HF GROUP HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6,086,044
|
|
|
$
|
5,956,145
|
|
Accounts receivable, net
|
|
|
14,700,854
|
|
|
|
14,119,696
|
|
Accounts receivable - related parties, net
|
|
|
1,586,420
|
|
|
|
2,851,441
|
|
Inventories, net
|
|
|
22,669,225
|
|
|
|
23,519,598
|
|
Advances to suppliers, net
|
|
|
1,042,554
|
|
|
|
1,127,276
|
|
Advances to suppliers - related parties, net
|
|
|
3,248,309
|
|
|
|
733,531
|
|
Other current assets
|
|
|
554,865
|
|
|
|
3,234,254
|
|
TOTAL CURRENT ASSETS
|
|
|
49,888,271
|
|
|
|
51,541,941
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
21,709,467
|
|
|
|
14,999,424
|
|
Long-term notes receivable
|
|
|
764,493
|
|
|
|
—
|
|
Long-term notes receivable - related parties
|
|
|
6,860,056
|
|
|
|
4,364,555
|
|
Other long-term assets
|
|
|
1,435,613
|
|
|
|
1,710,198
|
|
TOTAL ASSETS
|
|
$
|
80,657,900
|
|
|
$
|
72,616,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Lines of credit
|
|
$
|
11,894,146
|
|
|
$
|
13,694,146
|
|
Accounts payable
|
|
|
17,275,485
|
|
|
|
17,057,903
|
|
Accounts payable - related parties
|
|
|
4,075,927
|
|
|
|
4,041,928
|
|
Advance from customers
|
|
|
49,677
|
|
|
|
58,077
|
|
Advance from customers - related parties
|
|
|
1,350,296
|
|
|
|
975,766
|
|
Current portion of long-term debt, net
|
|
|
1,372,125
|
|
|
|
1,132,547
|
|
Current portion of obligations under capital leases
|
|
|
434,003
|
|
|
|
376,218
|
|
Income tax payable
|
|
|
512,415
|
|
|
|
97,295
|
|
Shareholder distribution payable
|
|
|
1,000,000
|
|
|
|
—
|
|
Accrued expenses
|
|
|
991,388
|
|
|
|
908,584
|
|
TOTAL CURRENT LIABILITIES
|
|
|
38,955,462
|
|
|
|
38,342,464
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net
|
|
|
14,249,579
|
|
|
|
9,336,659
|
|
Obligations under capital leases, non-current
|
|
|
118,535
|
|
|
|
552,539
|
|
Deferred tax liabilities
|
|
|
436,212
|
|
|
|
26,236
|
|
TOTAL LIABILITIES
|
|
|
53,759,788
|
|
|
|
48,257,898
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Common stock, no par value, 100,000,000 voting common shares and 100,000,000 non-voting common shares authorized; 100,000 voting shares issued and outstanding as of December 31, 2017 and 2016, respectively; no non-voting common shares issued and outstanding as of December 31, 2017 and 2016
|
|
|
—
|
|
|
|
—
|
|
Additional paid-in capital
|
|
|
21,551,700
|
|
|
|
13,719,119
|
|
Retained earnings
|
|
|
4,255,213
|
|
|
|
9,979,901
|
|
Total shareholders’ equity
|
|
|
25,806,913
|
|
|
|
23,699,020
|
|
Noncontrolling interest
|
|
|
1,091,199
|
|
|
|
659,200
|
|
TOTAL SHAREHOLDERS’ EQUITY
|
|
|
26,898,112
|
|
|
|
24,358,220
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
80,657,900
|
|
|
$
|
72,616,118
|
|
The accompanying notes are an integral part of these consolidated financial statements
HF GROUP HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
|
|
For the Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net revenue - third parties
|
|
$
|
277,100,116
|
|
|
$
|
260,923,967
|
|
Net revenue - related parties
|
|
|
18,449,864
|
|
|
|
18,576,268
|
|
TOTAL NET REVENUE
|
|
|
295,549,980
|
|
|
|
279,500,235
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue - third parties
|
|
|
234,421,287
|
|
|
|
225,788,934
|
|
Cost of revenue - related parties
|
|
|
17,193,726
|
|
|
|
17,404,178
|
|
COST OF REVENUE
|
|
|
251,615,013
|
|
|
|
243,193,112
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
43,934,967
|
|
|
|
36,307,123
|
|
|
|
|
|
|
|
|
|
|
DISTRIBUTION, SELLING AND ADMINISTRATIVE EXPENSES
|
|
|
32,924,877
|
|
|
|
30,578,840
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS
|
|
|
11,010,090
|
|
|
|
5,728,283
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
21,105
|
|
|
|
1,634
|
|
Interest expense and bank charges
|
|
|
(1,339,897
|
)
|
|
|
(1,076,088
|
)
|
Other income
|
|
|
1,010,038
|
|
|
|
369,379
|
|
Total other income (expenses), net
|
|
|
(308,754
|
)
|
|
|
(705,075
|
)
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX PROVISION
|
|
|
10,701,336
|
|
|
|
5,023,208
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
623,266
|
|
|
|
191,922
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
|
10,078,070
|
|
|
|
4,831,286
|
|
|
|
|
|
|
|
|
|
|
Less: net income attributable to non-controlling interest
|
|
|
431,999
|
|
|
|
116,122
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO HF GROUP HOLDING CORPORATION
|
|
$
|
9,646,071
|
|
|
$
|
4,715,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share - basic and diluted
|
|
$
|
96.46
|
|
|
$
|
47.15
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares - basic and diluted
|
|
|
100,000
|
|
|
|
100,000
|
|
The accompanying notes are an integral part of these consolidated financial statements
HF GROUP HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
|
|
Ordinary Shares
|
|
|
Additional
|
|
|
|
|
|
Shareholders’
|
|
|
Non-controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Retained Earnings
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
100,000
|
|
|
$
|
—
|
|
|
$
|
13,719,119
|
|
|
$
|
10,651,857
|
|
|
$
|
24,370,976
|
|
|
$
|
543,078
|
|
|
$
|
24,914,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,715,164
|
|
|
|
4,715,164
|
|
|
|
116,122
|
|
|
|
4,831,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution to shareholders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,387,120
|
)
|
|
|
(5,387,120
|
)
|
|
|
—
|
|
|
|
(5,387,120
|
)
|
Balance at December 31, 2016
|
|
|
100,000
|
|
|
$
|
—
|
|
|
$
|
13,719,119
|
|
|
$
|
9,979,901
|
|
|
$
|
23,699,020
|
|
|
$
|
659,200
|
|
|
$
|
24,358,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,646,071
|
|
|
|
9,646,071
|
|
|
|
431,999
|
|
|
|
10,078,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets transferred from business combination with HG Realty
|
|
|
—
|
|
|
|
—
|
|
|
|
2,582,581
|
|
|
|
—
|
|
|
|
2,582,581
|
|
|
|
—
|
|
|
|
2,582,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution by shareholders through converting retained earnings to additional paid-in capital
|
|
|
—
|
|
|
|
—
|
|
|
|
5,250,000
|
|
|
|
(5,250,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of the conversion of S corporations and partnership entities to C corporations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(535,830
|
)
|
|
|
(535,830
|
)
|
|
|
—
|
|
|
|
(535,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution to shareholders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,584,929
|
)
|
|
|
(9,584,929
|
)
|
|
|
—
|
|
|
|
(9,584,929
|
)
|
Balance at December 31, 2017
|
|
|
100,000
|
|
|
$
|
—
|
|
|
$
|
21,551,700
|
|
|
$
|
4,255,213
|
|
|
$
|
25,806,913
|
|
|
$
|
1,091,199
|
|
|
$
|
26,898,112
|
|
The accompanying notes are an integral part of these consolidated financial statements
HF GROUP HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
10,078,070
|
|
|
$
|
4,831,286
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
2,004,374
|
|
|
|
1,885,597
|
|
Loss (gain) from disposal of equipment
|
|
|
(25,000
|
)
|
|
|
79,956
|
|
Provision of doubtful accounts
|
|
|
220,986
|
|
|
|
62,458
|
|
Deferred tax benefit
|
|
|
(125,854
|
)
|
|
|
(33,122
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(802,144
|
)
|
|
|
294,173
|
|
Accounts receivable - related parties, net
|
|
|
1,265,021
|
|
|
|
3,366,321
|
|
Inventories
|
|
|
850,373
|
|
|
|
(20,082
|
)
|
Advances to suppliers
|
|
|
84,722
|
|
|
|
429,492
|
|
Advances to suppliers - related parties, net
|
|
|
(2,514,778
|
)
|
|
|
(936
|
)
|
Other current assets
|
|
|
2,679,389
|
|
|
|
(2,829,299
|
)
|
Other long-term assets
|
|
|
456,068
|
|
|
|
(579,498
|
)
|
Accounts payable
|
|
|
217,582
|
|
|
|
(498,123
|
)
|
Accounts payable - related parties
|
|
|
33,999
|
|
|
|
(2,472,822
|
)
|
Advance from customers
|
|
|
(2,148,648
|
)
|
|
|
177,272
|
|
Advance from customers - related parties
|
|
|
2,514,778
|
|
|
|
936
|
|
Income tax payable
|
|
|
415,120
|
|
|
|
(103,298
|
)
|
Accrued expenses
|
|
|
82,804
|
|
|
|
(36,031
|
)
|
Net cash provided by operating activities
|
|
|
15,286,862
|
|
|
|
4,554,280
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Cash received from business combination of HG Realty
|
|
|
31,070
|
|
|
|
—
|
|
Purchase of property and equipment
|
|
|
(2,264,680
|
)
|
|
|
(2,776,103
|
)
|
Proceeds from disposal of equipment
|
|
|
25,000
|
|
|
|
—
|
|
Payments made for long-term notes receivable
|
|
|
(764,493
|
)
|
|
|
—
|
|
Payments made for long-term notes receivable to related parties
|
|
|
(2,495,501
|
)
|
|
|
2,346,978
|
|
Net cash used in investing activities
|
|
|
(5,468,604
|
)
|
|
|
(429,125
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from lines of credit
|
|
|
2,600,000
|
|
|
|
5,000,000
|
|
Repayment of lines of credit
|
|
|
(4,400,000
|
)
|
|
|
(3,056,000
|
)
|
Proceeds from long-term debt, net
|
|
|
2,580,889
|
|
|
|
2,857,965
|
|
Repayment of long-term debt, net
|
|
|
(1,884,319
|
)
|
|
|
(1,873,437
|
)
|
Cash distribution to shareholders
|
|
|
(8,584,929
|
)
|
|
|
(5,387,120
|
)
|
Net cash used in financing activities
|
|
|
(9,688,359
|
)
|
|
|
(2,458,592
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
129,899
|
|
|
|
1,666,563
|
|
Cash at beginning of year
|
|
|
5,956,145
|
|
|
|
4,289,582
|
|
Cash at end of year
|
|
$
|
6,086,044
|
|
|
$
|
5,956,145
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,268,953
|
|
|
$
|
1,059,262
|
|
Cash paid for income taxes
|
|
$
|
288,909
|
|
|
$
|
279,290
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Fixed assets transferred from business combination of HG Realty
|
|
$
|
6,530,696
|
|
|
$
|
—
|
|
Long-term debt transferred from business combination of HG Realty
|
|
$
|
4,079,709
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements
HF GROUP HOLDING CORPORATION
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
-
ORGANIZATION AND BUSINESS DESCRIPTION
HF Group Holding Corporation (“HF
Holding”) was incorporated in the State of North Carolina on October 11, 2017. Effective January 1, 2018, HF Holding entered
into a Contribution Agreement (the “Agreement”) whereby the controlling shareholders of the following 12 entities contributed
their respective stocks to HF Holding in exchange for all of HF Holding’s outstanding shares. Upon completion of the share
exchanges, these entities became either wholly-owned or majority-owned subsidiaries of HF Holding (hereafter collectively referred
to as “Han Feng Group”, or the “Company”).
|
●
|
Han Feng, Inc. (“Han Feng”)
|
|
●
|
Truse Trucking, Inc. (“TT”)
|
|
●
|
Morning First Delivery (“MFD”)
|
|
●
|
R&N Holdings, LLC (“R&N Holdings”)
|
|
●
|
R&N Lexington, LLC (“R&N Lexington”)
|
|
●
|
Kirnsway Manufacturing Inc. (“Kirnsway”)
|
|
●
|
Chinesetg, Inc. (“Chinesetg”)
|
|
●
|
New Southern Food Distributors, Inc. (“NSF”)
|
|
●
|
B&B Trucking Services, Inc. (“BB”)
|
|
●
|
Kirnland Food Distribution, Inc. (“Kirnland”)
|
|
●
|
HG Realty LLC (“HG Realty”)
|
In accordance with Accounting Standards
Codification (“ASC”) 805-50-25, the transaction consummated through the Agreement has been accounted for as a transaction
among entities under common control since the same shareholders control all these 12 entities prior to the execution of the Agreement.
The consolidated financial statements of the Company have been prepared to report results of operations for the period in which
the transfer occurred as though the transfer of net assets or exchange of equity interests had occurred at the beginning of the
period presented, in this case January 1, 2016, except HG Realty. One of the controlling shareholders of the Company owned 45%
equity interest of HG Realty since its establishment in 2012 and did not have control in HG Realty until September 2017, when this
controlling shareholder entered into an equity purchase agreement with the other shareholders of the remaining 55% interest of
HG Realty and owns 100% equity interest of HG Realty thereafter. Results of operations for the period presented comprise those
of the previously separate entities combined from the beginning of the period to the end of the period. By eliminating the effects
of intra-entity transactions in determining the results of operations for the period before the combination, those results will
be on substantially the same basis as the results of operations for the period after the date of combination. The effects of intra-entity
transactions on current assets, current liabilities, revenue, and cost of sales for periods presented and on retained earnings
at the beginning of the periods presented are eliminated to the extent possible. Furthermore, ASC 805-50-45-5 indicates that the
financial statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative
information.
HF GROUP HOLDING CORPORATION
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with ASC 805-50-30-5, when
accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net
assets or the equity interests should initially recognize the assets and liabilities transferred at their carrying amounts in the
accounts of the transferring entity at the date of the transfer. If the carrying amounts of the assets and liabilities transferred
differ from the historical cost of the parent of the entities under common control, then the financial statements of the receiving
entity should reflect the transferred assets and liabilities at the historical cost of the parent of the entities under common
control. Accordingly, the Company has recorded the assets and liabilities transferred from the above entities at their carrying
amount.
The following table summarizes the entities
under Han Feng Group after the above-mentioned reorganization:
Name
|
|
Date of incorporation
|
|
Place of incorporation
|
|
Percentage of legal ownership by Han Feng Holding
|
|
Principal activities
|
Parent:
|
|
|
|
|
|
|
|
|
HF Holding
|
|
October 11, 2017
|
|
North Carolina, USA
|
|
—
|
|
Holding Company
|
Subsidiaries:
|
|
|
|
|
|
|
|
|
Han Feng
|
|
January 14, 1997
|
|
North Carolina, USA
|
|
100%
|
|
Distributing food and related products
|
TT
|
|
August 6, 2002
|
|
North Carolina, USA
|
|
100%
|
|
Trucking service
|
MFD
|
|
April 15, 1999
|
|
North Carolina, USA
|
|
100%
|
|
Trucking service
|
R&N Holdings
|
|
November 21, 2002
|
|
North Carolina, USA
|
|
100%
|
|
Real estate holding
|
R&N Lexington
|
|
May 27, 2010
|
|
North Carolina, USA
|
|
100%
|
|
Real estate holding
|
Kirnsway
|
|
May 24, 2006
|
|
North Carolina, USA
|
|
100%
|
|
Design and printing services
|
Chinesetg
|
|
July 12, 2011
|
|
North Carolina, USA
|
|
100%
|
|
Design and printing services
|
NSF
|
|
December 17, 2008
|
|
Florida, USA
|
|
100%
|
|
Distributing food and related products
|
BB
|
|
September 12, 2001
|
|
Florida, USA
|
|
100%
|
|
Trucking service
|
Kirnland
|
|
April 11, 2006
|
|
Georgia, USA
|
|
66.7%
|
|
Distributing food and related products
|
HG Realty
|
|
May 11, 2012
|
|
Georgia, USA
|
|
100%
|
|
Real estate holding
|
The Company markets and distributes fresh
produces, frozen and dry food, and non-food products to primarily Asian/Chinese restaurants and other foodservice customers throughout
the Southeast region of the United States of America (“USA”).
HF GROUP HOLDING CORPORATION
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles
of Consolidation
The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”). The consolidated financial statements include the financial statements of HF Holding and its subsidiaries. All inter-company
balances and transactions have been eliminated upon consolidation.
Non-controlling Interests
U.S. GAAP requires that non-controlling
interests in subsidiaries and affiliates be reported in the equity section of a company’s balance sheet. In addition, the
amounts attributable to the net income (loss) of those subsidiaries are reported separately in the consolidated statements of income
and comprehensive income.
Uses of estimates
The preparation of consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenue and expenses during each reporting period. Actual results could differ from those estimates.
Significant accounting estimates reflected in the Company’s consolidated financial statements include the allowances for
doubtful accounts, estimated useful lives and fair value in connection with the impairment of property and equipment. Actual results
could differ from these estimates.
Cash
The Company considers all highly liquid
investments purchased with a maturity of three or fewer months to be cash equivalents. As of December 31, 2017, and 2016, the Company
had no cash equivalents.
Accounts Receivable
Accounts receivable represent amounts due
from customers in the ordinary course of business and are recorded at the invoiced amount and do not bear interest. Receivables
are presented net of the allowance for doubtful accounts in the accompanying Consolidated Balance Sheets. The Company evaluates
the collectability of its accounts receivable and determines the appropriate allowance for doubtful accounts based on a combination
of factors. When the Company is aware of a customer’s inability to meet its financial obligation, a specific allowance for
doubtful accounts is recorded, reducing the receivable to the net amount the Company reasonably expects to collect. In addition,
allowances are recorded for all other receivables based on historic collection trends, write-offs and the aging of receivables.
The Company uses specific criteria to determine uncollectible receivables to be written off, including bankruptcy, accounts referred
to outside parties for collection, and accounts past due over specified periods. As of December 31, 2017, and 2016, the allowances
for doubtful accounts were $567,108 and $670,280, respectively.
HF GROUP HOLDING CORPORATION
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories
The Company’s
inventories, consisting mainly of food and other food service-related products, are primarily considered finished goods. Inventory
costs, including the purchase price of the product and freight charges to deliver it to the Company’s warehouses, are net
of certain cash or non-cash consideration received from vendors. The Company assesses the need for valuation allowances for slow-moving,
excess and obsolete inventories by estimating the net recoverable value of such goods based upon inventory category, inventory
age, specifically identified items, and overall economic conditions. Inventories are stated at the lower of cost or net realizable
value using the first-in, first-out (FIFO) method.
Property
and Equipment
Property and equipment
are stated at cost, less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets. Following are the estimated useful lives of the Company’s property and equipment:
|
Estimated useful lives
|
Buildings and improvements
|
7-39 years
|
Machinery and equipment
|
3-7 years
|
Motor vehicles
|
5 years
|
Repair and maintenance costs are charged
to expense as incurred, whereas the cost of renewals and betterment that extends the useful lives of property, plant and equipment
are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost
and accumulated depreciation from the asset and accumulated depreciation accounts with any resulting gain or loss reflected in
the consolidated statements of income and comprehensive income in other income or expenses.
Impairment of Long-lived Assets
The
Company assesses its long-lived assets such as property and equipment for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. Factors which may indicate potential impairment include a significant
underperformance related to the historical or projected future operating results or a significant negative industry or economic
trend. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the
assets are expected to generate. If property and equipment are considered to be impaired, the impairment to be recognized equals
the amount by which the carrying value of the assets exceeds their fair value. The Company did not record any impairment loss on
its long-lived assets as of December 31, 2017 and 2016.
HF GROUP HOLDING CORPORATION
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue recognition
The Company recognizes revenues under FAS
Codification Topic 605 (“ASC 605”). Revenue is recognized when all of the following have occurred: (i) persuasive evidence
of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable,
and (iv) the ability to collect is reasonably assured.
The Company recognizes revenue from the
sale of product when title and risk of loss passes and the customer accepts the goods, which generally occurs at delivery.
Sales
taxes invoiced to customers and remitted to governmental authorities are excluded from net sales.
Shipping and handling costs
Shipping
and handling costs, which include costs related to the selection of products and their delivery to customers, are presented in
distribution, selling and administrative expenses. Shipping and handling costs were $4,763,185 and $4,117,800 for the years ended
December 31, 2017 and 2016, respectively.
Income taxes
The Company accounts for
income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the financial statements. Under this method, we determine
deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and
liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes
deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination,
we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences,
projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able
to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred
tax asset valuation allowance, which would reduce the provision for income taxes.
The Company
records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether
it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2)
for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit
that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The Company
does not believe that there was any uncertain tax positions at December 31, 2017 and 2016.
HF GROUP HOLDING CORPORATION
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Capital lease obligations
The
Company has recorded capital lease obligations for equipment leases at both December 31, 2017 and 2016. In each case, the Company
was deemed to be the owner under lease accounting guidance. Further, each lease contains provisions indicating continuing involvement
with the equipment at the end of the lease period. As a result, in accordance with applicable accounting guidance, related assets
subject to the leases are reflected on the Company’s consolidated balance sheets and depreciated over the lesser of the lease
term or their remaining useful lives. The present value of the lease payments associated with the equipment is recorded as capital
lease obligations.
Earnings per Share
The
Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC
260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured
as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but
presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants)
as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that
have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation
of diluted EPS. There is no anti-dilutive effect for the years ended December 31, 2017 and 2016.
Fair
value of financial instruments
The Company follows the provisions of FASB
ASC 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring
fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 - Inputs are unadjusted quoted
prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 - Inputs are unadjusted quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets
that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable
market data.
Level 3 - Inputs are unobservable inputs
which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.
The carrying amounts reported in the balance
sheets for cash, accounts receivable, advances to suppliers, other current assets, accounts payable, income tax payable, advance
from customers, accrued and other liabilities approximate their fair value based on the short-term maturity of these instruments.
HF GROUP HOLDING CORPORATION
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Concentrations and credit risk
Credit
risk
Accounts receivable are typically unsecured
and derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company's assessment
of its customers' creditworthiness and its ongoing monitoring of outstanding balances.
Concentration
risk
There were
no receivables from any one customer representing more than 10% of our consolidated gross accounts receivable at December 31, 2017
and 2016.
For the years ended December 31, 2017 and
2016, no supplier accounted for more than 10% of the total cost of revenue. As of December 31, 2017, one supplier accounted for
69% of total advance payments outstanding and this supplier accounted for 92% of advance payments to related parties. As of December
31, 2016, four suppliers accounted for 23%, 22%, 14% and 12% of total advance payments, respectively. One of these suppliers accounted
for 60% of advance payments to related parties.
Recent accounting pronouncements
In May 2014, the FASB issued Accounting
Standard Update ("ASU") No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”).
ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised
goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes
effective and permits the use of either the retrospective or cumulative effect transition method. The guidance also requires additional
disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August
2015, the FASB issued ASU No. 2015-14, “Deferral of the Effective Date” (“ASU 2015-14”), which defers the
effective date for ASU 2014-09 by one year. For public entities, the guidance in ASU 2014-09 will be effective for annual reporting
periods beginning after December 15, 2017 (including interim reporting periods within those periods), and for all other entities,
ASU 2014-09 will be effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within
annual reporting periods beginning after December 15, 2019. In March 2016, the FASB issued ASU No. 2016-08, “Principal versus
Agent Considerations (Reporting Revenue versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance
on principal versus agent considerations in the new revenue recognition standard. In April 2016, the FASB issued ASU No. 2016-10,
“Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which reduces the complexity when
applying the guidance for identifying performance obligations and improves the operability and understandability of the license
implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope Improvements and Practical Expedients”
(“ASU 2016-12”), which amends the guidance on transition, collectability, noncash consideration and the presentation
of sales and other similar taxes. Preliminarily, the Company plans to adopt Topic 606 using the retrospective transition method,
and is continuing to evaluate the impact its pending adoption of Topic 606 will have on its consolidated financial statements.
The Company believes that its current revenue recognition policies are generally consistent with the new revenue recognition standards
set forth in ASU 2014-09. Potential adjustments to input measures are not expected to be pervasive to the majority of the Company’s
contracts The Company does not expect that adoption of this guidance will have a material impact on its consolidated financial
statements and related disclosures.
HF GROUP HOLDING CORPORATION
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In February 2016, the FASB issued ASU No.
2016-02, "Leases” to increase transparency and comparability among organizations by recognizing lease assets and lease
liabilities on the balance sheet with a corresponding liability and disclosing key information about leasing arrangements. For
public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including
interim reporting periods within those fiscal years. For all other entities, the amendments in this ASU are effective for fiscal
years beginning after December 15, 2019, and interim reporting periods within fiscal years beginning after December 15, 2020. Early
adoption is permitted. The Company is evaluating the impact of the adoption of this revised guidance on its consolidated financial
statements.
In October 2016, the FASB issued ASU No.
2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control”. The amendments
affect reporting entities that are required to evaluate whether they should consolidate a variable interest entity in certain situations
involving entities under common control. Specifically, the amendments change the evaluation of whether a reporting entity is the
primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable
interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting
entity. The amendments are effective for public business entities for fiscal years beginning after December 15, 2016, including
interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after
December 15, 2016, and interim reporting periods within fiscal years beginning after December 15, 2017. Early adoption is permitted.
The Company does not expect that adoption of this guidance will have a material impact on its consolidated financial statements
and related disclosures.
In November 2016, the FASB issued ASU No.
2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash", which requires that a statement of cash flows explain
the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement
of cash flows. The amendments in this ASU apply to all entities that have restricted cash or restricted cash equivalents and are
required to present a statement of cash flows under Topic 230. The amendments are effective for public business entities for fiscal
years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments
are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December
15, 2019. Early adoption is permitted. The amendments should be applied using a retrospective transition method to each period
presented. The adoption of this guidance will increase cash and cash equivalents by the amount of the restricted cash on the Company's
consolidated statement of cash flows.
HF GROUP HOLDING CORPORATION
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following:
|
|
As of
December 31, 2017
|
|
|
As of
December 31, 2016
|
|
Accounts receivable
|
|
$
|
15,267,962
|
|
|
$
|
14,789,976
|
|
Less: allowance for doubtful accounts
|
|
|
(567,108
|
)
|
|
|
(670,280
|
)
|
Accounts receivable, net
|
|
$
|
14,700,854
|
|
|
$
|
14,119,696
|
|
Movement of allowance for doubtful accounts
is as follows:
|
|
For the Years Ended
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Beginning balance
|
|
$
|
670,280
|
|
|
$
|
613,200
|
|
Provision for doubtful accounts
|
|
|
220,986
|
|
|
|
62,458
|
|
Less: write off/recovery
|
|
|
(324,158
|
)
|
|
|
(5,378
|
)
|
Ending balance
|
|
$
|
567,108
|
|
|
$
|
670,280
|
|
NOTE 4 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
|
|
As of
December 31, 2017
|
|
|
As of
December 31, 2016
|
|
Land
|
|
$
|
1,608,647
|
|
|
$
|
1,608,647
|
|
Buildings and improvements
|
|
|
18,589,496
|
|
|
|
11,496,501
|
|
Machinery and equipment
|
|
|
9,430,221
|
|
|
|
8,660,948
|
|
Motor vehicles
|
|
|
8,288,868
|
|
|
|
7,301,465
|
|
Subtotal
|
|
|
37,917,232
|
|
|
|
29,067,561
|
|
Less: accumulated depreciation
|
|
|
(16,207,765
|
)
|
|
|
(14,068,137
|
)
|
Property and equipment, net
|
|
$
|
21,709,467
|
|
|
$
|
14,999,424
|
|
Depreciation expense was $2,004,374 and
$1,885,597 for the years ended December 31, 2017 and 2016, respectively.
HF GROUP HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LINES OF CREDIT
On July 1, 2016, Han Feng, the Company’s
main operating entity, entered into a line of credit agreement with East West Bank. The line of credit agreement provided for a
revolving credit of $14,500,000. The line of credit is secured by virtually all assets of Han Feng, a real property and an adjoining
undeveloped parcel of land owned by R&N Holding, and a real property owned by R&N Lexington. The principal and all accrued
unpaid interest are due in May 2018. Interest is based on the prime rate less 0.15%, but in no event less than 3.25% per annum,
and is payable monthly (4.35% at December 31, 2017). The outstanding balance on the line of credit as at December 31, 2017 and
2016 was $9,344,000 and $10,744,000, respectively. The line of credit agreement contains certain financial covenants which, among
other things, require Han Feng to maintain certain financial ratios. At December 31, 2017 and 2016, Han Feng was in compliance
with the covenants under the line of credit agreement. The line of credit was guaranteed by the two shareholders of the Company,
as well as four subsidiaries of the Company, TT, MFD, R&N Holding and R&N Lexington.
On November 14, 2012, NSF, the Company’s
another operating entity, entered into a line of credit agreement with Bank of America. The line of credit agreement provided for
a revolving credit of $4,000,000. The line of credit is secured by three real properties owned by NSF, and guaranteed by the two
shareholders of the Company, as well as BB, a subsidiary of the Company. The maximum borrowings are determined by certain percentages
of eligible accounts receivable and inventories. The principal and all accrued unpaid interest were due in February, 2020 (See
Note 11). The loan was renewed and is now due in February 2018. Interest is based on the LIBOR rate plus 2.75% (4.2511% at December
31, 2017). The outstanding balance on the line of credit as at December 31, 2017 and 2016 was $2,550,146 and $2,950,146, respectively.
The line of credit agreement contains certain financial covenants which, among other things, require NSF to maintain certain financial
ratios. At December 31, 2017 and 2016, NSF was in compliance with the covenants under the line of credit agreement.
NOTE 6 - LONG-TERM DEBT
Long-term debt at December 31, 2017 and 2016 is as follows:
Bank name
|
|
Maturity
|
|
|
Interest rate at December 31, 2017
|
|
|
As of
December 31, 2017
|
|
|
As of
December 31, 2016
|
|
East West Bank – (b)
|
|
June 2022 - August 2027
|
|
|
|
4.25% - 4.75%
|
|
|
$
|
5,220,809
|
|
|
$
|
5,481,000
|
|
Capital Bank – (c)
|
|
October 2027
|
|
|
|
3.85%
|
|
|
|
5,333,677
|
|
|
|
—
|
|
Bank of America – (d)
|
|
February 2023
|
|
|
|
4.2095%
|
|
|
|
2,262,500
|
|
|
|
2,400,000
|
|
Bank of Montreal – (a)
|
|
April 2022 - June 2023
|
|
|
|
5.99% - 6.87%
|
|
|
|
1,071,398
|
|
|
|
764,707
|
|
GE Capital – (a)
|
|
October 2019
|
|
|
|
5.94%
|
|
|
|
36,359
|
|
|
|
54,587
|
|
Other finance companies – (e)
|
|
September 2018 - December 2023
|
|
|
|
3.99% - 6.69%
|
|
|
|
1,696,961
|
|
|
|
1,768,912
|
|
Total debt
|
|
|
|
|
|
|
|
|
|
15,621,704
|
|
|
|
10,469,206
|
|
Less: current portion
|
|
|
|
|
|
|
|
|
|
(1,372,125
|
)
|
|
|
(1,132,547
|
)
|
Long-term debt
|
|
|
|
|
|
|
|
|
$
|
14,249,579
|
|
|
$
|
9,336,659
|
|
HF GROUP HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LONG-TERM DEBT -continued
The terms of the various loan agreements
relating to long-term bank borrowings contain certain restrictive financial covenants which, among other things, require the Company
to maintain specified levels of debt to tangible net worth and debt service coverage. As of December 31, 2017 and 2016, the Company
was in compliance with such covenants.
The loans outstanding were guaranteed by
the following properties, entities or individuals:
|
(a)
|
Not collateralized or guaranteed.
|
|
(b)
|
Guaranteed by two shareholders of the Company, as well
as five subsidiaries of the Company, Han Feng, TT, MFD, R&N Holding and R&N Lexington. Also secured by assets of Han Feng
and R&N Lexington and R&N Holding, two real properties of R&N Holding, and a real property of R&N Lexington. Balloon
payment of these long-term debts is $3,642,215.
|
|
(c)
|
Guaranteed by two shareholders, as well as Han Feng,
one subsidiary of the Company. Also secured by a real property owned by HG Realty. Balloon payment of this debt is $3,116,687.
|
|
(d)
|
Guaranteed by two shareholders, as well as two subsidiaries
of the Company, NSF and BB. Secured by a real property, equipment and fixtures, inventories, receivables and all other personal
property owned by NSF. Balloon payment of this long-term debt is $1,684,898. The loan agreement has been renewed on February 26,
2018 (See Note 11).
|
The future maturities of long-term debt at December 31, 2017
are as follows:
Twelve months ending December 31
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
$
|
1,372,125
|
|
2019
|
|
|
|
1,146,835
|
|
2020
|
|
|
|
943,885
|
|
2021
|
|
|
|
915,861
|
|
2022
|
|
|
|
2,202,284
|
|
Thereafter
|
|
|
|
9,040,714
|
|
Total
|
|
|
$
|
15,621,704
|
|
HF GROUP HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LEASES
Capital Lease Obligations
The Company leases
vehicles or delivery trucks under capital leases with various expiration dates through 2021. At December 31, 2017 and 2016, the
cost of assets acquired under capital leases is $1,297,900, the related accumulated amortization is $535,590 and $276,011, respectively,
and the net book value is $762,310 and $1,021,889, respectively. Amortization expense related to these assets for the years ended
December 31, 2017 and 2016 totaled $259,580 and $253,388, respectively.
Capital lease obligations consisted of
the following:
|
|
As of December 31, 2017
|
|
|
As of December 31, 2016
|
|
Vehicles due in monthly installments of $40,470 inclusive of interest at 14.38%, due in March 2019
|
|
$
|
552,538
|
|
|
$
|
928,757
|
|
Less: current portion
|
|
|
(434,003
|
)
|
|
|
(376,218
|
)
|
Obligations under capitalized leases payable after one year
|
|
$
|
118,535
|
|
|
$
|
552,539
|
|
Operating lease commitments
The Company’s operating leases mainly
include forklifts and housing units. These leases had an average remaining lease term of approximately 5 years as of December 31,
2017. Rental expense charged to expenses under operating leases in the years ended December 31, 2017 and 2016 amounted to $575,693
and $574,176, respectively.
Future minimum lease obligations for operating
leases with initial terms in excess of one year at December 31, 2017 are as follows:
Twelve months ended December 31,
|
|
|
|
|
2018
|
|
|
$
|
292,790
|
|
2019
|
|
|
|
60,810
|
|
2020
|
|
|
|
42,030
|
|
2021
|
|
|
|
8,983
|
|
2022
|
|
|
|
297
|
|
Total
|
|
|
$
|
404,910
|
|
A subsidiary of the Company, RN Holding,
leases a facility to a related party under an operating lease agreement expiring in 2019. The cost of the leased building is $400,000
at December 31, 2017 and 2016, and the accumulated depreciation of the leased building is $89,743 and $79,487 at December 31, 2017
and 2016, respectively. Rental income for the years ended December 31, 2017 and 2016 amounted to $45,600 and $45,600, respectively.
In 2017, a subsidiary of the Company, HG
Realty, leases a warehouse to a related party under an operating lease agreement expiring on September 21, 2027. The cost of the
leased building is $3,223,745 as at December 31, 2017 and 2016, and the accumulated depreciation of the leased building is $351,306
and $268,645 as at December 31, 2017 and 2016, respectively. Rental income for the years ended December 31, 2017 was $490,000.
There was no rental income recorded for 2016 since HG Realty only became a subsidiary of the Company in 2017.
HF GROUP HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - TAXES
|
A.
|
Corporate Income Taxes (“CIT”)
|
Prior to January 1, 2018, Han Feng, TT,
MFD, Kirnsway, Chinesetg, NSF and BB have been elected under the Internal Revenue Code to be S corporations. R&N Holdings,
R&N Lexington and HG realty are formed as partnerships. An S corporation or partnership is considered a flow-through entity
and is generally not subject to federal or state income tax on corporate level. In lieu of corporate income taxes, the stockholders
and members of these entities are taxed on their proportionate share of the entities’ taxable income. Kirnland did not elect
to be treated as S corporation and is the only entity that is subject to corporate income taxes under this report.
Effective January 1, 2018, all of the above-listed
S corporation and partnership entities have been converted to C corporations and will be taxed at corporate level going forward.
Accordingly, the Company shall account for income taxes of all these entities under ASC 740. The Company has recognized the impact
on deferred income tax assets and liabilities from the future conversion of the above-mentioned S corporations and partnership
entities to C corporations in the consolidated financial statements as of December 31, 2017.
|
(i)
|
The Income tax provision (benefit) of the Company for the last two fiscal years consists of the following:
|
|
|
For the Years Ended
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
631,487
|
|
|
$
|
192,590
|
|
State
|
|
|
117,633
|
|
|
|
32,454
|
|
Current income tax provision
|
|
|
749,120
|
|
|
|
225,044
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(104,771
|
)
|
|
|
(29,668
|
)
|
State
|
|
|
(21,083
|
)
|
|
|
(3,454
|
)
|
Deferred income tax provision (benefit)
|
|
|
(125,854
|
)
|
|
|
(33,122
|
)
|
Total income tax provision
|
|
$
|
623,266
|
|
|
$
|
191,922
|
|
HF GROUP HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – TAXES - Continued
(ii) Temporary differences and carryforwards of the Company
that created significant deferred tax assets and liabilities are as follows:
|
|
As of
December 31, 2017
|
|
|
As of
December 31, 2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
139,947
|
|
|
$
|
69,808
|
|
Inventories
|
|
|
1,750
|
|
|
|
1,278
|
|
Section 481(a) adjustment
|
|
|
140,310
|
|
|
|
11,497
|
|
Other accrued expenses
|
|
|
237,550
|
|
|
|
(62,633
|
)
|
Total deferred tax assets
|
|
|
519,557
|
|
|
|
19,950
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(955,769
|
)
|
|
|
(46,186
|
)
|
Total deferred tax liabilities
|
|
|
(955,769
|
)
|
|
|
(46,186
|
)
|
Net deferred tax liability
|
|
$
|
(436,212
|
)
|
|
$
|
(26,236
|
)
|
The above-disclosed deferred income assets
and liabilities as of December 31, 2017 included deferred tax assets in the amount of $398,699 and deferred tax liabilities in
the amount of $934,529 derived from the effect of future conversion of the above-mentioned S corporations and partnership entities
to C corporations.
