Document:

ex_215598.htm

Exhibit 10.1

 

STOCK PURCHASE AGREEMENT

 

By and Between

 

YUNHONG CTI LTD.

 

And

 

Shuai Wang

 

Dated as of

 

November 24, 2020

 

 

STOCK PURCHASE AGREEMENT

 

This Stock Purchase Agreement (this “Agreement”), dated as of November 17, 2020, is entered into between and among Yunhong CTI Ltd., a corporation incorporated under the laws of the State of Illinois (the “Company” or “CTI”), and Shuai Wang (“Buyer”).

 

RECITALS

 

A.     The Company is engaged in the development, production, distribution and sale of unique, innovative flexible film products for commercial and consumer markets;

 

B.     Buyer desires to purchase 170,000 newly issued shares of Series B Redeemable Convertible Preferred Stock of the Company, no par value (the “Shares”), with each Share convertible into ten (10) shares of the Company’s common stock, no par value (the “Common Stock”), subject to the terms and conditions set forth herein;

   

C.     The Company wishes to issue and sell to Buyer, and Buyer wishes to purchase from the Company, the Shares ; and the Company wishes to extend to Buyer, and the other rights described herein; in each case subject to the terms and conditions set forth herein (such issues, sales and purchases of Shares, such grant of the Board Appointment Right and the other rights described herein, collectively, the “Transaction”);

 

D.     The Company is subject to the public reporting requirements of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the Common Stock listed for trading on the NASDAQ Capital Market (“NASDAQ”);

 

E.     Pursuant to the Illinois Business Corporation Act and the Exchange Act, as applicable, it is understood and acknowledged that portions of the Transaction contemplated herein may be required to be approved by holders of a majority of the outstanding shares entitled to vote, either at a duly convened meeting, or by written consent pursuant to Regulation 14C of the Exchange Act (collectively, the “Company Shareholder Approval”);

 

F.     Subject to any Company Shareholder Approval, the Company Board has determined (1) that it is in the best interest of the Company and its shareholders to enter into the Transaction and (2) subject to the terms and conditions of this Agreement, to recommend the Transaction to the Company’s shareholders for the Company Shareholder Approval, to the extent such approval is required.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1

 

 

Article I

DEFINITIONS

 

The following terms have the meanings specified or referred to in this Article I:

 

“Affiliate” 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.

  

“Agreement” has the meaning set forth in the preamble.

 

“Benefit Plan” has the meaning set forth in Section 3.12(a).

 

“Board” has the meaning set forth in the recitals.

 

“Board Appointment Right” has the meaning set forth in the recitals.

 

“CTI” has the meaning set forth in the preamble.

  

“Business Day” means any day except Saturday, Sunday or any other day on which commercial banks located in New York City are authorized or required by Law to be closed for business.

 

“Business Confidential Information” has the meaning set forth in Section 5.04(a).

 

“Buyer” has the meaning set forth in the preamble.

 

“Buyer Director Nominee” has the meaning set forth in Section 5.05(a).

 

“Buyer Party” has the meaning set forth in Section 8.01.

 

“CERCLA” is defined in the definition of “Environmental Law”.

 

“Closing” has the meaning set forth in Section 2.04.

 

“Closing Date” has the meaning set forth in Section 2.05.

 

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

 

“Common Stock” has the meaning set forth in the recitals.

 

“Company” has the meaning set forth in the preamble.

 

“Company Balance Sheet” has the meaning set forth in Section 3.05(c).

 

“Company Board” has the meaning set forth in the recitals.

 

“Company Board Recommendation” has the meaning set forth in Section 3.01(b).

 

“Company Information Statement” means any Information Statement to be filed and mailed to the Company’s shareholders pursuant to Regulation 14C of the Exchange Act in order to provide notice to its shareholders of the actions approved and to be taken in connection with the transactions contemplated hereunder, including the issuance of the Shares pursuant to the rules of the NASDAQ and relevant corporate law.

 

“Company Intellectual Property” has the meaning set forth in Section 3.07(a).

 

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“Company Material Contract” means: (i) every “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the Securities Act) to which the Company is a party and which is currently in effect, whether or not filed by the Company with the SEC; and (ii) every additional binding contract to which the Company is a party and which is currently in effect, which would be a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the Securities Act) except for the fact that it was made in the Company’s ordinary course of business.

 

“Company SEC Documents” has the meaning set forth in Section 3.05(a).

 

“Company Shareholder Approval” has the meaning set forth in the recitals.

 

“Company Shareholder Meeting” means the meeting of the shareholders of the Company to be held to consider, to the extent necessary, the adoption of this Agreement and the transactions contemplated hereunder and, to the extent necessary, to approve the issuance of the Shares pursuant to the rules of the NASDAQ and relevant corporate law.

 

“Company Subsidiaries” means CTI Supply, Inc. and the Non-U.S. Subsidiaries (each of which, a “Company Subsidiary”).

 

“Company Real Property Leases” has the meaning set forth in Section 3.08(a).

 

“Contract” means any contract, agreement, lease, loan, obligation, commitment, arrangement, understanding, instrument, whether oral or written.

 

“Customs” is defined in the definition of “Customs & International Trade Laws”.

 

“Customs & International Trade Laws” means any U.S. Law concerning the importation of merchandise, the export or re-export of products (including goods, software, technology and services), the terms and conduct of international transactions, and making or receiving international payments, including but not limited to the Tariff Act of 1930 as amended and other laws and programs administered or enforced by the U.S. Customs and Border Protection (“Customs”), the U.S. Immigration and Customs Enforcement, and their predecessor agencies, the Export Administration Act of 1979 as amended, the Export Administration Regulations, the International Emergency Economic Powers Act as amended, the Arms Export Control Act, the International Traffic in Arms Regulations, any other export controls administered by an agency of the United States Government, Executive Orders of the President of the United States regarding embargoes and restrictions on transactions with designated entities (including countries, terrorists, organizations and individuals), the embargoes and restrictions administered by the United States Office of Foreign Assets Control, the Money Laundering Control Act of 1986 as amended, requirements for the marking of imported merchandise, prohibitions or restrictions on the importation of merchandise made with the use of slave or child labor, the Foreign Corrupt Practices Act of 1977 as amended (“FCPA”) and other applicable anticorruption Laws, the anti-boycott regulations administered by the United States Department of Commerce, the anti-boycott regulations administered by the United States Department of the Treasury, legislation and regulations of the United States and other countries implementing the North American Free Trade Agreement (“NAFTA”) and other free trade agreements to which the United States is a party, antidumping and countervailing duty laws and regulations, and laws and regulations adopted by the governments or agencies of other countries concerning the ability of U.S. Persons to conduct business in those countries, restrictions by other countries on holding foreign currency or repatriating funds, or otherwise relating to the same subject matter as the United States statutes and regulations described above.

 

“Deductible” has the meaning set forth in Section 8.03.

  

“Disclosure Schedule” means the Disclosure Schedule delivered by the Company concurrently with the execution and delivery of this Agreement, which Disclosure Schedule shall constitute a part of this Agreement.

 

“Disqualification Event” has the meaning set forth in Section 3.28.

 

“Dollars or $” means the lawful currency of the United States.

  

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“Employees” means those Persons employed by the Company immediately prior to the Closing.

 

“Encumbrance” means any lien, pledge, mortgage, deed of trust, security interest, charge, claim, easement, encroachment, hypothecation, assignment, preference or other similar encumbrance.

  

“Environmental Law” means any applicable Law, and any Governmental Order, Environmental Permit or binding agreement with any Governmental Authority: (a) relating to pollution (or the cleanup thereof) or the protection of human health, safety, welfare, 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, 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 analogues): 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. (“CERCLA”); 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, 42 U.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.

 

“Environmental Permit” 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.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

 

“ERISA Affiliate” means any corporation or trade or business (whether or not incorporated) under common control or treated as a single employer with the Company within the meaning of Section 414(b), 414(c), 414(m) or 414(o) of the Code.

  

“Exchange Act” has the meaning set forth in the recitals.

 

“FCPA” is defined in the definition of “Customs & International Trade Laws”.

 

“Financial Statements” has the meaning set forth in Section 3.05(c).

   

“GAAP” means United States generally accepted accounting principles in effect from time to time.

 

“Governmental Authority” 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 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.

 

“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

 

“Hazardous Materials” means any materials, chemical, compound, mixture, hazardous substance, hazardous waste, pollutant or contaminant defined, listed, classified or regulated under any Environmental Law.

 

“Indebtedness” has the meaning set forth in Section 3.23.

 

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“Intellectual Property” means any and all of the following in any jurisdiction throughout the world: all patents, industrial design rights, trademarks, service marks, trade names, trade dress, copyrights, mask works, inventions, technology, know-how, formulae, trade secrets, confidential and proprietary information, computer software programs, domain names, and other intellectual property, and all registrations and applications for registration of any of the foregoing.

 

“Intellectual Property Rights” has the meaning set forth in Section 3.07(c).

 

“Issuer Covered Person” has the meaning set forth in Section 3.28.

 

“Knowledge of the Company” or the “Company’s Knowledge” or any other similar knowledge qualification, means the actual knowledge (without independent duty of investigation or inquiry) of Frank J. Cesario, Jennifer Connerty and Jana Schwan.

 

“Law” 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.

 

“Losses” means in respect of a party hereto any and all losses, damages, costs, expenses, charges (including all penalties, assessments and fines) which that Person suffers, sustains, pays or incurs in connection with that matter and includes reasonable costs of external legal counsel and other professional advisors and consultants but does not include punitive, special, consequential or indirect losses or loss of profit.

 

 “Material Adverse Effect” means any event, occurrence, fact, condition or change that is materially adverse to (a) the business, results of operations, financial condition, assets and liabilities, or prospects of the Company, or (b) the ability of the Company to consummate the transactions contemplated hereby; provided, however, that “Material Adverse Effect” 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 (provided that such conditions do not affect the Company to a materially greater extent than other Persons in such industry); (iii) any changes in financial, banking or securities markets in general, including any disruption thereof and any decline in the price of any security or any market index or any change in prevailing interest rates; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any action required or permitted by this Agreement or any action taken (or omitted to be taken) with the written consent of or at the written request of Buyer; (vi) any changes in applicable Laws or accounting rules (including GAAP); (vii) the announcement, pendency or completion of the transactions contemplated by this Agreement, including losses or threatened losses of employees, customers, suppliers, distributors or others having relationships with the Company; (viii) any natural or man-made disaster or acts of God; or (ix) any failure by the Company to meet any internal or published projections, forecasts or revenue or earnings predictions (provided that the underlying causes of such failures (subject to the other provisions of this definition) shall not be excluded).

 

“Material Shareholder” has the meaning set forth in Section 3.29.

 

“Money Laundering Laws” has the meaning set forth in Section 3.26.

 

“NAFTA” is defined in the definition of “Customs & International Trade Laws”.

  

“NASDAQ” has the meaning set forth in the recitals.

 

“Non-U.S. Benefit Plan” has the meaning set forth in Section 3.12(a).

 

“Non-U.S. Subsidiaries” means Flexo Universal, S. de R.L. de C.V., and CTI Europe GmbH.

 

“OFAC” has the meaning set forth in Section 3.25.

 

“Ordinary Course of Business” means the ordinary course of business of the Person in question, consistent with past custom and practice (including with respect to quantity, quality and frequency).

 

“Permits” means all permits, licenses, franchises, approvals, authorizations, and consents required to be obtained from Governmental Authorities.

 

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“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

 

“PNC” means PNC Bank, National Association.

 

“Proceeding” means any action, arbitration, mediation, audit, hearing, investigation (for which the Company has received written notice), litigation or suit (whether civil, criminal, administrative or judicial, whether formal or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Authority or arbitrator.

 

“Purchase Price” has the meaning set forth in Section 2.03.

 

“Qualified Benefit Plan” has the meaning set forth in Section 3.12(c).

 

“Real Property” means the real property owned by the Company or any Company Subsidiaries, together with all buildings, structures and facilities located thereon.

 

“Registrable Securities” has the meaning set forth in Section 5.13.

 

“Representative” means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

 

“Schedule Supplement” has the meaning set forth in Section 5.09.

 

“SEC” means the United States Securities and Exchange Commission.

 

“Securities Act” has the meaning set forth in Section 3.05(a).

  

“Shares” has the meaning set forth in the recitals.

  

“Target Date” has the meaning set forth in Section 5.02(a).

 

“Taxes” 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.

 

“Tax Return” means any return, declaration, report, claim for refund, information return or statement or other document required to be filed with respect to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

“Transaction” has the meaning set forth in the recitals.

   

Article II

PURCHASE AND SALE

 

Section 2.01.     [Reserved.]

 

Section 2.02.     Purchase and Sale. Upon satisfaction of the applicable closing conditions set forth in Article VI of this Agreement, the Company shall issue and sell to Buyer, and Buyer shall purchase from the Company, the Shares, for the consideration specified in Section 2.03 (the “Purchase”). Delivery of the Shares shall be made to Buyer and the Company shall cause Buyer to be duly recorded as the owner of the Shares, including on the stock certificates evidencing the Shares and in the Company’s share register.

 

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Section 2.03.      Purchase Price. The purchase price for the Shares shall be $1,500,000.00 (the “Purchase Price”), which equals $10.00 per Share.

 

Section 2.04.     Transactions to be Effected at the Closing.

 

(a)     At or prior to the closing of the Purchase (the “Closing”), Buyer shall:

 

(i)     No later than the date of the execution of this Agreement, deliver to the Company the Purchase Price, which the Company acknowledges has been received by the Company; and

  

(ii)     deliver to the Company all other agreements, documents, instruments or certificates that each is required to deliver, and take all actions each is required to take, pursuant to Article VI of this Agreement (without limiting the generality of the foregoing.

 

(b)     At or prior to the Closing except as set forth below, the Company shall:

 

(i)      register the issuance of the Shares on the books and records of the Company as duly issued in the name of the Buyer, free and clear of all Encumbrances; and

 

(ii)     deliver to Buyer all other agreements, documents, instruments or certificates that the Company is required to deliver, cause to be delivered all documents required to be delivered by advisors to the Company and take all actions the Company is required to take, pursuant to Article VI of this Agreement.

 

(c)     Effective as of the Closing, consistent with Buyer’s Board Appointment Right, the Company shall cause the Buyer Director Nominee, whose name Buyer has submitted to the Company within two (2) Business Days prior to the Closing, to be elected to the Company Board (subject to reasonable acceptance by the Company).

 

(d)     Within four (4) Business Days following the execution of this Agreement, the Company shall file with the U.S. Securities and Exchange Commission a Report on Form 8-K to announce the entry into this Agreement and the material terms of the Transaction.

  

Each document of transfer or assumption referred to in this Article II (or in any related definition set forth in Article I) that is not attached as an Exhibit to this Agreement shall be in customary form and shall be reasonably satisfactory in form and substance to the parties hereto.

 

Section 2.05.     Closing. Subject to the terms and conditions of this Agreement, the issuance, purchase and sale of the Shares contemplated hereby shall take place at the Closing to be held at 1:00 p.m., Eastern time, on the date that is no later than two Business Days after the last of the conditions set forth in Article VI that are applicable to the Closing have been satisfied or waived (other than conditions which, by their nature, are to be satisfied on the Closing Date), at the offices of Sichenzia Ross Ference LLP, or at such other time or on such other date or at such other place as the parties may mutually agree upon in writing (the “Closing Date”).

 

Article III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth in the Disclosure Schedule, the Company represents and warrants to Buyer that the statements contained in this Article III are true and correct.

 

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Section 3.01.     Organization and Authority of the Company.

 

(a)     The Company is a corporation duly organized, validly existing and in good standing under the Laws of the state of Illinois, and has all requisite corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted. Each of Company Subsidiaries is a corporation or other entity duly formed, validly existing and in good standing under the Laws of its jurisdiction of organization and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company and each of the Company Subsidiaries is duly licensed or qualified to do business, and is in good standing in each jurisdiction in which the nature of the business conducted or property owned by it makes such licensing or qualification necessary, except where the failure to be so licensed, qualified or in good standing, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect. The Company has all necessary corporate power and authority to enter into this Agreement, to carry out its obligations hereunder and, subject to, in the case of the consummation of the Transaction, receipt of the Company Shareholder Approval as contemplated by Section 5.02, to consummate the transactions contemplated by this Agreement. The execution and delivery by the Company of this Agreement, the performance by the Company of its obligations hereunder and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of the Company, subject only, in the case of consummation of the Transaction, to the receipt of the Company Shareholder Approval as contemplated by Section 5.02. The Company Shareholder Approval is the only vote or consent of the holders of the Company’s capital stock necessary to approve and consummate the Transaction. This Agreement has been duly executed and delivered by the Company, and (assuming due authorization, execution and delivery by Buyer) this Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).

