Document:

CECO ENVIRONMENTAL CORP.

AND

CAN-MED TECHNOLOGY, INC. d/b/a GREEN DIAMOND OIL CORP.

 

 

 

WARRANT AGREEMENT

 

 

 

Dated as of December 28, 2006

 

 

                                                             

 

 

 

 

 

 

 

WARRANT AGREEMENT (the "Agreement") dated as of December 28, 2006 between CECO Environmental Corp., a Delaware corporation (the "Company"), and Can-Med Technology, Inc. d/b/a Green Diamond Oil Corp. (hereinafter referred to as a "Holder" or "Green Diamond").

W I T N E S S E T H:

WHEREAS, Green Diamond and the Company are parties to a Second Amended and Restated Replacement Promissory Note and a Fourth Amended and Restated Replacement Promissory Note, whereby the Company owes Green Diamond the sums set forth therein; 

WHEREAS, Green Diamond agreed to extend the maturity date under the Notes from April 1, 2007 to July 1, 2008 pursuant to a Third Amended and Restated Replacement Promissory Note ("Replacement Note 1") and a Fifth Amended and Restated Replacement Promissory Note ("Replacement Note 2" and together with Replacement Note 1, the "Notes"); and

WHEREAS, as part of the consideration for Green Diamond's agreement to extend the maturity date under the Notes, the Company desires to grant to Green Diamond, and Green Diamond desires to accept from the Company, warrant certificates giving Green Diamond the right to purchase shares of the Company's Common Stock;

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

1.Grant.  Green Diamond is granted the right to purchase, from the Company, at any time from December 28, 2006, until 5:00 p.m., Eastern Standard Time, on December 28, 2016 (the "Expiration Date"), at which time the Warrants expire, up to an aggregate of 250,000 shares (subject to adjustment as provided in Section 8 hereof) of common stock, par value $.01 per share, of the Company ("Common Stock") at an initial exercise price (subject to adjustment as provided in Section 11 hereof) of  $9.07 per share (the "Exercise Price").  

2.Warrant Certificates.  The warrant certificates (the "Warrant Certificates") delivered and to be delivered pursuant to this Agreement shall be in the form set forth in Exhibit A, attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions, and other variations as required or permitted by this Agreement.

3.Registration of Warrant.  The Warrants shall be numbered and shall be registered on the books of the Company when issued.

4.Exercise of Warrant.

4.1Method of Exercise.  The Warrants initially are exercisable at the product of (i) the Exercise Price multiplied by (ii) the number of shares of Common Stock purchased (subject to adjustment as provided in Section 11 hereof), as set forth in Section 8 hereof payable by certified or official bank check in United States dollars.  The product of the number of Warrants exercised at any one time multiplied by the Exercise Price shall be referred to as the "Purchase Price."  Upon surrender of a Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Purchase Price for the shares of Common Stock purchased at the Company's principal offices located at 3120 Forrer Street, Cincinnati, OH 45209, the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased.  The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder thereof, in whole or in part (but not as to fractional shares of the Common Stock).  In the case of the purchase of less than all the shares of Common Stock purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the shares of Common Stock purchasable thereunder.

5.Issuance of Certificates.  Upon the exercise of the Warrants, the issuance of certificates for shares of Common Stock shall be made forthwith (and in any event within five (5) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Sections 7 and 9 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

The Warrant Certificates and the certificates representing the shares of Common Stock, or other securities, property or rights issued upon exercise of the Warrants shall be executed on behalf of the Company by the manual or facsimile signature of the then present Chief Executive Officer, President or any Vice President of the Company, attested to by the manual or facsimile signature of the then present Secretary or any Assistant Secretary of the Company.  Warrant Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer.

6.Non-transferability of Warrants.  The Warrants issued hereunder or any interest in such Warrants may not be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner other than by will or the laws of descent and distribution.  Notwithstanding any other Section of this Agreement, any such attempted sale, assignment, conveyance, gift, pledge, hypothecation or transfer shall be null and void and shall nullify such Warrants immediately.  

7.Transfer of Warrant.  The Warrants shall be transferable only as set forth in Section 6 above and only on the books of the Company maintained at its principal office, where its principal office may then be located, upon delivery thereof duly endorsed by the Holder or by its duly authorized attorney or representative accompanied by proper evidence of succession, assignment or authority to transfer.  Upon any such permitted transfer, the Company shall execute and deliver new Warrants to the person entitled thereto. 

8.Exercise Price and Number of Securities.  Except as otherwise provided in Section 10 hereof, each of the Warrants are exercisable to purchase one share of Common Stock at an initial exercise price equal to the Exercise Price.  The Exercise Price and the number of shares of Common Stock for which the Warrant may be exercised shall be the price and the number of shares of Common Stock which shall result from time to time from any and all adjustments in accordance with the provisions of Section 11 hereof.

9.Registration Rights.