(iii) Reconciliations of the statutory income tax rate to
the effective income tax rate are as follows:
|
|
For the Years Ended
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Federal statutory tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State statutory tax rate
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
U.S. permanent difference
|
|
|
(1.2
|
)%
|
|
|
0.1
|
%
|
Effect of flow-through entities
|
|
|
(33.0
|
)%
|
|
|
(36.3
|
)%
|
Effective tax rate
|
|
|
5.8
|
%
|
|
|
3.8
|
%
|
|
B.
|
Pro forma Income Taxes information
|
As mentioned before, prior to January 1,
2018, Han Feng, TT, MFD, Kirnsway, Chinesetg, NSF and BB have elected under the Internal Revenue Code to be S corporations. R&N
Holdings, R&N Lexington, and HG realty are formed as partnerships. Starting January 1, 2018, all of the above-mentioned entities
have been converted to C corporations and will be subject to regular corporate income tax rate going forward.
HF GROUP HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma financial information
presents the income tax expenses and EPS for the years ended December 31, 2017 and 2016 as well as the deferred tax assets and
liabilities as of December 31, 2017 and 2016, respectively, as if all of these S corporation and partnership entities had been
converted to C corporations as of the beginning of each period presented:
NOTE 8 – TAXES - Continued
(i) The Pro forma Income tax provision (benefit) of the Company
for the last two fiscal years consists of the following:
|
|
For the Years Ended
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
3,677,489
|
|
|
$
|
1,768,214
|
|
State
|
|
|
478,675
|
|
|
|
197,672
|
|
Current income tax provision
|
|
|
4,156,164
|
|
|
|
1,965,886
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(73,805
|
)
|
|
|
418,832
|
|
State
|
|
|
(19,236
|
)
|
|
|
51,063
|
|
Deferred income (benefit) provision
|
|
|
(93,041
|
)
|
|
|
469,895
|
|
Total income tax provision
|
|
$
|
4,063,123
|
|
|
$
|
2,435,781
|
|
(ii) The Pro forma deferred tax assets
and liabilities are as follows:
|
|
As of
December 31, 2017
|
|
|
As of
December 31, 2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Deferred tax assets
|
|
|
519,557
|
|
|
|
394,172
|
|
Deferred tax liabilities
|
|
|
(955,769
|
)
|
|
|
(923,425
|
)
|
Net deferred tax liability
|
|
$
|
(436,212
|
)
|
|
$
|
(529,253
|
)
|
(iii) The Pro forma earnings per share:
|
|
For the Years Ended
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Pro Forma Net Income
|
|
$
|
6,638,213
|
|
|
$
|
2,587,427
|
|
Less: net income attributable to non-controlling interest
|
|
|
431,999
|
|
|
|
116,122
|
|
Pro Forma Net Income Attributable to HF Group Holding Corporation
|
|
|
6,206,214
|
|
|
|
2,471,305
|
|
Earnings per common share - basic and diluted
|
|
$
|
62.06
|
|
|
$
|
24.71
|
|
Weighted average shares - basic and diluted
|
|
|
100,000
|
|
|
|
100,000
|
|
HF GROUP HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – RELATED PARTY TRANSACTIONS
The Company records transactions with various related parties.
These related party transactions as of and for the years ended December 31, 2017 and 2016 are identified as follows:
Related party balances:
|
a.
|
Accounts receivable - related parties, net
|
Below is a summary of accounts receivable with related parties
as of December 31, 2017 and 2016, respectively:
Name of Related Party
|
|
As of December 31, 2017
|
|
|
As of December 31, 2016
|
|
(a) Allstate Trading Company Inc.
|
|
$
|
176,660
|
|
|
$
|
51,120
|
|
(b) GA-GW Seafood, Inc.
|
|
|
87,814
|
|
|
|
—
|
|
(c) Eagle Food Service LLC
|
|
|
656,799
|
|
|
|
1,186,900
|
|
(d) Fortune One Foods Inc.
|
|
|
154,904
|
|
|
|
122,931
|
|
(e) Eastern Fresh LLC
|
|
|
340,114
|
|
|
|
1,019,894
|
|
(f) New Marco Food Inc.
|
|
|
170,129
|
|
|
|
232,439
|
|
(g) New Day Top Trading Inc.
|
|
|
—
|
|
|
|
4,037
|
|
(h) Enson Trading LLC
|
|
|
—
|
|
|
|
133,075
|
|
(i) N&F Logistic, Inc.
|
|
|
—
|
|
|
|
101,045
|
|
Total
|
|
$
|
1,586,420
|
|
|
$
|
2,851,441
|
|
Mr. Zhoumin Ni, the Chairman and Chief Executive Officer of
the Company, owns 40% equity interest of this entity;
|
(a)
|
Mr. Zhoumin Ni owns 45% equity interest of this entity;
|
|
(b)
|
Tina Ni, one of Mr. Zhoumin Ni’s family member
owns 50% equity interest of this entity;
|
|
(c)
|
Mr. Zhoumin Ni owns 17.5% equity interest of this entity;
|
|
(d)
|
Mr. Zhoumin Ni owns 30% equity interest of this entity;
|
|
(e)
|
Mr. Zhoumin Ni owns 30% equity interest of this entity;
|
|
(f)
|
Amanda Ni, one of Mr. Zhoumin Ni’s family member
owns 19% equity interest of this entity;
|
|
(g)
|
Mr. Zhoumin Ni owns 25% equity interest of this entity;
|
|
(h)
|
Mr. Zhoumin Ni owns 25% equity interest of this entity;
|
All accounts receivable from these related parties are current
and considered fully collectible. No allowance is deemed necessary.
HF GROUP HOLDING CORPORATION
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – RELATED PARTY TRANSACTIONS -Continued
|
b.
|
Advances to suppliers - related parties, net
|
The Company periodically provides purchase
advances to various vendors, including the related party suppliers. These advances are made in the normal course of business and
are considered fully realizable.
Below is a summary of advances to related party suppliers as
of December 31, 2017 and 2016, respectively:
Name of Related Party
|
|
As of December 31, 2017
|
|
|
As of December 31, 2016
|
|
(1) GA-GW Seafood, Inc. (“GW Seafood”)
|
|
$
|
2,978,161
|
|
|
$
|
31
|
|
(2) Ocean Pacific Seafood Group
|
|
|
145,888
|
|
|
|
155,078
|
|
(3) Eastern Fresh LLC
|
|
|
—
|
|
|
|
141,488
|
|
(4) Han Feng Information Tech. Jinhua Inc.
|
|
|
5,167
|
|
|
|
—
|
|
(5) NSG International Inc. (“NSG”)
|
|
|
119,093
|
|
|
|
—
|
|
(6) New Day Top Trading Inc.
|
|
|
—
|
|
|
|
436,934
|
|
Total
|
|
$
|
3,248,309
|
|
|
$
|
733,531
|
|
(1)
|
Mr. Zhoumin Ni owns 45% equity interest of this entity. The large advances to GW Seafood made in
2017 was a result of the Company’s decision to take advantage of the large refrigerated facilities owned by GW Seafood. The
Company made these advances to GW Seafood for the purchases of large quantities of frozen foods. GW Seafood takes possession of
these frozen goods until they are shipped based on the Company’s sales orders. The Company did not include these advanced
purchases in its inventory since the title and risk of these goods remain with GW Seafood;
|
(2)
|
Mr. Zhoumin Ni owns 25% equity interest of this entity;
|
(3)
|
Mr. Zhoumin Ni owns 30% equity interest of this entity;
|
(4)
|
Mr. Zhoumin Ni owns 37% of its equity interest;
|
(5)
|
Mr. Zhoumin Ni owns 30% of its equity interest;
|
(6)
|
Amanda Ni, one of Mr. Zhoumin Ni’s family member owns 19% equity interest of this entity;
|
|
c.
|
Long-term notes receivables - related parties
|
The Company had previously made advances
or loans to certain entities that are either owned by the controlling shareholders of the Company or family members of the controlling
shareholders.
HF GROUP HOLDING CORPORATION
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – RELATED PARTY TRANSACTIONS -Continued
As of December 31, 2017 and 2016, the outstanding
loans to various related parties consist of the following:
Name of Related Party
|
|
As of December 31, 2017
|
|
|
As of December 31, 2016
|
|
GA-GW Seafood, Inc. (“GW Seafood”)
|
|
$
|
550,000
|
|
|
$
|
—
|
|
NSG International Inc. (“NSG”)
|
|
|
5,993,552
|
|
|
|
4,364,555
|
|
Eastern Fresh LLC (“Eastern”)
|
|
|
316,504
|
|
|
|
—
|
|
Total
|
|
$
|
6,860,056
|
|
|
$
|
4,364,555
|
|
On January 1, 2018, the Company signed
separate promissory note agreements (“Agreement”) with NSG and GW Seafood. Pursuant to the Agreement, the outstanding
balances of $5,993,552 due from NSG and $550,000 from GW Seafood as of December 31, 2017 were converted into promissory notes bearing
annual interest of 5%. The interest shall be accrued starting January 1, 2018. The principal plus interest shall be paid off no
later than December 31, 2019. Interest is computed on the outstanding balance on the basis of the actual number of days elapsed
in a year of 360 days.
The promissory note with Eastern in the
original amount of $1,000,000 was signed on May 31, 2017 bearing annual interest rate of 5%. The unpaid principal balance plus
accrued interest shall be paid off no later than May 31, 2020.
|
d.
|
Accounts payable - related parties
|
As of December 31, 2017 and 2016, the Company had a total accounts
payable balance of $4,075,927 and $ 4,041,928 due to various related parties, respectively. All these accounts payable to related
parties occurred in the ordinary course of business and are payable upon demand without interest.
|
e.
|
Advance from customers - related parties
|
The Company also periodically receives advances from its related
parties for business purposes. These advances are interest free and due upon demand. The balances for advance from customers involving
related parties amounted to $1,350,296 and $975,766 as of December 31, 2017 and 2016, respectively.
Related party sales and purchases transactions:
The Company also makes regular sales to
or purchases from various related parties during the normal course of business. The total sales made to related parties amounted
to $18,449,864 and $18,576,268 for the years ended December 31, 2017 and 2016, respectively. The total purchases made from related
parties were $32,221,005 and $31,714,247 for the years ended December 31, 2017 and 2016, respectively.
HF GROUP HOLDING CORPORATION
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - EQUITY
HF Holding had authority to issue a total
of 100,000,000 shares of voting common stocks and 100,000,000 shares of non-voting common stocks both with no par value when incorporated
in the State of North Carolina on October 11, 2017. On February 27, 2018, 100,000 voting shares were issued to the shareholders
at no par value. The issuance of these 100,000 shares is considered as a part of the reorganization of the Company, which was retroactively
applied as if the transaction occurred at the beginning of the period presented. As a result, the Company had 200,000,000 authorized
common shares at no par value, of which 100,000 voting shares were issued and outstanding as of December 31, 2017 and 2016.
The Company has converted the accumulated
undistributed retaining earnings in the total amount of $5,250,000 as of December 31, 2017 into additional paid-in capital as shareholder
contribution to the capital of the Company.
NOTE 11 - SEGMENT REPORTING
ASC 280, “Segment Reporting,”
establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational
structure as well as information about geographical areas, business segments and major customers in financial statements for details
on the Company’s business segments. The Company uses the “management approach” in determining reportable operating
segments. The management approach considers the internal organization and reporting used by the Company’s chief operating
decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable
segments. Management, including the chief operating decision maker, reviews operation results by the revenue of different products.
Based on management’s assessment, the Company has determined that it has two operating segments: sales to independent restaurants
and wholesale.
The following table presents net sales
by segment for the years ended December 31, 2017 and 2016, respectively:
|
|
For the Years Ended
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Sales to independent restaurants
|
|
$
|
275,481,019
|
|
|
$
|
259,402,812
|
|
Wholesale
|
|
|
20,068,961
|
|
|
|
20,097,423
|
|
Total
|
|
$
|
295,549,980
|
|
|
$
|
279,500,235
|
|
All the Company’s revenue was generated from its business
operation in the U.S.
HF GROUP HOLDING CORPORATION
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - SEGMENT REPORTING - Continued
|
|
For the Year Ended December 31, 2017
|
|
|
|
Sales to independent restaurants
|
|
|
Wholesale
|
|
|
Total
|
|
Revenue
|
|
$
|
275,481,019
|
|
|
$
|
20,068,961
|
|
|
$
|
295,549,980
|
|
Cost of revenue
|
|
|
232,914,638
|
|
|
|
18,700,375
|
|
|
|
251,615,013
|
|
Gross profit
|
|
$
|
42,566,381
|
|
|
$
|
1,368,586
|
|
|
$
|
43,934,967
|
|
Depreciation and amortization
|
|
$
|
1,868,269
|
|
|
$
|
136,105
|
|
|
$
|
2,004,374
|
|
Total capital expenditures
|
|
$
|
2,110,900
|
|
|
$
|
153,780
|
|
|
$
|
2,264,680
|
|
|
|
For the Year Ended December 31, 2016
|
|
|
|
Sales to independent restaurants
|
|
|
Wholesale
|
|
|
Total
|
|
Revenue
|
|
$
|
259,402,812
|
|
|
$
|
20,097,423
|
|
|
$
|
279,500,235
|
|
Cost of revenue
|
|
|
224,361,340
|
|
|
|
18,831,772
|
|
|
|
243,193,112
|
|
Gross profit
|
|
$
|
35,041,472
|
|
|
$
|
1,265,651
|
|
|
$
|
36,307,123
|
|
Depreciation and amortization
|
|
$
|
1,750,013
|
|
|
$
|
135,584
|
|
|
$
|
1,885,597
|
|
Total capital expenditures
|
|
$
|
2,576,488
|
|
|
$
|
199,615
|
|
|
$
|
2,776,103
|
|
|
|
As of
December 31, 2017
|
|
|
As of
December 31, 2016
|
|
Total assets:
|
|
|
|
|
|
|
|
|
Sales to independent restaurants
|
|
$
|
75,180,924
|
|
|
$
|
67,394,667
|
|
Wholesale
|
|
|
5,476,976
|
|
|
|
5,221,451
|
|
Total Assets
|
|
$
|
80,657,900
|
|
|
$
|
72,616,118
|
|
NOTE 12
–
SUBSEQUENT EVENTS
On February 26, 2018, NSF, a subsidiary
of the Company, renewed the line of credit agreement with Bank of America. The renewed line of credit agreement provided for a
revolving credit of $5,000,000. The line of credit is secured by inventories and accounts receivable owned by NSF, and guaranteed
by a principal shareholder of the Company, as well as BB, a subsidiary of the Company. The maximum borrowings are determined by
certain percentages of eligible accounts receivable and inventories. The principal and all accrued unpaid interest were due in
February 21, 2020. Interest is based on the LIBOR rate plus 2.75%.
On February 26, 2018, NSF, a subsidiary
of the Company, renewed the loan agreement with Bank of America. The renewed line of credit agreement provided for a revolving
credit of $5,000,000. The line of credit is secured by inventories and accounts receivable owned by NSF, and guaranteed by a principal
shareholder of the Company, as well as BB, a subsidiary of the Company. The maximum borrowings are determined by certain percentages
of eligible accounts receivable and inventories. The principal and all accrued unpaid interest were due in February 21, 2020. Interest
is based on the LIBOR rate plus 2.75%.
These consolidated financial statements
were approved by management and available for issuance on March 14, 2018. The Company evaluated subsequent events through this
date.
ATLANTIC ACQUISITION CORP.
INDEX TO FINANCIAL STATEMENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the stockholders and the board of directors of
Atlantic
Acquisition Corp.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheet of Atlantic Acquisition Corp. (formerly known as Stars Acquisition Corp.) (the “Company”)
as of December 31, 2017 and 2016, and the related statement of operations, changes in stockholders’ equity, and cash flows
for the year ended December 31, 2017, and for the period from May 19, 2016 (inception) through December 31, 2016, and the related
notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations
and its cash flows for each of the year ended December 31, 2017, and for the period from May 19, 2016 (inception) through December
31, 2016, in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly,
we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We
believe that our audits provide a reasonable basis for our opinion.
/s/
Friedman LLP
We
have served as the Company’s auditor since 2018.
New
York, New York
March
29, 2018
Atlantic Acquisition Corp.
Balance Sheets
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
560,204
|
|
|
$
|
44,955
|
|
Prepaid expenses
|
|
|
49,583
|
|
|
|
—
|
|
Deferred offering costs
|
|
|
—
|
|
|
|
154,820
|
|
Total Current Assets
|
|
|
609,787
|
|
|
|
199,775
|
|
|
|
|
|
|
|
|
|
|
Cash and investments held in trust account
|
|
|
45,318,185
|
|
|
|
—
|
|
Total Assets
|
|
$
|
45,927,972
|
|
|
$
|
199,775
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,005
|
|
|
$
|
475
|
|
Accrued state franchise taxes
|
|
|
34,370
|
|
|
|
—
|
|
Note payable to related parties
|
|
|
—
|
|
|
|
175,000
|
|
Total Current Liabilities
|
|
|
37,375
|
|
|
|
175,475
|
|
|
|
|
|
|
|
|
|
|
Deferred underwriting compensation
|
|
|
1,106,250
|
|
|
|
—
|
|
Total Liabilities
|
|
|
1,143,625
|
|
|
|
175,475
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Common stock subject to possible conversion; 3,884,660 and -0- (at conversion value of $10.24 per share)
|
|
|
39,784,346
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value, 1,000,000 shares authorized, 0 shares issued
|
|
|
—
|
|
|
|
—
|
|
Common Stock, $.0001 par value, 30,000,000 shares authorized , 1,987,837 and 1,150,000
(1)
common stocks issued and outstanding (excluding 3,884,660 and -0- shares subject to redemption)
|
|
|
199
|
|
|
|
115
|
|
Additional paid-in capital
|
|
|
4,945,588
|
|
|
|
24,885
|
|
Retained earnings (accumulated deficit)
|
|
|
54,214
|
|
|
|
(700
|
)
|
Total Stockholders’ Equity
|
|
|
5,000,001
|
|
|
|
24,300
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
45,927,972
|
|
|
$
|
199,775
|
|
(1)
|
This number includes an aggregate of up to 150,000 shares of common stock that were subject to forfeiture if the over-allotment option was not exercised in full by the underwriters. An aggregate of 43,753 shares of common stock were cancelled after partial exercise of the over-allotment option by the underwriters.
|
The accompanying notes are an integral part
of the financial statements.
Atlantic Acquisition Corp.
Statements of Operations
|
|
|
|
|
|
|
|
|
For The Year Ended December 31, 2017
|
|
|
For The Period
From May 19, 2016 (Inception)
Through December 31, 2016
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
(93,901
|
)
|
|
$
|
(700
|
)
|
State franchise taxes
|
|
|
(34,370
|
)
|
|
|
—
|
|
Interest income
|
|
|
183,185
|
|
|
|
—
|
|
Net income (loss)
|
|
|
54,914
|
|
|
|
(700
|
)
|
Less: income attributable to common stock subject to redemption
|
|
|
(130,643
|
)
|
|
|
—
|
|
Adjusted net loss
|
|
$
|
(75,729
|
)
|
|
$
|
(700
|
)
|
Basic and diluted weighted average shares outstanding
(1)
|
|
|
1,368,301
|
|
|
|
1,000,000
|
|
Basic and diluted net loss per share
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
(1)
|
Excludes
an aggregate of up to 3,884,660 common shares subject to redemption at December 31, 2017 and 150,000 shares of common stock
that are subject to forfeiture if the over-allotment option is not exercised by the underwriter at December 31, 2016. An aggregate
of 43,753 shares of common stock were cancelled after partial exercise of the over-allotment option by the underwriters.
|
The accompanying notes are an integral part
of the financial statements.
Atlantic Acquisition Corp.
Statements of
Changes in Stockholders’ Equity
|
|
Common Stock
(1)
|
|
|
Additional
Paid- in
Capital
|
|
|
Retained earnings
(accumulated
Deficit)
|
|
|
Total
Stockholders’
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
Balances, May 19, 2016 (Inception)
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Issuance of common stock to Initial Stockholders
|
|
|
1,150,000
|
|
|
|
115
|
|
|
|
24,885
|
|
|
|
—
|
|
|
|
25,000
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(700
|
)
|
|
|
(700
|
)
|
Balances, December 31, 2016
|
|
|
1,150,000
|
|
|
|
115
|
|
|
|
24,885
|
|
|
|
(700
|
)
|
|
|
24,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of 4,000,000 public units at $10.00 per unit during the Public Offering
|
|
|
4,000,000
|
|
|
|
400
|
|
|
|
39,999,600
|
|
|
|
—
|
|
|
|
40,000,000
|
|
Sale of 320,000 private units at $10.00 per unit during the Public Offering
|
|
|
320,000
|
|
|
|
32
|
|
|
|
3,199,968
|
|
|
|
—
|
|
|
|
3,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of 425,000 public units at $10.00 per unit upon partial exercise of over-allotment option
|
|
|
425,000
|
|
|
|
42
|
|
|
|
4,249,958
|
|
|
|
—
|
|
|
|
4,250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of 21,250 private units at $10.00 per unit upon partial exercise of over-allotment option
|
|
|
21,250
|
|
|
|
2
|
|
|
|
212,498
|
|
|
|
—
|
|
|
|
212,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceed from sale of underwriter’s unit purchase option
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
|
|
|
—
|
|
|
|
100
|
|
Underwriters’ discount
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,433,750
|
)
|
|
|
—
|
|
|
|
(2,433,750
|
)
|
Offering expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
(523,717
|
)
|
|
|
—
|
|
|
|
(523,717
|
)
|
Forfeiture of initial shareholders’ shares in connection with the expiration of partial over-allotment option
|
|
|
(43,753
|
)
|
|
|
(4
|
)
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock subject to possible redemption
|
|
|
(3,884,660
|
)
|
|
|
(388
|
)
|
|
|
(39,783,958
|
)
|
|
|
—
|
|
|
|
(39,784,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
54,914
|
|
|
|
54,914
|
|
Balances, December 31, 2017
|
|
|
1,987,837
|
|
|
$
|
199
|
|
|
$
|
4,945,588
|
|
|
$
|
54,214
|
|
|
$
|
5,000,001
|
|
The accompanying notes are an integral part
of the financial statements.
Atlantic Acquisition Corp.
Statements of Cash Flows
|
|
For The Year Ended
December 31, 2017
|
|
|
For The Period
From
May 19, 2016
(Inception)
Through December 31, 2016
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss
|
|
$54,914
|
|
|
$(700
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
Interest income earned in trust account
|
|
(183,185
|
)
|
|
—
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
Change in prepaid expenses
|
|
(49,583
|
)
|
|
—
|
|
Change in accounts payable
|
|
2,530
|
|
|
475
|
|
Change in accrued state franchise taxes
|
|
34,370
|
|
|
—
|
|
Net cash used in operating activities
|
|
(140,954
|
)
|
|
(225
|
)
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Proceeds from sale and dividend of investment held in trust account
|
|
(45,135,000
|
)
|
|
—
|
|
Net cash used in investing activities
|
|
(45,135,000
|
)
|
|
—
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Proceeds from sale of public units during the Public Offering
|
|
40,000,000
|
|
|
—
|
|
Proceeds from sale of private units concurrent with the Public Offering
|
|
3,025,000
|
|
|
—
|
|
Proceeds from sale of underwriter’s unit purchase option
|
|
100
|
|
|
—
|
|
Proceeds from sale of units upon partial exercise of over-allotment option
|
|
4,250,000
|
|
|
—
|
|
Proceeds from sale of private units upon partial exercise of over-allotment option
|
|
212,500
|
|
|
—
|
|
Payment of offering costs
|
|
(1,696,397
|
)
|
|
(154,820
|
)
|
Proceeds from note payable to related party
|
|
—
|
|
|
175,000
|
|
Proceeds from sale of common stock
|
|
—
|
|
|
25,000
|
|
Net cash provided by financing activities
|
|
45,791,203
|
|
|
45,180
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
515,249
|
|
|
44,955
|
|
Cash at beginning of period
|
|
44,955
|
|
|
—
|
|
Cash at end of period
|
|
$560,204
|
|
|
$44,955
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activities
|
|
|
|
|
|
|
Repayment of old note payable by new note holder (Note 5)
|
|
$175,000
|
|
|
$—
|
|
Repayment of note payable by converting into partial price of private placement
|
|
$175,000
|
|
|
$—
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing activities
|
|
|
|
|
|
|
Proceeds from issuance of shares in May 2017 paid directly by new shareholders to repurchase initial shareholder shares
|
|
$25,000
|
|
|
$—
|
|
The accompanying notes are an integral
part of the financial statements.
Atlantic Acquisition Corp.
Notes to Financial Statements
Note 1 — Organization and Plan of
Business Operations
Organization
Atlantic Acquisition Corp. (the “Company”)
was incorporated in Delaware on May 19, 2016 as a blank check company whose objective is to acquire, through a merger, share exchange,
asset acquisition, stock purchase, recapitalization, reorganization or other similar Business Combination, one or more businesses
or entities (a “Business Combination”). The Company’s efforts to identify a prospective target business will
not be limited to any particular industry or geographic region, although the Company initially intends to focus on target businesses
being operated by and/or serving ethnic minorities in the United States, especially within Asian-American communities.
At December 31, 2017, the Company had not
yet commenced any operations. All activities through December 31, 2017 relate to the Company’s formation and the public offering
described below.
Plan of Business Operations
Financing
The registration statement for the Company’s
initial public offering (the “Public Offering” as described in Note 3) was declared effective by the United States
Securities and Exchange Commission (“SEC”) on August 8, 2017. On August 14, 2017, the Company consummated the Public
Offering of 4,000,000 units at $10.00 per unit (the “Public Units”) and sold to initial shareholders and Chardan Capital
Markets, LLC 320,000 units at $10.00 per unit (the “Private Units”) in a private placement (Note 4). The Company received
net proceeds of approximately $41,476,000 from the sale of the Public Units, the Private Units and the proceeds from the promissory
note (See note 5).
On August 16, 2017, the underwriters exercised
the over-allotment option in part. The closing of the sale of 425,000 over-allotment option Units generating gross proceeds of
$4,250,000 took place on August 21, 2017. Simultaneously with the sale of the over-allotment units, the Company consummated the
private sale of an additional 21,250 Private Units, generating gross proceeds of $212,500.
Trust Account
Upon the closing of the Public Offering
and the private placement (including the shares sold upon exercise of the over-allotment option), an aggregate of $45,135,000 was
placed in a trust account (the “Trust Account”) with American Stock Transfer & Trust LLC acting as trustee. The
funds held in the Trust Account can be invested in United States government treasury bills, bonds or notes, having a maturity of
180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act
until the earlier of (i) the consummation of the Company’s initial Business Combination and (ii) the Company’s failure
to consummate a Business Combination within 18 months from the closing of the Public Offering. Placing funds in the Trust Account
may not protect those funds from third party claims against the Company. Although the Company will seek to have all vendors, service
providers, prospective target businesses or other entities it engages, execute agreements with the Company waiving any claim of
any kind in or to any monies held in the Trust Account, there is no guarantee that such persons will execute such agreements. The
remaining net proceeds (not held in the Trust Account) may be used to pay for business, legal and accounting due diligence on prospective
acquisitions and continuing general and administrative expenses. Additionally, the interest earned on the Trust Account balance
may be released to the Company to pay the Company’s tax obligations.
Business Combination
Pursuant to Nasdaq listing rules, the Company’s
initial Business Combination must occur with one or more target businesses having an aggregate fair market value equal to at least
80% of the value of the funds in the Trust Account (excluding any deferred underwriter’s fees and taxes payable on the income
earned on the Trust Account), which the Company refers to as the 80% test, at the time of the execution of a definitive agreement
for our initial Business Combination, although the Company may structure a Business Combination with one or more target businesses
whose fair market value significantly exceeds 80% of the trust account balance. If the Company is no longer listed on Nasdaq, it
will not be required to satisfy the 80% test.
The Company currently anticipates structuring
a Business Combination to acquire 100% of the equity interests or assets of the target business or businesses. The Company may,
however, structure a Business Combination where the Company merges directly with the target business or where the Company acquires
less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management
team or stockholders or for other reasons, but the Company will only complete such Business Combination if the post-transaction
company owns 50% or more of the outstanding voting securities of the target or otherwise owns a controlling interest in the target
sufficient for it not to be required to register as an investment company under the Investment Company Act. If less than 100% of
the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion
of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% test.
The Company will either seek stockholder
approval of any Business Combination at a meeting called for such purpose at which stockholders may seek to convert their shares
into their pro rata share of the aggregate amount then on deposit in the Trust Account, less any taxes then due but not yet paid,
or provide stockholders with the opportunity to sell their shares to the Company by means of a tender offer for an amount equal
to their pro rata share of the aggregate amount then on deposit in the Trust Account, less any taxes then due but not yet paid.
These shares have been recorded at redemption value and are classified as temporary equity, in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities
from Equity.” The Company will proceed with a Business Combination only if it will have net tangible assets of at least $5,000,001
upon consummation of the Business Combination and, solely if stockholder approval is sought, a majority of the outstanding common
shares of the Company voted are voted in favor of the Business Combination.
Notwithstanding the foregoing, a public
stockholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group”
(as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking conversion rights with respect to 25% or more
of the common shares sold in the Public Offering. Accordingly, all shares purchased by a holder in excess of 25% of the shares
sold in the Public Offering will not be converted to cash. In connection with any stockholder vote required to approve any Business
Combination, the Initial Stockholders will agree (i) to vote any of their respective shares, including the common shares sold to
the Initial Stockholders in connection with the organization of the Company (the “Initial Shares”), common shares included
in the Private Units to be sold in the Private Placement, and any common shares which were initially issued in connection with
the Public Offering, whether acquired in or after the effective date of the Public Offering, in favor of the initial Business Combination
and (ii) not to convert such respective shares into a pro rata portion of the Trust Account or seek to sell their shares in connection
with any tender offer the Company engages in.
Liquidation
Pursuant to the Company’s Certificate
of Incorporation, if the Company is unable to complete its initial Business Combination within 18 months from the date of the Public
Offering, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible
but not more than ten business days thereafter, redeem 100% of the outstanding public shares and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of the remaining holders of common stock and the Company’s board
of directors, dissolve and liquidate. However, if the Company anticipates that it may not be able to consummate its initial Business
Combination within 18 months, the Company may, but is not obligated to, extend the period of time to consummate a Business Combination
up to two times, each by an additional three months (for a total of up to 24 months to complete a Business Combination). Pursuant
to the terms of the Company’s amended and restated articles of incorporation and the trust agreement to be entered into between
the Company and American Stock Transfer & Trust Company, LLC, in order to extend the time available for the Company to consummate
its initial Business Combination, the Company’s insiders or their affiliates or designees, upon five days advance notice
prior to the applicable deadline, must deposit into the Trust Account $800,000, or $920,000 if the underwriters’ over-allotment
option is exercised in full ($0.20 per share in either case), on or prior to the date of the applicable deadline, up to an aggregate
of $1,600,000 (or $1,840,000 if the underwriters’ over-allotment option is exercised in full), or $0.40 per share. The insiders
will receive a non-interest bearing, unsecured promissory note equal to the amount of any such deposit that will not be repaid
in the event that the Company is unable to close a Business Combination unless there are funds available outside the Trust Account
to do so. Such notes would either be paid upon consummation of our initial Business Combination, or, at the lender’s discretion,
converted upon consummation of our Business Combination into additional private units at a price of $10.00 per unit. The Company’s
stockholders have approved the issuance of the private units upon conversion of such notes, to the extent the holder wishes to
so convert such notes at the time of the consummation of our initial Business Combination. In the event that the Company receives
notice from its insiders five days prior to the applicable deadline of their intent to effect an extension, the Company intends
to issue a press release announcing such intention at least three days prior to the applicable deadline. In addition, the Company
intends to issue a press release the day after the applicable deadline announcing whether or not the funds had been timely deposited.
The Company’s insiders and their affiliates or designees are not obligated to fund the Trust Account to extend the time for
the Company to complete its initial Business Combination. To the extent that some, but not all, of the Company’s insiders,
decide to extend the period of time to consummate its initial Business Combination, such insiders (or their affiliates or designees)
may deposit the entire amount required. If the Company is unable to consummate an initial Business Combination and is forced to
redeem 100% of the outstanding public shares for a pro rata portion of the funds held in the Trust Account, each holder will receive
a pro rata portion of the amount then in the Trust Account. Holders of rights will receive no proceeds in connection with the liquidation.
The Initial Stockholders and the holders of Private Units will not participate in any redemption distribution with respect to their
initial shares and Private Units, including the common stock included in the Private Units.
To the extent the Company is unable to
consummate a Business Combination, it will pay the costs of liquidation from the remaining assets outside of the Trust Account.
If such funds are insufficient, Wai Fun Cheng, Ren Hua Zheng, Richard Xu and Tom W. Su have committed to pay the funds necessary
to complete such liquidation and have agreed not to seek repayment of such expenses.
Emerging Growth Company
Section 102(b)(1) of the Jumpstart Our
Business Startups Act of 2012 (the “JOBS Act”) permits emerging growth companies to delay complying with new or revised
financial accounting standards that do not yet apply to private companies (that is, those that have not had a Securities Act registration
statement declared effective or do not have a class of securities registered under the Exchange Act). The JOBS Act provides that
a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth
companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition
period which means that when a standard is issued or revised and it has different application dates for public or private companies,
the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or
revised standard. This may make comparison of the Company’s financial statements with another public company which is neither
an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult
or impossible because of the potential differences in accounting standards used.
Note 2 — Significant Accounting Policies
Basis of presentation
The accompanying financial statements are
presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and
pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Cash and Cash Equivalents
The Company considers all short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents as of December
31, 2017 and December 31, 2016.
Deferred Offering Costs
Offering costs consist principally of professional
and registration fees incurred through the balance sheet date that were directly related to the Public Offering and that were recorded
as deferred offering costs on the balance sheet and were charged to stockholders’ equity upon the completion of the Public
Offering.
Fair value of financial instruments
The fair value of the Company’s assets
and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,”
approximates the carrying amounts represented in the balance sheet, primarily due to their short-term nature.
Loss Per Common Share
Basic loss per common share is computed
by dividing net loss by the weighted-average number of common shares outstanding during the period, excluding ordinary shares subject
to compulsory repurchase by the Company. Diluted loss per common share is computed by dividing net loss by the weighted average
number of common shares outstanding, plus to the extent dilutive, the incremental number of common shares to settle rights and
other ordinary share equivalents (currently none outstanding), as calculated using the treasury stock method. Shares of common
stock subject to possible conversion at December 31, 2017, which are not currently redeemable and are not redeemable at fair value,
have been excluded from the calculation of basic and diluted loss per common share since such shares, if redeemed, only participate
in their pro rata share of the Trust Account earnings. The Company has not considered the effect of (1) rights sold in the Offering
and private placement that convert into 476,625 shares of Class A common stock, and (2) 250,000 of Class A common stock and rights
that convert into 25,000 shares of Class A common stock in the unit purchase option sold to the underwriter, in the calculation
of diluted loss per share, since the conversion of the rights into shares of common stock is contingent upon the occurrence of
future events. As a result and the Company’s loss position attributable to common stock, diluted loss per common share is
the same as basic loss per common share for the year ended December 31, 2017 and for the period from May 19, 2016 (inception) through
December 31, 2016.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of credit risk
Financial instruments that potentially
subject the Company to concentration of credit risk consist of cash accounts in a financial institution which, at times may exceed
the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management
believes the Company is not exposed to significant risks on such accounts.
Income Taxes
The Company accounts for income taxes under
ASC 740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both
the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected
future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance
to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and
measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing
authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition. The Company is required to file income tax returns in the United States (federal) and in various state
and local jurisdictions. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain
tax positions requiring recognition in the Company’s financial statements. Since the Company was incorporated on May 19,
2016, the evaluation was performed for the 2016 tax year, which will be the only period subject to examination. The Company believes
that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result
in a material change to its financial position.
The Company was incorporated in the State
of Delaware and is required to pay franchise taxes to the State of Delaware on an annual basis.
Recent Accounting Pronouncements
Management does not believe that any recently
issued, but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying financial
statements.
Note 3 — Public Offering
Public Unit
On August 14, 2017, the Company sold 4,000,000
Public Units at a price of $10.00 per Public Unit in the Public Offering generating gross proceeds of $40,000,000. Each Public Unit consists of one ordinary share of the
Company, $0.0001 par value per share (the “Public Shares”), and one right (the “Public Rights”). Each Public
Right entitles the holder to receive one-tenth (1/10) of an ordinary share upon consummation of an initial Business Combination.
On August 16, 2017, the underwriters exercised
the over-allotment option in part. The closing of the sale of 425,000 over-allotment option Units generating gross proceeds of
$4,250,000 took place on August 21, 2017.
If the Company does not complete its Business
Combination within the necessary time period described in Note 1, the Public Rights will expire and be worthless. Since the Company
is not required to net cash settle the Rights and the Rights are convertible upon the consummation of an initial Business Combination,
management determined that the Rights are classified within shareholders’ equity as “Additional paid-in capital”
upon their issuance in accordance with ASC 815-40. The proceeds from the sale are allocated to Public Shares and Rights based on
the relative fair value of the securities in accordance with ASC 470-20-30. The value of the Public Shares and Rights will be based
on the closing price paid by investors.
At the closing of the Public Offering and
over-allotment option, the Company paid an upfront underwriting discount of $1,200,000 and $127,500, 3.0% of the per unit offering
price to the underwriter, respectively, with an additional fee of $1,000,000 and $106,250 (the “Deferred Discount”),
2.5% of the gross offering proceeds payable upon the Company’s completion of the Business Combination, respectively. The
Deferred Discount will become payable to the underwriter from the amounts held in the Trust Account solely in the event the Company
completes its Business Combination. In the event that the Company does not close a Business Combination, the underwriter has waived
its right to receive the Deferred Discount. The underwriter is not entitled to any interest accrued on the Deferred Discount. Total
offering costs were $1,851,217, which consist of $1,327,500 of underwriter’s commissions and $523,717 of other offering costs.
