracts to which the Company is a party or by which it is bound.

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**Section 3.17&nbsp;&nbsp;&nbsp;&nbsp;<u>Legal Proceedings; Governmental Orders</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in ***<u>Section 3.17(a)</u>*** of the Disclosure Schedules, there are no Actions pending or, to Sellers' Knowledge, threatened (a) against or by the Company affecting any of its properties or assets (or by or against any Seller Party or any Affiliate thereof and relating to the Company); or (b) against or by the Company, any Seller Party or any Affiliate of a Seller Party that challenges or seeks to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. To Sellers' Knowledge, no event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action. There is no Action against any current or, to Sellers' Knowledge, former director or employee of the Company with respect to which the Company has, or is reasonably likely to have, an indemnification obligation.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in ***<u>Section 3.17(b)</u>*** of the Disclosure Schedules, there are no outstanding Governmental Orders and no unsatisfied judgments, penalties or awards against or affecting the Company or any of its properties or assets. The Company is in compliance with the terms of each Governmental Order set forth in ***<u>Section 3.17(b)</u>*** of the Disclosure Schedules. To any of the Sellers' Knowledge, no event has occurred or circumstances exist that may constitute or result in (with or without notice or lapse of time) a violation of any such Governmental Order.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.18&nbsp;&nbsp;&nbsp;&nbsp;<u>Compliance With Laws; Permits</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in ***<u>Section 3.18(a)</u>*** of the Disclosure Schedules, the Company has complied, and is now complying, in all material respects, with all Laws applicable to it or its business, properties or assets.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;All Permits required for the Company to conduct its business have been obtained by it and are valid and in full force and effect. All fees and charges with respect to such Permits as of the date hereof have been paid in full. ***<u>Section 3.18(b)</u>*** of the Disclosure Schedules lists all current Permits issued to the Company, including the names of the Permits and their respective dates of issuance and expiration. To Sellers' Knowledge, no event has occurred that, with or without notice or lapse of time or both, would reasonably be expected to result in the revocation, suspension, lapse or limitation of any Permit set forth in ***<u>Section 3.18(b)</u>*** of the Disclosure Schedules.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.19&nbsp;&nbsp;&nbsp;&nbsp;<u>Environmental Matters</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;The Company is currently and has been in compliance in all material respects with all Environmental Laws and has not received from any Person any: (i) Environmental Notice or Environmental Claim; or (ii) written request for information pursuant to Environmental Law, which, in each case, either remains pending or unresolved, or is the source of ongoing obligations or requirements as of the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;The Company has obtained and is in material compliance with all Environmental Permits (each of which is disclosed in ***<u>Section 3.19(b)</u>*** of the Disclosure Schedules) necessary for the ownership, lease, operation or use of the business or assets of the Company and all such Environmental Permits are in full force and effect and shall be maintained in full force and effect through the Closing Date in accordance with Environmental Law, and none of the Sellers has Knowledge of any condition, event or circumstance that might prevent or impede, after the Closing Date, the ownership, lease, operation or use of the business or assets of the Company as currently carried out.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;No real property currently or formerly owned, operated or leased by the Company is listed on, or has been proposed for listing on, the National Priorities List (or CERCLIS) under CERCLA, or any similar state list.

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;To any of the Sellers' Knowledge, there has been no Release of Hazardous Materials in contravention of Environmental Law with respect to the business or assets of the Company or any real property currently or formerly owned, operated or leased by the Company, and neither the Company nor any Seller Party has received an Environmental Notice that any real property currently or formerly owned, operated or leased in connection with the business of the Company (including soils, groundwater, surface water, buildings and other structure located on any such real property) has been contaminated

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with any Hazardous Material which could reasonably be expected to result in an Environmental Claim against, or a violation of Environmental Law or term of any Environmental Permit by, the Company.

&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;***<u>Section 3.19(e)</u>*** of the Disclosure Schedules contains a complete and accurate list of all active or abandoned aboveground or underground storage tanks owned or operated by the Company.

&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;***<u>Section 3.19(f)</u>*** of the Disclosure Schedules contains a complete and accurate list of all off-site Hazardous Materials treatment, storage, or disposal facilities or locations used by the Company and any predecessors as to which the Company may retain liability, and none of these facilities or locations has been placed or proposed for placement on the National Priorities List (or CERCLIS) under CERCLA, or any similar state list, and neither any Seller Party nor the Company has received any Environmental Notice regarding potential liabilities with respect to such off-site Hazardous Materials treatment, storage, or disposal facilities or locations used by the Company.

&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;The Company has not retained or assumed, by contract or operation of Law, any liabilities or obligations of third parties under Environmental Law.

&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;Sellers have provided or otherwise made available to Buyer and listed in ***<u>Section 3.19(h)</u>*** of the Disclosure Schedules: (i) any and all environmental reports, studies, audits, records, sampling data, site assessments, risk assessments, economic models and other similar documents with respect to the business or assets of the Company or any currently or formerly owned, operated or leased real property which are in the possession or control of any Seller Party or Company related to compliance with Environmental Laws, Environmental Claims or an Environmental Notice or the Release of Hazardous Materials; and (ii) any and all material documents concerning planned or anticipated capital expenditures required to reduce, offset, limit or otherwise control pollution and/or emissions, manage waste or otherwise ensure compliance with current or future Environmental Laws (including, without limitation, costs of remediation, pollution control equipment and operational changes).

&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;Neither any Seller Party nor the Company has Knowledge of or reasonably anticipates, as of the Closing Date, any condition, event or circumstance concerning the Release or regulation of Hazardous Materials that might, after the Closing Date, prevent, impede or materially increase the costs associated with the ownership, lease, operation, performance or use of the business or assets of the Company as currently carried out.

&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;&nbsp;&nbsp;&nbsp;The Company owns and controls all Environmental Attributes (a complete and accurate list of which is set forth in ***<u>Section 3.19(j)</u>*** of the Disclosure Schedules) and has not entered into any contract or pledge to transfer, lease, license, guarantee, sell, mortgage, pledge or otherwise dispose of or encumber any Environmental Attributes as of the date hereof. Neither any Seller Party nor the Company has Knowledge of any condition, event or circumstance that might prevent, impede or materially increase the costs associated with the transfer (if required) to Buyer of any Environmental Attributes after the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;**3.20&nbsp;&nbsp;&nbsp;&nbsp;<u>Employee Benefit Matters</u>.** 

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;***<u>Section 3.20(a)</u>*** of the Disclosure Schedules contains a true and complete list of each pension, benefit, retirement, compensation, employment, consulting, profit-sharing, deferred compensation, incentive, bonus, performance award, phantom equity, stock or stock-based, change in control, retention, severance, vacation, paid time off (PTO), medical, vision, dental, disability, welfare, Code Section 125 cafeteria, fringe benefit and other similar agreement, plan, policy, program or arrangement (and any amendments thereto), in each case whether or not reduced to writing and whether funded or unfunded, including each "employee benefit plan" within the meaning of Section 3(3) of ERISA, whether or not tax-qualified and whether or not subject to ERISA, which is or has been maintained, sponsored, contributed to, or required to be contributed to by the Company for the benefit of any current or former employee, officer, director, retiree, independent contractor or consultant of the Company or any spouse or dependent of such individual, or under which the Company or any of its ERISA Affiliates has or may have any Liability, or with respect to which Buyer or any of its Affiliates would reasonably be expected to have any Liability, contingent or otherwise (as listed on ***<u>Section 3.20(a)</u>*** of the Disclosure Schedules, each, a "***<u>Benefit Plan</u>***"). The Company has separately identified in ***<u>Section 3.20(a)</u>*** of the Disclosure Schedules (i) each Benefit Plan that contains a change in control provision and

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(ii) each Benefit Plan that is maintained, sponsored, contributed to, or required to be contributed to by the Company primarily for the benefit of employees outside of the United States (a "***<u>Non-U.S. Benefit Plan</u>***").

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;With respect to each Benefit Plan, Sellers have made available to Buyer accurate, current and complete copies of each of the following: (i) where the Benefit Plan has been reduced to writing, the plan document together with all amendments; (ii) where the Benefit Plan has not been reduced to writing, a written summary of all material plan terms; (iii) where applicable, copies of any trust agreements or other funding arrangements, custodial agreements, insurance policies and contracts, administration agreements and similar agreements, and investment management or investment advisory agreements, now in effect or required in the future as a result of the transactions contemplated by this Agreement or otherwise; (iv) copies of any summary plan descriptions, summaries of material modifications, summaries of benefits and coverage, COBRA communications, employee handbooks and any other written communications (or a description of any oral communications) relating to any Benefit Plan; (v) in the case of any Benefit Plan that is intended to be qualified under Section 401(a) of the Code, a copy of the most recent determination, opinion or advisory letter from the Internal Revenue Service and any legal opinions issued thereafter with respect to such Benefit Plan's continued qualification; (vi) in the case of any Benefit Plan for which a Form 5500 must be filed, a copy of the two most recently filed Forms 5500, with all corresponding schedules and financial statements attached; (vii) actuarial valuations and reports related to any Benefit Plans with respect to the two most recently completed plan years; (viii) the most recent nondiscrimination tests performed under the Code; and (ix) copies of material notices, letters or other correspondence from the Internal Revenue Service, Department of Labor, Department of Health and Human Services, Pension Benefit Guaranty Corporation or other Governmental Authority relating to the Benefit Plan.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in ***<u>Section 3.20(c)</u>*** of the Disclosure Schedules, each Benefit Plan and any related trust (other than any multiemployer plan within the meaning of Section 3(37) of ERISA (each a "***<u>Multiemployer Plan</u>***")) has been established, administered and maintained in accordance with its terms and in compliance in all material respects with all applicable Laws (including ERISA and the Code and any applicable local Laws). Each Benefit Plan that is intended to be qualified within the meaning of Section 401(a) of the Code (a "***<u>Qualified Benefit Plan</u>***") is so qualified and received a favorable and current determination letter from the Internal Revenue Service with respect to the most recent five year filing cycle, or with respect to a prototype or volume submitter plan, can rely on an opinion letter from the Internal Revenue Service to the prototype plan or volume submitter plan sponsor, to the effect that such Qualified Benefit Plan is so qualified and that the plan and the trust related thereto are exempt from federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, and nothing has occurred that could reasonably be expected to adversely affect the qualified status of any Qualified Benefit Plan. Nothing has occurred with respect to any Benefit Plan that has subjected or could reasonably be expected to subject the Company or any of its ERISA Affiliates or, with respect to any period on or after the Closing Date, Buyer or any of its Affiliates, to a penalty under Section 502 of ERISA or to tax or penalty under Sections 4975 or 4980H of the Code. No pension plan (other than a Multiemployer Plan) which is subject to minimum funding requirements, including any multiple employer plan, (each, a "***<u>Single Employer Plan</u>***") in which employees of the Company or any ERISA Affiliate participate or have participated has an "accumulated funding deficiency", whether or not waived, or is subject to a lien for unpaid contributions under Section 303(k) of ERISA or Section 430(k) of the Code. No Single Employer Plan covering employees of the Company which is a defined benefit plan has an "adjusted funding target attainment percentage," as defined in Section 436 of the Code, less than 80%. Except as set forth in ***<u>Section 3.20(c)</u>*** of the Disclosure Schedules, all benefits, contributions and premiums relating to each Benefit Plan have been timely paid in accordance with the terms of such Benefit Plan and all applicable Laws and accounting principles, and all benefits accrued under any unfunded Benefit Plan have been paid, accrued or otherwise adequately reserved to the extent required by, and in accordance with, GAAP. All Non-U.S. Benefit Plans that are intended to be funded and/or book-reserved are funded and/or book-reserved, as appropriate, based upon reasonable actuarial assumptions.

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;Neither the Company nor any of its ERISA Affiliates has (i) incurred or reasonably expects to incur, either directly or indirectly, any material Liability under Title I or Title IV of ERISA or related provisions of the Code or applicable local Law relating to employee benefit plans; (ii) failed to timely pay premiums to the Pension Benefit Guaranty Corporation; (iii) withdrawn from any Benefit

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Plan; (iv) engaged in any transaction which would give rise to liability under Section 4069 or Section 4212(c) of ERISA; (v) incurred taxes under Section 4971 of the Code with respect to any Single Employer Plan; or (vi) participated in a multiple employer welfare arrangements (MEWA).

&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;With respect to each Benefit Plan (i) no such plan is a Multiemployer Plan; and (ii) no such plan is a "multiple employer plan" within the meaning of Section 413(c) of the Code or a ""multiple employer welfare arrangement" (as defined in Section 3(40) of ERISA);

&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;Each Benefit Plan can be amended, terminated or otherwise discontinued after the Closing in accordance with its terms, without material liabilities to Buyer, the Company or any of their Affiliates other than ordinary administrative expenses typically incurred in a termination event. The Company has no commitment or obligation and has not made any representations to any employee, officer, director, independent contractor or consultant, whether or not legally binding, to adopt, amend, modify or terminate any Benefit Plan or any collective bargaining agreement, in connection with the consummation of the transactions contemplated by this Agreement or otherwise.

&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in ***<u>Section 3.20(g)</u>*** of the Disclosure Schedules and other than as required under Sections 601 to 608 of ERISA or other applicable Law, no Benefit Plan provides post-termination or retiree health benefits to any individual for any reason, and neither the Company nor any of its ERISA Affiliates has any Liability to provide post-termination or retiree health benefits to any individual or ever represented, promised or contracted to any individual that such individual would be provided with post-termination or retiree health benefits.

