Item 1.01 Entry into a Material Definitive Agreement.
Private Placement
As previously disclosed on a Current Report on Form 8-K of CTI Industries
Corporation (the "Company"), on January 3, 2020, the Company entered into a
stock purchase agreement (the "Purchase Agreement"), pursuant to which the
Company agreed to issue and sell, and LF International Pte. Ltd., a Singapore
private limited company (the "Investor"), agreed to purchase, up to 500,000
shares of the Company's newly created Series A Convertible Preferred Stock, no
par value per share ("Series A Preferred"), with each share of Series A
Preferred initially convertible into ten shares of the Company's common stock,
at a purchase price of $10.00 per share, for aggregate gross proceeds of
$5,000,000 (the "Offering"). On January 13, 2020, the Company conducted its
first closing of the Offering, resulting in aggregate gross proceeds of
$2,500,000. The source of funds was working capital of the Investor. The Company
paid the placement agent for the Offering a fee equal to ten percent (10%) of
the gross proceeds from the first closing and warrants to purchase shares of the
Company's common stock in an amount equal to ten percent (10%) of the common
stock issuable upon conversion of the Series A Preferred sold in the first
closing at an exercise price of $1.00 per share. Upon the contemplated second
closing of the Offering, which is subject to certain closing conditions, the
placement agent shall receive compensation on the same economic terms as the
first closing.
In connection with the foregoing, the Company relied upon the exemption from
registration provided by Section 4(a)(2) of the Securities Act of 1933, as
amended, for transactions not involving a public offering.
Forbearance Agreement
On December 14, 2017, the Company entered into a Revolving Credit, Term Loan and
Security Agreement (the "Loan Agreement") with PNC Bank, National Association
("Lender"). Currently, multiple events of default under the Loan Agreement have
occurred (the "Existing Defaults").
On January 13, 2020, a Limited Waiver, Consent, Amendment No. 5 and Forbearance
Agreement (the "Forbearance Agreement") between Lender and the Company became
effective, pursuant to which Lender agreed to (i) waive the Loan Agreement's
requirement that the Company apply the net proceeds of the Offering first to the
Term Loans (as defined in the Loan Agreement), and agreed that the Company shall
instead apply the net proceeds of the Offering to the Revolving Advances (as
defined in the Loan Agreement) and in connection therewith the Revolving
Commitment Amount (as defined in the Loan Agreement) shall be reduced on a
dollar for dollar basis by the amount so applied to the Revolving Advances, and
(ii) forebear from exercising the rights and remedies in respect of the Existing
Defaults afforded to Lender under the Loan Agreement for a period ending no
later than December 31, 2020.
This description of the Forbearance Agreement is only a summary and is qualified
in its entirety by reference to the full text of the form of the Forbearance
Agreement attached as Exhibit 10.1 hereto.
Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or
Standard; Transfer of Listing.
As previously disclosed on a Current Report on Form 8-K of the Company, on
November 21, 2019, the Company received a notice of failure to satisfy a
continued listing standard from Nasdaq under Listing Rule 5550(b)(1) which
requires a minimum stockholders' equity of $2,500,000. On January 2, 2020, the
Company submitted to Nasdaq its plan to regain compliance under Listing Rule
5550(b)(1). On January 13, 2020, the Company received notice from Nasdaq that it
had granted the Company an extension until March 31, 2020 to regain compliance
under Listing Rule 5550(b)(1) (the "Extension Notice"). The Company believes
that, as a result of the first closing of the Offering, on January 13, 2020 it
regained compliance under Listing Rule 5550(b)(1). Nasdaq will continue to
monitor the Company's ongoing compliance with the stockholders' equity
requirement and, if at the time of its next periodic report the Company does not
evidence compliance, it may be subject to delisting.
This description of the Extension Notice is only a summary and is qualified in
its entirety by reference to the full text of the form of the Extension Notice
attached as Exhibit 99.1 hereto.
Item 5.01 Changes in Control of Registrant.
The information set forth in Item 1.01 is incorporated by reference herein.