Purchase Option
On August 14, 2017, the Company sold the
underwriters, for $100, a unit purchase option to purchase up to a total of 250,000 Units exercisable at $10.50 per Unit (or an
aggregate exercise price of $2,625,000) commencing on the later of the consummation of a Business Combination and six months from
February 8, 2018. The unit purchase option expires on August 8, 2022. The units issuable upon exercise of this option are identical
to the Units being offered in the Public Offering. The Company has agreed to grant to the holders of the unit purchase option,
demand and “piggy back” registration rights for periods of five and seven years, respectively, from the effective date
of the Public Offering, including securities directly and indirectly issuable upon exercise of the unit purchase option.
The Company has accounted for the fair
value of the unit purchase option, inclusive of the receipt of a $100 cash payment, as an expense of the Public Offering resulting
in a charge directly to stockholders’ equity. The Company estimates that the fair value of this unit purchase option is $610,265
using a Black-Scholes option-pricing model adjusted for the likelihood of a completed Business Combination. The fair value of the
unit purchase option to be granted to the placement agent is estimated as of the date of grant using the following assumptions:
(1) expected volatility of 51.14%, (2) risk-free interest rate of 1.77%, (3) expected life of five years and (4) estimated possibility
of 55% for consummation of initial Business Combination.
Note 4 — Private Placement
On August 14, 2017 (see Note 7) certain
of the Company’s shareholders, and Chardan Capital Markets, LLC purchased an aggregate of 320,000 Private Units at $10.00
per Private Unit of which 17,500 units were issued for the conversion of the May 30, 2017 note payable by one of our directors
(see Note5). They also purchased an additional 21,250 Private Units from the Company at a price of $10.00 per Private Unit at the
closing of the sale of 425,000 Units in connection with the exercise of the over-allotment option. Chardan Capital Markets, LLC
purchased 20,000 of the 320,000 Private Units issued simultaneously with the close of the Public Offering, and 2,125 of the 21,250
Private Units issued simultaneously with the exercise of over-allotment option.
The Private Units are identical to the
Units sold in the Public Offering. Additionally, the holders of the Private Units have agreed (A) to vote the shares underlying
their Private Units in favor of any proposed Business Combination, (B) not to propose, or vote in favor of, an amendment to the
Company’s amended and restated certificate of incorporation with respect to the Company’s pre-Business Combination
activities prior to the consummation of such a Business Combination unless the Company provides dissenting Public Stockholders
with the opportunity to convert their public shares in connection with any such vote, (C) not to convert any shares underlying
the Private Units into the right to receive cash from the Trust Account in connection with a stockholder vote to approve an initial
Business Combination or a vote to amend the provisions of the Company’s amended and restated certificate of incorporation
relating to shareholders’ rights or pre-Business Combination activity or sell their shares to the Company in connection with
a tender offer the Company engages in and (D) that the shares underlying the Private Units shall not participate in any liquidating
distribution upon winding up if a Business Combination is not consummated. The purchasers have also agreed not to transfer, assign
or sell any of the Private Units or underlying securities (except to transferees that agree to the same terms and restrictions)
until the completion of an initial Business Combination.
Note 5 — Related Party Transactions
On June 9, 2016, the Company issued a $175,000
principal amount unsecured promissory note to the Company’s former President and Director. On May 30, 2017, the Company issued
a separate $175,000 principal amount unsecured promissory note to one of the Company’s current directors. The proceed from
the Company’s current director was wired into an escrow account and used to repay the original outstanding $175,000 loan
due to the Company’s former President on June 1, 2017. The new note was non-interest bearing and was payable on the consummation
of the Public Offering. On August 14, 2017, a $175,000 loan from the director was converted into Private Units as part of the Private
Placement at a price of $10.00 per Private Unit and 17,500 units were issued to this director.
All expenses incurred by the Company prior
to an initial Business Combination may be paid only from the net proceeds of the Public Offering and related private placements
not held in the Trust Account. Thus, in order to meet the Company’s working capital needs following the consummation of the
Public Offering, if the funds not held in the Trust Account is not sufficient, Wai Fun Cheng, Ren Hua Zheng, Richard Xu, Tom W.
Su may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable
in their sole discretion. Each loan would be evidenced by a promissory note. Up to $500,000 of the notes may, at the lender’s
discretion, be converted upon consummation of an initial Business Combination into additional private units at a price of $10.00
per unit (“Working Capital Units”). If the Company does not complete an initial Business Combination, the loans will
only be repaid with funds not held in the Trust Account, to the extent available.
Note 6 – Cash and Investment held
in Trust Account
As of December 31,
2017, investment securities in the Company’s Trust Account consisted of $133 in cash and $45,318,052 in United States Treasury
Bills maturity on April 5, 2018 with a cost basis of $45,195,529. The Company classifies its United States Treasury and equivalent
securities as held-to-maturity in accordance with FASB ASC 320 “Investments – Debt and Equity Securities”. Held-to-maturity
treasury securities are recorded at amortized cost on the accompanying balance sheet and adjusted for the amortization or accretion
of premiums or discounts. The carrying value, gross unrealized holding loss and fair value of held to maturity securities on December
31, 2017 is as follows:
|
|
Carrying Value as of December 31, 2017
|
|
|
Gross Unrealized / Unrecognized Holding Loss
|
|
|
Fair Value as of
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Securities
|
|
$
|
45,318,052
|
|
|
$
|
(19,821
|
)
|
|
$
|
45,298,231
|
|
Note 7 — Commitments
Deferred Underwriter Commission
The Company is obligated to pay the Deferred
Discount of 2.5% of the gross Public Offering proceeds, in the amount of $1,106,250, to the underwriter upon the Company’s
consummation of the Business Combination. The underwriter is not entitled to any interest accrued on the Deferred Discount, and
has waived its right to receive the Deferred Discount if the Company does not close a Business Combination.
Registration Rights
The Initial Stockholders are entitled to
registration rights with respect to their Initial Shares and the purchasers of the Private Units are entitled to registration rights
with respect to the Private Units (and underlying securities), pursuant to a registration rights agreement signed on the effective
date of the Public Offering. The holders of the majority of the initial shares are entitled to demand that the Company register
these shares at any time commencing three months prior to the first anniversary of the consummation of a Business Combination.
The holders of the Private Units (or underlying securities) are entitled to demand that the Company register these securities at
any time after the Company consummates a Business Combination. In addition, the holders have certain “piggy-back” registration
rights on registration statements filed after the Company’s consummation of a Business Combination.
Engagement of B. Riley & Co.
LLC
The Company plans to engage B. Riley &
Co. LLC (“B. Riley”) to provide certain advisory services to it. In consideration for such services, the Company’s
management team has agreed to transfer 20,000 insider shares to B. Riley upon the consummation of the initial Business Combination.
Such shares will be subject to the same restrictions and escrow arrangement as the other insider shares. The value of the service
provided by B. Riley will be accounted at the fair value at the date of transfer as operating expenses and a credit to additional
paid-in capital upon the transfer of the shares.
Note 8 — Stockholders’ Equity
Preferred Shares
The Company is authorized to issue 1,000,000
preferred shares with a par value of $0.0001 per share with such designation, rights and preferences as may be determined from
time to time by the Company’s board of directors. As of December 31, 2017 and 2016, there are no preferred shares issued
or outstanding.
Common Stock
The Company is authorized to issue 30,000,000
shares of common stock with a par value of $0.0001 per share.
On June 9, 2016, 1,150,000 shares of the
Company’s common stock were sold at a price of approximately $0.02 per share for an aggregate of $25,000. On May 25, 2017,
the Company repurchased and canceled the initial shareholder shares. On May 30, 2017, the Company issued an additional 1,150,000
shares for $25,000, or approximately $0.02 per share, which amount was wired into an escrow account and was directly used to pay
for the May 25, 2017 repurchase. All of these shares were placed in escrow on the date of the closing of the Public Offering until
(1) with respect to 50% of the shares, the earlier of six months after the date of the consummation of an initial Business Combination
and the date on which the closing price of the Company’s common stock equals or exceeds $12.50 per share (as adjusted for
share splits, share dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period
commencing after the Company’s initial Business Combination and (2) with respect to the remaining 50% of the insider shares,
six months after the date of the consummation of an initial Business Combination, or earlier, in either case, if, subsequent to
an initial Business Combination, the Company consummates a liquidation, merger, share exchange or other similar transaction which
results in all of the Company’s stockholders having the right to exchange their shares for cash, securities or other property.
The escrow share arrangement does not require the continued employment of the stockholders who received the shares or the insiders.
At the closing of the Business Combination, the fair value of the escrow arrangement would be both charged and credited to additional
paid-in capital.
On August 14, 2017, the Company consummated
the Public Offering of 4,000,000 units at $10.00 per unit (the “Public Units’) and sold to initial shareholders and
Chardan Capital Markets, LLC 320,000 units at $10.00 per unit (the “Private Units”) in a private placement (Note 4).
The Company received net proceeds of approximately $41,476,000. On August 16, 2017, the underwriters exercised the over-allotment
option in part. The closing of the sale of 425,000 over-allotment option Units generating gross proceeds of $4,250,000 took place
on August 21, 2017. Simultaneously with the sale of the over-allotment units, the Company consummated the private sale of an additional
21,250 Private Units, generating gross proceeds of $212,500. On August 22, 2017, the underwriters canceled the remainder of the
over-allotment option. In connection with the cancellation of the remainder of the over-allotment option, the Company canceled
an aggregate of 43,753 shares of common stock issued to the Company’s initial stockholders.
At December 31, 2017, there were 1,987,837
shares of common stock issued and outstanding, excluding 3,884,660 shares subject to possible redemption. As of December 31, 2016,
there were 1,150,000 shares of common stock issued and outstanding.
Note 9 — Reconciliation of Net
Loss per Common Share
The Company’s net income (loss) is
adjusted for the portion of income that is attributable to common stock subject to redemption, as these shares only participate
in the income of the Trust Account and not the losses of the Company. Accordingly, basic and diluted loss per common share is:
|
|
For
The Year Ended December 31, 2017
|
|
|
For
The Period
From May 19, 2016 (Inception) Through December 31, 2016
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
54,914
|
|
|
|
(700
|
)
|
Less:
income attributable to common stock subject to redemption
(1)
|
|
|
(130,643
|
)
|
|
|
—
|
|
Adjusted loss
|
|
|
(75,729
|
)
|
|
|
(700
|
)
|
Basic and diluted weighted average shares outstanding
(2)
|
|
|
1,368,301
|
|
|
|
1,000,000
|
|
Basic and diluted loss per common share
|
|
|
(0.06
|
)
|
|
|
(0.00
|
)
|
(1)
|
Income
attributable to common stock subject to redemption was calculated in portion of the interest income earned in trust account,
which would be distributed to common stockholders at the event they choose to exercise their redemption right at the closing
of Initial Business Combination.
|
(2)
|
Excludes
an aggregate of up to 3,884,660 common shares subject to redemption at December 31, 2017 and 150,000 shares of common stock
that are subject to forfeiture if the over-allotment option is not exercised by the underwriter at December 31, 2016. An aggregate
of 43,753 shares of common stock were cancelled after partial exercise of the over-allotment option by the underwriters.
|
Note 10 — Subsequent Events
The Company’s
management reviewed all material events that have occurred after the balance sheet date through the date which these financial
statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment
or disclosure in the financial statements.
Annex A
MERGER AGREEMENT
dated
March 27, 2018
by and among
Atlantic Acquisition Corp., a Delaware corporation
as the Parent and Purchaser,
HF Group Merger Sub Inc., a Delaware corporation,
as the Merger Sub,
HF Group Holding Corporation, a North Carolina
corporation,
as the Company,
Stockholders of the
Company, as the Stockholders
and Ni, Zhou Min,
as the Stockholders’ Representative
TABLE OF CONTENTS
|
Page
|
ARTICLE I DEFINITIONS
|
6
|
ARTICLE II - INTENTIONALLY OMITTED
|
12
|
ARTICLE III THE MERGER
|
12
|
3.1
|
The Merger
|
12
|
3.2
|
Closing; Effective Time
|
12
|
3.3
|
Board of Directors
|
12
|
3.4
|
Effects of the Merger
|
13
|
3.5
|
Articles of Incorporation; Bylaws
|
13
|
3.6
|
No Further Ownership Rights in Company Capital Stock
|
13
|
3.7
|
Withholding Rights
|
13
|
3.8
|
Rights Not Transferable
|
13
|
3.9
|
Taking of Necessary Action; Further Action
|
13
|
3.10
|
Section 368 Reorganization
|
14
|
ARTICLE IV CONVERSION OF SHARES; CLOSING MERGER CONSIDERATION
|
14
|
4.1
|
Conversion of Capital Stock
|
14
|
4.2
|
Payment of Merger Consideration
|
15
|
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY
|
16
|
5.1
|
Corporate Existence and Power
|
16
|
5.2
|
Authorization
|
16
|
5.3
|
Governmental Authorization
|
16
|
5.4
|
Non-Contravention
|
16
|
5.5
|
Capitalization
|
17
|
5.6
|
Certificate of Formation and Operating Agreement
|
17
|
5.7
|
Corporate Records
|
17
|
5.8
|
Third Parties
|
18
|
5.9
|
Assumed Names
|
18
|
5.10
|
Subsidiaries
|
18
|
5.11
|
Consents
|
18
|
5.12
|
Financial Statements
|
19
|
5.13
|
Books and Records
|
20
|
5.14
|
Absence of Certain Changes
|
20
|
5.15
|
Properties; Title to the Company’s Assets
|
22
|
5.16
|
Litigation
|
23
|
5.17
|
Contracts
|
23
|
5.18
|
Insurance
|
25
|
5.19
|
Licenses and Permits
|
25
|
5.20
|
Compliance with Laws
|
26
|
5.21
|
Intellectual Property
|
26
|
5.22
|
Customers and Suppliers
|
27
|
5.23
|
Accounts Receivable and Payable; Loans
|
28
|
5.24
|
Pre-payments
|
28
|
5.25
|
Employees
|
28
|
5.26
|
Employment Matters
|
29
|
5.27
|
Withholding
|
30
|
5.28
|
Employee Benefits and Compensation
|
30
|
5.29
|
Real Property
|
32
|
5.30
|
Accounts
|
33
|
5.31
|
Tax Matters
|
34
|
5.32
|
Environmental Laws
|
35
|
5.33
|
Finders’ Fees
|
36
|
5.34
|
Powers of Attorney and Suretyships
|
36
|
5.35
|
Directors and Officers
|
36
|
5.36
|
Other Information
|
36
|
5.37
|
Certain Business Practices
|
36
|
5.38
|
Money Laundering Laws
|
37
|
5.39
|
OFAC
|
37
|
5.40
|
Not an Investment Company
|
37
|
5.41
|
Unanimous Approval
|
37
|
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
|
37
|
6.1
|
Corporate Existence and Power
|
37
|
6.2
|
Corporate Authorization
|
37
|
6.3
|
Governmental Authorization
|
38
|
6.4
|
Non-Contravention
|
38
|
6.5
|
Finders’ Fees
|
38
|
6.6
|
Issuance of Shares
|
38
|
6.7
|
Capitalization
|
38
|
6.8
|
Information Supplied
|
39
|
6.9
|
Trust Fund
|
39
|
6.10
|
Listing
|
39
|
6.11
|
Board Approval
|
39
|
6.12
|
Parent SEC Documents and Purchaser Financial Statements
|
40
|
6.13
|
Money Laundering Laws
|
40
|
6.14
|
OFAC
|
40
|
6.15
|
Litigation
|
41
|
ARTICLE VII COVENANTS OF THE COMPANY PENDING CLOSING
|
41
|
7.1
|
Conduct of the Business
|
41
|
7.2
|
Access to Information
|
43
|
7.3
|
Notices of Certain Events
|
43
|
7.4
|
Annual and Interim Financial Statements
|
44
|
7.5
|
SEC Filings.
|
44
|
7.6
|
Financial Information
|
45
|
7.7
|
Trust Account
|
45
|
7.8
|
Employees of the Company and the Manager
|
45
|
7.9
|
Application for Permits
|
45
|
ARTICLE VIII COVENANTS OF THE COMPANY
|
45
|
8.1
|
Reporting and Compliance with Laws
|
45
|
8.2
|
Best Efforts to Obtain Consents
|
45
|
8.3
|
Proxy Statement
|
46
|
8.4
|
Registration Rights Agreement
|
46
|
ARTICLE IX COVENANTS OF ALL PARTIES HERETO
|
46
|
9.1
|
Best Efforts; Further Assurances
|
46
|
9.2
|
Tax Matters
|
46
|
9.3
|
Settlement of Purchaser Liabilities
|
47
|
9.4
|
Compliance with SPAC Agreements
|
47
|
9.5
|
Registration Statement
|
47
|
9.6
|
Confidentiality
|
48
|
9.7
|
D&O Insurance
|
48
|
ARTICLE X CONDITIONS TO CLOSING
|
48
|
10.1
|
Condition to the Obligations of the Parties
|
48
|
10.2
|
Conditions to Obligations of Parent and Purchaser
|
48
|
10.3
|
Conditions to Obligations of the Company
|
50
|
ARTICLE XI INDEMNIFICATION
|
50
|
11.1
|
Indemnification of Purchaser
|
50
|
11.2
|
Procedure
|
51
|
11.3
|
Escrow of Escrow Shares by Stockholder
|
53
|
11.4
|
Periodic Payments
|
53
|
11.5
|
Right of Set Off
|
54
|
11.6
|
Payment of Indemnification
|
54
|
11.7
|
Insurance
|
54
|
11.8
|
Survival of Indemnification Rights
|
54
|
ARTICLE XII DISPUTE RESOLUTION
|
54
|
12.1
|
Arbitration
|
54
|
12.2
|
Waiver of Jury Trial; Exemplary Damages
|
55
|
ARTICLE XIII TERMINATION
|
56
|
13.1
|
Termination Without Default
|
56
|
13.2
|
Termination Upon Default
|
56
|
13.3
|
No Other Termination
|
56
|
13.4
|
Survival
|
56
|
ARTICLE XIV MISCELLANEOUS
|
57
|
14.1
|
Notices
|
57
|
14.2
|
Amendments; No Waivers; Remedies
|
58
|
14.3
|
Arm’s length bargaining; no presumption against drafter
|
58
|
14.4
|
Publicity
|
59
|
14.5
|
Expenses
|
59
|
14.6
|
No Assignment or Delegation
|
59
|
14.7
|
Governing Law
|
59
|
14.8
|
Counterparts; facsimile signatures
|
59
|
14.9
|
Entire Agreement
|
59
|
14.10
|
Severability
|
59
|
14.11
|
Construction of certain terms and references; captions
|
59
|
14.12
|
Further Assurances
|
60
|
14.13
|
Third Party Beneficiaries
|
60
|
14.14
|
Waiver
|
60
|
14.15
|
Stockholders’ Representative
|
61
|
MERGER AGREEMENT
This MERGER AGREEMENT
(the “
Agreement
”), dated as of March 27, 2018, by and among Atlantic Acquisition Corp., a Delaware corporation
(the “
Parent
” or the “
Purchaser
”), HF Group Merger Sub Inc., a Delaware corporation and wholly-owned
subsidiary of Purchaser (the “
Merger Sub
”), HF Group Holding Corporation, a North Carolina corporation (the
“
Company
”), the stockholders of the Company (each, a “
Stockholder
” and collectively the “
Stockholders
”),
and Ni, Zhou Min, an individual, as the representative of the Stockholders (the “
Stockholders’ Representative
”).
W I T N E S S E T H :
|
A.
|
The Company is in the business of operating a foodservice distributor serving Chinese restaurants
and other businesses in the Southeastern region of the United States (the “
Business
”);
|
|
B.
|
Parent is a blank check company formed for the sole purpose of entering into a share exchange,
asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more businesses
or entities;
|
|
C.
|
The parties desire that Merger Sub merge with and into the Company, upon the terms and subject
to the conditions set forth herein and in accordance with the North Carolina Business Corporation Act and the Delaware General
Corporation Law (the “
Merger
”), and that the shares of Company Common Stock (excluding any shares held in the
treasury of the Company) be converted upon the Merger into the right to receive the Applicable Per Share Merger Consideration,
as is provided herein (the Company following the Merger is sometimes hereinafter referred to as the “
Surviving Corporation
”).
|
The parties
accordingly agree as follows:
ARTICLE
I
DEFINITIONS
The following terms,
as used herein, have the following meanings:
1.1
“
Action
” means any legal action, suit, claim, investigation, hearing or proceeding, including any audit,
claim or assessment for Taxes or otherwise.
1.2
“
Additional Agreements
” means the Registration Rights Agreement, the Escrow Agreement, the Employment
Agreements and the Lock-Up Agreements.
1.3
“
Affiliate
” means, with respect to any Person, any other Person directly or indirectly Controlling, Controlled
by, or under common Control with such Person. For avoidance of any doubt, (a) with respect to all periods prior to the Closing,
the Principal Stockholder is an Affiliate of the Company, and (ii) with respect to all periods subsequent to the Closing, Purchaser
is an Affiliate of the Company.
1.4
“
Authority
” means any governmental, regulatory or administrative body, agency or authority, any court
or judicial authority, any arbitrator, or any public, private or industry regulatory authority, whether international, national,
Federal, state, or local.
1.5
“
Books and Records
” means all books and records, ledgers, employee records, customer lists, files, correspondence,
and other records of every kind (whether written, electronic, or otherwise embodied) owned or used by a Person or in which a Person’s
assets, the business or its transactions are otherwise reflected, other than stock books and minute books.
1.6
“
Business Day
” means any day other than a Saturday, Sunday or a legal holiday on which commercial banking
institutions in New York are authorized to close for business.
1.7
“
Closing Payment Shares
” means stock certificates representing, in the aggregate, 19,969,833 shares of
Parent Common Stock payable to the Stockholders and in such amounts set forth opposite each Stockholder’s name on Schedule
1.7, with a deemed price per share of no less than $10.00.
1.8
“
COBRA
” means collectively, the requirements of Sections 601 through 606 of ERISA and Section 4980B of
the Code.
1.9
“
Code
” means the Internal Revenue Code of 1986, as amended.
1.10
“
Company Stock Rights
” means all options, warrants or other rights to purchase, convert or exchange into
Company Common Stock.
1.11
“
Contracts
” means the Leases and all contracts, agreements, leases (including equipment leases, car leases
and capital leases), licenses, commitments, client contracts, statements of work (SOWs), sales and purchase orders and similar
instruments, oral or written, to which the Company is a party or by which any of its respective assets are bound, including any
entered into by the Company in compliance with Section 7.1 after the date hereof and prior to the Closing, and all rights
and benefits thereunder, including all rights and benefits thereunder with respect to all cash and other property of third parties
under the Company’s dominion or control.
1.12
“
Control
” of a Person means the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the ownership of voting securities, by contract, or otherwise.
“Controlled”, “Controlling” and “under common Control with” have correlative meanings. Without
limiting the foregoing, a Person (the “
Controlled Person
”) shall be deemed Controlled by (a) any other Person
(the “
10% Owner
”) (i) owning beneficially, as meant in Rule 13d-3 under the Exchange Act, securities entitling
such Person to cast 10% or more of the votes for election of directors or equivalent governing authority of the Controlled Person
or (ii) entitled to be allocated or receive 10% or more of the profits, losses, or distributions of the Controlled Person; (b)
an officer, director, general partner, partner (other than a limited partner), manager, or member (other than a member having no
management authority that is not a 10% Owner) of the Controlled Person; or (c) a spouse, parent, lineal descendant, sibling, aunt,
uncle, niece, nephew, mother-in-law, father-in-law, sister-in-law, or brother-in-law of an Affiliate of the Controlled Person or
a trust for the benefit of an Affiliate of the Controlled Person or of which an Affiliate of the Controlled Person is a trustee.
1.13
“
Deferred Underwriting Amount
” means the portion of the underwriting discounts and commissions held in
the Trust Account, which the underwriters of the IPO are entitled to receive upon the Closing in accordance with the Trust Agreement.
1.14
“
Dissenting Shares
” means any shares of Company Common Stock held by Stockholders who are entitled to
appraisal rights under North Carolina Law, and who have properly exercised, perfected and not subsequently withdrawn or lost or
waived their rights to demand payment with respect to their shares in accordance with North Carolina Law.
1.15
“
Environmental Laws
” shall mean all Laws that prohibit, regulate or control any Hazardous Material or
any Hazardous Material Activity, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, the Resource Recovery and Conservation Act of 1976, the Federal Water Pollution Control Act, the Clean Air Act, the
Hazardous Materials Transportation Act and the Clean Water Act.
1.16
“
ERISA
” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
1.17
“
Escrow Agreement
” means the agreement in the form attached hereto as
Exhibit A
governing the
Escrow Shares.
1.18
“
Employment Agreements
” means the separate employment agreements in the forms attached hereto as
Exhibit
B
, between the Surviving Corporation and each of Ni, Zou Min, Wong, Chan Sin and Jonathan Ni.
1.19
“
Escrow Shares
” means shares of Parent Common Stock representing 15% of the aggregate amount of Closing
Payment Shares.
1.20
“
Exchange Act
” means the Securities Exchange Act of 1934, as amended.
1.21
“
Hazardous Material
” shall mean any material, emission, chemical, substance or waste that has been designated
by any Governmental Authority to be radioactive, toxic, hazardous, a pollutant or a contaminant.
1.22
“
Hazardous Materials Activity
” shall mean the transportation, transfer, recycling, storage, use, treatment,
manufacture, removal, remediation, release, exposure of others to, sale, labeling, or distribution of any Hazardous Material or
any product or waste containing a Hazardous Material, or product manufactured with ozone depleting substances, including, without
limitation, any required labeling, payment of waste fees or charges (including so-called e-waste fees) and compliance with any
recycling, product take-back or product content requirements.
1.23
“
HF Internal Reorganization
” means the acquisition by the Company of the minority equity interests of
the several entities as described on Schedule 5.5 annexed hereto.
1.24
“
IPO
” means the initial public offering of Parent pursuant to a prospectus dated August 8, 2017.
1.25
“
Indebtedness
” means with respect to any Person, (a) all obligations of such Person for borrowed money,
or with respect to deposits or advances of any kind (including amounts by reason of overdrafts and amounts owed by reason of letter
of credit reimbursement agreements) including with respect thereto, all interests, fees and costs, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale
or other title retention agreements relating to property purchased by such Person, (d) all obligations of such Person issued or
assumed as the deferred purchase price of property or services (other than accounts payable to creditors for goods and services
incurred in the ordinary course of business), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any lien or security interest on property owned or acquired by
such Person, whether or not the obligations secured thereby have been assumed, (f) all obligations of such Person under leases
required to be accounted for as capital leases under U.S. GAAP, (g) all guarantees by such Person and (h) any agreement to incur
any of the same.
1.26
“
Intellectual Property Right
” means any trademark, service mark, registration thereof or application
for registration therefor, trade name, license, invention, patent, patent application, trade secret, trade dress, know-how, copyright,
copyrightable materials, copyright registration, application for copyright registration, software programs, data bases, u.r.l.s.,
and any other type of proprietary intellectual property right, and all embodiments and fixations thereof and related documentation,
registrations and franchises and all additions, improvements and accessions thereto, and with respect to each of the forgoing items
in this definition, which is owned or licensed or filed by the Company, or used or held for use in the Business, whether registered
or unregistered or domestic or foreign.
1.27
“
Inventory
” is defined in the UCC.
1.28
“
Law
” means any domestic or foreign, federal, state, municipality or local law, statute, ordinance, code,
rule, or regulation.
1.29
“
Leases
” means the leases with respect to the stores, warehouses and parking lots leased by the Company
at the locations as set forth on Schedule 1.27 attached hereto, together with all fixtures and improvements erected on the premises
leased thereby.
1.30
“
Lien
” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset, and any conditional sale or voting agreement or proxy, including any agreement to give any
of the foregoing.
1.31
“
Lock-Up Agreements
” means the Lock-Up Agreements between Purchaser and each of the Stockholders, pursuant
to which the Parent Common Stock of each Stockholder will be locked up for one (1) year, each such Lock-Up Agreement in the form
attached hereto as
Exhibit C
.
1.32
“
Majority Stockholders
” means Ni, Zhou Min, Ni, Jian Ming, and Chan Sin Wong.
1.33
“
Material Adverse Effect
” or “
Material Adverse Change
” means a material adverse change
or a material adverse effect, individually or in the aggregate, upon on the assets, liabilities, condition (financial or otherwise),
prospects, net worth, management, earnings, cash flows, business, operations or properties of the Company and the Business, taken
as a whole, whether or not arising from transactions in the ordinary course of business.
1.34
“
Order
” means any decree, order, judgment, writ, award, injunction, rule or consent of or by an Authority.
1.35
“
Parent Common Stock
” means the shares of common stock, par value $0.0001 per share, of Parent.
1.36
“
Parent Rights
” means the right to receive one-tenth (1/10) of a share of Parent Common Stock.
1.37
“
Parent Securities
” means the Parent Common Stock, Parent Rights, Parent Units and Parent UPO, collectively.
1.38
“
Parent Stock Compensation Plan
” means the 2018 Omnibus Equity Incentive Plan providing for Parent Common
Stock based awards to employees, directors, consultants and other eligible persons as determined under such plan and including
a reserve of 10% of the issued and outstanding shares of Common Stock as of the Closing Date, and otherwise in the form of
Exhibit
D
annexed hereto.
1.39
“
Parent UPO
” means the option issued to Chardan Capital Markets, LLC (and/or its designees), to purchase
up to an aggregate of 250,000 Parent Units at a price of $10.00 per Parent Unit.
1.40
“
Parent Unit
” means one share of Parent Common Stock and one Parent Right.
1.41
“
Permitted Liens
” means (i) all defects, exceptions, restrictions, easements, rights of way and encumbrances
disclosed in policies of title insurance which have been made available to Purchaser; and (ii) mechanics’, carriers’,
workers’, repairers’ and similar statutory Liens arising or incurred in the ordinary course of business for amounts
(A) that are not delinquent, (B) that are not material to the business, operations and financial condition of the Company so encumbered,
either individually or in the aggregate, (C) not resulting from a breach, default or violation by the Company of any Contract or
Law, and (D) the Liens set forth on Schedule 5.15(c).
1.42
“
Person
” means an individual, corporation, partnership (including a general partnership, limited partnership
or limited liability partnership), limited liability company, association, trust or other entity or organization, including a government,
domestic or foreign, or political subdivision thereof, or an agency or instrumentality thereof.
1.43
“
Pre-Closing Period
” means any period that ends on or before the Closing Date or with respect to a period
that includes but does not end on the Closing Date, the portion of such period through and including the day of the Closing.
1.44
“
Principal Stockholder
” means Ni, Zhou Min.
1.45
“
Real Property
” means, collectively, all real properties and interests therein (including the right to
use), together with all buildings, fixtures, trade fixtures, plant and other improvements located thereon or attached thereto;
all rights arising out of use thereof (including air, water, oil and mineral rights); and all subleases, franchises, licenses,
permits, easements and rights-of-way which are appurtenant thereto.
1.46
“
Registration Rights Agreement
” means the agreement to be executed between the Purchaser and the Stockholders
substantially in the form attached hereto as
Exhibit E
governing the registration by the Parent under the Securities Act
and the resale of the Closing Payment Shares.
1.47
“
Sarbanes-Oxley Act
” means the Sarbanes-Oxley Act of 2002, as amended.
1.48
“
SEC
” means the Securities and Exchange Commission.
1.49
“
Securities Act
” means the Securities Act of 1933, as amended.
1.50
“
Subsidiary
” means each entity of which at least fifty percent (50%) of the capital stock or other equity
or voting securities are Controlled or owned, directly or indirectly, by the Company.
1.51
“
Tangible Personal Property
” means all tangible personal property and interests therein, including machinery,
computers and accessories, furniture, office equipment, communications equipment, automobiles, trucks, forklifts and other vehicles
owned or leased by the Company and other tangible property, including the items listed on Schedule 5.15(b).
1.52
“
Tax(es)
” means any federal, state, local or foreign tax, charge, fee, levy, custom, duty, deficiency,
or other assessment of any kind or nature imposed by any Taxing Authority (including any income (net or gross), gross receipts,
profits, windfall profit, sales, use, goods and services, ad valorem, franchise, license, withholding, employment, social security,
workers compensation, unemployment compensation, employment, payroll, transfer, excise, import, real property, personal property,
intangible property, occupancy, recording, minimum, alternative minimum, environmental or estimated tax), including any liability
therefor as a transferee (including under Section 6901 of the Code or similar provision of applicable Law) or successor, as a result
of Treasury Regulation Section 1.1502-6 or similar provision of applicable Law or as a result of any Tax sharing, indemnification
or similar agreement, together with any interest, penalty, additions to tax or additional amount imposed with respect thereto.
1.53
“
Taxing Authority
” means the Internal Revenue Service and any other Authority responsible for the collection,
assessment or imposition of any Tax or the administration of any Law relating to any Tax.
1.54
“
Tax Return
” means any return, information return, declaration, claim for refund or credit, report or
any similar statement, and any amendment thereto, including any attached schedule and supporting information, whether on a separate,
consolidated, combined, unitary or other basis, that is filed or required to be filed with any Taxing Authority in connection with
the determination, assessment, collection or payment of a Tax or the administration of any Law relating to any Tax.
1.55
“
UCC
” means the Uniform Commercial Code of the State of New York, or any corresponding or succeeding
provisions of Laws of the State of New York, or any corresponding or succeeding provisions of Laws, in each case as the same may
have been and hereafter may be adopted, supplemented, modified, amended, restated or replaced from time to time.
1.56
“
U.S. GAAP
” means U.S. generally accepted accounting principles, consistently applied.
ARTICLE
II
Intentionally
Omitted.
ARTICLE
III
THE MERGER
3.1
The Merger
. Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, pursuant
to an appropriate certificate of merger (the “
Certificate of Merger
”) and in accordance with the applicable
provisions of the North Carolina Business Corporation Act (“
North Carolina Law
”) and the Delaware General Corporation
Law (“
Delaware Law
”), respectively, Merger Sub shall be merged with and into the Company. Following the Merger,
the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation in the
Merger (the “
Surviving Corporation
”).
3.2
Closing; Effective Time
. Unless this Agreement is earlier terminated in accordance with Article XIII, the closing
of the Merger (the “
Closing
”) shall take place electronically or at the offices of Loeb & Loeb LLP, 345
Park Avenue, New York, New York, at 10:00 a.m. local time, on or before September 30, 2018, subject to the satisfaction or waiver
(to the extent permitted by applicable law) of the conditions set forth in Article X. The parties may participate in the Closing
via electronic means. The date on which the Closing actually occurs is hereinafter referred to as the “
Closing Date
”.
At the Closing, the parties hereto shall cause a Certificate of Merger to be filed with each of the Department of the Secretary
of State of the State of North Carolina and the Secretary of State of the State of Delaware, in such form as is required by, and
executed in accordance with, the relevant provisions of North Carolina Law and Delaware Law, as applicable, and, as soon as practicable
on or after the Closing Date, shall make any and all other filings or recordings required under North Carolina Law and Delaware
Law. The Merger shall become effective at such date and time as a Certificate of Merger is duly filed with each of the Department
of the Secretary of State of the State of North Carolina and the Secretary of State of the State of Delaware or at such other date
and time as Merger Sub and the Company shall agree in writing and shall specify in the Certificate of Merger (the date and time
the Merger becomes effective being the “
Effective Time
”).
3.3
Board of Directors
. Immediately after the Closing, the Surviving Corporation’s board of directors will consist
of not less than five (5) directors nor more than seven (7) directors. The Company shall designate all such directors, at least
three (3) of whom shall qualify as independent directors under the Securities Act and the rules of any applicable securities exchange.
3.4
Effects of the Merger
. The Merger shall have the effects set forth in this Agreement, the Certificate of Merger and
in the relevant provisions of North Carolina Law and Delaware Law.
3.5
Articles of Incorporation; Bylaws
.
(a)
At the Effective Time, the amended articles of incorporation of the Company shall become the articles of incorporation of
the Surviving Corporation until thereafter amended in accordance with their terms and as provided by Law.
(b)
At the Effective Time, and without any further action on the part of the Company or Merger Sub, the bylaws of the Company
shall be amended so that they read in their entirety as set forth attached hereto as
Exhibit F
, and, as so amended, shall
be the bylaws of the Surviving Corporation until thereafter amended in accordance with their terms, the articles of incorporation
of the Surviving Corporation and as provided by Law.
3.6
No Further Ownership Rights in Company Capital Stock
. At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of transfers of shares of Company Capital Stock (as defined
in Section 5.5) on the records of the Company. From and after the Effective Time, the holders of certificates evidencing ownership
of shares of Company Capital Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect
to such shares of Company Capital Stock, except as otherwise provided for herein or by Law.
3.7
Withholding Rights
. Notwithstanding anything to the contrary contained in this Agreement, Purchaser, the Company
or the Stockholders’ Representative shall be entitled to deduct and withhold from the cash otherwise deliverable under this
Agreement, and from any other payments otherwise required pursuant to this Agreement or any Additional Agreement, such amounts
as Purchaser, the Company or the Stockholders’ Representative, as the case may be, are required to withhold and pay over
to the applicable Authority with respect to any such deliveries and payments under the Code or any provision of state, local, provincial
or foreign Tax Law. To the extent that amounts are so withheld and paid over, such withheld amounts shall be treated for all purposes
of this Agreement as having been delivered and paid to such Person in respect of which such deduction and withholding was made.
3.8
Rights Not Transferable
. The rights of the holders of Company Capital Stock as of immediately prior to the Effective
Time are personal to each such holder and shall not be assignable or otherwise transferable for any reason (except by will or by
the operation of the laws of descent after the death of a natural holder thereof). Any attempted transfer of such right by any
holder thereof (otherwise than as permitted by the immediately preceding sentence) shall be null and void.
3.9
Taking of Necessary Action; Further Action
. If, at any time after the Effective Time, any further action is necessary
or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and interest
in, to and under, and/or possession of, all assets, property, rights, privileges, powers and franchises of the Company, the officers
and directors of the Surviving Corporation are fully authorized in the name and on behalf of the Company, to take all lawful action
necessary or desirable to accomplish such purpose or acts, so long as such action is not inconsistent with this Agreement.
