EXHIBIT 10.3
STOCK REDEMPTION AGREEMENT
THIS AGREEMENT is entered into this 1st day of March, 1996, by and
between ▇▇▇▇ ▇. ▇▇▇▇▇, an individual residing at ______________________
("Seller") and CTI Industries Corporation, a Delaware corporation, having its
principal place of business at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
(the "Company).
WHEREAS, Seller (as Trustee under the ▇▇▇▇ ▇. ▇▇▇▇▇ Trust) is the owner
of 1,348,797 shares of the common stock of the Company (such shares hereinafter
referred to as the "Shares");
WHEREAS, Seller desires to sell and Company desires to purchase and
redeem certain of the Shares on the terms and conditions provided herein; and
WHEREAS, Seller desires to grant to the Company a series of options to
purchase and redeem the remaining Shares on the terms and conditions provided
herein;
WHEREAS, the Company desires to grant to Seller a series of options to
sell to the Company certain of the Shares on the terms and conditions provided
herein; and
WHEREAS, the Company and Seller are parties to an Employment Agreement
of even date (the "Employment Agreement").
NOW, THEREFORE, in consideration of the premises and of the terms,
covenants and conditions hereinafter contained, the parties hereto agree as
follows:
1. Sale and Purchase of Shares. Subject to and on the terms and
conditions hereof, in reliance on the representations and warranties herein and
for the consideration herein, Seller agrees to sell to the Company, and the
Company agrees to purchase and redeem from Seller, 266,667 Shares at the price
of Seventy-Five Cents ($.75) as follows:
1.1 On the 10th day of each month commencing March 10, 1996,
and continuing through February 10, 1998, the Company shall pay to
Seller for the redemption of Shares the amount of $8,333.33. Payments
shall be made by Company check mailed to Seller on or before the dates
due at the address of Seller provided herein.
1.2 Upon making each payment provided for in paragraph 1.1
above, the Company shall be deemed to have purchased that number of
Shares arrived at by dividing the payment amount by the Purchase Price,
as defined in paragraph 4.1, at the time of the payment.
1.3 After the Company shall have purchased a total of 266,667
Shares pursuant to the terms of this paragraph 1 and paragraph 2, it
shall have no further obligations to make payments under this paragraph
1.
1
2. Company's Option. Subject to and on the terms and conditions hereof,
Seller hereby grants to the Company the option to purchase up to 866,666 Shares
(less that number of Shares purchased pursuant to paragraph 1) for a period
commencing on the date of this Agreement and terminating January 31, 1998 as
follows:
2.1 The exercise price of the option shall be the Purchase
Price, as defined in paragraph 4.1, at the time of the exercise of the
option.
2.2 The Company shall exercise the option by giving written
notice of the exercise to Seller, specifying the number of Shares being
redeemed, together with a check in the amount of the exercise price.
The option may be exercised in whole or part until termination but can
be exercised no more often than once a month during its term.
2.3 After the Company shall have purchased a total of 866,666
Shares pursuant to the terms of paragraph 1 and paragraph 2, it shall
have no further option to purchase Shares under this paragraph 2.
3. Seller's Option. Subject to the terms and conditions hereof, the
Company hereby grants Seller the option to sell to the Company up to 866,666
Shares (less Shares purchased by the Company pursuant to paragraphs 1 and 2) for
a period commencing on February 1, 1998 and terminating January 31, 2001, as
follows:
3.1 Seller shall exercise its option to have the Company
purchase Shares during any fiscal quarter (commencing November 1,
February 1, May 1, and August 1) during the option period by providing
written notice of such exercise to the Company within ten (10) days of
the end of such fiscal quarter.
3.2 The Company shall make payments to Seller for the
redemption of Shares within thirty (30) days of the end of each
calendar quarter for which the option has been exercised. Such payments
shall be equal to one-half of the Company's Net Profit After Taxes for
that quarter (as defined in paragraph 4.3) to the extent that Net
Profits After Taxes exceeds $250,000 for such quarter. For example, if
Net Profits After Taxes is $300,000 for a fiscal quarter for which the
option has been exercised, the payment would equal $25,000 (.5 x
($300,000-$250,000)). Notwithstanding the above, the maximum payments
the Company shall be obligated to make for redemption of Shares under
this paragraph in any fiscal year shall be $150,000. In the event the
Company shall pay to Seller under this paragraph an amount in excess of
this amount, the Company may apply such excess to amounts it would be
obligated to pay in future quarters for which the option has been
exercised.
3.3 The Company shall be deemed to have redeemed that number
of Shares arrived at by dividing the amount of each payment by the
Purchase Price, as defined in paragraph 4.1, at the time of the
payment.
3.4 After the Company shall have redeemed pursuant to the
terms of paragraph 1, paragraph 2 and paragraph 3, a total of 866,666
Shares, the Company shall have no further obligations to purchase
Shares under this paragraph 3.
2
4. Certain Definitions.
4.1 "Purchase Price" shall mean for any Shares purchased and
redeemed by the Company from the date of this Agreement to October 31,
1977, the sum of $.75 per share and shall mean for all periods after
November 1, 1977, an amount equal to the greater of (i) $.75 per share
or (ii) 140% of the Book Value Per Share determined on a fiscal
quarterly basis.