9.1Registration Under the Securities Act of 1933.  Each Warrant Certificate and each certificate representing the shares of Common Stock, and any of the other securities issuable upon exercise of the Warrants and the securities underlying the securities issuable upon exercise of the Warrants (collectively, the "Warrant Shares") shall bear the following legend, unless (i) such Warrants or Warrant Shares are distributed to the public or sold for distribution to the public pursuant to this Section 9 or otherwise pursuant to a registration statement filed under the Securities Act of 1933, as amended (the "Act"), (ii) such Warrants or Warrant Shares are subject to a currently effective registration statement under the Act; or (iii) the Company has received an opinion of counsel, in form and substance reasonably satisfactory to counsel for the Company, that such legend is unnecessary for any such certificate:

THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.

THE TRANSFER OR EXCHANGE OF THE WARRANTS OR OTHER SECURITIES REPRESENTED BY THE CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.

9.2Piggyback Registration.  If, at any time commencing July 1, 2007, and expiring on the Expiration Date, the Company proposes to register any of its securities, not registered on the date hereof, under the Act (other than in connection with a merger or pursuant to Form S-4 or Form S-8) it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Holders of the Warrants and/or the Warrant Shares of its intention to do so.  If any of the Holders of the Warrants and/or Warrant Shares notify the Company within twenty (20) days after mailing of any such notice of its or their desire to include any such securities in such proposed registration statement, the Company shall afford such Holders of the Warrants and/or Warrant Shares the opportunity to have any such Warrant Shares registered under such registration statement.  In the event that the managing underwriter for said offering advises the Company in writing that in the underwriter's opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without causing a diminution in the offering price or otherwise adversely affecting the offering, the Company will include in such registration (a) first, the securities the Company proposes to sell, (b) second, the securities held by the entities that made the demand for registration, (c) third, the Warrants and/or Warrant Shares requested to be included in such registration which in the opinion of such underwriter can be sold, pro rata among the Holders of Warrants and/or Warrant Shares on the basis of the number of Warrants and/or Warrant Shares requested to be registered by such Holders, and (d) fourth, other securities requested to be included in such registration.

Notwithstanding the provisions of this Section 9.2, the Company shall have the right at any time after it shall have given written notice pursuant to this Section 9.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement or to withdraw the same after the filing but prior to the effective date thereof.
9.3Covenants of the Company With Respect to Registration.  In connection with any registration under Section 9.2 hereof, the Company covenants and agrees as follows:

(a) The Company shall furnish each Holder desiring to sell Warrant Shares such number of prospectuses as shall reasonably be requested.  The Company shall also file such applications and other documents as may be necessary to permit the sale of the Warrant Shares to the public during the Registration Period in those states to which the Company and the holders of the Warrants and/or Warrant Shares shall mutually agree.

(b) The Company shall pay all costs (excluding fees and expenses of Holder(s)' counsel and any underwriting or selling commissions), fees and expenses in connection with all registration statements filed pursuant to Section 9.2 hereof including, without limitation, the Company's legal and accounting fees, printing expenses, blue sky fees and expenses.  

(c) The Company will take all necessary action which may be required in qualifying or registering the Warrant Shares included in a registration statement for offering and sale under the securities or blue sky laws of such states as reasonably are requested by the Holder(s), provided that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction.

(d) The Company shall indemnify the Holder(s) of the Warrant Shares to be sold pursuant to any registration statement and each person, if any, who controls such Holder(s) within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement. 

(e) In order to provide for just and equitable contribution under the Act in any case in which (i) any Holder of the Warrant Shares or controlling person thereof makes a claim for indemnification but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of Section 9.3(d) hereof provide for indemnification in such case or (ii) contribution under the Act may be required on the part of any Holder of the Warrant Shares, or controlling person thereof, then the Company, any such Holder of the Warrant Shares, or controlling person thereof shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (which shall, for all purposes of this Agreement, include, but not be limited to, all costs of defense and investigation and all attorneys fees), in either such case (after contribution from others) on the basis of relative fault as well as any other relevant equitable considerations.  The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or a Holder of Warrant Shares, or controlling person thereof on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  The Company and such Holders of such securities and such controlling persons agree that it would not be just and equitable if contribution pursuant to this Section 9.3(e) were determined by pro rata allocation or by any other method which does not take account of the equitable considerations referred to in this Section 9.3(e).  The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 9.3(e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

(f) The Holder(s) of the Warrant Shares to be sold pursuant to a registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against any loss, claim, damage or expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished in writing, by or on behalf of such Holders, or their successors or assigns, for specific inclusion in such registration statement. 

(g) Nothing contained in this Agreement shall be construed as requiring the Holder(s) to exercise their Warrants prior to the initial filing of any registration statement or the effectiveness thereof.

(h) The Company shall furnish to each Holder participating in the offering and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), and (ii) a "cold comfort" letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a "cold comfort" letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities.

(i) The Company shall enter into an underwriting agreement with the managing underwriters selected for such underwriting by Holders holding a Majority of the Warrant Shares requested to be included in such underwriting.  Such agreement shall be satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter.  The Holder(s) shall be parties to any underwriting agreement relating to an underwritten sale of their Warrant Shares and may, at their option, require that any or all of the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holder(s).  Such Holder(s) shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holder(s) and their intended methods of distribution.