 

(b)     The Company Board, by resolutions duly adopted and, as of the date hereof, not subsequently rescinded or modified in any way, has, as of the date hereof (i) determined that this Agreement and the transactions contemplated hereby, including the Transaction, are fair to, and in the best interests of, the Company’s shareholders, (ii) determined that management of the Company and the Board shall take all steps necessary to perform the Company’s obligations under this Agreement, subject to the terms and conditions hereof, (iii) directed that the transactions contemplated by this Agreement shall, if required by the rules of the NASDAQ or the Laws, be submitted to Company’s shareholders for their approval, and (iv) approved and adopted the issuance of the Shares (collectively, the “Company Board Recommendation”).

 

Section 3.02.     Capitalization.

 

(a)     The authorized capital stock of the Company consists of (i) 15,000,000 shares of Common Stock, of which 5,271,698 shares are issued and outstanding and 43,658 shares are held in treasury or owned by the Company Subsidiaries, 292,660 shares are reserved for issuance upon exercise of outstanding warrants, and no shares are reserved for future grants under the Company’s Benefit Plans, in each case at the close of business on the date of this Agreement; and (ii) 3,000,000 shares of preferred stock, no par value, of which 700,000 shares are designated as Series A Convertible Preferred Stock and 548,200 are issued and outstanding. As of the close of business on the date of this Agreement, there are no other Shares issued and outstanding or reserved for issuance and there are no other securities convertible into Shares. The issued and outstanding shares of Common Stock have been, and all shares which may be issued will be, duly authorized, are validly issued, fully paid and non-assessable. At the Closing, Buyer will receive good and marketable title to the Shares, free and clear of all Encumbrances. Section 3.02(a) of the Disclosure Schedule sets forth a true and complete list of all stock options, warrants or other rights to purchase or receive Shares outstanding as of the date of this Agreement, including the number of Shares subject thereto, expiration dates and exercise prices thereof and the names of the holders thereof. The Company has not issued any capital stock other than (i) pursuant to the exercise of employee stock options under the Company’s stock option plans, (ii) the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans (iii) equity awards made to the officers and key employees of the Company as part of their annual compensation, (iv) pursuant to the exercise of outstanding warrants. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement.

 

(b)     There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable or exercisable for, securities having the right to vote) on any matters on which shareholders of the Company may vote. Except as set forth above in Section 3.02(a), (i) there are not issued, reserved for issuance or outstanding (A) any securities convertible into to exchangeable or exercisable for shares of capital stock of the Company or (B) any warrants, subscriptions, calls, options or other rights to acquire from the Company, or any obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable or exercisable for capital stock or voting securities of the Company, and (ii) there are not any outstanding obligations of the Company to repurchase, redeem or otherwise acquire any such securities or to issue, deliver or sell, or cause to be issued, delivered or sold, any such securities. The Company is not a party to any voting agreement with respect to the voting of any such securities.

 

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Section 3.03.     Subsidiaries. Other than the Company Subsidiaries, the Company has no direct or indirect subsidiaries. Except as set forth in Section 3.03 of the Disclosure Schedule, the Company owns, directly or indirectly, all of the capital stock or other equity interests of the Company Subsidiaries, and such capital stock or other equity interests are free and clear of any liens, and all of the issued and outstanding shares of capital stock of the Company Subsidiaries are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

 

Section 3.04.     No Conflicts; Consents. The execution, delivery and performance by the Company of this Agreement, and (assuming the necessity and receipt of evidence of effectiveness of the Company Shareholder Approval) the consummation of the Transaction, do not and will not: (a) result in a violation or breach of any provision of the Articles of Incorporation or Bylaws of the Company; (b) other than as disclosed in this Agreement, result in a violation or breach of any provision of any Law or Governmental Order applicable to the Company or any of its assets; or (c) except as set forth in Section 3.04 of the Disclosure Schedule, require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default under or result in the acceleration of any Company Material Contract (however characterized or described) to which the Company is a party or by which its property or business is or may be bound or affected has been duly and validly executed by the Company, except in the cases of clauses (b) and (c), where the violation, breach, conflict, default, acceleration or failure to give notice would not have a Material Adverse Effect. Except as set forth in Section 3.04 of the Disclosure Schedule, no consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to the Company in connection with the execution and delivery of this Agreement and the consummation of the Transaction, except for such filings as may be required to be made to the NASDAQ.

 

Section 3.05.     SEC Filings; Financial Statements; No Undisclosed Liabilities.

 

(a)     The Company has timely filed with or furnished to, as applicable, the SEC all registration statements, prospectuses, reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated by reference) required to be filed or furnished by it with the SEC since January 1, 2016 (the “Company SEC Documents”). The Company has made available to Buyer all such Company SEC Documents that it has so filed or furnished prior to the date hereof. As of their respective filing dates (or, if amended or superseded by a subsequent filing, as of the date of the last such amendment or superseding filing prior to the date hereof), each of the Company SEC Documents complied as to form in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act, and the rules and regulations of the SEC thereunder applicable to such Company SEC Documents. None of the Company SEC Documents, including any financial statements, schedules or exhibits included or incorporated by reference therein at the time they were filed (or, if amended or superseded by a subsequent filing, as of the date of the last such amendment or superseding filing prior to the date hereof), contained any untrue statement of a material fact (taken as a whole) or omitted to state a material fact (taken as a whole) 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.

 

(b)     Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Company SEC Documents: (i) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto as of their respective dates; (ii) was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and, in the case of unaudited interim financial statements, as may be permitted by the SEC); and (iii) fairly presented in all material respects the consolidated financial position of the Company and its consolidated subsidiaries at the respective dates thereof and the consolidated results of the Company’s operations and cash flows for the periods indicated therein, subject, in the case of unaudited interim financial statements, to normal and year-end audit adjustments as permitted by GAAP and the applicable rules and regulations of the SEC.

 

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(c)     The audited balance sheet of the Company as of December 31, 2019 contained in the Company SEC Documents filed prior to the date hereof is hereinafter referred to as the “Company Balance Sheet”. The Company does not have any liabilities (whether known or unknown, accrued, absolute, contingent or otherwise and whether due or to become due) other than liabilities that (i) are reflected or recorded on the Company Balance Sheet and the related consolidated statements of cash flow and operations as of and for the fiscal year ended December 31, 2019 which have been audited (collectively, the “Financial Statements”) (including in the notes thereto), (ii) were incurred since the date of the Financial Statements in the ordinary course of business, or (iii) would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(d)     The Company is not a party to, or has any commitment to become a party to, any off-balance sheet arrangement as such term is defined in Item 303 of Regulation S-K of the SEC.

 

(e)     The books and records of the Company are consistent in all material respects with the Financial Statements. Except as required by GAAP, the Company has not, between the last day of its most recently ended fiscal year and the date of this Agreement, made or adopted any material change in its accounting methods, practices or policies in effect on such last day of its most recently ended fiscal year. Since January 1, 2016, the Company has not had any material dispute with any of its auditors regarding accounting matters or policies that is currently outstanding or that resulted (or would reasonably be expected to result) in an adjustment to, or any restatement of, the Financial Statements. No current or former independent auditor for the Company has resigned or been dismissed from such capacity as a result of or in connection with any disagreement with the Company on a matter of accounting practices.

 

Section 3.06.     Absence of Certain Changes or Events. Since the date of the Company Balance Sheet, except in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and except for those matters described in the Company’s SEC Documents filed or furnished following the date of the Company Balance Sheet, the business of the Company has been conducted in the Ordinary Course of Business and there has not been or occurred:

 

(a)     except as set forth in Section 3.06(a) of the Disclosure Schedule, any Material Adverse Effect or any event, condition, change or effect that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

 

(b)     except as set forth in Section 3.06(b) of the Disclosure Schedule or in the Company SEC Documents, any sale, lease, license or other disposition of any of the assets shown or reflected on the Company Balance Sheet (or any creation, assumption or incurrence of any Encumbrances upon such assets), except in the Ordinary Course of Business and except for any assets having an aggregate value of less than $100,000;

 

(c)     except as set forth in Section 3.06(c) of the Disclosure Schedule, incurrence of any indebtedness for borrowed money in excess of an aggregate amount of $100,000;

 

(d)     except as set forth in Section 3.06(d) of the Disclosure Schedule, any entry into an employment agreement (or any amendment or modification of an employment agreement) providing for compensation in excess of $100,000, or any entry into any severance agreement or any labor, or union agreement or plan (or amendments of any such existing agreements or plan);

 

(e)     except as set forth in Section 3.06(e) of the Disclosure Schedule, any hiring or termination of the employment of any named executive officer of the Company;

 

(f)     except in the ordinary course of business, any (i) increase in the compensation or benefits payable to any Employee, (ii) modification of any severance policy applicable to any Employee resulting in any increase in the amount of severance payable to any such Employee (or expanding of the circumstances in which such severance is payable) or (iii) crediting of service in connection with any Benefit Plan to any Employee such that the total service credited to any such Employee exceeds the actual services of such Employee to the Company;

 

(g)     granting Employees and non-employee directors equity compensation awards under Benefit Plans greater than 2% of the total outstanding Shares in the aggregate;

 

(h)     except as set forth in Section 3.06(h) of the Disclosure Schedule, acquisition of the assets, except in the Ordinary Course of Business and except for any assets having an aggregate value of less than $100,000;

 

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(i)     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;

 

(j)     any liabilities required to be reflected in the Company Balance Sheet, disclosed in accordance with GAAP or disclosed in filings made with the SEC;

 

(k)     except as set forth in Section 3.06(k) of the Disclosure Schedule, any alteration in the Company’s method of accounting or change of its auditors;

 

(l)     any dividend or distribution of cash or other property to the shareholders of the Company or purchase, redemption or any agreement to purchase or redeem any Shares or the declaration of any dividend or distribution of cash or other property;

 

(m)     issuance of any equity securities to any officer, director of Affiliate of the Company, except pursuant to the existing Company equity plans;

 

(n)     make or change any election with respect to Taxes, amend any Tax Return, or agree to settle any claim or assessment in respect of Taxes for an amount materially in excess of the amount accrued or reserved with respect thereto on the Company Balance Sheet;

 

(o)     any (i) entering into any multi-year Contract other than any Contract that (1) was entered into in the Ordinary Course of Business and (2) does not involve future payments by the Company of greater than $100,000 during any twelve (12) month period, (ii) material amendment to any Contract other than any amendment that (1) was effected in the Ordinary Course of Business and (2) does not involve future payments by the Company of greater than $100,000 during any twelve (12) month period or (iii) any termination or waiver of any material right under any Contract other than in the Ordinary Course of Business (excluding the expiration of any Contract in accordance with its terms); or

 

(p)     any agreement to do any of the foregoing, or any action or omission that would result in any of the foregoing.

 

Section 3.07.     Intellectual Property. 

 

(a)     Section 3.07(a) of the Disclosure Schedule lists all patents, industrial design rights, trademarks, service marks, trade names, trade dress, copyrights, mask works, inventions, technology, confidential know-how, formulae, trade secrets, confidential and proprietary information, computer software programs, domain names, and other intellectual property, and all registrations and applications for registration of any of the foregoing owned by the Company. Except as would not have a Material Adverse Effect, the Company owns, has a license to use, or has the right to use all Intellectual Property necessary to conduct the business as currently conducted (the “Company Intellectual Property”).

 

(b)     Except as set forth in Section 3.07(b) of the Disclosure Schedule: (i) to the Company’s Knowledge, the Company Intellectual Property as currently licensed or used by the Company, and the Company’s conduct of its business as currently conducted, do not infringe, misappropriate or otherwise violate the Intellectual Property Rights of any Person; and (ii) to the Company’s Knowledge no Person is infringing, misappropriating or otherwise violating any Company Intellectual Property.

 

(c)     The Company owns, or has rights to use, all patents, patent applications, industrial design rights, trademarks, trademark applications, service marks, service mark applications, mask works, trade names, trade secrets, inventions, technology, copyrights, licenses, confidential know-how, computer software programs, domain names, and other intellectual property rights and similar rights necessary or required for use in connection with its business as described in the Company SEC Documents and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). The Company has not received a notice (written or otherwise) that any of the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two years from the date of this Agreement, except for those Intellectual Property Rights which expire on their own terms and not as a result of any action or inaction by Company. Except as set forth in Section 3.07(c) of the Disclosure Schedule, the Company Intellectual Property Rights have been properly maintained and all applicable maintenance fees and renewal fees have been paid. The Company has not received, since the date of the latest audited financial statements included within the Company SEC Documents, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. All such Intellectual Property Rights are enforceable. Except as set forth Section 3.07(c) of the Disclosure Schedule, the Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of its intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

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Section 3.08.     Real Estate and Personal Property.

 

(a)     Section 3.08(a) of the Disclosure Schedule contains a complete and accurate list of all (i) owned real property and (ii) real property leaseholds or other interests therein leased or subleased or otherwise used or occupied by the Company or Company Subsidiaries, and of all leases, lease guarantees, agreements and documents related thereto, including all amendments, terminations and modifications thereof or waivers thereto (collectively, the “Company Real Property Leases”), as well as the current annual rent and term under each Company Real Property Lease. The Company Real Property Leases are valid, binding and enforceable in accordance with their terms and are in full force and effect. Except as set forth on Section 3.08(a) of the Disclosure Schedule, each of the Company and Company Subsidiaries has good and marketable title in fee simple to the Real Property owned by it and has good and marketable title in all personal property owned by it that is material to its business, in each case free and clear of all Encumbrances, except as disclosed on Section 3.08(a) of the Disclosure Schedule for Encumbrances as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company or Company Subsidiaries.

 

(b)     The buildings, material improvements, installations and facilities included in the Real Property are free of any material physical or mechanical defects with respect to their intended uses, and all building systems (including heating, ventilation, air-conditioning, elevator, other mechanical, electrical, sprinkler, life safety and plumbing systems) are in normal operating condition, ordinary wear and tear excepted. All water, sewer, gas electric, telephone, drainage facilities and all other utilities required by law or by normal operation of the Real Property are paid for and adequate to service the Real Property in its present use and to permit compliance in all material respects with all requirements of law and normal usage of the Real Property as currently used by the Company.

 

(c)     The Company has not received written notice of any existing plan or study by any public authority or by any other person or entity that challenges or otherwise adversely affects the continuation of the use or operation of any Real Property and has no Knowledge of any such plan or study with respect to which it has not received written notice. To the Company’s Knowledge, there is no person or entity in possession of any Real Property other than the Company. No third party has any right to acquire any of the Real Property or any interest therein.

 

Section 3.09.     Legal Proceedings; Governmental Orders.

 

(a)     Except as set forth in Section 3.09 of the Disclosure Schedule, there are no actions, suits, claims, investigations or other legal proceedings pending or, to the Company’s Knowledge, threatened against or by the Company affecting any of its properties or assets which, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect, or which, individually or in the aggregate, would reasonably be expected to affect the Company’s ability to perform its obligations under this Agreement or otherwise impede, prevent or materially delay the consummation of the transactions contemplated by this Agreement.

 

(b)     Except as set forth in Section 3.09 of the Disclosure Schedule, there are no outstanding Governmental Orders and no unsatisfied judgments, penalties or awards against or affecting (or, to the Company’s Knowledge, investigations involving) the Company or any of its properties or assets which, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect.

 

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Section 3.10.     Compliance with Laws; Permits.

 

(a)     The Company is in compliance with all Laws applicable to it or its business, operations, properties or assets, except where the failure to be in compliance, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect and the Company has not received any written notice to the effect that a Governmental Authority claimed or alleged that the Company was not in compliance with all Laws applicable to it, any of its properties or assets or any of its businesses or operations, except for instances of noncompliance that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.

 

(b)     All Permits required for the Company to conduct its business have been obtained by it and are valid and in full force and effect, except where the failure to obtain such Permits, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect. There has occurred no violation of, default (with or without notice or lapse of time or both) under, or event giving to others any right of termination, amendment or cancellation of (with or without notice or lapse of time or both), any Permit, except for violations, defaults or events that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.

 

Section 3.11.     Environmental Matters. Except for such matters as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect:

 

(a)     Each of the Company and the Company Subsidiaries is, and has been, in compliance with all Environmental Laws, including by obtaining and complying with all Environmental Permits required under applicable Environmental Laws for the operation of the business of the Company as currently conducted.

 

(b)     The Company has not (i) generated, treated, handled, used, stored, caused or allowed the release or disposal of, arranged for the disposal of, or transported any Hazardous Materials, at, on, to or from (A) any Real Property, or (B) any property or facility which has been named, listed or nominated for potential listing, on any list of contaminated sites promulgated pursuant to CERCLA or any other Environmental Law; or (ii) to its Knowledge caused or allowed the exposure of any employee or any third party to any Hazardous Materials.