4.2 "Book Value Per Share" shall mean the Company's
stockholder's equity as indicated on the Company's financial statements
at the end of any fiscal quarter divided by the Company's then
outstanding shares on a fully diluted basis. The determination of Book
Value Per Share as calculated by the Company's internal accountants
shall be final and binding on the parties for purposes of this
paragraph. The Book Value Per Share as of the end of any fiscal quarter
shall be used in calculating the Purchase Price for redemptions made
during the following fiscal quarter.
4.3 "Net Profits After Taxes" shall mean the Company's Net
Income as indicated on the Company's financial statements, after
accruing for taxes and extraordinary items. The determination of Net
Profit After Taxes as calculated by the Company's internal accountants
shall be final and binding on the parties for purposes of this
paragraph.
5. Delivery of Certificates. Upon payment of any amounts to Seller by
the Company for the purchase and redemption of Shares, pursuant to paragraphs 1,
2 or 3, Seller shall deliver certificates to the Company representing the Shares
so purchased and such Shares shall be cancelled and shall become authorized but
unissued shares of the common stock of the Company. In the event Seller delivers
certificates for a number of Shares in excess of the Shares to be redeemed, the
Company shall return to Seller a certificate representing the balance of the
Shares.
6. Restrictions on Repurchase. In the event that, at any time, the
purchase and redemption of any of the Shares is prohibited by, or would violate,
any applicable law or regulation, or any contract or instrument to which the
Company is a party or by which it is obund, the obligation of the Company to
purchase and redeem Shares hereunder, and to make payment therefor, shall be
postponed and such purchase and payment shall not be made at such time but, at
such time as such purchase, redemption and payment may be made, the Company, and
▇▇▇▇▇, shall be obligated to consummate such purchase and redemption and the
Company shall make all payemnts therefor to ▇▇▇▇▇. With respect to any periodic
payments provided for herein which are postponed by reason of this paragraph,
such payments shall commence on the same periodic basis at such time as the
purchase, redemption and payments are premitted to be made in accordance with
the provisions hereof.
The parties acknowledge that Certificates for all of the Shares are
presently held by Bnak of America as security for the obligations of ▇▇▇▇▇ to
such Bank and that (i) this Agreement is subject to the rights of such Bank and
(ii) no purchase or redemption of the Shares may be made unless nad until the
Shares are released by the Bank.
3
7. Term and Termination.
7.1 This Agreement shall be for a term commencing on the date
hereof, and expiring February 1, 2001, subject to any obligations of
the parties to pay for or deliver Shares hereunder.
7.2 The Company shall be entitled to terminate this Agreement
prior to the expiration of its term by written notice to Seller upon
the occurrence of an Event of Default with respect to Seller. For
purposes of this Agreement, an Event of Default with respect to Seller
shall mean and include any violation by Seller of any of his
obligations herein and (if such violation can be cured) the failure by
Seller to cure such violation within 15 days after written notice
thereof, specifying the violation, shall have been given to Seller by
the Company, or the occurrence of any uncured event of default under
the Employment Agreement.
7.3 Seller shall be entitled to terminate this Agreement prior
to the expiration of its term by written notice to the Company upon the
occurrence of an Event of Default with respect to the Company. An Event
of Default with respect to the Company shall mean and include any
violation by the Company of any of its obligations herein and the
failure by the Company to cure such violation within 15 days after
written notice thereof shall have been given to the Company by Seller.
The nonpayment by the Company of the disputed portion of any amount
claimed to be due Seller hereunder shall not constitute an Event of
Default, if the Company shall contest the obligation of the Company to
make such payment in good faith, until 10 days after a final award of
an arbitrator shall have been entered determining that such amount is
due and such amount then remains unpaid.
7.4 In the event of termination of this Agreement by the
Company pursuant to paragraph 7.2 hereof:
7.4.1 Seller shall be entitled to receive (subject to
any rights of setoff or counterclaim by the Company) all
amounts due for Shares purchased prior to the date of such
termination. Except as provided in the foregoing sentence, all
obligations of the Company hereunder, shall terminate and be
of no further force or effect on the date of termination of
the Agreement by the Company pursuant to paragraph 7.2;
7.4.2 All rights of the Company which shall have
accrued hereunder prior to the date of such termination, and
all provisions of this Agreement provided herein to survive
expiration or termination of this Agreement, shall survive
such termination;
7.4.3 The Company's option to purchase Shares under
paragraph 2 shall survive such termination; and
7.4.4 Seller shall deliver to the Company
certificates for all Shares purchased by the Company pursuant
to paragraphs 1, 2 or 3 hereof to the date of such
termination.
7.5 In the event of termination of this Agreement by Seller in
accordance with paragraph 7.3 hereof:
4
7.5.1 Seller shall be entitled to receive all amounts
due for Shares purchased prior to the date of termination and
the obligation and rights of the Seller to sell further Shares
shall cease and terminate as of the date of such termination;
and
7.5.2 All rights of Seller which shall have accrued
hereunder prior to the date of such termination shall survive
such termination.