(j) For purposes of this Agreement, the term "Majority" in reference to the Warrants or Warrant Shares, shall mean in excess of fifty percent (50%) of the then outstanding Warrants or Warrant Shares that (i) are not held by the Company, or (ii) have not been resold to the public pursuant to a registration statement filed with the Commission under the Act or Rule 144 promulgated under the Act.

10.Obligations of Holders.  It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 9 hereof that each of the selling Holders shall:

(a) Furnish to the Company such information regarding themselves, the Warrant Shares held by them, the intended method of sale or other disposition of such securities, the identity of and compensation to be paid to any underwriters proposed to be employed in connection with such sale or other disposition, and such other information as may reasonably be required to effect the registration of their Warrant Shares.

(b) Notify the Company, at any time when a prospectus relating to the Warrant Shares covered by a registration statement is required to be delivered under the Act, of the happening of any event with respect to such selling Holder as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.

11.Adjustments to Exercise Price and Number of Securities.  The Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of the Warrants or the securities underlying the Warrants shall be subject to adjustment from time to time upon the happening of certain events as follows:

11.1Dividend, Subdivision and Combination.  In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action.  Such adjustment shall be made successively whenever any event listed above shall occur.

11.2Adjustment in Number of Securities.  Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 11, the number of Warrant Shares issuable upon the exercise at the adjusted Exercise Price of each Warrant shall be adjusted to the nearest number of whole shares of Common Stock determined by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of the applicable Warrant Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price.   

11.3Definition of Common Stock.  For the purpose of this Agreement, the term "Common Stock" shall mean (i) the class of stock designated as Common Stock in the Articles of Incorporation of the Company as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value.  

11.4Merger or Consolidation.  In case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to each Holder a supplemental warrant agreement providing that the Holder of each Warrant then outstanding shall have the right thereafter (until the Expiration Date) to receive, upon exercise of such Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger to which the Holder would have been entitled if the Holder had exercised such Warrant immediately prior to such consolidation, merger, sale or transfer.  Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in this Section 11.  The above provision of this subsection shall similarly apply to successive consolidations or mergers.

11.5No Adjustment of the Exercise Price in Certain Cases.  No adjustment of the Exercise Price shall be made:

(a)Upon the issuance or sale of the Warrants or the Warrant Shares;
(b) Upon the issuance or sale of Common Stock (or any other security convertible, exercisable, or exchangeable into shares of Common Stock) upon the direct or indirect conversion, exercise, or exchange of any options, rights, warrants, or other securities or indebtedness of the Company outstanding as of the date of this Agreement or granted pursuant to any stock option plan of the Company in existence as of the date of this Agreement, pursuant to the terms thereof or issued pursuant to any stock purchase plan in existence as of the date of this Agreement, pursuant to the terms thereof; or

(c)If the amount of said adjustment shall be less than ten cents ($.10) per share, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least ten cents ($.10) per share.

12.Exchange and Replacement of Warrant Certificates.  Each Warrant Certificate is exchangeable, without expense, upon the surrender thereof by the registered Holder at the principal executive office of the Company for a new Warrant Certificate of like tenor and date representing in the aggregate the Holder's right to purchase the same number of Warrant Shares in such denominations as shall be designated in such Warrant Certificate at the time of such surrender.

Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrant Certificate, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof.

13.Elimination of Fractional Interests.  The Company shall not be required to issue certificates representing fractions of shares of Common Stock or other securities upon the exercise of the Warrants, nor shall it be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock or other securities, properties or rights.

14.Reservation and Listing of Securities.  The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof or the exercise or conversion of any other exercisable or convertible securities underlying the Warrants.  Every transfer agent and warrant agent (collectively "Transfer Agent") for the Common Stock and other securities of the Company issuable upon the exercise of the Warrants will be irrevocably authorized and directed at all times to reserve such number of authorized shares of Common Stock and other securities as shall be requisite for such purpose.  The Company will keep a copy of this Agreement on file with every Transfer Agent for the Common Stock and other securities of the Company issuable upon the exercise of the Warrants.  The Company will supply every such Transfer Agent with duly executed stock and other certificates, as appropriate, for such purpose.  The Company covenants and agrees that, upon each exercise of the Warrants and payment of the Purchase Price, all shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder.  As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock and other securities issuable upon the exercise of the Warrants and the securities underlying the securities issuable upon exercise of the Warrants to be listed (subject to official notice of issuance) on all securities exchanges or securities associations on which the Common Stock issued to the public in connection herewith may then be listed and/or quoted.

15.Notices to Warrant Holders.  Nothing contained in this Agreement shall be construed as conferring upon the Holder(s) of the Warrants the right to vote or to consent or to receive notice as a stockholder in respect of any meetings of stockholders for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company.  If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur:
(a)the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or

(b)the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or 

(c)a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then in any one or more of said events, the Company shall give written notice to the registered holders of the Warrants of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale.  Such notice shall specify such record date or the date of closing the transfer books, as the case may be.  Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend, or the issuance of any convertible or exchangeable securities, or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale.