 

(c)     Neither the Company nor any of the Company Subsidiaries has received written notice of and there is no Proceeding pending, or to the Knowledge of the Company, threatened against the Company or the Company Subsidiary, alleging any liability under or non-compliance with any Environmental Law or seeking to impose any financial responsibility for any investigation, cleanup, removal, containment or any other remediation or compliance under any Environmental Law. Neither the Company nor the Company Subsidiary is subject to any Governmental Order from, or written agreement by or with, any Governmental Entity or third party imposing any liability or obligation with respect to any of the foregoing.

 

Section 3.12.     Employee Benefit Matters.

 

(a)     Section 3.12(a) of the Disclosure Schedule contains a true and complete list of each material pension, benefit, retirement, compensation, employment, consulting, profit-sharing, deferred compensation, incentive, bonus, performance award, phantom equity, membership interest or membership interest-based, stock or stock-based, change in control, retention, severance, vacation, paid time off, welfare, 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, (i) which is maintained, sponsored, contributed to, or required to be contributed to by Company or any ERISA Affiliate, or (ii) under which Company or any ERISA Affiliate has any Liability, whether maintained, sponsored, or contributed to by the Company or ERISA Affiliate (each, a “Benefit Plan”). Except for statutory obligations with respect to its Non-U.S. Subsidiaries, the Company has separately set forth in Section 3.12(a) of the Disclosure Schedule a description of each Benefit Plan that is maintained, sponsored, contributed to, or required to be contributed to by Company or any Affiliate primarily for the benefit of employees outside of the United States (a “Non-U.S. Benefit Plan”).

 

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(b)     With respect to each material Benefit Plan, the Company has made available accurate, current and complete copies of each of the following: (i) the plan document together with all amendments; (ii) where applicable, copies of any trust agreements or other funding arrangements, custodial agreements, insurance policies and contracts, administration agreements and similar agreements; (iii) copies of any summary plan descriptions, summaries of material modifications, employee handbooks and any other material written communications (or a description of any material oral communications) relating to any Benefit Plan; (iv) 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; (v) in the case of any Benefit Plan for which a Form 5500 is required to be filed, a copy of the two most recently filed Form 5500, with schedules and financial statements attached; (vi) actuarial valuations and reports related to any Benefit Plans with respect to the two most recently completed plan years; (vii) the most recent nondiscrimination tests performed under the Code; and (viii) copies of material notices, letters or other correspondence from the Internal Revenue Service, Department of Labor, Pension Benefit Guaranty Corporation or other Governmental Authority relating to the Benefit Plan.

  

(c)     Each Benefit Plan and related trust complies with all applicable Laws and the terms of the Benefit Plan. Each Benefit Plan that is intended to be qualified under Section 401(a) of the Code (a “Qualified Benefit Plan”) has received a favorable determination letter or, with respect to a prototype or volume submitter plan, an opinion letter from the Internal Revenue Service 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 taxation under Sections 401(a) and 501(a) of the Code, and, to the Company’s Knowledge, nothing has occurred that could reasonably be expected to adversely affect the qualified status of any Qualified Benefit Plan. All benefits, contributions and premiums required by and due under the terms of each Benefit Plan or applicable Law have been timely paid in accordance with the terms of such Benefit Plan, the terms of all applicable Laws and GAAP.

 

(d)     No Benefit Plan: (i) is subject to the minimum funding standards of Section 302 of ERISA or Section 412 of the Code; or (ii) is a “multi-employer plan” (as defined in Section 3(37) of ERISA). Neither the Company nor any ERISA Affiliate: (i) has withdrawn from any pension plan under circumstances resulting (or expected to result) in a liability to the Pension Benefit Guaranty Corporation; or (ii) has engaged in any transaction which would give rise to a liability of any of the parties under Section 4069 or Section 4212(c) of ERISA. Nothing has occurred with respect to any Benefit Plan that has subjected or could reasonably be expected to subject Company or any ERISA Affiliate to a material penalty under Section 502 of ERISA or to material tax or penalty under Section 4975 of the Code.

 

(e)     Other than as required under Section 4980B of the Code or other applicable Law, no Benefit Plan provides benefits or coverage in the nature of health, life or disability insurance following retirement or other termination of employment.

 

(f)     There are no pending or, to Company Knowledge, threatened action relating to a Benefit Plan (other than routine claims for benefits), and no Benefit Plan has within the three 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.

 

(g)     Neither the execution of this Agreement nor any of the transactions contemplated by this Agreement will: (i) result in the payment to any Employee, director or consultant of any money or other property; or (ii) accelerate the vesting of or provide any additional rights or benefits (including funding of compensation or benefits through a trust or otherwise) to any Employee, director or consultant, except as a result of any partial plan termination resulting from this Agreement. Neither the execution of this Agreement nor the consummation of the transactions contemplated hereby will result in “excess parachute payments” within the meaning of Section 280G(b) of the Code.

 

Section 3.13.     Employment Matters.

 

(a)     The Company is not a party to, or bound by, any collective bargaining or other agreement with a labor organization representing any of its Employees. Since January 1, 2016, there has not been, nor, to the Company’s Knowledge, has there been any threat of, any strike, slowdown, work stoppage, lockout, concerted refusal to work overtime or other similar labor activity or dispute affecting the Company.

 

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(b)     The Company is in compliance with all applicable Laws pertaining to employment and employment practices to the extent they relate to employees of the Company, except to the extent non-compliance would not result in a Material Adverse Effect. There are no actions, suits, claims, investigations or other legal proceedings against the Company pending, or to the Company’s 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 employee of the Company, including, without limitation, any claim relating to unfair labor practices, employment discrimination, harassment, retaliation, equal pay or any other employment related matter arising under applicable Laws.

 

Section 3.14.     Taxes. 

 

(a)     Except as set forth in Section 3.14 of the Disclosure Schedule:

 

(i)        The Company has filed (taking into account any valid extensions) all Tax Returns required to be filed by the Company. Such Tax Returns are true, complete and correct in all material respects. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return other than extensions of time to file Tax Returns obtained in the ordinary course of business. All material Taxes due and owing by the Company have been paid or accrued. No claim has ever been made by a Governmental Authority in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation by that jurisdiction. There are no Encumbrances for Taxes (other than Taxes not yet due and payable) upon any of the assets of the Company.

 

(ii)       No extensions or waivers of statutes of limitations have been given or requested with respect to any Taxes of the Company.

 

(iii)      There are no ongoing or pending audits, actions, suits, claims, investigations or other legal proceedings by any taxing authority against the Company.

 

(iv)      The Company is not a party to any Tax-sharing agreement.

  

(v)       All Taxes which the Company is obligated to withhold from amounts owing to any employee, creditor or third party have been withheld and paid.

 

(vi)      The Company is not obligated to make any payments and is not a party to any agreement, contract, arrangement or plan that could result, separately or in the aggregate, in the payment of any amount that will not be fully deductible as a result of Code Section 162(m) (or any corresponding provision of state, local, or non-U.S. Tax law).

 

(vii)     The Company has not been a United States real property holding corporation within the meaning of Code Section 897(c)(1)(A)(ii).

 

(viii)    The Company has not been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was the Company) and has no liability for the Taxes of any person (other than the Company) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or no-U.S. law), as a transferee or successor, by contract or otherwise.

 

(ix)      The Company is not and has not been a party to any “reportable transaction,” as defined in Code Section 6707A(c)(1) and Treasury Regulation Section 1.601-4(b).

 

(x)       The Company has not been a distributing corporation or a controlled corporation in a transaction intended to be governed by Section 355 of the Code.

 

(xi)      The Company has (i) complied with the requirements of Section 482 of the Code and the Treasury Regulations thereunder (and all comparable provisions of state, local or foreign law), and (ii) prepared and maintained adequate documentation in respect of transactions with related parties governed by Section 482 of the Code and the Treasury Regulations thereunder (and all comparable provisions of state, local or foreign Law).

 

(xii)      The Company has not undergone an “ownership change” within the meaning of Section 382(g) of the Code.

 

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(xiii)     There is currently no limitation on the utilization of net operating losses, capital losses, built-in losses, credits or similar items of the Company under Section 269, 382, 383, 384 or 1502 of the Code and Treasury Regulations promulgated thereunder (and any comparable provisions of state, local and foreign Tax Law).

 

(xiv)    The Company is not a party to any agreement, contract, arrangement or plan that has resulted or could result, separately or in the aggregate, in the payment of an amount that will not be fully deductible as a result of Section 162(m) of the Code (or any corresponding provision of state, local or foreign Tax Law).

  

(xv)     The Company has not agreed to or would reasonably be expected to be required to include any item of income in, or exclude any item of deduction from, taxable income for any Tax period (or portion thereof) ending after the Closing Date as a result of any: (i) change in method of accounting pursuant to Section 481(a) of the Code or any similar provision of state, local or foreign Tax Law by reason of a change in accounting method initiated by the Company for a Tax period ending on or prior to the Closing Date; (ii) closing agreement described in Section 7121 of the Code (or any corresponding or similar provision of federal, state, local, or foreign Tax Law) executed on or prior to the Closing Date; (iii) installment sale or open transaction disposition made on or prior to the Closing Date; (iv) deferred intercompany gain or any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of federal, state, local or foreign Tax Law); or (v) election under Section 108(i) of the Code (or comparable provisions of state, local or foreign Tax Law).

 

Section 3.15.     Material Contracts. The Company is not a party to, and none of its properties or assets is subject to, any Contract that is required to be filed as an exhibit to a report or filing under the Securities Act or the Exchange Act, other than any Contract that is filed as an exhibit to Company SEC Documents. All the Company Material Contracts are valid and binding on the Company, enforceable against it in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity), and are in full force and effect. Except as set forth on Section 3.09 of the Disclosure Schedule, neither the Company nor, to the Knowledge of the Company, any third party has violated any provision of, or failed to perform any obligation required under the provisions of any Company Material Contract. Except as set forth on Section 3.09 of the Disclosure Schedule, neither the Company nor, to the Knowledge of the Company, any third party is in breach of or default (with or without notice or lapse of time or both) under, or has received written notice of breach, of any Company Material Contract, or has waived or failed to enforce any rights or benefits thereunder.

 

Section 3.16.     Insurance. The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company is engaged. None of the insurance policies will lapse or terminate as a result of the Transaction contemplated by this Agreement. The Company has complied with the provisions of such insurance policies. To the Company’s Knowledge, it will be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

 

Section 3.17.     Brokers. 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 based upon arrangements made by or on behalf of the Company.

  

Section 3.18.     Trade Law Compliance.

 

(a)     Company is in compliance with all applicable Customs & International Trade Laws, and at no time in the past five (5) years has the Company committed any material violation of the applicable Customs & International Trade Laws, and there are no material unresolved disputes or Proceedings concerning any liability of the Company with respect to any such Customs & International Trade Laws.

 

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(b)     The Company has not received written notice that it is currently subject to any civil or criminal investigation, litigation, audit, compliance assessment, Customs-focused assessment, penalty proceeding or assessment, liquidated damages proceeding or claim, forfeiture or forfeiture action, record-keeping inquiry, assessment of additional duty for failure to properly mark imported merchandise, notice to properly mark merchandise or return merchandise to Customs custody, claim for additional Customs duties or fees, denial order, suspension of export privileges, U.S. Government sanction, or any other action, proceeding or claim by a government agency (domestic or foreign) involving or otherwise relating to any alleged or actual violation of the Customs & International Trade Laws or relating to any alleged or actual non-payment of Customs duties, fees, taxes or other amounts owed pursuant to the applicable Customs & International Trade Laws, and in the past five (5) years, all Customs duties and fees, all other import duties and fees owed for merchandise imported by it or imported on its behalf into the United States have been paid by or on behalf of the Company.

 

(c)     To the Company’s Knowledge, the Company has not made or provided any material false statement or omission to any government agency (domestic or foreign) or to any purchaser of products, in connection with the exportation of commodities, software, or technical data (“items”) or the importation of merchandise, the valuation or classification of imported merchandise or exported items, the duty treatment of imported merchandise, the eligibility of imported merchandise for favorable duty rates or other special treatment, country-of-origin marking, NAFTA Certificates, marking and labeling requirements for textiles and apparel, other statements or certificates concerning origin, quota or visa rights, export licenses or other export authorizations, Electronic Export Information (formerly referred to as Shippers Export Declaration Forms), U.S.-content requirements, licenses or other approvals required by any government or agency, or any other requirement relating to the applicable Customs & International Trade Laws.

 

(d)     The Company has not, and, no director, officer, employee, agent, representative or other Person acting for or on behalf of the Company has directly or indirectly made, any contribution, gift, bribe, kickback or other payment, whether in the form of money, property or services, to a foreign official for an improper purpose, including (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special concessions or for special concessions already obtained for or in respect of the Company or the Company, or (iv) or in any other manner or for any other purpose that violates the FCPA or other applicable anticorruption Laws.

 

(e)     Company’s records, assets, products, software, and technology (i) are not defense articles or defense services subject to the International Traffic in Arms Regulations, (ii) have an Export Control Classification Number of EAR99, (iii) do not require a license to be exported to any countries with which it has previously conducted business, including without limitation the Peoples Republic of China, or to be disclosed to such countries’ nationals, including without limitation Chinese nationals, and (iv) do not require a license to be disclosed to Buyer, Buyer, or their Chinese national employees.

 

Section 3.19.     Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to the Company’s Knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. Except as disclosed in the Company SEC Documents or Section 3.19 of the Disclosure Schedule, the Company has not, in the 12 months preceding the date hereof, received notice from NASDAQ on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of NASDAQ. Except as set forth in Section 3.19 of the Disclosure Schedule, the Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. The Common Stock are currently eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer.

 

Section 3.20.     Application of Takeover Protections. The Company and the Board have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Articles of Incorporation and Bylaws (or similar charter documents) or the laws of its state of incorporation or organization that is or could become applicable to the Buyer as a result of the Buyer and the Company fulfilling their obligations or exercising their rights under this Agreement, including without limitation as a result of the Company’s issuance of the Shares and the Buyer’s ownership of the Shares.

 

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Section 3.21.     Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by this Agreement, the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Buyer or its agents or counsel with any information that it believes constitutes or might constitute material, non-public information which is not otherwise disclosed in the SEC Documents. The Company understands and confirms that the Buyer will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Buyer regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any fact necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the three (3) years preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material factor or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that the Buyer has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Article IV hereof.

 

Section 3.22.     No Integrated Offering. Assuming the accuracy of the Buyer’s representations and warranties set forth in Article IV, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Shares to be integrated with prior offerings by the Company for purposes of the Securities Act which would require the registration of the Shares under the Securities Act, or (ii) any applicable shareholder approval provisions of NASDAQ on which any of the securities of the Company are listed or designated.

 

Section 3.23.     Solvency. Except as set forth on Section 3.23 of the Disclosure Schedule, based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Shares hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). Section 3.23 of the Disclosure Schedule sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company, or for which the Company has commitments. Except as set forth on Schedule 3.23 of the Disclosure Schedule, the Company is not in default with respect to any Indebtedness. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP.

 

Section 3.24.     Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of FCPA.

 

Section 3.25.     Office of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company’s Knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).

 

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Section 3.26.     Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.

 

Section 3.27.     Private Placement. Assuming the accuracy of the Buyer’s representations and warranties set forth in Article IV, no registration under the Securities Act is required for the offer and sale of the Shares by the Company to the Buyer as contemplated hereby.

 

Section 3.28.     No Disqualification Events. With respect to the Shares to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Buyer a copy of any disclosures provided thereunder. The Company will notify the Buyer in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, reasonably be expected to become a Disqualification Event relating to any Issuer Covered Person, in each case of which it is aware.

 

Section 3.29.     Related Party Transactions. Except for arm’s length transactions pursuant to which the Company makes payments in the Ordinary Course of Business upon terms no less favorable than the Company could obtain from third parties, and except as described in the Company SEC Documents, none of the officers, directors or employees of the Company, nor any stockholders who own, legally or beneficially, five percent (5%) or more of the issued and outstanding shares of any class of the Company’s capital stock (each a “Material Shareholder”), is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any Contract providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from, any officer, director or such employee or Material Shareholder or, to the best knowledge of the Company, any other Person in which any officer, director, or any such employee or Material Shareholder has a substantial or material interest in or of which any officer, director or employee of the Company or Material Shareholder is an officer, director, trustee or partner. There are no claims or disputes of any nature or kind between the Company and any officer, director or employee of the Company or any Material Shareholder, or between any of them, relating to the Company and its business.