&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in ***<u>Section 3.20(h)</u>*** of the Disclosure Schedules, there is no pending or, to Sellers' Knowledge, threatened Action relating to a Benefit Plan (other than routine claims for benefits), and no Benefit Plan has within the three (3) years prior to the date hereof been the subject of an examination or audit by a Governmental Authority or the subject of an application or filing under or is a participant in, an amnesty, voluntary compliance, self-correction or similar program sponsored by any Governmental Authority.

&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;There has been no amendment to, announcement by any Seller Party, the Company or any of their Affiliates relating to, or change in employee participation or coverage under, any Benefit Plan or collective bargaining agreement that would increase the annual expense of maintaining such plan above the level of the expense incurred for the most recently completed fiscal year (other than on a de minimis basis) with respect to any director, officer, employee, independent contractor or consultant, as applicable. None of Seller Parties, the Company, nor any of their Affiliates has any commitment or obligation or has made any representations to any director, officer, employee, independent contractor or consultant, whether or not legally binding, to adopt, amend, modify or terminate any Benefit Plan or any collective bargaining agreement.

&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;&nbsp;&nbsp;&nbsp;Each Benefit Plan that is subject to Section 409A of the Code has been administered in compliance with its terms and the operational and documentary requirements of Section 409A of the Code and all applicable regulatory guidance (including notices, rulings and proposed and final regulations) thereunder. The Company does not have any obligation to gross up, indemnify or otherwise reimburse any individual for any excise taxes, interest or penalties incurred pursuant to Section 409A of the Code.

&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;&nbsp;&nbsp;&nbsp;Each individual who is classified by the Company as an independent contractor has been properly classified for purposes of participation and benefit accrual under each Benefit Plan.

&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in ***<u>Section 3.20(l)</u>*** of the Disclosure Schedules, neither the execution of this Agreement nor any of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional or subsequent events): (i) entitle any current or former director, officer, employee, independent contractor or consultant of the Company to severance pay or any other payment; (ii) accelerate the time of payment, funding or vesting, or increase the amount of compensation (including stock-based compensation) due to any such individual; (iii) limit or restrict the right of the Company to merge, amend, or terminate any Benefit Plan; (iv) increase the amount payable under or result in any other material obligation pursuant to any Benefit Plan; (v) result in "excess parachute payments" within

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the meaning of Section 280G(b) of the Code; or (vi) require a "gross-up" or other payment to any "disqualified individual" within the meaning of Section 280G(c) of the Code.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.21&nbsp;&nbsp;&nbsp;&nbsp;<u>Employment Matters</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;***<u>Section 3.21(a)</u>*** of the Disclosure Schedules contains a list of all persons who are employees, independent contractors or consultants of the Company as of the date hereof, including any employee who is on a leave of absence of any nature, paid or unpaid, authorized or unauthorized, and sets forth for each such individual the following: (i) name; (ii) title or position (including whether full-time or part-time); (iii) hire or retention date; (iv) current annual base compensation rate or contract fee; (v) commission, bonus or other incentive-based compensation; and (vi) a description of the fringe benefits provided to each such individual as of the date hereof. Except as set forth in ***<u>Section 3.21(a)</u>*** of the Disclosure Schedules, as of the date hereof, all compensation, including wages, commissions, bonuses, fees and other compensation, payable to all employees, independent contractors or consultants of the Company for services performed on or prior to the date hereof have been paid in full (or accrued in full on the audited balance sheet contained in the Closing Working Capital Statement) and there are no outstanding agreements, understandings or commitments of the Company with respect to any compensation, commissions, bonuses or fees.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in ***<u>Section 3.21(b)</u>*** of the Disclosure Schedules, the Company is not, and has not been for the past three (3) years, a party to, bound by, or negotiating any collective bargaining agreement or other Contract with a union, works council or labor organization (collectively, "***<u>Union</u>***"), and there is not, and has not been for the past three (3) years, any Union representing or purporting to represent any employee of the Company, and, to Sellers' Knowledge, no Union or group of employees is seeking or has sought to organize employees for the purpose of collective bargaining. Except as set forth in ***<u>Section 3.21(b)</u>*** of the Disclosure Schedules, there has never been, nor to any of the Sellers' Knowledge has there been any threat of, any strike, slowdown, work stoppage, lockout, concerted refusal to work overtime or other similar labor disruption or dispute affecting the Company or any of its employees. The Company has no duty to bargain with any Union.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;The Company is and has been in compliance in all material respects with all applicable Laws pertaining to employment and employment practices to the extent they relate to employees, volunteers, interns, consultants and independent contractors of the Company, including all Laws relating to labor relations, equal employment opportunities, fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, child labor, hiring, promotion and termination of employees, working conditions, meal and break periods, privacy, health and safety, workers' compensation, leaves of absence, paid sick leave and unemployment insurance. All individuals characterized and treated by the Company as independent contractors or consultants are properly treated as independent contractors under all applicable Laws. All employees of the Company classified as exempt under the Fair Labor Standards Act and state and local wage and hour laws are properly classified in all material respects. The Company is in compliance with and has complied with all immigration laws, including Form I-9 requirements and any applicable mandatory E-Verify obligations. Except as set forth in ***<u>Section 3.21(c)</u>*** of the Disclosure Schedules, there are no Actions against the Company pending, or to the Sellers' Knowledge, threatened to be brought or filed, by or with any Governmental Authority or arbitrator in connection with the employment of any current or former applicant, employee, consultant, volunteer, intern or independent contractor of the Company, including, without limitation, any charge, investigation or claim relating to unfair labor practices, equal employment opportunities, fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, employee classification, child labor, hiring, promotion and termination of employees, working conditions, meal and break periods, privacy, health and safety, workers' compensation, leaves of absence, paid sick leave, unemployment insurance or any other employment related matter arising under applicable Laws.

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;During the past three (3) years, the Company has not effectuated: (i) a "plant closing" (as defined in the WARN Ac or any similar state or local Law) or (ii) a "mass layoff" (as defined in the WARN Act, or any similar state or local Law). The Company has complied in all material respects with the WARN Act, and it has no plans to undertake any action in the future that would trigger the WARN Act.

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&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;With respect to each Government Contract, the Company is and has been in compliance in all material respects with Executive Order No. 11246 of 1965 ("***<u>E.O. 11246</u>***"), Section 503 of the Rehabilitation Act of 1973 ("***<u>Section 503</u>***") and the Vietnam Era Veterans' Readjustment Assistance Act of 1974 ("***<u>VEVRAA</u>***"), including all implementing regulations. The Company maintains and complies with affirmative action plans in compliance with E.O. 11246, Section 503 and VEVRAA, including all implementing regulations. The Company is not, and has not been for the past three (3) years, the subject of any audit, investigation or enforcement action by any Governmental Authority in connection with any Government Contract or related compliance with E.O. 11246, Section 503 or VEVRAA. The Company has not been debarred, suspended or otherwise made ineligible from doing business with the United States government or any government contractor. The Company is in compliance in all material respects with and has complied in all material respects with all applicable immigration laws, including any applicable mandatory E-Verify obligations.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.22&nbsp;&nbsp;&nbsp;&nbsp;<u>Taxes</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;The Company has timely and duly filed all Tax Returns in connection with any federal, state or local Tax required to be filed by it, and all such Tax Returns are true, correct and complete in all material respects. All Taxes of the Company that have become due and payable for all periods covered by such Tax Returns (whether or not shown on such Tax Returns) have been fully and timely paid, except for such Taxes, if any, as are being contested in good faith and which are shown as a liability on the Financial Statements. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;The Company has delivered or made available to Buyer copies of all Tax Returns filed for the Company for taxable periods ending within six years prior to the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;The Company has not received a written notice from any Governmental Authority in a jurisdiction where the Company did not file Tax Returns making a claim that the Company is or may be subject to taxation by that jurisdiction (including federal, state, local or foreign jurisdictions).

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;The Company has withheld from its employees, independent contractors, creditors, members and third parties and timely paid the withholdings to the appropriate Governmental Authority proper and accurate amounts in all respects required to have been withheld or paid over for all periods ending on or before the Closing Date in compliance with all Tax withholding and remitting provisions of applicable Laws and has complied in all respects with all Tax information reporting provisions of all applicable Laws. The Company is not, nor has it received any written notice or, to Sellers' Knowledge, oral notice that it is in violation (or with notice that it will be in violation) of any applicable Law relating to the withholding of Taxes and payment of such withholdings to the appropriate Governmental Authority.

&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;(i) No audit or other proceeding by any Governmental Authority is pending or threatened in writing with respect to any Taxes due from the Company, (ii) the Company has not received any written notification that such an audit or proceeding may be commenced, with respect to any Taxes due from the Company, (iii) to the Sellers Knowledge, there is no proceeding referred to in (i) or (ii) above based upon personal contact with any agent of a Governmental Authority with any employee or representative of the Company, and (iv) all deficiencies for Taxes asserted or assessed against the Company by a Governmental Authority have been fully and timely paid, or otherwise settled with the relevant Governmental Authority, or are properly reflected in the Financial Statements.

&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;There are no outstanding agreements, waivers or arrangements extending the statutory period of limitations applicable to any claim for, or the period for the collection or assessment of, Taxes due from or payable by the Company for any taxable period and no written or other request for any such waiver or extension is currently pending.

&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;The Company has: (i) not been a member of an affiliated group filing a combined, consolidated, or unitary Tax Return and (ii) no liability for unpaid Taxes of any Person under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign Law), as a transferee or successor, or by Tax sharing agreement, Tax indemnification agreement, Tax distribution agreement, or

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other similar arrangement, other than commercial Contracts entered into in the ordinary course of business that do not primarily relate to Taxes, pursuant to Law or otherwise.

&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;The unpaid Taxes of the Company did not, as of the Interim Balance Sheet Date, exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Interim Financial Statements, and do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company in filing its Tax Returns. Since the Interim Balance Sheet Date, the Company has not incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP, outside the ordinary course of business.

&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;There are no Liens for Taxes upon the assets of the Company, except for statutory Liens for current Taxes not yet due and payable. To Sellers' Knowledge, there exists no pending claim relating to Taxes that, if adversely determined, would result in any Lien on any of the assets of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;&nbsp;&nbsp;&nbsp;None of the assets of the Company (i) directly or indirectly secures any debt the interest on which is tax-exempt under Section 103(a) of the Code, (ii) is tax-exempt bond financed property under Section 168(g)(5) of the Code, (iii) is tax-exempt use property within the meaning of Section 470(c)(2) or Section 168(h) of the Code, (iv) is subject to a motor vehicle operating lease under Section 7701(h) of the Code or any predecessor provision, or (v) is treated as owned by any other Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately before the enactment of the Tax Reform Act of 1986.

&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;&nbsp;&nbsp;&nbsp;The Company is not, nor ever has been, a party to a "reportable transaction" within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011-4(b).

&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;&nbsp;&nbsp;&nbsp;The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending on or after the Closing Date as a result of any: (i) change in method of accounting made prior to the Closing; (ii) "closing agreement" as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax Law) executed prior to the Closing; (iii) installment sale or open transaction disposition made prior to the Closing; (iv) prepaid amount received prior to the Closing; or (v) election by the Company under Section 108(i) of the Code made prior to the Closing.

&nbsp;&nbsp;&nbsp;&nbsp;(m)&nbsp;&nbsp;&nbsp;&nbsp;There are no outstanding rulings of, or requests for rulings by, any Governmental Authority addressed to the Company that are, or if issued would be, binding on the Company or any of its members for any full or partial Tax period beginning on or after the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;(n)&nbsp;&nbsp;&nbsp;&nbsp;For purposes of the Code, the Company is and has been classified as a partnership as described in Treasury Regulations Section 301.7701-3(b)(1)(i) during all periods prior to and including the Closing Date. The Company is not a party to or partner in any joint venture, partnership or other arrangement or contract that could be treated as a partnership for federal income Tax purposes.

&nbsp;&nbsp;&nbsp;&nbsp;(o)&nbsp;&nbsp;&nbsp;&nbsp;Each Seller is a United States person within the meaning of Section 7701(a)(30) of the Code.

&nbsp;&nbsp;&nbsp;&nbsp;(p)&nbsp;&nbsp;&nbsp;&nbsp;The Company is not a partnership described in Treasury Regulations Section 1.1445-11T(d)(1).

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.23&nbsp;&nbsp;&nbsp;&nbsp;<u>Books and Records</u>.** The minute books and stock record books of the Company, all of which have been made available to Buyer, are complete and correct and have been maintained in accordance with sound business practices. The minute books of the Company contain accurate and complete records of all meetings, and actions taken by written consent of, the members, the board of directors or manages and any committees of the board of directors or managers of the Company, and no meeting, or action taken by written consent, of any such members, board of directors, managers or committee has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of the Company.