16.Notices.  All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made and sent when delivered, or mailed by registered or certified mail, return receipt requested:

(a)if to the registered Holder of the Warrants, to the address of such

Holder as shown on the books of the Company; or
(b)if to the Company, to the address set forth in Section 4 hereof or to such other address as the Company may designate by notice to the Holders.

17.Investment Representation.  The Holder represents and warrants that the Warrants and any shares of Common Stock to be issued upon exercise of the Warrants are and will be acquired by the Holder solely for the Holder's own account for investment and not with a view to or for sale in connection with any distribution thereof.  The Holder agrees that the Holder will not, directly or indirectly, offer, transfer, sell, pledge, convey, gift, assign, encumber, alienate, hypothecate or otherwise dispose of all or any shares of Common Stock underlying the Warrants (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of all or any of the shares of Common Stock underlying the Warrants), except in compliance with this Agreement, the Act and the rules and regulations of the Commission thereunder, and in compliance with applicable state securities or "blue sky" laws.

18. Supplements; Amendments; Entire Agreement.  This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought.  The Company and the Holder(s) may from time to time supplement or amend this Agreement in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Holders may deem necessary or desirable and which the Company and the Holder deem shall not adversely affect the interests of the Holders of Warrant Certificates.

19.Successors.  All of the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the Company, the Holder(s) and their respective successors and assigns hereunder.

20.Survival of Representations and Warranties.  All statements in any schedule, exhibit or certificate or other instrument delivered by or on behalf of the parties hereto, or in connection with the transactions contemplated by this Agreement, shall be deemed to be representations and warranties hereunder.  Notwithstanding any investigations made by or on behalf of the parties to this Agreement, all representations, warranties and agreements made by the parties to this Agreement or pursuant hereto shall survive.

21.Governing Law; Submission to Jurisdiction.  This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State without giving effect to the rules of said State governing the conflicts of laws.  

22.Severability.  If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement.

23.Captions.  The caption headings of the Sections of this Agreement are for convenience of reference only and are not intended, nor should they be construed as, a part of this Agreement and shall be given no substantive effect.

24.Benefits of this Agreement.  Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and Green Diamond and any other registered Holder(s) of the Warrant Certificates or Warrant Shares any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and Green Diamond and any other Holder(s) of the Warrant Certificates or Warrant Shares.

25.Counterparts.  This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written.

CECO ENVIRONMENTAL CORP.

                                                  By:/s/ Dennis W. Blazer

Name:/s/ Dennis W. Blazer

Title:CFO

Can-Med Technology, Inc.

d/b/a Green Diamond Oil Corp.

 

By: /s/ Phillip DeZwirek

Name: Phillip DeZwirek

 

Title:/s/ President

 

 

EXHIBIT A

WARRANT CERTIFICATE

THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.

THE TRANSFER OR EXCHANGE OF THE WARRANTS OR OTHER SECURITIES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.

EXERCISABLE ON OR BEFORE

5:00 P.M., EASTERN STANDARD TIME, DECEMBER 28, 2016

No.: 12-31-06-1

WARRANT CERTIFICATE

This Warrant Certificate certifies that Can-Med Technology, Inc. d/b/a Green Diamond Oil Corp., or registered assigns, is the registered holder of Warrants to purchase initially, at any time from December 28, 2006 until 5:00 p.m., Eastern Standard Time, on December 28, 2016 ("Expiration Date"), up to 250,000 shares, of fully-paid and non-assessable common stock, $.01 par value ("Common Stock") of CECO Environmental Corp., a Delaware corporation (the "Company"), at the initial exercise price, subject to adjustment in certain events, of $9.07 per share upon surrender of this Warrant Certificate and payment of the Exercise Price at the principal executive office of the Company, but subject to the conditions set forth herein.  Payment of the Exercise Price shall be made by certified or official bank check in United States dollars payable to the order of the Company.

No Warrant may be exercised after 5:00 p.m., Eastern Standard Time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, shall thereafter expire and shall be void.

The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants.

The Warrant Agreement provides that upon the occurrence of certain events the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted.  In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement.

Upon due presentment for registration of transfer of this Warrant Certificate at the principal executive office of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection with such transfer.

Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such numbered of unexercised Warrants.

The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary.

All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement.

This Warrant Certificate does not entitle any Warrant holder to any of the rights of a shareholder of the Company.

IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal.

Dated as of December 28, 2006.

ATTEST:CECO ENVIRONMENTAL CORP.