 

Article IV

REPRESENTATIONS AND WARRANTIES OF Buyer

 

Buyer represents and warrants to the Company that the statements contained in this Article IV in respect of such party, respectively, are true and correct.

 

Section 4.01.     Organization and Authority of Buyer. Buyer is an individual. Buyer has all necessary power and authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Buyer, and (assuming due authorization, execution and delivery by the Company) this Agreement constitutes a legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).

 

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Section 4.02.     No Conflicts; Consents. The execution, delivery and performance by Buyer of this Agreement, and the consummation of the transactions contemplated hereby, do not and will not: (a) result in a violation or breach of any provision of any Law or Governmental Order applicable to Buyer; or (b) other than as disclosed elsewhere in this Agreement, require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default under or result in the acceleration of any agreement to which Buyer is a party, except in the cases of clause (b), where the violation, breach, conflict, default, acceleration or failure to give notice would not have a material adverse effect on Buyer’s ability to consummate the transactions contemplated hereby. 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 consummation of the transactions contemplated hereby, except for such consents, approvals, Permits, Governmental Orders, declarations, filings or notices which would not have a material adverse effect on Buyer’s ability to consummate the transactions contemplated hereby.

 

Section 4.03.     Sufficiency of Funds. Buyer has sufficient cash on hand or other sources of immediately available funds to enable it to make payment of the aggregate purchase price for the Shares and consummate the transactions contemplated by this Agreement to be consummated at the Closing.

 

Section 4.04.     Legal Proceedings.

 

(a)     There are no actions, suits, claims, investigations or other legal proceedings pending or, to Buyer’s knowledge, threatened against or by Buyer or any Affiliate of Buyer which, individually or in the aggregate, would reasonably be expected to have a material adverse effect on Buyer’s ability to consummate the transactions contemplated hereby or otherwise impede, prevent or materially delay the consummation of the transactions contemplated by this Agreement.

 

(b)     There are no outstanding Governmental Orders and no unsatisfied judgments, penalties or awards against or affecting (or, to Buyer’s knowledge, investigations involving) Buyer or any Affiliate of Buyer which, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on Buyer’s ability to consummate the transactions contemplated hereby.

 

Section 4.05.     Investment Purpose. Buyer is acquiring the Shares 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 Shares are not registered under the Securities Act, or any state securities laws, and that the Shares may not be transferred or sold except pursuant to the registration provisions of the Securities Act or pursuant to an applicable exemption therefrom and subject to state securities laws and regulations, as applicable. Buyer is able to bear the economic risk of holding the Shares for an indefinite period (including total loss of its investment), and has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risk of its investment.

 

(a)     Independent Investigation. Buyer has conducted its own independent investigation, review and analysis of the business, results of operations, prospects, condition (financial or otherwise) or assets of the Company, and acknowledges that it has been provided adequate access to the personnel, properties, assets, premises, books and records, and other documents and data of the Company for such purpose. Buyer acknowledges and agrees that: (a) in making its decision to enter into this Agreement and to consummate the transactions contemplated hereby, it has relied solely upon Buyer’s investigation and the express representations and warranties of the Company set forth in Article III of this Agreement (including the related portions of the Disclosure Schedule); and (b) none of the Company or any other Person has made any representation or warranty as to the Company or this Agreement, except as expressly set forth in Article III of this Agreement (including the related portions of the Disclosure Schedule). Buyer acknowledges that it is solely responsible for obtaining such legal, tax and financial advice as it considers appropriate in connection with its execution and delivery of this Agreement and its purchase of the Shares and has had an opportunity to obtain such independent legal, tax and financial advice and acquire an understanding of the acknowledgements, representations and warranties and undertakings set out herein.

 

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Section 4.06.     Brokers. No broker, finder or investment banker is entitled to any payment or other consideration from the Company in respect of any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Buyer.

 

Article V

COVENANTS

 

Section 5.01.     Conduct of Business Following the Closing. Following the execution of this Agreement and until the Closing, except as otherwise provided in this Agreement or consented to in writing by Buyer, the Company shall: (a) conduct the business of the Company in the ordinary course of business; and (b) use commercially reasonable efforts to maintain and preserve intact the current organization, business and reputation of the Company and to preserve the rights, goodwill and relationships of its Employees, customers, suppliers, regulators and others having business relationships with the Company. Following the execution of this Agreement and until the Closing, (i) except as consented to in writing by Buyer, the Company shall not take any action that would cause any of the changes, events or conditions described in Section 3.06 to occur without prior good faith consultations with Buyer (it being understood that such prior good faith consultations shall not require Buyer’s approval), and (ii) the Company shall not take any of the actions described in Section 5.11(a).

 

Section 5.02.     Company Shareholder Meeting; Preparation of Proxy or Company Information Statement Materials.

 

(a)     In the event that applicable rules require that the Company convene a shareholder meeting to obtain Company Shareholder Approval in order to effect the Closing, then, subject to the terms set forth in this Agreement, the Company shall take all actions necessary to duly call, give notice of, convene and hold the Company Shareholder Meeting as soon as reasonably practicable after the date of this Agreement but no later than sixty (60) days after the date hereof (the “Target Date”). In the event that the Company seeks Company Shareholder Approval by written consent and applicable rules require the Company to file and mail a Company Information Statement in order to effect the Closing, then, subject to the terms set forth in this Agreement, the Company shall take all actions necessary to duly obtain the requisite written consent and to file a preliminary Company Information Statement with the SEC as soon as reasonably practicable after the date of this Agreement but no later than twenty (20) days after the date hereof and to mail a definitive Company Information Statement no later than forty (40) days after the date hereof. Notwithstanding anything contained herein to the contrary, the Company shall not be required to hold the Company Shareholder Meeting or file or distribute a preliminary or final Company Information Statement if this Agreement is terminated before such meeting is held or such Company Information Statement is filed or mailed, or applicable.

 

(b)     Buyer hereby agrees that at any Company Shareholder Meeting, however called, and in any action by consent of shareholders of the Company in lieu of a meeting, Buyer will appear at the meeting (or otherwise cause the Shares to be counted as present thereat for purposes of establishing a quorum) and, to the extent permitted by NASDAQ and the Series B Certificate of Designation, will vote or consent to the voting of (or cause to be voted or consented) the Shares (a) in favor of the approval of the issuance of the Shares, and (B) against any action that is intended to, or that could reasonably be expected to, impede, delay or materially adversely affect the Company Shareholder Approval.

  

Section 5.03.     Access to Information. Upon reasonable notice, and except as may otherwise be prohibited by applicable Law, the Company shall afford to Buyer and its Representatives reasonable access during normal business hours during the period prior to each Closing to all their respective properties, books, contracts, commitments, personnel and records and, during each such period, the Company shall furnish promptly to Buyer (a) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of federal or state securities Laws (if not available publically available on Edgar) and (b) all other information concerning its business, properties and personnel as Buyer may reasonably request; provided, however, that the foregoing shall not require the Company to permit any inspection, or to disclose any information, that in the reasonable judgment of the Company would result in the disclosure of any trade secrets of third parties or violate any of its obligations with respect to confidentiality.

 

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Section 5.04.     Confidentiality.

 

(a)     Buyer covenants and agrees that, from and for a period of six (6) months after the Closing, it shall, and shall use its commercially reasonable efforts to cause its affiliates and representatives to, (i) treat and hold as confidential any proprietary information relating to the Company and the Company Subsidiaries that was provided or exchanged between Company and Buyer in connection with this Agreement and any confidential information relating to the negotiation of the transactions contemplated hereby (the “Business Confidential Information”) and (ii) refrain from using and disclosing the Business Confidential Information except to the extent (A) necessary in connection with their obligations under this Agreement, (B) approved in writing in advance by the Company, (C) required by Law, or (D) compelled by Governmental Order to disclose such Business Confidential Information, provided, however, that prior to any such compelled disclosure, Buyer shall give the Company reasonable advance notice of any such disclosure and shall cooperate with Company in protecting against any such disclosure and/or obtaining a protective order narrowing the scope of such disclosure and/or use of such information.

 

(b)     Company covenants and agrees that, from and for a period of six (6) months after the Closing, it shall keep confidential information provided by Buyer pursuant to this Agreement; provided, however, that disclosure of matters that become a matter of public record without any fault of Company shall not constitute a breach of any confidential agreement.

 

Section 5.05.     [Reserved]

 

Section 5.06.     Future Equity Issuances.

 

(a)     Prohibition on Variable Rate Transactions. For so long as at least 25% of the Shares issued in this Transaction remain outstanding, the Company will not, without the prior written consent of holders owning at least 80% of the number of Shares then outstanding, (i) enter into a Variable Rate Transaction, (ii) issue any additional shares of preferred stock or debt which shall rank senior in any terms to the Shares, or (iii) reprice any outstanding shares of Common Stock or Common Stock equivalents or issue any Common Stock or any Common Stock equivalents below $1.00 per share, excluding equity-based awards issued at the market price for the Company’s Common Stock on the date of grant pursuant to the Company’s current stock option plan and the issuance of Common Stock upon exercise or conversion of currently outstanding securities.

 

(b)     “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into, or effects any transaction under, any agreement, including, but not limited to, an equity line of credit, an "at-the-market" offering or similar agreement, whereby the Company may issue securities at a future determined price.

  

Section 5.07.     Governmental Approvals and Other Third-Party Consents.

 

(a)     Each party hereto shall, as promptly as possible, use its reasonable best efforts to obtain, or cause to be obtained, all shareholder approvals and other 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. Each party shall cooperate fully with the other party 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. Notwithstanding the foregoing, no party hereto shall be required to agree to any divestitures, licenses, hold separate arrangements, mitigation agreements or similar matters, including covenants affecting business operating practices, if such divestitures, licenses, arrangements, agreements or similar matters, individually or in the aggregate, would reasonably be expected to have a material adverse effect on the business, assets and liabilities (contingent or otherwise), taken together, or financial condition of the Company or Buyer, respectively.

 

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(b)     The Company shall use commercially reasonable efforts to give all notices to, and obtain all consents from, all third parties that are described in Section 3.04 of the Disclosure Schedule. Each party shall be responsible for paying those fees or expenses incurred in such party’s efforts to obtain consents or approval from those third parties from whom consent or approval is sought.

 

Section 5.08.     Reasonable Efforts to Satisfy Closing Conditions. From the date hereof until the Closing, each party hereto shall use commercially reasonable efforts to take such actions as are necessary to expeditiously satisfy the closing conditions set forth in Article VI hereof. In connection with the foregoing, subject to the terms set forth in this Agreement, Buyer and the Company shall each take all actions necessary to duly call, give notice of, convene and hold a general meeting of the Company’s shareholders, or to provide notice of stockholder action to be taken by written consent in lieu of a meeting, to the extent required for the purpose of obtaining and effecting the Company Shareholder Approval or other shareholder approvals, if deemed required under applicable law and the NASDAQ rules, as soon as reasonably practicable after the date of this Agreement but no later than the Target Date, and, in connection therewith, the Company and its Affiliates shall take such actions as are required by applicable law and the rules of the applicable stock exchange to secure applicable shareholder approvals.

  

Section 5.09.     Supplement to Disclosure Schedule. From time to time prior to Closing, each of the Company and Buyer shall have the right (but not the obligation) to supplement or amend the Disclosure Schedule hereto with respect to any matter hereafter arising or of which it becomes aware after the date hereof (each a “Schedule Supplement”). Any disclosure in any such Schedule Supplement shall not be deemed to have cured any inaccuracy in or breach of any representation or warranty contained in this Agreement, including without limitation for purposes of the termination rights contained in this Agreement or of determining whether or not the conditions set forth in Section 6.02 have been satisfied.

 

Section 5.10.     Public Announcements. The initial public announcements by the Company and Buyer, respectively, with respect to this Agreement and the transactions contemplated hereby shall be mutually agreed to by the Company and Buyer and shall be issued as soon as practicable following the execution of this Agreement and outside of NASDAQ trading hours. Thereafter, unless otherwise required by applicable Law or NASDAQ 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 or delayed), and the parties shall cooperate as to the timing and contents of any such announcement. Buyer and Company acknowledge that a copy of this Agreement will be included on a Report on Form 8-K filed by the Company with the SEC no later than four (4) Business Days following execution of this Agreement.

 

Section 5.11.     Additional Covenants.

 

(a)     From the date of this Agreement until the earlier of the Closing or termination of this Agreement pursuant to Article VII, the Company shall not take any of the following actions without Buyer’s prior express written approval:

 

	
			 

				
			1.

				
			selling or pledging of all or substantially all of the assets of the Company or a voluntary filing for bankruptcy or liquidation;

			

 

	
			 

				
			2.

				
			changing existing legal rights or preferences of the particular class of stock held by minority investors, as provided in the relevant corporate documents governing such shares; or

			

 

	
			 

				
			3.

				
			amending the Company’s articles of incorporation, bylaws, constituent agreement, or other organizational documents of the Company, including but not limited to an amendment to change the Company’s corporate name to a name that is not substantially similar to the name contemplated by the Name Change.

			

 

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(b)     Following the Closing, for so long as Buyer beneficially owns more than 9.9% of the voting power or outstanding Common Stock of the Company, on an as-converted basis, shall not, without the prior written consent of Buyer, take any action to amend the Company’s articles of incorporation, bylaws, constituent agreement, or other organizational documents of the Company, including but not limited to an amendment to change the Company’s corporate name to a name that is not substantially similar to the name contemplated by the Name Change; provided that no provision of this Agreement will limit the right of the Company to amend its articles of incorporation to increase the amount of the Company’s authorized capital stock without the prior written consent of Buyer to the extent that such consent is not required by applicable law.

 

Section 5.12.     Use of Proceeds. The net proceeds of this Transaction will be used as follows: $1,500,000 will be used to pay down the revolving credit balance owed to PNC.

 

Section 5.13.     Piggyback Registration Rights. Buyer shall have the right, for as long as any Shares are outstanding, to include all or any portion of the shares of Common Stock underlying the Shares (collectively with any successor securities, the “Registrable Securities”) as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form S-8 or any equivalent form). In the event of such a proposed registration, the Company shall furnish Buyer with not less than ten (10) days’ written notice prior to the proposed date of filing of such registration statement. Such notice to Buyer shall continue to be given for each registration statement filed by the Company until such time as all of the Registrable Securities have been sold by Buyer. The holders of the Registrable Securities shall exercise the piggy-back rights provided for herein by giving written notice, within five (5) days of the receipt of the Company’s notice of its intention to file a registration statement. Notwithstanding the foregoing; if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter thereof shall, in its reasonable discretion, impose a limitation on the number of Registrable Securities which may be included in the registration statement because, in such underwriter’s judgment, marketing or other factors make such limitation necessary to facilitate public distribution, then the Company shall be obligated to include in such registration statement only such limited portion of the Registrable Securities with respect to which the Buyer requested inclusion hereunder as the underwriter shall reasonably permit; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such registration statement or are not entitled to pro rata inclusion with the Registrable Securities. Buyer (or its transferees) shall be entitled to three piggy-back registrations pursuant to this Section 5.13. Any holder of Registrable Securities may elect to withdraw such holder’s request for inclusion of Registrable Securities in any piggy-back registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the registration statement. The Company (whether in its own determination or as the result of a withdrawal by persons making a demand pursuant to written contractual obligations) may withdraw a registration statement subject to piggy-back registration at any time prior to the effectiveness of the registration statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the holders of Registrable Securities in connection with such piggy-back registration as provided in this Section 5.13. The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to this Section 5.13, including the reasonable and documented expenses (not to exceed $20,000) of a single legal counsel selected by the holders to represent them in connection with the sale of the Registrable Securities, but the holders shall pay any and all underwriting commissions or brokerage fees related to the Registrable Securities. The Company shall use its commercially reasonable efforts to cause any registration statement filed pursuant this Section 5.13 to remain effective for as long as any Shares are outstanding.

  

Section 5.14.     Further Assurances. Following each 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 to be consummated as of such Closing.

 

Article VI

CONDITIONS TO CLOSING

 

Section 6.01.     Conditions to Obligations of All Parties. The obligations of each party to consummate the transactions contemplated by this Agreement at the Closing shall be subject to the fulfillment, at or prior to the Closing Date, of each of the following conditions:

 

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(a)     The Company shall have received all consents, authorizations, orders and approvals from the Governmental Authorities referred to in Section 3.04, including without limitation evidence of NASDAQ clearance in form and substance reasonably satisfactory to Buyer and the Company, and no such consent, authorization, order or approval shall have been revoked.

 

(b)     No suit, action or other proceeding shall be pending before any Government Authority (i) in which the restraint or prohibition of the transactions contemplated hereby is sought, or (ii) that could reasonably be expected to have a Material Adverse Effect. 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.