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&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.24.&nbsp;&nbsp;&nbsp;&nbsp;<u>Bank Accounts</u>. *<u>Section 3.24</u>*** of the Disclosure Schedules sets forth the names and locations of all banks, trust companies, savings and loan associations and other financial institutions at which the Company maintains accounts of any nature, and the names of all persons authorized to draw thereon or make withdrawals therefrom. Account numbers for each of such accounts will be provided to Buyer immediately prior to Closing.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.25.&nbsp;&nbsp;&nbsp;&nbsp;<u>Anti-Corruption Matters</u>.** Neither the Company nor any of its officers, directors or employees in their capacities as such has offered, authorized, made, paid or received (whether previously or agreed to do so in the future), directly or indirectly, any bribes, kickbacks or other similar payments or offers or transfers of value in connection with obtaining or retaining business or to secure an improper advantage to or from any Person in violation of any Anti-Corruption and Anti-Bribery Law. Neither the Company nor any of its officers, directors or employees in their capacities as such has, directly or indirectly, committed any violation of any Anti-Corruption and Anti-Bribery Law.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.26&nbsp;&nbsp;&nbsp;&nbsp;<u>Brokers</u>.** Except for Wells Fargo Securities, LLC, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement or any other Ancillary Document based upon arrangements made by or on behalf of the Company or any Seller Party. Sellers shall be solely responsible for any such fees or commissions.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 3.27&nbsp;&nbsp;&nbsp;&nbsp;<u>Investment Representations</u>.** Each Seller hereby individually (solely with respect to itself) and not jointly or severally represents and warrants to the Buyer and each other Seller that the following statements are true and correct as of the date hereof and shall be true and correct at all times that such Seller holds, or has a right to hold at a later date pursuant to a Restricted Stock Grant, shares of AAON Common Stock which are "restricted securities" under applicable U.S. federal and state securities laws:

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;the AAON Common Stock which may be acquired by such Seller pursuant to the applicable Restricted Stock Grant will be acquired for investment for such Seller's own account, not as a nominee or agent, not with a view to the resale or distribution of any part thereof, and not in violation of applicable securities laws;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;such Seller is an experienced investor in securities and acknowledges that it can bear the economic risk of its investment in the AAON Common Stock acquired pursuant to this Agreement and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the AAON Common Stock;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;such Seller is an Accredited Investor;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;such Seller has had an opportunity to discuss the Buyer's and its Subsidiaries' businesses, management, financial affairs and the terms and conditions of the offering of AAON Common Stock with the Buyer's management;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;such Seller understands that the AAON Common Stock issued under the applicable Restricted Stock Grant has not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act that depends upon, among other things, the *bona fide* nature of the investment intent and the accuracy of such Seller's representations as expressed herein; such Seller further understands that the AAON Common Stock acquired by it under the applicable Restricted Stock Grant is "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, such Seller cannot sell, assign, transfer, pledge or otherwise dispose of, and must hold indefinitely, the AAON Common Stock acquired by it hereunder unless such AAON Common Stock is registered with the SEC and qualified by state authorities or an exemption from such registration and qualification requirements is available; in particular, such Seller is aware that the AAON Common Stock may not be sold pursuant to Rule 144 promulgated under the Securities Act unless all of the conditions of Rule 144 are met (and, among the conditions for use of Rule 144 may be availability of current information to the public about the Buyer, and such information may not be made available by the Buyer in the future);

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;such Seller understands that the Buyer has made no assurances that a public market will continue to exist for the AAON Common Stock or any other securities issued by the Buyer; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;if such Seller (or the beneficiary of or any Person controlling such Seller) is employed by the Buyer, (A) he or she (or such Person) does not have any agreements with any current or prior employer or any other Person that will prohibit such Seller from, or that such Seller will breach as a result of, working for or providing services to the Buyer or any of its Affiliates, as applicable, or fulfilling such Seller's duties and obligations to the Buyer or its Affiliates pursuant to such Seller Party's Employment Agreement (if any), Restricted Stock Grant (if any), or otherwise, and (B) he or she (or such Person) has not breached any non-competition, non-solicitation or confidentiality duties imposed on him or her (or such Person) with respect to any current or prior employer or any other Person in any respect that will adversely affect the Buyer or its Affiliates.

**Section 3.28&nbsp;&nbsp;&nbsp;&nbsp;<u>Full Disclosure</u>.** No representation or warranty by any Seller in this Agreement and no statement contained in the Disclosure Schedules to this Agreement or any certificate or other document furnished or to be furnished to Buyer pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading.

**ARTICLE IV**

**REPRESENTATIONS AND WARRANTIES OF SELLERS**

&nbsp;&nbsp;&nbsp;&nbsp;Each Seller represents and warrants to the Buyer, individually, but neither jointly nor severally, as to itself and not as to any other Seller, that the statements contained in this ***<u>Article IV</u>*** are true and correct as of the date hereof.

**Section 4.01&nbsp;&nbsp;&nbsp;&nbsp;<u>Authority of Sellers</u>.** Each Seller has all requisite power and authority to execute and deliver this Agreement and each of the Ancillary Documents to which such Seller is a party, and to perform such Seller's obligations hereunder and thereunder. This Agreement has been duly executed and delivered by such Seller, and (assuming due authorization, execution and delivery by Buyer) this Agreement constitutes a legal, valid and binding obligation of such Seller enforceable against such Seller in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, or moratorium Laws, other similar Laws affecting creditors' rights and general principles of equity affecting the availability of specific performance and other equitable remedies (the "***<u>Enforceability Exceptions</u>***"). When each other Ancillary Document to which such Seller is or will be a party has been duly executed and delivered by such Seller (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of such Seller enforceable against it, him or her in accordance with its terms, except as enforceability may be limited by the Enforceability Exceptions.

**Section 4.02&nbsp;&nbsp;&nbsp;&nbsp;<u>Title</u>. *<u>Section 4.02</u>*** of the Disclosure Schedules accurately reflects the Membership Interests owned beneficially and of record by such Seller as of the date hereof and as of immediately prior to the Closing. All of the Membership interests owned by such Seller are free and clear of all Encumbrances, other than restrictions on transfer that may be imposed by state or federal securities laws. Upon delivery of conveyance documents reasonably requested by Buyer, such Seller at the Closing will transfer valid title to all of the issued and outstanding Membership Interests owned by such Seller to Buyer, free and clear of all Encumbrances, other than restrictions on transfer that may be imposed by state or federal securities laws.

**Section 4.03&nbsp;&nbsp;&nbsp;&nbsp;<u>No Conflicts; Consents</u>.** The execution, delivery and performance by such Seller of this Agreement and the Ancillary Documents to which such Seller is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the Organizational Documents of such Seller, if applicable, (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to such Seller, (c) except as set forth in ***<u>Section 4.03</u>*** of the Disclosure Schedules, require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any Contract to which such Seller is a party or by which such Seller is bound.

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No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to such Seller in connection with the execution and delivery of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, except for such filings as may be required under the HSR Act.

**&nbsp;&nbsp;&nbsp;&nbsp;Section 4.04&nbsp;&nbsp;&nbsp;&nbsp;Actions.** Except as set forth in ***<u>Section 4.04</u>*** of the Disclosure Schedules, there are no Actions pending or, to such Sellers' Knowledge, threatened against or by such Seller or any Affiliate of such Seller that challenges or seeks to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. To such Seller's Knowledge, no event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action.

**ARTICLE V**

**REPRESENTATIONS AND WARRANTIES OF BUYER**

&nbsp;&nbsp;&nbsp;&nbsp;Buyer represents and warrants to the Seller Parties that the statements contained in this ***<u>Article V</u>*** are true and correct as of the date hereof.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 5.01&nbsp;&nbsp;&nbsp;&nbsp;<u>Organization and Authority of Buyer</u>.** Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the state of Nevada. Buyer has full corporate power and authority to enter into this Agreement and the Ancillary Documents to which Buyer is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Buyer of this Agreement and the Ancillary Documents to which Buyer is a party, the performance by Buyer of its obligations hereunder and thereunder and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer, and (assuming due authorization, execution and delivery by each of the Seller Parties) this Agreement constitutes a legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms, subject to the Enforceability Exceptions. When each Ancillary Document to which Buyer is or will be a party has been duly executed and delivered by Buyer (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of Buyer enforceable against it in accordance with its terms, subject to the Enforceability Exceptions. The copies of the certificate of incorporation and bylaws of Buyer which are incorporated by reference as exhibits to Buyer's Annual Report on Form 10-K for the year ended December 31, 2020 are complete and correct copies of such documents and contain all amendments thereto as in effect on the date of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;

&nbsp;&nbsp;&nbsp;&nbsp;**Section 5.02&nbsp;&nbsp;&nbsp;&nbsp;<u>No Conflicts; Consents</u>.** The execution, delivery and performance by Buyer of this Agreement and the Ancillary Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the Organizational Documents of Buyer; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to Buyer; or (c) except as set forth in ***<u>Section 5.02</u>*** of the Disclosure Schedules, require the consent, notice or other action by any Person under any Contract to which Buyer is a party. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Buyer in connection with the execution and delivery of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, except for such filings as may be required under the HSR Act and such consents, approvals, Permits, Governmental Orders, declarations, filings or notices which, in the aggregate, would not have a Material Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 5.03&nbsp;&nbsp;&nbsp;&nbsp;<u>Capitalization</u>.** 

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;As of the date of this Agreement, the authorized capital stock of Buyer consists of (i) 100,000,000 shares of AAON Common Stock, 52,403,733 of which are issued and outstanding as of August 2, 2021, and (ii) 5,000,000 shares of preferred stock, $0.001 par value, of which none are issued and outstanding. As of the date of this Agreement, there are 8,890,000 shares of AAON Common Stock reserved for issuance under the Buyer Employee Benefit Plans. The issued and outstanding shares of AAON Common Stock have been, and all shares of AAON Common Stock which may be issued in connection with the Restricted Stock Grants will be, duly authorized and validly issued, fully paid and

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nonassessable, and free of preemptive rights. There are no outstanding bonds, debentures, notes or other indebtedness or securities of Buyer having the right to vote (or, other than any outstanding awards under Buyer Employee Benefit Plans to purchase shares of AAON Common Stock, convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of Buyer may vote.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth above in this ***<u>Section 5.03</u>***, no shares of capital stock or other voting securities of Buyer are issued, reserved for issuance or outstanding, and there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which Buyer is a party or by which it is bound obligating Buyer to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of Buyer or obligating Buyer to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 5.04&nbsp;&nbsp;&nbsp;&nbsp;<u>Subsidiaries</u>.** The Buyer's Subsidiaries and their respective jurisdictions of organization are identified in ***<u>Section 5.04</u>*** of the Disclosure Schedules. Each Buyer Subsidiary is an entity duly organized, validly existing and (where applicable) in good standing under the laws of its jurisdiction of formation and has all company powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except for those licenses, authorizations, consents and approvals the absence of which would not have a Material Adverse Effect. All of the outstanding shares of capital stock or other equity securities of, or other ownership interests in, each of Buyer's Subsidiaries are duly authorized, validly issued, fully paid and nonassessable, and such shares, securities or interests are owned by Buyer free and clear of any Liens or limitations on voting rights. There are no subscriptions, options, warrants, calls, rights, convertible securities or other agreements or commitments of any character relating to the issuance, transfer, sales, delivery, voting or redemption (including any rights of conversion or exchange under any outstanding security or other instrument) for any of the capital stock or other equity interests of, or other ownership interests in, any of the Buyer's Subsidiaries.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 5.05&nbsp;&nbsp;&nbsp;&nbsp;<u>SEC Reports and Financial Statements</u>.** 

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;Since January 1, 2018, Buyer has filed with the SEC all forms, reports, schedules, registration statements, definitive proxy statements and other documents (collectively, including all exhibits thereto, the "***<u>Buyer SEC Reports</u>***") required to be filed by Buyer with the SEC. As of their respective dates, and giving effect to any amendments or supplements thereto filed prior to the date of this Agreement, the Buyer SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, and the respective rules and regulations of the SEC promulgated thereunder applicable to such Buyer SEC Reports, and none of the Buyer SEC Reports contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the Buyer's Subsidiaries is required to file any forms, reports or other documents with the SEC pursuant to Section 13 or 15 of the Exchange Act. There are no outstanding comments from the Staff of the SEC with respect to any of the Buyer SEC Reports.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;The consolidated balance sheets and the related consolidated statements of operations, consolidated statements of changes in stockholders' equity and consolidated statements of cash flows (including, in each case, any related notes and schedules thereto) (collectively, the "***<u>Buyer Financial Statements</u>***") of Buyer contained in the Buyer SEC Reports have been prepared from the books and records of Buyer and Buyer's Subsidiaries, comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in conformity with GAAP (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as otherwise noted therein) and present fairly the consolidated financial position and the consolidated results of operations and cash flows of Buyer and Buyer's Subsidiaries as of the dates or for the periods presented therein (subject, in the case of unaudited statements, to normal and recurring year-end adjustments in the ordinary course of business).