 

                                          By:/s/ Dennis W. Blazer

   
Name:/s/ Dennis W. Blazer

    Title:/s/ CFO

ELECTION TO PURCHASE PURSUANT TO SECTION 4.1 OF THE 

WARRANT AGREEMENT

 

The undersigned hereby irrevocably elects to exercise the right, represented by a Warrant Certificate No. 12-31-06-1, to purchase           shares of Common Stock (as defined in the Warrant Agreement described below) and herewith tenders in payment for such securities a certified or official bank check payable in United States dollars to the order of CECO Environmental Corp., a Delaware corporation (the "Company") in the amount of $____________, all in accordance with the terms of Section 4.1 of the Warrant Agreement dated as of December 28, 2006 between the Company and Can-Med Technology, Inc. d/b/a Green Diamond Oil Corp.  The undersigned requests that a certificate for such securities be registered in the name of the undersigned, and if said number of shares of Common Stock shall not be all the shares of Common Stock purchasable hereunder, that a new Warrant Certificate for the balance of the shares of Common Stock purchasable under the within Warrant Certificate be registered in the name of the undersigned warrant holder or his assignee as below indicated and delivered to the address stated below.

Dated:                            

 

Signature: _______________________________________

(Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.)

Address:_________________________________________

________________________________________________

________________________________________________

________________________________________________
(Insert Social Security or Other Identifying Number of Holder)

Signature Guaranteed:  ____________________________________________________________

(Signature must be guaranteed by a bank, savings and loan association, stockbroker, or credit union with membership in an approved signature guaranty Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)Sharper Image Corporation

Sharper Image Corporation

350 The Embarcadero

Sixth Floor

San Francisco, California  94105 

 

December 23, 2006

 

VIA FEDERAL EXPRESS & ELECTRONIC MAIL

Jeffrey P. Forgan

c/o Sharper Image Corporation

350 The Embarcadero, Sixth Floor

San Francisco, California  94105

Dear Jeff:

This will confirm the agreement (the "Agreement") that has been reached with you in connection with your resignation of employment from Sharper Image Corporation ("Sharper Image" or the "Company").  All capitalized terms not defined herein shall have the meaning ascribed in the Employment Agreement dated as of May 10, 2006 between you and the Company (the "Employment Agreement).

	Termination Date:  Effective as of November 8, 2006 (the "Termination Date"), you have resigned from all positions with the Company, including as Executive Vice President and Chief Financial Officer as well as from any and all other positions currently or previously held by you in the course of your employment with the Company and any of its subsidiary or affiliate entities, and your employment with the Company ceased as of the Termination Date.  A copy of your letter of resignation dated November 8, 2006 is attached hereto as Exhibit A.  You agree to execute any additional documents necessary to effect such resignation. 

	Pay and Benefits Through Termination Date:  You acknowledge that you have been paid through the Termination Date for all accrued salary together with accrued but unused vacation pay, less all applicable Federal, state and local withholding taxes and deductions.  You hereby acknowledge and agree that, other than as specifically set forth in this Agreement, you are not due any compensation from the Company, including compensation for unpaid salary, unpaid bonus, accrued or unused vacation or other paid time off, or in connection with the exercise of stock options.  Other than as expressly set forth herein, your eligibility to participate in the Company's benefit plans and programs terminated as of November 8, 2006.

	Termination Benefits:  In consideration of your obligations set forth in this Agreement, including but not limited to your consent to the General Release set forth in paragraph 6 below, although you have resigned from employment with the Company without Good Reason, you will be entitled to receive the following termination benefits upon the Effective Date (defined below):

	Severance:  You acknowledge and agree that you are not entitled to receive any severance payment under Section 4(b) of the Employment Agreement.

	Health Coverage:  In the event that you timely elect to receive continued health coverage in the Company's group health plans pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), the Company agrees to pay the premiums for the same coverage in effect immediately prior to the Termination Date, from the Effective Date of this Agreement until the earlier of (i) twelve (12) months after the Termination Date, or (ii) you become eligible for coverage under another employer's group health plan, if earlier, all subject to the requirements, conditions and limitations of COBRA and such plans, which may be amended from time to time.  Thereafter, should you choose to maintain continuation health coverage under COBRA, it shall be at your own expense.

	Stock Options:  All of your options to purchase the Company's common shares ("Options") that are vested and outstanding as of the Termination Date will remain outstanding and shall have their exercise price adjusted as determined by the Board of Directors (or a Committee of a Board of Directors) of the Company (the "Board") in connection with the restatement of the Company's financial statements.  You acknowledge that as of the Termination Date, you held 35,000 vested and outstanding Options (the "Outstanding Options").  The Outstanding Options shall remain exercisable for twelve (12) months following the Termination Date, with or without the provision of services to the Company, at the adjusted exercise price determined by the Board.  You acknowledge and agree that you may not exercise the Outstanding Options until you have received written notification of the adjusted exercise price.  You further acknowledge that you are not entitled to any award of any additional Options before or after the Effective Date.  