 

Section 6.02.     Conditions to Obligations of Buyer. The obligations of Buyer to consummate the transactions contemplated by this Agreement at the Closing shall be subject to the fulfillment or Buyer’s waiver, at or prior to the Closing Date, of each of the following conditions:

 

(a)     The representations and warranties of the Company contained in Article III shall be true and correct in all material respects 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, which shall be true and correct in all material respects as of that specified date), except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect; provided, that the representations and warranties of the Company contained in Section 3.02 shall be true and correct in all respects as of the Closing Date, with the same effect as though made at and as of such date, without exception for immaterial errors or otherwise.

 

(b)     On or prior to Closing, Buyer shall have satisfactorily completed its due diligence review of the Company and its business.

 

(c)     On or prior to Closing, the Company shall have filed the Certificate of Designation for the Shares with the Illinois Secretary of State and delivered to Buyer evidence of the Illinois Secretary of State’s acceptance thereto.

 

(d)     The Company shall have duly performed and complied with all agreements, covenants and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date.

  

(e)     Buyer shall have received a certificate, dated as of such Closing Date and signed by a duly authorized officer of the Company, that each of the applicable conditions set forth in this Section 6.02 have been satisfied.

 

(f)     Buyer shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of the Company certifying (i) that attached thereto are true and complete copies of all resolutions adopted by the Company Board authorizing the execution, delivery and performance of this Agreement and the consummation of the Transaction, including without limitation election of the Buyer Director Nominee pursuant to the terms hereof, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby,

 

(g)     The Company shall have delivered, or caused to be delivered, to Buyer confirmation from the Company that the Shares being purchased at the Closing have been registered in the Company’s books and records as outstanding in the name of the Buyer and free and clear of Encumbrances.

 

(h)     At or prior to the Closing, the Company shall cause the Buyer Director Nominee to be elected to the Company Board, effective as of the Closing, all in accordance with the organizational documents of the Company and in compliance with all applicable Laws, including the Securities Act and the Exchange Act.

 

(i)     At the Closing, Buyer shall have received from the Company the Disclosure Schedule, and within three business days from the Closing Date, from counsel to the Company a legal opinion dated effective as of such Closing Date, in form and substance acceptable to Buyer.

 

25

 

 

Section 6.03.     Conditions to Obligations of the Company. The obligations of the Company to consummate the transactions contemplated by this Agreement at the Closing shall be subject to the fulfillment or the Company’s waiver, at or prior to the Closing Date, of each of the following conditions:

 

(a)     The representations and warranties of Buyer contained in Article IV shall be true and correct in all material respects 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, which shall be true and correct in all material respects as of that specified date), except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, have or reasonably be expected to have a material adverse effect on Buyer’s or Buyer’s ability to consummate the transactions contemplated hereby.

 

(b)     Buyer shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date.

 

(c)     The Company shall have received a certificate, dated as of the Closing Date and signed by a duly authorized officer of Buyer, that each of the conditions set forth in (a) and (b) have been satisfied.

 

(d)     The Company shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) 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 consummation of the Transaction and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby.

 

(e)     On or prior to the execution of this Agreement, Buyer shall have delivered to the Company cash in an amount equal to the Purchase Price for all Shares to be purchased pursuant to this Agreement) by wire transfer in immediately available funds, to an account or accounts that has been designated by the Company in a written notice to Buyer.

 

Article VII

TERMINATION

 

Section 7.01.     Termination by Mutual Consent. This Agreement may be terminated at any time prior to the Closing Date (notwithstanding any receipt of Company Shareholder Approval) by mutual written consent of Buyer and the Company.

 

Section 7.02.     Termination by Either Buyer or the Company. This Agreement may be terminated by either Buyer or the Company at any time prior to the Closing Date (notwithstanding receipt of the Company Shareholder Approval):

 

(a)     if any Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law or Governmental Order making illegal, permanently enjoining or otherwise permanently prohibiting the consummation of the Transaction or the other transactions contemplated by this Agreement, and such Law or Order shall have become final and nonappealable; provided, however, that the right to terminate this Agreement pursuant to this Section 7.02(a) shall not be available to any party whose breach of any representation, warranty, covenant or agreement set forth in this Agreement has been the cause of, or resulted in, the issuance, promulgation, enforcement or entry of any such Law or Governmental Order; or

 

(b)     if the condition to Closing set forth in Section 6.01(b) is not reasonably capable of being satisfied or on or prior to the End Date; provided, however, that the right to terminate this Agreement pursuant to this Section 7.02(b) shall not be available to any party whose breach of any representation, warranty, covenant or agreement set forth in this Agreement has been the cause of, or resulted in, such failure.

 

26

 

 

Section 7.03.     Termination by Buyer. This Agreement may be terminated by Buyer at any time prior to the Closing Date if:

 

(a)     there shall have been a breach of any representation, warranty, covenant or agreement on the part of the Company set forth in this Agreement, which breach would give rise to the failure of a condition to the Closing set forth in Section 6.02(a)or Section 6.02(b), as applicable, and such breach is not cured by the Company within thirty (30) days following receipt of written notice of such breach from Buyer;

 

Section 7.04.     Termination by the Company. This Agreement may be terminated by the Company at any time prior to the Closing Date if there shall have been a breach of any representation, warranty, covenant or agreement on the part of Buyer set forth in this Agreement, which breach would give rise to the failure of a condition to the Closing set forth in Section 6.03(a) or Section 6.03(b), as applicable, and such breach is not cured by Buyer within thirty (30) days following receipt of written notice of such breach from the Company.

  

Section 7.05.     Notice of Termination. The party desiring to terminate this Agreement pursuant to Section 7.02, Section 7.03 or Section 7.04 shall deliver written notice of such termination to the other party hereto specifying with reasonable particularity the reason for such termination, and any such termination shall be effective immediately upon delivery of such written notice to the other party. If this Agreement is terminated pursuant to Article VII, it will become void and of no further force and effect, with no liability on the part of any party to this Agreement (or any shareholder, director, officer, employee, agent or Representative of such party) to any other party hereto, except (i) with respect to Section 5.04, Article VIII and Article IX, which shall remain in full force and effect and (ii) with respect to any liabilities or damages incurred or suffered by a party, to the extent such liabilities or damages were the result of fraud or the breach by another party of any of its representations, warranties, covenants or other agreements set forth in this Agreement.

  

Article VIII

INDEMNIFICATION

 

Section 8.01.     Indemnification by the Company. Subject to the other terms and conditions of this Article VIII, the Company shall indemnify and hold harmless Buyer, its directors, officers, stockholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the 1933 Act and Section 20 of the Exchange Act), and the directors, officers, stockholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Buyer Party”) from and against all Losses incurred by Buyer Parties, respectively, due to any third-party claim related to or arising under any material breach of representation, warranty, or covenant by the Company under this Agreement.

 

Section 8.02.     Indemnification by Buyer. Subject to the other terms and conditions of this Article VIII, Buyer shall indemnify and hold harmless the Company from and against all Losses actually incurred by the Company due to any third-party claim related to or arising under any material breach of representation, warranty, or covenant by Buyer under this Agreement.

 

Section 8.03.     No party shall be liable to any other for indemnification under this Article VIII until the aggregate amount of all Losses in respect of indemnification under this Article VIII exceeds an amount equal to 1.0% of the Purchase Price paid by Buyer (the “Deductible”), in which event the indemnifying party shall only be required to pay or be liable for Losses in excess of the Deductible. With respect to any claim as to which a party may be entitled to indemnification under this Article VIII, the indemnifying party shall not be liable for any individual or series of related Losses until the aggregate amount of such losses exceeds $25,000. The aggregate amount of all Losses for which an indemnifying party shall be liable pursuant to this Article VIII shall not exceed an amount equal to 100% of the Shares paid for by Buyer.

 

Section 8.04.     Payments pursuant to this Article VIII in respect of any Loss shall be limited to the amount of any liability or damage that remains after deducting therefrom any insurance proceeds and any indemnity, contribution or other similar payment received by the indemnified party in respect of any such claim or Loss. The indemnifying party shall use its commercially reasonable efforts to recover under insurance policies or indemnity, contribution or other similar agreements for any Losses.

 

27

 

 

Section 8.05.     In no event shall a party be liable to any other for any claims or Losses arising out of this Article VIII for special, indirect, punitive, exemplary, speculative or other damages that are not reasonably foreseeable.

 

Section 8.06.     No party shall be liable under this Article VIII for any Losses based upon or arising out of any inaccuracy in or breach of any of the representations or warranties of the breaching party contained in this Agreement if the party seeking payment under this Article VIII in respect of such inaccuracy or breach had actual knowledge of such inaccuracy or breach prior to the execution of this Agreement.

 

Section 8.07.     No party shall be liable under this Article VIII for any Losses to the extent resulting solely from actions undertaken or omissions by another party, including the failure to obtain the requisite Company Shareholder Approval or approvals from the relevant Governmental Authorities.

 

Article IX

MISCELLANEOUS

 

Section 9.01.     Expenses. Except as otherwise expressly provided in Section 5.07(b), 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.

 

Section 9.02.     Notices. 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 an internationally recognized overnight courier (receipt requested); or (c) on the date sent by facsimile or 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. 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 Section 9.02):

 

	
			 

				
			If to the Company:

				
			Yunhong CTI Ltd.

			22160 N. Pepper Road

			
	
			 

				
			 

				
			Lake Barrington, IL 60010

			Phone: 847-382-1000

			Facsimile

			Email: jconnerty@ctiindustries.com

			Attn: Jennifer Connerty

			
	
			 

				
			 

				
			 

			
	
			 

				
			with a copy to:

				
			Sichenzia Ross Ference LLP

			1185 Avenue of the Americas, 37th Floor

			New York, New York 10036

			Phone: 212-930-9700

			
	
			 

				
			 

				
			Facsimile: 212-930-9725

			Email: trose@srf.law

			Attn: Thomas A. Rose, Esq.

			
	
			 

				
			 

				
			 

			
	
			 

				
			If to Buyer:

				
			Shuai Wang

			
	
			 

				
			 

				
			[Street],

			[City], [State/Country] [Zip]

			 

			Email: [ ]

			Attn: [ ]

			

  

28

 

 

Section 9.03.     Interpretation. 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 Schedule and Exhibits mean the Articles and Sections of, and Disclosure Schedule 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 Schedule 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.

 

Section 9.04.     Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

 

Section 9.05.     Severability. 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 other jurisdiction. 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.

 

Section 9.06.     Entire Agreement. This Agreement constitutes the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein, and supersede all prior and contemporaneous representations, warranties, 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, the Exhibits and Disclosure Schedule (other than an exception expressly set forth as such in the Disclosure Schedule), the statements in the body of this Agreement will control.

 

Section 9.07.     Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. No party may assign its rights or obligations hereunder without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed. No assignment or change or division in the ownership of the Shares of the Company set forth in this Agreement, however accomplished, shall enlarge the obligations or diminish the rights of the Company. Without limiting the foregoing, the total number of Buyer Director Nominees which the Company is obligated to appoint under Section 5.05 shall be apportioned to Buyer and any assignee in proportion to the voting interest of such assignee to the total voting interest held by Buyer and such assignee. Assignment of this Agreement, if approved, shall be subject to written agreement by the assignee to assume all rights and obligations under this Agreement. No assignment shall relieve the assigning party of any of its obligations hereunder.

 

Section 9.08.     No Third-Party Beneficiaries. 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.

 

Section 9.09.     Amendment. At any time prior to the Closing Date, this Agreement may be amended or supplemented in any and all respects, whether before or after receipt of the Company Shareholder Approval, by written agreement signed by each of the parties hereto; provided, however, that following the receipt of the Company Shareholder Approval, there shall be no amendment or supplement to the provisions of this Agreement which by Law or in accordance with the rules of any relevant self- regulatory organization would require further approval by the holders of Shares, without such approval.

 

Section 9.10.     Extension; Waiver. At any time prior to the Closing Date, Buyer or the Company may (a) extend the time for the performance of any of the obligations of the other parties, (b) waive any inaccuracies in the representations and warranties of the other parties contained in this Agreement or in any document delivered under this Agreement, or (c) unless prohibited by applicable Law, waive compliance with any of the covenants, agreements or conditions contained in this Agreement. Any agreement on the part of a party to any extension or waiver will be valid only if set forth in an instrument in writing signed by such party. The failure of any party to assert any of its rights under this Agreement or otherwise will not constitute a waiver of such rights.

 

29

 

 

Section 9.11.     Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.

 

(a)     This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to any choice or conflict of law provision or rule.

 

(b)     ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATE OF NEW YORK IN EACH CASE LOCATED IN THE CITY AND COUNTY OF NEW YORK, 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.

 

(c)     EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT 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 OR THE TRANSACTIONS CONTEMPLATED HEREBY. 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 SECTION 9.11(c).

 

Section 9.12.     Survival of Company’s Representations. All covenants, agreements, representations and warranties made by the Company herein shall, notwithstanding any investigation by the Buyer, be deemed material and relied upon by the Buyer and shall survive the making and execution of this Agreement and the sale and purchase of the Shares, and shall be deemed to be continuing representations and warranties until the earlier of (i) the two-year anniversary of the Closing and (ii) such time as the Company have fulfilled all of its obligations to the Buyer hereunder and under all other documents, and the Buyer has been indefeasibly paid in full.

 

Section 9.13.     Counterparts. 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, .pdf file, 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 PAGE FOLLOWS]

  

30

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

 

	 	
			YUNHONG CTI LTD.

			 

			By _________________________ 

			Name: Jennifer Connerty

			Title: Chief Financial Officer

			 

			 

			BUYER

			 

			 

			By                                                           

			    Shuai Wang

			

 

31

 

 

DISCLOSURE SCHEDULE

 

Section 3.02(a)

 

Shares outstanding     5,228,040

 

Outstanding options and warrants        292,660

 

No other shares to be issued subject to contractual obligation as of the date of this response.

 

CTI Stock Incentive Plan was adopted, but never implemented.

 

Section 3.03

 

The Company owns approximately 99.9% of the issued and outstanding capital stock of Flexo Universal, S. de R.L. de C.V. (“Flexo Universal”), approximately 52% of the issued and outstanding capital stock of CTI Europe GmbH and approximately 28.5% of Clever Container LLC. The Company is in the process of liquidating CTI Europe GmbH. The Company has pledged all of its ownership in Flexo Universal to PNC pursuant to that certain pledge agreement, dated December 14, 2017.

 

Section 3.04

 

The Company is in breach of contract with each of the following vendors and in the following alleged amounts:

 

	
			 

				 	 	
			PSI Impreglon - $4,447.00

			Batavia Container - $110,441.99

			S. C. Johnson & Sons, Inc. - $90,000

			Jules & Associates – $66,000

			Redwood Multimodal - $100,000

			Airgas USA, LLC - $212,000

			Bamberger Polymers - $5,000

			Andersen Pest Control - $6,100

			Sojitz Plastic - $7,500

			CH Robinson International, Inc - $5,300

			Crowe LLP - $26,000

			Engie Resources - $95,000

			Fife Company - $8,200

			L&M Corrugated - $2,000

			Paper Converting Machine Company - $18,900

			Stamar Packaging - $3,300

			

 

The Company must also obtain the approval of PNC pursuant to the terms of that certain Credit, Term Loan and Security Agreement dated December 14, 2017 by and between the Company, PNC, and the other parties a signatory thereto, as amended from time to time thereafter.

 

Section 3.06(a)

 

	
			d.

				
			Pending winddown of the Company’s Non-U.S. Subsidiaries

			COVID

			

 

32

 

 

Section 3.06(b)

 

None; the Company is currently liquidating its German Subsidiary. Final liquidation is expected at the end of 2020.

 

Section 3.06(c)

 

None

 

Section 3.06(d)

 

 

Section 3.06(e)

 

In September 2020, Frank Cesario resigned as the Company’s Chief Executive Officer.

 

Section 3.06(h)

 

None

 

Section 3.06(k)

 

None

 

Section 3.07(a)

 

See attached

 

Section 3.07(b)

 

None

 

Section 3.07(c)

 

The Company let certain foreign patent rights terminate by not paying maintenance fees.

 

Section 3.08(a)

 

Company:

 

	
			1.

				
			Owned Real Property:

			
	 	 
	 	22160 N. Pepper Road
	 	Barrington, Illinois 60010
	 	 
	 	The Company granted PNC a mortgage on the Owned Property Agreement

 

	
			2.