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As a result of the first closing of the Offering, the Investor, which is
beneficially owned by Mr. Yubao Li, a newly appointed director of the Company
(see Item 5.02 below), acquired the right to vote approximately 39% of the
voting control of the Company. Each share of Series A Preferred is also
convertible into ten (10) shares of the Company's common stock, subject to
adjustment. The Series A Preferred includes a limitation on beneficial
ownership, whereby the Investor may not convert any shares of Series A Preferred
to the extent that after giving effect to such conversion, the Investor
(together with its affiliates) would have acquired, through conversion of shares
of the Series A Preferred, beneficial ownership of a number of shares of the
Company's common stock that exceeds 4.99% ("Maximum Percentage") of the number
of shares of the Company's common stock outstanding immediately after giving
effect to such conversion. The Maximum Percentage may be waived, in whole or in
party, upon 61 days' prior notice from Investor to the Company. In addition,
until the Company obtains shareholder approval for the issuance of the common
stock underlying the Series A Preferred, as may be required by the applicable
rules and regulations of the Nasdaq Stock Market, the Company may not issue,
upon conversion of the Series A Preferred, a number of shares of common stock
which, when aggregated with any shares of common stock previously issued upon
conversion of the Series A Preferred, would equal 20% or more of the common
stock of 20% or more of the voting power of the Company.
Upon the contemplated second closing of the Offering, which is subject to
certain closing conditions as set forth in the Purchase Agreement, the Investor
would acquire an additional 250,000 shares of Series A Preferred and would then
hold, in the aggregate, approximately 57% of the voting control of the Company,
resulting in a change of control of the Company.
Currently, the Company is controlled by management and certain directors of the
Company.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Effective January 13, 2020, Mr. John Collins resigned from his position as a
director of the Company. Mr. Collins' resignation was not the result of any
disagreement with the Company relating to the Company's operations, policies, or
practices.
Effective January 13, 2020, the Board of Directors of the Company appointed Mr.
Yubao Li as a director of the Company. Mr. Li has been serving as the Chairman
of Yunhong International since its inception in January 2019 and served as its
Chief Executive Officer from January 2019 to September 2019. Mr. Li has been
serving as the president of Hubei Academy of Science and Technology since July
2018, one of the key multi-disciplinary universities in the province of Hubei.
Since June 2018, Mr. Li has been serving as the Director of Photoproteins
Research Centre at China's Academy of Management Science, a research institute
situated in Beijing where he supports innovation by defining the research focus
of the group. Mr. Li also serves as a director and/or officer of several other
entities, including as the Executive Director and General Manager of Hubei
Teruiga Energy Co., Ltd, a new energy technology company, since November 2017,
the Executive Director of Hubei Yuntong Energy Co., Ltd., a solar power and
agriculture company, since April 2016, the Executive Director and General
Manager of Hubei Yun Hong photovoltaic Co., Ltd., a solar power and agriculture
company, since May 2016, the President of Hubei Yunhong Deren Tourism Co., Ltd.,
a tourism project developer, since May 2016 and the President of Yunhong Group
Holdings Co., Ltd., a company engaged in the business of solar power
construction and solar photovoltaic power generation, since 2013. In addition,
in 2013, Mr. Li founded China Hubei Yunhong Energy Group Co., Ltd., a Chinese
nutrition company operating in China and abroad, and he currently serves as the
Chairman of its board of directors. Mr. Li received his EMBA in Investment,
Financing and Capital Strategy from Peking University. Due to his extensive
investment and management experiences, we believe Mr. Li is well qualified to
serve as a director.
Mr. Li was appointed pursuant to the Purchase Agreement, whereby the Investor,
which is controlled by Mr. Li, received the right to appoint one member to the
Company's board of directors, subject to adjustment. There are no family
relationships between Mr. Li and any director or executive officer of the
Company.
Item 9.01 Financial Statements And Exhibits.
(d) Exhibits
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The exhibits listed below are furnished as Exhibits to this Current Report on
Form 8-K.
Exhibit No. Description
10.1 Limited Waiver, Consent, Amendment No. 5 and Forbearance Agreement
99.1 Extension Notice, dated January 13, 2020
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