	Consulting Services:  For a period of four (4) months from the Termination Date (the "Consulting Period"), you shall make yourself available for substantially all or your working time (subject to any time used by you for job interviews or otherwise obtaining employment), at mutually agreed times, to provide advice, assistance, or information with respect to finance, accounting and treasury, and such other areas as reasonably requested by the Company (the "Consulting Services"), for which you will be paid a consulting fee of $25,000.00 per month, in arrears.  During the Consulting Period, you shall serve as an independent contractor and not an employee of the Company.  The Company and you shall treat your consulting engagement as that of an independent contractor, and not an employee, for all purposes, including (i) Federal, state, and local income and employment taxes, (ii) benefits and (iii) insurance.  As a consultant, you shall not have any right or authority to assume or create any obligation or responsibility, express or implied, on behalf of or in the name of the Company, or to bind the Company in any manner, except as may be authorized in writing by an officer of the Company, and shall not make any contrary representation to any third party.  Without in any way limiting the generality of the foregoing, you shall have no right or authority to accept service of legal process on behalf of the Company.  Should you breach this paragraph 4, in addition to any and all other remedies available to the Company, you shall have no right to any further payments under this paragraph and the General Release set forth in paragraph 6 below shall remain in full force and effect.  If requested by the Company, you will provide to the Company a representation on the Company's restated financials similar to the representations required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, or if you are unable to provide such representation, an explanation to the Company's Chief Executive Officer or Chief Financial Officer or the Chairman of the Audit Committee of the Board as to why such representation cannot be provided. 

	409A Issues and Taxes:  Notwithstanding anything in this Agreement to the contrary, if required by section 409A of the Internal Revenue Code of 1986, as amended, to avoid the imposition of additional taxes, the amounts described in paragraphs 3 and 4 hereof, to the extent required to be paid but not yet paid, shall upon your request be modified to the extent reasonably practicable and necessary to resolve any section 409A issues, provided that there is no increased cost to the Company.  Any and all tax liabilities incurred by you as a result of the payments made or benefits provided under this Agreement, however, shall be your sole responsibility.

	General Release and Waiver; Company Limited Release:

	In consideration of the Company's obligations hereunder and acceptance of your resignation, you, your heirs, successors, and assigns, hereby knowingly and voluntarily release and forever discharge the Company and its subsidiaries and affiliates, together with all of their respective current and former officers, directors, consultants, agents, representatives and employees, and each of their predecessors, successors and assigns (collectively, the "Releasees"), from any and all debts, demands, actions, causes of actions, accounts, covenants, contracts, agreements, claims, damages, omissions, promises, and any and all claims and liabilities whatsoever, of every name and nature, known or unknown, suspected or unsuspected, both in law and equity ("Claims"), which you ever had, now have, or may hereafter claim to have against the Releasees by reason of any matter, cause or thing whatsoever arising from the beginning of time to the time you sign this Agreement (the "General Release").  This General Release of Claims shall apply to any Claim of any type, including, without limitation, any and all Claims of any type that you may have arising under the common law, under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act ("ADEA"), the Older Workers Benefit Protection Act, the Americans With Disabilities Act, the Family and Medical Leave Act, the Employee Retirement Income Security Act ("ERISA"), the Sarbanes-Oxley Act of 2002 or the California Fair Employment and Housing Act, the California Family Rights Act, or the California Labor Code section 1400 et seq., each as amended, and any other Federal, state or local statutes, regulations, ordinances or common law, or under any policy, agreement, contract, understanding or promise, written or oral, formal or informal, between any of the Releasees and you, and shall further apply, without limitation, to any and all Claims in connection with, related to or arising out of your employment, or the termination of your employment, with the Company; provided, however, that this General Release shall not apply to or impair (i) any rights you may have arising under or in connection with any stock option plan adopted by the Company, as amended and restated, that governs the Options specifically described in paragraph 3(c) of this Agreement; (ii) claims for vested benefits pursuant to any other Company employee benefit plan, as defined in ERISA, in which you were a participant before the Termination Date; (iii) any indemnification rights you may have under the Indemnification Agreement dated March 18, 2003 between you and the Company, (the "2003 Indemnification Agreement") and the Indemnification Agreement dated August 25, 2005 between you and the Company (the "2005 Indemnification Agreement"), the by-laws of the Company, or applicable law including California Labor Code section 2802; or (iv) claims for unemployment insurance benefits or workers' compensation benefits applicable to the period through the Termination Date; or (v) any claims that may arise from any violation of this Agreement.
	For the purpose of implementing a full and complete release, you understand and agree that this Agreement is intended to include all claims, if any, which you may have and which you do not now know or suspect to exist in your favor against the Company or any of the Releasees and that this Agreement extinguishes those claims.  Accordingly, you expressly waive all rights afforded by section 1542 of the Civil Code of the State of California ("Section 1542").  Section 1542 states as follows:  