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;With respect to each annual report on Form 10-K, each quarterly report on Form 10-Q and each amendment of any such report included in the Buyer SEC Reports filed since January 1, 2018,

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the chief executive officer and chief financial officer of Buyer have made all certifications required by the Sarbanes-Oxley Act and any related rules and regulations promulgated by the SEC and the NASDAQ, and the statements contained in any such certifications are complete and correct. Buyer has established and maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act); such disclosure controls and procedures are designed to ensure that material information relating to Buyer required to be disclosed in Buyer's Exchange Act Reports, including its consolidated Buyer Subsidiaries, is made known to Buyer's principal executive officer and its principal financial officer by others within those entities, particularly during the periods in which the periodic reports required under the Exchange Act are being prepared; and, to the knowledge of Buyer, such disclosure controls and procedures are effective in timely alerting Buyer's principal executive officer and its principal financial officer to material information required to be included in Buyer's periodic reports required under the Exchange Act. Since January 1, 2018, based on their evaluation of the internal control over financial reporting, neither the Chief Executive Officer nor the Chief Financial Officer of Buyer have disclosed to the Buyer's auditors and/or the Audit Committee of the Buyer's Board of Directors any (i) significant deficiencies or material weaknesses in the design or operation of internal controls which are or were reasonably likely to adversely affect Buyer's ability to record, process, summarize and report financial information or (ii) fraud, whether or not material, that involved management or other employees who have or had a significant role in Buyer's and the Buyer Subsidiaries' internal controls over financial reporting.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 5.06**&nbsp;&nbsp;&nbsp;&nbsp;**<u>Absence of Certain Changes, Events and Conditions</u>**. Since September 30, 2021, the business of Buyer and Buyer's Subsidiaries has been conducted in the ordinary course consistent with past practices and there has not been any event, occurrence, development or state of circumstances or facts that has had or would reasonable be expected to have, individually or in the aggregate, a Material Adverse Effect on the operations of Buyer or its Subsidiaries.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 5.07&nbsp;&nbsp;&nbsp;&nbsp;<u>Undisclosed Liabilities</u>.** Except as set forth in ***<u>Section 5.07</u>*** of the Disclosure Schedules, there are no liabilities of Buyer or any Buyer Subsidiary of any kind, other than:

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;liabilities provided for in Buyer's most recent audited consolidated balance sheet included in Buyer SEC Documents prior to the date hereof or in the notes thereto;

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;liabilities incurred in the ordinary course of business of Buyer and Buyer Subsidiaries consistent with past practices since the date of Buyer's most recent audited consolidated balance sheet included in Buyer SEC Reports prior to the date hereof; or

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;other liabilities which, individually or in the aggregate, are not material to Buyer and Buyer Subsidiaries.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 5.08&nbsp;&nbsp;&nbsp;&nbsp;<u>Compliance with Laws</u>.** Except as set forth in ***<u>Section 5.08</u>*** of the Disclosure Schedules, the Buyer, including Buyer's Subsidiaries, have complied, and are now complying, in all material respects, with all Laws applicable to it or its business, properties or assets.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 5.09&nbsp;&nbsp;&nbsp;&nbsp;<u>Taxes</u>.** All Tax Returns required to be filed by Buyer and Buyer's Subsidiaries have been duly and timely filed, and such Tax Returns are accurate in all material respects. To Buyer's knowledge, there is no action, suit, proceeding, investigation, audit or claim pending, or threatened against, Buyer and Buyer's Subsidiaries with respect to any Taxes.

**&nbsp;&nbsp;&nbsp;&nbsp;Section 5.10&nbsp;&nbsp;&nbsp;&nbsp;<u>Investment Purpose</u>.** Buyer is acquiring the Membership Interests solely for its own account for investment purposes and not with a view to, or for offer or sale in connection with, any distribution thereof. Buyer acknowledges that the Membership Interests are not registered under the Securities Act of 1933, as amended, or any state securities laws, and that the Membership Interests may not be transferred or sold except pursuant to the registration provisions of the Securities Act of 1933, as amended or pursuant to an applicable exemption therefrom and subject to state securities laws and regulations, as applicable.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 5.11&nbsp;&nbsp;&nbsp;&nbsp;<u>Brokers</u>.** Except for J.P. Morgan, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions

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contemplated by this Agreement or Ancillary Documents based upon arrangements made by or on behalf of Buyer. Buyer shall be solely responsible for any such fees or commissions.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 5.12&nbsp;&nbsp;&nbsp;&nbsp;<u>Legal Proceedings</u>.** Except as set forth in ***<u>Section 5.12</u>*** of the Disclosure Schedules (none of which, either in the individual or in the aggregate, if determined adversely to the Buyer, are anticipated to result in a Material Adverse Effect on Buyer or its operations), there are no Actions pending or, to Buyer's knowledge, threatened (a) against or by the Buyer or any Affiliate thereof affecting any of its properties or assets; or (b) against or by Buyer or any Affiliate of Buyer that challenge or seek to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. To Buyer's Knowledge, except as set forth in ***<u>Section 5.12</u>*** of the Disclosure Schedules, no event has occurred or circumstances exist that may give rise or serve as a basis for any such Action.

**ARTICLE VI**

**COVENANTS**

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.01&nbsp;&nbsp;&nbsp;&nbsp;<u>Conduct of Business Prior to the Closing</u>.** From the date hereof until the Closing, except as otherwise provided in this Agreement or consented to in writing by Buyer (which consent shall not be unreasonably withheld, conditioned or delayed), Sellers shall, and shall cause the Company to, (x) conduct the business of the Company in the ordinary course of business consistent with past practice; and (y) use reasonable best efforts to maintain and preserve intact the current organization, business and franchise of the Company and to preserve the rights, franchises, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having business relationships with the Company. Without limiting the foregoing, from the date hereof until the Closing Date, Sellers shall:

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;cause the Company to preserve and maintain all of its Permits;

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;cause the Company to pay its debts, Taxes and other obligations when due;

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;cause the Company to maintain the properties and assets owned, operated or used by the Company in the same condition as they were on the date of this Agreement, subject to reasonable wear and tear;

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;cause the Company to continue in full force and effect without modification all Insurance Policies, except as required by applicable Law;

&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;cause the Company to defend and protect its properties and assets from infringement or usurpation;

&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;cause the Company to perform all of its obligations under all Contracts relating to or affecting its properties, assets or business;

&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;cause the Company to maintain its books and records in accordance with past practice;

&nbsp;&nbsp;&nbsp;&nbsp;

&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;cause the Company to comply in all material respects with all applicable Laws; and

&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;cause the Company not to take or permit any action that would cause any of the changes, events or conditions described in ***<u>Section 3.08</u>*** to occur.

&nbsp;&nbsp;&nbsp;&nbsp;Any action taken, or omitted to be taken, in good faith by the Company or the Sellers in reasonable response to the COVID-19 pandemic (including to comply with any applicable Law that is a Public Health Measure) shall in no event be deemed to constitute a breach of this ***<u>Section 6.01</u>***; provided, that the Company shall use commercially reasonable efforts to provide notice to the Buyer prior to taking (or omitting to take) any such action.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.02&nbsp;&nbsp;&nbsp;&nbsp;<u>Access to Information</u>.** From the date hereof until the Closing, Sellers shall, and shall cause the Company to, (a) afford Buyer and its Representatives access to and the right to inspect all of the Real Property, properties, assets, premises, books and records, Contracts and other documents and data related to the Company, provided that access to physical premises of the Company shall be permitted only with not less than 48 hours prior notice, and shall occur during normal business hours and

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accompanied by a representative of the Sellers; (b) furnish Buyer and its Representatives with such financial, operating and other data and information related to the Company as Buyer or any of its Representatives may reasonably request; and (c) instruct the Representatives of Sellers and the Company to cooperate with Buyer in its investigation of the Company. Any investigation pursuant to this ***<u>Section 6.02</u>*** shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of the Company. No investigation by Buyer or other information received by Buyer shall operate as a waiver or otherwise affect any representation, warranty or agreement given or made by any Seller Party in this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.03&nbsp;&nbsp;&nbsp;&nbsp;<u>No Solicitation of Other Bids</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;Each Seller Party agrees it shall not, and shall not authorize or permit any of its respective Affiliates (including the Company) or any of its Representatives to, directly or indirectly, (i) encourage, solicit, initiate, facilitate or continue inquiries regarding an Acquisition Proposal; (ii) enter into discussions or negotiations with, or provide any information to, any Person concerning a possible Acquisition Proposal; or (iii) enter into any agreements or other instruments (whether or not binding) regarding an Acquisition Proposal. Each Seller Party shall immediately cease and cause to be terminated, and shall cause their respective Affiliates (including the Company) and all of its and their Representatives to immediately cease and cause to be terminated, all existing discussions or negotiations with any Persons conducted heretofore with respect to, or that could lead to, an Acquisition Proposal. For purposes hereof, "***<u>Acquisition Proposal</u>***" shall mean any inquiry, proposal or offer from any Person (other than Buyer or any of its Affiliates) concerning (x) a merger, consolidation, liquidation, recapitalization, share exchange or other business combination transaction involving the Company; (y) the issuance or acquisition of equity securities of the Company; or (z) the sale, lease, exchange or other disposition of any significant portion of the Company's properties or assets.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;In addition to the other obligations under this ***<u>Section 6.03</u>***, Sellers shall promptly (and in any event within three (3) Business Days after receipt thereof by any Seller Party or its Representatives) advise Buyer orally and in writing of any Acquisition Proposal, any request for information with respect to any Acquisition Proposal, or any inquiry with respect to or which could reasonably be expected to result in an Acquisition Proposal same.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;Seller Parties agree that the rights and remedies for noncompliance with this ***<u>Section 6.03</u>*** shall include having such provision specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to Buyer and that money damages would not provide an adequate remedy to Buyer.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.04&nbsp;&nbsp;&nbsp;&nbsp;<u>Notice of Certain Events</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;From the date hereof until the Closing, Sellers shall promptly notify Buyer in writing of:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;any fact, circumstance, event or action the existence, occurrence or taking of which (A) has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (B) has resulted in, or could reasonably be expected to result in, any representation or warranty made by a Seller hereunder not being true and correct or (C) has resulted in, or could reasonably be expected to result in, the failure of any of the conditions set forth in ***<u>Section 8.02</u>*** to be satisfied;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;&nbsp;&nbsp;any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;&nbsp;&nbsp;any Actions commenced or, to Sellers' Knowledge, threatened against, relating to or involving or otherwise affecting Seller Party or the Company that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to ***<u>Section 3.17</u>*** or that relates to the consummation of the transactions contemplated by this Agreement.

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&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;Buyer's receipt of information pursuant to this ***<u>Section 6.04</u>*** shall not operate as a waiver or otherwise affect any representation, warranty or agreement given or made by any Seller Party in this Agreement (including without limitation ***<u>Section 9.02</u>*** and ***<u>Section 10.01(b)</u>***) and shall not be deemed to amend or supplement the Disclosure Schedules.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.05&nbsp;&nbsp;&nbsp;&nbsp;<u>Resignations</u>.** Sellers shall deliver or cause to be delivered to Buyer written resignations, effective as of the Closing Date, of the officers, managers and directors of the Company set forth on ***<u>Section 6.05</u>*** of the Disclosure Schedules at least three (3) Business Days prior to the Closing. Immediately following Closing, Buyer shall make the following appointments: Co-Founder and Chairman for Benson, and Co-Founder and President for Tobolski.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.06&nbsp;&nbsp;&nbsp;&nbsp;<u>Confidentiality</u>.** From and after the Closing, each Seller Party agrees it shall, and shall cause its, his or her respective Affiliates to, hold, and shall use their reasonable best efforts to cause their respective Representatives to hold, in confidence any and all information, whether written or oral, concerning the Company, except to the extent that Seller Parties can show that such information (a) is generally available to and known by the public through no fault of any of the Seller Parties, any of their Affiliates or their respective Representatives; or (b) is lawfully acquired by Seller Parties, any of their Affiliates or their respective Representatives from and after the Closing from sources which are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation. If any Seller Party or any of its Affiliates or its respective Representatives are compelled to disclose any information by judicial or administrative process or by other requirements of Law, such Seller Party shall promptly notify Buyer in writing and shall disclose only that portion of such information which Seller Parties are advised by their counsel in writing is legally required to be disclosed, provided that each Seller Party shall use reasonable best efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.07&nbsp;&nbsp;&nbsp;&nbsp;<u>Non-Competition; Non-Solicitation</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;For a period of five (5) years commencing on the Closing Date (the "***<u>Restricted Period</u>***"), each of the Seller Parties agrees it shall not, and shall not permit any of its respective Affiliates to, directly or indirectly, (i) engage in or assist others in engaging in the Restricted Business in the Territory; (ii) have an interest in any Person that engages directly or indirectly in the Restricted Business in the Territory in any capacity, including as a partner, shareholder, member, employee, principal, agent, trustee or consultant. Notwithstanding the foregoing, Kucera, JVK and their respective Affiliates shall not be limited from engaging in Restricted Business in the Territory. Moreover, each of the Seller Parties may own, directly or indirectly, solely as an investment, securities of any Person traded on any national securities exchange if such Seller Party is not a controlling Person of, or a member of a group which controls, such Person and does not, directly or indirectly, own five percent (5%) or more of any class of securities of such Person. Nothing in this Agreement shall limit Brooks from advising clients in her capacity as a certified public accountant, including clients engaging in the Restricted Business in the Territory. Nothing in this Agreement shall limit a Seller Party or its Affiliates from acting as a manufacturer's representative for HVAC equipment, and acting as such shall not be engaging in a Restricted Business.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;During the Restricted Period, each of the Seller Parties agrees it shall not, and shall not permit any of its respective Affiliates to, directly or indirectly, hire or solicit any employee of the Company or the Buyer or encourage any such employee to leave such employment or hire any such employee who has left such employment, except pursuant to a general solicitation which is not directed specifically to any such employees; provided, that nothing in this ***<u>Section 6.07(b)</u>*** shall prevent a Seller Party or any of their respective Affiliates from hiring (i) Dan Benson, (ii) any employee whose employment has been terminated by the Company or Buyer or (iii) after 365 days from the date of termination of employment, any employee whose employment has been terminated by the employee.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;During the Restricted Period, each Seller Party agrees it shall not, and shall not permit any of its respective Affiliates to, directly or indirectly, solicit, or attempt to solicit, any clients or customers of the Company or potential clients or customers of the Company for purposes of diverting their business or services from the Company as conducted on the date of Closing. Nothing in this Agreement shall limit a D-Velopment, Brooks, TFT, Benson or Tobolski or their respective Affiliates from soliciting any business, other than Restricted Business, from current and future customers or

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suppliers of the Company. Kucera, JVK and their respective Affiliates shall not be limited from soliciting any business, <u>including</u> Restricted Business, from current and future customers or suppliers of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;Each Seller Party acknowledges that a breach or threatened breach of this ***<u>Section 6.07</u>*** would give rise to irreparable harm to the Company and/or Buyer, for which monetary damages would not be an adequate remedy, and hereby agrees that in the event of a breach or a threatened breach by such Seller Party of any such obligations, Buyer shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a temporary restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction (without any requirement to post bond).