3.10
Section 368 Reorganization
. For U.S. federal income tax purposes, the Merger is intended to constitute a "reorganization"
within the meaning of Section 368(a) of the Code. The parties to this Agreement hereby (i) adopt this Agreement insofar as it relates
to the Merger as a "plan of reorganization" within the meaning of Section 1.368-2(g) of the United States Treasury regulations,
(ii) agree to file and retain such information as shall be required under Section 1.368-3 of the United States Treasury regulations,
and (iii) agree to file all Tax and other informational returns on a basis consistent with such characterization. Notwithstanding
the foregoing or anything else to the contrary contained in this Agreement, the parties acknowledge and agree that no party is
making any representation or warranty as to the qualification of the Merger as a reorganization under Section 368 of the Code or
as to the effect, if any, that any transaction consummated on, after or prior to the Effective Time has or may have on any such
reorganization status. Each of the parties acknowledge and agree that each such party and each of the stockholders of the Company
(i) has had the opportunity to obtain independent legal and tax advice with respect to the transactions contemplated by this Agreement,
and (ii) is responsible for paying its own Taxes, including any adverse Tax consequences that may result if the Merger is determined
not to qualify as a reorganization under Section 368 of the Code.
ARTICLE
IV
CONVERSION OF SHARES; CLOSING MERGER CONSIDERATION
4.1
Conversion of Capital Stock
.
(a)
Conversion of Common Stock
. At the Effective Time, by virtue of the Merger and without any action on the part of
Purchaser, Merger Sub, the Company or the Stockholders, each share of Company Common Stock issued and outstanding immediately prior
to the Effective Time shall be canceled and automatically converted into the right to receive, without interest, the applicable
portion of the Closing Payment Shares for such share of Company Common Stock (the “
Applicable Per Share Merger Consideration
”)
as specified on Schedule 1.7 hereto. All fractional shares of Company Common Stock held by Stockholders shall be entitled to receive
the Applicable Per Share Merger Consideration with respect to such fractional shares.
(b)
Capital Stock of Merger Sub
. Each share of capital stock of Merger Sub that is issued and outstanding immediately
prior to the Effective Time will, by virtue of the Merger and without further action on the part of the sole stockholder of Merger
Sub, be converted into and become one share of common stock of the Surviving Corporation (and the shares of Surviving Corporation
into which the shares of Merger Sub capital stock are so converted shall be the only shares of the Surviving Corporation’s
capital stock that are issued and outstanding immediately after the Effective Time). Each certificate evidencing ownership of shares
of Merger Sub common stock will, as of the Effective Time, evidence ownership of such share of common stock of the Surviving Corporation.
(c)
Treatment of Company Capital Stock Owned by the Company
. At the Effective Time, all shares of Company Capital Stock
that are owned by the Company as treasury stock immediately prior to the Effective Time shall be canceled and extinguished without
any conversion thereof.
(d)
No Liability
. Notwithstanding anything to the contrary in this Section 4.1, none of Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(e)
Surrender of Certificates
. All shares of Parent Common Stock issued upon the surrender of shares of the Company Common
Stock in accordance with the terms hereof, shall be deemed to have been issued in full satisfaction of all rights pertaining to
such securities, other than any additional rights pursuant to this Agreement, provided that any restrictions on the sale and transfer
of such shares shall also apply to the Parent Common Stock so issued in exchange.
(f)
Lost, Stolen or Destroyed Certificates
. In the event any certificates for any
Company Common Stock shall have been lost, stolen or destroyed, Purchaser shall cause to be issued in exchange for such lost, stolen
or destroyed certificates and for each such share, upon the making of an affidavit of that fact by the holder thereof, the Applicable
Per Share Merger Consideration; provided, however, that Purchaser may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Purchaser with respect to the certificates alleged to have been lost, stolen
or destroyed.
4.2
Payment of Merger Consideration
.
(a)
No certificates or scrip representing fractional shares of Parent Common Stock will be issued pursuant to the Merger, and
such fractional share interests will not entitle the owner thereof to vote or to any rights of a stockholder of Purchaser.
(b)
Legend
. Each certificate issued pursuant to the Merger to any holder of Company Common Stock shall bear the legend
set forth below, or legend substantially equivalent thereto, together with any other legends that may be required by any securities
laws at the time of the issuance of the Parent Common Stock:
THE SHARES OF COMMON STOCK REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL (I) SUCH OFFER, SALE, TRANSFER,
PLEDGE OR HYPOTHECATION HAS BEEN REGISTERED UNDER THE ACT OR (II) THE ISSUER OF THE ORDINARY SHARES HAS RECEIVED AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
WITH THE ACT.
ARTICLE
V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and the Majority
Stockholders, jointly and severally, hereby represents and warrants to Purchaser that each of the following representations and
warranties is true, correct and complete as of the date of this Agreement and as of the Closing Date.
5.1
Corporate Existence and Power
. The Company is a corporation duly organized, validly existing and in good standing
under the Laws of the State of North Carolina. The Company has all power and authority, corporate and otherwise, and all governmental
licenses, franchises, Permits, authorizations, consents and approvals required to own and operate its properties and assets and
to carry on the Business as presently conducted and as proposed to be conducted. The Company is not qualified to do business as
a foreign entity in any jurisdiction, except as set forth on Schedule 5.1, and there is no other jurisdiction in which the character
of the property owned or leased by the Company or the nature of its activities make qualification of the Company in any such jurisdiction
necessary. The Company has offices located only at the addresses set forth on Schedule 5.1. The Company has not taken any action,
adopted any plan, or made any agreement or commitment in respect of any merger, consolidation, sale of all or substantially all
of its assets, reorganization, recapitalization, dissolution or liquidation.
5.2
Authorization
. The execution, delivery and performance by the Company of this Agreement and the Additional Agreements
and the consummation by the Company of the transactions contemplated hereby and thereby are within the corporate powers of the
Company and have been duly authorized by all necessary action on the part of the Company, including the unanimous approval of the
stockholders of the Company. This Agreement constitutes, and, upon their execution and delivery, each of the Additional Agreements
will constitute, a valid and legally binding agreement of the Company enforceable against the Company in accordance with their
respective terms.
5.3
Governmental Authorization
. Other than as contemplated by the Proxy Statement (as defined in Section 7.5 hereof),
neither the execution, delivery nor performance by the Company of this Agreement or any Additional Agreements requires any consent,
approval, license or other action by or in respect of, or registration, declaration or filing with, any Authority requiring a consent,
approval, authorization, order or other action of or filing with any Authority as a result of the execution, delivery and performance
of this Agreement or any of the Additional Agreements or the consummation of the transactions contemplated hereby or thereby (each
of the foregoing, a “
Governmental Approval
”).
5.4
Non-Contravention
. None of the execution, delivery or performance by the Company of this Agreement or any Additional
Agreements does or will (a) contravene or conflict with the organizational or constitutive documents of the Company, (b) contravene
or conflict with or constitute a violation of any provision of any Law or Order binding upon or applicable to the Company, (c)
except for the Contracts listed on Schedule 5.11 requiring Company Consents (but only as to the need to obtain such Company Consents),
constitute a default under or breach of (with or without the giving of notice or the passage of time or both) or violate or give
rise to any right of termination, cancellation, amendment or acceleration of any right or obligation of the Company or require
any payment or reimbursement or to a loss of any material benefit relating to the Business to which the Company is entitled under
any provision of any Permit, Contract or other instrument or obligations binding upon the Company or by which any of the Company
Capital Stock or any of the Company’s assets is or may be bound or any Permit, (d) result in the creation or imposition of
any Lien on any of the Company Capital Stock or any of the Company’s assets, or (e) cause a loss of any material benefit
relating to the Business to which the Company is entitled under any provision of any Permit or Contract binding upon the Company.
5.5
Capitalization
. The Company has an authorized capitalization consisting of 200,000,000 shares of common stock, no
par value per share, divided into 100,000,000 shares of voting common stock and 100,000,000 shares of non-voting common stock (collectively,
the “
Company Common Stock
”), and together with the Company Stock Rights, the “
Company Capital Stock
”)
of which [_________] shares of Company Common Stock are issued and outstanding as of the date hereof. The Company does not have
any shares of preferred stock authorized or issued and outstanding. No Company Capital Stock is held in its treasury. All of the
issued and outstanding Company Capital Stock has been duly authorized and validly issued, is fully paid and non-assessable and
has not been issued in violation of any preemptive or similar rights of any Person. All of the issued and outstanding Company Capital
Stock is owned (and always has been owned) of record and beneficially by the Persons set forth on Schedule 1.17. The only shares
of Company Common Stock that will be outstanding immediately after the Closing will be the Company Capital Stock owned by Purchaser.
No other class of capital stock of the Company is authorized or outstanding. Other than as set forth on Schedule 5.5 to provide
for the issuance of shares of Common Stock effective at the Closing in connection with the HF Internal Reorganization, there are
no: (a) outstanding subscriptions, options, warrants, rights (including "phantom stock rights"), calls, commitments,
understandings, conversion rights, rights of exchange, plans or other agreements of any kind providing for the purchase, issuance
or sale of any shares of the capital stock of the Company, or (b) to the knowledge of the Company, agreements with respect to any
of the Company Capital Stock, including any voting trust, other voting agreement or proxy with respect thereto.
5.6
Articles of Incorporation and Bylaws
. Copies of (a) the amended articles of incorporation of the Company, as certified
by the North Carolina Department of the Secretary of State, and (b) the bylaws of the Company, as certified by the secretary of
the Company, have heretofore been made available to Purchaser, and such copies are each true and complete copies of such instruments
in effect on the date hereof. The Company has not taken any action in violation or derogation of its articles of incorporation
or bylaws.
5.7
Corporate Records
. All proceedings occurring since December 31, 2016 of the board of directors, including committees
thereof, and all consents to actions taken thereby, are accurately reflected in the minutes and records contained in the corporate
minute books of the Company. The stock ledgers and stock transfer books of the Company are complete and accurate. The stock ledgers
and stock transfer books and minute book records of the Company relating to all issuances and transfers of stock by the Company,
and all proceedings of the board of directors, including committees thereof, and stockholders of the Company since December 31,
2016 have been made available to Purchaser, and are the original stock ledgers and stock transfer books and minute book records
of the Company or true, correct and complete copies thereof.
5.8
Third Parties
. Other than the Principal Stockholder, the Company is not Controlled by any Person and, other than
the Persons listed on Schedule 5.8, the Company is not in Control of any other Person. Except as set forth on Schedule 5.8, to
the Company’s knowledge, no Key Personnel (as defined in Section 7.8) (a) engage in any business, except through the Company,
or are employees of or provide any service for compensation to, any other business concern. Schedule 5.8 lists each Contract to
which the Company, on the one hand, and any Stockholder beneficially owning more than 10% of the common stock of the Company, or
any affiliate of such a Stockholder (collectively, a “
10% Stockholder
”), on the other hand, is a party. No Stockholder
or any Affiliate of a Stockholder (i) owns, directly or indirectly, in whole or in part, any tangible or intangible property (including
Intellectual Property Rights) that the Company uses or the use of which is necessary for the conduct of the Business or the ownership
or operation of the Company’s assets, or (ii) have engaged in any transactions with the Company. Schedule 5.8 sets forth
a complete and accurate list of the Affiliates of the Company and the ownership interests in the Affiliate of the Company and each
Stockholder.
5.9
Assumed Names
. Schedule 5.9 is a complete and correct list of all assumed or "doing business as" names
currently or, within five (5) years of the date of this Agreement, used by the Company, including names on any websites. Since
December 31, 2016, the Company has not used any name other than the names listed on Schedule 5.9 to conduct the Business. The Company
has filed appropriate "doing business as" certificates in all applicable jurisdictions with respect to itself, except
where the failure to file would not have a Material Adverse Effect.
5.10
Subsidiaries
.
(a)
Except as set forth on Schedule 5.10, the Company does not currently own and within the past five (5) years has not owned
directly or indirectly, securities or other ownership interests in any other entity. The Company owns 100% of the issued and outstanding
capital stock and securities of each Person listed on Schedule 5.10. None of the Company or any of its Subsidiaries is a party
to any agreement relating to the formation of any joint venture, association or other entity.
(b)
Each Subsidiary is a corporation duly organized, validly existing and in good standing under and by virtue of the Laws of
the jurisdiction of its formation set forth by its name on Schedule 5.10. Each Subsidiary has all power and authority, corporate
and otherwise, and all governmental licenses, franchises, Permits, authorizations, consents and approvals required to own and operate
its properties and assets and to carry on the Business as presently conducted and as proposed to be conducted. No Subsidiary is
qualified to do business as a foreign entity in any jurisdiction, except as set forth by its name on Schedule 5.10, and there is
no other jurisdiction in which the character of the property owned or leased by any Subsidiary or the nature of its activities
make qualification of such Subsidiary in any such jurisdiction necessary. Each Subsidiary has offices located only at the addresses
set forth by its name on Schedule 5.10. No Subsidiary has taken any action, adopted any plan, or made any agreement or commitment
in respect of any merger, consolidation, sale of all or substantially all of its assets, reorganization, recapitalization, dissolution
or liquidation.
5.11
Consents
. The Contracts listed on Schedule 5.11 are the only Contracts binding upon the Company or by which any of
the Company Capital Stock or any of the Company’s assets are bound, requiring a consent, approval, authorization, order or
other action of or filing with any Person as a result of the execution, delivery and performance of this Agreement or any of the
Additional Agreements or the consummation of the transactions contemplated hereby or thereby (each of the foregoing, a “
Company
Consent
”).
5.12
Financial Statements
.
(a)
Schedule 5.12 includes (i) the audited consolidated financial statements of the Company as of and for the fiscal years ended
December 31, 2017 and 2016, consisting of the audited consolidated balance sheets as of such dates, the audited consolidated income
statements for the twelve (12) month periods ended on such dates, and the audited consolidated cash flow statements for the twelve
(12) month periods ended on such dates (collectively, the “
Financial Statements
” and the audited consolidated
balance sheets as of December 31, 2017 and 2016 included therein, collectively, the “
Balance Sheet
”)).
(b)
The Financial Statements are complete and accurate and fairly present, in conformity with U.S. GAAP applied on a consistent
basis, the financial position of the Company as of the dates thereof and the results of operations of the Company for the periods
reflected therein. The Financial Statements (i) were prepared from the Books and Records of the Company; (ii) were prepared on
an accrual basis in accordance with U.S. GAAP consistently applied; (iii) contain and reflect all necessary adjustments and accruals
for a fair presentation of the Company’s financial condition as of their dates including for all warranty, maintenance, service
and indemnification obligations; and (iv) contain and reflect adequate provisions for all liabilities for all material Taxes applicable
to the Company with respect to the periods then ended. The Company has delivered to Purchaser complete and accurate copies of all
"management letters" received by it from its accountants and all responses during the last five (5) years by lawyers
engaged by the Company to inquiries from its accountant or any predecessor accountants.
(c)
Except as specifically disclosed, reflected or fully reserved against on the Balance Sheet, and for liabilities and obligations
of a similar nature and in similar amounts incurred in the ordinary course of business since the date of the Balance Sheet, there
are no liabilities, debts or obligations of any nature (whether accrued, fixed or contingent, liquidated or unliquidated, asserted
or unasserted or otherwise) relating to the Company. All debts and liabilities, fixed or contingent, which should be included under
U.S. GAAP on the Balance Sheet are included therein.
(d)
The Balance Sheet included in the Financial Statements accurately reflects the outstanding Indebtedness of the Company as
of the date thereof. Except as set forth on Schedule 5.12, the Company does not have any Indebtedness.
(e)
All financial projections delivered by or on behalf of the Company to Purchaser with respect to the Business were prepared
in good faith using assumptions that the Company believes to be reasonable and the Company is not aware of the existence of any
fact or occurrence of any circumstances that is reasonably likely to have an Material Adverse Effect.
5.13
Books and Records
. The Company shall make all Books and Records of the Company available to Purchaser for its inspection
and shall deliver to Purchaser complete and accurate copies of all documents referred to in the Schedules to this Agreement or
that Purchaser otherwise has requested within thirty (30) days from the date hereof. All Contracts, documents, and other papers
or copies thereof delivered to Purchaser by or on behalf of the Company are accurate, complete, and authentic.
(a)
The Books and Records accurately and fairly, in reasonable detail, reflect the transactions and dispositions of assets of
and the providing of services by the Company. The Company maintains a system of internal accounting controls sufficient to provide
reasonable assurance that:
(i)
transactions are executed only in accordance with the respective management’s authorization;
(ii)
all income and expense items are promptly and properly recorded for the relevant periods in accordance with the revenue
recognition and expense policies maintained by the Company, as permitted by U.S. GAAP;
(iii)
access to assets is permitted only in accordance with the respective management’s authorization; and
(iv)
recorded assets are compared with existing assets at reasonable intervals, and appropriate action is taken with respect
to any differences.
(b)
All accounts, books and ledgers of the Company have been properly and accurately kept and completed in all material respects,
and there are no material inaccuracies or discrepancies of any kind contained or reflected therein. The Company does not have any
records, systems controls, data or information recorded, stored, maintained, operated or otherwise wholly or partly dependent on
or held by any means (including any mechanical, electronic or photographic process, whether computerized or not) which (including
all means of access thereto and therefrom) are not under the exclusive ownership (excluding licensed software programs) and direct
control of the Company and which is not located at the relevant office.
5.14
Absence of Certain Changes
. Except as disclosed on Schedule 5.14, since the date of the Balance Sheet (the “
Balance
Sheet Date
”), the Company has conducted the Business in the ordinary course consistent with past practices. Without limiting
the generality of the foregoing, since the Balance Sheet Date, there has not been:
(a)
any Material Adverse Effect or any material diminishment in the value to Purchaser of the transactions contemplated hereby;
(b)
any transaction, Contract or other instrument entered into, or commitment made, by the Company relating to the Business,
or any of the Company’s assets (including the acquisition or disposition of any assets) or any relinquishment by the Company
of any Contract or other right, in either case other than transactions and commitments in the ordinary course of business consistent
in all respects, including kind and amount, with past practices and those contemplated by this Agreement;
(c)
(i) any redemption of, declaration, setting aside or payment of any dividend or other distribution with respect to any capital
stock or other equity interests in the Company; (ii) any issuance by the Company of shares of capital stock or other equity interests
in the Company, or (iii) any repurchase, redemption or other acquisition, or any amendment of any term, by the Company of any outstanding
shares of capital stock or other equity interests;
(d)
(i) any creation or other incurrence of any Lien other than Permitted Liens on the Company Capital Stock or any of the Company’s
assets, and (ii) any making of any loan, advance or capital contributions to or investment in any Person by the Company;
(e)
any material personal property damage, destruction or casualty loss or personal injury loss (whether or not covered by insurance)
affecting the business or assets of the Company;
(f)
increased benefits payable under any existing severance or termination pay policies or employment agreements; entered into
any employment, deferred compensation or other similar agreement (or amended any such existing agreement) with any director, officer,
manager or employee of the Company; established, adopted or amended (except as required by law) any bonus, profit-sharing, thrift,
pension, retirement, deferred compensation, compensation, stock option, restricted stock or other benefit plan or arrangement covering
any director, officer, manager or employee of the Company; or increased any compensation, bonus or other benefits payable to any
director, officer, manager or employee of the Company, other than increases to non-officer employees in the ordinary course of
business consistent with past practices;
(g)
any material labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of the Company, which employees were not subject to a collective bargaining agreement
at the Balance Sheet Date, or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to any employees
of the Company;
(h)
any sale, transfer, lease to others or otherwise disposition of any of its assets by the Company except for inventory sold
in the ordinary course of business consistent with past practices or immaterial amounts of other Tangible Personal Property not
required by its business;
(i)
(i) any amendment to or termination of any Material Contract, (ii) any amendment to any material license or material permit
from any Authority held by the Company, (iii) any receipt of any notice of termination of any of the items referenced in (i) and
(ii); and (iv) a material default by the Company under any Material Contract, or any material license or material permit from any
Authority held by the Company;
(j)
any capital expenditure by the Company in excess in any fiscal month of an aggregate of $1,000,000 or entering into any
lease of capital equipment or property under which the annual lease charges exceed $500,000 in the aggregate by the Company;
(k)
any institution of litigation, settlement or agreement to settle any litigation, action, proceeding or investigation before
any court or governmental body relating to the Company or its property or the suffering of any actual or, to the Company’s
knowledge, threatened, litigation, action, proceeding or investigation before any court or governmental body relating to the Company
or its property;
(l)
any loan of any monies to any Person or guarantee of any obligations of any Person by the Company;
(m)
except as required by GAAP, any change in the accounting methods or practices (including, without limitation, any change
in depreciation or amortization policies or rates) of the Company or any revaluation of any of the assets of the Company;
(n)
other than as contemplated herein, any amendment to the Company’s organizational documents, or any engagement by the
Company in any merger, consolidation, reorganization, reclassification, liquidation, dissolution or similar transaction;
(o)
any acquisition of assets (other than acquisitions of inventory in the ordinary course of business consistent with past
practice) or business of any Person;
(p)
any material Tax election made by the Company outside of the ordinary course of business consistent with past practice,
or any material Tax election changed or revoked by the Company; any material claim, notice, audit report or assessment in respect
of Taxes settled or compromised by the Company; any annual Tax accounting period changed by the Company; any Tax allocation agreement,
Tax sharing agreement, Tax indemnity agreement or closing agreement relating to any Tax entered into by the Company; or any right
to claim a material Tax refund surrendered by the Company; or
(q)
any commitment or agreement to do any of the foregoing.
Since the
Balance Sheet Date through and including the date hereof, the Company has not taken any action nor has any event occurred which
would have violated the covenants of the Company set forth in Section 8.1 herein if such action had been taken or such event had
occurred between the date hereof and the Closing Date.
5.15
Properties; Title to the Company’s Assets
.
(a)
The items of Tangible Personal Property have no defects, are in good operating condition and repair and function in accordance
with their intended uses (ordinary wear and tear excepted) and have been properly maintained, and are suitable for their present
uses and meet all specifications and warranty requirements with respect thereto.
(b)
Schedule 5.15(b) sets forth a description and location of each item of the Tangible Personal Property, as of a date within
five days of the date of this Agreement. All of the Tangible Personal Property is located at the offices of the Company or a Subsidiary.
(c)
The Company has good, valid and marketable title in and to, or in the case of the Leases and the assets which are leased
or licensed pursuant to Contracts, a valid leasehold interest or license in or a right to use, all of their assets reflected on
the Balance Sheet or acquired after December 31, 2017. No such asset is subject to any Liens other than Permitted Liens. The Company’s
assets constitute all of the assets of any kind or description whatsoever, including goodwill, for the Company to operate the Business
immediately after the Closing in the same manner as the Business is currently being conducted.
5.16
Litigation
. There is no Action (or any basis therefore) pending against, or to the best knowledge of the Company
threatened against or affecting, the Company, any of its officers or directors, the Business, or any Company Capital Stock or any
of the Company’s assets or any Contract before any court, Authority or official or which in any manner challenges or seeks
to prevent, enjoin, alter or delay the transactions contemplated hereby or by the Additional Agreements. Except as set forth on
Schedule 5.16, there are no outstanding judgments against the Company. Except as set forth on Schedule 5.16, the Company is not,
and has not been in the past five (5) years, subject to any proceeding with any Authority.
5.17
Contracts
.
(a)
Schedule 5.17(a) lists all material Contracts, oral or written (collectively, “
Material Contracts
”) to
which the Company is a party and which are currently in effect and constitute the following:
(i)
all Contracts that require annual payments or expenses by, or annual payments or income to, the Company of $1,000,000 or
more (other than standard purchase and sale orders entered into in the ordinary course of business consistent with past practice);
(ii)
all sales, advertising, agency, lobbying, broker, sales promotion, market research, marketing or similar contracts and agreements,
in each case requiring the payment of any commissions by the Company in excess of $1,000,000 annually;
(iii)
all employment Contracts, employee leasing Contracts, and consultant and sales representatives Contracts with any current
or former officer, director, employee or consultant of the Company or other Person, under which the Company (A) has continuing
obligations for payment of annual compensation of at least $200,000 (other than oral arrangements for at-will employment), (B)
has severance or post termination obligations to such Person (other than COBRA obligations), or (C) has an obligation to make a
payment upon consummation of the transactions contemplated hereby or as a result of a change of control of the Company;
(iv)
all Contracts creating a joint venture, strategic alliance, limited liability company and partnership agreements to which
the Company is a party;
(v)
all Contracts relating to any acquisitions or dispositions of assets by the Company where the Company is obligated to pay
consideration in excess of $500,000;
(vi)
all Contracts for material licensing agreements, including Contracts licensing Intellectual Property Rights, other than
“shrink wrap” licenses;
(vii)
all Contracts relating to secrecy, confidentiality and nondisclosure agreements restricting the conduct of the Company or
substantially limiting the freedom of the Company to compete in any line of business or with any Person or in any geographic area;
(viii)
all Contracts relating to patents, trademarks, service marks, trade names, brands, copyrights, trade secrets and other Intellectual
Property Rights of the Company;
(ix)
all Contracts providing for guarantees, indemnification arrangements and other hold harmless arrangements made or provided
by the Company, including all ongoing agreements for repair, warranty, maintenance, service, indemnification or similar obligations;
(x)
all Contracts with or pertaining to the Company to which any 10% Stockholder is a party;
(xi)
all Contracts relating to property or assets (whether real or personal, tangible or intangible) in which the Company holds
a leasehold interest (including the Leases) and which involve payments to the lessor thereunder in excess of $100,000 per month;
(xii)
all Contracts relating to outstanding Indebtedness, including financial instruments of indenture or security instruments
(typically interest-bearing) such as notes, mortgages, loans and lines of credit;
(xiii)
any Contract relating to the voting or control of the equity interests of the Company or the election of directors of the
Company (other than the Organizational Documents of the Company);
(xiv)
any Contract not cancellable by the Company with no more than 60 days’ notice if the effect of such cancellation would
result in monetary penalty to the Company in excess of $500,000 per the terms of such contract;
(xv)
any Contract that can be terminated, or the provisions of which are altered, as a result of the consummation of the transactions
contemplated by this Agreement or any of the Additional Agreements to which the Company is a party; and
(xvi)
any Contract for which any of the benefits, compensation or payments (or the vesting thereof) will be increased or accelerated
by the consummation of the transactions contemplated hereby or the amount or value thereof will be calculated on the basis of any
of the transactions contemplated by this Agreement.
(b)
Each Contract is a valid and binding agreement, and is in full force and effect, and neither the Company nor, to the Company’s
best knowledge, any other party thereto, is in breach or default (whether with or without the passage of time or the giving of
notice or both) under the terms of any such Material Contract. The Company has not assigned, delegated, or otherwise transferred
any of its rights or obligations with respect to any Material Contracts, or granted any power of attorney with respect thereto
or to any of the Company’s assets. No Contract (i) requires the Company to post a bond or deliver any other form of security
or payment to secure its obligations thereunder or (ii) imposes any non-competition covenants that may be binding on, or restrict
the Business or require any payments by or with respect to Purchaser or any of its Affiliates. The Company has, prior to the date
hereof, provided to Purchaser true and correct (A) fully executed copies of each written Material Contract and (B) written summaries
of each oral Material Contract.
(c)
None of the execution, delivery or performance by the Company of this Agreement or Additional Agreements to which the Company
is a party or the consummation by the Company of the transactions contemplated hereby or thereby constitutes a default under or
gives rise to any right of termination, cancellation or acceleration of any obligation of the Company or to a loss of any material
benefit to which the Company is entitled under any provision of any Material Contract.
(d)
The Company is in material compliance with all covenants, including all financial covenants, in all notes, indentures, bonds
and other instruments or agreements evidencing any Indebtedness, except where the failure would not result on a right to declare
a default or breach by the third party to any note, indenture, bond or other instrument or agreement, or cause a Material Adverse
Effect.
5.18
Insurance
. Schedule 5.18 contains a true, complete and correct list (including the names and addresses of the insurers,
the names of the Persons if other than the Company to whom such insurance policies have been issued, the expiration dates thereof,
the annual premiums and payment terms thereof, whether it is a "claims made" or an "occurrence" policy and
a brief identification of the nature of the policy) of all liability, property, workers’ compensation and other insurance
policies currently in effect that insure the property, assets or business of the Company or its employees (other than self-obtained
insurance policies by such employees). Each such insurance policy is valid and binding and in full force and effect, all premiums
due thereunder have been paid and the Company has not received any notice of cancellation or termination in respect of any such
policy or default thereunder. The Company believes such insurance policies, in light of the nature of the Company’s business,
assets and properties, are in amounts and have coverage that are reasonable and customary for Persons engaged in such business
and having such assets and properties. Neither the Company, nor, to the knowledge of the Company, the Person to whom such policy
has been issued, has received notice that any insurer under any policy referred to in this Section 5.18 is denying liability with
respect to a claim thereunder or defending under a reservation of rights clause. Within the last two (2) years the Company has
not filed for any claims exceeding $1,000,000 against any of its insurance policies, exclusive of automobile and health insurance
policies. The Company has not received written notice from any of its insurance carriers or brokers that any premiums will be materially
increased in the future, and does not have any reason to believe that any insurance coverage listed on Schedule 5.18 will not be
available in the future on substantially the same terms as now in effect.
5.19
Licenses and Permits
. Schedule 5.19 correctly lists each license, franchise, permit, order or approval or other similar
authorization affecting, or relating in any way to, the Business, together with the name of the Authority issuing the same (the
“
Permits
”). Except as indicated on Schedule 5.19, such Permits are valid and in full force and effect, and none
of the Permits will, assuming the related third party consents have been obtained or waived prior to the Closing Date, be terminated
or impaired or become terminable as a result of the transactions contemplated hereby. The Company has all Permits necessary to
operate the Business.
5.20
Compliance with Laws
. The Company is not in violation of, has not violated, and to the Company’s best knowledge,
is neither under investigation with respect to nor has been threatened to be charged with or given notice of any violation or alleged
violation of, any Law, or judgment, order or decree entered by any court, arbitrator or Authority, domestic or foreign, other than
where such violation would not have a Material Adverse Effect, nor, to the Company’s knowledge, except as disclosed on Schedule
5.20, is there any basis for any such charge, and within the last 24 months the Company has not received any subpoenas by any Authority.
(a)
Without limiting the foregoing paragraph, the Company is not in violation of, has not violated, and to the Company’s
best knowledge is not under investigation with respect to nor has been threatened or charged with or given notice of any violation
of any provisions of:
(i)
any Law applicable due to the specific nature of the Business;
(ii)
the Foreign Corrupt Practices Act of 1977 (§§ 78dd-1 et seq.), as amended (the “
Foreign Corrupt Practices
Act
”);
(iii)
any comparable or similar Law of any jurisdiction; or
(iv)
any Law regulating or covering conduct in, or the nature of, the workplace, including regarding sexual harassment or, on
any impermissible basis, a hostile work environment.
No permit, license
or registration is required by the Company in the conduct of the Business under any of the Laws described in this Section 5.20.
5.21
Intellectual Property
.
(a)
Schedule 5.21 sets forth a true, correct and complete list of all Intellectual Property Rights, specifying as to each, as
applicable: (i) the nature of such Intellectual Property Right; (ii) the owner of such Intellectual Property Right; (iii) the jurisdictions
by or in which such Intellectual Property Right has been issued or registered or in which an application for such issuance or registration
has been filed; and (iv) all licenses, sublicenses and other agreements pursuant to which any Person is authorized to use such
Intellectual Property Right.
(b)
Within the past two (2) years (or prior thereto if the same is still pending or subject to appeal or reinstatement) the
Company has not been sued or charged in writing with or been a defendant in any Action that involves a claim of infringement of
any Intellectual Property Rights, and the Company has no knowledge of any other claim of infringement by the Company, and no knowledge
of any continuing infringement by any other Person of any Intellectual Property Rights of the Company.
(c)
The current use by the Company of the Intellectual Property Rights does not infringe, and the use by the Company of the
Intellectual Property Rights after the closing will not infringe, the rights of any other Person. Any Intellectual Property Rights
used by the Company in the performance of any services under any Contract is, and upon the performance of such Contract remains,
owned by the Company and no client, customer or other third-party has any claim of ownership on the Intellectual Property Rights.
(d)
All employees, agents, consultants or contractors who have contributed to or participated in the creation or development
of any copyrightable, patentable or trade secret material on behalf of the Company or any predecessor in interest thereto either:
(i) is a party to a "work-for-hire" agreement under which the Company is deemed to be the original owner/author of all
property rights therein; or (ii) has executed an assignment or an agreement to assign in favor of the Company (or such predecessor
in interest, as applicable) all right, title and interest in such material.
(e)
None of the execution, delivery or performance by the Company of this Agreement or any of the Additional Agreements to which
the Company is a party or the consummation by the Company of the transactions contemplated hereby or thereby will cause any material
item of Intellectual Property Rights owned, licensed, used or held for use by the Company immediately prior to the Closing to not
be owned, licensed or available for use by the Company on substantially the same terms and conditions immediately following the
Closing.
(f)
The Company has taken reasonable measures to safeguard and maintain the confidentiality and value of all trade secrets and
other items of Company Intellectual Property that are confidential and all other confidential information, data and materials licensed
by the Company or otherwise used in the operation of the Business.
5.22
Customers and Suppliers
.
(a)
Schedule 5.22(a) sets forth a list of the Company’s ten (10) largest customers and the ten (10) largest suppliers
as measured by the dollar amount of purchases therefrom or thereby, for the Company’s December 31, 2017 and 2016 fiscal years,
showing the approximate total sales by the Company to each such customer and the approximate total purchases by the Company from
each such supplier, during each such period.
(b)
No supplier listed on Schedule 5.22(a) and, to the actual knowledge of the Company, no customer listed on Schedule 5.22(a),
has (i) terminated its relationship with the Company, (ii) materially reduced its business with the Company or materially and adversely
modified its relationship with the Company, (iii) notified the Company in writing of its intention to take any such action, or
(iv) to the Knowledge of the Company, become insolvent or subject to bankruptcy proceedings.
5.23
Accounts Receivable and Payable; Loans
.
(a)
All accounts receivable and notes of the Company reflected on the Financial Statements, and all accounts receivable and
notes arising subsequent to the date thereof, represent valid obligations arising from services actually performed or goods actually
sold by the Company in the ordinary course of business consistent with past practice. The accounts payable of the Company reflected
on the Financial Statements, and all accounts payable arising subsequent to the date thereof, arose from bona fide transactions
in the ordinary course consistent with past practice.
(b)
To the best of the Company’s knowledge, there is no contest, claim, or right of setoff in any agreement with any maker
of an account receivable or note relating to the amount or validity of such account, receivables or note that could reasonably
result in a Material Adverse Effect. To the best of the Company’s knowledge, all accounts, receivables or notes are good
and collectible in the ordinary course of business.
(c)
The information set forth on Schedule 5.23(c) separately identifies any and all accounts, receivables or notes of the Company
which are owed by any Affiliate of the Company. Except as set forth on Schedule 5.23(c), the Company is not indebted to any of
its Affiliates and no Affiliates are indebted to the Company.
5.24
Pre-payments
. The Company has not received any payments with respect to any services to be rendered or goods to be
provided after the Closing except in the ordinary course of business.
5.25
Employees
.
(a)
Schedule 5.25(a) sets forth a true, correct and complete list of the ten (10) highest paid employees and independent contractors
of the Company as of December 31, 2017, including the name, department, title, employment or engagement commencement date, current
salary or compensation rate for each such person and total compensation (including bonuses) paid to each such person for the fiscal
year ended December 31, 2017. Unless indicated in such list, no salaried employee or independent contractor included in such list
(i) is currently on leave, (ii) has given written notice of his or her intent to terminate his or her relationship with the Company,
or (iii) has received written notice of such termination from the Company. To the actual knowledge of the Company, no salaried
employee or independent contractor (but specifically excluding all account executives) of the Company that earned an aggregate
amount of compensation in excess of $100,000 in the December 31, 2017 fiscal year intends to terminate his or her relationship
with the Company within six (6) months following the Closing Date. Schedule 5.25(a) sets forth all proceedings, governmental investigations
or administrative proceedings of any kind against the Company of which the Company has been notified regarding its employees or
employment practices, or operations as they pertain to conditions of employment within two (2) years preceding the date of this
Agreement.
(b)
The Company is not a party to or subject to any employment contract, consulting agreement, collective bargaining agreement,
confidentiality agreement restricting the activities of the Company, non-competition agreement restricting the activities of the
Company, or any similar agreement, and there is not presently, to the Company’s knowledge, any activity or proceeding by
a labor union or representative thereof to organize any employees of the Company.
(c)
There are no pending or, to the knowledge of the Company, threatened claims or proceedings against the Company under any
worker's compensation policy or long-term disability policy.
(d)
Except as would not have a Material Adverse Effect, the Company has properly classified all of its employees as exempt or
non-exempt.
5.26
Employment Matters
.
(a)
Schedule 5.26(a) sets forth a true and complete list of every employment agreement, commission agreement, employee group
or executive medical, life, or disability insurance plan, and each incentive, bonus, profit sharing, retirement, deferred compensation,
equity, phantom stock, stock option, stock purchase, stock appreciation right or severance plan of the Company now in effect or
under which the Company has or might have any obligation, or any understanding between the Company and any employee concerning
the terms of such employee’s employment that does not apply to the Company’s employees generally (collectively, “
Labor
Agreements
”). The Company has previously delivered to Purchaser true and complete copies of each such Labor Agreement,
any employee handbook or policy statement of the Company, and complete and correct information concerning the Company’s employees,
including with respect to the (i) name, residence address, and social security number; (ii) position; (iii) compensation; (iv)
vacation and other fringe benefits; (v) claims under any benefit plan; and (vii) resident alien status (if applicable). Schedule
5.26(a) sets forth a true and complete list of the names, addresses and titles of the directors, officers and managers of the Company.
(b)
Except as disclosed on Schedule 5.26(b):
(i)
all employees of the Company are employees at will, and the employment of each employee by the Company may be terminated
immediately by the Company, as applicable, without any cost or liability except severance in accordance with the Company’s
standard severance practice as disclosed on Schedule 5.26(b);
(ii)
to the best knowledge of the Company, no employee of the Company has any plan to terminate his or her employment now or
in the near future, whether as a result of the transactions contemplated hereby or otherwise;
(iii)
to the best knowledge of the Company, no employee of the Company, in the ordinary course of his or her duties, has breached
or will breach any obligation to a former employer in respect of any covenant against competition or soliciting clients or employees
or servicing clients or confidentiality or any proprietary right of such former employer; and
(iv)
the Company is not a party to any collective bargaining agreement, does not have any material labor relations problems,
and there is no pending representation question or union organizing activity respecting employees of the Company.