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

	You represent and warrant that you have not filed any complaints or charges with any court or administrative agency against the Company or any of the Releasees, which have not been dismissed, closed, withdrawn or otherwise terminated on or before the date of this Agreement.  You further represent and agree that you have not assigned nor transferred or attempted to assign or transfer, nor will you attempt to assign or transfer, to any person or entity not a party to this Agreement any of this Claims you are releasing in this Agreement.  Furthermore, by signing this General Release of Claims, you represent and agree that you will not be entitled to any personal recovery in any action or proceeding that may be commenced on your behalf arising out of the matters released hereby.
	In consideration of your obligations set forth in this Agreement, including but not limited to your consent to the General Release set forth in paragraph 6(a)-(b) above, the Company hereby knowingly and voluntarily releases and forever discharges you, your heirs, successors, and assigns, from any and all demands, actions, causes of actions, or claims it may have against you (i) that you must repay gains relating to Options granted by the Company to you or exercised by you in or after 1994 or (ii) that you must repay bonuses that were, or are alleged to have been, excessive because Company expenses were understated at the time such bonuses were issued (A) with respect to options granted to employees in or after 1994 or (B) with respect to the matters resulting in the restatement of Company financial statements described in Note B to the Company's financial statements included in the Company's Form 10-K for the fiscal year ended January 31, 2005.

	Confidential Information:  You agree that in the course of your employment with the Company you have had, and during the Consulting Period you will have, access to confidential and proprietary information ("Confidential Information") relating to the Company, its subsidiaries and affiliates, and their respective businesses, clients, finances, operations, strategic or other plans, employees, trade practices, trade secrets, know how or other matters that are not publicly known outside the Company, which are integral to the operations and success of the Company, and that such Confidential Information has been disclosed to you in confidence and only for the use of the Company.  You understand and agree that (a) you will keep such Confidential Information confidential at all times after your employment with the Company, (b) you will not make use of such Confidential Information on your own behalf, or on behalf of any third party, and (c) you have returned or will return to the Company any and all copies, duplicates, reproduction or excerpts of such Confidential Information within your possession, custody or control.  The provisions of this paragraph 7 are in addition to any other written confidentiality or non-disclosure agreements that you may have with the Company or any of the Releasees, including without limitation the Confidentiality Agreement between you and the Company, and are not meant to and do not excuse any additional obligations that you may have under such agreements.

	Return of Property:  All documents (electronic, paper or otherwise), records (electronic, paper or otherwise), materials, software, equipment, and other physical property, and all copies of the foregoing, whether or not otherwise containing Confidential Information, that have come into your possession or been produced by you in connection with your employment ("Property"), have been and remain the sole property of the Company or its subsidiaries or affiliates, as applicable.  You agree that you have returned all such Property to the Company (or, to the extent that it is later discovered that you have not, you will do so promptly and in no event later than three (3) days after discovering that you retain such Property).

	Directors and Officers Insurance:  For six years, the Company shall not eliminate coverage for you in its directors and officers insurance policies unless the Company determines in its sole discretion that it cannot continue to cover you in such policies on reasonable terms without any increase in cost, other than immaterial increases in cost.

	Truthful Testimony:  Notwithstanding any other provision of this Agreement, nothing in this Agreement is intended to or shall preclude you from providing truthful testimony in response to a valid subpoena, court order, regulatory request or other judicial, administrative or legal process or otherwise as required by law, in which event you shall notify the Company in writing as promptly as practicable after receiving any such request of the anticipated testimony and at least ten (10) days prior to providing such testimony (or, if such notice is not possible under the circumstances, with as much prior notice as is possible).

	Cooperation in Legal Proceedings:  Notwithstanding any other provision of this Agreement, both during and after the Consulting Period, you agree to cooperate fully with the Company and its subsidiaries and affiliates concerning requests for information about the business of the Company or its subsidiaries or affiliates or your involvement and participation therein; the defense, prosecution or investigation of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company or its subsidiaries or affiliates which relate to events or occurrences that transpired while you were employed by or acting as a consultant for the Company; and in connection with any investigation or review by any federal, state or local regulatory, quasi-regulatory or self-governing authority (including, without limitation, the Securities and Exchange Commission) as any such investigation or review relates to events or occurrences that transpired while you were employed by or a consultant for the Company.  Your full cooperation shall include, but not be limited to, being available to meet and speak with officers or employees of the Company and/or its counsel at reasonable times and locations, executing accurate and truthful documents, and taking such other actions as may reasonably be requested of you by the Company and/or its counsel to effectuate the foregoing.  In requesting such cooperation, the Company will consider other commitments that you may have at the time of the request.  Following the Consulting Period, the Company will reimburse you for any reasonable, out-of-pocket travel, hotel and meal, or similar expenses incurred in connection with your performance of obligations pursuant to this paragraph 11 for which you have obtained prior, written approval from the Company.

	No Knowledge of Detrimental Conduct:  You hereby represent and warrant that, apart from the issues raised in the course of the ongoing investigation involving the pricing of Company stock options, you are not aware of any actions or omissions by any current or former officer, director, employee, agent, consultant or representative of the Company (including yourself) through the date of the execution of this Agreement that were or have been alleged to be (individually or collectively) in any way harmful or detrimental to the Company, its business and/or its shareholders, including, without limitation, violations of any laws or accounting policies or principles, the taking of unreasonable tax positions, or the furnishing of inaccurate statements, invoices or other reports to any person or entity.