&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;Each Seller Party acknowledges that the restrictions applicable to such Seller Party contained in this ***<u>Section 6.07</u>*** are reasonable and necessary to protect the legitimate interests of Buyer and constitute a material inducement to Buyer to enter into this Agreement and consummate the transactions contemplated by this Agreement. In the event that any covenant contained in this ***<u>Section 6.07</u>*** should ever be adjudicated to exceed the time, geographic, product or service, or other limitations permitted by applicable Law in any jurisdiction, then any court is expressly empowered to reform such covenant, and such covenant shall be deemed reformed, in such jurisdiction to the maximum time, geographic, product or service, or other limitations permitted by applicable Law. The covenants contained in this ***<u>Section 6.07</u>*** and each provision hereof are severable and distinct covenants and provisions. The invalidity or unenforceability of any such covenant or provision as written shall not invalidate or render unenforceable the remaining covenants or provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such covenant or provision in any other jurisdiction.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.08&nbsp;&nbsp;&nbsp;&nbsp;<u>Governmental Approvals and Consents</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;Each party hereto shall, as promptly as possible, (i) make, or cause or be made, all filings and submissions (including those under the HSR Act) required under any Law applicable to such party or any of its Affiliates; and (ii) use reasonable best efforts to obtain, or cause to be obtained, all consents, authorizations, orders and approvals from all Governmental Authorities that may be or become necessary for its execution and delivery of this Agreement and the performance of its obligations pursuant to this Agreement and the Ancillary Documents. Each party shall cooperate fully with the other parties and their respective Affiliates in promptly seeking to obtain all such consents, authorizations, orders and approvals. The parties hereto shall not willfully take any action that will have the effect of delaying, impairing or impeding the receipt of any required consents, authorizations, orders and approvals.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;Sellers and Buyer shall use reasonable best efforts to give all notices to, and obtain all consents from, all third parties that are described in ***<u>Section 3.05</u>*** and ***<u>Section 5.02</u>*** of the Disclosure Schedules.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;Without limiting the generality of the parties' undertakings pursuant to subsections (a) and (b) above, each of the parties hereto shall use all reasonable best efforts to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;respond to any inquiries by any Governmental Authority regarding antitrust or other matters with respect to the transactions contemplated by this Agreement or any Ancillary Document;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;avoid the imposition of any order or the taking of any action that would restrain, alter or enjoin the transactions contemplated by this Agreement or any Ancillary Document; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;&nbsp;&nbsp;in the event any Governmental Order adversely affecting the ability of the parties to consummate the transactions contemplated by this Agreement or any Ancillary Document has been issued, to have such Governmental Order vacated or lifted.

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;If any consent, approval or authorization necessary to preserve any right or benefit under any Contract to which the Company is a party is not obtained prior to the Closing, Sellers shall, subsequent to the Closing, cooperate with Buyer and the Company in attempting to obtain such consent,

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approval or authorization as promptly thereafter as practicable. If such consent, approval or authorization cannot be obtained, Sellers shall use their reasonable best efforts to provide the Company with the rights and benefits of the affected Contract for the term thereof, and, if Sellers provides such rights and benefits, the Company shall assume all obligations and burdens thereunder.

&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;All analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments, and proposals made by or on behalf of either party before any Governmental Authority or the staff or regulators of any Governmental Authority, in connection with the transactions contemplated hereunder (but, for the avoidance of doubt, not including any interactions between Seller Parties or the Company with Governmental Authorities in the ordinary course of business, any disclosure which is not permitted by Law or any disclosure containing confidential information) shall be disclosed to the other party hereunder in advance of any filing, submission or attendance, it being the intent that the parties will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any such analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments, and proposals. Each party shall give notice to the other parties with respect to any meeting, discussion, appearance or contact with any Governmental Authority or the staff or regulators of any Governmental Authority, with such notice being sufficient to provide the other parties with the opportunity to attend and participate in such meeting, discussion, appearance or contact.

&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding the foregoing, nothing in this ***<u>Section 6.08</u>*** shall require, or be construed to require, Buyer or any of its Affiliates to agree to (i) sell, hold, divest, discontinue or limit, before or after the Closing Date, any assets, businesses or interests of Buyer, the Company or any of their respective Affiliates; (ii) any conditions relating to, or changes or restrictions in, the operations of any such assets, businesses or interests which, in either case, could reasonably be expected to result in a Material Adverse Effect or materially and adversely impact the economic or business benefits to Buyer of the transactions contemplated by this Agreement; or (iii) any material modification or waiver of the terms and conditions of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.09&nbsp;&nbsp;&nbsp;&nbsp;<u>R&W Policy</u>.** Prior to the Closing, Buyer shall use reasonable best efforts to obtain and bind the R&W Policy on the terms and conditions, with exclusions and policy limits reasonably satisfactory to Buyer and Seller Parties. The underwriter shall be satisfactory to Seller parties. Seller Parties shall, and shall cause their respective Affiliates including the Company to, cooperate with Buyer's efforts and provide assistance as reasonably requested by Buyer to obtain and bind the R&W Policy. Prior to the Closing, Buyer shall pay or cause to be paid, all costs and expenses related to the R&W Policy, including the total premium, underwriting costs, brokerage commissions, and other fees and expenses of such policy. Buyer shall maintain the R&W Policy in good standing at all times subsequent to Closing for a minimum of six years following Closing.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.10&nbsp;&nbsp;&nbsp;&nbsp;<u>Books and Records</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;In order to facilitate the resolution of any claims made against or incurred by Seller Parties prior to the Closing, or for any other reasonable purpose, for a period of three (3) years after the Closing, Buyer shall:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;retain the books and records (including personnel files) of the Company relating to periods prior to the Closing in a manner reasonably consistent with the prior practices of the Buyer; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;upon reasonable notice, afford the Representatives of Seller Parties reasonable access (including the right to make, at Seller Parties' expense, photocopies), during normal business hours, to such books and records, including all books and records necessary or convenient for Sellers to prepare tax returns and amended tax returns and to apply for research and development tax credits; provided, however, that any books and records related to Tax matters shall be retained pursuant to the periods set forth in **<u>Article VII</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;In order to facilitate the resolution of any claims made by or against or incurred by Buyer or the Company after the Closing, or for any other reasonable purpose, for a period of three (3) years following the Closing, Seller Parties shall:

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;retain the books and records (including personnel files) of each Seller Party which relate to the Company and its operations for periods prior to the Closing; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;upon reasonable notice, afford the Representatives of Buyer or the Company reasonable access (including the right to make, at Buyer's expense, photocopies), during normal business hours, to such books and records; provided, however, that any books and records related to Tax matters shall be retained pursuant to the periods set forth in ***<u>Article VII</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;Neither Buyer nor Seller Parties shall be obligated to provide the other party with access to any books or records (including personnel files) pursuant to this ***<u>Section 6.10</u>*** where such access would violate any Law.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.11&nbsp;&nbsp;&nbsp;&nbsp;<u>Closing Conditions</u>.** From the date hereof until the Closing, each party hereto shall, and Sellers shall cause the Company to, use reasonable best efforts to take such actions as are necessary to expeditiously satisfy the closing conditions set forth in ***<u>Article VIII</u>*** hereof.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.12&nbsp;&nbsp;&nbsp;&nbsp;<u>Public Announcements</u>.** Unless otherwise required by applicable Law or stock exchange requirements (based upon the reasonable advice of counsel), no party to this Agreement shall make any public announcements in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without the prior written consent of the other party (which consent shall not be unreasonably withheld, conditioned or delayed), and the parties shall cooperate as to the timing and contents of any such announcement.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.13&nbsp;&nbsp;&nbsp;&nbsp;<u>Sufficiency of Company Free Cash Flow</u>.** The Sellers and Buyer acknowledge and agree that in negotiating the terms of this Agreement, including without limitation the EBITDA Targets, it was not contemplated that Buyer would be expected or required to inject additional cash or capital into the Company. Sellers hereby agree that Buyer's failure to inject additional cash or capital into the Company shall not provide the basis, in whole or in part, for any claim by the Sellers against the Buyer should any failure to earn any of the (i) 2021 Contingent Consideration, (ii) the 2022 Contingent Consideration, (iii) the 2023 Contingent Consideration, or (iv) the Incentive Consideration, occur.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.14&nbsp;&nbsp;&nbsp;&nbsp;<u>WARN Act</u>.** Buyer shall not undertake any action that would trigger the WARN Act, including any mass layoffs, or other terminations of employees of the Company in the six month period immediately following Closing that would create any obligations upon, or liabilities for, Sellers or the Company under the WARN Act.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 6.15&nbsp;&nbsp;&nbsp;&nbsp;<u>Further Assurances</u>.** Following the Closing, each of the parties hereto shall, and shall cause their respective Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement.

**ARTICLE VII**

**TAX MATTERS**

&nbsp;&nbsp;&nbsp;&nbsp;**Section 7.01&nbsp;&nbsp;&nbsp;&nbsp;<u>Tax Matters</u>.** 

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;Buyer and each of the Sellers agree to treat the purchase and sale of the Membership Interests in accordance with Rev. Rul. 99-6, Situation 2 as follows: (i) as to Buyer, as the purchase by Buyer of "all of" the assets of the Company from the Sellers, and (ii) as to Sellers, as the sale by the Sellers of the Membership Interests. For purposes of Sections 743(b), 755 and 1060 of the Code and the Treasury Regulations promulgated pursuant thereto, the Purchase Price shall be allocated in accordance with Section 1060 of the Code and the Treasury Regulations thereunder among the assets of the Company (or groups of such assets) for all purposes (including all Tax and financial accounting purposes) in accordance with their respective fair market values. An allocation of the Purchase Price in accordance with the immediately preceding sentence is attached hereto as ***<u>Exhibit C</u>***. Except as Buyer and the Sellers may otherwise agree or as may be required otherwise pursuant to a final determination within the meaning of Section 1313(a) of the Code or a corresponding provision of state, local or foreign Tax Law, the parties (A) will, and will cause each of their respective Affiliates to, prepare and file all Tax Returns (including IRS Form 8308) in a manner consistent with ***<u>Exhibit C</u>***, and (B) will not, and will cause each

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of their respective Affiliates not to, take any position inconsistent with ***<u>Exhibit C</u>***, unless required by a applicable Law (including the resolution of a Tax audit). In the event that the Purchase Price allocation reflected in accordance with this ***<u>Section 7.01(a)</u>*** is disputed by any Governmental Authority, the party receiving notice of the dispute shall promptly notify the other parties in writing, and the parties agree to use their respective commercially reasonable efforts to defend the Purchase Price allocation in any audit or similar Tax proceeding.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;At the sole expense of the Sellers, the Sellers shall cause to be prepared and filed all Tax Returns required to be filed by the Company for taxable periods ending prior to or on the Closing Date which are to be filed after the Closing Date, which includes for the avoidance of doubt the final partnership Tax Return of the Company with respect to the period ending on the Closing Date (the "***<u>Company Returns</u>***"). Each such Company Return shall be prepared in a manner consistent with the Company's past practice except as otherwise required by Law, and in accordance with the provisions of this Agreement; and the Sellers shall timely pay any Taxes reflected as due and payable on all such Tax Returns to the extent that such Taxes are not reflected as a liability in the calculation of Closing Working Capital, as finally determined.

&nbsp;&nbsp;&nbsp;&nbsp;

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;Buyer shall cause the Company, at the Company's sole expense, to cause to be prepared and filed all Tax Returns, other than the Company Returns, for a Pre-Closing Tax Period (including a Straddle Period) which are to be filed by the Company after the Closing Date (the "***<u>Buyer Returns</u>***"). Each such Buyer Return shall be prepared in a manner consistent with the Company's past practice except as otherwise required by Law, and in accordance with the provisions of this Agreement; and the Company shall timely pay any Taxes reflected as due and payable on all such Tax Returns and the Sellers shall timely pay any Pre-Closing Taxes reflected as due and payable on all such Tax Returns to the extent that such Pre-Closing Taxes are not reflected as a liability in the calculation of Closing Working Capital, as finally determined.

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;None of Buyer, the Company, or any Affiliate of Buyer (including, after the Closing, the Company) shall amend, re-file or otherwise modify (or grant an extension of any statute of limitation with respect to) any Tax Return relating in whole or in part to the Company with respect to any Pre-Closing Tax Period without the prior written consent of the Sellers (which consent shall not be unreasonably withheld, conditioned or delayed), other than amendments to Company Returns for the years 2018 through 2021 for the purpose of claiming research and development tax credits. So long as the Company does not accrue additional Taxes or any other costs related thereto, the benefits of any such tax credits shall accrue solely to the Sellers.