(c)
The Company has complied in all material respects with all Labor Agreements and all applicable laws relating to employment
or labor. There is no legal prohibition with respect to the permanent residence of any employee of the Company in the United States
or his or her permanent employment by the Company. To its knowledge, no present or former employee, officer, director or manager
of the Company has, or will have at the Closing Date, any claim against the Company for any matter including for wages, salary,
or vacation or sick pay, or otherwise under any Labor Agreement. All accrued obligations of the Company applicable to its employees,
whether arising by operation of Law, by Contract, by past custom or otherwise, for payments by the Company to any trust or other
fund or to any Authority, with respect to unemployment or disability compensation benefits, social security benefits, under ERISA
or otherwise, have been paid or adequate accruals therefor have been made.
5.27
Withholding
. All material obligations of the Company applicable to its employees, whether arising by operation of
Law, by contract, by past custom or otherwise, or attributable to payments by the Company to trusts or other funds or to any governmental
agency, with respect to unemployment compensation benefits, social security benefits or any other benefits for its employees with
respect to the employment of said employees through the date hereof have been paid or adequate accruals therefor have been made
on the Financial Statements. All reasonably anticipated obligations of the Company with respect to such employees (except for those
related to wages during the pay period immediately prior to the Closing Date and arising in the ordinary course of business), whether
arising by operation of Law, by contract, by past custom, or otherwise, for salaries and holiday pay, bonuses and other forms of
compensation payable to such employees in respect of the services rendered by any of them prior to the date hereof have been or
will be paid by the Company prior to the Closing Date.
5.28
Employee Benefits and Compensation
.
(a)
Schedule 5.28 sets forth a true and complete list of each “employee benefit plan” (as defined in Section 3(3)
of ERISA), bonus, deferred compensation, equity-based or non-equity-based incentive, severance or other plan or written agreement
relating to employee or director benefits or employee or director compensation or fringe benefits, maintained or contributed to
by the Company at any time during the 7-calendar year period immediately preceding the date hereof and/or with respect to which
the Company could incur or could have incurred any direct or indirect, fixed or contingent liability (each a “
Plan
”
and collectively, the “
Plans
”). Each Plan is and has been maintained in substantial compliance with all applicable
laws, including but not limited to ERISA, and has been administered and operated in all material respects in accordance with its
terms.
(b)
Each Plan which is intended to be “qualified” within the meaning of Section 401(a) of the Code, has received
a favorable determination letter from the Internal Revenue Service and, to the knowledge of the Company, no event has occurred
and no condition exists which could reasonably be expected to result in the revocation of any such determination. No event which
constitutes a “reportable event” (as defined in Section 4043(c) of ERISA) for which the 30-day notice requirement has
not been waived by the Pension Benefit Guaranty Corporation (the “
PBGC
”) has occurred with respect to any Plan.
No Plan subject to Title IV of ERISA has been terminated or is or has been the subject of termination proceedings pursuant to Title
IV of ERISA. Full payment has been made of all amounts which the Company was required under the terms of the Plans to have paid
as contributions to such Plans on or prior to the date hereof (excluding any amounts not yet due) and no Plan which is subject
to Part 3 of Subtitle B of Title I of ERISA has incurred an “accumulated funding deficiency” (within the meaning of
Section 302 of ERISA or Section 412 of the Code), whether or not waived.
(c)
Neither the Company nor to the knowledge of the Company, any other “disqualified person” or “party in
interest” (as defined in Section 4975(e)(2) of the Code and Section 3(14) of ERISA, respectively), has engaged in any transaction
in connection with any Plan that could reasonably be expected to result in the imposition of a penalty pursuant to Section 502(i)
of ERISA, damages pursuant to Section 409 of ERISA or a tax pursuant to Section 4975(a) of the Code. The Company has not maintained
any Plan (other than a Plan which is intended to be “qualified” within the meaning of Section 401(a) of the Code) which
provides benefits with respect to current or former employees or directors following their termination of service with the Company
(other than as required pursuant to COBRA). Each Plan subject to the requirements of COBRA has been operated in substantial compliance
therewith.
(d)
No individual will accrue or receive additional benefits, service or accelerated rights to payment of benefits as a direct
result of the transactions contemplated hereby. No material liability, claim, investigation, audit, action or litigation has been
incurred, made, commenced or, to the knowledge of the Company, threatened, by or against any Plan or the Company with respect to
any Plan (other than for benefits payable in the ordinary course and PBGC insurance premiums). No Plan or related trust owns any
securities in violation of Section 407 of ERISA. With respect to each Plan which is an “employee pension benefit plan”
(as defined in Section 3(2) of ERISA) as of the most recent actuarial valuation report prepared for each such Plan, the aggregate
present value of the accrued liabilities thereof (determined in accordance with Statement of Financial Accounting Standards No.
35) did not exceed the aggregate fair market value of the assets allocable thereto.
(e)
No Plan is a “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA) and the Company has not been obligated
to contribute to any multiemployer plan. No material liability has been, or could reasonably be expected to be, incurred under
Title IV of ERISA (other than for PBGC insurance premiums payable in the ordinary course) or Section 412(f) or (n) of the Code,
by the Company or any entity required to be aggregated with the Company pursuant to Section 4001(b) of ERISA and/or Section 414
(b), (c), (m) or (o) of the Code with respect to any “employee pension benefit plan” (as defined in Section 3(2) of
ERISA).
(f)
There is no unfunded non-tax-qualified Plan which provides a pension or retirement benefit.
(g)
The Company has not made any commitment to create or cause to exist any employee benefit plan which is not listed on Schedule
5.28, or to modify, change or terminate any Plan (other than as may be necessary for compliance with applicable law).
(h)
The Company does not have any plan, arrangement or agreement providing for “deferred compensation” that is subject
to Section 409A(a) of the Code, or any plan, arrangement or agreement that is subject to Section 409A(b) of the Code.
(i)
With respect to each Plan, the Company has delivered or caused to be delivered to Purchaser and its counsel true and complete
copies of the following documents, as applicable, for each respective Plan: (i) all Plan documents, with all amendments thereto;
(ii) the current summary plan description with any applicable summaries of material modifications thereto as well as any other
material employee or government communications; (iii) all current trust agreements and/or other documents establishing Plan funding
arrangements; (iv) the most recent IRS determination letter and, if a request for such a letter has been filed and is currently
pending with the IRS, a copy of such filing; (v) the three most recently prepared IRS Forms 5500; (vi) the three most recently
prepared financial statements; and (vii) all material related contracts, including without limitation, insurance contracts, service
provider agreements and investment management and investment advisory agreements.
5.29
Real Property
.
(a)
Except as set forth on Schedule 5.29, the Company does not own, or otherwise have an interest in, any Real Property, including
under any Real Property lease, sublease, space sharing, license or other occupancy agreement. The Company has good, valid and subsisting
title to its respective leasehold estates in the offices described on Schedule 5.29, free and clear of all Liens. The Company has
not breached or violated any local zoning ordinance, and no notice from any Person has been received by the Company or served upon
the Company claiming any violation of any local zoning ordinance.
(b)
With respect to the Leases: (i) they are valid, binding and in full force and effect; (ii) all rents and additional rents
and other sums, expenses and charges due thereunder have been paid; (iii) the lessees have been in peaceable possession since the
commencement of the original term thereof; (iv) no waiver, indulgence or postponement of the lessees’ obligations thereunder
have been granted by the lessors; (v) there exists no default or event of default thereunder by the Company or, to the Company’s
knowledge, by any other party thereto; (vi) there exists no occurrence, condition or act which, with the giving of notice, the
lapse of time or the happening of any further event or condition, would become a default or event of default by the Company thereunder;
and (vii) there are no outstanding claims of breach or indemnification or notice of default or termination thereunder. The Company
holds the leasehold estate on the Leases free and clear of all Liens, except for Liens of mortgagees of the Real Property in which
such leasehold estate is located. The Real Property leased by the Company is in a state of maintenance and repair in all material
respects adequate and suitable for the purposes for which it is presently being used, and there are no material repair or restoration
works likely to be required in connection with any of the leased Real Property. The Company is in physical possession and actual
and exclusive occupation of the whole of the leased properties, none of which are subleased or assigned to another Person. The
Leases lease all useable square footage of the premises located at the leased Real Property locations. The Company does not owe
any brokerage commission with respect to any Real Property.
5.30
Accounts
. Schedule 5.30 sets forth a true, complete and correct list of the checking accounts, deposit accounts,
safe deposit boxes, and brokerage, commodity and similar accounts of the Company, including the account number and name, the name
of each depositary or financial institution and the address where such account is located and the authorized signatories thereto.
5.31
Tax Matters
.
(a)
(i) The Company has duly and timely filed all Tax Returns which are required to be filed by or with respect to it, and has
paid all Taxes which have become due; (ii) all such Tax Returns are true, correct and complete and accurate and disclose all Taxes
required to be paid; (iii) all such Tax Returns have been examined by the relevant Taxing Authority or the period for assessment
for Taxes in respect of such Tax Returns has expired; (iv) there is no Action, pending or proposed or, to the best knowledge of
the Company, threatened, with respect to Taxes of the Company or for which a Lien may be imposed upon any of the Company’s
assets and, to the best of the Company’s knowledge, no basis exists therefor; (v) no statute of limitations in respect of
the assessment or collection of any Taxes of the Company for which a Lien may be imposed on any of the Company’s assets has
been waived or extended, which waiver or extension is in effect; (vi) the Company has complied in all material respects with all
applicable Laws relating to the reporting, payment, collection and withholding of Taxes and has duly and timely withheld or collected,
paid over to the applicable Taxing Authority and reported all Taxes (including income, social, security and other payroll Taxes)
required to be withheld or collected by the Company; (vii) the transactions contemplated hereby are not subject to withholding
under Section 1445 of the Code; (viii) no stock transfer Tax, sales Tax, use Tax, real estate transfer Tax or other similar Tax
will be imposed with respect to or as a result of any transaction contemplated by this Agreement; (ix) none of the assets of the
Company is required to be treated as owned by another Person for income Tax purposes pursuant to Section 168(f)(8) of the Code
(as in effect prior to its amendment by the Tax Reform Act of 1986) or otherwise; (x) none of the assets of the Company is “tax-exempt
use property” within the meaning of Section 168(h) of the Code, “tax-exempt bond financed property” within the
meaning of Section 168(g)(5) of the Code, or subject to a “TRAC lease” under Section 7701(h) of the Code (or any predecessor
provision); (xi) there is no Lien for Taxes upon any of the assets of the Company; (xii) there is no outstanding request for a
ruling from any Taxing Authority, request for a consent by a Taxing Authority for a change in a method of accounting, subpoena
or request for information by any Taxing Authority, or closing agreement (within the meaning of Section 7121 of the Code or any
analogous provision of applicable Law), with respect to the Company; (xiii) no claim has ever been made by a Taxing Authority in
a jurisdiction where the Company has not paid any Tax or filed Tax Returns, asserting that the Company is or may be subject to
Tax in such jurisdiction; (xiv) the Company has provided to Purchaser true, complete and correct copies of all Tax Returns relating
to, and all audit reports and correspondence relating to each proposed adjustment, if any, made by any Taxing Authority with respect
to, any taxable period ending after December 31, 2010; (xv) there is no outstanding power of attorney from the Company authorizing
anyone to act on behalf of the Company in connection with any Tax, Tax Return or Action relating to any Tax or Tax Return of the
Company; (xvi) the Company is not, and has ever been, a party to any Tax sharing or Tax allocation Contract; (xvii) the Company
is and has never been included in any consolidated, combined or unitary Tax Return; (xviii) to the knowledge of the Company, no
issue has been raised by a Taxing Authority in any prior Action relating to the Company with respect to any Tax for any period
which, by application of the same or similar principles, could reasonably be expected to result in a proposed Tax deficiency of
the Company for any other period; (xix) the Company has not requested any extension of time within which to file any Tax Return,
which Tax Return has since not been filed; (xx) the Company is not a party to any Contract for services that would result, individually
or in the aggregate, in the payment of any amount that would not be deductible by the Company by reason of Section 162 or 404 of
the Code; (xxi) the Company is not a party to a Contract that requires or would upon the occurrence of certain events require the
Company to make a payment which would not be fully deductible under Section 280G of the Code without regard to whether such payment
is reasonable compensation for services rendered and without regard to any exception that requires future action by any Person;
(xxii) the Company is not a “consenting corporation” within the meaning of Section 341(f) of the Code (as in effect
prior to the repeal of such provision); (xxiii) the Company has never made or been required to make an election under Section 336
or 338 of the Code; (xxiv) during the last two years, the Company has not engaged in any exchange under which gain realized on
the exchange was not recognized under Section 1031 of the Code; (xxv) the Company was not a “distributing corporation”
or a “controlled corporation” under Section 355 of the Code in any transaction within the last two years or pursuant
to a plan or series of related transactions (within the meaning of Section 355(e) of the Code) with any transaction contemplated
by this Agreement; (xxvi) the Company is not, and has never been, a “personal holding company” (within the meaning
of Section 542 of the Code), a stockholder in a “controlled foreign corporation” (within the meaning of Section 957
of the Code), a “foreign personal holding company” (within the meaning of Section 552 of the Code as in effect prior
to the repeal of such section), or a “passive foreign investment company” (within the meaning of Section 1297 of the
Code), or, an owner in any entity treated as a partnership or disregarded entity for U.S. federal income tax purposes; (xxvii)
none of the outstanding indebtedness of the Company constitutes indebtedness to which any interest deduction may be limited or
disallowed under Section 163(i), (j) or (l), 265 or 279 of the Code (or any comparable provision of applicable Law); (xxviii) the
Company is not and has not been a “United States real property holding corporation” (within the meaning of Code Section
897(c)(2)) at any time during the period specified in Section 897(c)(l)(A)(ii) of the Code; (xxix) the Company is not and has not
been treated as a foreign corporation for U.S. federal income tax purposes, and (xxx) the Company is not an “investment company”
for purposes of Sections 351(e) or 368 of the Code and the Treasury Regulations promulgated thereunder.
(b)
The Company has not entered into a “reportable transaction” (within the meaning of Section 6707A of the Code
or Treasury Regulations §1.6011-4 or any predecessor thereof) and has not participated in any “nondisclosed noneconomic
substance transaction” within the meaning of Section 6662(i)(2) of the Code. In the case of any transaction that could result
in a “substantial understatement of income tax” (within the meaning of Section 6662(d) of the Code) of the Company
if the claimed Tax treatment were disallowed, the Company has “substantial authority” (within the meaning of Section
6662(d) of the Code) for the claimed treatment, or in the case of a transaction other than a “tax shelter” (within
the meaning of Section 6662(d)(2)(C)(ii) of the Code), has “adequately disclosed” (within the meaning of Section 6662(d)
of the Code) on its applicable income Tax Return the relevant facts affecting the Tax treatment and there is a reasonable basis
for such Tax treatment. The Company has not been a party to a transaction that does not have economic substance within the meaning
of Section 7701(a) of the Code or that fails to meet the requirements of any similar rule of law as used in Section 6662(b)(6)
of the Code.
(c)
The Company is not required to include any adjustment under Section 481 or 482 of the Code (or any corresponding provision
of applicable Law) in income for any period ending after the Balance Sheet Date. The Company will not be required to include any
item of income or exclude any item of deduction for any taxable period ending after the Closing Date as a result of: (i) any intercompany
transaction or excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding provision
of applicable Law); (ii) an election under Section 108(i) of the Code; or (iii) use of an installment sale, open transaction, income
forecast or completed contract method of accounting with respect to any transaction that occurred on or before the Closing Date.
(d)
The unpaid Taxes of the Company (i) did not, as of the most recent fiscal month end, exceed the reserve for Tax liability
(rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on
the Balance Sheet and (ii) will not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance
with the past custom and practice of the Company in filing its Tax Return.
(e)
The Stockholders acknowledge that following the Closing, any FIRPTA Certificate or IRS Forms W-9 or applicable W-8 delivered
to Purchaser pursuant to Section 10.2(p) will be retained by Purchaser, and will be made available to the Taxing Authorities upon
request.
5.32
Environmental Laws
.
(a)
The Company has not (i) received any written notice of any alleged claim, violation of or liability under any Environmental
Law which has not heretofore been cured or for which there is any remaining liability; (ii) disposed of, emitted, discharged, handled,
stored, transported, used or released any Hazardous Materials, arranged for the disposal, discharge, storage or release of any
Hazardous Materials, or exposed any employee or other individual to any Hazardous Materials so as to give rise to any liability
or corrective or remedial obligation under any Environmental Laws; or (iii) entered into any agreement that may require it to guarantee,
reimburse, pledge, defend, hold harmless or indemnify any other Person with respect to liabilities arising out of Environmental
Laws or the Hazardous Materials Activities of the Company, except in each case as would not, individually or in the aggregate,
have a Material Adverse Effect.
(b)
The Company has delivered to Purchaser all material records in its possession concerning the Hazardous Materials Activities
of the Company and all environmental audits and environmental assessments in the possession or control of the Company of any facility
currently owned, leased or used by the Company which identifies the potential for any violations of Environmental Law or the presence
of Hazardous Materials on any property currently owned, leased or used by the Company.
(c)
There are no Hazardous Materials in, on, or under any properties owned, leased or used at any time by the Company such as
could give rise to any material liability or corrective or remedial obligation of the Company under any Environmental Laws.
5.33
Finders’ Fees
. There is no investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of the Company or any of Affiliates who might be entitled to any fee or commission from Purchaser
or any of its Affiliates (including the Company following the Closing) upon consummation of the transactions contemplated by this
Agreement.
5.34
Powers of Attorney and Suretyships
. The Company does not have any general or special powers of attorney outstanding
(whether as grantor or grantee thereof) or any obligation or liability (whether actual, accrued, accruing, contingent, or otherwise)
as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of the obligation of any Person.
5.35
Directors and Officers
. Schedule 5.35 sets forth a true, correct and complete list of all directors and officers
of the Company.
5.36
Other Information
. Neither this Agreement nor any of the documents or other information made available to Purchaser
or its Affiliates, attorneys, accountants, agents or representatives pursuant hereto or in connection with Purchaser’s due
diligence review of the Business, the Company Capital Stock, the Company’s assets or the transactions contemplated by this
Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary
in order to make the statements contained therein not misleading. The Company has provided Purchaser with all requested material
information regarding the Business.
5.37
Certain Business Practices
. Neither the Company, nor any director, officer, agent or employee of the Company (in
their capacities as such) has (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees, to foreign or domestic
political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977 or (iii) made any other unlawful
payment. Neither the Company, nor any director, officer, agent or employee of the Company (nor any Person acting on behalf of any
of the foregoing, but solely in his or her capacity as a director, officer, employee or agent of the Company) has, since December
30, 2014, directly or indirectly, given or agreed to give any gift or similar benefit in any material amount to any customer, supplier,
governmental employee or other Person who is or may be in a position to help or hinder the Company or assist the Company in connection
with any actual or proposed transaction, which, if not given could reasonably be expected to have had a Material Adverse Effect
on the Company, or which, if not continued in the future, could reasonably be expected to adversely affect the business or prospects
of the Company or that could reasonably be expected to subject the Company to suit or penalty in any private or governmental litigation
or proceeding.
5.38
Money Laundering Laws
. The operations of the Company are and have been conducted at all times in compliance with
laundering statutes in all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations
or guidelines, issued, administered or enforced by any governmental authority (collectively, the “
Money Laundering Laws
”),
and no Action involving the Company with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
5.39
OFAC
. Neither the Company, nor any director or officer of the Company (nor, to the knowledge of the Company, any
agent, employee, affiliate or Person acting on behalf of the Company) is currently identified on the specially designated nationals
or other blocked person list or otherwise currently subject to any U.S. sanctions administered by the Office of Foreign Assets
Control of the U.S. Treasury Department (“
OFAC
”); and the Company has not, directly or indirectly, used any
funds, or loaned, contributed or otherwise made available such funds to any subsidiary, joint venture partner or other Person,
in connection with any sales or operations in Cuba, Iran, Syria, Sudan, Myanmar or any other country sanctioned by OFAC or for
the purpose of financing the activities of any Person currently subject to, or otherwise in violation of, any U.S. sanctions administered
by OFAC in the last five (5) fiscal years.
5.40
Not an Investment Company
. The Company is not an “investment company” within the meaning of the Investment
Company Act of 1940, as amended, and the rules and regulations promulgated thereunder.
5.41
Unanimous Approval
. The Stockholders have unanimously approved this Agreement and the transactions contemplated hereby.
Accordingly, there are no Dissenting Shares.
ARTICLE
VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub
(the “
Purchaser Parties
”), jointly and severally, hereby represent and warrant to the Company that, as of the
date hereof and except as otherwise stated, as of the Closing, except as set forth in the Parent SEC Documents:
6.1
Corporate Existence and Power
. Parent is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware. Merger Sub is a company duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each of the Purchaser Parties has all power and authority, corporate and otherwise, and all governmental
licenses, franchises, Permits, authorizations, consents and approvals required to own and operate its properties and assets and
to carry on its business as presently conducted and as proposed to be conducted. None of the Purchaser Parties has entered into
any definitive agreements with respect to any merger, consolidation, sale of all or substantially all of its assets, reorganization,
recapitalization, dissolution or liquidation.
6.2
Corporate Authorization
. The execution, delivery and performance by the Purchaser Parties of this Agreement and the
Additional Agreements and the consummation by the Purchaser Parties of the transactions contemplated hereby and thereby are within
the corporate powers of the Purchaser Parties and have been duly authorized by all necessary corporate action on the part of the
Purchaser Parties, including each of the Purchaser Parties’ board of directors and shareholders (excluding the Parent’s)
to the extent required by the their organizational documents, applicable Law or any contract to which the Company or any of its
shareholders is a party or by which or its securities are bound. This Agreement has been duly executed and delivered by each Purchaser
Party and it constitutes, and upon their execution and delivery, the Additional Agreements will constitute, a valid and legally
binding agreement of each Purchaser Party, enforceable against them in accordance with its terms.
6.3
Governmental Authorization
. Other than as required under North Carolina Law or Delaware Law, or as otherwise set
forth on Schedule 6.3, neither the execution, delivery nor performance of this Agreement requires any consent, approval, license
or other action by or in respect of, or registration, declaration or filing with any Authority.
6.4
Non-Contravention
. The execution, delivery and performance by the Purchaser Parties of this Agreement do not and
will not, (i) provided that holders of fewer than the number of Parent Common Stock specified in the Parent’s organizational
documents exercise their redemption rights with respect to such transaction, contravene or conflict with the organizational or
constitutive documents of Parent, or (ii) contravene or conflict with or constitute a violation of any provision of any Law, judgment,
injunction, order, writ, or decree binding upon the Purchaser Parties.
6.5
Finders’ Fees
. Except for the Deferred Underwriting Amount, there is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf of any Purchaser Party or its Affiliates who might
be entitled to any fee or commission from the Company or any of its Affiliates upon consummation of the transactions contemplated
by this Agreement or any of the Additional Agreements.
6.6
Issuance of Shares
. The Closing Payment Shares, when issued in accordance with this Agreement, will be duly authorized
and validly issued, and will be fully paid and nonassessable.
6.7
Capitalization
.
(a)
The authorized share capital of Parent consists of 30,000,000 shares of Parent Common Stock, and 1,000,000 preferred shares,
par value $0.0001 per share, of which 5,872,497 Parent Common Stock are issued and outstanding as of the date hereof and 0 preferred
shares are issued and outstanding. 275,000 shares of Parent Common Stock are reserved for issuance upon the exercise of the Parent
Units underlying the Parent UPO and 476,625 shares of Parent Common Stock are reserved for issuance upon the exercise of the Parent
Rights. All outstanding Parent Common Stock are duly authorized, validly issued, fully paid and nonassessable and not subject to
or issued in violation of any purchase option, right of first refusal, preemptive right, subscription right or any similar right
under any provision of Delaware Law, the Parent’s organizational documents or any contract to which Parent is a party or
by which Parent is bound. Except as set forth in the Parent’s organizational documents and the Parent SEC Documents, there
are no outstanding contractual obligations of Parent to repurchase, redeem or otherwise acquire any Parent Common Stock or any
capital equity of Parent. There are no outstanding contractual obligations of Parent to provide funds to, or make any investment
(in the form of a loan, capital contribution or otherwise) in, any other Person.
(b)
The authorized capital stock of Merger Sub consists of 1,000 shares of common stock, par value $0.001 per share (“
Merger
Sub Common Stock
”) of which 100 shares of Merger Sub Common Stock are issued and outstanding as of the date hereof. No
other shares of capital stock or other voting securities of Merger Sub are issued, reserved for issuance or outstanding. All issued
and outstanding shares of Merger Sub Common Stock are duly authorized, validly issued, fully paid and nonassessable and not subject
to or issued in violation of any purchase option, right of first refusal, preemptive right, subscription right or any similar right
under any provision of Delaware Law, the Merger Sub’s organizational documents or any contract to which Merger Sub is a party
or by which Merger Sub is bound. Except as set forth in the Merger Sub’s organizational documents, there are no outstanding
contractual obligations of Merger Sub to repurchase, redeem or otherwise acquire any shares of Merger Sub Common Stock or any capital
equity of Merger Sub. There are no outstanding contractual obligations of Merger Sub to provide funds to, or make any investment
(in the form of a loan, capital contribution or otherwise) in, any other Person.
6.8
Information Supplied
. None of the information supplied or to be supplied by any Purchaser Party expressly for inclusion
or incorporation by reference in the filings with the SEC and mailings to Parent’s stockholders with respect to the solicitation
of proxies to approve the transactions contemplated by this Agreement will, at the date of filing and/ or mailing, as the case
may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under which they are made, not misleading (subject to the
qualifications and limitations set forth in the materials provided by Parent or that is included in the Parent SEC Documents).
6.9
Trust Fund
. As of the date of this Agreement, Purchaser has at least $45,135,000 in the trust fund established by
Parent for the benefit of its public stockholders (the “
Trust Fund
”) in a trust account at JP Morgan Chase &
Co. (the “
Trust Account
”), and such monies are invested in “government securities” (as such term
is defined in the Investment Company Act of 1940, as amended) and held in trust by American Stock Transfer & Trust Company,
LLC (the “
Trustee
”) pursuant to the Investment Management Trust Agreement, dated as of August 8, 2017, between
the Parent and the Trustee (the “
Trust Agreement
”).
6.10
Listing
. The Parent Units are listed on the NASDAQ Capital Market, with trading tickets ATACU, ATAC and ATACR.
6.11
Board Approval
. Each of the Parent Board, Purchaser Board and Merger Sub Board (including any required committee
or subgroup of such boards) has, as of the date of this Agreement, unanimously (i) declared the advisability of the transactions
contemplated by this Agreement, (ii) determined that the transactions contemplated hereby are in the best interests of the stockholders
of Parent, Purchaser and Merger Sub, as applicable, and (iii) determined that the transactions contemplated hereby constitutes
an "Acquisition Transaction" as such term is defined in Purchaser’s amended and restated articles of incorporation
and bylaws.
6.12
Parent SEC Documents and Purchaser Financial Statements
. Parent has filed all forms, reports, schedules, statements
and other documents, including any exhibits thereto, required to be filed or furnished by Parent with the SEC since Parent’s
formation under the Exchange Act or the Securities Act, together with any amendments, restatements or supplements thereto, and
will file all such forms, reports, schedules, statements and other documents required to be filed subsequent to the date of this
Agreement (the “
Additional Parent SEC Documents
”). Parent has made available to the Company copies in the form
filed with the SEC of all of the following, except to the extent available in full without redaction on the SEC’s website
through EDGAR for at least two (2) days prior to the date of this Agreement: (i) Parent’s Annual Reports on Form 10-K for
each fiscal year of Parent beginning with the first year Parent was required to file such a form, (ii) all proxy statements relating
to Parent’s meetings of stockholders (whether annual or special) held, and all information statements relating to stockholder
consents, since the beginning of the first fiscal year referred to in clause (i) above, (iii) its Quarterly Reports on Form 10-Q
filed since the beginning of the first fiscal year referred to in clause (i) above, (iv) its Current Reports on Form 8-K filed
since the beginning of the first fiscal year referred to in clause (i) above, and (v) all other forms, reports, registration statements
and other documents (other than preliminary materials if the corresponding definitive materials have been provided to the Company
pursuant to this Section 6.12) filed by Parent with the SEC since Parent’s formation (the forms, reports, registration statements
and other documents referred to in clauses (i), (ii), (iii), (iv) and (v) above, whether or not available through EDGAR, are, collectively,
the (“
Parent SEC Documents
”). The Parent SEC Documents were, and the Additional Parent SEC Documents will be,
prepared in all material respects in accordance with the requirements of the Securities Act, the Exchange Act, and the Sarbanes-Oxley
Act, as the case may be, and the rules and regulations thereunder. The Parent SEC Documents did not, and the Additional Parent
SEC Documents will not, at the time they were or are filed, as the case may be, with the SEC (except to the extent that information
contained in any Parent SEC Document or Additional Parent SEC Document has been or is revised or superseded by a later filed Parent
SEC Document or Additional Parent SEC Document, then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. As used in this Section 6.12, the term “file”
shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available
to the SEC.
6.13
Money Laundering Laws
. The operations of the Parent are and have been conducted at all times in compliance with the
Money Laundering Laws, and no Action involving the Parent with respect to the Money Laundering Laws is pending or, to the knowledge
of the Parent, threatened.
6.14
OFAC
.
Neither the Parent, nor any director or officer of the Company (nor, to the knowledge of the Parent, any agent, employee,
affiliate or Person acting on behalf of the Parent) is currently identified on the specially designated nationals or other
blocked person list or otherwise currently subject to any U.S. sanctions administered by the OFAC; and the Parent has
not, directly or indirectly, used any funds, or loaned, contributed or otherwise made available such funds to any subsidiary,
joint venture partner or other Person, in connection with any sales or operations in Cuba, Iran, Syria, Sudan, Myanmar or any
other country sanctioned by OFAC or for the purpose of financing the activities of any Person currently subject to, or
otherwise in violation of, any U.S. sanctions administered by OFAC in the last five (5) fiscal years.
6.16
Litigation
. There is no Action (or any basis therefore) pending against, or to the best knowledge of the Parent threatened
against or affecting, the Parent, any of its officers or directors, the business of the Parent, or any Parent Securities or any
of the Parent’s assets or any material contract of the Parent before any court, Authority or official or which in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions contemplated hereby or by the Additional Agreements. There
are no outstanding judgments against the Parent. The Parent is not, and has not been in the past five (5) years, subject to any
proceeding with any Authority.
ARTICLE
VII
COVENANTS OF THE COMPANY PENDING CLOSING
The Company and the Stockholders
covenant and agree that:
7.1
Conduct of the Business
. (a) From the date hereof through the Closing Date, the Company shall conduct the Business
only in the ordinary course, (including the payment of accounts payable and the collection of accounts receivable), consistent
with past practices, and shall not enter into any material transactions without the prior written consent of Purchaser, and shall
use its best efforts to preserve intact its business relationships with employees, clients, suppliers and other third parties.
Without limiting the generality of the foregoing, from the date hereof until and including the Closing Date, other than as contemplated
by the HF Internal Reorganization, without Purchaser’s prior written consent (which shall not be unreasonably withheld),
the Company shall not:
(i)
amend, modify or supplement its articles of incorporation and bylaws or other organizational or governing documents;
(ii)
amend, waive any provision of, terminate prior to its scheduled expiration date, or otherwise compromise in any way, any
Contract (including Contracts described in Section 7.1(a)(iii)) below), or any other right or asset of the Company;
(iii)
modify, amend or enter into any contract, agreement, lease, license or commitment, which (A) is with respect to Real Property,
(B) extends for a term of one year or more or (C) obligates the payment of more than $750,000 (individually or in the aggregate);
(iv)
make any capital expenditures in excess of $2,000,000 (individually or in the aggregate);
(v)
sell, lease, license or otherwise dispose of any of the Company’s assets or assets covered by any Contract except
(i) pursuant to existing contracts or commitments disclosed herein, (ii) sales of Inventory in the ordinary course consistent with
past practice or (iii) do not or would not involve assets with a value of more than $1,000,000 (individually or in the aggregate);
(vi)
accept returns of products sold from Inventory except in the ordinary course, consistent with past practice;
(vii)
except as provided in Schedule 7.1(vii), pay, declare or promise to pay any dividends or other distributions with respect
to its capital stock, or pay, declare or promise to pay any other payments to any stockholder of the Company (other than, in the
case of any stockholder that is an employee of the Company, payments of salary accrued in said period at the current salary rate
set forth on Schedule 5.25(a)) or any Affiliate of the Company;
(viii)
authorize any salary increase of more than 10% for any employee of the Company making an annual salary equal to or greater
than $200,000 or in excess of $500,000 in the aggregate on an annual basis or change the bonus or profit sharing policies of the
Company;
(ix)
obtain or incur any loan or other Indebtedness;
(x)
suffer or incur any Lien, except for Permitted Liens, on the Company’s assets;
(xi)
suffer any damage, destruction or loss of property related to any of the Company’s assets, whether or not covered
by insurance which would result in damages or loss in excess of $500,000 for any singular event;
(xii)
delay, accelerate or cancel any receivables or Indebtedness owed to the Company or write off or make further reserves against
the same;
(xiii)
merge or consolidate with or acquire any other Person or be acquired by any other Person;
(xiv)
suffer any insurance policy protecting any of the Company’s assets to lapse;
(xv)
amend any of its plans set forth in Section 5.28(a) or fail to continue to make timely contributions thereto in accordance
with the terms thereof;
(xvi)
make any change in its accounting principles or methods or write down the value of any Inventory or assets;
(xvii)
change the place of business or jurisdiction of organization of the Company;
(xviii)
extend any loans other than travel or other expense advances to employees in the ordinary course of business not to exceed
$1,000 individually or $10,000 in the aggregate;
(xix)
issue, redeem or repurchase any capital stock, membership interests or other securities, or issue any securities exchangeable
for or convertible into any shares of its capital stock;
(xx)
effect or agree to any change in any practices or terms, including payment terms, with respect to customers or suppliers;
(xxi)
make or change any material Tax election or change any annual Tax accounting periods; or
(xxii)
agree to do any of the foregoing.
(b)
The Company shall not (i) take or agree to take any action that might make any representation or warranty of the Company
inaccurate or misleading in any respect at, or as of any time prior to, the Closing Date or (ii) omit to take, or agree to omit
to take, any action necessary to prevent any such representation or warranty from being inaccurate or misleading in any respect
at any such time.
7.2
Access to Information
.
(a)
From the date hereof until and including the Closing Date, the Company shall, to the best of its ability, (a) continue to
give the Parent, its legal counsel and other representatives full access to the offices, properties and Books and Records, (b)
furnish to the Parent, its legal counsel and other representatives such information relating to the Business as such Persons may
request and (c) cause the employees, legal counsel, accountants and representatives of the Company to cooperate with Parent in
its investigation of the Business; provided that no investigation pursuant to this Section (or any investigation prior to the date
hereof) shall affect any representation or warranty given by the Company and, provided further, that any investigation pursuant
to this Section shall be conducted in such manner as not to interfere unreasonably with the conduct of the Business of the Company.
(b)
If requested by the Purchaser, the Company shall arrange for representatives of Purchaser to meet with or speak to the representatives
of the ten (10) largest suppliers of the Company.
7.3
Notices of Certain Events
. The Company shall promptly notify Purchaser of:
(a)
any notice or other communication from any Person alleging or raising the possibility that the consent of such Person is
or may be required in connection with the transactions contemplated by this Agreement or that the transactions contemplated by
this Agreement might give rise to any Action or other rights by or on behalf of such Person or result in the loss of any rights
or privileges of the Company (or Purchaser, post-Closing) to any such Person or create any Lien on any Company Capital Stock or
any of the Company’s assets;
(b)
any notice or other communication from any Authority in connection with the transactions contemplated by this Agreement
or the Additional Agreements;
(c)
any Actions commenced or threatened against, relating to or involving or otherwise affecting the Company, any stockholder
of the Company, Company Capital Stock or the Company’s assets or the Business or that relate to the consummation of the transactions
contemplated by this Agreement or the Additional Agreements;
(d)
the occurrence of any fact or circumstance which constitutes or results, or might reasonably be expected to constitute or
result, in a Material Adverse Change; and
(e)
the occurrence of any fact or circumstance which results, or might reasonably be expected to result, in any representation
made hereunder by the Company to be false or misleading in any respect or to omit or fail to state a material fact.
7.4
Annual and Interim Financial Statements
. As promptly as practicable following the execution of this Agreement, the
Company shall provide the Parent with audited consolidated financial statements of the Company and each of its Subsidiaries for
at least its two most recent fiscal years (“
Audited Financial Statements
”). Thereafter, the Company shall provide
the Parent with consolidated interim financial information of the Company and each of its Subsidiaries no later than forty-five
(45) calendar days following the end of each three-month quarterly period. If the Company does not deliver the Audited Financial
Statements and quarterly financial statements for each three-month quarterly period as required by this Section 7.4, the Parent
shall have the right to terminate this Agreement in accordance with Section 13.2(a) hereof. The Audited Financial Statements and
the quarterly financial statements shall be accompanied by a certificate of the Chief Financial Officer of the Company to the effect
that all such financial statements fairly present the financial position and results of operations of the Company as of the date
or for the periods indicated, in accordance with U.S. GAAP, except as otherwise indicated in such statements and subject to year-end
audit adjustments. Such certificate shall also state that except as noted, from the balance sheet date through the end of the previous
quarterly period there has been no Material Adverse Effect.
7.5
SEC Filings
.
(a)
The Company acknowledges that:
(i)
the Parent’s stockholders must approve the transactions contemplated by this Agreement prior to the transactions contemplated
hereby being consummated and that, in connection with such approval, the Parent must call a special meeting of its stockholders
requiring Parent to prepare and file with the SEC a proxy statement and proxy card (the “
Proxy Statement
”),
which will be included in the Registration Statement;
(ii)
the Parent will be required to file Quarterly and Annual reports that may be required to contain information about the transactions
contemplated by this Agreement; and
(iii)
the Parent will be required to file Current Reports on Form 8-K to announce the transactions contemplated hereby and other
significant events that may occur in connection with such transactions.
(b)
In connection with any filing the Parent makes with the SEC that requires information about the transactions contemplated
by this Agreement to be included, the Company will, and will use its best efforts to cause its Affiliates, in connection with the
disclosure included in any such filing or the responses provided to the SEC in connection with the SEC’s comments to a filing,
to use their best efforts to (i) cooperate with the Parent, (ii) respond to questions about the Company required in any filing
or requested by the SEC in a timely fashion, and (iii) promptly provide any information requested by Parent or Parent’s representatives
in connection with any filing with the SEC.