				
			Leased Real Property:

			
	 	 
	 	800 North Church Street
	 	Lake Zurich, Illinois,

 

33

 

 

Non-U.S. Subsidiaries

 

The Company’s Non-U.S. Subsidiaries are parties to certain leases that will be terminated or sold in connection with the disposition of such subsidiaries. Except for the Company’s guaranty of Flexo Universal’s lease, the Company is not a party to such leases.

 

Section 3.09

 

The Company is in breach of contract with each of the following vendors and in the following alleged amounts:

 

	
			 

				 	 	
			PSI Impreglon - $4,447.00

			Batavia Container - $110,441.99

			S. C. Johnson & Sons, Inc. - $90,000

			Jules & Associates – $66,000

			Redwood Multimodal - $100,000

			Airgas USA, LLC - $212,000

			Bamberger Polymers - $5,000

			Andersen Pest Control - $6,100

			Sojitz Plastic - $7,500

			CH Robinson International, Inc - $5,300

			Crowe LLP - $26,000

			Engie Resources - $95,000

			Fife Company - $8,200

			L&M Corrugated - $2,000

			Paper Converting Machine Company - $18,900

			Stamar Packaging - $3,300

			

 

FedEx Trade Networks Transport and Brokerage Inc. v. CTI Industries Corp., Case No. 20 L 46, was filed on January 27, 2020 in the Circuit Court of the 19th Judicial Circuit, Lake County, Illinois.  The complaint for breach of contract sought $163,964.75 in damages, plus interest and court costs. On October 15, 2020, the case was dismissed with leave to reinstate pursuant to settlement. The settlement calls for the payment of $100,400.00 in monthly installments of $10,000 per month for a period of ten (10) months and with the last payment being in the amount of $10,400. The first payment came due and was made on October 30, 2020.

 

Airgas USA, LLC v. CTI Industries Corp., Case No. 01-20-0014-7852 was filed with the American Arbitration Association on or about September 8, 2020. The claim seeks $212,000, plus interest, attorneys’ fees and costs for breach of contract. Claimant agreed to give CTI an extension to respond to the claim through and including November 18, 2020 so the parties could attempt to resolve. Settlement discussions are ongoing.

 

On October 19, 2020, Jules and Associates, Inc. sent CTI a demand letter related to the lease of certain equipment. The letter demanded $65,846.99 for alleged past due amounts under the lease as well as a return of the equipment. Settlement discussions are ongoing and no lawsuit has been filed.

 

On October 19, 2020, Redwood Multimodal sent CTI a demand for the withholding of payment in the amount 98,960.88 for loads brokered by Redwood. Settlement discussions are ongoing and no lawsuit has been filed.

 

Section 3.12(a)

 

CTI 401(k) Plan

 

Section 3.14

 

The Company has not paid its Lake County property tax bill, $73,000, for its Lake Barrington manufacturing facility which was due no later than November 13, 2020.

 

34

 

 

Section 3.19

 

None

 

Section 3.23

 

Amounts owed to PNC pursuant to that certain Credit, Term Loan and Security Agreement dated December 14, 2017 by and between the Company, PNC, and the other parties a signatory thereto, as amended from time to time thereafter. The Company is currently in default with respect to its obligations to PNC under such credit agreement however PNC has agreed to forbear from exercising its rights and remedies under such credit agreement.

 

The Company has guaranteed the obligations to Flexo Universal’s landlord.

 

There are intercompany transactions between the Company and its Non-U.S Subsidiaries that are anticipated to be resolved in connection with the disposition or liquidation of such subsidiaries.

 

 

35ex_215412.htm

Exhibit 4.1

 

TUCOWS INC.

 

2006 EQUITY COMPENSATION PLAN

 

(As Amended and Restated May 22, 2020)

 

1.           Purpose.

 

The purpose of the 2006 Equity Compensation Plan (the “Plan”) is to provide eligible persons with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in Tucows Inc. (the “Company”). The Company believes that the Plan will encourage the participants to contribute materially to the growth of the Company, thereby benefitting the Company’s shareholders, and will align the economic interests of the participants with those of the shareholders.

 

2.           Definitions.

 

Whenever used in this Plan, the following terms will have the respective meanings set forth below:

 

(a)     “Board” means the Company’s Board of Directors.

 

(b)     “Change of Control” shall be deemed to have occurred:

 

(i)     If any “person” (as such term is used in sections 13(d) and 14(d) of the Exchange Act) becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 40% of the voting power of the then outstanding securities of the Company; provided that a Change of Control shall not be deemed to occur as a result of a transaction in which the Company becomes a subsidiary of another corporation and in which the shareholders of the Company, immediately prior to the transaction, will beneficially own, immediately after the transaction, shares entitling such shareholders to more than 40% of all votes to which all shareholders of the parent corporation would be entitled in the election of directors;

 

(ii)     Upon the consummation of (i) a merger or consolidation of the Company with another corporation where the shareholders of the Company, immediately prior to the merger or consolidation, will not beneficially own, immediately after the merger or consolidation, shares entitling such shareholders to more than 40% of all votes to which all shareholders of the surviving corporation would be entitled in the election of directors, (ii) a sale or other disposition of all or substantially all of the assets of the Company, or (iii) a liquidation or dissolution of the Company; or

 

(iii)     If after the date on which this Plan is approved by the shareholders of the Company, directors are elected such that a majority of the members of the Board shall have been members of the Board for less than two years, unless the election or nomination for election of each new director who was not a director at the beginning of such two-year period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.

 

 

 

 

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

 

(d)     “Company” means Tucows Inc. and any successor corporation.

 

(e)     “Company Stock” means the common stock of the Company.

 

(f)     “Compensation Committee” means the corporate governance, nominating and compensation committee of the Company.

 

(g)     “Consultant” means a consultant or advisor of the Company or a subsidiary of the Company, provided that the Company can issue securities to such consultant or advisor under the Plan pursuant to exemptions from prospectus and registration requirements of applicable securities laws.

 

(h)     “Disability” means the inability of the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more.

 

(i)     “Dividend Equivalent” means an amount determined by multiplying the number of shares of Company Stock subject to a Grant by the per-share cash dividend, or the per-share fair market value (as determined by the Plan Administrator) of any dividend in consideration other than cash, paid by the Company on its Company Stock.

 

(j)     “Employee” means an employee of the Employer (including an officer or director who is also an employee).

 

(k)     “Employer” means the Company and its subsidiaries.

 

(l)     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(m)     “Exercise Price” means the per share price at which shares of Company Stock may be purchased under an Option, as designated by the Plan Administrator.

 

(n)     “Fair Market Value” of Company Stock means (i) if the Company Stock is traded on a securities exchange or AIM, the last reported sale price of Company Stock at the close of regular hours trading on the relevant date on the exchange or market determined by the Plan Administrator to be the primary market for the Company Stock, or (if there were no trades on that date) the latest preceding date upon which a sale was reported, (ii) if the Company Stock is not traded on such exchange or market, the mean between the last reported “bid” and “asked” prices of Company Stock at the close of regular hours trading on the relevant date, as reported on Nasdaq or, if not so reported, as reported by the National Daily Quotation Bureau, Inc. or as reported in a customary financial reporting service, as applicable and as the Plan Administrator determines, or (iii) if the Company Stock is not publicly traded or, if publicly traded, is not subject to reported transactions or “bid” or “asked” quotations as set forth above, the Fair Market Value per share shall be as determined by the Plan Administrator.

 

(o)     “Grant” means an Option, Restricted Stock Unit, Stock Award, Performance Unit, SAR, Dividend Equivalent or Other Stock-Based Award granted under the Plan.

 

2

 

 

(p)     “Grant Agreement” means the written instrument that sets forth the terms and conditions of a Grant, including all amendments thereto.

 

(q)     “Incentive Stock Option” means an Option that is intended to meet the requirements of an incentive stock option under section 422 of the Code.

 

(r)     “Insider” means:

 

(i)     every director or officer of the Company;

 

(ii)     every director or officer of a person or company that is itself an insider or subsidiary of the Company;

 

(iii)     every person or company that has beneficial ownership of, or control or direction over, or a combination of beneficial ownership of and control or direction over, directly or indirectly, securities of the Company carrying more than 10% of the voting rights attached to all the Company’s outstanding voting securities, excluding for this purpose any securities held by the person or company as underwriter in the course of a distribution;

 

(iv)     every “associate” (as such term is defined in the Securities Act (Ontario)) of a person or company that is itself an insider; and

 

(v)     every “affiliated company” (as such term is defined in the Securities Act (Ontario)) of a person or company that is itself an insider and every other issuer that is similarly related to such person or company, whether a partnership, limited partnership, trust, income trust, investment trust or any other organized entity issuing securities.

 

(s)     “Non-Employee Director” means a member of the Board who is not an Employee.

 

(t)     “Nonqualified Stock Option” means an Option that is not intended to meet the requirements of an incentive stock option under section 422 of the Code.

 

(u)     “Option” means an option to purchase shares of Company Stock, as described in Section 7.

 

(v)     “Other Stock-Based Award” means any Grant based on, measured by or payable in Company Stock (other than a Grant described in Sections 7, 9, 10, 11 or 12(a) of the Plan), as described in Section 12(b).

 

(w)     “Participant” means an Employee, Non-Employee Director or Consultant designated by the Plan Administrator to participate in the Plan.

 

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(x)     “Performance Goals” means the performance criteria upon which the vesting of one or more Grants under the Plan may be based which may include one or more of the following or such other criteria as the Plan Administrator determines: (i) cash flow; (ii) earnings (including earnings before interest, taxes, depreciation, amortization, net deferred revenue (as determined under GAAP), impact on earnings of unrealized fluctuations in foreign exchange rates, other infrequently occurring items and charges for stock-based compensation), earnings before interest and taxes, earnings before taxes, earnings before interest, taxes, depreciation, amortization and charges for stock-based compensation, earnings before interest, taxes, depreciation and amortization, and net earnings); (iii) earnings per share; (iv) growth in earnings or earnings per share; (v) stock price; (vi) return on equity or average stockholder equity; (vii) total stockholder return or growth in total stockholder return either directly or in relation to a comparative group; (viii) return on capital; (ix) return on assets or net assets; (x) invested capital, required rate of return on capital or return on invested capital; (xi) revenue, growth in revenue or return on sales; (xii) income or net income; (xiii) operating income, net operating income or net operating income after tax; (xiv) operating profit or net operating profit; (xv) operating margin or gross margin; (xvi) return on operating revenue or return on operating profit; (xvii) market share, (xviii) market capitalization, (xix) application approvals, (xx) litigation and regulatory resolution goals, (xxi) product sales or milestones, (xxii) budget comparisons, (xxiii) growth in stockholder value relative to the growth of a peer group or index; (xxiv) development and implementation of strategic plans and/or organizational restructuring goals; (xxv) development and implementation of risk and crisis management programs; (xxvi) improvement in workforce diversity; (xxvii) compliance requirements and compliance relief; (xxviii) productivity goals; (xxix) workforce management and succession planning goals; (xxx) economic value added (including typical adjustments consistently applied from generally accepted accounting principles required to determine economic value added performance measures); (xxxi) measures of customer satisfaction, employee satisfaction or staff development; (xxxii) development of marketing collaborations, formations of joint ventures or partnerships or the completion of other similar transactions intended to enhance the Company’s revenue or profitability or enhance its customer base; (xxxiii) mergers and acquisitions; and (xxxiv) other similar criteria consistent with the foregoing. In addition, such performance criteria may be based upon the attainment of specified levels of the Company’s performance under one or more of the measures described above relative to the performance of other entities and may also be based on the performance of any of the Company’s business units or divisions or any subsidiary. Each applicable Performance Goal may include a minimum threshold level of performance below which no Grant will be earned, levels of performance at which specified portions of a Grant will be earned and a maximum level of performance at which a Grant will be fully earned. Each applicable Performance Goal may be adjusted for one or more of the following items: (A) asset impairments or writedowns; (B) litigation judgments or claim settlements; (C) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; (D) accruals for reorganization and restructuring programs; (E) any extraordinary nonrecurring items; (F) the operations of any business acquired by the Company; (G) the divestiture of one or more business operations or the assets thereof; (H) the effects of any corporate transaction, such as a merger, consolidation, separation (including spinoff or other distributions of stock or property by the Company) or reorganization (whether or not such reorganization is within the definition of that term in Code Section 368); and (I) other adjustment consistent with the operation of the Plan.

 

(y)     “Performance Unit” means an award of a performance unit as described in Section 11.

 

(z)     “Plan” means this Tucows Inc. 2006 Equity Compensation Plan, as in effect from time to time.

 

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(aa)     “Plan Administrator” means the particular entity, whether the Compensation Committee, the Board or other committees or delegate thereof (in the event the Board or Compensation Committee has delegated its authority pursuant to Section 3), which is authorized to administer the Plan with respect to one or more classes of eligible persons, to the extent such entity is carrying out its administrative functions under the Plan with respect to the persons then subject to its jurisdiction.

 

(bb)     “Restricted Stock Unit” means an award of a phantom unit representing a share of Company Stock as described in Section 9.

 

(cc)     “SAR” means a stock appreciation right as described in Section 12.

 

(dd)     “Section 16 Insider” means an officer or director of the Company subject to the short-swing profit liability provisions of Section 16 of the Exchange Act.

 

(ee)     “Stock Award” means an award of Company Stock as described in Section 10.

 

(ff)     “10% Shareholder” shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company (or any parent or subsidiary).

 

(gg)     “Withholding Taxes” shall mean all applicable income and employment taxes, social insurance, payroll taxes, contributions, payment on account obligations or other payments required to be withheld by the Employer in connection with a Grant.

 

3.           Administration.

 

(a)     The Plan shall be administered by the Compensation Committee of the Board with respect to grants to Section 16 Insiders. Administration of the Plan with respect to all other eligible persons may, at the Board’s discretion, be vested in the Compensation Committee or another committee appointed by the Board, or the Board may retain the power to administer the Plan with respect to such persons. However, any discretionary awards to members of the Compensation Committee must be authorized and approved by a disinterested majority of the Board. Administration of the formula option grants to Non-Employee Directors under Section 8 shall be self-executing in accordance with the terms of that program, and no Plan Administrator shall exercise any discretionary functions with respect to any award under that program.

 

(b)     The Board or Compensation Committee may delegate to one or more officers of the Company designated by the Board or the Compensation Committee, the authority to administer Grants to eligible persons other than directors or officers of the Company within specified guidelines established by the Board or the Compensation Committee and subject to applicable law.

 

(c)     Subject to the provisions of the Plan, the Plan Administrator shall have the sole authority to (i) determine the Participants to whom Grants shall be made under the Plan, (ii) determine the type, size and terms and conditions of the Grants to be made to each such Participant, (iii) determine the time when the Grants will be made and the duration of any applicable exercise or vesting period, including the criteria for exercisability or vesting and the acceleration of exercisability or vesting, (iv) amend the terms and conditions of any previously issued Grant, subject to the provisions of Sections 18 and 20 below, and (v) deal with any other matters arising under the Plan.

 

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(d)     The Plan Administrator shall have full power and express discretionary authority to administer and interpret the Plan, to make factual determinations and to adopt or amend such rules, regulations, agreements and instruments for implementing the Plan and for the conduct of its business as it deems necessary or advisable, in its sole discretion. The Plan Administrator’s interpretations of the Plan and all determinations made by the Plan Administrator pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having any interest in the Plan or in any awards granted hereunder. All powers of the Plan Administrator shall be executed in its sole discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated Participants.

 

4.           Grants and Vesting.

 

(a)     Types of Grants. Grants under the Plan may consist of Options as described in Section 7, Restricted Stock Units as described in Section 9, Stock Awards as described in Section 10, Performance Units as described in Section 11, SARs or Other Stock-Based Awards as described in Section 12, and Dividend Equivalents as described in Section 13. All Grants shall be subject to such terms and conditions as the Plan Administrator deems appropriate (but subject to the terms hereof) and as are specified in writing by the Plan Administrator to the Participant in the Grant Agreement.

 

(b)     Vesting. Grants under the Plan shall vest over a period that is not less than one year from the date of grant; provided however that, subject to any adjustments made in accordance with Section 17 below, up to 5% of the shares of Common Stock available for issuance under the Plan as of May 22, 2020 (including the 1,525,000 share increase) may be granted without regard to the minimum vesting requirement. The Plan Administrator shall have discretion to accelerate vesting in connection with a Participant’s death or disability, or in the event of a Change of Control or a corporate transaction or event described in Section 17 or in other circumstances as the Plan administrator deems appropriate.

 

5.           Shares Subject to the Plan.

 

(a)     Shares Authorized. The total aggregate number of shares of Company Stock that may be issued under the Plan is 4,000,000 shares, subject to adjustment as described in subsection (f) below. Such share reserve includes (i) an increase of 1,525,000 shares of Common Stock authorized by the Board on May 22, 2020, subject to shareholder approval at the 2020 Annual Shareholders Meeting and (ii) the increase of 750,000 shares of Common Stock approved by the shareholders at the 2015 Annual Shareholders Meeting.