&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;Any credits or refunds of Pre-Closing Taxes (to the extent that such credits or refunds are not reflected as an asset in the calculation of Closing Working Capital, as finally determined) shall belong to the Sellers and be paid to the Sellers upon actual receipt of such refund in cash or application of such credit actually to reduce other Taxes due and owing by Buyer, the Company or any of their Affiliates. If requested by the Sellers, Buyer shall, and shall cause the Company to, reasonably cooperate with the Sellers in filing any Tax Return necessary to claim such Tax refunds (including filing amended Tax Returns) by providing relevant information. All determinations necessary to give effect to the foregoing allocations shall be made in a manner consistent with prior practice of the Company. Any contrary provision of this ***<u>Section 7.01(e)</u>*** notwithstanding, the amount of any refund or credit which is required to be paid to the Sellers (i) shall be reduced by the amount of any Taxes on such refund or credit and any out-of-pocket expenses that Buyer, the Company or any of their respective Affiliates incur (or will incur) with respect to such refund or credit, and (ii) shall not include any refund or credit (which shall be for the benefit of Buyer, the Company or their respective Affiliates) that (A) results from the carryback of any net operating loss, capital loss or other Tax attribute incurred in any Tax period (or portion of any Straddle Period) beginning after the Closing Date or (B) is included in the computation of Closing Working Capital.

&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;After the Closing Date, Buyer, the Company and the Sellers, respectively, shall inform the other party in writing of the commencement of any claim, audit, investigation, examination, or other proceeding or self-assessment relating in whole or in part to a Pre-Closing Tax Period ("***<u>Tax Contest</u>***") for which Buyer may be entitled to indemnity from the Sellers under this Agreement. After the Closing Date, Buyer shall have the exclusive right to represent the interests of the Company in any and all Tax Contests; provided, however, that, to the extent that any such Tax Contest could reasonably be expected to result in

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a Tax indemnification liability of the Sellers pursuant to this Agreement, (i) Buyer shall keep the Sellers reasonably informed and consult in good faith with the Sellers with respect to any issue relating to such Tax Contest (and the Sellers, at the Sellers' expense, will be permitted to attend meetings with taxing authorities) and (ii) Buyer shall timely provide the Sellers with copies of all correspondence, notices and other written materials received from any taxing authorities and shall otherwise keep the Sellers advised of significant developments in such Tax Contest and of significant communications involving representatives of the taxing authorities. Buyer shall not agree or consent to compromise or settle any Tax Contest on a basis that would result in a Pre-Closing Tax liability of the Company or liability of the Seller Parties for indemnification unless the Sellers consent to such settlement, compromise or concession, which consent will not be unreasonably withheld, conditioned or delayed. Notwithstanding anything to the contrary in this ***<u>Section 7.01(f)</u>***, the Sellers shall, at the Sellers' expense, control any claim, audit, investigation, examination, or other proceeding or self-assessments relating to a Pass-Through Tax Return of the Company, provided that Buyer shall have the right to participate at its own expense in any such action and the Sellers shall not settle, compromise or resolve such action without Buyer's prior written consent to the extent such settlement could increase the Taxes of the Company, Buyer or any Affiliate in a taxable period after the Closing Date. The provisions of this ***<u>Section 7.01</u>*** shall control over any contrary provisions of ***<u>Section 9.05</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;The parties shall cooperate (and cause their respective Affiliates to cooperate) fully, as and to the extent reasonably requested by the other parties, in connection with the preparation and filing of Tax Returns pursuant to this ***<u>Section 7.01</u>*** and any Tax audit, litigation or other proceeding with respect to Taxes and payments in respect thereof. Such cooperation shall include the retention and (upon the other parties' request) the provision of records and information which are reasonably relevant to any such Tax audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Buyer and the Company shall retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any Governmental Authority. Each of the parties shall furnish the other parties with copies of all relevant correspondence received from any Governmental Authority in connection with any Tax audit or information request with respect to any Taxes for which any other party may have an indemnification obligation under this Agreement. Buyer and the Sellers agree, upon request, to provide the other party with all information that either party may be required to report pursuant to Sections 6043 and 6043A of the Code and all Treasury Regulations promulgated thereunder.

&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;All transfer, documentary, sales, use, stamp, registration and other such Taxes (including any penalties and interest) incurred in connection with consummation of the transactions contemplated under this Agreement ("***<u>Transfer Taxes</u>***") shall be borne by the Sellers, when due, and the Company will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such Taxes. Each of Buyer, the Company, and the Sellers will cooperate with each other to obtain any certificate or other document from any Governmental Authority or any other Person as may be necessary to mitigate, reduce or eliminate any such Transfer Taxes.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 7.02&nbsp;&nbsp;&nbsp;&nbsp;<u>Survival</u>.** Notwithstanding anything in this Agreement to the contrary, the provisions of ***<u>Section 3.22</u>*** and this ***<u>Article VII</u>*** shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof) plus 60 days.

&nbsp;&nbsp;&nbsp;&nbsp;

**ARTICLE VIII**

**CONDITIONS TO CLOSING**

&nbsp;&nbsp;&nbsp;&nbsp;**Section 8.01&nbsp;&nbsp;&nbsp;&nbsp;<u>Conditions to Obligations of All Parties</u>.** The obligations of each party to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions:

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&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;The filings of Buyer and Sellers/the Company pursuant to the HSR Act, if any, shall have been made and the applicable waiting period and any extensions thereof shall have expired or been terminated.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Governmental Order which is in effect and has the effect of making the transactions contemplated by this Agreement illegal, otherwise restraining or prohibiting consummation of such transactions or causing any of the transactions contemplated hereunder to be rescinded following completion thereof.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;Sellers shall have received all requisite consents, authorizations, orders and approvals referred to in ***<u>Section 3.05</u>***, in form and substance reasonably satisfactory to Buyer, and no such consent, authorization, order and approval shall have been revoked.

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;Each of Buyer and the Real Estate Owner shall have executed and delivered the REPA.

&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;Buyer, the Company and the Real Estate Owner shall have entered into an Amendment to Facility Lease in form satisfactory to each party thereto.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 8.02&nbsp;&nbsp;&nbsp;&nbsp;<u>Conditions to Obligations of Buyer</u>.** The obligations of Buyer to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or Buyer's waiver, at or prior to the Closing, of each of the following conditions:

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;Other than the representations and warranties of Sellers contained in ***<u>Section 3.02</u>***, ***<u>Section 3.03</u>***, ***<u>Section 3.26</u>***, ***<u>Section 4.01</u>*** and ***<u>Section 4.02</u>*** the representations and warranties of Sellers contained in this Agreement, the Ancillary Documents and any certificate or other writing delivered pursuant hereto shall be true and correct in all respects (in the case of any representation or warranty qualified by materiality or Material Adverse Effect) or in all material respects (in the case of any representation or warranty not qualified by materiality or Material Adverse Effect) on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects). The representations and warranties of Sellers contained in ***<u>Section 3.02</u>***, ***<u>Section 3.03</u>***, ***<u>Section 3.26</u>*** , ***<u>Section 4.01</u>*** and ***<u>Section 4.02</u>*** shall be true and correct in all respects on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects).

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;Seller Parties shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement and each of the Ancillary Documents to be performed or complied with by it prior to or on the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;No Action shall have been commenced against Buyer, any Seller Party or the Company, which would prevent the Closing. No injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any transaction contemplated hereby.

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;All approvals, consents and waivers that are listed on ***<u>Section 3.05</u>*** of the Disclosure Schedules (including with respect to the Minor Leases, if required) shall have been received, and executed counterparts thereof shall have been delivered to Buyer at or prior to the Closing.

&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;From the date of this Agreement, there shall not have occurred any Material Adverse Effect with respect to the Company and/or its operations, nor shall any event or events have occurred that, individually or in the aggregate, with or without the lapse of time, could reasonably be expected to result in a Material Adverse Effect with respect to the Company and/or its operations.

&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;The Ancillary Documents shall have been executed and delivered by the parties thereto and true and complete copies thereof shall have been delivered to Buyer.

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&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;Buyer shall have received resignations of the directors and officers of the Company pursuant to ***<u>Section 6.05</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;Buyer shall have obtained and bound the R&W Policy on the terms and conditions satisfactory to Buyer and Sellers.

&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;At least three (3) Business Days before Closing, Sellers shall have delivered to Buyer the Closing Indebtedness Certificate and the Closing Transaction Expenses Certificate.

&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;&nbsp;&nbsp;&nbsp;Sellers shall have delivered to Buyer the Estimated Closing Working Capital Statement contemplated in ***<u>Section 2.04(a)(ii)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;&nbsp;&nbsp;&nbsp;Sellers shall have delivered to Buyer a good standing certificate (or its equivalent) for the Company from the secretary of state or similar Governmental Authority of the jurisdiction under the Laws in which the Company is organized, dated no more than twenty-one (21) days prior to the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;&nbsp;&nbsp;&nbsp;Sellers shall have delivered to Buyer a certificate pursuant to Treasury Regulations Section 1.1445-2(b) that each Seller is not a foreign person within the meaning of Section 1445 of the Code.

&nbsp;&nbsp;&nbsp;&nbsp;(m)&nbsp;&nbsp;&nbsp;&nbsp;Sellers shall have delivered, or caused to be delivered, to Buyer duly executed assignments of securities conveying the Membership Interests to Buyer, free and clear of Encumbrances.

&nbsp;&nbsp;&nbsp;&nbsp;(n)&nbsp;&nbsp;&nbsp;&nbsp;Buyer shall have received a certificate, dated the Closing Date and signed by Sellers, that each of the conditions set forth in ***<u>Section 8.02(a)</u>*** and ***<u>Section 8.02(b)</u>*** have been satisfied.

&nbsp;&nbsp;&nbsp;&nbsp;(o)&nbsp;&nbsp;&nbsp;&nbsp;Sellers shall have delivered to Buyer such other documents or instruments as Buyer reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;

&nbsp;&nbsp;&nbsp;&nbsp;**Section 8.03&nbsp;&nbsp;&nbsp;&nbsp;<u>Conditions to Obligations of Seller Parties</u>.** The obligations of Seller Parties to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or Sellers' waiver, at or prior to the Closing, of each of the following conditions:

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;Other than the representations and warranties of Buyer contained in ***<u>Section 5.01</u>*** and ***<u>Section 5.07</u>***, the representations and warranties of Buyer contained in this Agreement, the Ancillary Documents and any certificate or other writing delivered pursuant hereto shall be true and correct in all respects (in the case of any representation or warranty qualified by materiality or Material Adverse Effect) or in all material respects (in the case of any representation or warranty not qualified by materiality or Material Adverse Effect) on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects). The representations and warranties of Buyer contained in ***<u>Section 5.01</u>*** and ***<u>Section 5.07</u>*** shall be true and correct in all respects on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;Buyer shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement and each of the Ancillary Documents to be performed or complied with by it prior to or on the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;No injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any material transaction contemplated hereby.

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;The Ancillary Documents shall have been executed and delivered by the parties thereto and true and complete copies thereof shall have been delivered to Sellers.

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&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;Buyer shall have delivered to Sellers cash in an amount equal to the Closing Date Payment

by wire transfer of immediately available funds, to an account or accounts designated at least five (5) Business Days prior to the Closing Date by Sellers in a written notice to Buyer.

&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;Buyer shall have delivered to third parties by wire transfer of immediately available fund that amount of money due and owing from Sellers to such third parties as Transaction Expenses as set forth on the Closing Transaction Expenses Certificate.

&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;Buyer shall have delivered to holders of outstanding Indebtedness, if any, by wire transfer of immediately available funds that amount of money due and owing from the Company to such holder of outstanding Indebtedness as set forth on the Closing Indebtedness Certificate.

&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;Buyer shall have obtained and bound the R&W Policy on the terms and conditions satisfactory to Buyer and Sellers.

&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;&nbsp;&nbsp;&nbsp;Sellers shall have received a certificate, dated the Closing Date and signed by a duly authorized officer of Buyer, that each of the conditions set forth in ***<u>Section 8.03(a)</u>*** and ***<u>Section 8.03(b)</u>*** have been satisfied.

&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;&nbsp;&nbsp;&nbsp;Sellers shall have received a certificate of the Secretary of Buyer certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors of Buyer authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby.

&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;&nbsp;&nbsp;&nbsp;Buyer shall have delivered to Sellers such other documents or instruments as Sellers reasonably request and are reasonably necessary to consummate the transactions contemplated by this Agreement.&nbsp;&nbsp;&nbsp;&nbsp;

&nbsp;&nbsp;&nbsp;&nbsp;**Section 8.04&nbsp;&nbsp;&nbsp;&nbsp;Documentary <u>Conditions</u>.** It is understood that, with respect to conditions in 8.01, 8.02 and 8.03 involving execution and delivery of documents, all such documents must be in form and substance satisfactory to the parties relying on such documents, in their sole discretion.