7.6
Financial Information
. The Company will promptly provide additional financial information requested by the Parent
for inclusion in any filings to be made by the Parent with the SEC. If requested by the Parent, such information must be reviewed
or audited by the Company’s auditors.
7.7
Trust Account
. The Company acknowledges that the Parent shall make appropriate arrangements to cause the funds in
the Trust Account to be disbursed in accordance with the Trust Agreement and for the payment of (i) all amounts payable to stockholders
of Parent holding Parent Common Stock who shall have validly redeemed their Parent Common Stock upon acceptance by the Parent of
such Parent Common Stock, (ii) the expenses owed to third parties in an amount not to exceed $500,000, (iii) the Deferred Underwriting
Amount to the underwriter in the IPO and (iv) the remaining monies in the Trust Account to Parent.
7.8
Employees of the Company and the Manager
. Schedule 7.8 lists those employees designated by the Company as key personnel
of the Company (the “
Key Personnel
”). The Key Personnel shall, as a condition to their continued employment
with the Company, execute and deliver to the Company non-solicitation, non-service and confidentiality agreements in form and substance
satisfactory to Purchaser (the “
Confidentiality and Non-Solicitation Agreements
”).
7.9
Application for Permits
. The Company shall apply for all Permits listed on Schedule 5.19 as not being valid and in
full force and effect (the “
Outstanding Permits
”), and shall use its best efforts to obtain each Outstanding
Permit and ensure that the same are valid and in full force and effect as promptly as practicable hereafter, but in any event no
later than the Closing Date.
ARTICLE
VIII
COVENANTS OF THE COMPANY AND PURCHASER
The Company and the Purchaser
acknowledge and agree that:
8.1
Reporting and Compliance with Laws
. From the date hereof through the Closing Date, the Company shall duly and timely
file all Tax Returns required to be filed with the applicable Taxing Authorities, pay any and all Taxes required by any Taxing
Authority and duly observe and conform in all material respects, to all applicable Laws and Orders.
8.2
Best Efforts to Obtain Consents
. The Company shall use its best efforts to obtain each third party consent required
under this Agreement as promptly as practicable hereafter.
8.3
Proxy Statement
. The Parent shall use its commercially reasonable efforts to file the Proxy Statement and other SEC
filings in accordance with the terms of Section 7.5(a) hereof, including such information as is required under the Exchange Act
and the rules and regulations of the Securities and Exchange Commission to obtain its shareholder approval for the Merger and the
Parent Stock Compensation Plan.
8.4
Registration Rights Agreement
. Subject to the letter agreement referred to in Section 10.3(b), the Company agrees
to comply with all of the terms of the Registration Rights Agreement dated August 8, 2017 between the Parent and the parties named
therein.
ARTICLE
IX
COVENANTS OF ALL PARTIES HERETO
The parties hereto covenant
and agree that:
9.1
Best Efforts; Further Assurances
. Subject to the terms and conditions of this Agreement, each party shall use its
best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under
applicable Laws, and in the case of the Company, as reasonably requested by Purchaser, to consummate and implement expeditiously
each of the transactions contemplated by this Agreement. The parties hereto shall execute and deliver, or cause to be executed
and delivered, such other documents, certificates, agreements and other writings and take such other actions as may be necessary
or desirable in order to consummate or implement expeditiously each of the transactions contemplated by this Agreement.
9.2
Tax Matters
.
(a)
The Stockholders’ Representative shall prepare (or cause to be prepared) and file (or cause to be filed) on a timely
basis (taking into account valid extensions of time to file) all Tax Returns of the Company required to be filed by the Company
after the Closing Date for taxable periods ending on or before the Closing Date. Such Tax Returns shall be true, correct and complete,
shall be prepared on a basis consistent with the similar Tax Returns for the immediately preceding taxable period, and shall not
make, amend, revoke or terminate any Tax election or change any accounting practice or procedure without the prior written consent
of the Purchaser. The cost of preparing such Tax Returns shall be borne by the Company. The Stockholders’ Representative
shall give a copy of each such Tax Return to the Purchaser with sufficient time prior to filing for its review and comment. The
Stockholders’ Representative (prior to the Closing) and the Purchaser (following the Closing) shall cause the Company to
cooperate in connection with the preparation and filing of such Tax Returns, to timely pay the Tax shown to be due thereon, and
to furnish the Purchaser proof of such payment.
(b)
Purchaser shall prepare (or cause to be prepared) and file (or cause to be filed) on a timely basis (taking into account
valid extensions of time to file) all Tax Returns of the Company for taxable periods ending after the Closing Date. Any such Tax
Returns for a period that includes the Closing Date shall be true, correct and complete in all material respects, shall be prepared
on a basis consistent with the similar Tax Returns for the immediately preceding taxable period, and shall not make, amend, revoke
or terminate and tax election or change any accounting practice or procedure without the prior consent of the Stockholders’
Representative, which consent shall not unreasonably be withheld, delayed or conditioned.
(c)
Following the Closing, the Stockholders’ Representative may amend any Tax Return of the Company for any taxable period
ending on or before the Closing with the consent of Purchaser, which consent shall not unreasonably be withheld, delayed or conditioned.
Purchaser shall cause the Company to cooperate with the Stockholders’ Representative in connection with the preparation and
filing of such amended Tax Returns and any Tax proceeding in connection therewith. The cost of preparing and filing such amended
Tax Returns or participating in any such Tax proceeding shall be borne by the Company.
(d)
Following the Closing, the Purchaser may amend any Tax Return of the Company for any taxable period ending on or before
the Closing to correct any errors, with the consent of the Stockholders’ Representative, which consent shall not unreasonably
be withheld, delayed or conditioned. The cost of preparing and filing such amended Tax Returns shall be borne by the Company.
(e)
Purchaser shall retain (or cause the Company to retain) all Books and Records with respect to Tax matters of the Company
for Pre-Closing Periods for at least seven (7) years following the Closing Date and shall abide by all record retention agreements
entered into by or with respect to the Company with any Taxing Authority.
9.3
Settlement of Purchaser Liabilities
. Concurrently with the Closing, all outstanding liabilities of the Purchaser,
as set forth on Schedule 9.3, shall be settled and paid in full, including reimbursement of out-of-pocket expenses reasonably incurred
by Purchaser’s officers, directors, or any of their respective Affiliates, in connection with identifying, investigating
and consummating a business combination.
9.4
Compliance with SPAC Agreements
. The Company and Parent shall comply with each of the agreements entered into in
connection with the IPO, including without limitation that certain registration rights agreement, dated as of August 8, 2017, by
and between Parent and the investors named therein.
9.5
Proxy Statement
. As promptly as reasonably practicable after the date hereof, Parent shall prepare and file the Proxy
Statement with the SEC for the purposes of (i) providing the Parent’s stockholders with the opportunity to redeem their securities
in connection with the Merger, (ii) soliciting proxies from the Parent’s stockholders to obtain the requisite approval of
the Merger, (iii) changing the name of the Parent to “HF Foods Group Inc.”, (iv) adopting the Parent Stock Compensation
Plan and (v) any other matters to be voted on at a meeting of the Parent stockholders to be called and held for such purpose. The
Proxy Statement and any other SEC filings so filed shall be in a form mutually agreed upon by Parent and Company.
9.6
Confidentiality
.
Except as necessary to complete the Proxy Statement and Registration Statement, the Company and the Stockholders, on the one hand,
and the Parent, the Purchaser, and Merger Sub, on the other hand, shall hold and shall cause their respective representatives to
hold in strict confidence, unless compelled to disclose by judicial or administrative process or by other requirements of Law,
all documents and information concerning the other party furnished to it by such other party or its representatives in connection
with the transactions contemplated by this Agreement (except to the extent that such information can be shown to have been (a)
previously known by the party to which it was furnished, (b) in the public domain through no fault of such party or (c) later lawfully
acquired from other sources, which source is not the agent of the other party, by the party to which it was furnished), and each
party shall not release or disclose such information to any other person, except its representatives in connection with this Agreement.
In the event that any party believes that it is required to disclose any such confidential information pursuant to applicable Laws,
such party shall give timely written notice to the other parties so that such parties may have an opportunity to obtain a protective
order or other appropriate relief. Each party shall be deemed to have satisfied its obligations to hold confidential information
concerning or supplied by the other parties if it exercises the same care as it takes to preserve confidentiality for its own similar
information. The parties acknowledge that some previously confidential information will be required to be disclosed in the Proxy
Statement.
9.7
D&O
Insurance
. The Parent shall have obtained a D&O tail insurance policy for all of the officers and directors of Parent as
of immediately prior to the Merger, on terms and conditions satisfactory to Parent, which policy shall remain in effect for a period
of six years following the Closing.
ARTICLE
X
CONDITIONS TO CLOSING
10.1
Condition to the Obligations of the Parties
. The obligations of all of the parties to consummate the Closing are
subject to the satisfaction of all the following conditions:
(a)
No provisions of any applicable Law, and no Order shall prohibit or impose any condition on the consummation of the Closing;
(b)
There shall not be any Action brought by a third-party non-Affiliate to enjoin or otherwise restrict the consummation of
the Closing; and
(c)
The Additional Agreements shall have been executed and delivered by parties thereto.
10.2
Conditions to Obligations of Purchaser
. The obligation of Purchaser to consummate the Closing is subject to the satisfaction,
or the waiver at Purchaser’s sole and absolute discretion, of all the following further conditions:
(a)
The Company shall have duly performed all of its obligations hereunder required to be performed by it at or prior to the
Closing Date.
(b)
All of the representations and warranties of the Company contained in this Agreement, the Additional Agreements and in any
certificate delivered by the Company pursuant hereto, disregarding all qualifications and exceptions contained therein relating
to materiality or Material Adverse Effect, regardless of whether it involved a known risk, shall: (i) be true, correct and complete
at and as of the date of this Agreement (except as provided in the disclosure schedules or as provided for in Article V), or, (ii)
if otherwise specified, when made or when deemed to have been made, and (iii) be true, correct and complete as of the Closing Date,
in the case of (i) and (ii) with only such exceptions as could not in the aggregate reasonably be expected to have a Material Adverse
Effect.
(c)
There shall have been no event, change or occurrence which individually or together with any other event, change or occurrence,
could reasonably be expected to have a Material Adverse Effect, regardless of whether it involved a known risk.
(d)
Purchaser shall have received a certificate signed by the Chief Executive Officer and Chief Financial Officer of the Company
to the effect set forth in clauses (a) through (c) of this Section 10.2.
(e)
No court, arbitrator or other Authority shall have issued any judgment, injunction, decree or order, or have pending before
it a proceeding for the issuance of any thereof, and there shall not be any provision of any applicable Law restraining or prohibiting
the consummation of the Closing, the ownership by Purchaser of any of the Company Capital Stock or the effective operation of the
Business by the Company after the Closing Date.
(f)
Purchaser shall have received copies of all required third party consents (including the consents of the landlords under
the Leases), in form and substance reasonably satisfactory to Purchaser, and no such third party consents shall have been revoked.
(g)
Purchaser shall have received copies of all Governmental Approvals, in form and substance reasonably satisfactory to Purchaser,
and no such Governmental Approval shall have been revoked.
(h)
Counsel to the Company shall have delivered an opinion in form and substance satisfactory to Purchaser’s counsel.
(i)
Parent shall have received Schedules updated as of the Closing Date, which shall not be materially different than the Schedules
provided as of the date hereof.
(j)
The requisite majority of Parent’s shareholders shall have approved the transactions contemplated by this Agreement
and the Parent Stock Compensation Plan in accordance with the provisions of Parent’s organizational documents, Delaware Law
and the Exchange Act.
(k)
All Company Stock Rights shall have been converted into Company Common Stock or cancelled.
(l)
Purchaser shall have at least $5,000,001 of net tangible assets on the Closing Date as detailed in the final prospectus
from the IPO.
(m)
Purchaser shall have completed its due diligence investigation of the Company.
10.3
Conditions to Obligations of the Company
. The obligations of the Company to consummate the Closing is subject to
the satisfaction, or the waiver at the Company’s discretion, of all of the following further conditions:
(a)
(i) The Parent shall have performed in all material respects all of its respective obligations hereunder required
to be performed by it at or prior to the Closing Date, (ii) the representations and warranties of Parent contained in this Agreement,
and in any certificate or other writing delivered by Parent or the Purchaser pursuant hereto, disregarding all qualifications and
exceptions contained therein relating to materiality shall be true and correct in all material respects at and as of the Closing
Date, as if made at and as of such date, (iii) the Company shall have received a certificate signed by an authorized officer of
Parent and the Purchaser to the foregoing effect, including satisfaction of the conditions set forth in Sections 10.2(j) and 10.2(l),
and (iv) an opinion of counsel to the Parent addressing (i) the due authorization of this Agreement, the Merger and the transactions
contemplated hereunder, and (ii) the valid issuance of the Parent Common Stock to the Stockholders.
(b)
Each of the initial parties to that certain Registration Rights Agreement, dated August 8, 2017, by and among the Parent
and the initial stockholders of the Parent named therein, shall have executed and delivered a letter agreement to the Company pursuant
to which such parties shall agree to delay the exercise of any registration rights granted to them for a period of three (3) months
following the Closing Date.
ARTICLE
XI
INDEMNIFICATION
11.1
Indemnification of Purchaser
. The Company (solely with respect to claims made under this Section 11.1 prior to the
Closing), and the Majority Stockholders, agree to indemnify and hold harmless Purchaser, each of its Affiliates and each of its
and their respective members, managers, partners, directors, officers, employees, stockholders, attorneys and agents and permitted
assignees (the “
Purchaser Indemnitees
”), against and in respect of any and all out-of-pocket loss, cost, payment,
demand, penalty, forfeiture, expense, liability, judgment, deficiency or damage, and diminution in value or claim (including actual
costs of investigation and attorneys’ fees and other costs and expenses) (all of the foregoing collectively, “
Losses
”)
incurred or sustained by any Purchaser Indemnitee as a result of or in connection with (a) any breach, inaccuracy or nonfulfillment
or the alleged breach, inaccuracy or nonfulfillment of any of the representations, warranties and covenants of the Company or the
Stockholders contained herein or in any of the Additional Agreements or any certificate or other writing delivered pursuant hereto,
(b) any actions by any third parties with respect to the Business (including breach of contract claims, violations of warranties,
trademark infringement, privacy violations, torts or consumer complaints) for any period on or prior to the Closing Date (c) the
violation of any Laws in connection with or with respect to the operation of the Business on prior to the Closing Date, (d) any
claims by any employee of the Company or any of its Subsidiaries with respect to any period or event occurring on or prior to the
Closing Date, or relating to the termination of employee’s employment status in connection with the transactions contemplated
by this Agreement, or the termination, amendment or curtailment of any employee benefit plans, (e) the failure of the Company or
any of its Subsidiaries to pay any Taxes to any Taxing Authority or to file any Tax Return with any Taxing Authority with respect
to any Pre-Closing Period, or (f) any sales, use, transfer or similar Tax imposed on Purchaser or its Affiliates as a result of
any transaction contemplated by this Agreement. The total payments made by the Stockholders to the Purchaser Indemnitees with respect
to Losses shall not exceed $39,939,665 (the “
Indemnifiable Loss Limit
”), except that the Indemnifiable Loss
Limit shall not apply with respect to any Losses relating to or arising under or in connection with breaches of Sections 5.15 (Properties;
Title to the Company’s Assets), 5.25 (Employees), 5.26 (Employment Matters), 5.27 (Withholding), 5.28 (Employee Benefits
and Compensation), 5.29 (Real Property), Section 5.31 (Tax Matters). Notwithstanding anything set forth in this Section 11.1, any
Losses incurred by any Purchaser Indemnitee arising out of the failure of any Stockholder to perform any covenant or obligation
to be performed by it at or after the Closing Date, shall not, in any such case, be subject to or applied against the Indemnifiable
Loss Limit. Any liability incurred by the Stockholders pursuant to the terms of this Article XI shall be paid solely by the return
for cancellation of the Escrow Shares in accordance with the terms of the Escrow Agreement.
11.2
Procedure
. The following shall apply with respect to all claims by any Purchaser Indemnitee (an “
Indemnified
Party
”) for indemnification:
(a)
An Indemnified Party shall give the Stockholders’ Representative prompt notice (an “
Indemnification Notice
”)
of any third-party action with respect to which such Indemnified Party seeks indemnification pursuant to Section 11.1 (a “
Third-Party
Claim
”), which shall describe in reasonable detail the Loss that has been or may be suffered by the Indemnified Party.
The failure to give the Indemnification Notice shall not impair any of the rights or benefits of such Indemnified Party under Section
11.1, except to the extent such failure materially and adversely affects the ability of the Stockholders or the Purchaser, as applicable
(any of such parties, “
Indemnifying Parties
”) to defend such claim or increases the amount of such liability.
(b)
In the case of any Third-Party Claims as to which indemnification is sought by any Indemnified Party, such Indemnified Party
shall be entitled, at the sole expense and liability of the Indemnifying Parties, to exercise full control of the defense, compromise
or settlement of any Third-Party Claim unless the Indemnifying Parties, within a reasonable time after the giving of an Indemnification
Notice by the Indemnified Party (but in any event within ten (10) days thereafter), shall (i) deliver a written confirmation to
such Indemnified Party that the indemnification provisions of Section 11.1 are applicable to such action and the Indemnifying Parties
will indemnify such Indemnified Party in respect of such action pursuant to the terms of Section 11.1 and, notwithstanding anything
to the contrary, shall do so without asserting any challenge, defense, limitation on the Indemnifying Parties’ liability
for Losses, counterclaim or offset, (ii) notify such Indemnified Party in writing of the intention of the Indemnifying Parties
to assume the defense thereof, and (iii) retain legal counsel reasonably satisfactory to such Indemnified Party to conduct the
defense of such Third-Party Claim.
(c)
If the Indemnifying Parties assume the defense of any such Third-Party Claim pursuant to Section 11.2(b), then the Indemnified
Party shall cooperate with the Indemnifying Parties in any manner reasonably requested in connection with the defense, and the
Indemnified Party shall have the right to be kept fully informed by the Indemnifying Parties and their legal counsel with respect
to the status of any legal proceedings, to the extent not inconsistent with the preservation of attorney-client or work product
privilege. If the Indemnifying Parties so assume the defense of any such Third-Party Claim, the Indemnified Party shall have the
right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, but the
fees and expenses of such counsel employed by the Indemnified Party shall be at the expense of such Indemnified Party unless (i)
the Indemnifying Parties have agreed to pay such fees and expenses, or (ii) the named parties to any such Third-Party Claim (including
any impleaded parties) include an Indemnified Party and an Indemnifying Party and such Indemnified Party shall have been advised
by its counsel that there may be a conflict of interest between such Indemnified Party and the Indemnifying Parties in the conduct
of the defense thereof, and in any such case the reasonable fees and expenses of such separate counsel shall be borne by the Indemnifying
Parties.
(d)
If the Indemnifying Parties elect to assume the defense of any Third-Party Claim pursuant to Section 11.2(b), the Indemnified
Party shall not pay, or permit to be paid, any part of any claim or demand arising from such asserted liability unless the Indemnifying
Parties withdraw from or fail to vigorously prosecute the defense of such asserted liability, or unless a judgment is entered against
the Indemnified Party for such liability. If the Indemnifying Parties do not elect to defend, or if, after commencing or undertaking
any such defense, the Indemnifying Parties fail to adequately prosecute or withdraw such defense, the Indemnified Party shall have
the right to undertake the defense or settlement thereof, at the Indemnifying Parties’ expense. Notwithstanding anything
to the contrary, the Indemnifying Parties shall not be entitled to control, but may participate in, and the Indemnified Party (at
the expense of the Indemnifying Parties) shall be entitled to have sole control over, the defense or settlement of (x) that part
of any Third-Party Claim (i) that seeks a temporary restraining order, a preliminary or permanent injunction or specific performance
against the Indemnified Party, or (ii) to the extent such Third-Party Claim involves criminal allegations against the Indemnified
Party or (y) the entire Third-Party Claim if such Third-Party Claim would impose liability on the part of the Indemnified Party
in an amount which is greater than the amount as to which the Indemnified Party is entitled to indemnification under this Agreement.
In the event the Indemnified Party retains control of the Third-Party Claim, the Indemnified Party will not settle the subject
claim without the prior written consent of the Indemnifying Party, which consent will not be unreasonably withheld or delayed.
(e)
If the Indemnifying Parties undertake the defense of any such Third-Party Claim pursuant to Section 11.1 and propose to
settle the same prior to a final judgment thereon or to forgo appeal with respect thereto, then the Indemnified Party shall give
the Indemnifying Parties prompt written notice thereof and the Indemnifying Parties shall have the right to participate in the
settlement, assume or reassume the defense thereof or prosecute such appeal, in each case at the Indemnifying Parties’ expense.
The Indemnifying Parties shall not, without the prior written consent of such Indemnified Party settle or compromise or consent
to entry of any judgment with respect to any such Third-Party Claim (i) in which any relief other than the payment of money damages
is or may be sought against such Indemnified Party, (ii) in which such Third-Party Claim could be reasonably expected to impose
or create a monetary liability on the part of the Indemnified Party (such as an increase in the Indemnified Party’s income
Tax) other than the monetary claim of the third party in such Third-Party Claim being paid pursuant to such settlement or judgment,
or (iii) which does not include as an unconditional term thereof the giving by the claimant, person conducting such investigation
or initiating such hearing, plaintiff or petitioner to such Indemnified Party of a release from all liability with respect to such
Third-Party Claim and all other actions (known or unknown) arising or which might arise out of the same facts.
11.3
Escrow of Escrow Shares by Stockholders
. The Company and the Stockholders hereby authorize Purchaser to deliver the
Escrow Shares into escrow (the “
Escrow Fund
”) pursuant to the Escrow Agreement. For purposes of this Article
XI, the Escrow Shares are valued at $10.00 per share.
(a)
Escrow Shares. Payment of Dividends; Voting
. Any dividends, interest payments, or other distributions of any kind
made in respect of the Escrow Shares will be delivered promptly to the Escrow Agent to be held in escrow. The Stockholders shall
be entitled to vote the Escrow Shares on any matters to come before the stockholders of Purchaser while such shares are being held
in Escrow.
(b)
Distribution of Escrow Shares
. At the times provided for in Section 11.3(d), the Escrow Shares and any paid or accrued
dividends thereon shall be released to the Stockholders’ Representative for distribution to the Stockholders. Purchaser will
take such action as may be necessary to cause such certificates to be issued in the names of the appropriate persons. Certificates
representing Escrow Shares so issued that are subject to resale restrictions under applicable securities laws will bear a legend
to that effect. No fractional shares shall be released and delivered from the Escrow Fund to the Stockholders’ Representative
and all fractional shares shall be rounded to the nearest whole share.
(c)
Assignability
. No Escrow Shares or any beneficial interest therein may be pledged, sold, assigned or transferred,
including by operation of law, by the Stockholders or be taken or reached by any legal or equitable process in satisfaction of
any debt or other liability of the Stockholders, prior to the delivery to such Stockholders by the Stockholders’ Representative
of the Escrow Shares by the Escrow Agent as provided herein.
(d)
Release from Escrow Fund
. Within five (5) business days following expiration of the Survival Period (the “
Release
Date
”), the remaining Escrow Shares will be released from escrow to the Stockholders’ Representative less the number
or amount of Escrow Shares (at an assumed value of $10.00 per Escrow Share) equal to the amount of any potential Losses set forth
in any Indemnification Notice from Purchaser with respect to any pending but unresolved claim for indemnification. Prior to the
Release Date, the Stockholders’ Representative shall issue to the Escrow Agent a certificate executed by it instructing the
Escrow Agent to release such number of Escrow Shares determined in accordance with this Section 11.3(d). Any Escrow Shares retained
in escrow as a result of the immediately preceding sentence shall be released to the Stockholders’ Representative promptly
upon resolution of the related claim for indemnification in accordance with the provisions of this Article XI.
11.4
Periodic Payments
. Any indemnification required by Section 11.1 for costs, disbursements or expenses of any Indemnified
Party in connection with investigating, preparing to defend or defending any Action shall be made by periodic payments by the Indemnifying
Parties to each Indemnified Party during the course of the investigation or defense, as and when bills are received or costs, disbursements
or expenses are incurred and in no event later than 45 days from the date of when bills are received.
11.5
Intentionally Omitted
.
11.6
Payment of Indemnification
. In the event that Purchaser is entitled to any indemnification pursuant to this Article
XI and Purchaser is unable to set off such indemnification pursuant to Section 11.5, the Stockholders shall jointly and severally
pay the amount of the indemnification (subject to the limitation set forth in Section 11.1) in shares of Parent Common Stock at
$10.00 per share. Any payments by the Stockholders to a Purchaser Indemnitee will be treated as an adjustment to the Purchase Price.
11.7
Insurance
. Any indemnification payments hereunder shall take into account any insurance proceeds or other third party
reimbursement actually received.
11.8
Survival of Indemnification Rights
. The representations and warranties of the Company and the Stockholders shall
survive until 18 months (the “
Survival Period
”) following the Closing. The indemnification to which any Indemnified
Party is entitled from the Indemnifying Parties pursuant to Section 11.1 for Losses shall be effective so long as it is asserted
prior to expiration of the Survival Period.
ARTICLE
XII
DISPUTE RESOLUTION
12.1
Arbitration
.
(a)
The parties shall promptly submit any dispute, claim, or controversy arising out of or relating to this Agreement, or any
Additional Agreement (including with respect to the meaning, effect, validity, termination, interpretation, performance, or enforcement
of this Agreement or any Additional Agreement) or any alleged breach thereof (including any action in tort, contract, equity, or
otherwise), to binding arbitration before one arbitrator (the “
Arbitrator
”). Binding arbitration shall be the
sole means of resolving any dispute, claim, or controversy arising out of or relating to this Agreement or any Additional Agreement
(including with respect to the meaning, effect, validity, termination, interpretation, performance or enforcement of this Agreement
or any Additional Agreement) or any alleged breach thereof (including any claim in tort, contract, equity, or otherwise).
(b)
If the parties cannot agree upon the Arbitrator, the Arbitrator shall be selected by the New York, New York chapter head
of the American Arbitration Association upon the written request of either side. The Arbitrator shall be selected within thirty
(30) days of such written request.
(c)
The laws of the State of New York shall apply to any arbitration hereunder. In any arbitration hereunder, this Agreement
and any agreement contemplated hereby shall be governed by the laws of the State of New York applicable to a contract negotiated,
signed, and wholly to be performed in the State of New York, which laws the Arbitrator shall apply in rendering his decision. The
Arbitrator shall issue a written decision, setting forth findings of fact and conclusions of law, within sixty (60) days after
he shall have been selected. The Arbitrator shall have no authority to award punitive or other exemplary damages.
(d)
The arbitration shall be held in New York, New York in accordance with and under the then-current provisions of the rules
of the American Arbitration Association, except as otherwise provided herein.
(e)
On application to the Arbitrator, any party shall have rights to discovery to the same extent as would be provided under
the Federal Rules of Civil Procedure, and the Federal Rules of Evidence shall apply to any arbitration under this Agreement; provided,
however, that the Arbitrator shall limit any discovery or evidence such that his decision shall be rendered within the period referred
to in Section 12.1(c).
(f)
The Arbitrator may, at his discretion and at the expense of the party who will bear the cost of the arbitration, employ
experts to assist him in his determinations.
(g)
The costs of the arbitration proceeding and any proceeding in court to confirm any arbitration award or to obtain relief
(including actual attorneys’ fees and costs) shall be borne by the unsuccessful party and shall be awarded as part of the
Arbitrator’s decision, unless the Arbitrator shall otherwise allocate such costs in such decision. Neither party shall be
entitled to special or punitive damages. The determination of the Arbitrator shall be final and binding upon the parties and not
subject to appeal.
(h)
Any judgment upon any award rendered by the Arbitrator may be entered in and enforced by any court of competent jurisdiction.
The parties expressly consent to the non-exclusive jurisdiction of the courts (Federal and state) in New York, New York to enforce
any award of the Arbitrator or to render any provisional, temporary, or injunctive relief in connection with or in aid of the Arbitration.
The parties expressly consent to the personal and subject matter jurisdiction of the Arbitrator to arbitrate any and all matters
to be submitted to arbitration hereunder. None of the parties hereto shall challenge any arbitration hereunder on the grounds that
any party necessary to such arbitration (including the parties hereto) shall have been absent from such arbitration for any reason,
including that such party shall have been the subject of any bankruptcy, reorganization, or insolvency proceeding.
(i)
The parties shall indemnify the Arbitrator and any experts employed by the Arbitrator and hold them harmless from and against
any claim or demand arising out of any arbitration under this Agreement or any agreement contemplated hereby, unless resulting
from the gross negligence or willful misconduct of the person indemnified.
(j)
This arbitration section shall survive the termination of this Agreement and any agreement contemplated hereby.
12.2
Waiver of Jury Trial; Exemplary Damages
.
(a)
THE PARTIES TO THIS AGREEMENT HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVE ANY RIGHT EACH SUCH PARTY MAY HAVE TO
TRIAL BY JURY IN ANY ACTION OF ANY KIND OR NATURE, IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED, ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT OR ANY ADDITIONAL AGREEMENT, OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN OR AMONG ANY OF
THE PARTIES TO THIS AGREEMENT OF ANY KIND OR NATURE. NO PARTY SHALL BE AWARDED PUNITIVE OR OTHER EXEMPLARY DAMAGES RESPECTING ANY
DISPUTE ARISING UNDER THIS AGREEMENT OR ANY ADDITIONAL AGREEMENT.
(b)
Each of the parties to this Agreement acknowledge that each has been represented in connection with the signing of this
waiver by independent legal counsel selected by the respective party and that such party has discussed the legal consequences and
import of this waiver with legal counsel. Each of the parties to this Agreement further acknowledge that each has read and understands
the meaning of this waiver and grants this waiver knowingly, voluntarily, without duress and only after consideration of the consequences
of this waiver with legal counsel.
ARTICLE
XIII
TERMINATION
13.1
Termination Without Default
. In the event that the Closing of the transactions contemplated hereunder has not occurred
by September 30, 2018 (unless extended by mutual agreement of the parties) (the “
Outside Closing Date
”) and
no material breach of this Agreement by the party seeking to terminate this Agreement shall have occurred or have been made (as
provided in Section 13.2 hereof), Parent or the Company shall have the right, at its sole option, to terminate this Agreement without
liability to the other side. Such right may be exercised by Parent or the Company, as the case may be, giving written notice to
the other at any time after the Outside Closing Date.
13.2
Termination Upon Default
.
(a)
Parent may terminate this Agreement by giving notice to the Company on or prior to the Closing Date, without prejudice to
any rights or obligations Purchaser may have, if the Company or the Stockholders shall have materially breached any representation,
warranty, agreement or covenant contained herein or in any Additional Agreement to be performed on or prior to the Closing Date
and such breach shall not be cured by the earlier of the Outside Closing Date and fifteen (15) days following receipt by the Company
or the Stockholders’ Representative, as the case may be, of a notice describing in reasonable detail the nature of such breach.
(b)
The Company may terminate this Agreement by giving notice to Parent, without prejudice to any rights or obligations the
Company may have, if Parent shall have materially breached any of its covenants, agreements, representations, and warranties contained
herein to be performed on or prior to the Closing Date and such breach shall not be cured by the earlier of the Outside Closing
Date and fifteen (15) days following receipt by Purchaser of a notice describing in reasonable detail the nature of such breach.
13.3
No Other Termination
. Except as otherwise specified herein, neither the Purchaser nor the Company may terminate this
Agreement without the prior written consent of the other party.
13.4
Survival
. The provisions of Article XI through Article XIV shall survive any termination hereof.
ARTICLE
XIV
MISCELLANEOUS
14.1
Notices
. Any notice hereunder shall be sent in writing, addressed as specified below, and shall be deemed given:
(a) if by hand or recognized courier service, by 4:00PM on a business day, addressee’s day and time, on the date of delivery,
and otherwise on the first business day after such delivery; (b) if by fax or email, on the date that transmission is confirmed
electronically, if by 4:00PM on a business day, addressee’s day and time, and otherwise on the first business day after the
date of such confirmation; or (c) five days after mailing by certified or registered mail, return receipt requested. Notices shall
be addressed to the respective parties as follows (excluding telephone numbers, which are for convenience only), or to such other
address as a party shall specify to the others in accordance with these notice provisions:
if to Purchaser or the
Company (following the Closing), to:
Atlantic Acquisition Corp.
1250 Broadway, 36th Floor
New York, NY
Attention: Richard Xu
Email:
rxu@atlantic-acquisition.com
Fax: [________]
with a copy to (which
shall not constitute notice):
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
Attention: Giovanni Caruso, Esq.
Email:
gcaruso@loeb.com
Fax: (212) 407-4866
if
to the Company (prior to the Closing):
HF Group Holding Corporation
6001 West Market Street
Greensboro, North Carolina 27409
Attn: Ni, Zhou Min
Email:
min@hanfenginc.com
Fax: (336) 268-2642
with
a copy to (which shall not constitute notice):
Becker & Poliakoff LLP
45 Broadway, 17
th
Floor
New York, NY 10006
Attn: Jie Xiu, Esq.
Email:
Jxiu@beckerlawyers.com
Fax: (212) 557-0295
if to the Stockholders’
Representative:
Ni, Zhou Min
Email:
min@hanfenginc.com
Fax: (336) 268-2642
14.2
Amendments; No Waivers; Remedies
.
(a)
This Agreement cannot be amended, except by a writing signed by each party, and cannot be terminated orally or by course
of conduct. No provision hereof can be waived, except by a writing signed by the party against whom such waiver is to be enforced,
and any such waiver shall apply only in the particular instance in which such waiver shall have been given.
(b)
Neither any failure or delay in exercising any right or remedy hereunder or in requiring satisfaction of any condition herein
nor any course of dealing shall constitute a waiver of or prevent any party from enforcing any right or remedy or from requiring
satisfaction of any condition. No notice to or demand on a party shall waive or otherwise affect any obligation of that party or
impair any right of the party giving such notice or making such demand, including any right to take any action without notice or
demand not otherwise required by this Agreement. No exercise of any right or remedy with respect to a breach of this Agreement
shall preclude exercise of any other right or remedy, as appropriate to make the aggrieved party whole with respect to such breach,
or subsequent exercise of any right or remedy with respect to any other breach.
(c)
Except as otherwise expressly provided herein, no statement herein of any right or remedy shall impair any other right or
remedy stated herein or that otherwise may be available.
(d)
Notwithstanding anything else contained herein, neither shall any party seek, nor shall any party be liable for, punitive
or exemplary damages, under any tort, contract, equity, or other legal theory, with respect to any breach (or alleged breach) of
this Agreement or any provision hereof or any matter otherwise relating hereto or arising in connection herewith.
14.3
Arm’s length bargaining; no presumption against drafter
. This Agreement has been negotiated at arm’s-length
by parties of equal bargaining strength, each represented by counsel or having had but declined the opportunity to be represented
by counsel and having participated in the drafting of this Agreement. This Agreement creates no fiduciary or other special relationship
between the parties, and no such relationship otherwise exists. No presumption in favor of or against any party in the construction
or interpretation of this Agreement or any provision hereof shall be made based upon which Person might have drafted this Agreement
or such provision.
14.4
Publicity
. Except as required by law and except with respect to the Parent SEC Documents, the parties agree that
neither they nor their agents shall issue any press release or make any other public disclosure concerning the transactions contemplated
hereunder without the prior approval of the other party hereto. If a party is required to make such a disclosure as required by
law, the parties will use their best efforts to cause a mutually agreeable release or public disclosure to be issued.
14.5
Expenses
. Each party shall bear its own costs and expenses in connection with this Agreement and the transactions
contemplated hereby, unless otherwise specified herein.
14.6
No Assignment or Delegation
. No party may assign any right or delegate any obligation hereunder, including by merger,
consolidation, operation of law, or otherwise, without the written consent of the other party. Any purported assignment or delegation
without such consent shall be void, in addition to constituting a material breach of this Agreement.
14.7
Governing Law
. This Agreement shall be construed in accordance with and governed by the laws of the State of New
York, without giving effect to the conflict of laws principles thereof.
14.8
Counterparts; facsimile signatures
. This Agreement may be executed in counterparts, each of which shall constitute
an original, but all of which shall constitute one agreement. This Agreement shall become effective upon delivery to each party
of an executed counterpart or the earlier delivery to each party of original, photocopied, or electronically transmitted signature
pages that together (but need not individually) bear the signatures of all other parties.
14.9
Entire Agreement
. This Agreement together with the Additional Agreements, sets forth the entire agreement of the
parties with respect to the subject matter hereof and thereof and supersedes all prior and contemporaneous understandings and agreements
related thereto (whether written or oral), all of which are merged herein. No provision of this Agreement or any Additional Agreement
may be explained or qualified by any agreement, negotiations, understanding, discussion, conduct or course of conduct or by any
trade usage. Except as otherwise expressly stated herein or any Additional Agreement, there is no condition precedent to the effectiveness
of any provision hereof or thereof. No party has relied on any representation from, or warranty or agreement of, any person in
entering into this Agreement, prior hereto or contemporaneous herewith or any Additional Agreement, except those expressly stated
herein or therein.
14.10
Severability
. A determination by a court or other legal authority that any provision that is not of the essence of
this Agreement is legally invalid shall not affect the validity or enforceability of any other provision hereof. The parties shall
cooperate in good faith to substitute (or cause such court or other legal authority to substitute) for any provision so held to
be invalid a valid provision, as alike in substance to such invalid provision as is lawful.
14.11
Construction of certain terms and references; captions
. In this Agreement:
(a)
References to particular sections and subsections, schedules, and exhibits not otherwise specified are cross-references
to sections and subsections, schedules, and exhibits of this Agreement.
(b)
The words “herein,” “hereof,” “hereunder,” and words of similar import refer to this
Agreement as a whole and not to any particular provision of this Agreement, and, unless the context requires otherwise, “party”
means a party signatory hereto.
(c)
Any use of the singular or plural, or the masculine, feminine, or neuter gender, includes the others, unless the context
otherwise requires; “including” means “including without limitation;” “or” means “and/or;”
“any” means “any one, more than one, or all;” and, unless otherwise specified, any financial or accounting
term has the meaning of the term under United States generally accepted accounting principles as consistently applied heretofore
by the Company.
(d)
Unless otherwise specified, any reference to any agreement (including this Agreement), instrument, or other document includes
all schedules, exhibits, or other attachments referred to therein, and any reference to a statute or other law includes any rule,
regulation, ordinance, or the like promulgated thereunder, in each case, as amended, restated, supplemented, or otherwise modified
from time to time. Any reference to a numbered schedule means the same-numbered section of the disclosure schedule.