7.6 This Agreement shall not terminate upon the death or
incapacity of Seller, but shall be binding on Seller's representatives.
8. Representations, Warranties and Acknowledgments of Seller. Seller
represents and warrants to the Company that the following are true and correct
as of the date hereof, and acknowledges, as follows:
8.1 Seller is the sole owner of, and has good and marketable
title to, the Shares free and clear of any and all contracts, options,
commitments, agreements, liens, claims or encumbrances whether or not
of record, subject only to the pledge of the Shares to Bank of America
as described herein.
8.2 Seller has the full right, power and authority to sell and
transfer the Shares in accordance with the terms hereof subject only to
the pledge of the Shares to Bank of America as provided herein.
8.3 Seller acknowledges that he was a founder of the Company
and is an officer of the Company and is fully aware of the financial
condition of the Company and the status of the Company's past, current
and prospective operations.
8.5 Seller acknowledges that (i) there is not now, and has
never been, an active trading market for the common stock of the
Company, (ii) there is no established market price or value for the
common stock of the Company, (iii) neither the Company nor any other
person associated with the Company has made any representation or
statement to Seller concerning the condition of the Company, financial
or otherwise, or the value of the common stock of the Company, (iv)
Seller is not relying on any information in connection with this
transaction other than his personal knowledge of the Company and deems
such information to be sufficient for Seller's purposes in this
transaction, (v) Seller has determined that the price and terms for the
purchase of the Shares hereunder are fair and appropriate and (vi) in
the event that a trading market does develop for common stock of the
Company the market price for such shares may exceed the price per share
for the Shares being purchased hereunder.
9. Further Assurances. Seller and the Company shall take such other and
further actions, execute such other and further documents as shall be reasonably
necessary or appropriate to effect and consummate the sale contemplated herein.
10. Voting of Shares. For so long as the Shares have not been redeemed
by the Company pursuant to the terms of this Agreement, Seller shall vote such
Shares for and in his name place and ▇▇▇▇▇. After the Company has made payment
for any Shares pursuant to the terms of this Agreement, such Shares shall be
deemed to be redeemed and become treasury shares of the Company not subject to
be voted.
5
11. Arbitration.
11.1 Any and all claims or controversies under, with respect
to, or relating to this Agreement shall be settled and adjudicated by
arbitration under the rules of the American Arbitration Association.
The parties hereto shall be bound by the decision or award of the
arbitrator(s) with respect to any such claim or controversy and the
prevailing party shall be entitled to obtain a judgment on any such
decision or award in any court of competent jurisdiction.
11.2 In any arbitration hereunder: (i) the parties shall have
the full right of discovery prior to hearing with respect to any party,
or any entity with respect to which a party is a shareholder, owner,
officer, employee, consultant or agent, to the full extent and on the
same terms as provided in the Federal Rules of Civil Procedure; and
(ii) the hearing shall be held within 90 days after the date of the
notice of arbitration and the decision of the arbitration shall be
issued within 30 days after the date of the hearing.
11.3 Notwithstanding any other provisions of this Agreement,
if either party shall give notice of violation of this Agreement to the
other party pursuant to paragraph 7 hereof and the other party shall,
by notice to such party given within 15 days after the effective date
of such notice of violation, contest the occurrence of a violation:
11.3.1 The matter shall be submitted to arbitration
in accordance with this paragraph 11;
11.3.2 The party giving the notice of violation shall
not be entitled to terminate this Agreement until a final
decision of an arbitrator has been issued finding that a
violation as claimed did occur;
11.3.3 Pending the decision of the arbitrator, the
parties shall be bound to continue to perform the Agreement in
accordance with its terms;
11.3.4 In the event that either party shall have
given notice of the violation of this Agreement and the
arbitrator shall determine that a violation by the other party
did occur and was not cured, the non-breaching party shall
have the option to (i) enforce the provisions of this
Agreement against the breaching party in accordance with the
decision of the arbitrator or (ii) elect to terminate this
Agreement effective fifteen days after the date of the notice
of the violation, in which case the parties shall transfer
such Shares and make such payments to the other to place the
parties in the position they would have been in if this
Agreement had been terminated on such date.
12. Notices. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered or personally
mailed, certified mail, return receipt requested, postage pre-paid, to the
parties as follows:
6
If to Seller, to: ▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
------------------------
------------------------
If to Company, to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
CTI Industries Corporation
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Any notice mailed in accordance with the terms hereof shall be deemed received
on the third day following date of mailing.
13. Entire Agreement. This Agreement constitutes together with the
Consulting Agreement the entire agreement among the parties hereto with respect
to the subject matter hereof and supersedes all prior written or oral
warranties, representations, inducements, understandings, commitments,
agreements or contracts. This Agreement may not be modified except by a writing
signed by all of the parties.
14. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective, heirs, personal
representatives, successors and assigns.
15. Governing Law. This Agreement shall be governed by and construed
and enforced in all respects in accordance with the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
CTI INDUSTRIES CORPORATION
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
SELLER:
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
---------------
▇▇▇▇ ▇. ▇▇▇▇▇
7