**ARTICLE IX**

**INDEMNIFICATION**

&nbsp;&nbsp;&nbsp;&nbsp;**Section 9.01&nbsp;&nbsp;&nbsp;&nbsp;<u>Exclusive Remedy</u>.** Other than in the case of (a) Claims based on Fraud or (b) matters subject to the resolution process set forth in ***<u>Section 2.02(g)</u>*** or ***<u>Section 2.04</u>*** hereof, from and after the Closing, the indemnification provisions in this ***<u>Article IX</u>*** shall be the sole and exclusive remedy of the Buyer Indemnified Parties and the Seller Indemnified Parties with respect to any breaches of any representation, warranty, covenant, agreement or other matter contained in this Agreement; provided that nothing herein shall prevent a party from seeking or obtaining an injunction or other equitable remedy, including in accordance with ***<u>Section 6.07</u>*** or ***<u>Section 11.11</u>*** hereof. Notwithstanding anything to the contrary contained herein, no limitations (including the limitation set forth in this ***<u>Article IX</u>***), qualifications or procedures in this Agreement shall be deemed to limit or modify the ability of Buyer to make claims under or recover under the R&W Policy; it being understood that any matter for which there is coverage available under the R&W Policy shall be subject to the terms, conditions and limitations, if any, set forth in the R&W Policy.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 9.02&nbsp;&nbsp;&nbsp;&nbsp;<u>Sources of Recovery</u>.** Other than in the case of Claims based on Fraud, except as specifically provided below, the sole and exclusive remedy of each Buyer Indemnified Party in respect of any Claim arising under ***<u>Sections 9.04 (a) or 9.05(a)</u>*** shall be a claim for recovery pursuant to the terms of the R&W Policy, and the Buyer hereby waives on behalf of itself and each Buyer Indemnified Party any and all rights and remedies against the Seller Parties under this ***<u>Article IX</u>***; *provided*, *however*:

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&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;with respect to any Losses resulting or arising from a breach of ***<u>Section 3.22</u>*** such Buyer Indemnified Party shall be entitled to bring a Claim under the provisions of ***<u>Article VII</u>*** and ***<u>Section 9.04(c)</u>*** and seek to recover directly from the Sellers on several, not joint, basis, in an aggregate amount not to exceed the Indemnity Cap less the amount of such Losses recovered pursuant to the R&W Policy or any other applicable insurance policy or source of recovery in accordance with ***<u>Section 9.07(f)</u>*** hereof, but if and only to the extent that (i) recovery under the R&W Policy is not available following a claim being made under the R&W Policy or exhaustion of the policy limits under the R&W Policy, and (ii) such Claim is brought within the applicable survival period set forth in ***<u>Section 9.12</u>***;

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;with respect to any Losses resulting or arising from a breach of any Fundamental Representation contained in Article III hereof, such Buyer Indemnified Party shall be entitled to bring a Claim under the provisions of ***<u>Section 9.04(a)</u>*** and/or ***<u>Section 9.05(a)</u>*** and seek to recover directly from the Sellers, on a several, not joint, basis, subject to the limitations set forth in ***<u>Section 9.03</u>*** below, less the amount, if any, of such Losses recovered pursuant to the R&W Policy or any other applicable insurance policy or source of recovery in accordance with ***<u>Section 9.07(f)</u>*** hereof, but if and only to the extent that recovery under the R&W Policy is not available following a claim being made under the R&W Policy or exhaustion of the policy limits under the R&W Policy;

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;with respect to any Losses resulting or arising from a breach of any Fundamental Representation contained in Article IV hereof, such Buyer Indemnified Party shall be entitled to bring a Claim under the provisions of ***<u>Section 9.04(a)</u>*** and/or ***<u>Section 9.05(a)</u>*** and seek to recover directly from the breaching Seller, on an individual, but not several or joint, basis, subject to the limitations set forth in ***<u>Section 9.03</u>*** below, less the amount, if any, of such Losses recovered pursuant to the R&W Policy or any other applicable insurance policy or source of recovery in accordance with ***<u>Section 9.07(f)</u>*** hereof, but if and only to the extent that recovery under the R&W Policy is not available following a claim being made under the R&W Policy or exhaustion of the policy limits under the R&W Policy; and

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;further provided, however, other than with respect to any Losses resulting or arising from a breach of any Fundamental Representation for which a Buyer Indemnified Party shall be entitled to seek recovery directly from the Sellers as set forth in ***<u>Section 9.02(b)</u>*** above, the Sellers shall have no Liability under ***<u>Section 9.04(a)</u>*** or ***<u>Section 9.05(a)</u>*** unless and until the aggregate amount of Losses that the Buyer Indemnified Parties are entitled to indemnification from the Sellers exceeds $1,220,000.00 (the "***<u>Basket</u>***") and, in such event, the Sellers shall be liable, subject to the limitations set forth in ***<u>Section 9.03</u>*** below, only for the amount of such Losses in excess of fifty percent (50%) of the Basket amount and only to the extent a Buyer Indemnified Party is unable to obtain recovery for such amount under the R&W Policy.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 9.03&nbsp;&nbsp;&nbsp;&nbsp;<u>Limitation of Losses</u>.** Notwithstanding any provision in this Agreement to the contrary, the aggregate Liability of each Seller for any and all Losses under this Agreement shall not exceed an amount equal to such Seller's pro-rata portion of the Purchase Consideration (for Losses resulting or arising from a breach of any Fundamental Representation) received by such Seller or pro rata portion of the Indemnity Cap (for all other Losses), less the amount of such Losses recovered pursuant to the R&W Policy or any other applicable insurance policy or source of recovery in accordance with ***<u>Section 9.07(f)</u>*** hereof, provided however that no Seller shall have any liability for a breach of representation or warranty made by another Seller in ***<u>Article IV</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 9.04&nbsp;&nbsp;&nbsp;&nbsp;<u>Sellers Several</u> <u>Post-Closing Indemnification</u>.** Subject to the limitations and procedures set forth in this ***<u>Article IX</u>***, from and after the Closing, the Sellers hereby agree, on a several, not joint, basis, to indemnify and hold the Buyer, the Company, and their respective directors, officers, employees, Affiliates, agents, successors and assigns (collectively, the "***<u>Buyer Indemnified Parties</u>***") harmless from and against:

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;any and all losses, liabilities, obligations, damages, claims of any kind, costs, interest, Taxes, fees and Expenses (collectively, "***<u>Losses</u>***") arising out of, based upon, attributable to or resulting from the breach or inaccuracy of any representation or warranty (not including a representation or warranty contained in ***<u>Article IV</u>***) of, the Sellers or any of them under this Agreement, or any representation or warranty contained in any certificate delivered by or on behalf of such Seller Party pursuant to this Agreement;

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&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;the Indebtedness of the Company and any Transaction Expenses of the Company, in each case to the extent not paid in full at Closing; and

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;any and all Taxes arising out of, based upon, attributable to or resulting from Pre-Closing Tax Periods.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 9.05&nbsp;&nbsp;&nbsp;&nbsp;<u>Sellers Individual Post-Closing Indemnification</u>.** Subject to the limitations set forth in this ***<u>Article IX</u>***, from and after the Closing, each Seller hereby agrees, individually and neither severally nor jointly, to indemnify and hold the Buyer Indemnified Parties harmless from and against:

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;any and all Losses arising out of, based upon, attributable to or resulting from a breach of any covenant by such Seller, or a breach or inaccuracy of any representation or warranty of such Seller set forth in ***<u>Article IV</u>***; and

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;any and all Losses arising out of, based upon, attributable to or resulting from the breach of any covenant by, or on the behalf of, such Seller under this Agreement required to be performed on or prior to the Closing; and

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;for avoidance of doubt, the breach by a Seller Party of a covenant applicable to it and contained in Article VI hereof shall be not give rise to several or joint liability on the part of any other Seller Party.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 9.06&nbsp;&nbsp;&nbsp;&nbsp;<u>Buyer Post-Closing Indemnification</u>.** Subject to the limitations and procedures set forth in this ***<u>Article IX</u>***, from and after the Closing, the Buyer hereby agrees to indemnify and hold the Seller Parties and their respective Affiliates, owners, spouses, agents, successors and assigns (collectively, the "***<u>Seller Indemnified Parties</u>***") harmless from and against:

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;any and all Losses arising out of, based upon, attributable to, or resulting from a breach or inaccuracy of any representation or warranty of the Buyer set forth in ***<u>Article V</u>***, or any representation or warranty contained in any certificate delivered by or on behalf of the Buyer pursuant to this Agreement; and

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;any and all Losses arising out of, based upon, attributable to, or resulting from the breach of any covenant or other agreement by, or on behalf of, the Buyer under this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 9.07&nbsp;&nbsp;&nbsp;&nbsp;<u>Indemnification Procedures</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;In the event that any legal proceedings shall be instituted or that any claim or demand shall be asserted by any Person or Losses suffered by a Buyer Indemnified Party or by a Seller Indemnified Party (any of the forgoing, a "***<u>Claim</u>***"), in respect of which payment may be sought under ***<u>Section 9.04</u>***, ***<u>Section 9.05</u>*** or ***<u>Section 9.06</u>*** (regardless of the Basket referred to above), the indemnified party shall reasonably and promptly cause written notice of the assertion of any Claim of which it has knowledge which is covered by this indemnity to be forwarded to the indemnifying party. If the indemnifying party disputes its liability with respect to such Claim, the indemnifying party and the indemnified party shall proceed in good faith to negotiate a resolution of such dispute and, if not resolved through negotiations, such dispute shall be resolved by litigation in an appropriate court of competent jurisdiction as provided in ***<u>Section 11.10</u>***. The indemnifying party shall have the right, at its sole option and expense, to be represented by counsel of its choice, which must be reasonably satisfactory to the indemnified party, and to defend against, negotiate, settle or otherwise deal with any Claim which relates to any Losses indemnified against hereunder; provided, however, that the indemnifying party will not be entitled to assume the defense, negotiation, settlement or otherwise deal with any Claim if (a) the Claim primarily relates to any criminal act or Taxes, (b) the Claim seeks an injunction or equity relief against the indemnified party or the Company as the primary element of such Claim, or (c) upon petition by the indemnified party, an applicable court rules that the indemnifying party failed or is failing to vigorously defend or prosecute such Claim; provided, further, that the indemnifying party will not consent to the entry of any judgment or enter into any settlement with respect to the Claim without the prior written consent of the indemnified party unless the judgment or proposed settlement involves only the payment of money damages and does not impose an injunction or other equitable relief upon the indemnified party or the Company or require any indemnified party or the Company to admit fault, in which case no consent

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will be required. If the indemnifying party elects to defend against, negotiate, settle or otherwise deal with any Claim which relates to any Losses indemnified against hereunder, it shall within ten (10) Business Days (or sooner, if the nature of the Claim so requires) notify the indemnified party of its intent to do so. If the indemnifying party elects not to defend against, negotiate, settle or otherwise deal with any Claim which relates to any Losses indemnified against hereunder, fails to notify the indemnified party of its election as herein provided or contests its obligation to indemnify the indemnified party for such Losses under this Agreement, the indemnified party may defend against, negotiate, settle or otherwise deal with such Claim. If the indemnified party defends any Claim, then the indemnifying party shall reimburse the indemnified party for the Expenses of defending such Claim upon submission of periodic bills. If the indemnifying party shall assume the defense of any Claim, the indemnified party may participate, at its, his or her own expense, in the defense of such Claim; provided, however, that such indemnified party shall be entitled to participate in any such defense with separate counsel at the expense of the indemnifying party if (a) so requested by the indemnifying party to participate or (b) in the reasonable opinion of counsel to the indemnified party, a conflict or potential conflict exists between the indemnified party and the indemnifying party that would make such separate representation advisable; and provided, further, that the indemnifying party shall not be required to pay for more than one such counsel for all indemnified parties in connection with any Claim. The parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such Claim.

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;After any final deductible judgment or award shall have been rendered by a court, arbitration board or administrative agency of competent jurisdiction and the expiration of the time in which to appeal therefrom, or a settlement shall have been consummated, or the indemnified party and the indemnifying party shall have arrived at a mutually binding agreement with respect to a Claim hereunder, the indemnified party shall forward to the indemnifying party notice of any sums due and owing by the indemnifying party pursuant to this Agreement with respect to such matter.

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;The failure of the indemnified party to give reasonably prompt notice of any Claim shall not release, waive or otherwise affect the indemnifying party's obligations with respect thereto except to the extent that the indemnifying party can demonstrate actual loss or prejudice as a result of such failure.

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;For the purposes of calculating Losses pursuant to this ***<u>Article IX</u>***, the amount of any Losses for which indemnification is provided shall not be duplicative of any matter addressed in the final Closing Working Capital Statement.

&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;In the event that any Claim asserted hereunder is, or may be, the subject of the R&W Policy, the Buyer agrees to promptly notify the applicable insurance carrier of any such Claim or Loss. The Buyer further agrees to pursue such Claims diligently and to reasonably cooperate with the insurance carrier under the R&W Policy with respect to such Claims. Buyer shall use its commercially reasonable and good faith efforts to seek recoveries under the R&W Policy.