(e)
If any action is required to be taken or notice is required to be given within a specified number of days following a specific
date or event, the day of such date or event is not counted in determining the last day for such action or notice. If any action
is required to be taken or notice is required to be given on or before a particular day which is not a Business Day, such action
or notice shall be considered timely if it is taken or given on or before the next Business Day.
(f)
Captions are not a part of this Agreement, but are included for convenience, only.
(g)
For the avoidance of any doubt, all references in this Agreement to “the knowledge or best knowledge of the Company”
or similar terms shall be deemed to include the actual or constructive (e.g., implied by Law) knowledge of the Key Personnel.
14.12
Further Assurances
. Each party shall execute and deliver such documents and take such action, as may reasonably be
considered within the scope of such party’s obligations hereunder, necessary to effectuate the transactions contemplated
by this Agreement.
14.13
Third Party Beneficiaries
. Neither this Agreement nor any provision hereof confers any benefit or right upon or may
be enforced by any Person not a signatory hereto.
14.14
Waiver
. Reference is made to the final prospectus of the Parent, dated August 8, 2017 (the “
Prospectus
”).
The Company has read the Prospectus and understands that the Parent has established the Trust Account for the benefit of the public
stockholders of the Parent and the underwriters of the IPO pursuant to the Trust Agreement and that, except for a portion of the
interest earned on the amounts held in the Trust Account, the Parent may disburse monies from the Trust Account only for the purposes
set forth in the Trust Agreement. For and in consideration of the Parent agreeing to enter into this Agreement, the Company hereby
agrees that it does not have any right, title, interest or claim of any kind in or to any monies in the Trust Account and hereby
agrees that it will not seek recourse against the Trust Account for any claim it may have in the future as a result of, or arising
out of, any negotiations, contracts or agreements with the Purchaser.
14.15
Stockholders’ Representative
. Ni, Zhou Min is hereby appointed as agent and attorney-in-fact (the “
Stockholders’
Representative
”) for each Stockholder, (i) to give and receive notices and communications to or by Parent and Purchaser
for any purpose under this Agreement and the Additional Agreements, (ii) to agree to, negotiate, enter into settlements and compromises
of and demand arbitration and comply with orders of courts and awards of arbitrators with respect to any indemnification claims
(including Third-Party Claims) under Article XI or other disputes arising under or related to this Agreement, (iii) to enter into
and deliver the Escrow Agreement on behalf of each of the Stockholders, (iv) to authorize or object to delivery to Parent, Purchaser
and the Surviving Corporation of the Escrow Fund, or any portion thereof, in satisfaction of indemnification claims by Parent,
Purchaser and the Surviving Corporation in accordance with the provisions of the Escrow Agreement, (v) to act on behalf of Stockholders
in accordance with the provisions of the Agreement, the securities described herein and any other document or instrument executed
in connection with the Agreement and the Merger and (vi) to take all actions necessary or appropriate in the judgment of the Stockholders’
Representative for the accomplishment of the foregoing. Such agency may be changed by the Stockholders from time to time upon no
less than twenty (20) days prior written notice to the Purchaser and, if after the Effective Time, the Surviving Corporation, provided,
however, that the Stockholders’ Representative may not be removed unless holders of at least 51% of all of the Company Common
Stock on an as-if converted basis outstanding immediately prior to the transaction contemplated by this Agreement agrees to such
removal. Any vacancy in the position of Stockholders’ Representative may be filled by approval of the holders of at least
51% of all of the Company Common Stock on an as-if converted basis outstanding immediately prior to the transaction contemplated
by this Agreement. Any removal or change of the Stockholders’ Representative shall not be effective until written notice
is delivered to Purchaser. No bond shall be required of the Stockholders’ Representative, and the Stockholders’ Representative
shall not receive any compensation for his services. Notices or communications to or from the Stockholders’ Representative
shall constitute notice to or from the Stockholders. The Stockholders’ Representative shall not be liable for any act done
or omitted hereunder while acting in good faith and in the exercise of reasonable business judgment. A decision, act, consent or
instruction of the Stockholders’ Representative shall, for all purposes hereunder, constitute a decision, act, consent or
instruction of all of the Stockholders of the Company and shall be final, binding and conclusive upon each of the Stockholders.
The Stockholders shall severally indemnify the Stockholders’ Representative and hold him harmless against any loss, liability,
or expense incurred without gross negligence or bad faith on the part of the Stockholders’ Representative and arising out
of or in connection with the acceptance or administration of his duties hereunder. Notwithstanding anything in this Section 14.15
to the contrary, the Stockholders’ Representative (in his capacity as such) shall have no obligation or authority with respect
to any indemnification claims against a Stockholder made by a Purchaser Indemnitee under Section 11.1.
[The remainder of this
page intentionally left blank; signature pages to follow]
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
|
Parent and Purchaser:
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ATLANTIC ACQUISITION CORP., a Delaware
corporation
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By:
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Name: Richard Xu
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Title: Chairman and CEO
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Merger Sub:
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HF GROUP MERGER SUB INC., a Delaware
corporation
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By:
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Name: Richard Xu
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Title: Chairman and CEO
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Company:
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HF GROUP HOLDING CORPORATION, a
North Carolina corporation
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By:
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Name: Ni, Zhou Min
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Title: CEO
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[Stockholder
signature page begins on next page]
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Stockholders:
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Ni, Zhou Min
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Irrevocable Trust For Raymond Ni
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By:
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Name:
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Title: Trustee
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Irrevocable Trust For Amanda Ni
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By:
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Name:
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Title: Trustee
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Irrevocable Trust For Ivy Ni
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By:
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Name:
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Title: Trustee
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Irrevocable Trust For Tina Ni
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By:
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Name:
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Title: Trustee
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HT Group Holding, LLC
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Wah Lam
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[Stockholder
signature page continues on next page]
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Wei
Hui Kwok
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Jin
Zhang
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Xinsen
Zheng
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Jian
Ming Ni
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Qiao
Chen
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Stockholders’
Representative:
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Ni,
Zhou Min
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FORM
OF
HF
FOOD GROUP INC.
2018 OMNIBUS EQUITY INCENTIVE PLAN
HF
FOOD GROUP INC., formerly known as Atlantic Acquisition Corp. (the “Company”), a Delaware corporation, hereby establishes
and adopts the following 2018 Omnibus Equity Incentive Plan (this “Plan”).
1. PURPOSE
OF THIS PLAN
The
purpose of this Plan is to advance the interests of the Company’s stockholders and the Company by enhancing the Company’s
ability to attract, retain and motivate persons who are expected to make important contributions to the Company and by providing
such persons with equity ownership opportunities and performance-based incentives that are intended to align their interests with
those of the Company’s stockholders.
2. DEFINITIONS
2.1.
“
Affiliate
” means, with respect to a Person, another Person that directly or indirectly controls, or is controlled
by, or is under common control with such Person.
2.2.
“Award”
shall mean any Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award,
Other Share-Based Award, Performance Award or any other right, interest or option relating to Shares or other property (including
cash) granted pursuant to the provisions of this Plan.
2.3.
“Award Agreement”
shall mean any agreement, contract or other instrument or document evidencing any Award hereunder,
including through an electronic medium.
2.4.
“Board”
shall mean the board of directors of the Company.
2.5.
“Cause”
means with respect to a Participant’s Termination of Employment or Termination of Consultancy,
the following: (a) in the case where there is no employment agreement, consulting agreement, change in control agreement
or similar agreement in effect between the Company or an Affiliate and the Participant applicable to the Award (or where there
is such an agreement but it does not define “cause” (or words of like import), termination due to: (i) a Participant’s
conviction of, or plea of guilty or nolo contendere to, a felony; (ii) perpetration by a Participant of an illegal act, dishonesty,
or fraud that could cause significant economic injury to the Company; (iii) a Participant’s insubordination, refusal
to perform his or her duties or responsibilities for any reason other than illness or incapacity or materially unsatisfactory
performance of his or her duties for the Company; (iv) continuing willful and deliberate failure by the Participant to perform
the Participant’s duties in any material respect, provided that the Participant is given notice and an opportunity to effectuate
a cure as determined by the Committee; (v) a Participant’s willful misconduct with regard to the Company that could
have a material adverse effect on the Company; or (vi) an act of moral turpitude, whether or not resulting in a conviction by
a court of law, which, in the opinion of the Board of Directors, materially and adversely affects the reputation of the Company;
or (b) in the case where there is an employment agreement, consulting agreement, change in control agreement or similar agreement
in effect between the Company or an Affiliate and the Participant at the time of the grant of the Award that defines “cause”
(or words of like import), “cause” as defined under such agreement. With respect to a Participant’s Termination
of Directorship, “cause” means an act or failure to act that constitutes cause for removal of a director under applicable
North Carolina law or the Company’s Certificate of Incorporation.
2.6.
“Code”
shall mean the Internal Revenue Code of 1986, as amended from time to time.
2.7.
“Committee”
shall mean the Compensation Committee of the Board or a subcommittee thereof formed by the Compensation
Committee to act as the Committee hereunder, or in the event no such committee is formed, the Board of Directors. The Committee
shall consist of no fewer than two Directors, each of whom is: (i) a “Non-Employee Director” within the meaning of
Rule 16b-3 of the Exchange Act; (ii) an “outside director” within the meaning of Section 162(m) of the Code, to the
extent the Board has members meeting such qualifications; and (iii) an “independent director” for purpose of the rules
of the principal U.S. national securities exchange on which the Shares are traded, to the extent required by such rules. Anything
to the contrary in this Plan notwithstanding, the Board reserves all authority to administer this Plan and to act as the Committee
hereunder.
2.8.
“Consultant”
shall mean any consultant or advisor who provides services to the Company or any Subsidiary, so
long as such person: (i) renders bona fide services that are not in connection with the offer and sale of the Company’s
securities in a capital raising transaction and does not directly or indirectly promote or maintain a market for the Company’s
securities; and (ii) can be covered as a consultant under the applicable rules of the Securities and Exchange Commission
for registration of shares on a Form S-8 registration statement (or a successor form thereto).
2.9.
“Covered Employee”
shall mean an Employee of the Company or its subsidiaries who is a “covered employee”
within the meaning of Section 162(m) of the Code.
2.10.
“Director”
shall mean a non-employee member of the Board.
2.11.
“Dividend Equivalents”
shall have the meaning set forth in Section 12.4.
2.12.
“Effective Date”
shall have the meaning set forth in Section 10.1.
2.13.
“Employee”
shall mean any employee or officer of the Company or any Subsidiary and any prospective employee
conditioned upon, and effective not earlier than, such person becoming an employee or officer of the Company or any Subsidiary.
2.14.
“Exchange Act”
shall mean the Securities Exchange Act of 1934, as amended.
2.15.
“Fair
Market Value”
shall mean, with respect to Shares as of any date, the per Share closing price of the Shares: (i) if
the Shares are listed on a national securities exchange, the closing sale price reported as having occurred on the
principal securities exchange on which the Shares are listed and traded on such date, or, if there is no such sale on that
date, then on the last preceding date on which such a sale was reported; (ii) if the Shares are not listed on any national
securities exchange but is quoted in an inter-dealer quotation system on a last sale basis, the final ask price reported on
such date, or, if there is no such sale on such date, then on the last preceding date on which a sale was reported; or (iii)
if the Shares (A) are not listed on a national securities exchange nor quoted on an inter-dealer quotation system on a last
sale basis, or (B) are listed on an inter-dealer quotation system but, in the good faith determination of the Committee, such
trading is sporadic or thinly traded and not indicative of fair market value, the amount determined by the Committee to be
the fair market value of the Shares as determined by the Committee in its sole discretion. The Fair Market Value of any
property other than Shares shall mean the market value of such property determined by such methods or procedures as shall be
established from time to time by the Committee, subject to the requirements of Section 409A of the Code.
2.16.
“
Incentive Stock Option
” shall mean an Option which when granted is intended to qualify as an incentive stock
option for purposes of Section 422 of the Code.
2.17.
“
Limitations”
shall have the meaning set forth in Section 8.7.
2.18.
“Non-Qualified Stock Option”
means any Stock Option awarded under the Plan that is not an Incentive Stock Option.
2.19.
“Option”
shall mean any right granted to a Participant under this Plan allowing such Participant to purchase
Shares at such price or prices and during such period or periods as the Committee shall determine.
2.20.
“Other Share-Based Award”
shall have the meaning set forth in Section 9.1.
2.21.
“Participant”
shall mean an Employee, Consultant or Director who is selected by the Committee to receive an
Award under this Plan.
2.22.
“Performance Award”
shall mean any Award of Performance Shares or Performance Units granted pursuant to Article
8.
2.23.
“Performance Period”
shall mean the period established by the Committee during which any performance goals
specified by the Committee with respect to such Award are to be measured.
2.24.
“Performance Share”
shall mean any grant pursuant to Article 8 of a unit valued by reference to a designated
number of Shares, which value will be paid to the Participant upon achievement of such performance goals as the Committee shall
establish.
2.25.
“Performance Unit”
shall mean any grant pursuant to Article 8 of a unit valued by reference to a designated
amount of cash or property other than Shares, which value will be paid to the Participant upon achievement of such performance
goals during the Performance Period as the Committee shall establish.
2.26.
“Restricted Stock”
shall mean any Share issued with the restriction that the holder may not sell, transfer,
pledge or assign such Share and with such other restrictions as the Committee, in its sole discretion, may impose (including any
restriction on the right to vote such Share and the right to receive any dividends), which restrictions may lapse separately or
in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate.
2.27.
“Restricted Stock Award”
shall have the meaning set forth in Section 7.1.
2.28.
“
Restricted Stock Unit”
means an Award that is valued by reference to a Share, which value may be paid to the
Participant by delivery of such property as the Committee shall determine, including without limitation, cash or Shares, or any
combination thereof, and that has such restrictions as the Committee, in its sole discretion, may impose, including without limitation,
any restriction on the right to retain such Awards, to sell, transfer, pledge or assign such Awards, and/or to receive any cash
Dividend Equivalents with respect to such Awards, which restrictions may lapse separately or in combination at such time or times,
in installments or otherwise, as the Committee may deem appropriate.
2.29.
“Restricted Stock Unit Award”
shall have the meaning set forth in Section 7.1.
2.30.
“Services”
shall mean services provided to the Company or any Subsidiary or any successor company (or a subsidiary
or parent thereof), whether as an Employee, Consultant or Director, unless, in connection with the conversion, if any, of a Participant
from one classification (i.e., Employee, Consultant or Director) to another, the Committee, in its sole and absolute discretion,
determines that any on-going services to the Company or any Subsidiary or any successor company (or a subsidiary or parent thereof)
shall not constitute “Services.”
2.31.
“Shares”
shall mean the shares of common stock of the Company, par value $0.001 per share.
2.32.
“Stock Appreciation Right”
shall mean the right granted to a Participant pursuant to Article 6.
2.33.
“Subsidiary”
shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning
with the Company if, at the relevant time each of the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the
chain.
2.34.
“Substitute Awards”
shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution
or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company acquired
by the Company or any Subsidiary or with which the Company or any Subsidiary combines.
2.35.
“
Termination
” means a Termination of Consultancy, Termination of Directorship or Termination of Employment,
as applicable.
2.36.
“
Termination of Consultancy
” means: (a) that the Consultant is no longer acting as a consultant to the
Company or an Affiliate; or (b) when an entity that is retaining a Participant as a Consultant ceases to be an Affiliate
unless the Participant otherwise is, or thereupon becomes, a Consultant to the Company or another Affiliate at the time the entity
ceases to be an Affiliate. In the event that a Consultant becomes an Employee or a Director upon the termination of his or her
consultancy, unless otherwise determined by the Committee, in its sole discretion, no Termination of Consultancy shall be deemed
to occur until such time as such Consultant is no longer a Consultant, an Employee or a Director. Notwithstanding the foregoing,
the Committee may, in its sole discretion, otherwise define Termination of Consultancy in the Award agreement or, if no rights
of a Participant are reduced, may otherwise define Termination of Consultancy thereafter.
2.37.
“
Termination of Directorship
” means that the Director has ceased to be a Director of the Company; except that
if a Director becomes an Employee or a Consultant upon the termination of his or her directorship, his or her ceasing to be a
Director of the Company shall not be treated as a Termination of Directorship unless and until the Participant has a Termination
of Employment or Termination of Consultancy, as the case may be.
2.38.
“
Termination of Employment”
means: (a) a termination of employment of a Participant from the Company and
its Affiliates; or (b) when an entity that is employing a Participant ceases to be an Affiliate, unless the Participant otherwise
is, or thereupon becomes, employed by the Company or another Affiliate at the time the entity ceases to be an Affiliate. In the
event that an Employee becomes a Consultant or a Director upon the termination of his or her employment, unless otherwise determined
by the Committee, in its sole discretion, no Termination of Employment shall be deemed to occur until such time as such Employee
is no longer an Employee, a Consultant or a Director. Notwithstanding the foregoing, the Committee may, in its sole discretion,
otherwise define Termination of Employment in the Award agreement or, if no rights of a Participant are reduced, may otherwise
define Termination of Employment thereafter.
3.
SHARES SUBJECT TO THIS PLAN
3.1.
Number of Shares
. (a) Subject to adjustment as provided for in this Plan, as of the Effective Date, a total of 3,000,000
Shares shall be authorized for grant under this Plan. Subject at all times to Section 13.3, if: (i) any Shares subject to an Award
are forfeited or expire or an Award is settled for cash (in whole or in part) pursuant to the terms of an Award Agreement, the
Shares subject to such Award, to the extent of such forfeiture, expiration or cash settlement, again be available for Awards under
this Plan, in accordance with this Section 3.1. Notwithstanding anything to the contrary contained herein, the following Shares
shall not be added to the Shares authorized for grant under paragraph (a) of this Section: (i) Shares tendered by the Participant
or withheld by the Company in payment of the purchase price of an Option; (ii) Shares tendered by the Participant or withheld
by the Company to satisfy any tax withholding obligation with respect to an Award; (iii) Shares subject to a Stock Appreciation
Right that are not issued in connection with the stock settlement of the Stock Appreciation Right on exercise thereof; and (iv)
Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of Options.
(b) Substitute
Awards shall not reduce the Shares authorized for grant under this Plan. Additionally, in the event that a company acquired by
the Company or any Subsidiary or with which the Company or any Subsidiary combines has shares available under a pre-existing plan
approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant
to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or
valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common
stock of the entities party to such acquisition or combination) may be used for Awards under this Plan and shall not reduce the
Shares authorized for grant under this Plan; provided that Awards using such available shares shall not be made after the date
awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall
only be made to individuals who were not Employees or Directors prior to such acquisition or combination.
3.2.
Character of Shares
. Any Shares issued hereunder may consist, in whole or in part, of authorized and unissued shares, treasury
shares or shares purchased in the open market or otherwise. No fractional shares shall be issued under the Plan and the Committee
shall determine the manner in which fractional share value shall be treated.
3.3.
Limitations on Grants to Individual Participants
. Subject to adjustment as provided in Section 12.2, no Participant may:
(i) be granted Options or Stock Appreciation Rights during any 12-month period with respect to more than 750,000 Shares; and (ii)
earn more than 350,000 Shares for each twelve (12) months in the vesting period or Performance Period with respect to Restricted
Stock Awards, Restricted Stock Unit Awards, Performance Awards and/or Other Share-Based Awards that are intended to comply with
the performance-based exception under Code Section 162(m) and are denominated in Shares. In addition to the foregoing, the maximum
dollar value that may be earned by any Participant for each twelve (12) months in a Performance Period with respect to Performance
Awards that are intended to comply with the performance-based exception under Code Section 162(m) and are denominated in cash
is $1,500,000. If an Award is cancelled, the cancelled Award shall continue to be counted toward the applicable limitation in
this section.
4.
ELIGIBILITY AND ADMINISTRATION
4.1.
Eligibility
. Any Employee (inclusive of officers), Consultant or Director shall be eligible to be selected as a Participant.
4.2.
Administration
. (a) This Plan shall be administered by the Committee, or in the absence of a Committee, the full Board
of Directors. The Committee shall have full power and authority, subject to the provisions this Plan and subject to such orders
or resolutions not inconsistent with the provisions of this Plan as may from time to time be adopted by the Board, to: (i) select
the Employees, Directors and Consultants to whom Awards may from time to time be granted hereunder; (ii) determine the type or
types of Awards, not inconsistent with the provisions of this Plan, to be granted to each Participant hereunder; (iii) determine
the number of Shares to be covered by each Award granted hereunder; (iv) determine the terms and conditions, not inconsistent
with the provisions of this Plan, of any Award granted hereunder (including, but not limited to, the exercise or purchase price
(if any), any restriction or limitation, any vesting schedule or acceleration thereof, or any forfeiture restrictions or waiver
thereof, regarding any Award and the Shares relating thereto, based on such factors, if any, as the Committee shall determine,
in its sole discretion); (v) determine whether, to what extent and under what circumstances Awards may be settled in Shares, cash
or other property; (vi) determine whether, to what extent, and under what circumstances Shares, cash or other property and other
amounts payable with respect to an Award made under this Plan shall be deferred either automatically or at the election of the
Participant, in any case, in a manner intended to comply with Section 409A of the Code; (vii) determine whether, to what
extent and under what circumstances any Award shall be canceled or suspended; (viii) interpret and administer this Plan and any
instrument or agreement entered into under or in connection with this Plan, including any Award Agreement; (ix) correct any defect,
supply any omission or reconcile any inconsistency in this Plan or any Award in the manner and to the extent that the Committee
shall deem desirable to carry it into effect; (x) establish such rules and regulations and appoint such agents as it shall deem
appropriate for the proper administration of this Plan; (xi) determine whether any Award, other than an Option or Stock Appreciation
Right, will have Dividend Equivalents; and (xii) make any other determination and take any other action that the Committee deems
necessary or desirable for administration of this Plan. Decisions of the Committee shall be final, conclusive and binding on all
persons or entities, including the Company, any Participant, and any Subsidiary.
(b) Subject
to the terms of this Plan, the Committee shall, in its sole discretion, have the authority to adopt, alter and repeal such administrative
rules, guidelines and practices governing the Plan and perform all acts, as it shall, from time to time, deem advisable; to construe
and interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. To the extent not inconsistent with applicable law, including Section
162(m) of the Code, or the rules and regulations of the principal U.S. national securities exchange on which the Shares are traded,
the Committee may delegate to: (i) a committee of one or more directors of the Company any of the authority of the Committee under
this Plan, including the right to grant, cancel or suspend Awards; and (ii) to the extent permitted by law, to one or more executive
officers or a committee of executive officers the right to grant Awards to Employees who are not Directors or executive officers
of the Company and the authority to take action on behalf of the Committee pursuant to this Plan to cancel or suspend Awards to
Employees who are not Directors or executive officers of the Company. To the extent applicable, the Plan is intended to comply
with the applicable requirements of Rule 16b-3 and with respect to Awards intended to be “performance-based,”
the applicable provisions of Section 162(m) of the Code, and the Plan shall be limited, construed and interpreted in a manner
so as to comply therewith.
5.
OPTIONS
5.1.
Grant of Options
. Options may be granted hereunder to Participants either alone or in addition to other Awards granted
under this Plan. Any Option shall be subject to the terms and conditions of this Article and to such additional terms and conditions,
not inconsistent with the provisions of this Plan, as the Committee shall deem desirable. Each Stock Option granted under the
Plan shall be one of two types: (a) an Incentive Stock Option; or (b) a Non-Qualified Stock Option. The Committee shall,
in its sole discretion, have the authority to grant any Consultant or Director Non-Qualified Stock Options. To the extent that
any Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise
or otherwise), such Option or the portion thereof that does not qualify shall constitute a separate Non-Qualified Stock Option.
5.2.
Award Agreements
. All Options granted pursuant to this Article shall be evidenced by a written Award Agreement in such
form and containing such terms and conditions as the Committee shall determine which are not inconsistent with the provisions
of this Plan. The terms of Options need not be the same with respect to each Participant. Granting an Option pursuant to this
Plan shall impose no obligation on the recipient to exercise such Option. Any individual who is granted an Option pursuant to
this Article may hold more than one Option granted pursuant to this Plan at the same time.
5.3.
Option Price
. Other than in connection with Substitute Awards, the option price per each Share purchasable under any Option
granted pursuant to this Article shall not be less than 100% of the Fair Market Value of one Share on the date of grant of such
Option; provided, however, that in the case of an Incentive Stock Option granted to a Participant who, at the time of the grant,
owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Subsidiary, the option
price per share shall be no less than 110% of the Fair Market Value of one Share on the date of grant. Other than pursuant to
Section 12.2, the Committee shall not without the approval of the Company’s stockholders: (a) lower the option price per
Share of an Option after it is granted; (b) cancel an Option when the option price per Share exceeds the Fair Market Value of
the underlying Shares in exchange for cash or another Award (other than in connection with a Change in Control or a Substitute
Award); or (c) take any other action with respect to an Option that would be treated as a repricing under the rules and regulations
of the principal securities exchange on which the Shares are traded.
5.4.
Vesting and Term of Option
. The terms of each Option shall be fixed by the Committee in its sole discretion; provided that
no Option shall be exercisable after the expiration of ten (10) years from the date the Option is granted, except in the event
of death or disability; provided, however, that the term of the Option shall not exceed five (5) years from the date the Option
is granted in the case of an Incentive Stock Option granted to a Participant who, at the time of the grant, owns stock (not inclusive
of the actual grant) representing more than 10% of the voting power of all classes of stock of the Company or any Subsidiary.
Options awarded hereunder shall vest and become exercisable in whole or in part, in accordance with such vesting conditions as
the Committee shall determine, which conditions shall be stated in the Award Agreement. Vested Options may be exercised in any
order elected by the Participant whether or not the Participant holds any unexercised Options under this Plan or any other plan
of the Company.
5.5.
Exercise of Options
. (a) Options granted under this Plan shall be exercised by the Participant or by a permitted assignee
thereof (or by a Participant’s executors, administrators, guardian or legal representative, as may be provided in an Award
Agreement) as to all or part of the Shares covered thereby which are vested at such time of exercise, by giving notice of exercise
to the Company or its designated agent, specifying the number of Shares to be purchased. The notice of exercise shall be in such
form, made in such manner, and in compliance with such other requirements consistent with the provisions of this Plan as the Committee
may prescribe from time to time
(b)
Unless otherwise provided in an Award Agreement, full payment of such purchase price shall be made at the time of exercise and
shall be made: (i) in cash or cash equivalents (including certified check or bank check or wire transfer of immediately available
funds); (ii) to the extent provided for in the applicable Award Agreement or approved by the Committee, in its sole discretion,
by delivery (either by actual delivery or attestation) of shares of Common Stock owned by the Participant valued at their Fair
Market Value as determined by the Committee, provided: (A) such method of payment is then permitted under applicable law;
(B) such Common Stock, if acquired directly from the Company, was owned by the Participant for such minimum period of time,
if any, as may be established by the Committee in its discretion; and (C) such Common Stock is not subject to any repurchase,
forfeiture, unfulfilled vesting or other similar requirements; (iii) to the extent permitted by applicable law and provided for
in the applicable Award Agreement or approved by the Committee in its sole discretion, by payment of such other lawful consideration
having a Fair Market Value on the exercise date equal to the total purchase price as the Committee may determine; (iv) except
as may otherwise be provided in the applicable Award Agreement, by: (A) delivery of an irrevocable and unconditional undertaking
by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding;
or (B) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy
broker to deliver promptly to the Company cash or a check or wire transfer of funds sufficient to pay the exercise price and any
required tax withholding; (v) through any other method specified in an Award Agreement, or (vi) through any combination of any
of the foregoing.
(c) The
notice of exercise, accompanied by such payment, shall be delivered to the Company at its principal business office or such other
office as the Committee may from time to time direct, and shall be in such form, containing such further provisions consistent
with the provisions of this Plan, as the Committee may from time to time prescribe. In no event may any Option granted hereunder
be exercised for a fraction of a Share. No adjustment shall be made for cash dividends or other rights for which the record date
is prior to the date of such issuance.
(d) Notwithstanding
the foregoing, an Award Agreement may provide at the time of grant, in the discretion of the Committee, that if on the last day
of the term of an Option the Fair Market Value of one Share exceeds the option price per Share, the Participant has not exercised
the Option (or a tandem Stock Appreciation Right, if applicable) and the Option has not expired, the Option shall be deemed to
have been exercised by the Participant on such day with payment made by withholding Shares otherwise issuable in connection with
the exercise of the Option;
provided, however,
that this feature, to the extent contained in an Option, may only be utilized
to the extent that the holder of such Option is an active Employee, Director or Consultant as of the last day of the term of such
Option. In such event, the Company shall deliver to the Participant the number of Shares for which the Option was deemed exercised,
less the number of Shares required to be withheld for the payment of the total purchase price and required withholding taxes;
provided, however, any fractional Share shall be settled in cash.
5.6.
Incentive Stock Options
. The Committee may grant Options intended to qualify as “incentive stock options” as
defined in Section 422 of the Code, to any employee of the Company or any Subsidiary, subject to the requirements of Section 422
of the Code. To the extent that the aggregate Fair Market Value (determined as of the time of grant) of the Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by an Employee during any calendar year under the
Plan and/or any other stock option plan of the Company, any Subsidiary or any Parent exceeds $100,000 (or such other dollar amount
as may be applicable from time to time under the Code) , such Options shall be treated as Non-Qualified Stock Options. Should
any provision of the Plan not be necessary in order for the Stock Options to qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee may, in its sole discretion, amend the Plan accordingly, without the necessity
of obtaining the approval of the stockholders of the Company. Solely for purposes of determining whether Shares are available
for the grant of “incentive stock options” under this Plan, the maximum aggregate number of Shares that may be issued
pursuant to “incentive stock options” granted under this Plan shall be the number of Shares set forth in the first
sentence of Section 3.1(a), subject to adjustments provided in Section 12.2.
6.
STOCK APPRECIATION RIGHTS
6.1.
Grant and Exercise
. The Committee may grant Stock Appreciation Rights: (a) in conjunction with all or part of any Option
granted under this Plan or at any subsequent time during the term of such Option; (b) in conjunction with all or part of any Award
(other than an Option) granted under this Plan or at any subsequent time during the term of such Award; or (c) without regard
to any Option or other Award in each case upon such terms and conditions as the Committee may establish in its sole discretion.
6.2.
Terms and Conditions
. Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the
provisions of this Plan, as shall be determined from time to time by the Committee, including the following:
(a)
Upon the exercise of a Stock Appreciation Right, the holder shall have the right to receive the excess of (i) the Fair Market
Value of one Share on the date of exercise (or such amount less than such Fair Market Value as the Committee shall so determine
at any time during a specified period before the date of exercise) over (ii) the grant price of the Stock Appreciation Right on
the date of grant, which, except in the case of Substitute Awards or in connection with an adjustment provided in Section 12.2,
shall not be less than the Fair Market Value of one Share on such date of grant of the Stock Appreciation Right.
(b)
The Committee shall determine in its sole discretion whether payment of a Stock Appreciation Right shall be made in cash, in whole
Shares or other property, or any combination thereof. The provisions of Stock Appreciation Rights need not be the same with respect
to each recipient. The Committee may impose such terms and conditions on Stock Appreciation Rights granted in conjunction with
any Award (other than an Option) as the Committee shall determine in its sole discretion.
(c)
Stock Appreciation Rights may be exercised by delivery to the Company of a written notice of exercise signed by the proper person
or by any other form of notice (including electronic notice) approved by the Board, together with any other documents required
by the Board. The Committee may impose such other terms and conditions on the exercise of any Stock Appreciation Right, as it
shall deem appropriate. A Stock Appreciation Right shall: (i) have a grant price per Share of not less than the Fair Market
Value of one Share on the date of grant or, if applicable, on the date of grant of an Option with respect to a Stock Appreciation
Right granted in exchange for or in tandem with, but subsequent to, the Option (subject to the requirements of Section 409A
of the Code) except in the case of Substitute Awards or in connection with an adjustment provided in Section 12.2; and (ii) have
a term not greater than ten (10) years.
(d)
Without the approval of the Company’s stockholders, other than pursuant to Section 12.2, the Committee shall not: (i) reduce
the grant price of any Stock Appreciation Right after the date of grant; (ii) cancel any Stock Appreciation Right when the grant
price per Share exceeds the Fair Market Value of the underlying Shares in exchange for cash or another Award (other than in connection
with a Change in Control or a Substitute Award)); or (iii) take any other action with respect to a Stock Appreciation Right that
would be treated as a repricing under the rules and regulations of the principal securities market on which the Shares are traded.
(e) An
Award Agreement may provide at the time of grant, in the discretion of the Committee, that if on the last day of the term of a
Stock Appreciation Right the Fair Market Value of one Share exceeds the grant price per Share of the Stock Appreciation Right,
the Participant has not exercised the Stock Appreciation Right, and the Stock Appreciation Right has not expired, the Stock Appreciation
Right shall be deemed to have been exercised by the Participant on such day;
provided, however,
that this feature, to the
extent contained in an Stock Appreciation Right, may only be utilized to the extent that the holder of such Stock Appreciation
Right is an active Employee, Director or Consultant as of the last day of the term of such Stock Appreciation Right. In such event,
the Company shall make payment to the Participant in accordance with this Section, reduced by the number of Shares (or cash) required
for withholding taxes; any fractional Share shall be settled in cash.
7.
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
7.1.
Grants
. Awards of Restricted Stock and of Restricted Stock Units may be issued hereunder to Participants either alone or
in addition to other Awards granted under this Plan (a “Restricted Stock Award” or “Restricted Stock Unit Award”
respectively), and such Restricted Stock Awards and Restricted Stock Unit Awards shall also be available as a form of payment
of Performance Awards and other earned cash-based incentive compensation. A Restricted Stock Award or Restricted Stock Unit Award
may be subject to vesting restrictions imposed by the Committee covering a period of time specified by the Committee. Subject
to applicable law, the Committee has absolute discretion to determine whether any consideration (other than services) is to be
received by the Company or any Subsidiary as a condition precedent to the issuance of Restricted Stock or Restricted Stock Units.
7.2.
Award Agreements
. The terms of any Restricted Stock Award or Restricted Stock Unit Award granted under this Plan may be
set forth in a written Award Agreement which shall contain provisions determined by the Committee and not inconsistent with this
Plan. The terms of Restricted Stock Awards and Restricted Stock Unit Awards need not be the same with respect to each Participant.
7.3.
Rights of Holders of Restricted Stock and Restricted Stock Units
. Unless otherwise provided in an Award Agreement, beginning
on the date of grant of the Restricted Stock Award and subject to execution of an Award Agreement, if so required, the Participant
shall become a stockholder of the Company with respect to all Shares subject to the Award Agreement and shall have all of the
rights of a stockholder, including the right to vote such Shares and the right to receive distributions made with respect to such
Shares. A Participant receiving a Restricted Stock Unit Award shall have only those rights specifically provided for by the Award
Agreement, provided that in no event shall such a participant possess voting rights with respect to such Award. Except as otherwise
provided in an Award Agreement any Shares or any other property (other than cash) distributed as a dividend or otherwise with
respect to any Restricted Stock Award or Restricted Stock Unit Award as to which the restrictions have not yet lapsed shall be
subject to the same restrictions as such Restricted Stock Award or Restricted Stock Unit Award. Notwithstanding the provisions
of this Section, cash dividends, stock and any other property (other than cash) distributed as a dividend or otherwise with respect
to any Restricted Stock Award or Restricted Stock Unit Award that vests based on achievement of performance goals shall either:
(i) not be paid or credited; or (ii) be accumulated, shall be subject to restrictions and risk of forfeiture to the same extent
as the Restricted Stock or Restricted Stock Units with respect to which such cash, stock or other property has been distributed
and shall be paid at the time such restrictions and risk of forfeiture lapse.
7.4.
Restrictions
and Conditions
. Restricted Stock and Restricted Stock Units awarded pursuant to the Plan shall be subject to the
following restrictions. The Participant shall not be permitted to Transfer shares of Restricted Stock awarded under the Plan during
the period or periods set by the Committee (the “Restriction Period”) commencing on the date of such Award, as set
forth in an Award Agreement and such agreement shall set forth a vesting schedule and any events that would accelerate vesting
of the Award. Within these limits, based on service, attainment of performance goals and/or such other factors or criteria as
the Committee may determine in its sole discretion, the Committee may condition the grant or provide for the lapse of such restrictions
in installments in whole or in part, or may accelerate the vesting of all or any part of any Award and/or waive the deferral limitations
for all or any part of any Award.
7.5.
Issuance of Shares
. Any Restricted Stock granted under this Plan may be evidenced in such manner as the Board may deem
appropriate, including book-entry registration or issuance of a stock certificate or certificates, which certificate or certificates
shall be held by the Company or its designee. Such certificate or certificates shall be registered in the name of the Participant
and, and shall, in addition to such legends required by applicable securities laws, bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Award, in such form as may be determined by the Committee.
7.6.
Payment of Director Fees
. Directors shall, if determined by the Board, receive awards in the form of Restricted Stock or
Restricted Stock Units in lieu of all or a portion of any annual payment of fees for services. In addition, if permitted by the
Board, Directors may elect to receive Restricted Stock or Restricted Stock Units in lieu of all or a portion of their annual and
committee retainers and annual meeting fees or other payments for services. The Board (or if so delegated, the Committee) shall,
in its absolute discretion, establish such rules and procedures as it deems appropriate for such elections and for payment in
Restricted Stock or Restricted Stock Units.
8.
PERFORMANCE AWARDS
8.1.
Grants
. Performance Awards in the form of Performance Shares or Performance Units, as determined by the Committee in its
sole discretion, may be granted hereunder to Participants, for no consideration or for such minimum consideration as may be required
by applicable law, either alone or in addition to other Awards granted under this Plan. The performance goals to be achieved for
each Performance Period shall be conclusively determined by the Committee and shall be based upon the criteria set forth in Section
8.5.
8.2.
Award Agreements
. The terms of any Performance Award granted under this Plan shall be set forth in a written Award Agreement
which shall contain provisions determined by the Committee and not inconsistent with this Plan. If a Performance Award has Dividend
Equivalents, provision for such shall be contained in the applicable Award Agreement. The terms of Performance Awards need not
be the same with respect to each Participant.
8.3.