 

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(b)     Source of Shares; Share Counting. Shares issued under the Plan may be authorized but unissued shares of Company Stock or reacquired shares of Company Stock, including shares purchased by the Company on the open market for purposes of the Plan, subject to compliance with applicable law. If and to the extent outstanding Grants under the Plan terminate, expire, or are canceled, forfeited, exchanged or surrendered prior to the issuance of shares of Company Stock, the shares reserved for such Grants shall again be available for issuance under the Plan. Unvested shares issued under the Plan and subsequently cancelled or repurchased by the Company pursuant to the Company’s repurchase rights under the Plan at a price per share not greater than the original issue price paid per share (subject to compliance with applicable securities legislation) shall again be available for issuance under the Plan. Should the Exercise Price of an Option under the Plan be paid with shares of Company Stock, the authorized reserve of Company Stock under the Plan shall be reduced by the gross number of shares for which that Option is exercised. Should shares of Company Stock otherwise issuable under the Plan be withheld by the Company in satisfaction of the Exercise Price of an Option or Withholding Taxes incurred in connection with the issuance, exercise or vesting of a Grant under the Plan, the number of shares of Company Stock available for issuance under the Plan shall be reduced by the gross number of shares for which that Option is exercised or issuable with respect to that Grant. If SARs are exercised, the gross number of shares for which the SARs are exercised shall be considered issued under the Plan for purposes of this subsection (b). To the extent that Grants are paid in cash, and not in shares of Company Stock, any shares previously reserved for issuance pursuant to such Grants shall again be available for purposes of the Plan.

 

(c)     Individual Limits. The maximum aggregate number of shares of Company Stock with respect to which all Grants may be made under the Plan to any individual during any calendar year shall be 125,000 shares, subject to adjustment as described in subsection (f) below. For Grants denominated in cash and subject to one or more performance conditions, the maximum dollar amount for which such Grants may be made to any individual shall not exceed $2 million for each calendar year within the applicable performance period.

 

(d)     ISO Limits. The maximum number of shares of Common Stock that may be issued pursuant to Incentive Stock Options granted under the Plan shall not exceed 4,000,000 shares, subject to shareholder approval at the 2020 Annual Shareholders Meeting of the 1,525,000 share increase authorized by the Board on May 22, 2020. In the absence of such shareholder approval, the maximum number of shares of Common Stock that may be issued pursuant to Incentive Stock Options shall be limited to 2,475,000 shares of Common Stock.

 

(e)     Insider Limits. The number of shares of Company Stock issuable, directly or indirectly, to all Participants who are Insiders in the aggregate, under this Plan and all other “security based compensation arrangements” (within the meaning of the rules of the Toronto Stock Exchange) of the Company, may not exceed ten percent (10%) of the outstanding shares of Company Stock and the number of shares of Company Stock issued, directly or indirectly, to all Participants who are Insiders in the aggregate within any one (1) year period, under the Plan and all other security based compensation arrangements of the Company, may not exceed ten percent (10%) of the issued and outstanding shares of Company Stock.

 

(f)     Adjustments. In the event of a stock dividend, spinoff, extraordinary distribution (whether in cash, securities or other property), recapitalization, reclassification, stock split, or combination or exchange of shares, or any other event affecting the outstanding Company Stock as a class without the Company’s receipt of consideration, equitable adjustments shall be made to the maximum number and/or class of securities issuable under the Plan, the maximum number and/or class of securities that may be issued pursuant to Incentive Stock Options, the maximum number and/or class of securities for which any individual may receive Grants in any year, the number and/or class of securities for which option grants are subsequently to be made to Non-Employee Directors under Section 8, the number and/or class of securities covered by outstanding Grants, and the price per share or the applicable market value of such Grants. The adjustments shall be made by the Plan Administrator in such manner as the Plan Administrator deems appropriate in order to prevent the dilution or enlargement of benefits hereunder and such adjustments shall be final, binding and conclusive.

 

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6.           Eligibility for Participation.

 

All Employees, including Employees who are officers or members of the Board, all Non-Employee Directors and all Consultants shall be eligible to participate in the Plan.

 

7.           Options.

 

(a)     General Requirements. The Plan Administrator may grant Options to an eligible person upon such terms and conditions as the Plan Administrator deems appropriate under this Section 7. The Plan Administrator shall determine the number of shares of Company Stock that will be subject to each Grant of Options under the Plan.

 

(b)     Type of Option, Price and Term.

 

(i)     The Plan Administrator may grant Incentive Stock Options or Nonqualified Stock Options or any combination of the two, all in accordance with the terms and conditions set forth herein. Incentive Stock Options shall be subject to the provisions of subsection (f) below.

 

(ii)     Subject to Sections 7(f) and 8, the Exercise Price of Company Stock subject to an Option shall be determined by the Plan Administrator and shall be equal to or greater than the Fair Market Value of a share of Company Stock on the date the Option is granted.

 

(iii)     The Plan Administrator shall determine the term of each Option, which shall not exceed seven years from the date of grant.

 

(c)     Exercisability of Options.

 

(i)     Subject to Section 8, Options shall become exercisable in accordance with such terms and conditions as may be determined by the Plan Administrator and specified in the Grant Agreement. The Plan Administrator may accelerate the exercisability of any or all outstanding Options at any time for any reason.

 

(ii)     Subject to compliance with applicable law, the Plan Administrator may provide in a Grant Agreement that the Participant may elect to exercise part or all of an Option before it otherwise has become exercisable. Any shares so purchased shall be restricted shares and shall be subject to a repurchase right in favor of the Company during a specified restriction period (subject to compliance with applicable law) and such other restrictions as the Plan Administrator deems appropriate.

 

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(iii)     Options granted to U.S. persons who are non-exempt employees under the Fair Labor Standards Act of 1938, as amended, may not be exercisable for at least six months after the date of grant (except that such Options may become exercisable, as determined by the Plan Administrator, upon the Participant’s death, Disability or retirement, or upon a Change of Control or other circumstances permitted by applicable regulations).

 

(d)     Termination of Employment or Service. Except as otherwise provided in the Grant Agreement, in the event of the termination of a Participant’s employment or service, for any reason (whether or not for cause) other than as a result of death or Disability of the Participant, the Participant may exercise all of the Participant’s options which have vested and are exercisable on the date of resignation or, in the case of involuntary termination, on the Participant’s last day of active employment or service (the “Termination Date”), as the case may be, until the earlier of the expiry date(s) of the Options and the date that is three (3) months from the Termination Date, or such other date as may be determined by the Plan Administrator, and approved by the stock exchange on which the shares of the Company trade. In the event of the termination of a Participant’s employment or service as a result of the death or Disability of the Participant, all of the Participant’s Options which have vested and are exercisable as at the date of death or Disability (such date, also the “Termination Date”) shall be exercisable until the earlier of the expiry date(s) of the Options and the date that is one (1) year from the Termination Date, or such other date as may be determined by the Plan Administrator, and approved by the stock exchange on which the shares of the Company trade to the extent required by the rules of such stock exchange. Except as otherwise determined by the Plan Administrator and except as otherwise provided in the Grant Agreement, in the event of the termination of the Participant’s employment or service for any reason as contemplated in this Section 7(d), all of the Participant’s Options which have not vested on the Termination Date shall expire and terminate and be of no further force and effect, as of that date.

 

(e)     Payment of Exercise Price. The Participant shall pay the Exercise Price for the Option (i) in cash, (ii) if permitted by the Plan Administrator and subject to compliance with applicable law, by delivering shares of Company Stock owned by the Participant and having an aggregate Fair Market Value on the date of exercise equal to the Exercise Price or by attestation to ownership of shares of Company Stock having an aggregate Fair Market Value on the date of exercise equal to the Exercise Price, (iii) if permitted by the Plan Administrator and subject to compliance with applicable law, by the Company’s withholding from shares of Company Stock otherwise deliverable pursuant to the exercise of the Option shares of Company Stock having an aggregate Fair Market Value on the date of exercise equal to the Exercise Price or (iv) by such other method as the Plan Administrator may approve. Shares of Company Stock used to exercise an Option shall have been held by the Participant for the requisite period of time to avoid adverse accounting consequences to the Company with respect to the Option. Payment for the shares pursuant to the Option, and any required Withholding Taxes, must be received by the time specified by the Plan Administrator depending on the type of payment being made.

 

(f)     Limits on Incentive Stock Options.

 

(i)     Incentive Stock Options may only be granted to Employees.

 

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(ii)     Each Incentive Stock Option shall provide that, if the aggregate Fair Market Value of the stock on the date of the grant with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year, under the Plan or any other stock option plan of the Company or a parent or subsidiary, as defined in section 424 of the Code, exceeds $100,000, then the Option, as to the excess, shall be treated as a Nonqualified Stock Option.

 

(iii)     If any Employee to whom an Incentive Stock Option is granted is a 10% Shareholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option term shall not exceed five (5) years measured from the option grant date.

 

(g)     Shareholder Rights. The holder of an Option shall have no shareholder rights with respect to the shares subject to the Option until such person shall have exercised the Option, paid the Exercise Price and become a holder of record of the purchased shares.

 

8.           Formula Option Grants to Non-Employee Directors; Grants to Committee Members.

 

A Non-Employee Director or a Non-Employee Director who is a member of a committee of the Board (a “Committee Member”) shall be entitled to receive Nonqualified Stock Options in accordance with this Section 8.

 

(a)     Initial Grant. Each Non-Employee Director who first becomes a member of the Board will receive a grant of a Nonqualified Stock Option to purchase 4,375 shares of Company Stock immediately upon the date he or she becomes a member of the Board.

 

Each Committee Member who first becomes a member of the audit committee will receive a grant of a Nonqualified Stock Option to purchase 3,750 shares of Company Stock immediately upon the date he or she becomes a member of the audit committee.

 

Each Committee Member who first becomes a member of the Compensation Committee (or any other separate committee of the Board (other than the audit committee or an ad hoc committee of the Board), including the governance committee and the nominating committee if either of these committees is established as a separate committee) will receive a grant of a Nonqualified Stock Option to purchase 2,500 shares of Company Stock immediately upon the date he or she becomes a member of such committee.

 

(b)     Annual Grants. On each date that the Company holds its annual meeting of shareholders: (i) each Non-Employee Director in office both immediately before and after the annual election of directors will receive a grant of a Nonqualified Stock Option to purchase 3,750 shares of Company Stock. The date of grant of each such annual Grant shall be the date of such annual meeting of shareholders.

 

(c)     Option Price. The exercise price per share of Company Stock subject to an Option granted under this Section 8 shall be equal to the Fair Market Value of a share of Company Stock on the date of grant.

 

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(d)     Option Term. The term of each Option granted pursuant to this Section 8 shall be five (5) years.

 

(e)     Exercisability. Options granted as initial grants under Section 8(a) shall become exercisable in full upon the completion of one (1) year of Board service measured from the date of grant. Annual grants under Section 8(b) shall become exercisable in full upon the completion of Board service through the earlier of (i) one (1) year measured from the date of grant or (ii) the date of the annual shareholder meeting following the date of grant. All Options granted under this Section 8 shall become exercisable on an accelerated basis upon a Change of Control or the Non-Employee Director’s termination of Board service by reason of death or disability.

 

(f)     Applicability of Plan Provisions. Except as otherwise provided in, and not inconsistent with, this Section 8, the Nonqualified Stock Options granted to Non-Employee Directors and Committee Members shall be subject to the provisions of this Plan applicable to Nonqualified Stock Options granted to other Participants.

 

9.           Restricted Stock Units.

 

(a)     General Requirements. The Plan Administrator may grant Restricted Stock Units to an eligible person upon such terms and conditions as the Plan Administrator deems appropriate under this Section 9. Each Restricted Stock Unit shall represent the right of the Participant to receive a share of Company Stock or an amount based on the value of a share of Company Stock. The Plan Administrator shall determine the number of Restricted Stock Units to be granted and the requirements applicable to such Restricted Stock Units. All Restricted Stock Units shall be credited to bookkeeping accounts on the Company’s records for purposes of the Plan.

 

(b)     Terms of Restricted Stock Units. The Plan Administrator may grant Restricted Stock Units that are payable on terms and conditions determined by the Plan Administrator, which may include payment based on achievement of performance criteria (including pre-established performance objectives based on one or more Performance Goals and measured over the performance period specified by the Plan Administrator at the time of the grant of the Restricted Stock Units) or satisfaction of specified service requirements.

 

(c)     Payment With Respect to Restricted Stock Units. Payment with respect to Restricted Stock Units shall be made in cash, in Company Stock, or in a combination of the two, as determined by the Plan Administrator. Restricted Stock Units may be paid at the end of a specified vesting or performance period, or payment may be deferred to a date authorized by the Plan Administrator.

 

(d)     Requirement of Employment or Service. The Plan Administrator shall determine in the Grant Agreement under what circumstances a Participant may retain Restricted Stock Units after termination of the Participant’s employment or service, and the circumstances under which Restricted Stock Units may be forfeited.

 

(e)     Shareholder Rights. The Participant shall not have any shareholder rights with respect to the shares of Company Stock subject to a Restricted Stock Unit until that award vests and the shares of Company Stock are actually issued thereunder.

 

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10.         Stock Awards.

 

(a)     General Requirements. The Plan Administrator may issue shares of Company Stock to an eligible person under a Stock Award upon such terms and conditions as the Plan Administrator deems appropriate under this Section 10 subject to the requirements of applicable law. Shares of Company Stock issued pursuant to Stock Awards may be issued for cash consideration or for no cash consideration, and subject to such vesting restrictions, as determined by the Plan Administrator. The Plan Administrator may establish vesting conditions on Stock Awards which shall lapse over a period of time or according to such other criteria as the Plan Administrator deems appropriate, including the achievement of specific performance goals. The Plan Administrator shall determine the number of shares of Company Stock to be issued pursuant to a Stock Award.

 

(b)     Requirement of Employment or Service. The Plan Administrator shall determine in the Grant Agreement under what circumstances a Participant may retain Stock Awards after termination of the Participant’s employment or service, and the circumstances under which Stock Awards may be forfeited.

 

(c)     Restrictions on Transfer. A Participant may not sell, assign, transfer, pledge or otherwise dispose of an unvested Stock Award except upon death as described in Section 16(a). Unvested shares issued pursuant to Stock Awards may, in the Plan Administrator’s discretion, be held in escrow by the Company until the Participant’s interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares.

 

(d)     Shareholder Rights. Subject to the restrictions on transfer under Section 10(c) above, the Participant shall have full shareholder rights with respect to any shares of Company Stock issued to the Participant under a Stock Award, whether or not the Participant’s interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.

 

11.          Performance Units.

 

(a)     General Requirements. The Plan Administrator may grant Performance Units to an eligible person upon such terms and conditions as the Plan Administrator deems appropriate under this Section 11. Each Performance Unit shall represent the right of a Participant to receive an amount equal to the value of the Performance Unit, determined in the manner established by the Plan Administrator at the time of grant.

 

(b)     Performance Period. At the time of grant of each Performance Unit, the Plan Administrator shall establish a performance period during which performance shall be measured (“Performance Period”). There may be more than one Grant in existence at any one time, and Performance Periods may differ.

 

(c)     Performance Goals. Prior to the beginning of a Performance Period, the Plan Administrator shall establish in writing performance goals to be utilized for one or more Performance Units. The Plan Administrator shall also have the discretionary authority to structure one or more Grants of Performance Units so that those Grants shall vest upon the achievement of pre-established corporate performance objectives based upon one or more Performance Goals measured over the Performance Period specified by the Plan Administrator at the time of the Grant.

 

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(d)     Performance Measures. Performance Units shall be granted to a Participant contingent upon the attainment of performance goals in accordance with Section 11(c).

 

(e)     Performance Unit Value. Each Performance Unit shall have a maximum dollar value established by the Compensation Committee at the time of the grant. Performance Units earned will be determined by the Plan Administrator in respect of a Performance Period in relation to the degree of attainment of specified performance goals. The measure of a Performance Unit may, in the Plan Administrator’s discretion, be equal to the Fair Market Value of a share of Company Stock.

 

(f)     Grant Criteria. In determining the number of Performance Units to be granted to any Participant, the Plan Administrator shall take into account the Participant’s responsibility level, performance, potential, cash compensation level, other incentive awards, and such other considerations as it deems appropriate.