	No Admission of Liability:  You acknowledge that the Company is not entering into this Agreement because it believes you have any cognizable legal claim.  The execution, delivery and performance of this Agreement by the Company and by you shall not be construed as an admission of liability of any kind on the part of, or as evidence of any unlawful or improper conduct of any kind by, the Company or any of the Releasees or you, and any and all such liability and conduct is expressly denied.  You acknowledge and agree that if you elect not to sign this Agreement, the fact that this Agreement was offered to you will not be understood as an indication that the Company believed you were treated unlawfully or improperly in any respect.

	Knowing and Voluntary Waiver:  The Company advises you to consult with an attorney of your choosing prior to signing this Agreement.  You understand and agree that you have the right and have been given the opportunity to review this Agreement and, specifically, the General Release in paragraph 6 above, with an attorney.  You also understand and agree that the Company is under no obligation to offer you the payments and benefits set forth in paragraphs 3 and 4  above and that you are under no obligation to consent to the General Release set forth in paragraph 6 above.  You acknowledge and agree that the payments and benefits set forth in paragraphs 3 and 4 above constitute sufficient consideration to require you to abide with your obligations under this Agreement, including but not limited to the General Release set forth in paragraph 6.  You represent that you have read this Agreement, including the General Release set forth in paragraph 6, that you understand its terms and the fact that it includes a waiver of any rights under the ADEA arising on or prior to the date of this Agreement, and that you enter into this Agreement freely, voluntarily, and without coercion.

	Review and Revocation Rights:  You acknowledge and represent that you have been given at least forty-five (45) days during which to review and consider the provisions of this Agreement and, specifically, the General Release set forth in paragraph 6 above, although you may sign and return it sooner if you so desire.  You further acknowledge and represent that you have been advised by the Company that you have the right to revoke this Agreement for a period of seven (7) days after signing it.  You acknowledge and agree that you have been advised in writing by the Company of the class or group of individuals covered by this termination program, any eligibility factors for the program, the time limits applicable to the program, and the job titles and ages of those in the covered class or group eligible and those not eligible for the program, as reflected in Exhibit B, attached hereto.  You acknowledge and agree that, if you wish to revoke this Agreement, you must do so in a writing, signed by you and received by the Company (sent to my attention) no later than 5:00 p.m. Pacific Time on the seventh (7th) day of the revocation period.  If no such revocation occurs, the General Release and this Agreement shall become effective on the eighth (8th) day following your execution of this Agreement (the "Effective Date").  You further acknowledge and agree that, in the event that you revoke this Agreement, it shall have no force or effect, and you shall have no right to receive any payments or benefits hereunder (with the exception of any accrued and unpaid portion of the monthly fee for Consulting Services, pro rated through the date of such revocation, which will be paid to you whether or not you sign this Agreement).

	Entire Agreement; Modification:  The terms described in this Agreement set forth the entire agreement and understanding between you and the Company and, except as otherwise provided herein, supersedes all prior agreements, arrangements and understandings, written or oral, between us, other than the 2003 Indemnification Agreement (other than Section 6 of such agreement which shall not survive) and the 2005 Indemnification Agreement (other than Section 6 of such agreement which shall not survive), concerning your employment with the Company and the termination thereof, including the Employment Agreement.  You acknowledge and agree that you are not relying on any representations or promises by any representative of the Company concerning the meaning or any aspect of this Agreement.  This Agreement may not be altered or modified other than in writing signed by you and an authorized representative of the Company.

	Severability; Blue Pencil:  It is the desire and intent of the parties hereto that the provisions of this Agreement shall be enforced to the fullest extent permissible under applicable law.  In the event that any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.  Moreover, if any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, scope, activity or subject, such provisions shall be construed by limiting or reducing them so as to be enforceable to the maximum extent compatible with applicable law.

	Waiver:  No waiver by either party of any breach by the other party of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of any other provision or condition at the time or at any prior or subsequent time.  This Agreement and the provisions contained in it shall not be construed or interpreted for or against either party because that party drafted or caused that party's legal representative to draft any of its provisions.

	Arbitration:  Any disputes arising under or in connection with this Agreement shall be resolved by final and binding arbitration in San Francisco, California, using the JAMS judicial arbitration service and in accordance with the commercial arbitration rules of JAMS then in effect.  San Francisco shall be the exclusive venue for such disputes.  The written decision of the arbitrator shall be final and binding upon the parties and in such form that judgment may be entered in and enforced by any court having jurisdiction over the parties.

	Governing Law:  This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California, without reference to its choice of law rules.  

	Counterpart Signatures:  This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

If the above sets forth our agreement as you understand it and consent to it, please so signify by signing the enclosed copy of this letter and return it to me at the address above.
Very truly yours,

Sharper Image Corporation

/s/ Jerry W. Levin

By:Jerry W. Levin

Title:Chairman, Board of Directors and Interim
Chief Executive Officer

Agreed to and Accepted:

/s/ Jeffrey P. Forgan

Jeffrey P. Forgan

Dated: December 23, 2006

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