Payment
. Except as provided in Article 11 or as may be provided in an Award Agreement, Performance Awards will be distributed
only after the end of the relevant Performance Period. Performance Awards may be paid in Shares, cash, other property, or any
combination thereof, in the sole discretion of the Committee. Performance Awards may be paid in a lump sum or in installments
following the close of the Performance Period or, in accordance with procedures established by the Committee, on a deferred basis
subject to the requirements of Section 409A of the Code. The amount of the Award to be distributed shall be conclusively determined
by the Committee.
8.4.
Terms and Conditions
. The performance criteria to be achieved during any Performance Period and the length of the
Performance Period shall be determined by the Committee prior to the grant of each Performance Award and shall be subject to the
following terms and conditions:
(a)
The Committee shall establish the objective performance goals for the earning of Performance Awards based on a Performance Period
applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance Period
or at such later date as permitted under Section 162(m) of the Code and while the outcome of the Performance goals are substantially
uncertain. Each grant may specify in respect of such performance goals a minimum acceptable level of achievement and may set forth
a formula for determining the number of Performance Shares or Performance Units that will be earned if performance is at or above
the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement
of the specified performance goals. At the expiration of the applicable Performance Period, the Committee shall determine the
extent to which the performance goals established pursuant to Section 8.5 are achieved and the percentage of each Performance
Award that has been earned.
(b)
Unless otherwise determined by the Committee at the time of grant, amounts equal to any dividends declared during the Performance
Period with respect to the number of shares of Common Stock covered by a Performance Share will not be paid to the Participant.
8.5.
Performance Criteria
. If the Committee determines that a Restricted Stock Award, a Restricted Stock Unit, a Performance
Award or an Other Share-Based Award is intended to be subject to this Article 8, the lapsing of restrictions thereon and the distribution
of cash, Shares or other property pursuant thereto, as applicable, shall be subject to the achievement of one or more objective
performance goals established by the Committee, which shall be based on the attainment of specified levels of one or any combination
of the following: (a) earnings per share; (b) operating income (before or after taxes); (c) net income (before or after taxes);
(d) net sales; (e) cash flow; (f) gross profit; (g) gross profit return on investment; (h) gross margin return on investment;
(i) gross margin; (j) working capital; (k) earnings before interest and taxes; (l) earnings before interest, tax, depreciation
and amortization; (m) return on equity; (n) return on assets; (o) return on capital; (p) return on invested capital; (q) net revenues;
(r) gross revenues; (s) revenue growth or product revenue growth; (t) total shareholder return; (u) appreciation in and/or maintenance
of the Company’s market capitalization; (v) cash flow or cash flow per share (before or after dividends); (w) economic value
added; (x) the fair market value of the shares of the Company’s Common Stock; (y) the growth in the value of an investment
in the Company’s Common Stock assuming the reinvestment of dividends; (z) reduction in expenses or improvement in or
attainment of expense levels or working capital levels; (aa) financing and other capital raising transactions; (bb) debt reductions;
(cc) regulatory achievements (including submitting or filing applications or other documents with regulatory authorities, having
any such applications or other documents accepted for review by the applicable regulatory authority or receiving approval of any
such applications or other documents); or (dd) strategic partnerships or transactions (including in-licensing and out-licensing
of intellectual property). Such performance goals also may be based solely by reference to the Company’s performance or
the performance of a Subsidiary, division, business segment or business unit of the Company, or based upon the relative performance
of other companies or upon comparisons of any of the indicators of performance relative to other companies. The Committee may
also exclude charges related to an event or occurrence which the Committee determines should appropriately be excluded, including:
(A) restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring charges; (B) an event either
not directly related to the operations of the Company or not within the reasonable control of the Company’s management;
or (C) the cumulative effects of tax or accounting changes in accordance with U.S. generally accepted accounting principles. Such
performance goals shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements
of, Section 162(m) of the Code, and the regulations thereunder.
8.6.
Adjustment and Restrictions.
Notwithstanding any provision of this Plan (other than Article 11), with respect to any Performance
Award, the Committee may adjust downwards, but not upwards, the amount payable pursuant to such Award, and the Committee may not
waive the achievement of the applicable performance goals, except in the case of the death or disability of the Participant or
as otherwise determined by the Committee in special circumstances. The Committee shall have the power to impose such other restrictions
on Awards subject to this Article as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements
for “performance-based compensation” within the meaning of Section 162(m) of the Code.
9.
OTHER SHARE-BASED AWARDS
9.1.
Grants
. The Committee, in its sole discretion, is authorized to grant to Participants, other Awards of Shares and other
Awards that are valued in whole or in part by reference to, or are otherwise based on, Shares or other property (“Other
Share-Based Awards”), that are payable in, valued in whole or in part by reference to, or otherwise based on or related
to shares of Common Stock, including, but not limited to, shares of Common Stock awarded purely as a bonus and not subject to
any restrictions or conditions, shares of Common Stock in payment of the amounts due under an incentive or performance plan sponsored
or maintained by the Company or an Affiliate, performance units, dividend equivalent units, stock equivalent units, restricted
stock units and deferred stock units. To the extent permitted by law, the Committee may, in its sole discretion, permit Participants
to defer all or a portion of their cash compensation in the form of Other Share-Based Awards granted under the Plan, subject to
the terms and conditions of any deferred compensation arrangement established by the Company, which shall be intended to comply
with Section 409A of the Code. Other Stock-Based Awards may be granted either alone or in addition to or in tandem with other
Awards granted under the Plan. Other Share-Based Awards may be subject to vesting restrictions imposed by the Committee covering
a period of time specified by the Committee. The Committee has absolute discretion to determine whether any consideration (other
than services) is to be received by the Company or any Subsidiary as a condition precedent to the issuance of Other Share-Based
Awards.
9.2.
Award Agreements
. The terms of Other Share-Based Awards granted under this Plan shall be set forth in a written Award Agreement
which shall contain provisions determined by the Committee and not inconsistent with this Plan. The terms of such Awards need
not be the same with respect to each Participant. Unless otherwise determined by the Committee at the time of Award, subject to
the provisions of the Award agreement and the Plan, the recipient of an Other-Share Based Award shall not be entitled to receive,
currently or on a deferred basis, dividends or dividend equivalents with respect to the number of shares of Common Stock covered
by the Award. Any Other Share-Based Award and any Shares covered by any such Award shall vest or be forfeited to the extent so
provided in the Award Agreement, as determined by the Committee, in its sole discretion. Notwithstanding the provisions of this
Section, Dividend Equivalents and any property (other than cash) distributed as a dividend or otherwise with respect to the number
of Shares covered by a Other Share-Based Award that vests based on achievement of performance goals shall be subject to restrictions
and risk of forfeiture to the same extent as the Shares covered by a Other Share-Based Award with respect to which such cash,
Shares or other property has been distributed.
9.3.
Payment
. Except as may be provided in an Award Agreement, Other Share-Based Awards may be paid in cash, Shares, other property,
or any combination thereof, in the sole discretion of the Committee. Other Share-Based Awards may be paid in a lump sum or in
installments or, in accordance with procedures established by the Committee, on a deferred basis subject to the requirements of
Section 409A of the Code.
10.
EFFECTIVENESS OF PLAN; TERMINATION OF AWARDS
10.1.
Effective Date and Termination of Plan
. The Plan shall be effective on the date of the approval of the Plan by the holders
of the shares entitled to vote at a duly constituted meeting of the stockholders of the Company, which approval shall be obtained
within 12 months of the date this Plan is approved by the Board. The Plan shall be null and void and of no effect if the foregoing
condition is not fulfilled and in such event each Award shall, notwithstanding any of the preceding provisions of the Plan, be
null and void and of no effect. Awards may be granted under the Plan at any time and from time to time on or prior to the tenth
anniversary of the effective date of the Plan, on which date the Plan will expire except as to Awards then outstanding under the
Plan. Such outstanding Awards shall remain in effect until they have been exercised or terminated, or have expired.
10.2.
Termination of Awards
. The Committee shall determine and set forth in each Award Agreement whether any Awards granted in
such Award Agreement will continue to be exercisable, and the terms of such exercise, on and after the date that a Participant
ceases to be employed by or to provide services to the Company or any Subsidiary (including as a Director or Consultant), whether
by reason of death, disability, voluntary or involuntary termination of employment or services, or otherwise. The date of termination
of a Participant’s employment or services will be determined by the Committee, which determination will be final. Unless
otherwise determined by the Committee at the time of grant, the following provisions shall apply.
(a)
Rules Applicable to Options and Stock Appreciation Rights
. Unless otherwise provided in an Award Agreement,
as may be determined by the Committee at grant (or, if no rights of the Participant are reduced, thereafter) or under the terms
of an Employment or Consulting or similar agreement with the Participant:
(i)
Termination
by Reason of Death, Disability or Retirement.
If a Participant’s Termination is by reason of death or Disability,
all Options or Stock Appreciation Rights that are held by such Participant that are vested and exercisable at the time of the
Participant’s Termination may be exercised by the Participant (or, in the case of death, by the legal representative of
the Participant’s estate) at any time within a one-year period from the date of such Termination, but in no event beyond
the expiration of the stated term of such Stock Options or Stock Appreciation Rights;
provided
,
however
, if the
Participant dies within such exercise period, all unexercised Stock Options or Stock Appreciation Rights held by such Participant
shall thereafter be exercisable, to the extent to which they were exercisable at the time of death, for a period of one year from
the date of such death, but in no event beyond the expiration of the stated term of such Options or Stock Appreciation Rights.
(ii)
Termination
Without Cause
. If a Participant’s Termination is a termination without Cause, all Options or Stock Appreciation
Rights that are held by such Participant that are vested and exercisable at the time of the Participant’s Termination may
be exercised by the Participant at any time within a period of 90 days from the date of such Termination, but in no event
beyond the expiration of the stated term of such Options or Stock Appreciation Rights.
(iii)
Termination
for Cause
. If a Participant’s Termination: (1) is for Cause; or (2) is a voluntary Termination
by the Participant after the occurrence of an event that would be grounds for a Termination for Cause, all Options or Stock Appreciation
Rights, whether vested or not vested, that are held by such Participant shall thereupon terminate and expire as of the date of
such Termination.
(iv)
Unvested
Options and Stock Appreciation Rights.
Options or Stock Appreciation Rights that are not vested as of the date
of a Participant’s Termination for any reason shall terminate and expire as of the date of such Termination.
(b)
Rules Applicable to Restricted Stock, Restricted Stock Units Performance Awards and Other Stock-Based Awards
. Unless
otherwise provided in an Award Agreement, as may be determined by the Committee at grant or thereafter, upon a Participant’s
Termination for any reason: (i) with respect to Restricted Stock Awards or Restricted Stock Unit Awards subject to vesting, (A)
in the event a Participant who is an Employee ceases to be employed with the consent of the Committee or upon the Participant’s
death or Disability before the end of a vesting period subject only to continued service with the Company or a Subsidiary, the
number of Shares subject to the Restricted Stock Award or Restricted Stock Unit Award that shall vest shall be determined by the
Committee; and (B) in the event the Participant ceases to be employed for any other reason, all Shares subject to the Restricted
Stock Award or Restricted Stock Unit Award which are still unvested shall be forfeited; and (ii) any unvested Performance
Awards or Other Stock-Based Awards shall be forfeited.
10.3.
Cancellation of Award; Forfeiture of Gain
. Notwithstanding anything to the contrary contained herein, an Award Agreement
may provide that the Award shall be canceled if the Participant, without the consent of the Company, while employed by the Company
or any Subsidiary or after termination of such employment or service, violates a non-competition, non-solicitation or non-disclosure
covenant or agreement or otherwise engages in activity that is in conflict with or adverse to the interest of the Company or any
Subsidiary (including conduct contributing to any financial restatements or financial irregularities), as determined by the Committee
in its sole discretion. The Committee may provide in an Award Agreement that if within the time period specified in the Agreement
the Participant establishes a relationship with a competitor or engages in an activity referred to in the preceding sentence,
the Participant will forfeit any gain realized on the vesting or exercise of the Award and must repay such gain to the Company.
11.
CHANGE IN CONTROL PROVISIONS
11.1.
Impact on Certain Awards
. Award Agreements may provide that in the event of a Change in Control of the Company (as defined
in Section 11.3): (i) Options and Stock Appreciation Rights outstanding as of the date of the Change in Control shall be cancelled
and terminated without payment if the Fair Market Value of one Share as of the date of the Change in Control is less than the
per Share Option exercise price or Stock Appreciation Right grant price; and (ii) all Performance Awards shall be (x) considered
to be earned and payable based on achievement of performance goals or based on target performance (either in full or pro rata
based on the portion of Performance Period completed as of the date of the Change in Control), and any limitations or other restrictions
shall lapse and such Performance Awards shall be immediately settled or distributed or (y) converted into Restricted Stock or
Restricted Stock Unit Awards based on achievement of performance goals or based on target performance (either in full or pro rata
based on the portion of Performance Period completed as of the date of the Change in Control) that are subject to Section 11.2.
Notwithstanding anything to the contrary in this Section 11 (including all provisions of this Section 11) in the event that the
Award Agreement does not explicitly state the intended treatment or acceleration or vesting of the Award upon a Change of Control,
then the Award shall vest in accordance with the terms originally stated therein and there shall be no accelerated vesting or
earning of any such Award.
11.2.
Assumption or Substitution of Certain Awards.
(a) Unless otherwise provided in an Award Agreement, in the event of a Change in Control of the
Company in which the successor company assumes or substitutes for an Option, Stock Appreciation Right, Restricted Stock Award,
Restricted Stock Unit Award or Other Share-Based Award (or in which the Company is the ultimate parent corporation and continues
the Award), if a Participant’s employment or service as a Director with such successor company (or the Company) or a subsidiary
thereof terminates within 24 months following such Change in Control (or such other period set forth in the Award Agreement, including
prior thereto if applicable) and under the circumstances specified in the Award Agreement: (i) Options and Stock Appreciation
Rights outstanding as of the date of such termination of employment will immediately vest, become fully exercisable, and may thereafter
be exercised for 24 months (or the period of time set forth in the Award Agreement), (ii) the restrictions, limitations and other
conditions applicable to Restricted Stock and Restricted Stock Units outstanding as of the date of such termination of employment
shall lapse and the Restricted Stock and Restricted Stock Units shall become free of all restrictions, limitations and conditions
and become fully vested, and (iii) the restrictions, limitations and other conditions applicable to any Other Share-Based Awards
or any other Awards shall lapse, and such Other Share-Based Awards or such other Awards shall become free of all restrictions,
limitations and conditions and become fully vested and transferable to the full extent of the original grant. For the purposes
of this Section 11.2, an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award or Other Share-Based
Award shall be considered assumed or substituted for if following the Change in Control the Award confers the right to purchase
or receive, for each Share subject to the Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award
or Other Share-Based Award immediately prior to the Change in Control, the consideration (whether stock, cash or other securities
or property) received in the transaction constituting a Change in Control by holders of Shares for each Share held on the effective
date of such transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders
of a majority of the outstanding Shares); provided, however, that if such consideration received in the transaction constituting
a Change in Control is not solely common stock of the successor company, the Committee may, with the consent of the successor
company, provide that the consideration to be received upon the exercise or vesting of an Option, Stock Appreciation Right, Restricted
Stock Award, Restricted Stock Unit Award or Other Share-Based Award, for each Share subject thereto, will be solely common stock
of the successor company substantially equal in fair market value to the per Share consideration received by holders of Shares
in the transaction constituting a Change in Control. The determination of such substantial equality of value of consideration
shall be made by the Committee in its sole discretion and its determination shall be conclusive and binding.
(b)
Unless otherwise provided in an Award Agreement, in the event of a Change in Control of the Company to the extent the successor
company does not assume or substitute for an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award
or Other Share-Based Award (or in which the Company is the ultimate parent corporation and does not continue the Award), then
immediately prior to the Change in Control: (i) those Options and Stock Appreciation Rights outstanding as of the date of the
Change in Control that are not assumed or substituted for (or continued) shall immediately vest and become fully exercisable;
(ii) restrictions, limitations and other conditions applicable to Restricted Stock and Restricted Stock Units that are not assumed
or substituted for (or continued) shall lapse and the Restricted Stock and Restricted Stock Units shall become free of all restrictions,
limitations and conditions and become fully vested; and (iii) the restrictions, other limitations and other conditions applicable
to any Other Share-Based Awards or any other Awards that are not assumed or substituted for (or continued) shall lapse, and such
Other Share-Based Awards or such other Awards shall become free of all restrictions, limitations and conditions and become fully
vested and transferable to the full extent of the original grant.
(c)
The Committee, in its discretion, may determine that, upon the occurrence of a Change in Control of the Company, each Option and
Stock Appreciation Right outstanding shall terminate within a specified number of days after notice to the Participant, and/or
that each Participant shall receive, with respect to each Share subject to such Option or Stock Appreciation Right, an amount
equal to the excess of the Fair Market Value of such Share immediately prior to the occurrence of such Change in Control over
the exercise price per Share of such Option and/or Stock Appreciation Right; such amount to be payable in cash, in one or more
kinds of stock or property (including the stock or property, if any, payable in the transaction) or in a combination thereof,
as the Committee, in its discretion, shall determine.
11.3.
Change in Control
. For purposes of this Plan, unless otherwise provided in an Award Agreement, Change in Control means
the occurrence of any one of the following events after the date of approval of this Plan by the Board:
(a)
Over a period of 24 consecutive months or less, there is a change in the composition of the Board such that a majority of
the Board (rounded up to the next whole number, if a fraction) ceases, by reason of one or more proxy contests for the
election of Board members, to be composed of individuals who either: (i) have been Board members continuously since the
beginning of that period; or (ii) have been elected or nominated for election as Board members during such period by at least
a majority of the Board members described in the preceding clause (i) who were still in office at the time that election or
nomination was approved by the Board; provided, however, that no individual initially elected or nominated as a director of
the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other
actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be deemed to satisfy
the criteria described in the preceding clause (ii);
(b)
Any person or group of persons (within the meaning of Section 13(d)(3) of the Exchange Act) directly or indirectly acquires beneficial
ownership (determined pursuant to Rule 13d-3 promulgated under the Exchange Act) of securities possessing more than 50% of the
total combined voting power of the Company’s outstanding securities, other than: (i) the Company or any corporation, partnership,
limited liability company, business trust, or other entity that is an Affiliate of the Company; (ii) an employee benefit plan
of the Company or an Affiliate; (iii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company
or an Affiliate; or (iv) an underwriter temporarily holding securities pursuant to an offering of such securities;
(c) The
consummation of a merger or consolidation of the Company with or into another person or the sale, transfer, or other disposition
of all or substantially all of the Company’s assets to one or more other persons in a single transaction or series of related
transactions that requires the approval of the Company’s stockholders, whether for such transaction or the issuance of securities
in such transaction (a “Business Combination”), unless in connection with such Business Combination securities possessing
more than 50% of the total combined voting power of the survivor’s or acquiror’s outstanding securities (or the securities
of any parent thereof) are held by a person or persons who held securities possessing more than 50% of the total combined voting
power of the Company’s outstanding securities (“Voting Securities”) immediately prior to such Business Combination
and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting
Securities among the holders thereof immediately prior to such Business Combination; or
(d) The
stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or the consummation of a sale
of all or substantially all of the Company’s assets.
Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of more
than 50% of the Voting Securities as a result of the acquisition of Voting Securities by the Company which reduces the number
of Voting Securities outstanding;
provided,
that if after such acquisition by the Company such person becomes the beneficial
owner of additional Voting Securities that increases the percentage of outstanding Voting Securities beneficially owned by such
person, a Change in Control shall then occur.
12.
PROVISIONS WITH GENERAL APPLICABILITY
12.1.
Amendment and Termination of this Plan
. The Board may, from time to time, alter, amend
,
suspend or terminate this
Plan as it shall deem advisable, subject to any requirement for stockholder approval imposed by applicable law, including the
rules and regulations of the principal securities market on which the Shares are traded; provided that the Board may not amend
this Plan in any manner that would result in noncompliance with Rule 16b-3 of the Exchange Act; and further provided that the
Board may not, without the approval of the Company’s stockholders, amend this Plan to: (a) increase the number of Shares
that may be the subject of Awards under this Plan (except for adjustments pursuant to Section 12.2); (b) expand the types of awards
available under this Plan; (c) materially expand the class of persons eligible to participate in this Plan; (d) amend any provision
of Section 5.3 or Section 6.2(a); (e) increase the maximum permissible term of any Option or Stock Appreciation Right; (f) increase
the Limitations; or (g) or otherwise materially increase the benefits accruing to Participants under this Plan. The Board may
not, without the approval of the Company’s stockholders, take any other action with respect to an Option or Stock Appreciation
Right that would be treated as a repricing under the rules and regulations of the principal securities exchange on which the Shares
are traded, including a reduction of the exercise price of an Option or the grant price of a Stock Appreciation Right or the exchange
of an Option or Stock Appreciation Right for cash or another Award. In addition, no amendments to, or termination of, this Plan
shall impair the rights of a Participant in any material respect under any Award previously granted without such Participant’s
consent.
12.2.
Changes in Capital Structure
. In the event of any: (a) any reclassification, recapitalization, stock split (including
a stock split in the form of a stock dividend) or reverse stock split; (b) any merger, combination, consolidation, or other
reorganization; (c) any spin-off, split-up, or similar extraordinary dividend distribution in respect of the Shares (whether
in the form of securities, cash (other than regular cash dividends) or property); (d) any exchange of Shares or other securities
of the Company, or any similar, unusual or extraordinary corporate transaction in respect of the Shares; or (e) a sale of
all or substantially all the business or assets of the Company as an entirety, then the Committee shall, in such manner, to such
extent (if any) and at such time as it deems appropriate and equitable in the circumstances in order to preserve, but not increase,
the benefits or potential benefits intended to be made available under the Plan or an outstanding Award: (i) proportionately
adjust any or all of: (A) the number and type of shares of Shares (or other securities) that thereafter may be made the subject
of Awards (including the specific share limits, maximums and numbers of shares set forth elsewhere in this Plan); (B) the
number, amount and type of shares of Shares (or other securities or property) subject to any or all outstanding Awards; (C) the
grant, purchase, or exercise price of any or all outstanding Award; (D) the securities, cash or other property deliverable
upon exercise or payment of any outstanding Awards, or (E) the performance standards applicable to any outstanding Awards; or
(ii) make provision for a cash payment or for the assumption, substitution or exchange of any or all outstanding share-based
Awards or the cash, securities or property deliverable to the holder of any or all outstanding share-based Awards, based upon
the distribution or consideration payable to holders of the Shares upon or in respect of such event. Notwithstanding the foregoing,
to the extent possible, all adjustments shall be made in a manner to avoid: (i) an Award that is not already subject to Section 409A
of the Code from becoming subject to Section 409A of the Code; and (ii) the imposition of penalties pursuant to Section 409A
of the Code. In any of such events, the Committee may take such action prior to such event to the extent that the Committee deems
the action necessary to permit the Participant to realize the benefits intended to be conveyed with respect to the underlying
shares in the same manner as is or will be available to stockholders generally. In the case of any stock split or reverse stock
split, if no action is taken by the Committee, the proportionate adjustments contemplated by clause (i) above shall nevertheless
be made.
12.3.
Transferability of Awards
. Except as provided below, no Award and no Shares that have not been issued or as to which any
applicable restriction, performance or deferral period has not lapsed, may be sold, assigned, transferred, pledged or otherwise
encumbered, other than by will or the laws of descent and distribution, and such Award may be exercised during the life of the
Participant only by the Participant or the Participant’s guardian or legal representative. To the extent and under such
terms and conditions as determined by the Committee, a Participant may assign or transfer an Award without consideration (each
transferee thereof, a “Permitted Assignee”) to: (i) the Participant’s spouse, children or grandchildren (including
any adopted and step children or grandchildren), parents, grandparents or siblings; (ii) to a trust for the benefit of one or
more of the Participant or the persons referred to in clause (i); (iii) to a partnership, limited liability company or corporation
in which the Participant or the persons referred to in clause (i) are the only partners, members or shareholders; or (iv) for
charitable donations; provided that such Permitted Assignee shall be bound by and subject to all of the terms and conditions of
this Plan and the Award Agreement relating to the transferred Award and shall execute an agreement satisfactory to the Company
evidencing such obligations; and provided further that such Participant shall remain bound by the terms and conditions of this
Plan. The Company shall cooperate with any Permitted Assignee and the Company’s transfer agent in effectuating any transfer
permitted under this Section.
12.4.
Deferral; Dividend Equivalents
. The Committee shall be authorized to establish procedures pursuant to which the payment
of any Award may be deferred consistent with the requirements of Section 409A of the Code. Subject to the provisions of this Plan
and any Award Agreement, the recipient of an Award other than an Option or Stock Appreciation Right may, if so determined by the
Committee, be entitled to receive, currently or on a deferred basis, cash, stock or other property dividends, or cash payments
in amounts equivalent to cash, stock or other property dividends on Shares (“Dividend Equivalents”) with respect to
the number of Shares covered by the Award, as determined by the Committee, in its sole discretion. The Committee may provide that
such amounts and Dividend Equivalents (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested
and may provide that such amounts and Dividend Equivalents are subject to the same vesting or performance conditions as the underlying
Award. Notwithstanding the foregoing, Dividend Equivalents credited in connection with an Award that vests based on the achievement
of performance goals shall be subject to restrictions and risk of forfeiture to the same extent as the Award with respect to which
such Dividend Equivalents have been credited.
12.5.
Privileges of Stock Ownership.
No Participant will have any of the rights of a stockholder with respect to any Shares
until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder
and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or
other distributions made or paid with respect to such Shares;
provided,
that if such Shares are restricted stock, then
any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue
of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the
same restrictions as the restricted stock;
provided, further,
that the Participant will have no right to retain such stock
dividends or stock distributions with respect to Shares that are repurchased at the Participant’s original purchase price.
12.6.
Custody
. To enforce any restrictions on a Participant’s Award, the Committee may require the Participant to deposit
all Award Agreements or certificates representing Shares, together with stock powers or other instruments of transfer approved
by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until
such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to
be placed on the certificates.
13.
COMPLIANCE MATTERS
13.1.
Compliance with Section 409A of the Code
. This Plan is intended to comply and shall be administered in a manner that is
intended to comply with Section 409A of the Code and shall be construed and interpreted in accordance with such intent. To the
extent that an Award or the payment, settlement or deferral thereof is subject to Section 409A of the Code, the Award shall be
granted, paid, settled or deferred in a manner that will comply with Section 409A of the Code, including regulations or other
guidance issued with respect thereto, except as otherwise determined by the Committee. Any provision of this Plan that would cause
the grant of an Award or the payment, settlement or deferral thereof to fail to satisfy Section 409A of the Code shall be amended
to comply with Section 409A of the Code on a timely basis, which may be made on a retroactive basis, in accordance with regulations
and other guidance issued under Section 409A of the Code.
13.2.
Section 16(b) of the Exchange Act
. All elections and transactions under the Plan by persons subject to
Section 16 of the Exchange Act involving shares of Common Stock are intended to comply with any applicable exemptive condition
under Rule 16b-3. The Committee may, in its sole discretion, establish and adopt written administrative guidelines, designed
to facilitate compliance with Section 16(b) of the Exchange Act, as it may deem necessary or proper for the administration
and operation of the Plan and the transaction of business thereunder.
13.3.
Listing and Registration.
(a) Each Award shall be subject to the requirement that if at any time the Committee shall determine,
in its discretion, that the listing, registration, or qualification of such Award, or any Shares or other property subject thereto,
upon any securities exchange or under any foreign, federal or state securities or other law or regulation, or the consent or approval
of any governmental body or the taking of any other action to comply with or otherwise with respect to any such law or regulation,
is necessary or desirable as a condition to or in connection with the granting of such Award or the issue, delivery or purchase
of Shares or other property thereunder, no such Award may be exercised or paid in Shares or other property unless such listing,
registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not
acceptable to the Committee. The holder of the Award will supply the Company with such certificates, representations and information
as the Company shall request and shall otherwise cooperate with the Company in effecting or obtaining such listing, registration,
qualification, consent, approval or other action. In the case of persons subject to Section 16 of the Exchange Act, the Committee
may at any time impose any limitations upon the exercise, delivery or payment of any Award which, in the discretion of the Committee,
are necessary or desirable in order to comply with Section 16 and the rules and regulations thereunder. If the Company, as
part of an offering of securities or otherwise, finds it desirable or necessary because of foreign, federal or state legal or
regulatory requirements to suspend the period during which Options or Stock Appreciation Rights may be exercised, the Committee
may, in its discretion and without the holders’ consent, so suspend such period on not less than 15 days prior written notice
to the holders thereof.
(b)
At the option of the Committee, the obligation of the Company to issue Shares to a Participant upon the grant of any Award or
exercise of an Option or other Award, may be conditioned upon obtaining appropriate representations, warranties, restrictions
and agreements of the Participant. Among other representations, warranties, restrictions and agreements, the Participant may be
required to represent and agree that the purchase or receipt of Shares shall be for investment, and not with a view to the public
resale or distribution thereof, unless the Shares are registered under the Securities Act and the issuance and sale of the Shares
complies with all other laws, rules and regulations applicable thereto.
(c)
Unless the issuance of such Shares is registered under the Securities Act of 1933, as amended (the “Securities Act”)
(and any similar law of a foreign jurisdiction applicable to the Participant), the Participant shall acknowledge that the Shares
purchased are not registered under the Securities Act (or any such other law) and may not be sold or otherwise transferred unless
the Shares have been registered under the Securities Act (or any such other law) in connection with the sale or other transfer
thereof, or that counsel satisfactory to the Company has issued an opinion satisfactory to the Company that the sale or other
transfer of such Shares is exempt from registration under the Securities Act (or any such other law), and unless said sale or
transfer is in compliance with all other applicable laws, rules and regulations, including all applicable federal, state and foreign
securities laws, rules and regulations. All certificates for Shares delivered under this Plan pursuant to any Award shall be subject
to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed, and any applicable
federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions. Unless the Shares subject to an Award are registered under the Securities Act, the certificates
representing such Shares issued shall contain the following legend in substantially the following form:
THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THESE SHARES HAVE NOT BEEN ACQUIRED WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF, BY GIFT OR OTHERWISE, OR IN ANY WAY ENCUMBERED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES LAWS, OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH
ACT AND UNDER APPLICABLE STATE SECURITIES LAWS.
14.
MISCELLANEOUS
14.1.
Award Agreements
. Each Award Agreement shall either be: (a) in writing in a form approved by the Committee and executed
by the Company by an officer duly authorized to act on its behalf; or (b) an electronic notice in a form approved by the Committee
and recorded by the Company (or its designee) in an electronic recordkeeping system used for the purpose of tracking one or more
types of Awards as the Committee may provide; in each case and if required by the Committee, the Award Agreement shall be executed
or otherwise electronically accepted by the recipient of the Award in such form and manner as the Committee may require. The Committee
may authorize any officer of the Company to execute any or all Award Agreements on behalf of the Company. The Award Agreement
shall set forth the material terms and conditions of the Award as established by the Committee consistent with the provisions
of this Plan.
14.2.
Tax Withholding
. To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection
with any payment made or benefit realized by a Participant or other person under this Plan, and the amounts available to the Company
for such withholding are insufficient, including amounts from any other sums or property due or to become due from the Company
to the Participant, it will be a condition to the receipt of such payment or the realization of such benefit that the Participant
or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes required to be withheld,
which arrangements (in the discretion of the Board) may include relinquishment of a portion of such benefit. If a Participant’s
benefit is to be received in the form of Shares, and such Participant fails to make arrangements for the payment of tax, the Company
may withhold such Shares having a value equal to the amount required to be withheld. When a Participant who is subject to Section 16
of the Exchange Act is required to pay the Company an amount required to be withheld under applicable income and employment tax
laws, the Participant may elect to satisfy the obligation, in whole or in part, by electing to have withheld, from the shares
required to be delivered to the Participant, Shares having a value equal to the amount required to be withheld, or by delivering
to the Company other Shares held by such Participant. The Shares used for tax withholding will be valued at an amount equal to
the Fair Market Value per Share of such Shares on the date the benefit is to be included in Participant’s income. In no
event shall the Fair Market Value per Share of the Shares to be withheld and delivered pursuant to this Section to satisfy applicable
withholding taxes in connection with the benefit exceed the minimum amount of taxes required to be withheld. Participants shall
also make such arrangements as the Company may require for the payment of any withholding tax obligation that may arise in connection
with the disposition of Shares acquired upon the exercise of Options.
14.3.
No Right of Employment or Service and No Claims to Awards
. This Plan is purely voluntary on the part of the Company, and
the continuance of the Plan shall not be deemed to constitute a contract between the Company and any Participant, or to be consideration
for or a condition of the employment or service of any Participant. Nothing in this Plan nor the grant of an Award hereunder shall
confer upon any Employee, Director of Consultant the right to continue in the employment or service of the Company or any Subsidiary
or affect any right that the Company or any Subsidiary may have to terminate the employment or service of (or to demote or to
exclude from future Awards under this Plan) any such Employee, Director or Consultant at any time for any reason. No Participant
shall have any right to or interest in Awards authorized hereunder prior to the award thereof to such Participant, and upon such
Award the Participant shall have only such rights and interests as are expressly provided herein, subject, however, to all applicable
provisions of the Company’s Certificate of Incorporation, as the same may be amended from time to time. Except as specifically
provided by the Committee, the Company shall not be liable for the loss of existing or potential profit from an Award granted
in the event of termination of an employment or other relationship. No Employee or Participant shall have any claim to be granted
any Award under this Plan, and there is no obligation for uniformity of treatment of Employees or Participants under this Plan.
In the case of any Employee on an approved leave of absence, the Committee may make such provisions with respect to continuance
of Awards previously granted while on leave from the employ of the Company or a Subsidiary as it may deem equitable.
14.4.
Substitute Awards
. Notwithstanding any other provision of this Plan, the terms of Substitute Awards may vary from the terms
set forth in this Plan to the extent the Committee deems appropriate to conform, in whole or in part, to the provisions of the
awards in substitution for which they are granted.
14.5.
Nature of Payments
. All Awards made pursuant to this Plan are in consideration of services performed or to be performed
for the Company or any Subsidiary, division or business unit of the Company. Any income or gain realized pursuant to Awards under
this Plan constitute a special incentive payment to the Participant and shall not be taken into account, to the extent permissible
under applicable law, as compensation for purposes of any of the employee benefit plans of the Company or any Subsidiary except
as may be determined by the Committee or by the Board or board of directors of the applicable Subsidiary.
14.6.
Other Plans
. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements,
subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable
only in specific cases.
14.7.
Severability
. If any provision of this Plan shall be held unlawful or otherwise invalid or unenforceable in whole or in
part by a court of competent jurisdiction, such provision shall: (a) be deemed limited to the extent that such court of competent
jurisdiction deems it lawful, valid and/or enforceable and as so limited shall remain in full force and effect; and (b) not affect
any other provision of this Plan or part thereof, each of which shall remain in full force and effect. If the making of any payment
or the provision of any other benefit required under this Plan shall be held unlawful or otherwise invalid or unenforceable by
a court of competent jurisdiction, such unlawfulness, invalidity or unenforceability shall not prevent any other payment or benefit
from being made or provided under this Plan, and if the making of any payment in full or the provision of any other benefit required
under this Plan in full would be unlawful or otherwise invalid or unenforceable, then such unlawfulness, invalidity or unenforceability
shall not prevent such payment or benefit from being made or provided in part, to the extent that it would not be unlawful, invalid
or unenforceable, and the maximum payment or benefit that would not be unlawful, invalid or unenforceable shall be made or provided
under this Plan.
14.8.
Construction
. As used in this Plan, the words “include” and “including” and variations thereof,
shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”
14.9.
Unfunded Status of this Plan
. This Plan is intended to constitute an “unfunded” plan for incentive compensation.
With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant
any rights that are greater than those of a general creditor of the Company.
14.10.
Governing Law
. This Plan and all determinations made and actions taken thereunder, to the extent not otherwise governed
by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware, without reference to principles
of conflict of laws, and construed accordingly.
14.11.
Foreign Employees
. Awards may be granted to Participants who are foreign nationals or employed outside the United States,
or both, on such terms and conditions different from those applicable to Awards to Employees employed in the United States as
may, in the judgment of the Committee, be necessary or desirable in order to recognize differences in local law or tax policy.
The Committee also may impose conditions on the exercise or vesting of Awards in order to minimize the Company’s obligation
with respect to tax equalization for Employees on assignments outside their home country.
14.12.
No Registration Rights; No Right to Settle in Cash
. The Company has no obligation to register with any governmental body
or organization (including, without limitation, the U.S. Securities and Exchange Commission “SEC”)) any of: (a) the
offer or issuance of any Award; (b) any Shares issuable upon the exercise of any Award; or (c) the sale of any Shares issued upon
exercise of any Award, regardless of whether the Company in fact undertakes to register any of the foregoing. In particular, in
the event that any of (x) any offer or issuance of any Award, (y) any Shares issuable upon exercise of any Award, or (z) the sale
of any Shares issued upon exercise of any Award are not registered with any governmental body or organization (including, without
limitation, the SEC), the Company will not under any circumstance be required to settle its obligations, if any, under this Plan
in cash.
14.13.
Captions
. The captions in this Plan are for convenience of reference only, and are not intended to narrow, limit or affect
the substance or interpretation of the provisions contained herein.
[SIGNATURE
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14.14.
Notices
. Any notice to be given to the Company pursuant to the provisions of this Plan shall be addressed to the Company
in care of its Secretary (or such other person as the Company may designate from time to time) at its principal executive office,
and any notice to be given to a Participant shall be delivered personally or addressed to him or her at the address given beneath
his or her signature on his or her Award Agreement, or at such other address as such Participant or his or her permitted transferee
(upon the permitted transfer) may hereafter designate in writing to the Company. Any such notice shall be deemed duly given on
the date and at the time delivered via hand delivery, courier or recognized overnight delivery service or, if sent via telecopier,
on the date and at the time telecopied with confirmation of delivery or, if mailed, on the date five (5) days after the date
of the mailing (which shall be by regular, registered or certified mail). Delivery of a notice by telecopy (with confirmation)
shall be permitted and shall be considered delivery of a notice notwithstanding that it is not an original that is received. It
shall be the obligation of each Participant and each permitted transferee to provide the Secretary of the Company, by letter mailed
as provided herein, with written notice of his or her direct mailing address.
Duly
Adopted by the Board of Directors as of ______________, 2018.
Duly
Adopted by Shareholders as of ______________, 2018.
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HF FOOD GROUP INC.
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By:
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Name:
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Title: Chairman
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By:
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Name:
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Title: Secretary
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