 

(g)     Payment. Following the end of a Performance Period, a Participant holding Performance Units will be entitled to receive payment of an amount, not exceeding the maximum value of the Performance Units, based on the achievement of the performance goals for such Performance Period, as determined by the Plan Administrator. Payment of Performance Units shall be made in cash, except that, in the discretion of the Plan Administrator, Performance Units which are measured using Company Stock may be paid in shares of Company Stock. Payment shall be made in a lump sum or in installments and shall be subject to such other terms and conditions as shall be determined by the Plan Administrator.

 

12.          Stock Appreciation Rights and Other Stock-Based Awards.

 

(a)     SARs. The Plan Administrator may grant SARs to an eligible person separately or in tandem with an Option. The following provisions shall be applicable to SARs:

 

(i)     Base Price. The Plan Administrator shall establish the base price of the SAR at the time the SAR is granted. The base price of each SAR shall be equal to the per share Exercise Price of the related Option or, if there is no related Option, an amount that is at least equal to the Fair Market Value of a share of Company Stock as of the date of grant of the SAR.

 

(ii)     Tandem SARs. The Plan Administrator may grant tandem SARs either at the time the Option is granted or at any time thereafter while the Option remains outstanding; provided, however, that, in the case of an Incentive Stock Option, SARs may be granted only at the date of the grant of the Incentive Stock Option. In the case of tandem SARs, the number of SARs granted to a Participant that shall be exercisable during a specified period shall not exceed the number of shares of Company Stock that the Participant may purchase upon the exercise of the related Option during such period. Upon the exercise of an Option, the SARs relating to the Company Stock covered by such Option shall terminate. Upon the exercise of SARs, the related Option shall terminate to the extent of an equal number of shares of Company Stock.

 

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(iii)     Exercisability. An SAR shall be exercisable during the period specified by the Plan Administrator in the Grant Agreement and shall be subject to such vesting and other restrictions as may be specified in the Grant Agreement. The Plan Administrator may grant SARs that are subject to achievement of performance goals or other conditions. The Plan Administrator may accelerate the exercisability of any or all outstanding SARs at any time for any reason. The Plan Administrator shall determine in the Grant Agreement under what circumstances and during what periods a Participant may exercise an SAR after termination of employment or service. A tandem SAR shall be exercisable only while the Option to which it is related is exercisable. In no event may an SAR have a term in excess of seven (7) years.

 

(iv)     Grants to Non-Exempt Employees. SARs granted to U.S. persons who are non-exempt employees under the Fair Labor Standards Act of 1938, as amended, may not be exercisable for at least six months after the date of grant (except that such SARs may become exercisable, as determined by the Plan Administrator, upon the Participant’s death, Disability or retirement, or upon a Change of Control or other circumstances permitted by applicable regulations).

 

(v)     Settlement of SARs. When a Participant exercises SARs, the Participant shall receive in settlement of such SARs an amount equal to the value of the stock appreciation for the number of SARs exercised. The stock appreciation for an SAR is the amount by which the Fair Market Value of the underlying Company Stock on the date of exercise of the SAR exceeds the base price of the SAR as described in subsection (i).

 

(vi)     Form of Payment. The Plan Administrator shall determine whether the stock appreciation for an SAR shall be paid in the form of shares of Company Stock, cash or a combination of the two. For purposes of calculating the number of shares of Company Stock to be received, shares of Company Stock shall be valued at their Fair Market Value on the date of exercise of the SAR. If shares of Company Stock are to be received upon exercise of an SAR, cash shall be delivered in lieu of any fractional share.

 

(b)     Other Stock-Based Awards. The Plan Administrator may grant other awards not specified in Sections 7, 9, 10, 11 or 12(a) above that are based on or measured by Company Stock to eligible persons, on such terms and conditions as the Plan Administrator deems appropriate. Other Stock-Based Awards may be granted subject to achievement of performance goals or other conditions and may be payable in Company Stock or cash, or in a combination of the two, as determined by the Plan Administrator in the Grant Agreement.

 

13.         Dividend Equivalents.

 

(a)     General Requirements. When the Plan Administrator makes a Grant under the Plan, the Plan Administrator may grant Dividend Equivalents in connection with the Grant, under such terms and conditions as the Plan Administrator deems appropriate under this Section 13. Dividend Equivalents may be paid to Participants currently or may be deferred, as determined by the Plan Administrator; provided, however, that Dividend Equivalents with respect to a Grant shall vest and be paid only if and to the extent the underlying Grant vests as determined by the Plan Administrator. All Dividend Equivalents that are not paid currently shall be credited to bookkeeping accounts on the Company’s records for purposes of the Plan. Dividend Equivalents may be accrued as a cash obligation, or may be converted to Restricted Stock Units for the Participant, and deferred Dividend Equivalents may accrue interest, all as determined by the Plan Administrator.

 

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(b)     Payment with Respect to Dividend Equivalents. Dividend Equivalents may be payable in cash or shares of Company Stock or in a combination of the two, as determined by the Plan Administrator.

 

14.         Deferrals.

 

The Plan Administrator may permit or require a Participant to defer receipt of the payment of cash or the delivery of shares that would otherwise be due to the Participant in connection with any Grant. The Plan Administrator shall establish rules and procedures for any such deferrals, consistent with applicable requirements of section 409A of the Code and applicable provisions of the Income Tax Act (Canada).

 

15.         Withholding of Taxes.

 

(a)     Required Withholding. All Grants under the Plan shall be subject to satisfaction of all applicable Withholding Taxes. The Company may require that the Participant or other person receiving or exercising Grants pay to the Company the amount of any Withholding Taxes that the Company is required to withhold with respect to such Grants, or the Company may at its sole discretion and to the extent permitted by law, deduct from other wages paid by the Company the amount of any Withholding Taxes due with respect to such Grants.

 

(b)     Election to Withhold Shares. If the Plan Administrator so permits, a Participant may elect to satisfy the Withholding Taxes with respect to Grants paid in Company Stock by having shares withheld, at the time such Grants become taxable, up to an amount that does not exceed the minimum applicable Withholding Tax rate (or such other rate as determined by the Plan Administrator. The election must be in a form and manner prescribed by the Plan Administrator.

 

16.         Transferability of Grants.

 

(a)     Restrictions on Transfer. Except as described below, only the Participant may exercise rights under a Grant during the Participant’s lifetime, and a Participant may not transfer those rights except by will or by the laws of descent and distribution. When a Participant dies, the personal representative or other person entitled to succeed to the rights of the Participant may exercise such rights. Any such successor must furnish proof satisfactory to the Company of his or her right to receive the Grant under the Participant’s will or under the applicable laws of descent and distribution.

 

(b)     Transfer of Nonqualified Stock Options to or for Family Members. Notwithstanding the foregoing but subject to applicable securities legislation, the Plan Administrator may provide, in a Grant Agreement, that a Participant may transfer Nonqualified Stock Options to family members, or one or more trusts or other entities for the benefit of or owned by family members, consistent with the applicable securities laws, according to such terms as the Plan Administrator may determine; provided that the Participant receives no consideration for the transfer of an Option and the transferred Option shall continue to be subject to the same terms and conditions as were applicable to the Option immediately before the transfer.

 

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17.         Consequences of a Change of Control.

 

In the event of a Change of Control, the Plan Administrator may take any one or more of the following actions with respect to all outstanding Grants, without the consent of any Participant: (i) the Plan Administrator may determine that outstanding Options and SARs shall become fully exercisable, and restrictions on outstanding Stock Awards, Restricted Stock Units, Performance Units and Stock-Based Awards shall lapse so that such Grants shall become fully vested, as of the date of the Change of Control or at such other time as the Plan Administrator determines; (ii) the Plan Administrator may require that Participants surrender their outstanding Options and SARs in exchange for one or more payments by the Company, in cash or Company Stock as determined by the Plan Administrator, in an amount equal to the amount by which the then Fair Market Value of the shares of Company Stock subject to the Participant’s unexercised Options and SARs exceeds the Exercise Price (or the Base Price), if any, payable in accordance with the same exercise or vesting schedule applicable to those Grants and on such other terms as the Plan Administrator determines; (iii) after giving Participants an opportunity to exercise their outstanding Options and SARs, the Plan Administrator may terminate any or all unexercised Options and SARs at such time as the Plan Administrator deems appropriate; (iv) with respect to Participants holding Restricted Stock Units, Performance Units, Other Stock-Based Awards or Dividend Equivalents, the Plan Administrator may determine that such Participants shall receive one or more payments in settlement of such Restricted Stock Units, Performance Units, Other Stock-Based Awards or Dividend Equivalents, in such amount and form and on such terms as may be determined by the Plan Administrator (including payment in accordance with the same vesting schedule applicable to those Grants); (v) the Plan Administrator may terminate all unvested Restricted Stock Units, Performance Units, Other Stock-Based Awards or Dividend Equivalents and require the surrender of any unvested shares subject to Stock Awards; or (vi) the Plan Administrator may determine that Grants that remain outstanding after the Change of Control shall be assumed by the successor corporation or otherwise continued in effect. Such acceleration, surrender, termination, settlement or assumption shall take place as of the date of the Change of Control or such other date as the Plan Administrator may specify.

 

(a)     Other Transactions. The Plan Administrator may provide in a Grant Agreement that a sale or other transaction involving a subsidiary or other business unit of the Company shall be considered a Change of Control for purposes of a Grant, or the Plan Administrator may establish other provisions that shall be applicable in the event of a specified transaction.

 

18.         No Repricing.

 

The Plan Administrator may not without obtaining shareholder approval (i) implement cancellation/regrant programs pursuant to which outstanding Options or SARs under the Plan are cancelled and new Options or SARs are granted in replacement with a lower exercise or base price per share, (ii) cancel outstanding Options or SARs under the Plan with exercise or base prices per share in excess of the then current Fair Market Value per share of Company Stock for consideration payable in cash or in equity securities of the Company or (iii) reduce the exercise or base price in effect for outstanding Options or SARs under the Plan except pursuant to adjustments under Section 5(f).

 

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19.         Requirements for Issuance of Shares.

 

No Company Stock shall be issued in connection with any Grant hereunder unless and until all legal requirements applicable to the issuance of such Company Stock have been complied with to the satisfaction of the Plan Administrator. The Plan Administrator shall have the right to condition any Grant made to any Participant hereunder on such Participant’s undertaking in writing to comply with such restrictions on his or her subsequent disposition of such shares of Company Stock as the Plan Administrator shall deem necessary or advisable, and certificates representing such shares may be legended to reflect any such restrictions. Certificates representing shares of Company Stock issued under the Plan will be subject to such stop-transfer orders and other restrictions as may be required by applicable laws, regulations and interpretations, including any requirement that a legend be placed thereon. No Participant shall have any right as a shareholder with respect to Company Stock covered by a Grant until shares have been issued to the Participant.

 

20.         Effective Date, Amendment and Termination of the Plan.

 

(a)     Effective Date. The Plan became effective upon its adoption by the shareholders at the 2006 Annual Shareholders Meeting. The Plan was amended on July 29, 2010 to increase the number of shares of Common Stock authorized for issuance under the Plan by an additional 475,000 shares, extend the term of the Plan to September 6, 2020 and make certain other technical amendments; such amendment was approved by the shareholders at the 2010 Annual Shareholders Meeting. The Plan was amended on July 10, 2015 to: (i) increase the number of shares of Common Stock authorized for issuance under the Plan by an additional 750,000 shares; (ii) extend the term of the Plan to September 1, 2025; (iii) include a list of performance goals that may be utilized to establish vesting for performance-based awards; (iv) amend the terms of the Non-Employee Director grants; (v) require gross counting of the share reserve; (vi) impose a minimum 12-month vesting requirement on Grants; (vii) prohibit repricing of Options and SARs; and (viii) permit the net exercise of an Option; such amendment was approved by the shareholders at the 2015 Annual Shareholders Meeting. The Plan was amended on May 22, 2020 to increase the number of shares of Common Stock authorized for issuance under the Plan by an additional 1,525,000 shares, extend the term of the Plan to September 7, 2030 and make certain other technical amendments subject to shareholder approval at the 2020 Annual Shareholders Meeting.

 

(b)     Amendment. The Board may amend or terminate the Plan at any time; provided, however, no amendment or termination of this Plan shall, without the consent of the Participant, materially impair any rights or obligations under any Grant previously made to the Participant under the Plan, unless such right has been reserved in the Plan or the Grant Agreement. In addition, amendments to the Plan shall be subject to approval of the shareholders and regulatory authorities to the extent required by applicable law or regulation or pursuant to the rules or listing standards of any securities exchange (or the Nasdaq National Market or AIM) on which the Company Stock is traded. For greater specificity, the Board may make such amendments to the Plan as it deems desirable or necessary, without the approval of the Company’s shareholders, except any such amendment to: (i) change the maximum number of shares of Company Stock that may be issued under the Plan, whether as a fixed number of shares or as a fixed percentage of the number of shares outstanding from time to time (other than to reflect an adjustment pursuant to Section 5(f), unless otherwise required by any securities exchange or market on which the shares of the Company are listed); (ii) materially increase benefits to Participants, including any change to permit a repricing or decrease of the Exercise Price of an Option; (iii) reduce the exercise price or purchase price or extend the term of any Grant under the Plan which would benefit an Insider; (iv) materially expand the class of participants eligible to participate in the Plan; (v) expand the types of awards provided under the Plan; or (vi) any amendment to Section 5(e) (the insider participation limit) or this Section 20(b). Notwithstanding anything in the Plan to the contrary but subject to this Section 20(b), the Board may amend the Plan in such manner as it deems appropriate in the event of a change in applicable law or regulations.

 

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(c)     Termination of Plan. Subject to shareholder approval, the Plan shall terminate on September 7, 2030, unless the Plan is terminated earlier by the Board or is extended by the Board with the approval of the shareholders. The termination of the Plan shall not impair the power and authority of the Plan Administrator with respect to an outstanding Grant.

 

21.         Miscellaneous.

 

(a)     Compliance with Law. The Plan, the exercise of Options and SARs and the obligations of the Company to issue or transfer shares of Company Stock under Grants shall be subject to all applicable laws and to approvals by any governmental or regulatory agency as may be required. With respect to Section 16 Insiders, it is the intent of the Company that the Plan and all transactions under the Plan comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. In addition, it is the intent of the Company that Incentive Stock Options comply with the applicable provisions of section 422 of the Code and that, to the extent applicable, Grants comply with the requirements of section 409A of the Code. To the extent that any legal requirement of section 16 of the Exchange Act or section 422 or 409A of the Code as set forth in the Plan ceases to be required under section 16 of the Exchange Act or section 422 or 409A of the Code, that Plan provision shall cease to apply. The Plan Administrator may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance with any valid and mandatory government regulation. The Plan Administrator may also adopt rules regarding the withholding of taxes on payments to Participants. The Plan Administrator may, in its sole discretion, agree to limit its authority under this Section.

 

(b)     Enforceability. The Plan shall be binding upon and enforceable against the Company and its successors and assigns.

 

(c)     Funding of the Plan; Limitation on Rights. This Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under this Plan. Nothing contained in the Plan and no action taken pursuant hereto shall create or be construed to create a fiduciary relationship between the Company and any Participant or any other person. No Participant or any other person shall under any circumstances acquire any property interest in any specific assets of the Company. To the extent that any person acquires a right to receive payment from the Company hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company.

 

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(d)     Participation Voluntary. The participation of any Participant of the Plan is entirely voluntary and not obligatory and shall not be interpreted as conferring any rights or privileges, other than those rights and privileges expressly provided in the Plan. In particular, participation in the Plan does not constitute a condition of employment, appointment or engagement to provide services, or constitute a commitment on the part of the Employer to continued employment, appointment or engagement to provide services, and neither the Plan nor any Grant under the Plan shall be construed as granting a Participant a right to be retained as an Employee, Non-Employee Director or Consultant or a claim or right to any future Grants under the Plan. Neither the Plan nor any action taken hereunder shall interfere with the right of the Employer to terminate the employment, appointment or provision of services of such Participant at any time. The payment of any sum of money in cash in lieu of notice of termination of employment, appointment or provision of services shall not be considered as extending the period of employment, appointment or the provision of services for the purposes of the Plan.

 

(e)     No Fractional Shares. No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan or any Grant. The Plan Administrator shall determine whether cash, other awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

 

(f)     Employees Resident Outside the United States. With respect to Participants who are resident in countries other than the United States, the Plan Administrator may make Grants on such terms and conditions as the Plan Administrator deems appropriate to comply with the laws of the applicable countries, and the Plan Administrator may create such procedures, addenda and subplans and make such modifications as may be necessary or advisable to comply with such laws.

 

(g)     Governing Law. The validity, construction, interpretation and effect of the Plan and Grant Agreements issued under the Plan shall be governed and construed by and determined in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to the conflict of laws provisions thereof.

 

 

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