&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;The amount of any Loss subject to indemnification hereunder shall be calculated net of any insurance proceeds of any kind (including the R&W Policy) or other recoveries (net of direct collection expenses and premium increases) actually received by Buyer (or its Affiliates) or the Company on account of such Loss (including amounts receivable from any third party for indemnification or contribution); provided, however, that Buyer shall have no obligation to make any claims against any insurance policies (other than the R&W Policy) or third party indemnification or contribution agreements with respect to any such Losses. In the event that an insurance recovery is made by Buyer (or its Affiliates) or the Company with respect to any Loss for which any such Person has been indemnified hereunder, then a refund equal to the aggregate amount of the recovery (net of all direct collection expenses and premium increases) shall be remitted promptly to the Sellers.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 9.08&nbsp;&nbsp;&nbsp;&nbsp;<u>R&W Policy</u>.** The R&W Policy shall be at Purchaser's sole expense, and it shall provide that (a) other than in the case of Fraud, the insurer writing such policy shall not have any claim, right, cause of action or recourse against any Seller Party or any of their respective Affiliates, officers, directors, managers, employees, equity holders, agents or representatives with respect to this Agreement or any Ancillary Document (and such insurer shall have no, and shall not pursue any and all, subrogation rights against any Seller Party, or any of their respective Affiliates, officers, directors, managers, employees, equity holders, agents or representatives), (b) each Seller Party and each of their respective Affiliates, officers, directors, managers, employees, equity holders, agents or representatives are intended

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third-party beneficiaries of the provisions contemplated by this sentence, and (c) the insured and the insurer cannot amend, alter or modify the R&W Policy with respect to the provisions contemplated by subsections (a) and (b) of this sentence without the express prior written consent of each Seller. Purchaser shall not (and shall cause its Affiliates, officers, directors, managers, employees, equity holders, agents or representatives not to) grant any right of subrogation (except in the case of Fraud) or otherwise amend, modify, terminate or waive any term or condition set forth in the R&W Policy in a manner inconsistent with this ***<u>Section 9.08</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 9.09&nbsp;&nbsp;&nbsp;&nbsp;<u>Materiality</u>.** For purposes of this ***<u>Article IX</u>*** each representation and warranty in this Agreement shall be read without regard to, and without giving effect to, the term "material" or "Material Adverse Effect" or "in all material respects" or other similar qualification contained in, or otherwise applicable to, such representation or warranty.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 9.10&nbsp;&nbsp;&nbsp;&nbsp;<u>WAIVER</u>.** NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, THE PARTIES TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO (ON BEHALF OF THEMSELVES AND EACH OF THE INDEMNIFIED PERSONS) ANY RIGHT TO RECOVER CONSEQUENTIAL, PUNITIVE, EXEMPLARY OR OTHER SPECIAL DAMAGES, IN EACH CASE IN ANY ARBITRATION, LAWSUIT, LITIGATION OR OTHER LEGAL PROCEEDING ARISING OUT OF OR RESULTING FROM ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER OR NOT THE POSSIBILITY OF SUCH HAS BEEN DISCLOSED IN ADVANCE OR COULD HAVE BEEN REASONABLY FORESEEN, EXCEPT TO THE EXTENT SUCH DAMAGES ARE AWARDED IN A FINAL JUDGEMENT TO A PARTY OTHER THAN ANY BUYER INDEMNIFIED PARTY OR THEIR RESPECTIVE AFFILIATES.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 9.11&nbsp;&nbsp;&nbsp;&nbsp;<u>Tax Treatment of Indemnity Payments</u>.** The Seller Parties and the Buyer agree to treat any indemnity payment made pursuant to this ***<u>Article IX</u>*** as an adjustment to the Purchase Consideration for federal, state, local and foreign Income Tax purposes, unless otherwise required by Law.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 9.12&nbsp;&nbsp;&nbsp;&nbsp;<u>Survival</u>.** The representations and warranties contained in this Agreement and in any certificate, document or instrument delivered in connection herewith, shall survive the execution and delivery of this Agreement, and the Closing hereunder, and shall terminate and expire on the date that is twenty-four (24) months after the Closing Date; provided, that (a) the representations in **Section 3.19** (Environmental Matters) and ***<u>Section 3.20</u>*** (Employee Benefit Matters) shall terminate and expire on the sixth (6th) anniversary of the Closing Date, (b) the representations in ***<u>Section 3.22</u>*** (Taxes) shall terminate and expire upon the date of termination of the applicable statute of limitations plus three months, and (c) each of the Fundamental Representations shall survive indefinitely. The covenants and obligations contained herein will remain operative and in full force and effect until the expiration of the applicable statute of limitations following the date performance of such covenant was required, except as any such covenant may be limited in duration by the express terms thereof. Notwithstanding any provision of this Agreement to the contrary, the date or dates specified in the R&W Policy with respect to the time periods, including the time periods within which to make claims and/or regarding which any Buyer Indemnified Party may obtain recoveries under such policy, shall govern such claims and/or recoveries under the R&W Policy, and shall not extend or otherwise change the foregoing survival periods or be limited thereby.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 9.13&nbsp;&nbsp;&nbsp;&nbsp;<u>Additional Indemnification Regarding Construction Loan Guaranty</u>.** In addition to the other indemnification obligations of the Sellers set forth in this ***<u>Article IX</u>***, the Sellers hereby agree to indemnify, jointly and severally, Buyer for any amount(s) that may be paid by the Company after the Closing pursuant to the Construction Loan Guaranty. For avoidance of doubt, with respect to any Claim made by Buyer pursuant to this ***<u>Section 9.13</u>***: (i) the Indemnity Cap shall not apply; (ii) the Basket shall not apply; and (iii) such Claim shall not be covered by the R&W Policy and Buyer shall have no obligation to seek recovery therefor under the R&W Policy.

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**ARTICLE X**

**TERMINATION**

&nbsp;&nbsp;&nbsp;&nbsp;**Section 10.01&nbsp;&nbsp;&nbsp;&nbsp;<u>Termination</u>.** This Agreement may be terminated at any time prior to the Closing:

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;by the mutual written consent of Seller Parties and Buyer;

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;by Buyer by written notice to Sellers if:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;Buyer is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by any Seller Party pursuant to this Agreement that would give rise to the failure of any of the conditions specified in ***<u>Article VIII</u>*** and such breach, inaccuracy or failure has not been cured by Sellers within ten (10) days of Sellers' receipt of written notice of such breach from Buyer; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;any of the conditions set forth in ***<u>Section 8.01</u>*** or ***<u>Section 8.02</u>*** shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by December 15, 2021, unless such failure shall be due to the failure of Buyer to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing;

&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;by Seller Parties by written notice to Buyer if:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;Seller Parties are not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Buyer pursuant to this Agreement that would give rise to the failure of any of the conditions specified in ***<u>Article VIII</u>*** and such breach, inaccuracy or failure has not been cured by Buyer within ten (10) days of Buyer's receipt of written notice of such breach from Sellers; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;any of the conditions set forth in ***<u>Section 8.01</u>*** or ***<u>Section 8.03</u>*** shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by December 15, 2021, unless such failure shall be solely due to the failure of any Seller Party to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing; or

&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;by Buyer or Seller Parties in the event that (i) there shall be any Law that makes consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited or (ii) any Governmental Authority shall have issued a Governmental Order restraining or enjoining the transactions contemplated by this Agreement, and such Governmental Order shall have become final and non-appealable.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 10.02&nbsp;&nbsp;&nbsp;&nbsp;<u>Effect of Termination</u>.** In the event of the termination of this Agreement in accordance with this Article, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto except:

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;as set forth in this ***<u>Article X</u>*** and ***<u>Section 6.06</u>*** and ***<u>Article XI</u>*** hereof; and

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;that nothing herein shall relieve any party hereto from liability for any willful breach of any provision hereof.

**ARTICLE XI**

**MISCELLANEOUS**

&nbsp;&nbsp;&nbsp;&nbsp;**Section 11.01&nbsp;&nbsp;&nbsp;&nbsp;<u>Expenses</u>.** Except as otherwise expressly provided herein, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred; provided, however, Buyer, on the one hand, and Sellers on the other hand, shall each be responsible for

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fifty percent (50%) all filing and other similar fees payable in connection with any filings or submissions under the HSR Act.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 11.02&nbsp;&nbsp;&nbsp;&nbsp;<u>Notices</u>.** All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient or (d) on the third (3<sup>rd</sup>) day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this ***<u>Section 10.02</u>***):

If to Seller Parties:&nbsp;&nbsp;&nbsp;&nbsp;John N. Kucera, Dave Benson, Randa Brooks & Matt Tobolski

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c/o Randa Brooks&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

15255 SW 72<sup>nd</sup> Avenue

Portland, OR 97224

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With a copy to:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Schwabe Williamson & Wyatt

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Attn: Michael A. Herbst

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;U.S. Bank Centre

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1420 Fifth Ave.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Suite 3400

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seattle, Washington 98101

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If to Buyer:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;AAON, Inc.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Attn: Gary D. Fields, CEO & President

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2425 S. Yukon Avenue

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tulsa, Oklahoma 74107

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With a copy to:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Johnson & Jones, P.C.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Attn: Luke A. Bomer & Randy R. Shorb

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Two Warren Place

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6120 S. Yale Avenue, Suite 500

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tulsa, Oklahoma 74136

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

&nbsp;&nbsp;&nbsp;&nbsp;**Section 10.03&nbsp;&nbsp;&nbsp;&nbsp;<u>Interpretation</u>.** For purposes of this Agreement, (a) the words "include," "includes" and "including" shall be deemed to be followed by the words "without limitation"; (b) the word "or" is not exclusive; and (c) the words "herein," "hereof," "hereby," "hereto" and "hereunder" refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (x) to Articles, Sections, Disclosure Schedules and Exhibits mean the Articles and Sections of, and Disclosure Schedules and Exhibits attached to, this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Disclosure Schedules and Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 11.04&nbsp;&nbsp;&nbsp;&nbsp;<u>Headings</u>.** The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 11.05&nbsp;&nbsp;&nbsp;&nbsp;<u>Severability</u>.** If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any

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other jurisdiction. Except as provided in ***<u>Section 6.07(e)</u>***, upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 11.06&nbsp;&nbsp;&nbsp;&nbsp;<u>Entire Agreement</u>.** This Agreement (including the Exhibits and Disclosure Schedules) and the Ancillary Documents constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Agreement and those in the Ancillary Documents, the Exhibits and Disclosure Schedules (other than an exception expressly set forth as such in the Disclosure Schedules), the statements in the body of this Agreement will control.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 11.07&nbsp;&nbsp;&nbsp;&nbsp;<u>Successors and Assigns</u>.** This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither party may assign its, his or her rights or obligations hereunder without the prior written consent of the other parties, which consent shall not be unreasonably withheld, conditioned or delayed. No assignment shall relieve the assigning party of any of its obligations hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 11.08&nbsp;&nbsp;&nbsp;&nbsp;<u>No Third-party Beneficiaries</u>.** Except as provided in ***<u>Article IX</u>***, this Agreement is for the sole benefit of 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 or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 11.09&nbsp;&nbsp;&nbsp;&nbsp;<u>Amendment and Modification; Waiver</u>.** This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 11.10&nbsp;&nbsp;&nbsp;&nbsp;<u>Governing Law; Submission to Jurisdiction; Waiver of Jury Trial</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;This Agreement shall be governed by and construed in accordance with the internal laws of the State of Nevada without giving effect to any choice or conflict of law provision or rule (whether of the State of Nevada or any other jurisdiction).

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE ANCILLARY DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATE OF NEVADA IN EACH CASE LOCATED IN THE CITY OF LAS VEGAS AND COUNTY OF CLARK, AND EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY'S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

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&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE ANCILLARY DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE ANCILLARY DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS ***<u>SECTION 11.10(c)</u>***.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 11.11&nbsp;&nbsp;&nbsp;&nbsp;<u>Specific Performance</u>.** The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.

&nbsp;&nbsp;&nbsp;&nbsp;**Section 11.12&nbsp;&nbsp;&nbsp;&nbsp;<u>Counterparts</u>.** This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

[Signature pages follow]

**REMAINDER OF PAGE INTENTIONALLY LEFT BLANK**

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&nbsp;&nbsp;&nbsp;&nbsp;**IN WITNESS WHEREOF**, the parties hereto have caused this Agreement to be executed as of the date first written above.

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| |
|:---|
| **SELLER PARTIES:** |
| **D-Velopment, LLC,** an Oregon limited liability company  |
| /s/ Daniel D. Benson |
| Daniel D. Benson, Manager |
| **JVK Holdings, LLC**, an Arizona limited liability company |
| /s/ John N. Kucera |
| John N. Kucera, Manager |
| **Tobolski Family Trust** dated September 26, 2016, a Washington Revocable Trust |
| /s/ Matthew J. Tobolski |
| Matt Tobolski, Trustee |
| /s/ Dave Benson |
| **Dave Benson**, an individual, executing solely with respect to his individual obligations in Sections 6.03, 6.06 and 6.07 |
| /s/ John N. Kucera |
| **John N. Kucera**, an individual, executing solely with respect to his individual obligations in Sections 6.03, 6.06 and 6.07 |
| /s/ Randa K. Brooks |
| **Randa Brooks**, an individual |
| /s/ Matthew J. Tobolski |
| **Matt Tobolski**, an individual, executing solely with respect to his individual obligations in Sections 6.03, 6.06 and 6.07 |
| **BUYER:** |
| **AAON, Inc.**, a Nevada corporation |
| /s/ Gary D. Fields |
| Gary D. Fields, CEO & President |

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[Signature Page to Membership Interest Purchase Agreement]

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**<u>EXHIBIT A</u>**

Company's Adjusted EBITDA – Sample Calculation

**[OMITTED]**

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**<u>EXHIBIT B</u>**

Key Employee Stock Grants

**[OMITTED]**

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**<u>EXHIBIT C</u>**

Allocation of Purchase Consideration

**[OMITTED]**

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**EXHIBIT 2.04(a)(ii)**

Working Capital Calculation Example

**[OMITTED]**

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